Pushing for Tax Reform – Alternative Minimum Tax Repeal

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The American Institute of Certified Public Accountants (AICPA) recently participated in U.S. House of Representatives, Committee on Small Business hearings on tax reform with the goal of ensuring that main street isn’t left behind. One area of focus in this regard has to do with the Alternative Minimum Tax Repeal. The AICPA and much of the practitioner community believe that the current system’s requirement for taxpayers to compute their income for purposes of both the regular income tax and the AMT is a far-reaching complexity of the Code. Small businesses, including those businesses operating through pass-through entities, are increasingly at risk of being subject to AMT.

While this tax was created to ensure that all taxpayers pay a minimum amount of tax on their economic income, small businesses suffer a heavy burden because they often do not know whether they are affected by AMT until they file their taxes. This requires some businesses to constantly maintain a reserve for possible AMT, which takes away from resources that could be allocated to business needs such as hiring, expanding, and giving raises to workers.

Sole proprietors who are also owners in pass-through entities must combine the AMT information from all their activities in order to calculate AMT. Including adjustments and preferences from pass-through entities contributes to AMT complexity. The computations are extremely difficult for business taxpayers preparing their own returns and the complexity affects the IRS’s ability to meaningfully track compliance.

The AICPA supports repealing the AMT for corporations and individuals altogether. As AMT complexities increase, so do the tax regime’s impact on unintended taxpayers and related compliance problems.

By Dale F. Jensen, CPA