Potential loss of contribution carryforwards in AMT.
Author | Berger, Harvey J. |
Position | Alternative minimum tax |
In November 1994, Treasury adopted final regulations under Sec. 55. These seemingly innocuous regulations can have unexpected effects on taxpayers with net operating loss (NOL) and contribution carryovers.
Regs. Sec. 1.55-1(a) requires taxpayers to compute all items for alternative minimum tax (AMT) purposes using regular tax adjusted gross income (AGI) or modified AGI. This regulation, supposedly a simplification, can yield a surprising result for an individual with an NOL carryover to a year in which he makes a charitable contribution.
The easiest way to explain this anomaly is by an example.
Example: Assume individual A has AGI for 1995 of $1,000,000 and no preference items; he has an NOL carryover to 1995 of $2,000,000 for regular tax and none for AMT. In 1995, A makes a cash contribution of $800,000 to a public charity. The NOL reduces A's regular tax AGI to zero. This eliminates the regular tax contribution deduction. Under final Regs. Sec. 1.55-1, A gets no contribution deduction for AMT purposes either, even though his AGI for AMT purposes is $1,000,000.
Under Regs. Sec. 1.170A-10(d), for regular tax purposes, the $500,000 that A could deduct absent the NOL becomes an NOL carryover rather than a contribution carryover. Thus, for 1996, A has an NOL carryover of $1,500,000 and a contribution carryover of $300,000 (subject to the percentage limitations). A has no other NOL carryover for AMT. Thus, it appears that A's only 1996 carryover deduction is the contribution carryover, subject to the limitations that apply for regular tax purposes. If A is in a similar position in...
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