2002 U.S. Tax Ct. LEXIS 1">*1 Decisions will be entered for respondent in docket Nos. 1287-00, 1288-00, 1289-00, 1290-00, 1293-00, and 1618-00, and decisions will be entered under Rule 155 in docket Nos. 1291-00 and 1292-00.
Ps are the shareholders of F, a subch. S corporation.
During its 1994 and 1995 taxable years, F incurred wages that
qualified for the targeted jobs credit (TJC) under
respective years and reported to Ps their proportionate shares
of the credits. F reduced its deduction of wages by the amount
of the TJCs, pursuant to
Ps their proportionate shares of its resulting net income (F's
resulting net income). Ps computed their regular tax liability
by including F's resulting net income in their taxable income.
Ps were not subject to the alternative minimum tax but had to
compute their alternative minimum taxable income (AMTI) in order
to ascertain for purposes of
tentative minimum tax ceiling2002 U.S. Tax Ct. LEXIS 1">*2 on the amount of the TJCs that
could be applied against their regular tax liability. Ps
computed their AMTI by deducting their proportionate shares of
F's full wage expense (i.e., the wage expense unreduced by the
TJC). R determined that Ps' AMTI had to be computed using F's
resulting net income and that the tentative minimum tax ceiling
limited Ps' application of the TJC against their regular income
tax liabilities.
Held: Because
wage deduction be reduced by the amount of the TJC, and pt. VI,
subch. A, ch. 1, subtit. A (
not allow for an adjustment of that reduction for purposes of
the alternative minimum tax regime, the portion of F's wages
equal to the TJC is not deductible in calculating Ps' AMTI.
118 T.C. 1">*2 OPINION
LARO, Judge: This case was submitted to the Court without trial. See Rule 122. 2 Petitioners petitioned the Court to redetermine2002 U.S. Tax Ct. LEXIS 1">*3 respondent's determination of the following deficiencies in their Federal income taxes for 1994 and 1995:
Petitioners 1994 1995
Charles C. Allen III and
Barbara N. Allen $ 21,321 $ 12,107
Charles C. Allen, Jr. 21,324 12,015
John R. Allen and Estate
of Sally F. Allen 21,395 -
John R. and Judith M. Allen - 12,108
John R. Allen, Jr., and
Susan S. Allen 21,394 12,107
Warren L. Allen 6,388 1,970
Warren L. Allen, Jr. 36,197 20,582
Amantha S. Allen 36,197 20,582
Following concessions in docket Nos. 1291-00 and 1292-00, we must decide whether the wage-expense limitation of2002 U.S. Tax Ct. LEXIS 1">*4
118 T.C. 1">*3 Background
All facts were stipulated and are so found. The stipulated facts and the exhibits submitted therewith are incorporated herein by this reference. During the subject years, each petitioner, 3 with the exception of Warren L. Allen and Charles C. Allen, Jr., filed a joint Federal income tax return with his wife. Charles C. Allen III was the husband of Barbara N. Allen. John R. Allen was the husband of Sally F. Allen during 1994, and he was the husband of Judith M. Allen during 1995. John R. Allen, Jr., was the husband of Susan S. Allen. Warren L. Allen, Jr., was the husband of Amantha S. Allen. Each petitioner and his wife (with the exception of Sally F. Allen) resided in Delaware when the petitions were filed. Sally F. Allen was deceased at that time, and the executor of her estate was (and is) John R. Allen, Jr.
2002 U.S. Tax Ct. LEXIS 1">*5 Allen Family Foods, Inc. (Foods), is an S corporation that was incorporated under Delaware law. Its business is the slaughtering, converting, and processing of chickens into ready-to- cook whole chickens and chicken parts for sale primarily to retailers. It computes its income and expenses using an accrual method of accounting and on the basis of a fiscal year ending on the Saturday nearest April 30. It filed a Form 1120S, U.S. Income Tax Return for an S Corporation, for its fiscal years ended in 1994 and 1995 (its 1994 and 1995 taxable years, respectively).
Petitioners are descendants of Charles C. Allen, the founder of the family poultry business, and they owned all of Foods' outstanding stock during its 1994 and 1995 taxable years. The number of the shares that they each owned and the percentage of their respective ownership interests were as follows:
No. of
Shareholder Shares Percent
Charles C. Allen, Jr. 50 16.67
Charles C. Allen III 50 16.67
Warren L. Allen 15 5.00
Warren L. Allen, Jr. 2002 U.S. Tax Ct. LEXIS 1">*6 85 28.33
John R. Allen 50 16.67
118 T.C. 1">*4 John R. Allen, Jr. 50 16.67
Total 300 100.00 (rounded)
During its 1994 and 1995 taxable years, Foods incurred wages which qualified for the TJC. Foods claimed TJCs of $ 456,264 and $ 259,434 on its 1994 and 1995 Federal income tax returns, respectively, and reported to each petitioner on his Schedules K-1, Shareholder's Share of Income, Credits, Deductions, etc., his proportionate shares of those credits. The Schedules K-1 reported the proportionate shares as follows:
Shareholder 1994 1995
Charles C. Allen, Jr. $ 76,044 $ 43,239
Charles C. Allen, III 76,044 43,239
Warren L. Allen 22,813 12,972
Warren L. Allen, Jr. 129,275 73,506
John R. Allen 76,044 43,239
John R. Allen, Jr. 76,044 43,239
Total 456,264 259,434
For Federal income tax purposes, Foods reduced its deduction2002 U.S. Tax Ct. LEXIS 1">*7 of wages by the amount of the TJC as required by
Petitioners were not subject to alternative minimum tax but were required to compute their AMTI in order to ascertain for purposes of
Each petitioner claimed on his personal2002 U.S. Tax Ct. LEXIS 1">*8 income tax returns his proportionate share of the TJC and applied the TJC without limitation by his TMT. The deficiencies at hand are the result of the Commissioner's recalculating petitioners' AMTI for purposes of ascertaining the TMT ceiling. In those recalculations, the Commissioner did not allow each petitioner to deduct as wages the portion of the claimed wages that was equal to his proportionate share of Foods' TJCs. Respondent determined as a result of these recalculations that each petitioner's application of the TJCs for regular tax purposes was less than claimed on his return by virtue of the TMT limitation of
Discussion
The Internal Revenue Code imposes upon taxpayers an alternative minimum tax (AMT) in addition to all other taxes imposed by subtitle A. See
The instant case focuses on the tax base upon which AMTI is calculated. Specifically, we pass for the first time on the question of whether the calculation of AMTI includes the 118 T.C. 1">*6 wage-expense limitation of
We agree with respondent2002 U.S. Tax Ct. LEXIS 1">*12 that the wage-expense limitation of
We look first to the text on the TJC.
(a) Allowance of Credit. -- There shall be allowed as a
credit against the tax imposed by this chapter for the taxable
year an amount equal to the sum of --
(1) the business credit carryforwards carried to such
taxable year,
(2) the amount of the current year business credit,
plus
(3) the business credit carrybacks carried to such
taxable year.
(b) Current Year Business Credit. -- For purposes of this
subpart, the amount of the current year business credit is the
sum of the following credits determined for the taxable year:
2002 U.S. Tax Ct. LEXIS 1">*14 * * * * * * *
(2) the targeted jobs credit determined under section
51(a);
* * * * * * *
(c) Limitation Based on Amount of Tax. --
(1) In general. -- The credit allowed under subsection
(a) for any taxable year shall not exceed the excess (if
any) of the taxpayer's net income tax over the greater
of --
(A) the tentative minimum tax for the taxable
year, or
118 T.C. 1">*8 (B) 25 percent of so much of the taxpayer's net
regular tax liability as exceeds $ 25,000.
For purposes of the preceding sentence, the term "net
income tax" means the sum of the regular tax liability
and the tax imposed by
allowable under subparts A and B of this part, and the term
"net regular tax liability" means the regular tax
liability2002 U.S. Tax Ct. LEXIS 1">*15 reduced by the sum of the credits allowable under
subparts A and B of this part.
For purposes of
The right to apply a TJC, however, does not come without limitation. As relevant herein,
Petitioners concede that they are subject to
2002 U.S. Tax Ct. LEXIS 1">*17
118 T.C. 1">*9 The heart of AMT is
(a) General Rule. -- There is hereby imposed (in addition
to any other tax imposed by this subtitle) a tax equal to the
excess (if any) of --
(1) the tentative minimum tax for the taxable year,
over
(2) the regular tax for the taxable year.
(b) Tentative minimum tax. -- For purposes of this part --
(1) Amount of Tentative Tax.
(A) Noncorporate taxpayers.
(i) In general. -- In the case of a taxpayer
other than a corporation, the tentative minimum
tax for the taxable year is the sum of --
(I) 26 percent of so much of the
taxable excess as does not exceed $ 175,000,
plus
(II) 28 percent of so much of the
2002 U.S. Tax Ct. LEXIS 1">*18 taxable excess as exceeds $ 175,000.
The amount determined under the preceding
sentence shall be reduced by the alternative
minimum tax foreign tax credit for the taxable
year.
(ii) Taxable excess. -- For purposes of this
subsection, the term "taxable excess"
means so much of the alternative minimum taxable
income for the taxable year as exceeds the
exemption amount.
(iii) Married individual filing separate
return. -- In the case of a married individual
filing a separate return, clause (i) shall be
applied by substituting "$ 87,500" for
"$ 175,000" each place it appears. For
purposes of the preceding sentence, marital
status shall be determined under2002 U.S. Tax Ct. LEXIS 1">*19
(B) Corporations. -- In the case of a
corporation, the tentative minimum tax for the taxable
year is --
(i) 20 percent of so much of the alternative
minimum taxable income for the taxable year as
exceeds the exemption amount, reduced by
(ii) the alternative minimum tax foreign tax
credit for the taxable year.
(2) Alternative minimum taxable income. -- The term
"alternative minimum taxable income" means the
taxable income of the taxpayer for the taxable year --
(A) determined with the adjustments provided in
section 56 and section 58, and
(B) increased by the amount of the items of tax
preference described in
If a taxpayer is subject to the regular tax, such taxpayer
shall be subject to the tax imposed2002 U.S. Tax Ct. LEXIS 1">*20 by this section (and,
if the regular tax is determined 118 T.C. 1">*10 by reference to an amount
other than taxable income, such amount shall be treated as
the taxable income of such taxpayer for purposes of the
preceding sentence).
From this text, we understand explicitly that the base of AMTI is "taxable income", and that this base may be affected by the items described in sections 56, 57, and 58.
2002 U.S. Tax Ct. LEXIS 1">*22 Petitioners assert in their brief that the legislative history underlying AMT "makes clear" that the AMT regime is a "separate and independent tax system that operates in parallel with the RT [regular tax] system and requires separate calculations of a taxpayer's" taxable income for regular tax purposes and AMTI. Petitioners conclude that, notwithstanding the fact that
Were we to adopt the parties' contention2002 U.S. Tax Ct. LEXIS 1">*23 that the regular tax and AMT regimes are parallel systems, we would be inclined to agree with petitioners that the
118 T.C. 1">*12 As to petitioners, they concede that a plain reading of the relevant statutory provisions fails to distinguish between taxable income for regular tax purposes and taxable income for AMT purpose. Petitioners ask the Court to draw2002 U.S. Tax Ct. LEXIS 1">*24 such a distinction pointing solely to two sentences from the General Explanation of the 1986 Act, one sentence in the preamble to
Structure of minimum tax as an alternative system. -- For
most purposes, the tax base for the new alternative minimum tax
is determined as though the alternative minimum tax were a
separate and independent income tax system. Thus, for example,
where a Code provision refers to a "loss" of the
taxpayer from an activity, for purposes of the alternative
minimum tax the existence of a loss is determined with regard to
the items that are includable and deductible for minimum tax,
not regular tax, purposes. [General Explanation of the 1986 Act,
The referenced sentence in the preamble to
Respondent, in turn, acknowledges that the primary reading of the AMT provisions requires that AMTI be calculated by modifying taxable income by the items described in part VI. In a manner that is openly inconsistent with respondent's plain reading of
Present Law
NOLs are allowed against alternative minimum taxable
income. For years after 1982, minimum tax NOLs are reduced by
the items of tax preference. Minimum tax NOLs are carried over
under a system separate from but parallel to that applying for
regular tax purposes. [H. Conf. Rept. 99-841 (Vol. II), at II-
262 (1986), 1986-3 C.B. (Vol. 4) 250, 262.
Present Law
Foreign tax credits are allowed against the minimum tax,
under limits similar to those applying under the regular tax.
Credits that cannot be used in the current taxable year because
of these limits are carried2002 U.S. Tax Ct. LEXIS 1">*27 over under a system separate from
but parallel to that applying for regular tax purposes. [H.
Conf. Rept. 99-841,
2002 U.S. Tax Ct. LEXIS 1">*28 Respondent also quotes the following language from the General Explanation of the 1986 Act:
118 T.C. 1">*14 STRUCTURE OF MINIMUM TAX AS AN ALTERNATIVE SYSTEM. -- For
most purposes, the tax base for the new alternative minimum tax
is determined as though the alternative minimum tax were a
separate and independent income tax system. Thus, for example,
where a Code provision refers to a 'loss' of the taxpayer from
an activity, for purposes of the alternative minimum tax the
existence of a loss is determined with regard to the items that
are includable and deductible for [alternative] minimum tax, not
regular tax, purposes.
In certain instances, the operation of the alternative
minimum tax as a separate and independent tax system is set
forth expressly in the Code. With respect to the passive loss
provision, for example, section 58 provides expressly that, in
applying the limitation for minimum tax purposes, all minimum
tax adjustments to income and expense are made and regular tax
deductions that are items of tax preference are disregarded.
2002 U.S. Tax Ct. LEXIS 1">*29 In other instances, however, where no such express
statement is made, Congress did not intend to imply that similar
adjustments were not necessary. Thus, for example, for
[alternative] minimum tax purposes it was intended that section
1211 (limiting capital losses) be computed using [alternative]
minimum tax basis, that section 263A (requiring the
capitalization of certain depreciation deductions to inventory)
apply with regard to [alternative] minimum tax depreciation
deductions, and that section 265 (relating to expenses of
earning tax-exempt income) apply with regard only to items
excludable from alternative minimum taxable income. [General
Explanation of the 1986 Act, supra at 438; fn. refs.
omitted and alterations made by respondent.]
We do not believe that the "legislative history" referenced by the parties displaces our plain and unambiguous reading of the relevant statutory provisions. To be sure, the parties, but for citations to the conferees' understanding of the law that preceded the 1986 Act, have not even cited the Court one iota of persuasive legislative2002 U.S. Tax Ct. LEXIS 1">*30 history in support of their contentions. The General Explanation of the 1986 Act, the source of the "legislative history" upon which the parties primarily rely to support their assertions of legislative intent, is not part of the statute's legislative history. See
The purpose of the Blue Book [the Staff of Joint Committee's
general explanation of a tax statute] is to provide, in one
volume, a compilation of the legislative history of a piece of
tax legislation. While the document is most helpful as a handy
reference volume it also gives some guidance. 118 T.C. 1">*15 Where the
Blue Book's explanation differs from that in a
conference report it may serve to alert the reader that
a technical correction is needed to reconcile the views.
[Emphasis added.]
Such is especially true as to the General Explanation of the 1986 Act, which was written by2002 U.S. Tax Ct. LEXIS 1">*31 the Joint Committee of Taxation for the 100th Congress (Joint Committee), or, in other words, the Congress that next followed the Congress that passed the 1986 Act. 10 Although the Staff of Joint Committee's explanation of a tax statute may be entitled to respect as a document that is prepared in connection with the legislative process by individuals who are intimately involved in that process, we shall not hesitate to disregard the expressions set forth therein where, as here, those expressions are barren of corroboration in the legislative history.
2002 U.S. Tax Ct. LEXIS 1">*32 Even if we were to follow the lead of the parties and rely on the General Explanation of the 1986 Act for an expression of legislative intent as to the current AMT regime, we would still not reach their proffered conclusion that Congress intended that the regular tax and AMT regimes operate as parallel systems. In fact, the primary provision of the General Explanation of the 1986 Act that the parties quote in support of their contention that the systems are "parallel" does not even use that word. Moreover, that provision actually contradicts the parties' position by stating "For most purposes, the tax base * * * is determined as though the alternative minimum tax were a separate and independent income tax system." General Explanation of the 1986 Act, supra at 438 (emphasis added). To our minds, the phrase "For most purposes" means that even the Joint Committee recognized that the regular tax and AMT systems were not parallel systems for all purposes. The same is true as to the use of the term "as though", rather than a term such as "by 118 T.C. 1">*16 virtue of the fact that". As to the Joint Committee's use of the term "separate and independent", we find no statement in the General Explanation of2002 U.S. Tax Ct. LEXIS 1">*33 the 1986 Act to the effect that the two regimes are separate and independent for all purposes. And even if we did, the mere fact that two systems are "separate and independent" does not make them "parallel".
The General Explanation of the 1986 Act uses the word "parallel" only twice in its discussion of AMT. First, as to the treatment of AMT NOLs, the General Explanation of the 1986 Act states:
In light of the parallel nature of the regular tax and
minimum tax systems, any limitations applying for regular tax
purposes to the use by a consolidated group of NOLs or current
year losses (e.g., section 1503) apply for minimum tax purposes
as well. Moreover, an election under section 172(b)(3)(C) to
relinquish the carryback period applies for both regular tax and
minimum purposes. [General Explanation of the 1986 Act, supra at
470.]
Second, in its discussion of "other rules", the General Explanation of the 1986 Act states:
Under the Act, the application of the tax benefit rule to
the minimum tax is within the discretion of the Secretary of the
Treasury. Relief from either the2002 U.S. Tax Ct. LEXIS 1">*34 regular or the minimum tax,
when the source of the taxpayer's tax liability changes, between
taxable years, from one system to the other, is not appropriate
solely by reason of the fact that a taxpayer has received no
benefit under one of the systems with respect to a particular
item. Congress both intended that the regular and minimum taxes
constitute separate and parallel tax systems, and anticipated
that the source of some taxpayers' liability would change from
year to year. Relief from the possible adverse impact of
switching from one system to the other (e.g., the denial of
deductions with respect to which there are timing differences as
between the two systems) was intended to be provided by means of
the minimum tax credit, along with the use of adjustments that
give rise, in effect, to "negative preferences" with
respect to items such as depreciation. Thus, application of the
tax benefit rule in this context is not necessary, although the
Treasury may, at its discretion, identify particular
circumstances where such exercise is appropriate. [Id. 2002 U.S. Tax Ct. LEXIS 1">*35 at
472.]
Given the clarity of the statute in the direct reference to and the definition of the term "taxable income", we consider none of the uses of the word "parallel" by Congress or the Joint Committee to be a clear directive from Congress that it intended that the computation of AMTI would, as the parties suggest, "start from scratch". Moreover, in the case of AMT NOLs, the rules for those NOLs did and still do run parallel. 11118 T.C. 1">*17 Thus, the mere fact that the prior and current systems of AMT NOLs are parallel to their treatment for regular tax purposes does not, in our minds, mean that the entire AMT regime runs parallel to the regular tax regime. 12
2002 U.S. Tax Ct. LEXIS 1">*36
Although the legislative history to a statute is secondary when the Court can apply the plain meaning of unambiguous statutory text, we recognize that unequivocal evidence of a clear legislative intent may sometimes override a plain meaning interpretation and lead to a different result.
As to
As to the provisions on AMT, those provisions find their roots in the Tax Reform Act of 1969 (the 1969 Act), Pub. L. 91-172, 83 Stat. 487, where Congress set forth rules for a minimum tax (MT) which was imposed in addition to the taxpayer's regular tax. The Code has included MT provisions for both corporate and individual2002 U.S. Tax Ct. LEXIS 1">*38 taxpayers ever since. The current minimum tax; i. e., the AMT, has generally evolved into its current form through three pieces of legislation; namely, the Revenue Act of 1978 (1978 Act), Pub. L. 95- 600, 92 Stat. 2763; the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, 96 Stat. 324; and the 1986 Act.
Through the 1969 Act, Congress enacted the MT provisions to prevent corporate and individual taxpayers from aggregating deductions to the point where they would pay either no tax or a "shockingly low" tax.
This scheme remained in effect, with only minor changes, as the only minimum tax formulation in the Code until 1978. See 1978 Act sec. 421(a), 92 Stat. 2871. Through the 1978 Act, Congress supplemented the MT with an AMT for noncorporate taxpayers. 13 In contrast to the MT, the AMT was imposed on a tax base similar to taxable income. The most notable differences between the bases were that, in computing AMTI, a long-term capital gain deduction was not allowed 118 T.C. 1">*19 and itemized deductions could be effectively disallowed. As to both taxable bases, the NOL deduction and the basis of property were the same.
2002 U.S. Tax Ct. LEXIS 1">*40 Through TEFRA, Congress repealed the MT for noncorporate taxpayers and replaced it with a revised form of AMT. For the computation of AMTI, Congress generally: (1) Incorporated the old MT preferences by causing those amounts to increase AMTI relative to taxable income and (2) created new preferences which were either not deductible or not excludable from gross income. Congress also disallowed certain itemized deductions allowable in computing taxable income and provided for a separate alternative tax NOL deduction.
The TEFRA AMT provision remained in effect from 1982 until its amendment by the 1986 Act, which expanded the AMT for individuals. S. Rept. 99-313, at 515, 521 (1986), 1986-3 C.B. (Vol. 3) 515, 521. Through that act, Congress repealed the MT for corporate taxpayers and subjected them to AMT. Congress also altered the computation of AMTI by providing for differences regarding when items of income or deductions are taken into account in computing taxable income and AMTI. The post-1986 AMT rules, sections 55-59, were enacted to achieve one overriding objective: to establish a floor for tax liability, so that a taxpayer pays some tax regardless of the tax breaks2002 U.S. Tax Ct. LEXIS 1">*41 otherwise available to him under the regular tax system. S. Rept. 99-313,
The legislative history under the 1986 Act states explicitly that the computation of a corporation's AMTI begins with taxable income and that any adjustments required by the AMT regime are made from there. The report of the House Ways and Means Committee, for example, explains clearly and unambiguously that the starting point for computing a corporation's AMTI is "taxable income". The report states:
Explanation of Provisions
1. Overview
The bill repeals the present law add-on minimum tax for
corporations beginning in 1986, creates a new alternative
minimum tax on corporations, and expands the alternative minimum
tax on individuals.
118 T.C. 1">*20 Corporations. -- Generally, the tax base for the
alternative minimum tax on corporations is the
taxpayer's regular2002 U.S. Tax Ct. LEXIS 1">*42 taxable income, increased by the
taxpayer's tax preferences for the year and adjusted by
computing certain deductions in a special manner which
negates the acceleration of such deductions under the
regular tax. The resulting amount, called alternative
minimum taxable income, then is reduced by a $ 40,000 exemption
and is subject to tax at a 25-percent rate. The amount so
determined may then be offset by the minimum tax foreign tax
credit to determine a "tentative minimum tax." These
rules are designed to ensure that, in each taxable year, the
taxpayer must pay tax equaling at least 25 percent of an amount
more nearly approximating its economic income (above the
exemption amount).
The net minimum tax, or amount of minimum tax due, is the
amount by which the tax computed under this system (the
tentative minimum tax) exceeds the taxpayer's regular tax.
Although the minimum tax is, in effect, a true alternative tax,
in the sense that it is paid only when it exceeds the regular
tax, technically the taxpayer's regular tax continues to2002 U.S. Tax Ct. LEXIS 1">*43 be
imposed, and the net minimum tax is added on.
Individuals. -- The structure for the alternative minimum
tax on individuals generally is the same as under present law,
except that certain deferral preferences (such as incentive
depreciation) give rise to adjustments to the minimum tax base
over a period of years, in order properly to compute total
income each year in light of the fact that, in later years, the
regular tax deduction typically is smaller than the deduction
would be if calculated on a straight line basis over a longer
period. The alternative minimum tax on individuals differs from
that applying to corporations in several respects. For example,
there are some differences between the preferences applying to
individuals and those applying to corporations, and certain
itemized deductions that individuals can claim for regular tax
purposes are not allowable under the minimum tax. [H. Rept. 99-426, at 308 (1986), 1986-3 C.B. (Vol. 2) 308; emphasis added.]
The Senate Finance Committee repeated these statements almost verbatim2002 U.S. Tax Ct. LEXIS 1">*44 in its report. 14 S. Rept. 99-313,
2002 U.S. Tax Ct. LEXIS 1">*45 Petitioners also rely on the fact that
We read nothing in
rule for computing alternative minimum taxable income. Except as
otherwise provided by statute, regulations, or other published
2002 U.S. Tax Ct. LEXIS 1">*46 guidance issued by the Commissioner, all Internal Revenue Code
provisions that apply in determining the regular taxable income
of a taxpayer also apply in determining the alternative minimum
taxable income of the taxpayer.
(b) Items based on adjusted gross income or modified
adjusted gross income. In determining the alternative minimum
taxable income of a taxpayer other than a corporation, all
references to the taxpayer's adjusted gross income or modified
adjusted gross income in determining the amount of items of
income, exclusion, or deduction must be treated as references to
the taxpayer's adjusted gross income or modified adjusted gross
income as determined for regular tax purposes.
(c) Effective date. These regulations are effective for
taxable years beginning after December 31, 1993.
Petitioners' final argument is that the Court will frustrate congressional intent by not allowing them to deduct Foods' full wage expense. Petitioners contend that disallowing part of the deduction may place taxpayers in a worse position by electing the TJC than by2002 U.S. Tax Ct. LEXIS 1">*47 not making the election. We disagree 118 T.C. 1">*22 that our holding herein frustrates congressional intent. The primary way to foster congressional intent is to apply, as we do here, the plain meaning of the statute as written. In this regard, the Supreme Court has stated: "courts must presume that a legislature says in a statute what it means and means in a statute what it says there."
We sustain respondent's determination on this issue. In so doing, we have considered all arguments made by the parties and have rejected those arguments not discussed herein as without merit. Accordingly,
Decisions will be entered for respondent in docket Nos. 1287-00, 1288-00, 1289-00, 1290-00, 1293-00, and 1618-00, and decisions will be entered under Rule 155 in docket Nos. 1291-00 and 1292-00.
2. Rule references are to the Tax Court Rules of Practice and Procedure. Unless otherwise indicated, section references are to the Internal Revenue Code in effect for the subject years.↩
3. We hereinafter refer to Charles C. Allen III, Charles C. Allen, Jr., John R. Allen, John R. Allen, Jr., Warren L. Allen, and Warren L. Allen, Jr., as the sole petitioners.↩
4. We understand the parties' use of the word "parallel" in the context of the AMT and regular tax regimes to mean that the regimes run independently of each other without ever meeting. See Merriam-Webster's Collegiate Dictionary 842 (10th ed. 1999). In other words, according to the parties, a taxpayer must first apply the provisions of the Code to compute regular tax and then "start from scratch" to apply those provisions to compute AMT. In this regard, the parties state, the de novo calculation of AMTI is made without regard to any calculation made for regular tax purposes.↩
5. Although respondent concedes that no petitioner is liable for AMT, we must address the AMT provisions in order to compute each petitioner's TMT. See
6. Whereas sec. 61(a) provides that the meaning of the term "gross income" as set forth therein does not apply "where otherwise provided in this subtitle", we are unaware of any provision in the subtitle that would make the sec. 61(a) definition inapplicable to
7. Congress provided the sole exception to this rule in
(b) Individuals Who Do Not Itemize Their Deductions. -- In
the case of an individual who does not elect to itemize his
deductions for the taxable year, for purposes of this subtitle,
the term "taxable income" means adjusted gross income,
minus --
(1) the standard deduction, and
(2) the deduction for personal exemptions provided in
section 151.↩
8. Part VI includes five sections, numbered and titled as follows:
SEC. 56. Adjustments in Computing Alternative Minimum Taxable
Income;
SEC. 58. Denial of Certain Losses; and
SEC. 59. Other Definitions and Special Rules.↩
9. But for these citations, respondent's argument on brief includes no citation to the legislative history underlying the Tax Reform Act of 1986 (1986 Act), Pub. L. 99-514, 100 Stat. 2085, enactment of the current AMT regime. Our research has revealed two other times in which the term "separate from but parallel to" appears in that legislative history. The conferees stated that the House bill provided the following rules on the application of the AMT FTCs and the AMT NOLs to corporate taxpayers:
Under the House bill, foreign tax credits are allowed
against the minimum tax, under limits similar to those applying
under the regular tax. Credits that cannot be used in the
current taxable year because of these limits are carried over
under a system separate from but parallel to that applying for
regular tax purposes.
* * * * * * *
Under the House bill, the net operating loss deduction is
allowed against alternative minimum taxable income. For any
taxable year beginning after 1985, the minimum tax is reduced by
the items of tax preference arising in that year. Minimum tax
NOLs are carried over under a system separate from but parallel
to that applying for regular tax purposes. [H. Conf. Rept. 99-
841 (Vol. II), supra at II-281, II-282 (1986), 1986-3 C.B. (Vol. 4) at 281, 282.]
In addition to these two uses of the word "parallel" and the other two uses referenced by the parties, our research has uncovered only one other time that the word "parallel" appears in the legislative history underlying the 1986 Act's enactment of the current AMT regime. The conferees stated in its discussion of corporate AMT NOLs:
It is clarified that, in light of the parallel nature of
the regular tax and minimum tax systems, any limitations
applying for regular tax purposes to the use by a consolidated
group of NOLs or current year losses (e.g., section 1503) apply
for minimum tax purposes as well. [H. Conf. Rept. 99-841,
supra at II-282, 1986-3 C.B. (Vol. 4) at 282.↩
10. The Joint Committee consisted of 10 Congressmen, 5 from the Senate and 5 from the House of Representatives. Staff of Joint Comm. on Taxation, General Explanation of the Tax Reform Act of 1986 (J. Comm. Print 1987) (General Explanation of the 1986 Act) II. The General Explanation of the 1986 Act was prepared by the Staff of Joint Committee, in consultation with the staffs of the House Ways and Means Committee and the Senate Finance Committee. Letter from David H. Brockway, Chief of Staff, to the Hon. Dan Rostenkowski, Chairman, and the Hon. Lloyd Bentsen, Vice-Chairman. Id. at XVII.↩
11. The same is true as to AMT FTCs.↩
12. Nor are we persuaded by the preamble or technical advice memorandum upon which petitioners rely. In addition to the obvious fact that these documents also are not items of legislative history, these documents are afforded little weight in this Court.
13. Although the Revenue Act of 1978, Pub. L. 95-600, 92 Stat. 2763, purported to repeal the add-on minimum tax for individuals and replace it with a new AMT formulation beginning in 1979, other sources indicate that the two provisions co-existed in the Code until the add-on minimum tax was finally repealed by the Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248, sec. 201(a), 96 Stat. 411, and supplanted by an amended alternative minimum tax. See, e.g.,
14. The General Explanation of the 1986 Act also includes these statements and clarifies that the word "generally" as used in the discussion on corporations means that regular taxable income is not used only where the taxpayer's tax base is other than taxable income; e.g., unrelated business taxable income, real estate investment trust taxable income, or life insurance company taxable income. General Explanation of the 1986 Act, supra at 436-437. The General Explanation of the 1986 Act states that a technical correction may be necessary to effectuate the exception to the general rule.