                  T.C. Summary Opinion 2002-20



                     UNITED STATES TAX COURT



           ALCMENE AND PETER HALOFTIS, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5925-00S.                Filed March 5, 2002.


     Alcmene and Peter Haloftis, pro sese.

     Richard A. Stone, for respondent.



     GOLDBERG, 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.   The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year in issue.
                                 - 2 -


     Respondent determined a deficiency in petitioners’ Federal

income tax for 1998 of $4,315.    The issues for decision are:   (1)

Whether petitioners are entitled to a student loan interest

deduction, and (2) whether petitioners are subject to the

alternative minimum tax.   At the time the petition was filed,

petitioners lived in Boyds, Maryland.    Petitioners are husband

and wife.

     Alcmene Haloftis (Ms. Haloftis) is a chemical engineer with

the U.S. Department of Labor, Office of General Industry

Compliance.   She holds a bachelor of science degree in chemical

engineering from the University of Maryland, College Park, and a

master of science degree in environmental engineering from George

Washington University.   At the time of trial, Ms. Haloftis had

worked for the Department of Labor for approximately 12 years,

including the year in issue.    Mr. Haloftis, an electrical

engineer, worked for MA Bioservices, Inc., in Rockville,

Maryland, during the year in issue.

     In 1998, petitioners paid $2,257.77 in student loan interest

to the Student Loan Marketing Association.    The underlying

student loan was incurred for petitioners’ continued education.

The parties do not dispute the nature of this loan or the amount

of interest paid during 1998.

     In their timely filed 1998 joint Federal income tax return,

petitioners claimed on their Schedule A, Itemized Deductions, a
                                - 3 -


deduction of $2,257.77 for student loan interest paid during

1998.   Petitioners did not file Form 6251, Alternative Minimum

Tax--Individuals, with their 1998 Federal income tax return.

     In a notice of deficiency, respondent determined that

petitioners were not entitled to the student loan interest

deduction because they were not eligible for the deduction under

section 221(b).   Respondent further determined that petitioners

were subject to the alternative minimum tax for 1998.

     A deduction is allowed on interest paid by a taxpayer on any

“qualified education loan” in the year paid.      Sec. 221(a).   A

“qualified education loan” means any indebtedness incurred to pay

qualified higher education expenses which are incurred by the

taxpayer or the taxpayer’s spouse, paid or incurred within a

reasonable period of time before or after the indebtedness was

incurred, and attributable to education during a period the

recipient was an eligible student.      Sec. 221(e)(1).   Married

taxpayers must file joint returns in order to qualify for the

deduction.   Sec. 221(f)(2).   The maximum deduction allowed for

tax year 1998 was $1,000.   Sec. 221(b)(1).

     For a moderate-income taxpayer the deduction for qualified

education loan interest is phased out according to the taxpayer’s

modified adjusted gross income (modified AGI).      Sec. 221(b)(2).

The phaseout begins at a modified AGI level of over $60,000 for

joint return filers.   Sec. 221(b)(2)(B)(i)(II).     The deduction is
                               - 4 -

completely phased out at a modified AGI level of $75,000 for

joint return filers.   Sec. 221(b)(2)(B).

     Petitioners contend that respondent improperly disallowed

their education loan interest deduction because the “IRS treated

the interest as a new loan and not a loan in the repayment

stage”.   We are unsure why petitioners make a distinction between

a new loan and a loan in “repayment stage”, but the distinction

is irrelevant.   The limitations of section 221(b), entitled

“Maximum Deduction”, apply to all education loan interest

deductions so long as the education loan is qualified and with

respect to the first 60 months of repayment.   Sec. 221(d).

Respondent does not contest that the loan payments were within

the 60-month period.

     Petitioners’ next argument is that they are not subject to

any limitation on the education loan interest deduction because

“line 28 of * * * [Schedule A] states that if line 34 is over

$124,500, your deduction is not limited.”   Petitioners are

misguided in this assertion.   Line 28 refers to the itemized

deduction phaseout amount1 and has no bearing on petitioners’

entitlement to the education loan interest deduction.   Section



     1
          Sec. 68 establishes an overall limitation on itemized
deductions. For 1998, the phaseout begins at adjusted gross
income of $124,500 for joint return filers. Petitioners
correctly assert, and respondent does not contest, that
petitioners are not subject to the sec. 68 limitation on itemized
deductions.
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221(b) sets the deduction limit specifically on qualified

education loan interest paid in 1998 at $1,000.    Therefore,

assuming all other requirements of section 221 are met, for

petitioners’ student loan interest of $2,257.77, they would be

entitled to deduct only $1,000 as their education loan interest

deduction.   Sec. 221(b).

     Respondent contends that petitioners are not entitled to the

deduction because their modified AGI exceeds the phaseout amount

of section 221(b)(2).   We agree.   For tax year 1998, petitioners

reported an adjusted gross income of $99,213.90.    Petitioners’

modified AGI equals the adjusted gross income determined without

regard to the deduction for the education loan interest.    Sec.

221(b)(2)(C).   For tax year 1998, petitioners’ modified AGI was

$101,471.67.2   Because petitioners’ modified AGI for 1998 is more

than $75,000, we hold that interest paid on petitioners’

qualified education loan is not deductible under section 221(b).

Respondent is sustained on this issue.

     Section 55(a) imposes an alternative minimum tax on

noncorporate taxpayers equal to the excess of the “tentative

minimum tax” over the “regular tax”.3    The alternative minimum

     2
          $99,213.90 (adjusted gross income) plus $2,257.77
(student loan interest) = $101,471.67.
     3
          For petitioners, the term “regular tax” means “the
regular tax liability for the taxable year (as defined in sec.
                                                   (continued...)
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tax is the amount in excess of, and in addition to, any regular

tax owed.

     The tentative minimum tax for noncorporate taxpayers is

equal to 26 percent of so much of the taxable excess as does not

exceed $175,000.    Sec. 55(b)(1)(A)(i).    The taxable excess is

that amount by which the alternative minimum taxable income

(AMTI) exceeds the exemption amount.     Sec. 55(b)(1)(A)(ii).   The

exemption amount for married couples filing a joint return is

$45,000.    Sec. 55(d)(1)(A).

     AMTI equals the taxpayer’s taxable income for the year

determined with the adjustments provided in section 56 and

increased by the amount of tax preference items described in

section 57.    Sec. 55(b)(2).   In calculating AMTI, no deduction is

allowed for State and local income taxes paid and miscellaneous

itemized deductions.    Sec. 56(b)(1)(A).    Also, no deduction for

personal exemptions under section 151 is allowed.      Sec.

56(b)(1)(E).

     Petitioners did not file Form 6251 with their 1998 return.

In computing petitioners’ AMTI for the year in issue, respondent

disallowed petitioners’ deductions for taxes paid and for job

expenses and other miscellaneous itemized deductions.      We have

reviewed respondent’s computations of the alternative minimum tax

     3
      (...continued)
26(b))”. Sec. 55(c)(1).
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and find that they comport with the provisions of sections 55 and

56.    The following computation shows the proper amount of

alternative minimum tax:

I.    Individual Income Tax Return - Form 1040
                                                           1
       Adjusted gross income (Form 1040, lines 33/34)       $101,471.67
       Less: Itemized deductions (Schedule A)                -43,819.43
       Balance (Form 1040, Line 37)                           57,652.24
       Less: Exemptions (Form 1040, Line 38)                 -10,800.00
       Taxable income (Form 1040, Line 39)                    46,852.24

       Tax (secs. 1(a), 3(c))                                  7,620.00

       Regular tax (secs. 26(b)(1), (2)(A), 55(c)(1))          7,620.00
             1
              This amount reflects the disallowance of petitioners’ student
       loan interest deduction as discussed above. $99,213.90 (petitioners’
       reported AGI) plus $2,257.77 (student loan interest = $101,471.67.


II.   Itemized Expenses - Schedule A

       Taxes paid (Line 9)                                  $25,220.26
       Interest paid (Line 14)                               +6,315.83
       Charitable contributions (Line 18)                    +2,080.00
       Miscellaneous itemized deductions
        (Unreimbursed employee expenses) (Line 26)          +10,203.34
       Total itemized deductions                             43,819.43

III. Alternative Minimum Taxable Income

       Taxable income (Form 1040, line 39)                  $46,852.24
       Adjustments
          Taxes                                             +25,220.26
          Miscellaneous itemized deductions
            (Unreimbursed employee expenses)                +10,203.34
          Exemptions                                        +10,800.00
          Refund of taxes                                    -2,397.61
       Balance                                               90,678.23
       Plus: Items of tax preference                            -0-
       Alternative minimum taxable income                    90,678.23
                                   - 8 -

IV.   Alternative Minimum Tax

      Alternative minimum taxable income                $90,678.23
      Less: Exemption amount                            -45,000.00
      Taxable excess                                     45,678.23
      Times: Applicable AMT rate x 26%
      Tentative minimum tax                             11,876.34
      Less: Regular tax                                 -7,620.00
      Alternative minimum tax                            4,256.34

      Petitioners’ taxable income for 1998 was $46,852.24, the

amount reported on line 39 of Form 1040.

      As relevant herein, the adjustments provided in section

56(b) include the disallowance of the following:       (1)

Miscellaneous itemized deductions as defined in section 67(b);

(2) taxes described in paragraph (1), (2) or (3) of section

164(a); and (3) personal exemptions defined in section 151.

Secs. 56(b)(1)(A)(i) and (ii), (E).        Any amount refunded by way

of taxes paid that is includable in computing adjusted gross

income is not subject to disallowance.       See sec. 56(b)(1)(A).

      After we take into account the foregoing adjustments,

petitioners’ AMTI for 1998 equals $90,678.23.       AMTI exceeds the

applicable exemption amount of $45,000 by $45,678.23.         See sec.

55(d)(1)(C)(i).      Petitioners’ “tentative minimum tax” is

therefore 26 percent of the excess, or $11,876.34.        See sec.

55(b)(1)(A)(i)(I), (iii).       Because petitioners’ tentative minimum

tax exceeds the regular tax of $7,620, petitioners are liable for

the alternative minimum tax in the amount of the excess; i.e.,

$11,876.34 less $7,620, or $4,256.34.       See sec. 55(a).

      In view of the foregoing, we hold that petitioners are
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liable for the alternative minimum tax.    Respondent is sustained

on this issue.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                           Decision will be entered

                                      for respondent.
