Court Opinion

ID: 4332406
Source: CourtListenerOpinion
Date Created: 2018-11-14 00:41:06.613189+00
Date Added: 2024-06-11T14:20:23.339429
License: Public Domain

113 T.C. No. 12

                UNITED STATES TAX COURT

             PAUL J. PEKAR, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 15289-97.                     Filed September 1, 1999.

     P, a U.S. citizen, resided in Germany and the
United Kingdom during his 1995 tax year. He paid
resident income tax to the foreign countries in an
amount exceeding his reported U.S. income tax
liability. P claimed a foreign tax credit that reduced
his U.S. income tax to zero. P did not compute or
report liability for the alternative minimum tax (AMT)
under sec. 55, I.R.C., or the foreign tax credit
limitations under sec. 59, I.R.C. P claimed that the
sec. 59, I.R.C., limit on foreign tax credits violated
the double taxation prohibitions of the U.S. income tax
treaties with Germany and the United Kingdom.
     Held: The U.S.-Germany treaty and the U.S.-United
Kingdom treaty interpreted--P is not entitled to relief
from the AMT under either treaty. Held, further, the
U.S.-Germany treaty recognizes and does not prohibit
the sec. 59, I.R.C., limit as double taxation. Held,
further, even if the U.S.-United Kingdom treaty
conflicts with sec. 59, I.R.C., because of the
established last-in-time rule, the sec. 59, I.R.C.,
                               - 2 -

     limitation on the foreign tax credit trumps any
     conflicting provision in the treaty because the Code
     section was subsequently promulgated.

     Paul J. Pekar, pro se.

     Wendy L. Wojewodzki, for respondent.

     GERBER, Judge:   Respondent determined a deficiency in

petitioner's 1995 Federal income tax of $3,893, a penalty

pursuant to section 6662(a)1 of $778.60, and a late-filing

addition to tax pursuant to section 6651(a)(1) of $194.65.    The

primary issues for our consideration are whether petitioner was

subject to the alternative minimum tax (AMT) and whether he was

negligent when he failed to calculate and/or report the AMT on

his 1995 Federal income tax return.    Petitioner also challenges

the late-filing addition to tax determined by respondent.

                         FINDINGS OF FACT

     The stipulation of facts and the exhibits attached thereto

are incorporated herein by this reference.

     At the time his petition was filed, petitioner was a U.S.

citizen residing in Hamburg, Germany.   Petitioner emigrated to

Germany in 1970, establishing a permanent residence in Berlin.

     1
       Unless otherwise stated, all section references are to the
Internal Revenue Code in effect for the taxable year in issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
                                 - 3 -

Over the years, he worked in Europe and the Middle East, residing

at job locations.    In 1995, petitioner lived and worked in the

United Kingdom and in Germany.     While in Germany, petitioner was

the chief financial officer for Conoco.

       During his absence from the United States, petitioner paid

income tax to his respective resident countries and continued to

report his income to the Internal Revenue Service (IRS).

However, petitioner did not report that he was subject to the

AMT.    Respondent audited petitioner's 1991 return and determined

that petitioner had failed to report or pay the AMT.    During

January 1995, petitioner conceded the 1991 AMT issue, which he

had disputed in a petition to this Court.    In that proceeding, we

entered the parties' stipulated decision.    At the time he filed

his 1995 return, petitioner had agreed that he owed the AMT for

1991 but he chose not to report AMT liability for 1995.

       In 1995, petitioner reported $253,077 gross income and

$169,275 adjusted gross income.    He claimed a $5,750 standard

deduction in a head of household filing status, personal

exemptions for himself and his sons totaling $7,926, a foreign

earned income exclusion of $70,000, and a housing exclusion of

$15,474.    He reported $155,599 taxable income and $42,991 tax.

Stating that he had lived in and paid resident income taxes to

Germany and the United Kingdom for the entire tax year,
                                 - 4 -

petitioner reduced his U.S. tax liability to zero by applying a

$42,991 foreign tax credit.

       Respondent examined petitioner's 1995 return and determined

that petitioner had negligently failed to report that he owed the

AMT.    Respondent determined that petitioner owed $3,893 in AMT

after allowing a foreign tax credit, as permitted by section 59.

Respondent also determined a $778.60 penalty for negligence for

failing to report and pay the AMT and that petitioner was liable

for a $194.65 late filing addition to tax because his return was

received and filed after the required date.

                                OPINION

Alternative Minimum Tax

       As a nonresident U.S. citizen, petitioner was required to

file Federal income tax returns and report his worldwide income.

See sec. 6012; sec. 1.6012-1(a)(1)(i), Income Tax Regs.     He was

entitled to claim a foreign tax credit each year for income tax

paid to foreign jurisdictions.    See secs. 27(a), 901.   Using

these foreign tax credits, petitioner reduced his regular Federal

income tax liability to zero.    He did not report, however, any

liability for the section 55 AMT.

       Section 55(a) imposes an AMT on noncorporate taxpayers equal

to the excess of the "tentative minimum tax" over the "regular
                                 - 5 -

tax"2 for the taxable year.   That excess amount is paid in

addition to any regular tax owed.    The AMT is intended to prevent

a taxpayer with substantial income from avoiding significant tax

liability through the use of exemptions, deductions, and credits.

See Urbanek v. United States, 866 F. Supp. 1414 (S.D. Fla. 1994),

affd. per curiam 71 F.3d 855 (11th Cir. 1996); S. Rept. 99-313,

at 518 (1986), 1986-3 C.B. (Vol. 3) 1, 518.

     Noncorporate taxpayers may reduce their tentative minimum

tax by the foreign tax credit.    See sec. 55(b)(1)(A).   However,

that foreign tax credit is limited by section 59(a)(2)(A).3    The

     2
       The term "regular tax" means "the regular tax liability
for the taxable year (as defined in section 26(b)) reduced by the
foreign tax credit allowable under section 27(a)". Sec.
55(c)(1).
     3
       The rationale underlying the foreign tax credit limitation
was explained in a Senate report as follows:

          “A further change that the committee believes is
     necessary relates to the use of foreign tax credits by
     U.S. taxpayers to avoid all U.S. tax liability. Absent
     a special rule, a U.S. taxpayer with substantial
     economic income would be able to avoid all U.S. tax
     liability so long as all of its income was foreign
     source income and it paid foreign tax at the U.S.
     regular tax rate or above. While allowance of the
     foreign tax credit for minimum tax purposes generally
     is appropriate, the committee believes that taxpayers
     should not be permitted to use the credit to avoid all
     minimum tax liability. U.S. taxpayers generally derive
     benefits from the protection and applicability of U.S.
     law, and in some cases from services (such as defense)
     provided by the U.S. Government, even if all of such
     taxpayers' income is earned abroad. Thus, it is fair
     to require at least a nominal tax contribution from all
                                                   (continued...)
                                 - 6 -

foreign tax credit cannot offset more than 90 percent of the

tentative minimum tax figured.    See id.   Petitioner's allowable

foreign tax credit is 90 percent of $38,927, or $35,034.

Therefore, his AMT, the tentative minimum tax minus the foreign

tax credit, is $3,893.   Because he had no regular tax due, he

owes $3,893.4

Application of the Treaties

     In his challenge of the deficiency determined by respondent,

petitioner does not question respondent's calculation of the AMT.

Instead, he labels as "unfair" the AMT as applied to American

citizens like himself who live permanently outside the United

States.   At trial, petitioner referenced the double taxation

protection given to expatriates by our tax treaties with the

United Kingdom and Germany.   See Convention for the Avoidance of

Double Taxation, and Three Protocols, Dec. 31, 1975-Mar. 15,

     3
      (...continued)
     U.S. taxpayers with substantial economic incomes.”
     [Lindsey v. Commissioner, 98 T.C. 672, 675 (1992)
     (quoting S. Rept. 99-313, at 520 (1986), 1986-3 C.B.
     (Vol. 3), 1, 520), affd. without published opinion 15
     F.3d 1160 (D.C. Cir. 1994); some emphasis added.]

     4
       Petitioner reported $42,991 of regular tax and claimed an
equal amount of foreign tax credit unreduced by the AMT
limitations. The amount of the limitation on the credit is based
on the AMT and not on the $42,991 of tax reported by petitioner
before he claimed the credit. Respondent's computation of the
amount of the AMT, limitations on the foreign tax credit, and the
resulting AMT liability are set forth in the appendix.
                                - 7 -

1979, U.S.-U.K., art. 23, 31 U.S.T. 5668, 5685 (hereinafter U.S.-

U.K. treaty); Convention for the Avoidance of Double Taxation,

Aug. 29, 1989, U.S.-Germany, art. 23, 30 I.L.M. 1778, 1779

(hereinafter U.S.-Germany treaty).      Because petitioner contends

that the AMT was "outside the double taxation agreements" of the

treaties, we interpret his argument to be that the AMT and the

resulting limitation on the credit violate the treaties and

therefore cannot be applied.5

     If there is a conflict between a Code provision and a treaty

provision, the "last-in-time" provision will trump the earlier

provision.   See Lindsey v. Commissioner, 98 T.C. 672 (1992),

affd. without published opinion 15 F.3d 1160 (D.C. Cir. 1994);

Jamieson v. Commissioner, T.C. Memo. 1995-550, affd. without

published opinion 132 F.3d 1481 (D.C. Cir. 1997).     However, if

there is no conflict between the two, then the Code and the

treaty should be read harmoniously, to give effect to each.     See

     5
       We note that respondent never questioned petitioner's
failure to disclose this treaty-based return position as required
by sec. 6114. Unless excepted by regulations, each U.S. taxpayer
who takes a position that a treaty of the United States overrules
any provision of the Internal Revenue Code and effects a
reduction of any tax must disclose that position on either a Form
8833 or a separate attached statement. See sec. 6114(a); sec.
301.6114-1(a), Proced. & Admin. Regs. (treaty-based return
position). A taxpayer who fails in a material way to disclose
one or more positions taken for a taxable year is subject to a
separate penalty for each failure to disclose a position. See
sec. 301.6712-1, Proced. & Admin. Regs. (failure to disclose a
treaty-based return position). However, there is no indication
that this failure estops a taxpayer from taking such a position.
                                 - 8 -

Xerox Corp. v. United States, 41 F.3d 647, 658 (Fed. Cir. 1994).

Accordingly, we proceed to consider the relationship between

section 59 and the double taxation prohibitions found in each of

the two treaties, the U.S.-U.K. treaty and the U.S.-Germany

treaty.

        A.   U.S.-U.K. Treaty

        Article 23 of the U.S.-U.K. treaty generally prohibits

double taxation and provides to U.S. residents and citizens a

credit against their U.S. income tax in an "appropriate amount".

U.S.-U.K. treaty, art. 23(1).     An "appropriate amount" is defined

as that amount of tax paid to the United Kingdom, not to exceed

the limitations provided by U.S. law for that taxable year.      Id.

One of the limitations for the 1995 taxable year was the foreign

tax credit limitation of section 59.     Therefore, the U.S.-U.K.

treaty provides for the imposition of the tax credit limit, and

the treaty and the Code may be harmonized and the limit applied

to petitioner.

     Even if one were to argue that the U.S.-U.K. treaty

provision for "limits of law for the taxable year" included only

those in effect when the treaty was adopted and that the Code and

the treaty conflicted, such a conflict does not work to

petitioner's advantage.     If there is a conflict, the Code section

will supersede the treaty provision because of the "last-in-time"

rule.    See Lindsey v. Commissioner, supra.   Section 59 was added
                                - 9 -

to the Code by the Tax Reform Act of 1986, Pub. L. 99-514, sec.

701(a), 100 Stat. 2336, 6 years after the U.S.-U.K. treaty became

effective.   Because the Code section was enacted after the

treaty, the Code section would prevail if we were to find a

conflict between the treaty and the Code, resulting in

petitioner's liability for the tax.

     B. U.S.-Germany Treaty

     With language similar to that used in the U.S.-U.K. treaty,

the double taxation provision of the U.S.-Germany treaty first

recognizes that the treaty is subject to the existing limitations

placed by U.S. law and then provides guidelines for the avoidance

of double taxation by the two countries.    See U.S.-Germany

treaty, art. 23.    Although we have interpreted the U.S.-U.K.

treaty, the U.S.-Germany treaty has not previously been

interpreted by this Court.    The U.S.-Germany treaty provision

details:   (1) When and how the United States will provide foreign

tax credits to its taxpayers to alleviate double taxation, (2)

when and how Germany will provide similar relief to its citizens

through the use of foreign tax credits and income exemptions, and

(3) how to apply a special set of credit and income-sourcing

rules for U.S. citizens resident in Germany receiving a certain

type of income.    See U.S.-Germany treaty, art. 23(1)-(3).    The

paragraphs pertinent to petitioner's circumstances are the first
                              - 10 -

and last because relief to German taxpayers is of no import to

this controversy.

     According to article 23(1), tax under the U.S.-Germany

treaty "shall be determined * * * in accordance with the

provisions and subject to the limitations of the law of the

United States".   This section further provides that the United

States will allow as a credit against U.S. tax, taxes paid or

accrued to Germany by U.S. citizens or residents, subject to the

limitations of U.S. law.   Under this general rule, there is

harmony between the U.S.-Germany treaty and section 59 because

section 59 had been enacted 5 years before the U.S.-Germany

treaty became effective and, therefore, was one of the existing

laws recognized as a limitation on the U.S.-Germany treaty in

article 23(1).

     The interaction of section 59 and the U.S.-Germany treaty

provision was specifically recognized in the technical

explanation to the U.S. Model Income Tax Treaty double taxation

provision, after which the U.S.-Germany treaty provision is

patterned.   The commentary states that "When the alternative

minimum tax is due, the alternative minimum tax foreign credit

generally is limited in accordance with U.S. law to 90 percent of

alternative minimum tax liability."    Rhodes & Langer, 6 U.S.

International Taxation and Tax Treaties, U.S. Model Income Tax
                              - 11 -

Treaty Technical Explanation (1996), Mod-4 sec. 1.23, at 4-84

(1997).

     The treaty-based system of U.S. credits and German credits

and exemptions has, in certain cases, been modified as described

in paragraph 3 of article 23, where the unique position of U.S.

citizens resident in Germany is addressed.   That paragraph

provides that where a foreign tax credit is given by Germany for

U.S. tax paid on U.S.-source income under article 23(2), the

credit need not exceed the rate of tax provided for in the U.S.-

Germany treaty, even if the United States actually taxes its

citizen on that U.S.-source income at a rate higher than the

treaty rate.   This can result in double taxation, because the

taxpayer must pay the full U.S. tax, rather than the reduced

treaty rate, and yet receives less than the full foreign tax

credit from Germany.   See U.S. Treasury Department Technical

Explanation of the Convention and Protocol Between the United

States of America and the Federal Republic of Germany for the

Avoidance of Double Taxation and the Prevention of Fiscal Evasion

with Respect to Taxes on Income and Capital and to Certain Other

Taxes, 2 CCH Tax Treaties par. 3255, at 28,215.   Accordingly, a

U.S. citizen resident in Germany is disadvantaged when compared

to a non-U.S. citizen resident in Germany receiving the same

U.S.-source income, because the non-U.S. citizen would receive

full credit from Germany for the tax paid to the United States.
                              - 12 -

     To mitigate this potential inequity, article 23(3)(b)

provides special rules for the U.S. determination of the tax owed

and the foreign tax credit.   Furthermore, any excessive taxation

that may result, even after these rules are applied, shall be

avoided by treating a portion of the income in question as though

its source was shifted from the United States to Germany so that

further foreign tax credit may be given to the taxpayer by the

United States.   See U.S.-Germany treaty, art. 23(3)(c).

     Petitioner is a U.S. citizen residing in Germany, and

article 23(3)(c) provides for special measures to avoid potential

double taxation of U.S. citizens.   Article 23(3), however, is

applicable only to U.S.-source income.    Petitioner's income was

foreign-earned, German-source income.    Article 23(3) has no

application to this income or to the tax owed by petitioner to

either Germany or the United States.

     Because we find harmony between the AMT limitation of the

foreign tax credit in section 59 and article 23 of the U.S.-

Germany treaty, both may be applied to petitioner.    Petitioner is

therefore subject to the AMT on that income he earned while in

Germany.
                               - 13 -

Constitutionality of AMT

     Petitioner cryptically questioned the constitutionality of

the AMT provisions.6   Petitioner did not specify how the AMT is

unconstitutional beyond saying that nonresident Americans are

treated differently from resident American citizens.    We have

already determined that the AMT Code sections and, specifically,

the foreign tax credit limitation of section 59, are

constitutional.    See Keese v. Commissioner, T.C. Memo. 1995-417

(finding the AMT Code sections, including the foreign tax credit

limitation, constitutional); Estate of Kearns v. Commissioner, 73

T.C. 1223 (1980); Buttke v. Commissioner, 72 T.C. 677 (1979),

affd. per curiam 625 F.2d 202 (8th Cir. 1980); Kolom v.

Commissioner, 71 T.C. 235 (1978), affd. 644 F.2d 1282 (9th Cir.

1981).

         In another attempt to avoid the AMT, petitioner also

characterized it as an unconstitutional poll tax.    A poll tax is

a tax of a given amount, levied upon every person in a

jurisdiction's taxing power, without reference to the person's

property, income, or ability to pay.    Black's Law Dictionary 1159

     6
       Petitioner chose not to explain his position on the
question of constitutionality. He reasoned that it would be more
appropriate to present his views to the Court of Appeals. We
find this curious because the Court of Appeals to which
petitioner would likely proceed has already affirmed our holdings
on similar issues. See Lindsey v. Commissioner, 15 F.3d 1160
(D.C. Cir. 1994).
                               - 14 -

(6th ed. 1990).    The AMT does not meet this definition.   It is an

income tax and is necessarily dependent on the amount of income

the taxpayer receives.    Moreover, by definition it is applicable

only to certain taxpayers.    Petitioner's characterization of the

AMT as a poll tax is without substance.

       Accordingly, respondent's determination of a $3,893 income

tax deficiency attributable to the AMT for petitioner's 1995

taxable year is sustained.

Negligence Penalty

       Petitioner attempts to justify his decision not to report or

pay the AMT for 1995 on the ground that he had consistently acted

in the same manner and had been the subject of only one audit by

the Commissioner, where ultimately he agreed that he owed the

AMT.

        Because the IRS has not pursued this issue in every prior

year, petitioner contends that the penalty should not apply

because a full foreign tax credit had been allowed, and because

petitioner was merely continuing an accepted practice.      He argues

that the Commissioner's failure to make adjustments in all but

one of petitioner's prior years means that his failure to report

the AMT has been tacitly sanctioned.

       Petitioner's argument must fail because each taxable year

stands on its own and must be separately considered.    See United

States v. Skelly Oil Co., 394 U.S. 678, 684 (1969).    Respondent
                                - 15 -

is not bound in any given year to allow the same treatment

permitted in a previous year.    See Lerch v. Commissioner, 877

F.2d 624, 627 n.6 (7th Cir. 1989);       Knights of Columbus Council

No. 3660 v. United States, 783 F.2d 69 (7th Cir. 1986); Corrigan

v. Commissioner, 155 F.2d 164 (6th Cir. 1946).      Taxpayers have no

right to continue a prior tax treatment that was wrong either on

the law or under the facts.   See Thomas v. Commissioner, 92 T.C.

206, 226-227 (1989).   "The mere fact that petitioner may have

obtained a windfall in prior years does not entitle [him] * * *

to like treatment for the taxable year here in issue."        Union

Equity Coop. Exch. v. Commissioner, 58 T.C. 397, 408 (1972),

affd. 481 F.2d 812 (10th Cir. 1973); see also Schaeffer v.

Commissioner, T.C. Memo. 1994-227.

     Petitioner also claims that the language on his tax forms

did not clearly indicate to him that he should perform the

computation to determine whether he would owe the AMT because the

forms said only that a taxpayer "may" owe tax because of the AMT.

We do not accept petitioner's forced interpretation of "may" as

mitigation to respondent's negligence determination in this

setting.

     We find most persuasive the fact that petitioner had been

audited and agreed that he owed the AMT for 1991.      That

concession occurred before petitioner's 1995 return filing.

Petitioner also admitted that he had received training on the AMT
                              - 16 -

as it applied to Americans living abroad through a seminar and

that he had engaged in many discussions with other American

expatriates about the AMT.   Petitioner's experience had given him

a basic understanding of the AMT.    He cannot reasonably claim

that he did not know that he could be subject to the tax.

Furthermore, as we noted in Jamieson v. Commissioner, T.C. Memo.

1995-550, Lindsey v. Commissioner, 98 T.C. 672 (1992), had been

decided by our Court and affirmed by the Court of Appeals by the

time petitioner filed his 1995 return.    Therefore, petitioner was

on notice that the AMT foreign tax credit claimed by him was

calculated improperly.   See Jamieson v. Commissioner, supra.

Moreover, we note that petitioner failed to make any reference to

the AMT or to disclose his views on his return.

     We also consider petitioner's educational background in

determining whether he acted reasonably under the circumstances.

See Vick v. Commissioner, T.C. Memo. 1984-353.    Petitioner was

the chief financial officer for Conoco in Germany and had general

economic and financial knowledge.    Under these circumstances, we

hold that petitioner acted negligently when he failed to

calculate and report the AMT due on his 1995 return.

Late-Filing Addition

     Individual Federal income tax returns are generally due on

or before April 15 of the year following the close of the

calendar year.   See sec. 6072(a).   However, there are exceptions
                               - 17 -

to this general rule, including an exception for U.S. citizens

whose tax homes are outside the United States and Puerto Rico.

See sec. 1.6081-5(a)(5), Income Tax Regs.    An extension to file

returns of citizens in foreign countries (up until the 15th day

of the 6th month following close of the taxable year--June 15 in

this case) will be granted for those U.S. citizens who have

properly requested one.   See sec. 1.6081-5(a), Income Tax Regs.

To obtain an extension under section 1.6081-5, Income Tax Regs.,

taxpayers must attach a statement to their return showing

eligibility for the extension.   See sec. 1.6801-5(b), Income Tax

Regs.

     There is no evidence that petitioner had attached any such

statement to the return in question.    Respondent, however, did

not question whether petitioner had properly requested an

extension.   Respondent’s argument assumes the June 15 filing date

to be correct and concludes that petitioner did not meet that

deadline by mailing his return on June 15 from a foreign situs.

Petitioner argues that as a nonresident citizen, his return due

date was June 15 and that because he mailed his return on the due

date, his return should be considered timely filed, thereby

avoiding the late-filing addition.

     Because of respondent’s position, we assumed petitioner

qualified for the extension.   Even with a June 15 filing date,

petitioner did not meet the due date by mailing his return on
                                - 18 -

June 15.    Section 7502(a) provides that, in certain

circumstances, an untimely received return is deemed timely filed

on the date of the U.S. Postal Service postmark on the envelope

or the date a receipt is issued by the U.S. Postal Service for

either certified or registered mail.     However, the timely

mailing-timely filing rule of section 7502(a) does not apply to

foreign postmarks.    It is well established that foreign postmarks

do not effectively cause the filing date of a document to be the

postmark date.    See Cespedes v. Commissioner, 33 T.C. 214 (1959);

Madison v. Commissioner, 28 T.C. 1301 (1957); Electronic

Automation Sys., Inc. v. Commissioner, T.C. Memo. 1976-270; sec.

301.7502-1(c)(ii), Proced. & Admin. Regs.     Accordingly,

petitioner's mailing of his return did not come within the

provisions of section 7502 and the filing of his return would

have been untimely, even if the return had been mailed on the due

date.

     Petitioner also argued that he should not be liable for the

late-filing addition because he was advised by tax professionals

that a foreign postmark would effectively date his return as

filed.     However, he presented no evidence that he received this

advice before he mailed his 1995 return.     Nor did petitioner show

that the advice was provided by anyone who was competent to

render tax advice.    He was unable to show that he relied upon or

that it was reasonable to rely upon that advice when he mailed
                              - 19 -

the return.   Accordingly, respondent's late-filing addition

determination is sustained.

     Because of a concession by respondent,

                                         Decision will be entered

                                    under Rule 155.
                                - 20 -

                               APPENDIX

      The taxpayer's tentative minimum tax is computed as follows.

The taxable income, as it is normally calculated, is recomputed

to create a new tax base, the alternative minimum taxable income

(AMTI).   See sec. 55(b)(2).   The normal taxable income is reduced

by the adjustments provided for in sections 56 and 58 and

increased by the amount of the items of tax preference described

in section 57.   In petitioner's case, the only applicable

adjustment from these sections is the disallowance of the

standard deduction and the personal exemption.    See sec.

56(b)(1)(E).   Petitioner's regular taxable income was $155,599

and was increased by the previously allowed deduction of $5,750

and exemption of $7,926.   His AMTI was $169,275.

      The AMTI is then reduced by the special AMT exemption

allowed according to the taxpayer's status.    See sec. 55(d).     For

taxpayers who are unmarried but not widowed, like petitioner, the

exemption amount is $33,750.    See id.   However, the exemption

amount is phased out if the AMTI exceeds a certain amount.       For

unmarried, not widowed, individuals, 25 percent of income

exceeding $112,500 is subtracted from the exemption amount.      See

id.   Petitioner's AMTI exceeded $112,500 by $56,775.   Twenty-five

percent of that is $14,194, so petitioner's $33,750 exemption is

reduced to $19,556.
                                - 21 -

     Once the AMTI is reduced by the correct exemption amount,

AMTI tax rates are applied to the new AMTI to arrive at the

tentative minimum tax.   The rate is 26 percent of any amount up

to $175,000.   Petitioner's AMTI of $169,275 was reduced by

$19,556, leaving $149,719 to be taxed.    Twenty-six percent of

that is $38,927.

     The foreign tax credit is limited to 90 percent of the

tentative minimum tax amount.    Ninety percent of $38,927 is

$35,034.   After this amount is applied against the tentative

minimum tax, the amount remaining and due from petitioner is

$3,893.