Situation: Your clients are sitting on the edge of their seats, anxiously awaiting word of how the alternative minimum tax will affect them.
Solution: The AMT has an impact on more than 4 million taxpayers, primarily in high-income tax states such as California, New York and New Jersey, where nearly 40% of AMT taxpayers reside.
Although the tax is “hideously complex,” according to Nina Olson, national taxpayer advocate for the
Internal Revenue Service, Congress does not presently plan to repeal the AMT, primarily because of the loss in revenue that would occur.
However, the annual cliffhangers regarding the AMT are worthy of the Perils of Pauline. Every year, Congress has to come to the rescue of 26 million or more potential AMT taxpayers who must be saved from the tax by an annual patch.
The American Recovery and Reinvestment Tax Act of 2009, enacted in February, provided an AMT patch only for 2009.
The patch is an increase in the AMT exemption amounts.
The AMT exemption amounts for 2009 are $46,700 for a single taxpayer and $70,950 for taxpayers who are married and filing jointly. Without the patch, the exemption amounts would have reverted to the 1986 exemption amounts of $33,750 for a single taxpayer and $45,000 for taxpayers who are married and filing jointly.
The 2009 tax rules also allow taxpayers to use a broad spectrum of non-refundable tax credits against the AMT.
Additional 2009 AMT tax changes include the allowance of the immediate expensing deduction, commonly known as the Internal Revenue Code Section 179 deduction, of $250,000 for both regular tax and the AMT.
A 50% bonus depreciation is also allowed for both regular tax and AMT tax for 2009.
The new up-to-five-year carry-back of net-operating losses also apply to AMT net-operating losses.
However, the rule that only allows a 90% offset of AMT NOLs did not change.
The standard deduction for sales tax and/or excise tax on vehicles is also allowed.
Private-activity bond interest is not an AMT preference item for bonds issued in 2009 and 2010.
The AMT rate for qualified small-business stock issued from Feb.17 through Dec. 31, 2010 is 12.88%.
The corporate provision that allows for the “monetization” of research credits and AMT credits has also been extended for 2009.
The future of the AMT is uncertain. The Taxpayer Certainty and Relief Act of 2009, introduced on March 26, proposes making the 2009 exemption amounts permanent and indexed for inflation for 2010 and beyond, rounded to the nearest $100. The bill also proposes permanently allowing non-refundable personal credits against the AMT for 2010 and beyond.
The House has passed a budget resolution that includes a three-year patch of the AMT for 2010, 2011 and 2012 at a projected cost of $214 billion.
There is still substantial uncertainty about the number of years involved in an AMT patch for 2010 and beyond, as well as whether or not such a patch will be revenue-neutral.
