What's All This AMT Stuff, Anyhow? (Part 1)

Dec. 1, 2005
The IRS recently "invited" me to fill out a form that puts fear in the hearts of strong men—Form 6251 for the Alternative Minimum Tax (AMT). I was "invited" to find out if this form would show any more tax liability. Hey, I paid my taxes back in

The IRS recently "invited" me to fill out a form that puts fear in the hearts of strong men—Form 6251 for the Alternative Minimum Tax (AMT). I was "invited" to find out if this form would show any more tax liability. Hey, I paid my taxes back in August. I don't mind paying my taxes. I don't mind filling in my tax forms.

I have always done my taxes by hand without a computer or any professional preparer. (Actually, I never have any trouble filling in my tax forms. It's just collecting the numbers to plug in that's a lot of work.)

So I started trying to fill in this form. Unlike any other tax forms, it refers in a circular way to other tax forms and worksheets that have supposedly been completed in the past. Unfortunately, some of these alternative worksheets are hard to dig up, so I had to re-duplicate and re-invent them. The lines to fill in had a lot of circular thinking. I had to refer to various lines on worksheets for other lines. Often I was told to add zero to zero, then compare this to another number, possibly also zero. Then I had to multiply by 15%, 28%, or maybe 26%. It did seem to be a rotten and absurd form.

The AMT was originally designed in 1970 as a tool to harass tax-avoiders. Thirty-six years ago, some citizens and legislators were outraged to learn that 155 people with over $200,000 dollars of income (which was a lot of money in 1969) were paying zero income tax. They did this by exercising various deductions and exemptions and tax loopholes. So the AMT's purpose was to make them pay something.

Now, 30 years later, outraged people are complaining that there are still over 600 millionaires who are paying nothing in taxes. They have an income of over $1M but are still not paying income tax or even AMT. However, because it was not indexed against inflation, many more ordinary people and taxpayers are creeping up into the ~$100,000 brackets where they (we) get nailed by the AMT.

Apparently you get into the AMT by having lots of deductions, such as state income taxes, mortgage interest, various kinds of incentive stock options, and exemptions for children. When Congress passed our tax codes, imperfect as they are, they wanted to provide incentives for people with these expenses to have a tax break. But the AMT has no such incentives. It nails you on those items.

I had computed my AMT back in August and was satisfied that I owed $000 of AMT—as in previous years. After all, I didn't have any exemptions for dependents or incentive stock options. So on Oct. 23, I started recomputing my AMT. I was quite surprised to find that I supposedly owed $5414. I didn't like that answer, so I re-computed it. Maybe I had made some errors. In that buggy, corrupt AMT form, it would have been astonishing if I hadn't made an error. I cranked through it on clean sheets of paper and came up with $17,300. I checked the first one and the second one, and I could not find any obvious errors. I started from scratch and came up with an answer of $4222. I compared this computation with the previous two, and I could now see where I'd probably made errors.

I decided to check it again, and it seemed to tell me $3878. But I was nervous about that. I sent in the form for $4222. If they tell me I made an error, and it's really $3878 (plus penalty) , I won't be surprised. I won't be surprised at anything.

If you have ever been surprised by an AMT tax bill, check 550 on the Reader Response card. If you think the Form 6251 is the worst form of all, and worse than all other tax forms put together, check 551.

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