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AMT

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  • pg 1
									AMT- Strategies to Escape
        Its Reach

Joseph W. Walloch, CPA,MBA,MBT
    1190 West Sunset Drive
   Redlands, California 92373
       Tel: (951) 966-1040
      Fax: (909) 798-1040
        joe@walloch.com
   Website: www.walloch.com      1
    ACKNOWLEDGEMENTS

 I gratefully acknowledge Kelly Allen,
  Alan Dlugash, Sid Kess, Gary McBride,
  Martin Nissenbaum, Nina Olson, Norman
  Solomon, Raphael Tulino, and Kevin
  Walsh for their contributions to this
  presentation.


                                          2
       AMT OVERVIEW

   History, Scope & Future
   New Developments
   AMT Tax Planning
   AMT Tax Tips – 2007
   Questions & Answers

                              3
HISTORY, SCOPE &
     FUTURE




                   4
   2006 NATIONAL TAXPAYER
  ADVOCATES REPORT ISSUED
         JANUARY, 2007
 “ THE MOST SERIOUS PROBLEMS
      ENCOUNTERED BY TAXPAYERS:

 1. Alternative Minimum Tax for Individuals. The
  National Taxpayer Advocate believes that the
  most serious problem facing taxpayers today is
  the complexity of the Internal Revenue Code, and
  the poster child for tax-law complexity is
  the Alternative Minimum Tax for
  individuals (AMT).”

                                                 5
  Commentary Regarding AMT
 Mark Everson, Commissioner of IRS –
   “It should be repealed”, “Nobody likes the
  AMT” (He is subject to AMT!)
 Nina Olsen, IRS National Taxpayer
  Advocate - “One of the top 10 issues facing
  the tax system today”
 OTHERS: “The Darth Vader” of taxes;
  “Stealth Tax”; “Parallel Tax System”
                                                6
                   Future
 Professor Daniel J. Lathrope, author of WG&L's
  Alternative Minimum Tax, notes that the changes
  made by Tax Increase Prevention Act § 301 for
  2006 continue the practice of providing year-by-
  year stopgaps to limit the reach of the AMT. This
  legislation simply delays the day when there will
  be an even bigger jump in the number of
  taxpayers subject to the AMT. Taxpayers will
  continue to see this type of piecemeal legislation
  until Congress either indexes the AMT exemption
  amount and rates for inflation or reforms the tax

                                                       7
             AMT EXPOSURE
         ADJUSTMENTS AND PREFERENCES
              THAT WILL CAUSE AMT
            TO APPLY IN 2006 AND 2007




 SEE NEXT SLIDE


                                        8
   REGULAR
   TAXABLE
   INCOME


                       JOINT                         SINGLE

                   2006         2007                          2005        2007
   25,000          49,072      31,418                         30,475     21,672
   50,000          38,495      20,841                         27,341     18,075

   75,000          33,187      14,610                         26,472     17,114
   100,000         32,225      13,649                         25,216     17,536
   125,000         30,131      12,690                         21,754     14,074
   150,000         26,670      11,365                         18,293     10,613
   175,000         23,208       7,905                         17,939      9,326
   200,000         21,419       5,080                         16,765      8,267

   225,000         19,990       3,718                       15,336        6,840
   250,000         18,562       2,287                       13,907        7,388
   275,000         17,134         861                       13,724       11,852
   300,000         15,705        -567                       18,188       16,317
   325,000         14,276      -1,998                       22,652       20,781
   350,000         13,616         741                       28,077       25,267
   375,000         13,616       6,991                       34,327       31,517
   400,000         16,970     13,238                        40,577       37,767
   425,000         23,220     19,488                        46,827       44,017
   450,000         29,470     25,738                        53,077       50,267
   475,000         35,720     31,988                        59,327       56,517
   500,000         41,970     38,238                        65,577       62,767
   ANALYSIS ASSUMES ORDINARY INCOME, NO CAPITAL GAIN OR QUALIFYING DIVIDENDS




                                                                                   9
NEW DEVELOPMENTS



               10
 TIPRA MAY 17, 2006 INCREASED
   AMT EXEMPTION FOR 2006
 • The alternative minimum tax (AMT)
exemption amount for individuals is
increased for tax years beginning in 2006
(and only for 2006), to:
 – $62,550 for married individuals filing a
joint return and surviving spouses;
 – $42,500 for unmarried individuals; and
 – $31,275 for married individuals filing
separate returns
 (Code Sec. 55(d)(1)(A)and (B)

                                               11
TIPRA MAY 17, 2006 INCREASED
   AMT EXEMPTION FOR 2006
                2007                 2006
                         Unmarried
Exemption              $33,750           $42,500
Phase out   $112,500-$247,500    $112,500-$282,500

                           Married
Exemption              $45,000           $62,550
Phase out   $150,000-$330,000    $150,000-$400,200

                                                12
NO CHANGE TO AMT EXEMPTIONS
     FOR OTHER ENTITIES

  The $40,000 exemption amount
  for corporations and the $22,500
  exemption amount for estates or
  trusts remains unchanged for tax
  years beginning in 2006.


                                     13
       No Change to Phase Out
            Thresholds
 • The exemption amount for tax years beginning in
2006 is still reduced by 25 percent for each $1 of
alternative minimum taxable income (AMTI) in
excess of:
 – (1) $150,000 for married individuals filing a
      joint return, surviving spouses and
      corporations;
 – (2) $112,500 for unmarried individuals; and
 – (3) $75,000 for married individuals filing
      separate returns or an estate or a trust.


                                                      14
   2007 AMT EXEMPTIONS –
 REVERT TO LOWER AMOUNTS!
 Absent another legislative extension, the
  AMT exemption amounts for individuals
  are scheduled to revert for 2007 to the
  amounts that applied prior to the 2001
  tax year:
 – (1) $45,000 for MFJ/surviving spouses;
 – (2) $33,750 for unmarried individuals;
 – (3) $22,500 for MFS returns.

                                          15
Personal Credits Allowed Against
 AMT Tax Liability Through 2006
The following credits can offset AMT in 2006:
 dependent care credit (IRC sec. 21)
 credit for the elderly and disabled (IRC sec. 22)
 adoption credit (IRC sec. 23)
 child tax credit (IRC sec. 24)
 credit for interest on certain home mortgages
       (IRC sec. 25)
   HOPE Scholarship and Lifetime Learning credits
       (IRC §. 25A)
   Credit for savers (IRC sec. 25B)
   Credit for certain non business energy property
       (IRC sec. 25C)
   Credit for residential energy efficient property
       (IRC sec. 25D)
                                                       16
 PERSONAL CREDITS THAT DO NOT
         OFFSET AMT

 CAUTION: The alternative motor vehicle
  credit (IRC sec. 30B) and the credit for
  alternative fuel refueling property (IRC
  sec 30C) do not offset AMT! This
  includes the credit for hybrid and other
  energy efficient vehicles.


                                             17
 Tax Relief & Health Care Act of 2006
(TRHCA) enacted December 20, 2006

 Relief for Taxpayers with Long-Term
  Unused Minimum Tax Credits
 TRHCA creates new IRC sec. 53(e), which
  allows individual taxpayers to claim a
  REFUNDABLE credit for a portion of
  unused minimum tax credits.


                                        18
          Long-Term Unused
          Minimum Tax Credits
 The new credit will first be allowed in 2007 and
  is scheduled to expire after 6 years, i.e. after
  2012.
 The credit is based upon unused minimum tax
  credits arising at least 4 years prior to the
  current year (―long-term unused minimum tax
  credits‖-- LTUMTC).
 The amount of the credit is limited to 20% of
  the LTUMTC outstanding as of the beginning
  of year, or $5,000, if greater.

                                                 19
 Long-Term Unused Minimum Tax Credits
          -USEABLE AMOUNT

 EXAMPLE: The ―AMT refundable credit
  amount‖ is the greater of: 1) 20% of LTUMTC,
  or 2) the lesser of $5,000 or the LTUMTC.
 LTUMTC AMT           Refundable Credit
 $1,000,000           $200,000 (20% X 1 mil)
 $100,000             $20,000 (20% X 100K)
 $30,000              $6,000 (20% X 30,000)
 $8,000               $5,000
 $3,000               $3,000

                                                 20
           Long-Term Unused
    Minimum Tax Credits – PHASE OUT

    The allowable credit is phased out for high-
     income individuals, using the same phase
     out percentages that apply for the personal
     exemption (i.e., the credit for 2007 will be
     ratably phased out for married individuals
     with an AGI between $234,600 and $357,100,
     2% for each $2,500 or fraction).
    The allowable credit reduces both regular
     and alternative minimum tax, and is fully
     refundable to the extent it exceeds both.


                                                    21
           Long-Term Unused
          Minimum Tax Credits
 Example -- Assume in 2007, married filing
  jointly taxpayers have an AGI of $296,600 that
  results in an applicable phase-out percentage
  of 50%.
 T owes regular tax of $45,000 and tentative
  minimum tax of $40,000, for a total tax liability
  of $45,000. T has a minimum tax credit carry
  forward from prior years of $1.1 million, of
  which $1 million is a long-term unused
  minimum tax credit.
                                                      22
         Long-Term Unused
        Minimum Tax Credits

 T is entitled to a $5,000 regular minimum
  tax credit for the year (i.e., the excess of
  the regular tax ($45,000) over the
  minimum tax ($40,000) for the year).
 T has an AMT refundable credit amount
  under the new law of $100,000 (i.e., 20%
  of the $1 million LTUMTC, reduced 50%
  due to the phase-out).

                                             23
         Long-Term Unused
        Minimum Tax Credits

 The minimum tax credit allowable to T is
  $100,000 (the greater of the AMT
  refundable credit amount or the amount
  of the credit otherwise allowable).
 The regular $5,000 credit allowable is
  nonrefundable, while the additional
  $95,000 of credit allowable under the new
  law is treated as a refundable credit.

                                          24
         Long-Term Unused
        Minimum Tax Credits


 Result: T has an overpayment of $55,000
  ($45,000 regular tax less $5,000
  nonrefundable AMT credit less $95,000
  refundable AMT credit). The $55,000
  overpayment is allowed as a refund to T.



                                         25
         Long-Term Unused
        Minimum Tax Credits


 The remaining $1 million minimum tax
  credit is carried forward to future taxable
  years. The composition of the $1 million
  carryover is $100,000 of Non-LTUMTC
  AND $900,000 of LTUMTC as credits are
  deemed used on a FIFO basis without
  regard to refundability.

                                            26
         Long-Term Unused
         Minimum Tax Credits
 Note: The allowance of 20% of the LTUMTC
  per year does not mean that the unused
  minimum tax credit will be fully refunded
  over 5 years. The 20% limit is applied to the
  “declining balance” of the unused credit. So,
  for example, $100,000 of minimum tax
  credits generated from an ISO exercise
  years ago might be absorbed under the new
  rule as follows:

                                              27
            Long-Term Unused
           Minimum Tax Credits
               AMT CREDIT C/O    ALLOWED

   2007       $100,000         $20,000
   2008         80,000          16,000
   2009         64,000          12,800
   2010         51,200          10,240
   2011         40,960           8,192
   2012         32,768           6,554

                                           28
         Long-Term Unused
        Minimum Tax Credits

 TAX PLANNING TIP: Given the effect of
  the phase-out limitation, high-income
  taxpayers with large minimum tax credit
  carryovers will have an incentive to defer
  compensation or otherwise reduce their
  incomes in order to take advantage of
  the refundable credit.


                                           29
  ISO INFORMATION RETURN
 The new LTUMTC rules requires an
  employer to file an information return
  with the IRS, in addition to providing
  information to the employee, regarding
  the transfer of stock pursuant to exercise
  of an incentive stock option, and to
  certain stock transfers regarding
  employee stock purchase plans.

                                           30
   AMT REFUNDABLE CREDIT –
    TAX COURT JURISDICTION
 The AMT refundable credit, if it exceeds the
  pre-credit tax shown on the return, is a
  negative tax (Code Sec. 6211(b)(4)(B)).

 If IRS determines that the refund attributable to
  the AMT refundable credit is in error, regular
  deficiency procedures will apply — 90-day
  letter and opportunity to go to Tax Court
  (avoiding the need to repay the refund prior to
  judicial review)

                                                  31
 ATTORNEY FEES DEDUCTIBLE FROM AGI IN LIMITED
      CIRCUMSTANCES (IRC Section 62 (a)(20)


 Effective for judgments or settlements occurring
  and paid after 10/22/04, attorney's fees are
  deductible from the gross award in arriving at
  adjusted gross income in certain instances.
 The code section enumerates the types of actions
  for which attorney fees are deductible above the
  line. In general, the provision applies to:
  – Unlawful discrimination under various federal laws.
  – Whistleblower retaliation.
  – Federal, state, or common law claims relating to civil
    rights, the employment relationship, discrimination, or
    claims alleging retaliatory actions by an employer.

                                                              32
    AMT LEGAL FEES –
 New “Above the Line” Rules
– IRC 62(e) (1)-(19) (NEW CODE SECTION)
   Adjustment made to AGI to the extent of settlement
    proceeds.
   Excess legal fees would be an itemized deduction
    subject to AMT
– IRC 62(e) (1)-(19)
     – IRC 62(e)(17)- “Whistleblower”
          See even more recent development!
          Murphy vs. Commr
     – IRC 62(e)(18)(i)
          Enforcement of civil rights
          Claims for wages, benefits, discharge, retaliation

                                                                33
 FARMERS’ AND FISHERMEN’S INCOME
 AVERAGING AND AMT COORDINATION

 Commercial fishermen are now able to elect
  to use income averaging just like farmers
  engaged in a farming business.
  Furthermore, the law makes it clear that
  both fishermen and farmers may receive the
  full benefit of income averaging even if they
  are otherwise subject to AMT. This
  provision is RETROACTIVE to years
  beginning after December 31, 2003.

                                              34
          IRS Updates On-Line
             AMT Assistant
 The IRS announced (IR-2007–18) updating its
  online tool to help taxpayers determine if they may
  owe the Alternative Minimum Tax (AMT):
 "Nobody likes the AMT, but this tool helps people
  learn quickly whether they're going to be paying
  this tax,” said IRS Commissioner Mark Everson.
 The AMT Assistant is available at
  http://www.irs.gov/businesses/small/article/0,,id=1
  50703,00.html.

                                                    35
SENATE BILL – “INDIVIDUAL
ALTERNATIVE MINIMUM TAX
  REPEAL ACT OF 2007”

–EFFECTIVE RETROACTIVELY FOR
 2007
–AMT CREDITS ALLOWED UP TO
 90% OF REGULAR TAX
–SEE APPENDICES FOR BILL


                            36
            REPEALING AMT –
       REVENUE NEUTRAL OPTIONS –
         the 1.3 trillion conundrum
 Revenue-neutral options outlined by the Tax Policy Center
  which would balance the lost revenues of permanently
  repealing the AMT include:
 Eliminating the deduction for state and local income
  taxes, which would generate enough cash to repeal the
  AMT and cut the regular tax rate by 2 percent across the
  board;
 Increasing the top three income tax brackets by 24
  percent, which would raise the top rate to 43.5 percent;
 Raising income tax rates by 6 percent across the
  board; or,
 Raising the top rate under the regular income tax to 37
  percent from 35 percent, and to 41.9 percent starting in
  2011
                                                         37
  AMT TAX PLANNING


“Good AMT planning begins
  with good regular income
        tax planning”

                         38
AMT Planning – TAX EXEMPT INTEREST
          Private Activity Bonds


 Mutual Funds Offer ―AMT FREE‖ Funds
 Private Activity Bond Interest creates
  AMT investment income.
 If No AMT, Buy Private Activity Tax
  Exempt Bonds = Higher After Tax Yield

                                           39
AMT – TAX EXEMPT INTEREST
 New 1099-INT in 2006 – Tax Exempt Interest – AMT
  impact/Social Security taxability impact/Medicare Part
  B impact (Line 9 – Specified Private Activity Bond
  Interest)


   ALERT! Davis v. Kentucky Department of
    Revenue (Ken. S.C. 8/17/06) Kentucky Supreme Court
    ruled that it violates the Commerce Clause of the U.S.
    Constitution for Kentucky to exempt in-state bonds,
    and tax bonds issued by other states. US Supreme
    Court grants certiorari.


                                                           40
AMT ROTH 401k/403B PLANNING

 DESIGNATED ROTH 401k and 403B
  accounts
 $15,500 or $20,500 CONTRIBUTION
 INCREASED INCOME MAY TAKE YOU
  OUT OF AMT
 AMT MARGINAL RATES NEED TO BE
  CONSIDERED IN TRADITIONAL IRA VS
  ROTH IRA
                                     41
AMT AND S CORP PLANNING
 THE TAX ADVISER – ―S CORPORATIONS:
  INTERACTION OF THE AMT AND S
  CORPORATION BASIS RULES‖
  – TWO PART ARTICLE – January and February 2007
  – Author: Kevin J. Walsh, CPA, Member, AICPA Tax
    Division’s S Corporation Technical Resource Panel
  – ―Lack of attention to AMT basis schedules can
    result in taxpayers overpaying AMT.‖




                                                        42
AMT State Income Tax Planning
  Tax Trap for the Unwary – Be careful to plan
   for the proper tax year for state income tax
   so the deduction is not wasted for AMT
  State income taxes as a deduction FOR AGI –
   A Potential Tax Planning Strategy?
   –   Revenue Ruling 70-40
   –   Todisco, 55 AFTR 2d 85-1043 (1985)
   –   Ruling 92-29
   –   Arrowsmith Doctrine
   –   California Real Estate Withholding – ―Direct Tax‖
   –   IRS APPEALS VICTORY!
                                                           43
       SALES TAX DEDUCTION
 AMT Technical Corrections included in the
  Technical Corrections Act of 2005:
 Treatment of deduction for State and local
  sales taxes under the Alternative Minimum Tax
 The provision clarifies that the itemized deduction
  for State and local sales taxes does NOT apply in
  computing alternative minimum taxable income.
  (Act Section 501)
 Sales tax deduction may save on state income tax
  e.g. New York

                                                    44
        AMT PLANNING –
         TAX REFUNDS

 Planning for State Income Tax Refunds –
  IRC Section 111 Recoveries
 AMT Tax Benefit Analysis
 REMINDER: Tax Refunds are a
  NEGATIVE AMT Adjustment

                                        45
        Other Deductible Taxes
   Estate Tax on IROD (IRC Sec 691)
   GST Tax on Income Distributions
   ―Direct Taxes‖ – Rev Rul 70-40
   Direct Taxes for Business or Rental – IRC Sec
    62(a)(1) and (4)
   IRC Section 212 Activity Taxes – IRC Section
    67(b)(2)
   ½ of Self- Employment Taxes
   Capitalized Taxes as part of Capital Acquisition
    – IRC Section 266
   Co-op Real Estate taxes – NO - Ostrow          46
     AMT Miscellaneous Itemized
          Deduction Planning

 Contingent Legal Fees – Banks and Banaitas Supreme
  Court Case/New Legislation – IRC Section 62(a)(20)

 Investment expenses and Other IRC Section 212
  expenses attributable to capital asset sales as a
  portion of expense of sale

 Accounting fees as a deduction in arriving at adjusted
  gross income (Revenue Ruling 92-29)


                                                       47
     AMT Miscellaneous Itemized
      Deduction Planning (cont.)
 Hobby Loss rules – A trap for the unwary – Contrast to
  Gambling Loss/Vacation Home

 Statutory Employee/Outside Salesman Expenses on
  Schedule C

 Teacher unreimbursed expenses as charitable
  contributions – See Rockefeller

 Self-employed related deductions e.g. board of
  directors of fees – unreimbursed expenses

 Itemized Deduction Phase-out does NOT apply to AMT
                                                       48
    INVESTMENT EXPENSES
 Capitalized as a portion of Acquisition Costs
 Investment Consulting Fees Allocable to
  Capital Acquisitions – Broker/Consulting Letter
 Investment Consulting Fees Allocable to
  Capital Asset Sales – Broker/Consulting Letter
 Brokerage Fees
 Revenue Ruling 92-29
 Trusts – Investment Expense Treatment
 GAAP – Proper Matching Revenue and
  Expense
                                               49
            AMT Charitable
           Contribution Planning
 Charitable contributions are deducted in full
  for AMT – No reduction for Itemized Deduction
  Limitation

 Unrealized Appreciation on Charitable
  Contribution of Long-Term Capital Gain
  Property is NOT a preference item since 1993.

 Teacher unreimbursed expenses as charitable
  contributions – See Rockefeller


                                                  50
      Depreciation Planning
 179 deductions are allowed in full for
  AMT
 30% and 50% bonus depreciation is
  allowable in full for AMT and all MACRS
  depreciation on those ―bonus
  depreciation‖ assets
 Lease versus buy planning may avoid
  any AMT depreciation adjustments

                                            51
 Depreciation Planning (cont.)
 Depreciation elections may reduce or
  eliminate AMT depreciation adjustments

 Depreciation AMT Adjustments through
  pass-through entities – The $400,000
  experience

 New Final Regs on Amortization
                                           52
      AMT DEPRECIATION
     200 DB versus 150DB?

 What’s the cost savings when
  comparing 200DB vs. 150 DB?
 Assume
  – $20,000 asset
  – Useful life of 5 years
  – Discount rate of 7%
  – Combined federal and state tax rate of 44%

                                            53
       The Answer
  200 DB versus 150DB?


– ONLY $190 Saved
   $1 for every $100
   What’s the cost to maintain multiple records?




                                                    54
      Installment Sales


 Can create, defer or avoid AMT
  – Remember LTCG can create AMT due to the
    phase-out of the exemption at high AMTI
    levels




                                          55
 AMT Planning Timing of Income
 Acceleration of income to an AMT year may be
  beneficial trade-off of 26% and/or 28% AMT
  rate for highest regular income tax rate of 35%
 Cautionary Note: Exemption Phase-out can
  raise the Effective AMT Rate to 35%
 Cautionary Note: No acceleration if AMT credit
  is created
 Major Planning Opportunity: Deferral of
  Income with Long Term Unused AMT Credits


                                                56
           AMT Planning
        Timing of Income (cont.)
 Crossover points – Reducing AMT may
  increase the regular income tax

 Exemptions and the Standard
  Deduction are NEVER allowed for AMT
  – Moral to the story – Time Income so
  that Exemptions and the Standard
  Deduction are not wasted.

                                          57
               AMT Planning
             Timing of Deductions
 Tax Trap for the Unwary – Be careful to plan for the
  proper tax year for state income tax so the deduction
  is not wasted for AMT

 State Income Tax – Mandatory California Income Tax
  Withholding on Real Estate GROSS PROCEEDS

 Year end planning to avoid wasting deductions
  potentially lost for AMT purposes

 Crossover points – Reducing AMT may increase the
  regular income tax

 Exemption Planning Opportunities – New Child
  Definition                                              58
            AMT NOL Planning
 Remember AMT NOL exists – Form 6251 Line 27

 Use of 100% of AMT NOL was limited to tax years
  2001 and 2002. Caution: only 90% of AMT NOL is
  available in 2003 and thereafter

 Extended AMT NOL carry back period of 5 years was
  limited to 2001 and 2002. Caution: 2 year carry back
  period is available in 2003 and thereafter

 Election to forego the NOL carry back must be made
  on the same basis for both the Regular Tax NOL and
  the AMT NOL
                                                         59
          AMT Credit Planning
 Reminder: Pick up any AMT Credit from prior years.
  Analyze if and when AMT was ever paid BOTH
  FEDERAL AND STATE!

 Credit limited to deferral items e.g. depreciation –
  most adjustments do NOT result in an AMT Credit

 Contrast to Corporate AMT – 100% of any AMT paid
  results in an AMT credit – Essentially becomes a
  prepayment of future tax – A Time Value of Money
  Issue (Corporate Reminder: Pick up any AMT Credit
  from prior years. Analyze Tax Forms 4626 and 8827)

                                                         60
              AMT Planning for
              Other Tax Credits
 Consider expensing versus taking credits not
  allowable to reduce AMT: Research Credit;
  Jobs Credits, Orphan Drug Credit
 Credits must reduce expense for both regular
  tax and AMT – Recent Case
 Foreign Tax Credit allowed 100% in 2005 for
  AMT
 Consider foregoing Foreign Earned Income
  Exclusion/Use Foreign Tax Credit

                                                 61
               AMT ISO Planning
 Cash in your chips – at least enough to pay your taxes!

 Timing of Exercise
   – Same year Approach
   – Serial – over a period of years

   Disqualifying Qualified ISOs

   AMT Capital Loss Limit
    -Speltz and Merlo

   2002 AICPA Tax Conference – AMT and ISO Planning by Dale Spradling,
    Ph.D.




                                                                      62
               AMT ISO Planning
 New Legislation on Long-Term Unused Minimum Tax Credits

 Merlo – AMT Capital Loss

 Palahnuk (Ct Fed Cl Feb 28,2006) 97AFTR 2d Para. 2006-609

 Speltz 124 T.C. No. 9 (Mar 24, 2005)

 Montgomery, TC Dec. 55,501 (Jan 23,2004)

 Coalition For Tax Fairness – www.fair-iso.org

 IRS NOTICE 2004-28 (April 19, 2004) – Five ―Frivolous
  Positions‖



                                                              63
 AMT Planning –Exemptions and
       Standard Deductions
 Exemptions and the Standard Deduction are
  NEVER allowed for AMT – Moral to the story –
  Time Income so that Exemptions and the
  Standard Deduction are not wasted.

 Exemptions – Claussen case

 Exemption Planning – New Child Definition

                                                 64
AMT – FOREGOING DEDUCTIONS

 Election out of Itemized Deductions -
  Marx, TC Summary Opinion 2003-23
  (March 19, 2003)

 QURESHI, 98 AFTR 2d 2006-6473,
  09/06/2006 – appeals court affirms lower
  court


                                             65
       AMT Home Equity Interest
           Expense Planning
 Equity Home interest not used for acquisition or
  remodel of a principal residence is NOT
  deductible for AMT

 Consider Tracing Election – IRC Sec 163(h)

 Deduction MAY be salvaged - trace to funding
  investment i.e. becomes investment interest for
  AMT purposes. Deductible to extent of AMT
  investment income including income from
  private activity bonds
                                                66
       AMT – OTHER INTEREST
         EXPENSE PLANNING

 Qualified Housing Interest – Rev Rul 2005-11

 Interest expense to carry tax exempt private
  activity bonds is a potential AMT expense

 Election to treat capital gain income and
  dividend income as investment income may
  result in AMT tax savings

                                                 67
         CORPORATE AMT
 S CORPS NOT SUBJECT TO AMT – AMT
  ITEMS PASS-THROUGH TO
  SHAREHOLDERS
 C CORPS – AMT SMALL BUSINESS
  EXEMPTION- $5 Million/$7.5 Million Rules
 Less than 15,000 C Corps are Subject to
  Corporate AMT
 IRS Notifications to C Corps: Are you sure
  you are subject to AMT?
                                               68
         AMT TAX TIPS 2007

 1. For any potential taxable settlement proceeds
  from a lawsuit consider first if it is possible to
  structure the proceeds as non-taxable excludable
  income under Internal Revenue Code Section 104
  as a result of physical injury for both regular tax
  and Alternative Minimum Tax purposes. Murphy
  case holds mental illness excludable. Note that the
  IRS has recently conceded that mental injury can
  contain some element of physical injury.



                                                   69
        AMT TAX TIPS 2007
 2. Consider structuring any settlement
  proceeds as tied to employment related
  matters or other permissible actions under
  Internal Revenue Code Section 62(a)(20)
  and 62 (e) 1-19 in order to have related
  legal fees deducted above the line and thus
  deductible for both regular tax and the AMT.


                                             70
        AMT TAX TIPS 2007

3. Consider salvaging itemized deductions for
 AMT for investment related expenses by
 capitalizing such costs upon asset
 acquisition or deducting them upon
 disposition of capital assets as an expense
 of sale. Obtain documentation from brokers
 and investment counselors.



                                                71
        AMT TAX TIPS 2007


4. Consider salvaging itemized deductions for
  AMT by deducting state income taxes above
  the line as direct taxes related to a business
  or asset disposition.



                                               72
        AMT TAX TIPS 2007

5. Consider salvaging itemized deductions for
  AMT by deducting property taxes above the
  line as directly related costs or possibly as
  capitalizable costs under Internal Revenue
  Codes Section 266.



                                              73
        AMT TAX TIPS 2007

6. If you are paying Corporate AMT for your C
  corporation you may be in error. Less than
  15,000 C corporations out of over 2 million
  are subject to Corporate AMT primarily
  because of the small business gross
  receipts exemption.


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QUESTIONS & ANSWERS




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