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income for the purpose of their regular tax liability, must be
added back for the purpose of computing AMTI and their AMT
liability.
Respondent examined petitioners’ 1998 income tax return and
made some minor adjustments. These adjustments reduced total
itemized deductions from $28,839 to $27,505, and increased
petitioner’s income tax liability shown on their return from
$5,576 (after credits, $2,576) to $5,779 (after corrected
credits, $3,480.50). But respondent didn’t stop there.
Respondent then determined that petitioners were subject to the
AMT because itemized deductions and State and local taxes--
$24,505–-and personal exemptions-–$16,200-–must be added back to
determine AMTI.
The deficiency notice computed petitioners’ AMT as follows:
Starting with the corrected taxable income, $38,529, and adding
to that the deductions claimed for (1) miscellaneous itemized
deductions ($21,055), (2) State and local taxes ($3,450), and (3)
personal exemptions ($16,200), petitioners’ AMTI was determined
to be $79,234. Sec. 56(b)(1)(A), (E). Because petitioners’ AMTI
of $79,234 exceeded by $34,234 the $45,000 exemption amount
allowed by section 55(d)(1)(A)(i), petitioners’ tentative minimum
tax was computed as 26 percent of the excess, or $8,901. Sec.
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