Klaassen v. Commissioner
| Decision Date | 02 July 1998 |
| Docket Number | Docket No. 11210-97. |
| Citation | 76 T.C.M. 20 |
| Parties | David R. and Margaret J. Klaassen v. Commissioner. |
| Court | U.S. Tax Court |
This case was heard pursuant to the provisions of section 7443A(b)(3) and Rules 180, 181, and 182.1
Respondent determined a deficiency in petitioners' Federal income tax for the taxable year 1994 in the amount of $1,085.43, as well as an addition to tax under section 6654(a) in the amount of $66.36. The deficiency in income tax is solely attributable to the alternative minimum tax prescribed by section 55.
After a concession by respondent,2 the only issue for decision is whether petitioners are liable for the alternative minimum tax.
Some of the facts have been stipulated, and are so found. Petitioners resided in Marquette, Kansas, at the time that their petition was filed with the Court.
Petitioners are husband and wife. Petitioners are also members of the Reformed Presbyterian Church of North America (the Church). Members of the Church are taught that the production of many offspring is a blessing. Accordingly, petitioners are opposed to birth control and abortion.
Petitioners have a large family. In 1994, the taxable year in issue, petitioners had 10 children. Shortly before trial, their 13th child was born. All of petitioners' children qualify as petitioners' dependents within the meaning of section 151(c).
Petitioners timely filed a joint Federal income tax return, Form 1040, for 1994. On their return, petitioners properly claimed a total of 12 exemptions; i.e., two for themselves and 10 for their children. Petitioners reduced their income by the aggregate value of the 12 exemptions, or $29,400.3
For 1994, petitioners itemized their deductions on Schedule A. Included on Schedule A were deductions for medical and dental expenses in the amount of $4,767.13 and state and local taxes in the amount of $3,263.56.
Petitioners neither completed nor attached Form 6251 (Alternative Minimum Tax — Individuals) to their 1994 income tax return, nor did petitioners report any liability for the alternative minimum tax on line 48 of Form 1040.
In March 1997, respondent issued a notice of deficiency to petitioners for the taxable year 1994. In the notice of deficiency, respondent did not disallow any of the deductions or exemptions claimed by petitioners on their Form 1040 for purposes of the income tax imposed by section 1(a). Rather, respondent determined that petitioners are liable for the alternative minimum tax prescribed by section 55. In computing the alternative minimum tax, respondent conceded that petitioners have no items of tax preference within the meaning of section 57.
Respondent's determination of the alternative minimum tax is based on the following computation and entries from petitioners' income tax return:
I. Individual Income Tax Return—Form 1040
Adjusted Gross Income (Form 1040, line 31) ..................... $83,056.42
Less: Itemized Deductions (Schedule A) ......................... -19,563.95
__________
Balance (Form 1040, Line 35) ................................... 63,492.47
Less: Exemptions (Form 1040, Line 36) .......................... -29,400.00
__________
Taxable Income (Form 1040, Line 37) ............................ 34,092.47
==========
Regular Income (Form 1040, Line 38) ............................ 5,111.00
==========
II. Itemized Expenses—Schedule A
Medical Expenses
Actual expenses ................................... $10,996.36
Less: 7.5% AGI .................................... -6,229.23
__________
Deductible amount ................................. 4,767.13
State and Local Taxes .......................................... 3,263.56
Interest Paid .................................................. 3,585.76
Charitable Contributions ....................................... 7,947.50
__________
Total Itemized Deductions ...................................... 19,563.95
==========
III. Alternative Minimum Taxable Income
Taxable Income (Form 1040, Line 37) ............................ $34,092.47
Adjustments
Medical expenses (10% floor) ................................... 2,076.411
State and local taxes .......................................... 3,263.56
Exemptions ..................................................... 29,400.00
__________
Balance ........................................................ 68,832.44
Plus: Items of Tax Preference .................................. -0-
__________
Alternative Minimum Taxable Income ............................. 68,832.44
==========
IV. Alternative Minimum Tax
Alternative Minimum Taxable Income ............................. $68,832.44
Less: Exemption Amount ......................................... -45,000.00
___________
Taxable Excess ................................................. 23,832.44
Times: applicable AMT rate ..................................... × 26%
__________
Tentative Minimum Tax .......................................... 6,196.43
Less: Regular Tax .............................................. -5,111.00
__________
Alternative Minimum Tax ........................................ 1,085.43
1 The adjustment is computed as follows
Actual Medical Expenses ............................. $ 10,996.36
Less: 10% AGI ....................................... -8,305.64
____________
AMT deductible amount ............................... 2,690.72
============
Schedule A medical deduction ........................ 4,767.13
Less: AMT deductible amount ......................... -2,690.72
____________
Adjustment .......................................... 2,076.41
============
OPINION
Our analysis necessarily begins with section 55, the section of the Internal Revenue Code that imposes the alternative minimum tax. Initially, we note that the alternative minimum tax is imposed in addition to the regular tax and that the "regular tax" is, as relevant herein, the income tax computed on taxable income by reference to the pertinent tax table. See sec. 55(a), (c)(1). In petitioners' case, the "regular tax" is $5,111; i.e., the amount reported on line 38 of petitioners' Form 1040.
Pursuant to section 55(a), the alternative minimum tax is the difference between the "tentative minimum tax" and the "regular tax". As relevant herein, the "tentative minimum tax" is 26 percent of the excess of a taxpayer's "alternative minimum taxable income" over an exemption amount of $45,000. See sec. 55(b)(1)(A)(i)(I), (b)(2), (d)(1)(A)(i).
Section 55(b)(2) defines the term "alternative minimum taxable income" As relevant herein, the term "alternative minimum taxable income" means the taxpayer's taxable income for the taxable year determined with the adjustments provided in section 56 and increased by the amount of items of tax preference described in section 57. Petitioners had no items of tax preference in 1994. Accordingly, alternative minimum taxable income means petitioners' taxable income determined with the adjustments provided in section 56.
Petitioners' taxable income for 1994 was $34,092.47, the amount reported on line 37 of Form 1040.
As relevant herein, the adjustments provided in section 56(b) are threefold. First, section 56(b)(1)(A)(ii) states that no itemized deduction for State and local taxes shall be allowed in computing alternative minimum taxable income. Second, section 56(b)(1)(B) states that in determining the amount allowable as a deduction for medical expenses, a floor of 10 percent shall be applied in lieu of the regular 7.5 percent floor. See sec. 213(a). Third, section 56(b)(1)(E) states that no personal exemptions shall be allowed in computing alternative minimum taxable income.
The effect of section 56(b)(1)(A)(ii), (b)(1)(B), and (b)(1)(E) is to increase petitioners' taxable income by: (1) $3,263.56, the amount claimed on petitioners' Schedule A for State and local taxes; (2) $2,076.41, the difference between the amount allowable as a deduction for medical expenses on Schedule A and the amount allowable as a deduction for medical expenses for purposes of the alternative minimum tax; and (3) $29,400, the amount claimed on petitioners' Form 1040 for personal exemptions.
After taking into account the foregoing three adjustments, petitioners' alternative minimum taxable income for 1994 equals $68,832.44. Alternative minimum taxable income exceeds the applicable exemption...
To continue reading
Request your trial