Huntsberry v. Comm'r of Internal Revenue

• Decision Date: 26 November 1984
• Docket Number: Docket No. 28038-81.
• Citation: 83 T.C. No. 42,83 T.C. 742
• Parties: HOWARD Y. HUNTSBERRY and MARGARET N. HUNTSBERRY, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

83 T.C. 742

83 T.C. No. 42

HOWARD Y. HUNTSBERRY and MARGARET N. HUNTSBERRY, Petitioners

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 28038-81.

United States Tax Court

November 26, 1984

HELD, the alternative minimum tax imposed by section 55, I.R.C. 1954, is predicated upon applying specified percentages to a base of ‘alternative minimum taxable income‘ of which certain tax preferences are a significant but not necessarily an indispensable component. Accordingly, petitioners are liable for the alternative minimum tax for 1979 computed in accordance with the specific provisions of section 55, notwithstanding that they did not have any tax preferences that year. HELD, FURTHER, section 58(h) is inapplicable in this case. WILLIAM V. SPATZ, for the respondent.

GERALD V. WALSH, for the petitioners.

OPINION

RAUM, JUDGE:

The Commissioner determined a $24,612.75 deficiency in petitioners' 1979 Federal income tax. The sole issue is whether petitioners are liable for the alternative minimum tax imposed by section 55, I.R.C. 1954. The facts have been stipulated.

Petitioners Howard Y. Huntsberry and Margaret N. Huntsberry, husband and wife, resided in Coral Gables, Florida, when they filed the petition herein. They filed their joint Federal income tax return for the taxable year 1979 with the Internal Revenue Service Center, Chamblee, Georgia.

Petitioners' 1979 Federal income tax return reported gross income of $192,490, itemized deductions of $8,103, and three personal exemptions, and showed the following tax liability as reduced by tax credits:

+---------------------------+
                ¦Tax before credits ¦$79,826¦
                +---------------------------+
                

Reduced by
                Credit for contribution to candidates (13)
                Investment tax credit                 (2,096)
                Jobs credit                           (69,945)
                Residential energy credit             (38)
                Total 1979 Federal income tax         7,734
                

It disclosed no tax preferences as defined by sections 55(b)(1)(C) (now section 55(b)(2)) and 57, I.R.C. 1954, nor indicated any liability for the alternative minimum tax.

The Commissioner did not challenge the correctness of any item of income, deduction, or credit shown on petitioners' return. However, on December 30, 1980, he sent petitioners a letter which stated, in part: ‘Your (1979) return indicates Form 6251, Alternative Minimum Tax Computation, was due. Please fill one out and send it to us‘. Petitioners thereafter returned a partly completed Form 6251 on which they had entered the appropriate amounts on those lines used for determining ‘alternative minimum taxable income‘, and thus reported $181,387 of such income, but left blank or entered the word ‘none‘ on those lines reserved for computing the amount of tax due with respect to such income. Had petitioners completed the form in accordance with its accompanying instructions, they would have reported an alternative minimum tax of $24,612.75, the amount of the deficiency herein. In making his determination, the Commissioner again accepted as correct all of the items of income, credits, and deductions appearing on petitioners' return, as well as the $181,387 ‘alternative minimum taxable income‘ appearing on their partly completed Form 6251.

Section 55(a) ¹ imposed upon noncorporate taxpayers ‘a tax equal to the amount‘ by which the sum of specified percentages of ‘alternative minimum taxable income‘ (at graduated rates) ‘exceeds * * * the regular tax for the taxable year‘. Section 55(b)(1) defined ‘alternative minimum taxable income‘ as a taxpayer's gross income reduced by all allowable deductions and by amounts included in income under section 667 (accumulated distributions to trust beneficiaries), and increased by the sum of the two tax preference items for ‘(i) adjusted itemized deductions (within the meaning of section 57(a)(1)), and (ii) capital gains (within the meaning of section 57(a)(9))‘. The percentages of alternative minimum taxable income to be compared to the ‘regular tax‘ were set forth by section 55(a)(1), as follows:

(A) 10 percent of so much of the alternative minimum taxable income as exceeds $20,000 but does not exceed $60,000 plus

(B) 20 percent of so much of the alternative minimum taxable income as exceeds $60,000 but does not exceed $100,000, plus

(C) 25 percent of so much of the alternative minimum taxable income as exceeds $100,000

The ‘regular tax for the taxable year‘ was defined by section 55(b)(2), as follows:

(T)he taxes imposed by * * * (Chapter 1) for the taxable year (computed without regard to this section and without regard to the taxes imposed by sections 72(m)(5)(B), 402(e), 408(f), 409(c) and 667(b)) REDUCED BY THE SUM OF THE CREDITS allowable under subpart A of part IV of this subchapter (other than under sections 31, 39 and 43). (Emphasis supplied.)

Thus, although tax preferences may play a part in the computation of the alternative minimum tax, that tax is not a tax on preference items but is rather an ‘add on‘ tax which is imposed whenever the sum of statutory percentages of ‘alternative minimum taxable income‘ exceeds the ‘regular tax‘ for the taxable year. More important, because alternative minimum taxable income may be close to or at least equal to net taxable income (computed by subtracting all deductions and personal exemptions from gross income) an individual taxpayer may be liable for the alternative minimum tax whenever tax credits reduce his regular tax below the amount calculated by applying the section 55(a)(1) percentages to his alternative minimum taxable income, notwithstanding that the taxpayer claimed no tax preferences.

Accordingly, if the statute is followed according to its detailed terms, a taxpayer may be liable for the ‘alternative minimum tax‘ imposed by section 55 even though he may not have claimed any tax preferences. And that is precisely the situation in the instant case. As noted above, petitioners' regular tax before credits was $79,826 which was reduced to $7,734 as a consequence of four credits, primarily a jobs credit of $69,945. On the other hand, application of the specified statutory percentages (section 55(a)(1), supra) to petitioners' undisputed $181,387 ‘adjusted minimum taxable income‘ produced the following result:

+------------------------------------------------+
                ¦(A)¦10% of $40,000                    ¦$4,000.00¦
                +---+----------------------------------+---------¦
                ¦(B)¦20% of $40,000                    ¦8,000.00 ¦
                +---+----------------------------------+---------¦
                ¦(C)¦25% of $81,387 (181,387 - 100,000)¦20,346.75¦
                +---+----------------------------------+---------¦
                ¦   ¦Total                             ¦32,346.75¦
                +------------------------------------------------+
                

The $32,346.75 figure thus computed is substantially in excess of petitioners' ‘regular tax‘ of $7,734, with the result that section 55(a) imposed ‘a tax equal to the amount of such excess‘, namely, $24,612.75 as the ‘alternative minimum tax‘. That is also the result reached by scrupulously following Form 6251 which, in turn, follows the statutory provisions.

Petitioners initially attempted to justify their failure to complete the Form 6251 in accordance with its instructions by referring to a periphrastic double negative explanation on their original tax return which read:

Taxpayer has computed his alternative minimum tax in a manner that deviates from the regulations. Taxpayer does not deem it proper to fail to offset jobs tax credit from the alternative minimum tax.

Petitioners have since conceded that Form 6251 conforms to a literal reading of the statute, that ‘(i)f one follows the Code, you reach the conclusion that the Respondent has reached‘, and that ‘(t)he form specifically tracks the Code ‘. Their principal contention now, however, is that no calculations whatever should have been made in the first place, because, in their view, section 55 is simply inapplicable where, as here, a taxpayer claims no items of ‘tax preference‘. They do not point to any language in section 55 that specifically so states, but they find comfort in what they perceive to be the purpose of section 55 as disclosed by legislative history. We hold that there is no solid basis in the legislative history or otherwise for refusing to apply section 55 as written, and we sustain the Commissioner.

1. Because of its relationship to various other arguments made by petitioners, we consider preliminarily their position originally taken by them on their return and in their petition filed herein, namely, that they were entitled ‘to offset jobs tax credit from the alternative minimum tax‘. ² However, petitioners' position is unsound. Section 55(c)(1) makes abundantly clear that credits other than foreign tax credits are not allowable against the alternative minimum tax. ³

Section 55, which imposed the alternative minimum tax, was added to the Code by section 421 of the Revenue Act of 1978, Pub. L. 95-600, 92 Stat. 2763, 2871. In the report of the Conference Committee on the bill which subsequently became that Act there is an explicit statement, obviously referring to section 55(c)(1), to the effect that only the foreign tax credit of all the ‘nonrefundable‘ ⁴ credits may be taken against the alternative minimum tax. The Committee stated (H. Rept. No. 95-1800, 95th Cong., 2d Sess., 267, 1978-3 C.B. (Vol. 1) 521, 601):

* * * the foreign tax credit is to be allowed against the alternative minimum tax. However, individuals paying the alternative minimum tax are not to obtain the benefit of nonrefundable credits other than the foreign tax credit to the extent of that individual's alternative minimum tax.

Similarly, in a ‘General Explanation of the Revenue Act of 1978 ‘, prepared for the Joint Committee on Taxation, it is stated (Joint Committee Print, March 12, 1979, p. 263):

The foreign tax credit and refundable credits are the only tax credits which are allowed against any alternative minimum tax liability. Thus, taxpayers paying the alternative minimum tax...