THOMPSON v. COMMISSIONER

T.C. Summary Opinion 2003-75

UNITED STATES TAX COURT

JIMMY L. AND NITA N. THOMPSON, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 1365-02S. Filed June 12, 2003.

Jimmy L. and Nita N. Thompson, pro sese.

Horace Crump, for respondent.

BEGHE, Judge: This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

when the petition was filed. Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year in issue. The decision to be entered is not

reviewable by any other court, and this opinion should not be

cited as authority.
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Respondent determined petitioners had a $3,123.50 Federal

income tax deficiency for 1998, attributable primarily to the

alternative minimum tax (AMT) under section 55(a). Following

petitioners’ concession of the non-AMT issues, the issues for

decision are whether petitioners are liable for the AMT for 1998

and whether petitioners are relieved of that liability by a “no

change” letter they received from respondent.

Issue l. Alternative Minimum Tax

Petitioners timely filed their 1998 Federal joint income tax

return and reported adjusted gross income of $82,234. On

Schedule A, Itemized Deductions, petitioners claimed total

itemized deductions of $28,839. The bulk of these deductions--

$24,505--was attributable to miscellaneous itemized deductions--

$21,055 (unreimbursed expenses incurred and paid by petitioner

wife in earning employee wage income as an “educational

consultant”)--and deductions for State and local taxes-–$3,450.

Subtracting the total itemized deductions, petitioners’ reported

tax table income was $53,395. After further deduction for

personal exemptions of $16,200, petitioners’ taxable income for

the 1998 taxable year was $37,195. On that amount of taxable

income, petitioners reported regular income tax liability (before

credits) of $5,576 (after credits $2,576). Petitioners did not
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file Form 6251, Alternative Minimum Tax--Individuals, or

otherwise report any AMT liability on their 1998 income tax

return.

In addition to the tax calculated under the normal rates, it

is sometimes necessary for a taxpayer to pay the AMT; petitioners

overlooked that their taxable year 1998 is one of those times.

Section 55(a) imposes the AMT on noncorporate taxpayers

equal to the excess of the “tentative minimum tax” over the

“regular tax” for the taxable year. The term “regular tax” means

the “regular tax liability for the taxable year (as defined in

section 26(b))”. Sec. 55(c)(1). Section 55(b)(1)(A)(i) provides

that the tentative minimum tax is 26 percent of so much of the

alternative minimum taxable income (AMTI) that does not exceed

$175,000 as exceeds the exemption amount of $45,000.

Section 55(b)(2)(A) and (B) defines AMTI as the taxable income of

the taxpayer for the taxable year--determined with the

adjustments provided for in sections 56 and 58, and increased by

the items of tax preference described in section 57. Section

56(b)(1)(A)(i) and (ii) and (E) provide that in determining a

taxpayer’s AMTI, no deductions shall be allowed for miscellaneous

itemized deductions (as defined in section 67(b)), State and

local taxes under section 164(a), and personal exemptions under

section 151. The effect of the AMT provisions is that those

deductions, which were allowed in computing petitioners’ taxable
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income for the purpose of their regular tax liability, must be

added back for the purpose of computing AMTI and their AMT

liability.

Respondent examined petitioners’ 1998 income tax return and

made some minor adjustments. These adjustments reduced total

itemized deductions from $28,839 to $27,505, and increased

petitioner’s income tax liability shown on their return from

$5,576 (after credits, $2,576) to $5,779 (after corrected

credits, $3,480.50). But respondent didn’t stop there.

Respondent then determined that petitioners were subject to the

AMT because itemized deductions and State and local taxes--

$24,505–-and personal exemptions-–$16,200-–must be added back to

determine AMTI.

The deficiency notice computed petitioners’ AMT as follows:

Starting with the corrected taxable income, $38,529, and adding

to that the deductions claimed for (1) miscellaneous itemized

deductions ($21,055), (2) State and local taxes ($3,450), and (3)

personal exemptions ($16,200), petitioners’ AMTI was determined

to be $79,234. Sec. 56(b)(1)(A), (E). Because petitioners’ AMTI

of $79,234 exceeded by $34,234 the $45,000 exemption amount

allowed by section 55(d)(1)(A)(i), petitioners’ tentative minimum

tax was computed as 26 percent of the excess, or $8,901. Sec.
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55(b)(1)(A). The amount of the corrected regular tax being

$5,779, respondent determined, pursuant to section 55(a), that

petitioners are liable for AMT of $3,122.

Petitioners argue that the AMT is unfair because it subjects

them to double taxation. The Court would observe that

application of the AMT to petitioners’ 1998 income does not

subject them to double taxation; what the AMT does is defeat

petitioners’ reasonable expectations by depriving them of most of

the tax reduction their allowable personal exemptions,

miscellaneous itemized deductions, and State and local taxes

would otherwise entitle them to. Although the AMT was originally

enacted by Congress “to remedy taxpayer distrust of the system

growing from large numbers of taxpayers with large incomes who

were paying no taxes”, Okin v. Commissioner, 808 F.2d 1338, 1342

(9th Cir. 1987), affg. T.C. Memo. 1985-199, petitioners are part

of the growing number of middle-income people already paying

income tax whose liability therefor is being increased by the

AMT. See, e.g., Editorial, “Fix a Real Tax Problem”, Wash. Post,

May 28, 2003, at A18; Herman, Tax Report, “An Ignored Time Bomb:

Alternative Minimum Tax”, Wall St. J., May 15, 2003, at D2.

However, it remains well established that the AMT’s dilution of

otherwise available tax benefits does not invalidate the AMT.1

1
Cf. Job 1:21 (King James) (“the Lord gave, and the Lord
hath taken away; blessed be the name of the Lord”).
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See, e.g., Okin v. Commissioner, supra, (income averaging);

Huntsberry v. Commissioner, 83 T.C. 742, 749-751 (1984) (jobs tax

credit); Freeman v. Commissioner, T.C. Memo. 2001-254

(miscellaneous itemized deductions), affd. 56 Fed. Appx. 842 (9th

Cir. 2003); Keese v. Commissioner, T.C. Memo. 1995-416 (foreign

tax credit); Bettner v. Commissioner, T.C. Memo. 1991-453 (long-

term capital gain deduction).

As the Court said in Freeman v. Commissioner, supra, “even

if we agreed with petitioners that the application of the

alternative minimum tax produces an inequitable result in this

case, it is not for us to change that result. It is well

established that such an equitable argument cannot overcome the

plain meaning of the statute.”

Issue 2. “No Change” Letter

Petitioners raised another issue after their petition was

filed. Petitioners claim they received a “no change” letter

dated July 1, 2002, stating that they did not owe additional tax

for the year at issue. Respondent’s position is that the letter

was sent to petitioners to notify them that a premature

assessment had been abated.2

Petitioners were required by section 6213(a) to file their

2
Respondent’s “no change” letter of July 1, 2002, to
petitioner wife was followed by respondent’s letter of Dec. 9,
2002, to petitioner husband, which more clearly explained that
the premature assessment had been abated.
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petition by November 26, 2001. The petition was postmarked

October 26, 2001, but was filed with the Tax Court on January 16,

2002. Since the petition was not filed with the Tax Court until

well after November 26, 2001, it appeared that petitioners had

defaulted in failing to file a petition to the Court in response

to the notice of deficiency and respondent assessed the

deficiency. Once notified by the Court that petitioners had

filed a timely petition, respondent notified petitioners that the

assessment was abated. All this happened during the time that

mail sent to the Court in Washington, D.C. was delayed because of

measures to counteract the anthrax mail threat. The delay caused

by the anthrax mail threat accounts for the lapse in time between

the mailing of the petition and the filing of the petition with

the Tax Court.

In any event, it is well established that a “no change”

letter, which is not a closing agreement, does not prevent the

Government from reexamining the taxpayer’s return and determining

a deficiency. See Miller v. Commissioner, T.C. Memo. 2001-55.

The same result also must obtain in the case at hand, in which

the purported “no change” letter was issued after respondent had

issued the statutory notice.

In order to give effect to our conclusions herein,

Decision will be entered

for respondent.