Practitioners must deal with new AMT complexities: AICPA comments prompt issuance of Notice 94-28 and proposed regulations.

• Author: Horn, Anita L.
• Position: Alternative minimum tax, American Institute of Certified Public Accountants

Changes made to the 1993 Form 6251, Alternative Minimum Tax - Individuals, and the related instructions added immense complexity to the alternative minimum tax (AMT) for noncorporate taxpayers. The changes resulted from a growing body of regulations and rulings on the concept of an AMT (introduced in the Tax Reform Act of 1986 (TRA)) as a separate and parallel system, operating in tandem with the regular tax.

Following the enactment of the TRA, the staff of the Joint Committee on Taxation issued its General Explanation of the Tax Reform Act of 1986 (the "Blue Book"), which described in some detail the structure of the AMT as an alternative tax that is a separate and independent tax system. As such, for example, depreciation must be calculated based on the applicable methods (and adjusted basis) for AMT, but not regular tax, purposes. The Internal Revenue Code of 1986 expressly states certain situations in which this separate and independent structure is applicable. (For instance, Sec. 58 states that the adjustments under Secs. 56 (adjustment in computing alternative minimum taxable income (AMTI)) and 57 (items of tax preference) apply in determining the amount of loss allowed for any tax shelter farm activity.) The Blue Book further explains that although some minimum tax adjustments are not expressly stated, Congress did not intend to imply that adjustments are not required. For example, Sec. 265 disallows any deduction for certain expenses allocable to interest wholly exempt from tax under Subtitle A, Income Taxes. Since Sec. 55 is within Subtitle A, Sec. 265 for AMT purposes applies only to items excluded from AMTI.

The 1993 Form 6251 adds a new line 14m, entitled "Related adjustments." The instructions for line 14m require taxpayers to recalculate any items of income or expense based on an income limitation, including the following:

* Earned income. * Adjusted gross income (AGI). * Modified AGI or taxable business income. * Preferences for intangible drilling costs. * Preferences for depletion. * Adjustments for passive losses. * Adjustments for the AMT net operating loss (NOL) deduction.

The sum of the differences between these items for regular tax and AMT purposes is then entered as an adjustment on line 14m. The purpose behind this adjustment is to convert regular taxable income into AMTI. Indeed, the line 14m adjustment completes the calculation of AMTI under the separate and independent structure. For instance, a charitable...