Is it still the alternative minimum tax?

• Author: Schwarz, Mel

Ever since its enactment by the Tax Reform Act of 1986 (TRA '86), there has been dispute over how alternative the corporate alternative minimum tax (AMT) really is. Supporters of a rigorous alternative approach point to language in the Joint Committee on Taxation's General Explanation of the Tax Reform Act of 1986 (JCS-10-87) (Bluebook) that refers to the AMT as a separate and independent tax system; see Bluebook, p. 438. Others point to two recent cases, Allen, III, 118 TC 1 (2002), and Ventas, Inc., 57 Fed. C1. 411 (2003), which reject the Bluebook's approach and cast doubt on the extent to which the AMT system is truly separate and independent. These cases, however, deal with the effect of wage credits on the calculation of alternative minimum taxable income (AMTI); the extent to which the decisions limit other applications of the alternative approach is not clear.

Background

Sec. 55(a) imposes an AMT equal to the excess of tentative minimum tax (TMT) for the tax year over the regular tax for the tax year. Sec. 55(b)(1)(B) defines corporate TMT as 20% of so much of the AMTI for the tax year as exceeds the exemption amount, reduced by the AMT foreign tax credit for the tax year. Sec. 55(b)(2) provides that AMTI is the taxpayer's taxable income for the tax year, determined with the adjustments provided in Secs. 56 and 58 and increased by the tax preference items described in Sec. 57.

A Separate and Independent System

The TRA '86 added the corporate AMT to the Code. The following passage from the Bluebook, p. 438, is traditionally cited for treating the AMT as a separate and parallel tax system:

For most purposes, the tax base for the new alternative minimum tax is determined as though the alternative minimum tax were a separate and independent income tax system. Thus, for example, where a Code provision refers to a "loss" of the taxpayer from an activity, for purposes of the alternative minimum tax the existence of a loss is determined with regard to the items that are includable and deductible for minimum tax, not regular tax purposes. [Footnote omitted.]

In certain instances, the operation of the alternative minimum tax as a separate and independent tax system is set forth expressly in the Code. With respect to the passive loss provision, for example, section 58 provides expressly that, in applying the limitation for minimum tax purposes, all minimum tax adjustments to income and expense are made and regular tax deductions that are items...