- 5 -
The heart of this case involves the effect of the
alternative minimum tax on the Holloways’ tax credit. And
because the record is unclear on whether the Holloways are
claiming a credit under section 29 or 43, we’ll look at both.
We begin with a brief summary of the alternative minimum tax
and its relation to either kind of credit. As we explained in
Day v. Commissioner, 108 T.C. 11, 14 (1997), the purpose of the
alternative minimum tax was to make sure that taxpayers pay some
tax regardless of the tax breaks--like the ones in sections 29
and 43--generally available elsewhere in the Code. The
alternative minimum tax works by eliminating favorable treatment
for some of these breaks.
The starting point in this complicated scheme is calculating
a taxpayer’s alternative minimum tax income. Alternative minimum
tax income begins with regular income tax income, but adjusts it
(usually upward) by recalculating or eliminating certain losses,
exclusions, and deductions listed in sections 56-58. Sec.
55(b)(2).
The next step is to calculate the “tentative minimum tax.”
This is done by taking the alternative minimum tax income and
subtracting a defined exemption amount,5 then multiplying the
resulting figure by the alternative minimum tax rate and
5 The exemption amount begins to phase out once the
alternative minimum tax income reaches a certain threshold
amount. Sec. 55(d)(3).
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