Once again this year, the headline for the Alternative Minimum Tax is another one-year fix with no permanent solution. The Emergency Economic Stabilization Act of 2008 raised the AMT exemption amount for 2008 to $69,950 for joint filers and $46,200 for single filers. This represents another inflation-adjusted extension of the exemption amount designed to preserve the status quo and keep an additional 21 million taxpayers from being subject to the AMT in 2008. And, once again, without further action, the AMT exemption amount reverts to its pre-2001 level in 2009 unless further congressional action is taken.

The other annual fix included in the EESA is the provision allowing nonrefundable credits for AMT purposes, again for 2008 only. Yet, in other provisions here and there, Congress has also been attacking the impact of the AMT in a number of additional ways.

Increasingly, Congress has been addressing the AMT impact of any new provision that it enacts and, more likely than not, including language that will diminish its AMT impact.


One of the long-term AMT preference items has been incentive stock options. While treated favorably under the regular tax system, under the AMT system, ISOs are treated the same as nonqualified stock options and taxed based on their fair market value at the date of exercise.

In early 2000, the tech bubble was going full steam, with lots of Internet start-up companies issuing ISOs to employees until they turned a profit. In the fall of 2000, the tech bubble burst, and many of these employees were left with stock that had significantly declined in value since the ISO exercise date. If the employees had failed to dispose of the stock prior to year-end 2000, they were faced with large tax bills based on the AMT valuation of the stock at exercise date and often with little means to pay those tax bills.

Efforts commenced almost immediately to provide some relief, but the issue was slow to gain traction in Congress. The courts repeatedly held that only Congress could grant relief. Not until the Tax Relief and Health Care Act of 2006, however, did Congress in fact start to provide some relief in the form of a refundable AMT credit amount for unused AMT credit carryforwards more than three years old. This relief permitted recovery of these long-term unused AMT credits over a period of no greater than five years.

Included in the EESA were a few provisions that greatly expand the tax breaks to those taxpayers brought into the AMT by ISOs. First, the five-year recovery period for long-term unused credits has been reduced to two years. Second, any AMT obligations based on ISOs prior to 2008 and any related interest and penalties that were unpaid as of Oct. 3, 2008, are abated and need not be paid. (The IRS had suspended collection actions on these matters late in the summer of 2008 due to this pending legislation.) Finally, if a taxpayer incurred interest and penalties with respect to any AMT liability related to ISOs that would have been abated but for the payment of the liability, the interest and penalties may be added to the AMT credit and refundable credit amount.

This means that taxpayers caught in 2000 who were still fighting the issue with the IRS will no longer owe AMT with respect to ISOs. Taxpayers who had already paid the AMT and related interest and penalties can recover those payments on their 2008 and 2009 returns. Taxpayers who paid an AMT liability based on ISOs in 2005, 2006, 2007 or 2008, and who have not been able to use up the credit in subsequent tax years, will have to wait until the tax year in which the AMT credit from the ISO arises before the third tax year immediately preceding the current tax year in order to qualify for the refundable credit.

Taxpayers who incur AMT liability from ISOs in 2008 and later years are not eligible for abatement under this legislation and can only look to the refundable credit feature for relief.


Although Congress generally has been allowing nonrefundable credits for AMT purposes, when Code Sec. 30B, the alternative motor vehicle credit, and Code Sec. 30C, the alternative fuel vehicle refueling property credit, were added to the code, they were not allowed for AMT purposes, apparently due to an oversight by Congress.

Congress did not make the same mistake in the EESA. When it added Code Sec. 30D, the plug-in electric drive motor vehicle credit, the language expressly allows the credit for AMT purposes. Although there is some indication in the legislative history that Congress intended to allow Code Secs. 30B and 30C for AMT purposes as well, the legislative language that was enacted did not do so.

Congress also added to the list of credits that are specifically authorized to offset the AMT in their own code provision, rather than rely on the renewal of the catch-all extension of Code Sec. 26(a)(2) to allow nonrefundable credits for AMT purposes. Included in this list by the EESA is the residential alternative energy credit, providing a tax credit for residential installations of solar electric and water heater systems, fuel cell systems, small wind turbines, and geothermal heat pumps.


Although as a rule the general business credit is not allowed for AMT purposes, Congress has been more frequently allowing specific components of the general business credit and other business deductions for AMT purposes. Included in the EESA are provisions allowing the railroad track maintenance credit and the depreciation allowance for certain re-use and recycling property for AMT purposes.

Congress had also taken similar measures in tax legislation earlier in the year. In the Housing Assistance Tax Act of 2008, Congress allowed corporations to take an accelerated credit election for a portion of unused AMT, rather than take the 50 percent bonus depreciation deduction.


Although Congress has not been able to find enough consensus or funds to address the growing Alternative Minimum Tax problem on a long-term basis, it continues to demonstrate its dislike of the AMT by trying to keep additional taxpayers from falling into the tax, and also by showing a tendency to allow new deductions and credits for both regular tax and AMT purposes.

The year 2009 may be the year in which many of these long-term problems will finally be addressed. Resources to pay for tax breaks will be even more difficult to come by in 2009, however, so Congress may continue to provide patch-work relief for the AMT problem until the economy improves.

George G. Jones, JD. LL.M, is managing editor, and Mark A. Luscombe, JD, LL.M, CPA, is principal analyst, at CCH Tax and Accounting, a Wolters Kluwer business.

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