AMT question

[rfassett]

This is one of those deals where you start questioning yourself that you might have missed something. Facts:

New client - I am reviewing the 2009 and 2010 tax returns per client's request before proceeding with the 2011.

Tax year 2009:

Wages $90717; Dividends $38; Schedule C loss (his - construction) <$17,948>; Schedule C loss (hers - investment advisor start up 2009) <$38,990>; net capital loss <$2,344>; IRA distributions (hers - early) $48,958; Pensions (hers - early) $36,339; Royalty income (net) $2,577 for an AGI of $119,347.

Schedule A $27,571 consisting of mortgate expense, minor constribution, income and real estate tax.

After exemptions, taxable income $73,526. Tax = $10,750.

Now here is where I blinked. The return shows $9,442 AMT for total tax of $20,192.

The Form 6251 has a $48,958 "other adjustments" add back to the AMT taxable income. That number is the exact number of the early distribution IRA money.

My question - why would that be added? My research has indicated that IRA distributions can be an adjustment if there is investment interest expense in the equation, but there is none.

All comments are appreciated.

[jklcpa]

There's no way that amount should be there as you described because the IRA distribution was already included in regular taxable income, and the idea of the AMT is to make adjustments starting from there. You probably already know this, so forgive me for stating the obvious, but that line does include AMT adjustments to IRA distributions that may be required IF the taxable portion of the IRA distribution would be a different amount using AMT rules. It seems like the former preparer didn't know what they were doing when they prepared the 6251, saw that line with its worksheet (if their program included worksheets similar to ATX), and plunked the IRA $ in there.

[rfassett]

Thanks for confiming my thoughts! I think I have just won a lifetime client. They think I am a hero. They had a $7600 liability that they could not pay and were on an installment agreement. So with amending this return the installment agreement goes away and they will put a couple grand in their pocket. As I said, I knew I knew the answer, but every once in awhile, when you are in the right frame of mind, something like this that is so obviously wrong makes you take pause. Thanks again and have a Great Weekend!