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1 1 (December 4, 2017)

handle is hein.crs/govcfzt0001 and id is 1 raw text is: 01; \ , ,% -c.c,',cS.- .. l , r' ..., - , .. , ' p\w gnom ggmm mppm qq\ , q I as 11LIANJILiN, Updated December 4, 2017 Tax Reform: The Alternative Minimum Tax The U.S. federal income tax has both a personal and a corporate alternative minimum tax (AMT). Both the corporate and individual AMTs operate alongside the regular income tax. They require taxpayers to calculate their liability twice-once under the rules for the regular income tax and once under the AMT rules and then pay the higher amount. Minimum taxes increase tax payments from taxpayers who, under the rules of the regular tax system, pay too little tax relative to a standard measure of their income. The corporate AMT originated with the Tax Reform Act of 1986 (P.L. 99-514), which eliminated an add-on minimum tax imposed on corporations previously. The corporate AMT is a flat 20% tax imposed on a corporation's alternative minimum taxable income less an exemption amount. A corporation's alternative minimum taxable income is the corporation's taxable income determined with certain adjustments (primarily related to depreciation) and increased by the disallowance of a number of preference items, primarily related to extraction activities (depletion and expensing of intangible drilling costs) and the special deduction for Blue Cross and Blue Shield companies. In 2013, the most recent year available, the adjustments reduced AMT taxable income relative to regular taxable income, while the preference items resulted in greater AMT taxable income. A corporation must pay the AMT if the computation of tax under the AMT is greater than the computation of its tax under the regular tax. The corporate AMT serves to limit the use of tax preferences to reduce tax on retained, as well as distributed, earnings. The corporate AMT allows a credit for prior year corporate AMT payments and also exempts small business corporations (with gross receipts averaging less than $7.5 million per year) entirely. Corpsort ,,eAMT R&vorna~ As shown in Table 1, the corporate AMT revenues were roughly 1% of corporate tax receipts in both 2003 and 2013. In these years, firms paying the corporate AMT were less than 2% of all corporations. Table I. Selected Corporate Income Tax Statistics 2003 2013 Number of Returns 5,401,237 5,887,804 Number of AMT Returns 9,564 10,222 Total Tax Liability ('000s) $241,275,165 $437,372,463 AMT Liability ('000s) $2,298,776 $4,197,924 Source: Department of the Treasury, Internal Revenue Service, Corporation Complete Book, 2003 and 2013, Table 2 and Table 23. The modern individual AMT originated with the Revenue Act of 1978 (P.L. 95-600) and operated in tandem with an existing add-on minimum tax prior to its repeal in 1982. Table 2 details selected key individual AMT parameters. Table 2. Selected Individual AMT Parameters, 2017 Single/ Married Head of Filing Married Filing Household Jointly Separately Exemption $54,300 $84,500 $42,250 28% bracket 187,800 187,800 93,900 threshold Source: Internal Revenue Code. The individual AMT tax base is broader than the regular income tax base and starts with regular taxable income and adds back various deductions, including personal exemptions and the deduction for state and local taxes. In addition, the individual AMT restricts the use of selected tax preferences, such as tax-exempt interest from qualified private activity bonds and accelerated depreciation. Taxpayers deduct the AMT exemption amount to determine their AMT taxable income. To this measure of income taxpayers apply a two-tier rate structure with rates of 26% and 28% to determine their personal AMT liability; they pay the higher of their regular or AMT liability. As shown in Table 3 the individual AMT revenues were between 1.5% and 2% of individual tax receipts in 2004 and 2014. In those years, tax filers paying the individual AMT were 2.3% (in 2004) and 2.9% (in 2014) of all tax filers. Table 3. Selected Individual Income Tax Statistics 2004 2014 Number of Returns 132,226,042 148,606,578 Number of AMT 3,096,299 4,277,624 Returns Total Tax Liability $884,342,703 $1,432,797,923 Before Credits AMT Liability $13,029,239 $28,645,905 Source: Department of the Treasury, Internal Revenue Service, Individual Income Tax Complete Book, 2004 and 2014, Table 1.4. Due to its design, a taxpayer is more likely to face the individual AMT if they reside in a high tax state or if they have children. Also, since the graduated regular income tax K~:>

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