James A. and Nancy B. Wiese - Page 8

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          expenses exceed 10 percent of the taxpayer’s adjusted gross                 
          income.  Third, section 56(b)(1)(E) provides that no personal               
          exemptions shall be allowed in computing alternative minimum                
          taxable income.5                                                            
               The effect of section 56(b)(1)(A)(ii), (b)(1)(B), and                  
          (b)(1)(E) is to increase petitioners’ taxable income by:  (1)               
          $52,544, the amount claimed by petitioners on their Schedule A              
          for State and local income taxes ($32,099) and real estate taxes            
          ($20,445); (2) $2,021, the amount claimed by petitioners on their           
          Schedule A for medical and dental expenses that exceeded 7.5                
          percent but not 10 percent of their adjusted gross income; and              
          (3) $9,000, the amount claimed by petitioners on their Form 1040            
          for the value of three personal exemptions.  The total of these             
          three adjustments is $63,565.                                               
               After taking into account the foregoing three adjustments,             
          petitioners’ alternative minimum taxable income for 2002 equals             
          $73,196; i.e., taxable income of $9,631 plus adjustments of                 
          $63,565.  Alternative minimum taxable income exceeds the                    


               5  Respondent’s computation in the notice of deficiency of             
          alternative minimum taxable income shortcuts the statutory                  
          formula.  Thus, respondent’s computation begins with petitioners’           
          adjusted gross income less Schedule A itemized deductions, i.e.,            
          $18,631, thereby ignoring personal exemptions.  However,                    
          respondent compensates for this omission by not including                   
          personal exemptions within “adjustments and preferences”.                   
          Respondent’s computation therefore yields the same amount of                
          alternative minimum taxable income as does the statutory formula;           
          i.e., $73,196.                                                              




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