Dear Ms Masha Quigly:
We know the fact that you filed your return for 2006 and reported taxable income of $48,700 which didn’t include the deduction of state and local tax expense of $9,000. You did so because you believed that if you claimed the state and local taxes, you would be subject to the AMT. Upon audit of the return, the IRS concluded that you should have included the $9,000 of the state and local taxes in your itemized deductions. Thus your decision to not deduct the state and local taxes didn’t not relieve you from being subject to the AMT.
According to the similar case of Qureshi v. U.S., 2005–2 USTC ¶ 50,586, the Alternative Minimum Tax, described at 26 U.S.C. §§55- 59, operates to provide a taxpayer with a "tentative minimum tax" for the taxable year. Ms. Qureshi's tentative minimum tax is based on her "alternative minimum taxable income" which equals her taxable income with certain adjustments. Her total tax due is solely based on this alternative minimum taxable income, which does not adjust for state and local income taxes. Therefore, the amount she owes due to the Alternative Minimum Tax, the "tentative minimum tax," in no way depends on whether she chose to take a deduction for state and local income taxes for purposes of computing her regular tax liability.
From the similar case above, we hold that IRS is correct on this point, and you need to include the $9,000 of state and local taxes in your itemized deductions, and your decision to not deduct the state and local taxes did not relieve you from being subject to the AMT. If you have any question about the case I mentioned above, do not hesitate to contact me again. Thanks for contact us on this issue.
Very truly yours,
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