                  T.C. Summary Opinion 2004-151



                     UNITED STATES TAX COURT



         DANIEL S. AND CHRISTI L. SMITH, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8617-04S.             Filed November 3, 2004.



     Daniel S. and Christi L. Smith, pro sese.

     Aimee R. Lobo-Berg, for respondent.



     CARLUZZO, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for 2002.   Rule references are to the Tax

Court Rules of Practice and Procedure.   The decision to be
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entered is not reviewable by any other court, and this opinion

should not be cited as authority.

     Respondent determined a deficiency of $8,950 in petitioners’

2002 Federal income tax.    The deficiency results entirely from

the imposition of the section 55 alternative minimum tax (AMT).

The issue for decision is whether in the computation of their

AMT liability petitioners are entitled to take into account a

negative tax preference item.

Background

     All of the facts in this case submitted under Rule 122 have

been stipulated and are so found.    At the time the petition was

filed, petitioners resided in Pocatello, Idaho.

     Daniel Smith was employed as a medical sales representative,

and Christi Smith was not employed during 2002.

     Petitioners filed a timely 2002 joint Federal income tax

return.    On that return they reported adjusted gross income of

$220,739 (amounts are rounded to the nearest dollar) that

consists, in part, of wage income of $216,419 and refunds of

State and local taxes of $1,544.

     Petitioners’ return includes a Schedule A, Itemized

Deductions, on which petitioners claimed itemized deductions as

follows:
                                  - 3 -
     State and local taxes paid                         $14,789
     Real estate taxes paid                               1,425
     Interest paid                                       10,972
     Charitable contributions                             5,120
     Job expenses and other miscellaneous deductions
       (in excess of 2% of adjusted gross income)       30,542
     Less: Overall limitation on itemized deductions    (2,503)
       Total itemized deductions                        60,345


     After taking into account exemptions and total itemized

deductions, petitioners reported taxable income and an income tax

liability of $147,194 and $34,569, respectively, on their 2002

return.   The reported income tax liability consists entirely of

the tax imposed by section 1.

     On or about April 21, 2004 (after respondent issued the

notice of deficiency), petitioners submitted a Form 6251,

Alternative Minimum Tax–-Individuals, for 2002.        In computing

alternative minimum taxable income (AMTI) of $175,603,

petitioners deducted a $27,500 negative tax preference for

intangible drilling costs.      Petitioners did not claim a deduction

for intangible drilling costs in the computation of the taxable

income or section 1 income tax liability reported on their

return.   On the Form 6251, petitioners reported an AMT of $12.

On line 43 of their 2002 return, petitioners reported an AMT

liability of zero.

Discussion

     The dispute focuses on the negative tax preference item

discussed above.    According to respondent, petitioners’ AMT
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liability is computed without reference to that negative tax

preference item.

     Section 55(a) imposes an AMT on noncorporate taxpayers equal

to the excess (if any) of the tentative minimum tax for the

taxable year over the regular tax.     The term “regular tax” means

the “regular tax liability for the taxable year (as defined in

section 26(b))”.   Sec. 55(c)(1).   Section 55(b)(1)(A) provides

that for noncorporate taxpayers the tentative minimum tax is

26 percent of so much of the AMTI as exceeds the exemption

amount.   The exemption amount for individuals filing jointly is

$49,000 subject to a phaseout reduction equal to 25 percent of

the amount by which AMTI exceeds $150,000.    Sec. 55(d)(1)(A)(i),

(3)(A).   There appears to be no dispute between the parties with

respect to these fundamental computational principles.

     Section 55(b)(2) defines AMTI as the taxable income of the

taxpayer for the taxable year determined with the adjustments

provided for in sections 56 and 58 and increased by the amount

of the items of tax preference described in section 57.    Section

56(b)(1)(A) provides, in general, that in determining a

taxpayer’s AMTI, no deductions shall be allowed for miscellaneous

itemized deductions and State and local taxes paid.    Also, no
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deduction is allowed for personal exemptions.   Sec. 56(b)(1)(E).

The parties part ways in this phase of the computation.

     Respondent calculated petitioners’ AMTI as follows:

          Taxable income per return        $147,194
          Personal exemptions                13,200
          State and local taxes paid         16,214
          Unreimbursed employee expenses     30,542
          Sec. 68(a) limitation
            on itemized deductions           (2,503)
          Taxable State tax refund           (1,544)
            AMTI                            203,103


Respondent’s computation does not take into account the $27,500

negative tax preference for intangible drilling costs petitioners

claimed on their Form 6251.   Respondent allowed petitioners an

exemption under section 55(d)(1) of $35,724, which was based on

the $49,000 exemption amount subject to the phaseout reduction of

$13,276 (25 percent of the excess of $203,103 over $150,000).

Because petitioners’ AMTI of $203,103 exceeded the $35,724

exemption amount by $167,379, petitioners’ tentative minimum tax

was computed as 26 percent of the excess, or $43,519.   Because

petitioners’ tentative minimum tax of $43,519 exceeds their

regular tax of $34,569, respondent determined that petitioners

are liable for AMT of $8,950.
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     Petitioners reduced their AMTI by the $27,500 negative tax

preference item.1   Otherwise, petitioners computed the $12 AMT

liability reported on the Form 6251 in a manner consistent with

respondent’s computation.

     We are aware of no authority that allows taxpayers to reduce

AMTI as petitioners have, and we find that respondent properly

computed petitioners’ AMT liability.       Accordingly, respondent’s

determination in that regard is sustained.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,

                                              Decision will be

                                         entered for respondent.




     1
        Sec. 59(e) allows a taxpayer to make an election to
deduct qualified expenditures for intangible drilling costs
ratably over a 60-month period. If this election is made with
respect to any qualified expenditure, then that amount is not
treated as a tax preference item under sec. 57, and sec. 56 does
not apply. Sec. 59(e)(6). We note, however, that an election
under sec. 59(e) does not result in the qualified expenditure’s
being deducted from AMTI as a negative tax preference.

     In any event, the record does not establish that petitioners
made an election under sec. 59(e), and no evidence has been
introduced regarding the source of the negative tax preference
item.
