- 5 -
tax"2 for the taxable year. That excess amount is paid in
addition to any regular tax owed. The AMT is intended to prevent
a taxpayer with substantial income from avoiding significant tax
liability through the use of exemptions, deductions, and credits.
See Urbanek v. United States, 866 F. Supp. 1414 (S.D. Fla. 1994),
affd. per curiam 71 F.3d 855 (11th Cir. 1996); S. Rept. 99-313,
at 518 (1986), 1986-3 C.B. (Vol. 3) 1, 518.
Noncorporate taxpayers may reduce their tentative minimum
tax by the foreign tax credit. See sec. 55(b)(1)(A). However,
that foreign tax credit is limited by section 59(a)(2)(A).3 The
2 The term "regular tax" means "the regular tax liability
for the taxable year (as defined in section 26(b)) reduced by the
foreign tax credit allowable under section 27(a)". Sec.
55(c)(1).
3 The rationale underlying the foreign tax credit limitation
was explained in a Senate report as follows:
“A further change that the committee believes is
necessary relates to the use of foreign tax credits by
U.S. taxpayers to avoid all U.S. tax liability. Absent
a special rule, a U.S. taxpayer with substantial
economic income would be able to avoid all U.S. tax
liability so long as all of its income was foreign
source income and it paid foreign tax at the U.S.
regular tax rate or above. While allowance of the
foreign tax credit for minimum tax purposes generally
is appropriate, the committee believes that taxpayers
should not be permitted to use the credit to avoid all
minimum tax liability. U.S. taxpayers generally derive
benefits from the protection and applicability of U.S.
law, and in some cases from services (such as defense)
provided by the U.S. Government, even if all of such
taxpayers' income is earned abroad. Thus, it is fair
to require at least a nominal tax contribution from all
(continued...)
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