A Promise on 2010 AMT Relief

In a letter to the IRS, Congressional leaders of the tax writing committees pledged to “patch” the Alternative Minimum Tax (AMT) for tax year 2010.  Why the promise?

Because time is running out for the IRS and the Department of the Treasury to print the official tax forms for 2010, which are distributed and filed in 2011.  A similar issue exists with the tax withholding tables for wages/salaries with respect to sunset of the 2001 and 2003 tax cuts at the end of 2010 .

Absent action on the AMT, under present law more than 21 million taxpayers, out of more than 140 million total tax returns, will have to pay AMT liability.  For tax year 2008, which was patched, only 4 million taxpayers paid AMT, and the patch would hold this number of AMT-affected taxpayers approximately constant. 

“Patching” the AMT, that is indexing the exemption amounts and modifying the rules for certain nonrefundable tax credits, has become an annual tax policy ritual, with one-year patches enacted in recent years.  The cost of the patch for tax year 2010 has increased to $70 billion.

The Congressional letter provides cover for the IRS to draft the 2010 income tax forms assuming that the AMT will be patched.  Now Congress will have to follow through with action on the AMT and the rest of the expiring tax provisions.

This issue is important for home builders and other small businesses, who are typically organized as pass-thru entities (such as LLCs and S Corporations) and therefore pay business income tax on their individual income returns.  These businesses are thus likely to trigger AMT status depending on business income and deductions, thereby causing any number of complications, such as inability to claim certain tax deductions (such as the state and local tax deductions) or tax credits (such as the section 25C $1,500 remodeling credit).



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