TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

 

 

Procedures Were Not Always Followed When Resolving Alternative Minimum Tax Discrepancies

 

 

 

July 30, 2008

 

Reference Number:  2008-40-146

 

 

This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.

 

Redaction Legend:

 

1 = Tax Return/Return Information

Phone Number   |  202-622-6500

Email Address   |  inquiries@tigta.treas.gov

Web Site           |  http://www.tigta.gov

 

July 30, 2008

 

 

MEMORANDUM FOR COMMISSIONER, WAGE AND INVESTMENT DIVISION

 

FROM:                            Michael R. Phillips /s/ Michael R. Phillips

                                         Deputy Inspector General for Audit

 

SUBJECT:                    Final Audit Report – Procedures Were Not Always Followed When Resolving Alternative Minimum Tax Discrepancies (Audit # 200740037)

 

This report presents the results of our review of the Alternative Minimum Tax (AMT).  The overall objective of this review was to determine whether the Internal Revenue Service (IRS) computer systems accurately identified and computed the AMT for taxpayers who might be liable, including both taxpayers who claimed the AMT and those who did not claim it but should have.  This review was part of the Treasury Inspector General for Tax Administration Fiscal Year 2007 Annual Audit Plan and related to the Fiscal Year 2007 Major Management Challenge of addressing the complexity of the tax law.

Impact on the Taxpayer

The number of taxpayers affected by the AMT is expected to grow significantly in the next 10 years if Congress does not continue to increase exemption amounts.  AMT revenue increased from $16.7 billion for Tax Year 2005 to $21.4 billion for Tax Year 2006.  Determining whether the AMT is owed is complex and time consuming, and the complexity causes taxpayer errors.  Computer checks calculate what the AMT should be based on the information reported on the tax return.  Tax returns with an AMT discrepancy are sent to IRS tax examiners for review.  Our review identified that tax examiners did not always follow established procedures when resolving these discrepancies, which in some instances caused taxpayers to be assessed incorrect amounts.

Synopsis

The AMT has its own definition of income subject to tax and its own tax rates.  Taxpayers might not know they are subject to the AMT until they compute their tax under the regular tax system. The IRS recognizes the difficulty the AMT causes taxpayers both in determining whether the AMT applies to them and, if applicable, in computing their specific AMT liabilities.  The IRS provides taxpayers with tools to determine whether they will have to prepare an Alternative Minimum Tax–Individuals (Form 6251)[1] to determine their AMT liabilities.  These tools include the Worksheet To See If You Should Fill In Form 6251 and the AMT Assistant on the IRS web site (IRS.gov).  We reviewed a random sample of 80 tax returns filed with a Form 6251.  In every case, the AMT Assistant correctly notified the taxpayer whether a Form 6251 should or should not be completed.

Computer checks have been developed to identify discrepancies in the reporting of the AMT.  However, examiners did not always correctly resolve AMT discrepancies.

Despite the tools provided to assist taxpayers, the complexity of the AMT causes errors in determining and computing the tax.  In Calendar Year 2006, computer checks identified about 226,000 discrepancies between the AMT figures reported, or not reported, by the taxpayers and the amounts computed by the IRS.  When a discrepancy exists, the tax return is sent to an IRS tax examiner, who reviews the return and looks for obvious input errors or misplaced entries.  The tax examiner determines where the difference occurred.  If the examiner cannot resolve the issue, a notice is sent to the taxpayer asking for additional information or informing the taxpayer that the AMT calculation was incorrect.

We reviewed a random sample of 52 tax returns filed in Calendar Year 2006 on which IRS computers identified a discrepancy.  For all 52 cases, computer checks correctly identified that there was a discrepancy, and the cases were correctly sent to tax examiners for further review.  However, examiners did not follow procedures when resolving 11 (21 percent) of the 52 cases.  Of these 11 cases, 3 resulted in the examiners incorrectly computing the amount of tax owed.  Correct identification and resolution of discrepancies is essential to avoid further increasing the burden for taxpayers subject to the AMT.

Recommendation

The Commissioner, Wage and Investment Division, should provide information to tax examiners reiterating the importance of correctly resolving AMT discrepancies and highlighting specific issues that could lead to incorrect resolution.

Response

IRS management agreed with our recommendation.  In the Submission Processing Division employee annual training, the IRS Error Resolution function will emphasize the effect of the AMT on taxpayers and the correct processing of returns to which it applies.  In addition, during the filing season,[2] a reminder will be issued on the Submission Processing Division “Hot Topics” web site referencing the complexity of resolving AMT discrepancies and highlighting specific issues as necessary.  Management’s complete response to the draft report is included as Appendix VI.

Copies of this report are also being sent to the IRS managers affected by the report recommendation.  Please contact me at (202) 622-6510 if you have questions or Michael E. McKenney, Assistant Inspector General for Audit (Wage and Investment Income Programs), at (202) 622-5916.

 

 

Table of Contents

 

Background

Results of Review

Computer Checks Identify Alternative Minimum Tax Discrepancies; However, Examiners Did Not Always Follow Established Procedures When Resolving the Discrepancies

Recommendation 1:

Appendices

Appendix I – Detailed Objective, Scope, and Methodology

Appendix II – Major Contributors to This Report

Appendix III – Report Distribution List

Appendix IV – Legislative History of the Alternative Minimum Tax

Appendix V – Alternative Minimum Tax–Individuals (Form 6251)

Appendix VI – Management’s Response to the Draft Report

 

 

Abbreviations

 

AMT

Alternative Minimum Tax

IRS

Internal Revenue Service

TY

Tax Year

 

 

Background

 

In 1969, the Secretary of the Treasury reported that 155 individuals, each with an Adjusted Gross Income[3] of $200,000, paid no Federal income tax in 1966.  Subsequently, Congress enacted the minimum tax to ensure that taxpayers pay at least a minimum amount of tax.  This minimum tax was a precursor to the current Alternative Minimum Tax (AMT)[4] that was created in 1978.  The AMT is a recalculated tax to reduce the ability of high-income individuals to avoid paying any tax on their income.  The AMT eliminates many deductions and credits allowed under the regular tax system.  In 1969, high-income taxpayers were defined as those who had income of at least $200,000.  If adjusted for inflation, this figure would be equal to more than $1.1 million dollars today.

For Tax Year (TY) 2005, the AMT generated $16.7 billion in additional revenue.  That figure grew to $21.4 billion (28 percent) for TY 2006 and will continue to grow as the number of taxpayers subject to the AMT increases.

The AMT continues to affect more taxpayers

Congress has temporarily increased AMT exemption amounts to reduce the number of taxpayers subject to the AMT. 

In 1970, only 20,000 taxpayers were subject to the AMT.  The number of taxpayers who paid the AMT remained fairly steady from 1987 through 1992 and increased only slightly through 1997.  However, the number began to grow considerably in 2002 and is expected to continue to grow significantly in the next
10 years.  In recent years, Congress has temporarily increased the AMT exemption amount to help reduce the number of taxpayers subject to the AMT.  For example, in 2006, the temporary exemption increase prevented more than 18 million taxpayers from paying the AMT.  Similar legislation was again passed in December 2007 for TY 2007.  Congress estimated that the temporary exemption increase would reduce the number of taxpayers who would pay the AMT in TY 2007 from 23 million to 4 million.

Although the AMT was originally intended for taxpayers with high income, a growing number of middle-income taxpayers are subject to the AMT.  As shown in Figure 1, almost 46 percent of those who paid the AMT for TY 2005 had Adjusted Gross Income of $200,000 or less.

Figure 1:  Number of Taxpayers Reporting AMT Liabilities for TY 2005

Adjusted Gross
Income

Number of
Taxpayers

Percentage of
Taxpayers

Less than $0

5,416

0.1%

$0 to $100,000

352,243

8.9%

$100,001 to $200,000

1,443,404

36.5%

$200,001 to $300,000

1,204,896

30.5%

$300,001 to $400,000

468,924

11.9%

$400,001 to $500,000

214,022

5.4%

$500,001 to $1,000,000

193,782

4.9%

More than $1,000,000

69,809

1.8%

Total

3,952,496

100.0%

Source:  Analysis of the Internal Revenue Service (IRS) Individual Return Transaction File[5] for TY 2005.

Figure 2 shows the exemption amounts for single taxpayers and married taxpayers filing joint returns for TYs 1993 through 2007.  The exemption amounts are based on the taxpayers’ filing status and are subtracted from the taxpayers’ Alternative Minimum Taxable Income.  They reduce the amount of income that is used to determine the AMT.

Figure 2:  Congressional Increases to the AMT Exemption Amounts

Tax Year

Exemption Amount for Single Taxpayers

Exemption Amount for Married Taxpayers Filing Jointly

1993-2000

$33,750

$45,000

2001-2002

$35,750

$49,000

2003-2005

$40,250

$58,000

2006

$42,500

$62,550

2007

$44,350

$66,250

Source:  Alternative Minimum Tax–Individuals (Form 6251) for TYs 1993 through 2007.

Figure 3 shows the trends in the number of taxpayers subject to the AMT as well as the number of taxpayers who could be affected if Congress does not continue to increase exemption amounts.

Figure 3:  Growth in the AMT

Figure 3 was removed due to its size.  To see Figure 3, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.[6]

 

If Congress does not continue to pass legislation to increase AMT exemption amounts, the rates will revert to levels established by the Omnibus Reconciliation Act of 1993.[7]  These amounts are $33,750 for single taxpayers and $45,000 for married taxpayers.  For TY 2007, legislation was not passed until December 2007.  Because of the late passage of this legislation, 13.5 million taxpayers who used 5 AMT-related tax forms or schedules had to wait until February 11, 2008, to file their returns.  Delaying the processing of these returns allowed the IRS enough time to update and test its systems to accommodate the changes to the forms without major disruptions to other return processing operations.  We are evaluating the effectiveness of the IRS’ implementation of the AMT legislation in our review of the 2008 individual filing season.[8]

Determining whether the AMT is owed is complex and time consuming

The AMT has its own definition of income subject to tax and its own tax rates.  Taxpayers might not know they are subject to the AMT until they compute their tax under the regular tax system.  Instructions for the U.S. Individual Income Tax Return (Form 1040) direct taxpayers to fill out the Worksheet To See If You Should Fill In Form 6251[9] or to use the AMT Assistant (the Assistant) on the IRS web site (IRS.gov) to determine whether they will have to prepare Form 6251 to determine their AMT liabilities.  Form 6251 is composed of three parts:

·         Part I – contains 28 lines and is used to compute a taxpayer’s Alternative Minimum Taxable Income.  This Part requires a taxpayer to add certain income-related items back to his or her Adjusted Gross Income to arrive at Alternative Minimum Taxable Income.

·         Part II – contains seven lines and is used to compute the AMT.

·         Part III – contains 20 lines and is used to compute the AMT using the maximum capital gains rates.

After completing Form 6251, the taxpayer transfers the AMT amount back to his or her Form 1040 and completes the remainder of the tax return.  Approximately 8 million taxpayers filed a Form 6251 for TY 2005.  Approximately 6.7 million (84 percent) of these taxpayers had their returns prepared by paid preparers.

The complexity of the AMT causes errors in determining and computing the AMT.  The IRS developed computer checks to identify taxpayer discrepancies when reporting the AMT.  These checks are performed during the processing of the tax return and calculate what the AMT should be based on the information reported on the tax return.  The checks identify the following types of tax returns:

·         A tax return for which an AMT liability appears to exist but the taxpayer has not claimed the AMT. 

·         A tax return for which the amount of the AMT claimed by the taxpayer differs from the amount computed by the IRS.

When a discrepancy exists, the tax return is identified for further review by an IRS tax examiner, who reviews the return and looks for obvious input errors or misplaced entries.  If there are not obvious errors, the tax examiner determines where the difference occurred.  If the examiner cannot resolve the issue, a notice is sent to the taxpayer asking for additional information or informing the taxpayer that the AMT calculation was incorrect.

This review was performed at the IRS Wage and Investment Division Headquarters in Atlanta, Georgia, in the Office of Customer Account Services, Submission Processing Division, during the period February through November 2007.  We conducted this performance audit in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objective.  We believe that the evidence obtained provides a reasonable basis for our finding and conclusions based on our audit objective.  Detailed information on our audit objective, scope, and methodology is presented in Appendix I.  Major contributors to the report are listed in Appendix II.

 

 

Results of Review

 

Computer Checks Identify Alternative Minimum Tax Discrepancies; However, Examiners Did Not Always Follow Established Procedures When Resolving the Discrepancies

The IRS provides tools to assist taxpayers in determining if the AMT applies to them and, if applicable, in computing their specific AMT liabilities. 

The IRS recognizes the difficulty the AMT causes taxpayers both in determining whether the AMT applies to them and, if applicable, in computing their specific AMT liabilities.  The IRS has taken steps to help taxpayers better understand their responsibility for paying the AMT.  IRS instructions for the U.S. Individual Income Tax Return (Form 1040) direct taxpayers to fill out a Worksheet To See If You Should Fill In Form 6251 to determine if they will have to prepare a Form 6251 to calculate their AMT liabilities.

The IRS also provides the Assistant, which is an electronic version of the AMT worksheet.  Taxpayers enter information from their returns, and the Assistant will inform them as to whether they need to complete Form 6251 to determine their tax liabilities.  We reviewed a random sample of 80 tax returns filed with a Form 6251.  In every case, the Assistant correctly notified the taxpayer whether a Form 6251 should or should not be completed.

Computer checks identify AMT discrepancies

The complexity of the AMT causes taxpayer errors in determining and computing tax liabilities.  IRS computer programs calculate what the AMT should be based on the information reported on the tax return.  The calculated amount is then compared to the AMT reported by the taxpayer.  During Calendar Year 2006, the IRS identified 1) approximately 61,000 tax returns on which taxpayers appeared to owe the AMT but did not claim it on their tax returns and 2) approximately 165,000 tax returns that had discrepancies between the amount of AMT shown by the taxpayer and what was computed by the IRS.

We reviewed a random sample of 52 tax returns filed in Calendar Year 2006 with a difference between the AMT figure provided by the taxpayer and that computed by the IRS.  Computer checks correctly identified that there was a discrepancy for all 52 cases, and the cases were sent to IRS tax examiners for further review.

Examiners did not always follow procedures when resolving AMT discrepancies 

In resolving the identified discrepancies, examiners did not follow procedures for 11 (21 percent) of the 52 cases sampled.  For 8 of those 11 cases, the discrepancy resulted from IRS employees incorrectly transcribing information from paper tax returns to IRS computers when the tax returns were processed.  The transcription errors resulted in the taxpayers’ AMT figures being incorrectly computed when the IRS performed its verification.  Examiners working these cases identified that the discrepancies were the result of transcription errors but did not correct the transcription errors in IRS computers as required.  There was no effect on the amount of tax that the taxpayer owed, and contact with the taxpayer was not necessary because the IRS resolved the errors internally.

For the remaining three cases, the incorrect resolution resulted in an incorrect amount of tax being assessed:

·         ****1****

·         ****1****

Computer checks accurately identified AMT discrepancies for further review.  However, incorrect tax examiner resolution of AMT discrepancies can result in the incorrect calculation of the tax owed.  Resolving these discrepancies correctly will help to ensure that taxpayers are correctly paying their tax liabilities.  In addition, correct identification and resolution of discrepancies is essential to avoid further increasing the burden for taxpayers subject to the AMT.

Recommendation

Recommendation 1:  The Commissioner, Wage and Investment Division, should provide information to tax examiners reiterating the importance of correctly resolving AMT discrepancies and highlighting specific issues that could lead to incorrect resolution.

Management’s Response:  IRS management agreed with this recommendation.  In the Submission Processing Division employee annual training, the IRS Error Resolution function will emphasize the effect of the AMT on taxpayers and the correct processing of returns to which it applies.  In addition, during the filing season, a reminder will be issued on the Submission Processing Division “Hot Topics” web site referencing the complexity of resolving AMT discrepancies and highlighting specific issues as necessary. 

 

Appendix I

 

Detailed Objective, Scope, and Methodology

 

Our overall objective was to determine whether the IRS computer systems accurately identified and computed the AMT for taxpayers who might be liable, including both taxpayers who claimed the AMT and those who did not claim it but should have.  Our review included an analysis of the demographics of those taxpayers affected by the AMT.  To accomplish this objective, we:

I.                   Evaluated the information that taxpayers can use to determine their need to consider whether they might owe the AMT.

A.    Reviewed the U.S. Individual Income Tax Return (Form 1040) and related instructions and Your Federal Income Tax For Individuals (Publication 17) for references to AMT issues.  We also reviewed the Alternative Minimum Tax–Individuals (Form 6251) and related instructions for clarity and reviewed draft publications covering the AMT.  In addition, we reviewed the AMT Assistant on IRS.gov for clarity and ease of use.

II.                Identified the IRS processing controls in place to identify and correct returns that are claiming the AMT or should be claiming the AMT.

A.    Reviewed the Internal Revenue Manual to determine the information from the Form 6251 that was transcribed for paper returns and was available in the computer system for both paper and electronic returns.  We reviewed the Internal Revenue Manual processing procedures related to the AMT for the IRS Code and Edit and Error Resolution functions.  

B.     Reviewed any Examination function referral procedures to determine how a return gets to the Examination function. 

C.     Reviewed the computer programming to determine how the IRS calculated potential AMT.

III.             Evaluated the processing controls by reviewing a sample of tax returns that had the AMT assessed. 

A.    Extracted all TY 2005 Forms 6251 filed in Calendar Year 2006 from the IRS Return Transaction File[10] in the Treasury Inspector General for Tax Administration Data Center Warehouse[11] and separated the records into 2 files:  cases for which the AMT was more than $0 and cases for which the AMT equaled $0.  Data were validated to the Integrated Data Retrieval System.

B.     Randomly sampled 52 of the 7,583 tax returns processed at all Submission Processing sites for which the AMT was more than $0 and there was a significant[12] difference between the AMT calculated by the IRS and the AMT calculated by the taxpayer.  A random number generator was used to ensure that tax returns had an equal chance of being selected.  We reviewed the sample cases to determine whether IRS processing procedures were correctly followed.  We determined that a statistically valid sample was not needed based on our review of these 52 returns. 

IV.             Determined the number of taxpayers who filed Form 6251 but were not required to pay the AMT (AMT = $0).

A.    Randomly sampled 28 of the 4,016,823 returns that had AMT = $0 from the data extract in Step III.A.  A random number generator was used to ensure that tax returns had an equal chance of being selected.  We reviewed the sampled cases to determine whether the AMT Assistant on IRS.gov would mislead the taxpayer into thinking the AMT could be owed.  We determined a statistically valid sample was not needed based on the results of our review of these 28 returns.

 

Appendix II

 

Major Contributors to This Report

 

Michael E. McKenney, Assistant Inspector General for Audit (Wage and Investment Income Programs)

Scott A. Macfarlane, Director

Russell P. Martin, Director

Deann L. Baiza, Audit Manager

Sharla J. Robinson, Lead Auditor

Kathleen A. Hughes, Senior Auditor

Glory Jampetero, Senior Auditor

Ryan C. Powderly, Intern

 

Appendix III

 

Report Distribution List

 

Commissioner  C

Office of the Commissioner – Attn:  Chief of Staff  C

Deputy Commissioner for Services and Enforcement  SE

Commissioner, Small Business/Self-Employed Division  SE:S

Deputy Commissioner, Small Business/Self-Employed Division  SE:S

Deputy Commissioner, Wage and Investment Division  SE:W

Director, Compliance, Wage and Investment Division  SE:W:CP

Director, Customer Account Services, Wage and Investment Division  SE:W:CAS

Director, Examination, Small Business/Self-Employed Division  SE:S:E

Chief, Performance Improvement, Wage and Investment Division  SE:W:S:PI

Senior Operations Advisor, Wage and Investment Division  SE:W:S:PA

Chief Counsel  CC

National Taxpayer Advocate  TA

Director, Office of Legislative Affairs  CL:LA

Director, Office of Program Evaluation and Risk Analysis  RAS:O

Office of Internal Control  OS:CFO:CPIC:IC

Audit Liaison:  Senior Operations Advisor, Wage and Investment Division  SE:W:S

 

Appendix IV

 

Legislative History of the Alternative Minimum Tax

 

Congress enacted the minimum tax in 1969 after the Secretary of the Treasury reported that 155 individuals, each with an Adjusted Gross Income[13] of $200,000, paid no Federal income tax in 1966.  In 1978, Congress enacted a minimum tax that resembles the current AMT.  The 1978 tax was payable in addition to all other tax liabilities to the extent that it exceeded the individual’s regular tax liability.  It was imposed at a flat rate of 20 percent on Alternative Minimum Taxable Income in excess of an exemption amount.[14]  

Congress repealed the minimum tax in 1982 and expanded the AMT to include the tax preferences from the minimum tax.  The provisions enacted in 1982 are the foundation for today’s AMT.  The AMT has been amended a number of times.  The following table describes the legislative action for the original minimum tax and the current AMT.

 

Legislation

Married Filing Jointly Exemption

 

Single Exemption

 

Tax Rates

 

Comments

Tax Reform Act of 1969

(P.L. 91-172)

$30,000 plus regular tax

$30,000 plus regular tax

10%

Introduced the “add-on” minimum income tax of 10 percent of the amount of preferences[15] in excess of an exemption of $30,000 for both joint and single filers.  The main preference item was capital gains, but preferences also included stock options, depreciation, and depletion allowances.

Excise, Estate, and Gift Tax Adjustment Act of 1970

(P.L. 91-614)

No change

No change

No change

Allowed deduction of the “unused regular tax carryover” from the base for the minimum tax.

Tax Reform Act of 1976

(P.L. 94-455)

Greater of $10,000 or ½ of regular tax

Greater of $10,000 or ½ of regular tax

15%

Raised the rate of minimum income tax to 15 percent and lowered the exemption to the greater of $10,000 or one-half of regular taxes.  This Act also added certain itemized deductions as preferences.

Tax Reduction and Simplification Act of 1977

(P.L. 95-30)

No change

No change

No change

Reduced the minimum tax preference for intangible costs of drilling oil and gas wells.

Revenue Act of 1978

 (P.L. 95-600)

$20,000

$20,000

10% on
$0 -$40,000

20% on $40,001 -$80,000

25% on more than $80,000

Introduced the AMT alongside the minimum income tax and moved certain itemized deductions and capital gains to the AMT.  The AMT had graduated rates of 10 percent, 20 percent, and 25 percent and an exemption of $20,000.

Economic Recovery Tax Act of 1981

(P.L. 97-34)

No change

No change

10% on
$0 -$40,000

20% on more than $40,000

Eliminated the 25 percent AMT rate to correspond with reductions in rates of regular income tax.

Tax Equity and Fiscal Responsibility Act of 1982

(P.L. 97-248)

$40,000

$30,000

20%

Repealed the “add-on” minimum tax and made the AMT rate a flat 20 percent of AMT income after exemptions of $30,000 for single filers and $40,000 for jointly filed returns.  The preferences from the add-on tax were moved to the AMT.

Deficit Reduction Act of 1984

(P.L. 98-369)

No change

No change

No change

Made minor changes concerning the Investment Tax Credit, intangible drilling costs, and other items.

Tax Reform Act of 1986

(P.L. 99-514)

No change

No change

21%

Raised the AMT rate to 21 percent, made high-income taxpayers subject to phaseout of exemptions, increased the number of tax preferences by adding preferences for interest on private activity bonds and for appreciation on charitable contributions.  The AMT base was expanded to include deferral items,[16] and an AMT credit for a prior year AMT liability due to deferral items was introduced.  Net operating losses were allowed to offset only 90 percent of Alternative Minimum Taxable Income, and the Foreign Tax Credit was not allowed to be used to reduce the tentative minimum tax by more than 90 percent.

Revenue Act of 1986

(P.L. 100-203)

No change

No change

No change

Made technical corrections related to the Tax Reform Act of 1986.

Technical and Miscellaneous Revenue Act of 1988

(P.L. 100-647)

No change

No change

No change

Made technical corrections related to the Tax Reform Act of 1986.

Omnibus Budget Reconciliation Act of 1989

(P.L. 101-239)

No change

No change

No change

Made further technical amendments.

Omnibus Budget Reconciliation Act of 1990

(P.L. 101-508)

No change

No change

24%

Raised the AMT rate to 24 percent.

Energy Policy Act of 1992

(P.L. 102-486)

No change

No change

No change

Made changes regarding intangible costs of drilling oil and gas wells.

Omnibus Reconciliation Act of 1993

(P.L. 103-66)

$45,000

$33,750

26% on
$0 -$175,000

28% on more than $175,000

Introduced graduated AMT rates of
26 percent and 28 percent.  This Act also increased the exemption to $33,750 for single filers and $45,000 for jointly filed returns, changed rules about gains on stock of small businesses, and eliminated the appreciated charitable property deduction preference.

Taxpayer Relief Act of 1997

 (P.L. 105-34)

No change

No change

No change

Made changes regarding depreciation and farmers’ installment sales, and repealed the requirement that alternative depreciation periods be used in computing the deduction for Accelerated Cost Recovery System depreciation.

Tax Technical Corrections Act of 1998

(P.L. 105-206)

No change

No change

No change

Adjusted the AMT for new capital gains rates.

Tax Relief Extension Act of 1999

(P.L. 106-170)

No change

No change

No change

Allowed use of all personal nonrefundable credits against the AMT through 2001.

Economic Growth and Tax Relief Reconciliation Act of 2001

(P.L. 107-16)

 

$49,000 for years 2001-2004

$45,000 for 2005 and beyond

$35,750 for years 2001-2004

$33,750 for 2005 and beyond

No change

Temporarily increased the exemption amount to $35,750 for single filers and $49,000 for jointly filed returns.  This Act allowed use of the child, adoption, and Individual Retirement Account credits against the AMT liability through 2010.

Job Creation and Worker Assistance Act of 2002

(P.L.107-147)

No change

No change

No change

Allowed all personal nonrefundable credits to be used against the AMT liability through 2003.

Jobs and Growth Tax Relief Reconciliation Act of 2003

(P.L. 108-27)

$58,000 for years 2003-2004

$45,000 for 2005 and beyond

$40,250 for years 2003-2004

$33,750 for 2005 and beyond

No change

Temporarily increased the exemption amount to $40,250 for single filers and $58,000 for jointly filed returns.  This Act conformed the AMT rates for dividends to the lower rates adopted for the regular tax.

Working Families Tax Relief Act of 2004

(P.L. 108-311)

 

No change

No change

No change

Extended the temporary increase in the exemption amounts made by the Jobs and Growth Tax Relief Reconciliation Act of 2003.

American Jobs Creation Act of 2004

(P.L. 108-357)

 

No change

No change

No change

Allowed the Foreign Tax Credit to offset the entire tentative minimum tax (repealed the 90 percent limitation on use of Foreign Tax Credits).

Tax Relief Extension Reconciliation Act of 2005

(P.L. 109-222)

$62,550  for 2006

$45,000 for 2007 and beyond

$42,500  for 2006

$33,750 for 2007 and beyond

No change

Increased the exemption amount to $42,500 for single filers and $62,550 for jointly filed returns.

Tax Increase Prevention Act of 2007

(P.L. 110-166)

$66,250 for 2007

$45,000 for 2007 and beyond

 

$44,350 for 2007

$33,750 for 2007 and beyond

No change

Increased the exemption amount to $44,350 for single filers and $66,250 for jointly filed returns.

 

Appendix V

 

Alternative Minimum Tax–Individuals (Form 6251)

 

The Form was removed due to its size.  To see the Form, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

Appendix VI

 

Management’s Response to the Draft Report

 

The response was removed due to its size.  To see the response, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.



[1] Appendix V provides an example of Form 6251.

[2] The period from January through mid-April when most individual income tax returns are filed.

[3] Adjusted Gross Income is income less certain deductions, such as the Health Savings Account, Individual Retirement Account, and Education deductions, and/or expenses, such as Educator Expenses and Moving Expenses.

[4] Appendix IV provides the legislative history of the Alternative Minimum Tax.

[5] The Individual Return Transaction File contains data from the Individual Master File.  The Individual Master File is the IRS database that maintains transactions or records of individual tax accounts.

[6] Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107-16, 115 Stat. 38.

[7] Pub. L. No. 103-66, Title XII, Sec. 12001, 107 Stat. 413.

[8] The period from January through mid-April when most individual income tax returns are filed.

[9] Appendix V provides an example of Form 6251. 

[10] The Individual Return Transaction File contains data from the Individual Master File.  The Individual Master File is the IRS database that maintains transactions or records of individual tax accounts.

[11] A Treasury Inspector General for Tax Administration repository of IRS critical historical data.  The mission of the Warehouse is to provide data and data access services; centralize storage, security, and administration of files; and develop uniform and user-friendly interfaces for users to access data.

[12] For the purpose of our review, we considered a difference of $100 between the AMT calculated by the IRS and the AMT calculated by the taxpayer to be significant.

[13] Adjusted Gross Income is income less certain deductions, such as Health Savings Account, Individual Retirement Account, and Education deductions, and/or expenses, such as Educator Expenses and Moving Expenses.

[14] Present Law and Issues Relating to the Individual AMT, Joint Committee on Taxation (JCX-3-98, dated February 2, 2008).

[15] Certain income-related items that must be added back to Adjusted Gross Income to arrive at an Alternative Minimum Taxable Income.

[16] A deferral item is an amount for which the asset or liability is not realized until a future date.