Roy E. and Linda Day - Page 7

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            liability, so that a taxpayer pays some tax regardless of the tax                            
            breaks otherwise available to him under the RIT.  See S. Rept.                               
            99-313, supra, 1986-3 C.B. (Vol. 3) at 518.  The AMT rules                                   
            accomplish this goal by eliminating favorable treatment to                                   
            certain items that are treated favorably for purposes of the RIT                             
            (tax preference items).  Secs. 55(b)(2)(B), 57(a).                                           
                  The AMT is paid only if, and to the extent that, it exceeds                            
            the taxpayer's RIT.  Sec. 55(a).  The starting point in computing                            
            AMT liability is determining AMTI.  AMTI is computed in the same                             
            manner as regular taxable income except that the adjustments                                 
            provided in sections 56 and 58 are taken into account for AMTI,                              
            and the tax preference items set forth in section 57 are not                                 
            permitted to reduce AMTI.  Sec. 55(b)(2).  To determine the                                  
            taxable amount of AMTI, AMTI is reduced by an exemption amount,                              
            which, in the instant case, amounts to $40,000, subject to a                                 
            gradual phase-out as AMTI exceeds $150,000.  Sec. 55(d).  The AMT                            
            rate is then applied to AMTI, as reduced by the exemption amount.                            
            Sec. 55(b).  For the taxable years at issue in the instant case,                             
            the applicable AMT rate is 21 percent.  The resulting tax figure                             
            is then reduced by the alternative minimum foreign tax credit                                
            (which petitioners did not have in any of the taxable years at                               
            issue) to arrive at TMT.  Sec. 55(b)(1)(A).                                                  
                  Next, RIT is compared to TMT.  RIT is not reduced by any                               
            nonrefundable credits, other than the foreign tax credit and the                             
            possessions tax credit, before being compared to the TMT.  Sec.                              

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