Jobs Credit Reduces AMT Wage Deduction

The Federal Circuit recently held that an employers wage deduction has to be reduced by the taxpayers jobs credit in computing alternative minimum tax (AMT), even though the jobs credit is not allowed for AMT purposes.

Facts

V owns and leases hospitals, nursing centers and personal care facilities. For the tax years at issue, V was entitled to a targeted jobs credit against its regular tax, under Sec. 51. This credit awards the hiring of disadvantaged individuals (it is now called the work opportunity credit); it allows a regular income tax credit for a portion of payroll for the employment of such individuals.

Sec. 280C(a) provides that the taxpayers deduction for wages paid be reduced by the targeted jobs tax credit. For the tax years at issue, V took the credit and complied with this requirement. For the same tax years, V was subject to the AMT under Sec. 55however, the targeted jobs credit is not available when calculating AMT liability. Thus, when computing its alternative minimum taxable income (AMTI), V did not correspondingly reduce its deduction for wages paid as required by Sec. 280C(a). As a result, the IRS determined that V had miscalculated its AMT liability and underpaid its income tax for those years. V paid the tax and sued for a refund in the Court of Federal Claims.

V maintains it is illogical and unjust to require that an otherwise allowable deduction be reduced when the benefit of the credit itself is not available. The IRS urged that V cannot restore deductions forgone in its calculation of regular taxable income, despite the fact that the reason for relinquishing those deductions in the first instancethe targeted jobs creditis not applicable in the calculation of AMT. The Court of Federal Claims agreed with the IRS and granted summary judgment against V; V appealed to the Federal Circuit.

Analysis

It is undisputed that the targeted jobs credit is not available when computing AMT liability. In addition, Sec. 280C(a) disallows a portion of a taxpayers wage deduction if a jobs credit was determined for the taxpayer. However, Sec. 280C(a) does not refer to the AMT provisions of Secs. 5558, nor is there any reference to it in Sec. 59(h). When Congress includes certain exceptions in a statute, the maxim expressio unius est exclusio alterius presumes that those are the only exceptions Congress intended. Accordingly, the Federal Circuit agrees with the Court of Federal Claims conclusion that [b]ecause Congress set forth those adjustments with specificity, the court must conclude, absent persuasive evidence to the contrary, that Congress intended no other adjustments to apply. Thus, the disallowance of the wage deduction for regular taxable income applies as long as the taxpayer avails itself of the targeted jobs credit, regardless of whether the taxpayer falls under the Sec. 55 AMT provisions.

V also argues that Congress intended the AMT to be a separate and independent tax system and that it intended a basic logic to be applied to the two tax systems. This basic logic, it contends, would allow restoration of the full deduction for wages paid in computing its AMTI. However, in Allen, 118 TC 1 (2002), the Tax Court addressed this very argumentnamely, whether Congress intended the AMT to be a separate but parallel tax system, thereby inviting a de novo calculation of the regular tax liability as a precursor to determining AMTI. In Allen, the Tax Court concluded that Sec. 280C(a) enters into the calculation of a taxpayers AMTI when the taxpayer availed itself of the targeted jobs credit. In reaching that conclusion, it addressed at length the pertinent legislative history of the AMT.

In sum, the relevant statutory provisions provide V no basis on which to restructure its reported regular taxable income when calculating AMT liability. Further, the relevant legislative history does not show clear Congressional intent to deviate from the statutes plain and unambiguous language. Thus, V is not entitled to a refund of the additional taxes it was required to pay as a result of having miscalculated its AMT liability. The judgment of the Court of Federal Claims is affirmed.

Ventas, Inc., Fed. Cir., 8/24/04