Alternative Minimum Tax for Noncorporate Taxpayers

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[IA-4-94]

RIN 1545-AS44

Alternative Minimum Tax for Noncorporate Taxpayers

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and public hearing.

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SUMMARY: This document contains proposed regulations relating to the

alternative minimum tax for taxpayers other than corporations. The

regulations provide guidance on the computation of alternative minimum

taxable income with respect to items that are determined by reference

to adjusted gross income. The regulations affect noncorporate taxpayers

who may be subject to the alternative minimum tax.

DATES: Written comments must be received by May 17, 1994. Outlines of

topics to be discussed at the public hearing scheduled for Monday, June

6, 1994, at 10 a.m. must be received by Monday, May 16, 1994.

ADDRESSES: Send submissions to: CC:DOM:CORP:T:R (IA-4-94), room 5228,

Internal Revenue Service, POB 7604, Ben Franklin Station, Washington,

DC 20044. In the alternative, submissions may be hand delivered to:

CC:DOM:CORP:T:R (IA-4-94), Internal Revenue Service, room 5228, 1111

Constitution Avenue NW., Washington, DC. The public hearing will be

held in the Auditorium, Internal Revenue Building, 1111 Constitution

Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Kelly R.

Berg of the Office of Assistant Chief Counsel (Income Tax and

Accounting) at (202) 622-4960; concerning submissions and the public

hearing, Carol Savage of the Regulations Unit, (202) 622-7190 (not

toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to the Income Tax Regulations (26

CFR part 1) under section 55 of the Internal Revenue Code (Code).

Section 55 imposes the alternative minimum tax (AMT). These proposed

regulations are necessary to provide guidance relating to the

computation of AMT for taxpayers other than corporations.

Explanation of Provisions

Section 55 of the Code imposes an alternative minimum tax (AMT)

equal to the excess of the taxpayer's tentative minimum tax for the

taxable year over the taxpayer's regular tax for the taxable year.

Tentative minimum tax is equal to a percentage of the amount by which

the taxpayer's alternative minimum taxable income (AMTI) exceeds an

exemption amount, reduced by the taxpayer's AMT foreign tax credit.

AMTI is the taxable income of the taxpayer determined with the

adjustments provided in sections 56 and 58, and increased by the tax

preference items described in section 57. These proposed regulations

provide that, for purposes of computing the AMTI of a taxpayer other

than a corporation, all references to the taxpayer's adjusted gross

income (AGI) in determining the amount of items of income, exclusion,

or deduction must be treated as references to the taxpayer's AGI as

determined for regular tax purposes.

Section 1.55-1(a) of the proposed regulations provides that, in

general, all Internal Revenue Code provisions that apply in determining

the regular taxable income of a taxpayer also apply in determining the

AMTI of the taxpayer. This general rule is consistent with the language

of section 55 and the legislative history. The Service and Treasury in

prior years have treated the AMT as a tax system that is separate from

and parallel to the regular tax system. For example, regulations on the

adjusted current earnings (ACE) adjustment provide that, except as

otherwise provided, all Code provisions that apply in determining the

regular taxable income of a taxpayer also apply in determining ACE. In

addition, in the preamble to the final ACE regulations, the Service and

Treasury stated their belief that Congress intended ACE (and the AMT in

general) to be a separate tax system. In both the notice of proposed

rulemaking and the final ACE regulations, the Service and Treasury

solicited comments on ways in which ACE and the AMT might be simplified

without deviating from the results Congress intended. No comments

regarding the separate and parallel concept were received in response

to these solicitations.

In 1993, the Service issued Technical Advice Memorandum 9320003 and

Private Letter Ruling 9321063, both involving the application of the

section 170(b)(1) charitable contribution deduction limitation to the

computation of an individual taxpayer's AMTI. Section 170(b)(1) limits

a taxpayer's charitable deduction for the taxable year based on the

taxpayer's AGI for the year. Both of the rulings held that, consistent

with the separate and parallel concept, and absent regulations to the

contrary, taxpayers must compute a separate AMT AGI for purposes of

applying the section 170(b)(1) limitation to the charitable deduction

for AMT purposes. The separate and parallel concept on which the

rulings rely would apply to any other AGI-based item as well.

Although the 1993 Form 6251, ``Alternative Minimum Tax--

Individuals,'' reflects the position that the AMT is a separate and

parallel tax system, the forms and publications for prior years were

less clear. The Service has received comment letters asking that the

position taken in the two rulings and the 1993 forms be reconsidered.

The authors of those comment letters suggest that the added complexity

of the approach taken in the rulings and forms far outweighs the

benefits of consistency in applying the separate and parallel concept.

See Staff of the Joint Committee on Taxation, 99th Cong., General

Explanation of the Tax Reform Act of 1986 438 n.9 (Comm. Print 1987),

which contemplates that the Treasury may prescribe regulations

deviating from the separate and parallel system in cases where such

system leads to increased complexity and recordkeeping burdens.

In many cases, requiring taxpayers to recompute for AMT purposes

those items of income and expense that are limited to a percentage of

AGI results in extreme complexity. Many taxpayers will have to perform

those complex calculations only to discover that they do not have any

AMT liability for the year. In addition, taxpayers' recordkeeping

burdens are greatly increased because they are required to maintain

separate AMT carryforward schedules, regardless of whether AMT is paid

in a given taxable year. Because of the extreme complexity and

increased recordkeeping burdens imposed on a large number of

noncorporate taxpayers under a completely separate and parallel AMT

system, the proposed regulations provide that, in computing AMTI, any

reference to AGI in determining the amount of items of income,

exclusion, or deduction must be treated as referring to AGI for regular

tax purposes.

The regulations are proposed to be effective for taxable years

beginning after December 31, 1993. See, however, Notice 94-28, I.R.B.

1994-14, for rules concerning the computation of AMTI in accordance

with these proposed regulations for taxable years beginning before

January 1, 1994.

Special Analyses

It has been determined that this notice of proposed rulemaking is

not a significant regulatory action as defined in Executive Order

12866. It has also been determined that section 553(b) of the

Administrative Procedure Act (5 U.S.C. chapter 5) and the Regulatory

Flexibility Act (5 U.S.C. chapter 6) do not apply to these proposed

rules, and, therefore, a Regulatory Flexibility Analysis is not

required. Pursuant to section 7805(f) of the Internal Revenue Code,

this notice of proposed rulemaking will be submitted to the Chief

Counsel for Advocacy of the Small Business Administration for comment

on its impact on small businesses.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations,

consideration will be given to any written comments that are submitted

timely (preferably a signed original and eight copies) to the IRS. All

comments will be available for public inspection and copying.

A public hearing has been scheduled for Monday, June 6, 1994, at 10

a.m. in the Auditorium, Internal Revenue Building, 1111 Constitution

Avenue NW., Washington, DC. Because of access restrictions, visitors

will not be admitted beyond the Internal Revenue Building lobby more

than 15 minutes before the hearing starts.

The rules of 26 CFR 601.601(a)(3) apply to the hearing.

Persons that wish to present oral comments at the hearing must

submit written comments by May 17, 1994 and submit an outline of the

topics to be discussed and the time to be devoted to each topic by

Monday, May 16, 1994.

A period of 10 minutes will be allotted to each person for making

comments.

An agenda showing the scheduling of the speakers will be prepared

after the deadline for receiving outlines has passed. Copies of the

agenda will be available free of charge at the hearing.

Drafting Information

The principal author of these regulations is Kelly R. Berg of the

Office of Assistant Chief Counsel (Income Tax and Accounting). However,

other personnel from the IRS and Treasury Department participated in

their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in

part:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.55-1 is added to read as follows:

Sec. 1.55-1 Alternative minimum tax for noncorporate taxpayers.

(a) General rule for computing alternative minimum taxable income.

Except as otherwise provided by statute or regulations, all Internal

Revenue Code provisions that apply in determining the regular taxable

income of a taxpayer also apply in determining the alternative minimum

taxable income of the taxpayer.

(b) Items based on adjusted gross income. In determining the

alternative minimum taxable income of a taxpayer other than a

corporation, all references to the taxpayer's adjusted gross income in

determining the amount of any item of income, exclusion, or deduction

must be treated as references to the taxpayer's adjusted gross income

as determined for regular tax purposes.

(c) Effective date. These regulations are effective for taxable

years beginning after December 31, 1993.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

[FR Doc. 94-6373 Filed 3-17-94; 8:45 am]

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