May 23, 2005
The Honorable Philip S. English
U.S. House of Representatives
RE: Comments on H.R. 1186, The Alternative Minimum Tax Repeal Act of 2005
Dear Representative English:
On behalf of the approximately 350,000 members of the American Institute of Certified Public Accountants (AICPA), I would like to commend you for introducing H.R. 1186, the Alternative Minimum Tax Repeal Act of 2005. The AICPA has long held the position that the alternative minimum tax (AMT) should be repealed for both individual and corporate taxpayers. Your bill, if enacted as introduced, would accomplish that objective.
The current individual AMT was enacted in 1986 to ensure that individuals with relatively large incomes would pay some minimum amount of Federal income tax. This was accomplished by redefining and broadening the tax base for such taxpayers through the elimination of preferences and adjustments that reduced the regular income tax base. The number of targeted taxpayers was very small—approximately 0.1 percent of all individuals. Unfortunately, due to "bracket creep" caused by inflation and the growth in incomes, and the classification of commonly used exemptions and deductions as "tax preferences," the number of taxpayers facing potential AMT liability is expanding exponentially. Although approximately 3.5 million individual taxpayers were subject to the AMT in 2004, estimates indicate that the AMT will affect 33 million taxpayers by 2010.
Not only does the AMT fail to apply only to its originally intended audience, it also no longer serves the purposes for which it was enacted. Legislative changes implemented since 1986 have been effective in broadening the regular tax base for individual taxpayers. Further, the narrowing of the differential between AMT and regular tax rates results in the AMT being an unanticipated trap for "ordinary" taxpayers with few or no AMT preferences or adjustments.
The corporate AMT suffers from the same infirmities as the individual AMT. It requires corporations to keep at least two sets of books for tax purposes; imposes a myriad of other burdens on taxpayers; and has the unfortunate effect of taxing struggling or cyclical companies at a time when they can least afford it.
The AMT is one of the tax law's most complex components. As we have repeatedly stated, we believe that now is the time to take decisive action to simplify this onerous provision of the Internal Revenue Code. We recognize there is a significant revenue cost associated with this simplification reform. However, the longer Congress postpones fixing this problem, the greater will be the ultimate revenue and economic burden. It is also important to recognize that there are significant compliance burdens that will be eliminated by such reform.
We appreciate your leadership on this important topic and welcome the opportunity to share our comments on H.R. 1186. Please feel free to contact me at 402-280-2062 or Carol Ferguson, AICPA staff, at 202-434-9235 if we can be of further assistance.
Thomas J. Purcell, III
Chair, Tax Executive Committee