Is the Alternative Minimum Tax Unfair? Of course it is. But do you have to pay it? Certainly. And that’s the crux of today’s Tax Court case.
Our unlucky petitioners earned quite a bit of money, reporting wage income of $323,498. Among their itemized deductions were the following:
- State and local income taxes $39,189
Real estate taxes 4,935
Personal property taxes 230
After they submitted their tax return, the IRS notified them that they owed $7,364 of AMT.
The petitioners couldn’t understand why they lost their tax deductions that they legitimately (and correctly) took. (The petitioners live in California, a very high tax state.) Unfortunately, the three tax items listed above are considered “preference items” and are one of the ways you can get thrown into the AMT nightmare.
The Tax Court noted that they were “not unsympathetic” with the petitioners, as the AMT has had some unintended consequences.
“The unfortunate consequences of the AMT in various circumstances have been litigated since shortly after the adoption of the AMT. In many different contexts, literal application of the AMT has led to a perceived hardship, but challenges based on equity have been uniformly rejected. [Citations omitted.]” Speltz v. Commissioner, 124 T.C. 165, 176 (2005)
But the Court must apply the law as written, and the petitioners owe the AMT.
Case: Schick v. Commissioner, T.C. Summary 2006-67
Tags: AMT