1977, January, Pg. 90. Tax Tips.

6 Colo.Law. 90

Colorado Lawyer

1977.

1977, January, Pg. 90.

Tax Tips

90Vol. 6, No. 1, Pg. 90Tax TipsMinimum Tax: Y'All Pay

The Tax Law in Internal Revenue Code of 1954, (as amended) [26 USCA, (IRC 1954)], provides under Code Section 57 for a minimum tax on what is referred to as tax preference income.

The essence of the minimum tax, so that one might see the forest as opposed to being lost in the trees, is simply that the tax law has structured a type of tax that is in addition to the normal or regular tax that one might pay on "regular income."

The Code provides that certain types of income produce benefits which thereby should generate an additional or minimum tax level. These types or special items of income or deductions are sometimes referred to as tax preference items, sometimes loosely labeled tax preference income.

Under Code Section 57, the types of tax preferences include such things as excess depreciation on real property, excess depreciation on personal property subject to a net lease, certain stock options, capital gains, and a few additional items added by the 1976 Tax Reform Act, signed by President Ford on October 4, 1976. (There are additional items of tax preference, most of which are not pertinent to this discussion, and are specialized in nature, such as an amortization of certified pollution control facilities, amortization of railroad rolling stock, reserves for losses on bad debts of financial institutions, certain depletion, and other items).

In concentrating on the general concept of tax preference, the essence of Code Section 57, and the new tax provision, is an additional or minimum tax on these types of items, which will result in a minimum tax produced by taxing that excess by 15 percent.

That is, there is a 15 percent (up from the prior 10 percent which existed prior to the 1976 Tax Reform Act) on the tax preference items that exceed, for an individual, the sum of $10,000 or one-half the regular tax liability. In other words, the taxpayer, an individual, in addition to his normal taxes, will be required to pay an additional 15 percent tax on any of the tax preference items that exceed (1) the $10,000 amount, or if greater, (2) one-half the regular tax liability.

Taking an example: if the tax preference items produced from one or all of the tax preference items exceed $10,000, this amount would be...