In its Final Letter Report, "More Small Corporate Taxpayers Can Benefit from the Alternative Minimum Tax Exemption Provision," based on a review of the Internal Revenue Service's processing of corporate tax returns, TIGTA identified 2,343 1998 small business returns that had paid the AMT, but which should have been exempt under a provision in the Taxpayer Relief Act of 1997.

In a letter dated Dec. 12 to IRS Commissioner Charles Rossotti and IRS Small Business/Self-Employed Division Commissioner Joe Kehoe, Sen. Christopher "Kit" Bond, chairman of the Senate Committee on Small Business, called on the IRS to take action to help affected taxpayers.

"I request that you give prompt attention to steps that can be taken to assist small corporations that overpaid their taxes and to help all small-corporate taxpayers avoid such overpayment as a result of the AMT in the future," Bond wrote.

Bond called the overpayments especially troubling because there is no automatic system in place for refunding them or for alerting the taxpayers who have mistakenly overpaid.

"If these taxpayers had underpaid their taxes, the IRS would certainly notify them that more taxes are due," Bond said. "In this case, however, they will receive a refund only if they realize their own mistake and file an amended tax return."

Small corporations generally are exempted from the AMT under Section 55(e) of the Internal Revenue Code, provided they meet certain gross receipt tests. A corporation qualifies for the exemption if its average gross receipts were $5 million or less during its first three taxable years beginning after Dec. 31, 1993. After that, a small corporation can continue to qualify for the AMT exemption as long as its average gross receipts for the prior three-year period don't exceed $7.5 million.

"Congress created the small-corporation exemption from the AMT in response to pleas from small businesses faced with the burdensome complexities of the AMT," Bond said. "But taxpayers can only benefit from these exemptions if they know about them and understand them. These overpayments clearly indicate that we have much work to do in this area and they also underscore the need for a simpler, fairer, and flatter tax code in general."

-- SmartPros News Staff

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