# Presentation: 286503

## The Individual Alternative Minimum Tax

**Presented by Claudia Hill, EA, MBA**
***President’s Advisory Panel on ******Federal Tax Reform******March 3, 2005***

- Tax Mam, Inc. © 03/2005

## AMT -Always Means Trouble.

- It’s neither an alternative,
- 		nor a minimum.
-  It’s a* “gotcha!”*  tax.
- Taxpayers are discovering that the alternative minimum tax has become their mandatory maximum tax.

- Tax Mam, Inc. © 03/2005

## Who is subject to the AMT?

- Anyone whose income is above the exemption amount can be hit:  $58,000 for married couples, $40,250 for singles and head of households.
- In 2006, the exemption drops to $45,000/$33,750.
- Real people, with real problems.

- Tax Mam, Inc. © 03/2005

## AMT sends the wrong message to taxpayers:

- The AMT Penalizes –
- Having children.
- Incurring big medical expenses.
- Paying state & local income, property or sales taxes.
- Paying advisory fees or portfolio management expenses to help earn investment income.
- Incurring out-of-pocket costs to earn wages.
- Paying legal expenses to receive a legal settlement (except for certain civil discrimination suits). This includes suits to obtain alimony or spousal support.

- Tax Mam, Inc. © 03/2005

## Business taxpayers are sent the wrong message, too. 

- A duplicate set of books is required.  A second AMT version of basis information must be kept for assets until they are sold.
- Expecting to benefit by directing your business investments in a way that is rewarded with business credits may sound good, but don’t expect to use those credits against AMT.

- Tax Mam, Inc. © 03/2005

## The AMT is wretchedly complex.

**The nature of the complexity is exhibited: **
- in the inability to anticipate when one may be subject to AMT,
- in the additional compliance burden associated with duplicate computations; and
- in the lack of rationality and intuitiveness.

- Tax Mam, Inc. © 03/2005

## The AMT calculation is not intuitive.

- I’ve worked with taxpayers and AMT planning, and I do not try to *estimate* its impact on a specific taxpayer...I always model the clients’ situation, with fairly sophisticated software.
- The stated objective of the AMT has drifted so far off the mark, it rarely hits the target.

- Tax Mam, Inc. © 03/2005

## The AMT is wretchedly complex.

- It creates anomalies in IRS compliance efforts and taxpayer contacts.
- The IRS struggles in efforts to understand  and detect front-end processing issues with AMT returns, as well as identify and pursue violations on the back end.
- Taxpayers and their preparers err in understating, as well as overstating AMT, liability.

- Tax Mam, Inc. © 03/2005

## The AMT Credit is not intuitive. 

- Theoretically, the AMT is an advance payment of tax on select deferral preferences.
- Theoretically, the credit is the mechanism to equalize that advance payment when the preference is later reversed as income.
- In reality, the credit does _not_ work that way.
- Taxpayers can expect to wait for many years to actually use their AMT credit.
- Unfortunately, the way the law is structured, a taxpayer can find their AMT credit reduced, even when it is not used to offset regular tax.

- Tax Mam, Inc. © 03/2005

## Summary

- In some circles, we might discuss AMT as "a riddle wrapped in a mystery inside an enigma ..."  But for anyone who has found themselves having to pay it, I can assure you the thoughts are more of unfairness and entrapment.

- Tax Mam, Inc. © 03/2005

## Summary

- The AMT as it exists today has mutated into a prime example of the law of unintended consequences.
- Unless massively revised or eliminated it will continue to ensnare millions of unsuspecting middle and lower income taxpayers.
- AMT should not continue in its present form.

- Tax Mam, Inc. © 03/2005