Jobs credit reduces AMT wage deduction.

• Author: O'Driscoll, David
• Position: Alternative minimum tax

The Federal Circuit recently held that an employer's wage deduction has to be reduced by the taxpayer's jobs credit in computing alternative minimum tax (AMT), even though the jobs credit is not allowed for AMT purposes.

Facts

V owns and leases hospitals, nursing centers and personal care facilities. For the tax years at issue, V was entitled to a "targeted jobs credit" against its regular tax, under Sec. 51. This credit awards the hiring of disadvantaged individuals (it is now called the work opportunity credit); it allows a regular income tax credit for a portion of payroll for the employment of such individuals.

Sec. 280C(a) provides that the taxpayer's deduction for wages paid be reduced by the targeted jobs tax credit. For the tax years at issue, V took the credit and complied with this requirement. For the same tax years, V was subject to the AMT under Sec. 55--however, the targeted jobs credit is not available when calculating AMT liability. Thus, when computing its alternative minimum taxable income (AMTI), V did not correspondingly reduce its deduction for wages paid as required by Sec. 280C(a). As a result, the IRS determined that V had miscalculated its AMT liability and underpaid its income tax for those years. V paid the tax and sued for a refund in the Court of Federal Claims.

V maintains it is illogical and unjust to require that an otherwise allowable deduction be reduced when the benefit of the credit itself is not available. The IRS urged that V cannot restore deductions forgone in its calculation of regular taxable income, despite the fact that the reason for relinquishing those deductions in the first instance--the targeted jobs credit--is not applicable in the calculation of AMT. The Court of Federal Claims agreed with the IRS and granted summary judgment against V; V appealed to the Federal Circuit.

Analysis

It is undisputed that the targeted jobs credit is not available when computing AMT liability. In addition, Sec. 280C(a) disallows a portion of a taxpayer's wage deduction if a jobs credit was determined for the taxpayer. However, Sec. 280C(a) does not refer to the AMT provisions of Secs. 55-58, nor is there any reference to it in Sec. 59(h).When Congress includes certain exceptions in a statute, the maxim "expressio unius est exclusio...