Alternative Minimum Tax Woes

December 31, 2009

            For all of you enslaved by the alternative minimum tax (AMT) out there, don’t feel like you are alone. You may have almost been alone in 1970, when the evening was still young for the AMT, but no longer. Consider a few stats from the Tax Policy Center, released just last October:

            1970 – 20,000 filers subject to AMT
            2009 – estimated 4 million filers subject to AMT
            2010 – if AMT “patch” not extended, 27 million filers subject to AMT
            And if you’re wondering whether the dough you may have received from your boy or girl friend is income or a gift, consider the most recent case on the issue (yes, there have been several over the years) pled by Ms. Yang, who began dating Mr. Shih, later moving in with him after their relationship became “more intimate.” In 2005, it seems, Mr. Shigh handed over a few checks to Ms. Yang totaling $10,500. Mind you, now, that Ms. Yang did some housekeeping and cooking, but she did not work for Mr. Shih under any form of written or oral contract for services. And she didn’t have any skill or experience in connection with Mr. Shih’s artistry business.
            In Shih’s view, the payments were “compensation” (of some sort), which is presumably why he issued a 1099 to Yang at year end. Shih deducted the payments on his tax return, of course.
            “Not so fast,” concluded the Tax Court, which noted that, “Mr. Shigh was romantically involved with Ms. Yang, and she moved into his home. There were discussions of a formal engagement, and their relationship was intimate. Mr. Shih testified at the trial and his testimony concerning his romantic relationship with Ms. Yang was evasive.”
            Held: the payments were a gift, and thus not deductible by Shih, nor includible as income by Yang.
            And one comforting, final volley for 2009–nice to hear Obama express just a little economic acumen recently. “In the long run we can’t continue to spend as if deficits don’t have consequences, as if waste doesn’t matter, as if the hard earned tax dollars of the American people can be treated like monopoly money, that’s what we’ve seen time and time again. Washington has become more concerned about the next election than the next generation.”
            Happy New Year.
CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters. You should consult your CPA regarding the implications to your own particular situation.
            Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd. with offices in Incline Village and Reno. He is also a contributor to the recently published 13th edition of Tax Savvy for Small Business, published by Nolo. He can be reached at 831-7288, and welcomes comments below.

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