1985 Tax Ct. Memo LEXIS 434 | Tax Ct. | 1985
1985 Tax Ct. Memo LEXIS 434">*434
MEMORANDUM FINDINGS OF FACT AND OPINION
DRENNEN,
Some of the facts have been stipulated by the parties and are so found. The stipulation of facts and the exhibits attached thereto are incorporated herein by this reference.
Petitioner Samuel Okin resided in Las Vegas, Nevada at the time he filed his petition in this case. Petitioner filed a Federal income tax1985 Tax Ct. Memo LEXIS 434">*435 return for the taxable year 1980 on which he elected the filing status of married filing separate return.
Petitioner's 1980 return reported a liability for the income tax imposed by
Petitioner's 1980 return reported no liability for the alternative minimum tax under
Petitioner had a net capital gain from the sale of stock in 1980 in the amount of $226,718. Petitioner's net capital gain deduction allowed by
The $136,030.80 net capital gain deduction is a tax preference item under
Petitioner elected to compute his
Taxable income | $97,432.00 | |
Total base period income | $23,412 | |
30% of total base period income | (7,023.60) | |
Averageable income | 90,408.40 | |
30% of base period income (item A) | $ 7,023.60 | |
20% of averageable income | 18,081.68 | |
Total (item B) | 25,105.28 | |
Plus Excess community income | 0 | |
Total (item C) | 4 25,105.28 | |
Tax on item C | 7,440.58 | |
Tax on item B | 7,440.58 | |
Less: tax on item A | 927.45 | |
Difference | 6,513.13 | |
Difference multiplied by four | 26,052.52 | |
Tax using income averaging method | $33,493.10 |
Petitioner's
Respondent determined that in addition to the
Corrected tax table income | $99,432 | |
Less: Zero bracket amount | $1,700 | |
Allowable exemptions (2) | 2,000 | |
Difference | (3,700) | |
95,732 | ||
Plus: Adjusted itemized deductions | 0 | |
Capital gains deduction | 136,030.80 | |
136,030.80 | ||
Alternative minimum taxable income | 231,762.80 | |
Amount taxable at 10% 20,000.00 | Tax | 2,000.00 |
Amount taxable at 20% 20,000.00 | Tax | 4,000.00 |
Amount taxable at 25% 181,762.80 | Tax | 45,440.70 |
Total tentative alternative minimum tax | 51,440.70 | |
Less: Regular income tax less tax credits | 33,493.10 | |
Alternative minimum tax | 5 $17,947.60 |
1985 Tax Ct. Memo LEXIS 434">*439 The alternative minimum tax is imposed on "alternative minimum taxable income" according to a rate schedule which (as effective in 1980) exempts the first $20,000 of alternative minimum taxable income, applies a 10 percent rate on amounts greater than 20,000 but less than $60,000, applies a 20 percent rate for amounts greater than $60,000 but less than $100,000, and applies a 25 percent rate for amounts exceeding $100,000. The tentative tax so computed in then compared to the regular tax (which includes the add-on minimum tax on tax preferences under
The tax base for the alternative minimum tax imposed by
In accordance with this statutory scheme, respondent determined petitioner's alternative minimum tax liability by subtracting from his gross income of $133,484 allowable deductions in the amount of $34,052 to arrive at corrected "tax table income" of $99,432. This amount was further reduced by $3,700 to account for the zero bracket amount under section 63(d) and the deduction for personal exemptions under section 151. The resulting $95,732 figure was then increased by $136,030.80, the amount of petitioner's capital gains deduction, as provided by
1985 Tax Ct. Memo LEXIS 434">*441 Petitioner contends that his alternative minimum tax should be computed by starting not with the $99,432 figure used by respondent, but rather with a figure of $25,105.28 which petitioner refers to as his "adjusted average annual taxable income." This $25,105.28 figure is derived from the computation of petitioner's
1985 Tax Ct. Memo LEXIS 434">*442 The statutory scheme governing the imposition and computation of the alternative minimum tax is clear and precise, and leaves, on these facts, no room for interpretation. The starting point for the computation is "gross income," which is then decreased to account for the taxpayer's allowable deductions and increased by taxpayer's items of tax preference.
The alternative minimum tax imposed by
1985 Tax Ct. Memo LEXIS 434">*444 We find this issue to be controlled by our opinion in
The tax imposed by
To apply
1985 Tax Ct. Memo LEXIS 434">*446 We followed our opinion in
The Stockwells correctly note that in the Tax Reform Act of 1969, P.L. 91-172, Congress specifically amended the income averaging provision to include the averaging of capital gains. From this linchpin, they reason that the minimum tax imposed by
* * *
* * * Income averaging applies only to taxes imposed by
We think these cases compel a decision for the respondent herein.
After the trial in this case was concluded, we permitted petitioner to file an amended petition raising the additional argument that
Footnotes
1. All section references are to the Internal Revenue Code of 1954, as in effect during 1980.↩
2. Petitioner had dividend income of $42,797, taxable capital gain income of $90,687, excess itemized deductions of $34,052, and was allowed two exemptions. ↩
3. Certain steps of the income averaging computation which are not relevant to this discussion have been deleted. ↩
4. The $25,105.28 figure is designated by petitioner as "adjusted average annual taxable income." Petitioner contends that this figure should be used as the starting point for computing his alternative minimum tax. (See discussion
infra↩ ).5. These are the figures used in the notice of deficiency. See following for comments thereon.↩
6. As effective during 1980,
section 55 provides in pertinent part:Sec. 55 . ALTERNATIVE MINIMUM TAX FOR TAXPAYERS OTHER THAM CORPORATIONS.(a) ALTERNATIVE MINIMUM TAX IMPOSED.--In the case of a taxpayer other than a corporation, if--
(1) an amount equal to the sum of--
(A) 10 percent of so much of the alternative minimum taxable income as exceeds $20,000 but does not exceed $60,000 plus
(B) 20 percent of so much of the alternative minimum taxable income as exceeds $60,000 but does not exceed $100,000, plus
(C) 25 percent of so much of the alternative minimum taxable income as exceeds $100,000, exceeds
(2) the regular tax for the taxable year, then there is imposed (in addition to all other taxes imposed by this title) a tax equal to the amount of such excess.
(b) DEFINITIONS.--For purposes of this section--
(1) ALTERNATIVE MINIMUM TAXABLE INCOME.--The term "alternative minimum taxable income" means gross income--
(A) reduced by the sum of the deductions allowed for the taxable year,
(B) reduced by the sum of any amounts included in income under
section 86 or667 , and(C) increased by an amount equal to the sum of the tax preference items for--
(i) adjusted itemized deductions (within the meaning of
section 57(a)(1) , and(ii) capital gains (within the meaning of
section 57(a)(9) ).* * *
(2) REGULAR TAX.--The term "regular tax means the taxes imposed by this chapter for the taxable year (computed without regard to this section and without regard to the taxes imposed by sections 72(m)(5)(B), 402(e), 408(f), 409(c), and 667(b)) reduced by the sum of the credits allowable under subpart A of part IV of this subchapter (other than under sections 31, 39 and 43). For purposes of this paragraph, the amount of the credit allowable under such subpart shall be determined without regard to this section.
(3) TREATMENT OF ZERO BRACKET AMOUNT.--In the case of an individual who does not itemize his itemized deductions, the zero bracket amount shall be treated as a deduction allowed.
* * * ↩
7. Pub. L. 95-600, 92 Stat. 2763.↩
8. Although neither party has mentioned it, respondent's computation appears to us to contain both an error in addition and an erroneous application of the formula provided in the statute.
First, the 3 figures used in the taxable brackets do not equal the alternative minimum taxable income figure of $231,762.80. They are $20,000, $20,000 and $181,762.80. The income in the third bracket taxed at 25% should be $191,762.80, if respondent's other figures are right, rather than $181,762.80.
Secondly, and more importantly, the brackets do not conform to the formula. As mentioned above, the first $20,000 of alternative minimum taxable income is not taxed; the next $40,000 ($20,000 to $60,000) is taxed at 10%; the next $40,000 ($60,000 to $100,000) is taxed at 20%; and the remaining $131,762 ($100,000 to $231,762.80) is taxed at 25%. This produces a tentative alternative minimum tax of $44,940.70 rather than the $51,440.70 arrived at by respondent. When the regular tax is deducted therefrom the alternative minimum tax is $11,447.60 rather than the $17,947.60 arrived at by respondent.
The parties should consider this in submitting proposed computations of deficiency under Rule 155.↩
9. See income averaging computation and note 4,
supra.↩ 10. Petitioner's method of computing his alternative minimum tax results in no liability for that tax because the tentative alternative minimum tax ($32,859) does not exceed the regular income tax ($33,493).Petitioner also correctly observes that had he
not elected to use the income averaging method to compute hissection 1↩ tax, he would not be liable for any alternative minimum tax, due to the fact that his regular tax of $51,770 would exceed the tentative alternative minimum tax of $51,440.70. The fuel for petitioner's vehement arguments herein appears to be this perceived unfairness of having his benefits from income averaging negated by the alternative minimum tax. The heading for Point III of petitioner's reply brief states: "Respondent's Fallacious Contentions Encompass Untold Devastating Results and Consequences Almost Beyond Comprehension." (Petitioner's Reply Brief, p. 8).11. The add-on minimum tax no longer applies to noncorporate taxpayers. In §§ 201(a), 201(c) of the Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248, 96 Stat. 411, Congress repealed the add-on minimum tax for individuals, and broadened the alternative minimum tax under
section 55 . See Conference Report on Tax Equity and Fiscal Responsibility Act of 1982, H. Rept. No. 97-760 at 473-476 (1982).2 C.B. 600">1982-2 C.B. 600↩ , 602-609.12. We feel it appropriate to recognize petitioner's remarkable tenacity and creativity in pressing his arguments in the face of this inflexible statutory scheme. His argument borders on the metaphysical; according to petitioner, when he attached the schedule electing income averaging to his return, his "adjusted gross income" was transformed, for all purposes, into "adjusted average annual taxable income" (the $25,105.28 figure). This unique approach to statutory construction is not tenable given the precise definitional provisions involved.↩
13. The language of
section 56(a) involved in (1976), reads as follows: "In addition to all other tax imposed by this chapter, there is hereby imposed * * *" The taxes on items of tax preference imposed byRiley v. Commissiner, 66 T.C. 141">66 T.C. 141sections 55 (the alternative tax) and 56 (the add-on tax) perform an identical function -- ensuring that taxpayers having high adjusted gross incomes, but paying little regular tax because of various tax preferences, are nevertheless subject to a reasonable amount of tax. See 4 B. Bittker, Federal Taxation of Income, Estates and Gifts, PP111.3.11, 111.3.12 (1981). Both thesec. 55 tax and thesec. 56 tax are computed by reference to certain items of tax preference as defined insec. 57 . Although the computation and scope of these provisions differ, their effect -- to impose an additional tax on items of tax preference independent of the "regular tax" -- is identical. In fact, as a result of later modifications by Congress, the alternative minimum tax has been substituted for the add-on minimum tax in the case of noncorporate taxpayers. See note 11,supra.↩ 14. The amended petition alleges, among other things, that
section 55 "discriminates" against petitioner and other raxpayers having preferential income and the right to elect to income average, and thatsection 55↩ as "interpreted" by respondent constitutes a "taking [of] substantial property of the taxpayer without due process of law and without adequate compensation."15. See note 13,
supra.↩ 16. While we decide the sole issue in favor of respondent and would usually enter a decision for respondent in the amount of deficiency determined in the notice of deficiency, we will leave the amount of the decision open until the parties can determine whether respondent correctly computed the amount of the alternative minimum tax in accordance with the provisions of
sec. 55(1)↩ . See note 8.