AMT Tax Trap Avoidance

Editor:

Albert B. Ellentuck, Esq.
Of Counsel
King and Nordlinger, L.L.P.
Arlington, VA

Editor's note: This case study has been adapted from "Tax Planning for High Income Individuals," 2d Edition, by Anthony J. DeChellis, Douglas L. Weinbrenner, Catherine A. Roeder and Patrick L. Young, published by Practitioners Publishing Company, Fort Worth, TX, 2001 ((800) 323-8724; www.ppcnet.com).

Facts: In preparing Tom Smythe's 2001 return, his tax adviser notices that Tom has large deductions relative to income. The tax adviser wonders if Tom might be subject to the alternative minimum tax (AMT) for 2001.

Analysis

The AMT has long complicated return preparation. While all practitioners are presumably familiar with the AMT, it is a good idea to review some of the traps that exist. For individuals, the AMT traps usually involve the difference between AMT itemized deductions and itemized deductions for regular tax purposes, along with personal exemptions. Also, depreciation and certain income-recognition rules offer their own complexities. The checklist that follows includes AMT traps practitioners should consider when examining client data. (The checklist is in .pdf format; after downloading, it needs to be viewed in Adobe Acrobat.)