T.C. Memo. 1999-87

UNITED STATES TAX COURT

GEORGE AND JOAN PROSMAN, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 26560-96. Filed March 23, 1999.

George Prosman, pro se.

Ronald F. Hood, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

 GOLDBERG, Special Trial Judge: This case was heard pursuant

to the provisions of section 7443A(b)(3) and Rules 180, 181, and

182. All section references are to the Internal Revenue Code in

effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.
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Respondent determined a deficiency in petitioners' Federal

income tax for 1995 in the amount of $2,688. The issue for

decision is whether petitioners are subject to the alternative

minimum tax (AMT) under section 55.

Some of the facts have been stipulated and are so found. 

The stipulation of facts and the attached exhibits are

incorporated herein by this reference. Petitioners resided in

Webster, New York, at the time their petition was filed. 

References to petitioner are to George Prosman.

FINDINGS OF FACT

During the year in issue, petitioner was employed as a

computer consultant by Command Systems, Inc. (Command Systems). 

As a consultant, petitioner bid on different projects using a

formula which included both a standard hourly base rate and a

"per diem allowance" amount. Petitioner included a "per diem

allowance" amount in his bid formula because most of his projects

were out of town and petitioner incurred substantial meal and

lodging expenses while away from home. 

Accordingly, petitioner requested that Command Systems

separate petitioner's "per diem allowance" amount, which

petitioner used to pay for employee business expenses, from his

base rate. Command Systems refused and included both amounts as

wages on petitioner's 1995 Form W-2. 
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1 This amount includes $982 in "Taxable refunds, credits, or

offsets of state and local income taxes".

2 This amount consists of unreimbursed employee business

expenses incurred by petitioner while working for Command

Systems.

On their Federal income tax return for 1995, petitioners

reported adjusted gross income (AGI) in the amount of $83,143.1

On Schedule A of their 1995 return, petitioners claimed, among

other deductions, the following itemized deductions:

Expense Amount

Taxes paid $8,824.82

Job expenses and other miscellaneous 

 deductions, above the 2-percent floor 28,589.632

 Total 37,414.45 

For 1995, petitioners reported income prior to the deduction for

exemptions of $37,843, taxable income of $32,843, and total tax

of $4,924. There is no dispute that petitioners incurred

expenses as claimed on their 1995 return.

In the notice of deficiency, respondent determined that

petitioners were subject to the AMT for the tax year in issue. 

Respondent computed an AMT in the amount of $7,612 for

petitioners' 1995 tax year, and determined a deficiency in

petitioners' tax in the amount of $2,688.

OPINION

Petitioners contend that respondent's application of section

55 is inequitable.
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Section 55(a) imposes a tax equal to the excess of the

tentative minimum tax over the regular tax. The tentative

minimum tax for noncorporate taxpayers is equal to 26 percent of

the amount (the taxable excess), as does not exceed $175,000, by

which the alternative minimum taxable income (AMTI) exceeds the

exemption amount, plus 28 percent of such taxable excess as

exceeds $175,000. See sec. 55(b)(1)(A). The exemption amount

for married couples filing a joint return is $45,000. See sec.

55(d).

AMTI equals the taxpayer's taxable income for the year with

the adjustments provided in sections 56 and 58 and increased by

the amount of tax preference items described in section 57. See

sec. 55(b)(2). In calculating AMTI, no deduction is allowed for

miscellaneous itemized deductions and State and local taxes paid,

unless such amounts are deductible in determining AGI. See sec.

56(b)(1). Also, no deduction for personal exemptions under

section 151 is allowed. See sec. 56(b)(1)(E). 

In computing petitioners' AMTI for the year in issue,

respondent disallowed petitioners' deductions for taxes paid and

for job expenses and other miscellaneous itemized deductions. We

have reviewed respondent's computations of the AMT and find that

they comport with the provisions of sections 55 and 56.

Petitioners, however, contend that the AMT was intended to

apply to high income earners rather than to lower income

taxpayers, such as themselves. Petitioners contend that if
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Command Systems had separated petitioner's "per diem allowance"

amount from petitioner's base rate, petitioner would not have

been subject to the AMT. We are not persuaded by petitioners'

argument. 

While we may sympathize with petitioners, under the plain

meaning of the statute they are subject to the AMT. Furthermore,

this Court has considered and rejected equitable arguments like

those of petitioners. See Huntsberry v. Commissioner, 83 T.C.

742, 747-753 (1984); Holly v. Commissioner, T.C. Memo. 1998-55.

Petitioner may be correct in asserting that the AMT would

not apply if Command Systems had designated certain amounts paid

to petitioner as reimbursed employee business expenses rather

than as wages. Petitioner, however, negotiated the best contract

that he could, and his remuneration must be taxed based on the

manner in which it was received. Respondent's determination is

sustained.

To reflect the foregoing,

Decision will be entered

for respondent.