T.C. Summary Opinion 2004-151
UNITED STATES TAX COURT
DANIEL S. AND CHRISTI L. SMITH, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8617-04S. Filed November 3, 2004.
Daniel S. and Christi L. Smith, pro sese.
Aimee R. Lobo-Berg, for respondent.
CARLUZZO, Special Trial Judge: This case was heard pursuant
to the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. Unless otherwise
indicated, subsequent section references are to the Internal
Revenue Code in effect for 2002. Rule references are to the Tax
Court Rules of Practice and Procedure. The decision to be
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entered is not reviewable by any other court, and this opinion
should not be cited as authority.
Respondent determined a deficiency of $8,950 in petitioners’
2002 Federal income tax. The deficiency results entirely from
the imposition of the section 55 alternative minimum tax (AMT).
The issue for decision is whether in the computation of their
AMT liability petitioners are entitled to take into account a
negative tax preference item.
Background
All of the facts in this case submitted under Rule 122 have
been stipulated and are so found. At the time the petition was
filed, petitioners resided in Pocatello, Idaho.
Daniel Smith was employed as a medical sales representative,
and Christi Smith was not employed during 2002.
Petitioners filed a timely 2002 joint Federal income tax
return. On that return they reported adjusted gross income of
$220,739 (amounts are rounded to the nearest dollar) that
consists, in part, of wage income of $216,419 and refunds of
State and local taxes of $1,544.
Petitioners’ return includes a Schedule A, Itemized
Deductions, on which petitioners claimed itemized deductions as
follows:
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State and local taxes paid $14,789
Real estate taxes paid 1,425
Interest paid 10,972
Charitable contributions 5,120
Job expenses and other miscellaneous deductions
(in excess of 2% of adjusted gross income) 30,542
Less: Overall limitation on itemized deductions (2,503)
Total itemized deductions 60,345
After taking into account exemptions and total itemized
deductions, petitioners reported taxable income and an income tax
liability of $147,194 and $34,569, respectively, on their 2002
return. The reported income tax liability consists entirely of
the tax imposed by section 1.
On or about April 21, 2004 (after respondent issued the
notice of deficiency), petitioners submitted a Form 6251,
Alternative Minimum Tax–-Individuals, for 2002. In computing
alternative minimum taxable income (AMTI) of $175,603,
petitioners deducted a $27,500 negative tax preference for
intangible drilling costs. Petitioners did not claim a deduction
for intangible drilling costs in the computation of the taxable
income or section 1 income tax liability reported on their
return. On the Form 6251, petitioners reported an AMT of $12.
On line 43 of their 2002 return, petitioners reported an AMT
liability of zero.
Discussion
The dispute focuses on the negative tax preference item
discussed above. According to respondent, petitioners’ AMT
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liability is computed without reference to that negative tax
preference item.
Section 55(a) imposes an AMT on noncorporate taxpayers equal
to the excess (if any) of the tentative minimum tax for the
taxable year over the regular tax. 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) provides
that for noncorporate taxpayers the tentative minimum tax is
26 percent of so much of the AMTI as exceeds the exemption
amount. The exemption amount for individuals filing jointly is
$49,000 subject to a phaseout reduction equal to 25 percent of
the amount by which AMTI exceeds $150,000. Sec. 55(d)(1)(A)(i),
(3)(A). There appears to be no dispute between the parties with
respect to these fundamental computational principles.
Section 55(b)(2) 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 amount
of the items of tax preference described in section 57. Section
56(b)(1)(A) provides, in general, that in determining a
taxpayer’s AMTI, no deductions shall be allowed for miscellaneous
itemized deductions and State and local taxes paid. Also, no
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deduction is allowed for personal exemptions. Sec. 56(b)(1)(E).
The parties part ways in this phase of the computation.
Respondent calculated petitioners’ AMTI as follows:
Taxable income per return $147,194
Personal exemptions 13,200
State and local taxes paid 16,214
Unreimbursed employee expenses 30,542
Sec. 68(a) limitation
on itemized deductions (2,503)
Taxable State tax refund (1,544)
AMTI 203,103
Respondent’s computation does not take into account the $27,500
negative tax preference for intangible drilling costs petitioners
claimed on their Form 6251. Respondent allowed petitioners an
exemption under section 55(d)(1) of $35,724, which was based on
the $49,000 exemption amount subject to the phaseout reduction of
$13,276 (25 percent of the excess of $203,103 over $150,000).
Because petitioners’ AMTI of $203,103 exceeded the $35,724
exemption amount by $167,379, petitioners’ tentative minimum tax
was computed as 26 percent of the excess, or $43,519. Because
petitioners’ tentative minimum tax of $43,519 exceeds their
regular tax of $34,569, respondent determined that petitioners
are liable for AMT of $8,950.
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Petitioners reduced their AMTI by the $27,500 negative tax
preference item.1 Otherwise, petitioners computed the $12 AMT
liability reported on the Form 6251 in a manner consistent with
respondent’s computation.
We are aware of no authority that allows taxpayers to reduce
AMTI as petitioners have, and we find that respondent properly
computed petitioners’ AMT liability. Accordingly, respondent’s
determination in that regard is sustained.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be
entered for respondent.
1
Sec. 59(e) allows a taxpayer to make an election to
deduct qualified expenditures for intangible drilling costs
ratably over a 60-month period. If this election is made with
respect to any qualified expenditure, then that amount is not
treated as a tax preference item under sec. 57, and sec. 56 does
not apply. Sec. 59(e)(6). We note, however, that an election
under sec. 59(e) does not result in the qualified expenditure’s
being deducted from AMTI as a negative tax preference.
In any event, the record does not establish that petitioners
made an election under sec. 59(e), and no evidence has been
introduced regarding the source of the negative tax preference
item.