Roy E. and Linda Day - Page 12

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            1.  The AMT Limits the Use of Nonrefundable Credits as Well as                               
            Preferences and Exclusions                                                                   
                  Petitioners would recompute AMTI by excluding certain                                  
            preferences that are not otherwise deductible from AMTI.  If                                 
            successful, petitioners would lower their TMT and thereby augment                            
            the availability of section 29 credits under the section 29(b)(5)                            
            limitation.  In effect, petitioners would increase the spread                                
            between RIT and TMT.  Thus, petitioners seek to do, indirectly,                              
            that which the Code does not allow directly:  apply nonrefundable                            
            credits against TMT.  See S. Rept. 99-313, supra, 1986-3 C.B. at                             
                  If section 59(g) applied in the manner petitioners advocate,                           
            taxpayers with sufficient amounts of nonrefundable credits as                                
            well as adjustments and/or preferences would be able to                                      
            completely avoid Federal income tax liability, despite having                                
            large economic incomes.  Respondent's brief offers a useful                                  
            illustration of how petitioners' position skirts Congress' intent                            
            in enacting the AMT.  See First Chicago Corp. v. Commissioner,                               
            842 F.2d at 181.                                                                             
                  Suppose that for 1990 a taxpayer, with no foreign tax                                  
            credits, had $1 million of gross income and $1 million of                                    
            preferential deductions.  Although the taxpayer would have no RIT                            
            liability, the taxpayer would have AMT liability because                                     
            preferential deductions are not allowable in computing minimum                               
            taxable income.  But if the taxpayer also had sufficient                                     

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