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Sunday, June 27, 2010

Closing the Tax Gap Via 'Understanding'

Susan Striz (J.D. 2010, West Virginia; LL.M. (Tax) 2011, NYU) has published Note, The Key to Closing the Tax Gap: Understanding, 112  W. Va. L. Rev. 1053 (2010). Here is part of the Introduction:

Part II of this Note will explain the tax gap and its effects. Part III of this Note will explain the several causes behind the tax gap. Part IV of this Note will detail specific strategies designed to reduce the tax gap and which strategies are most in line with providing guidance and being effective. Finally, Part V will discuss President Obama’s policies and their potential impact on the tax gap.

http://taxprof.typepad.com/taxprof_blog/2010/06/closing-the-.html

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Comments

Currently, the instruction for line 8 on Form 6251 (2009) makes no distinction between the exclusion from AMTI of a refund of a tax deduction that provided a tax benefit in the prior year when the regular tax was paid and the exclusion of a refund of a tax deduction that provided a limited long-term capital gains rate based tax benefit in the year that the AMT was paid. This anomaly raises the following question:

If § 56(b)(1)(D) of the Internal Revenue Code were amended to read as follows, how would the instruction for line 8 on Form 6251 (2009) change?

(D) Treatment of certain recoveries
(i) No recovery of any tax to which paragraphs (1), (2), or (3) of § 164(a) applied shall be included in gross income for purposes of determining alternative minimum taxable income.
(ii) Clause (i) shall not apply to the recovery of a tax allowed in computing adjusted gross income.

It appears to me that the current instructions are consistent with the "amended" version of § 56(b)(1)(D) rather than the current statute which provides:

(D) Treatment of certain recoveries
No recovery of any tax to which subparagraph (A)(ii) applied shall be included in gross income for purposes of determining alternative minimum taxable income.

Okay, we are only talking about a current annual loss in tax revenue of about one billions dollars. The current bogus instruction was introduced in 1988 and IRS has shown great resistance to correcting the instructions.

Posted by: WD Kebschull | Jun 27, 2010 10:49:28 AM