On Jun 1, 12:44*pm, "Ted" <T...[at]yahoo.org> wrote:
- quote -

instructions and tax software produce the results that you have
indicated, the IRS instructions are fraudulent

Here is the link to Tax Correspondence that was published in Tax
Analyst in 1999 that addresses the issue that you raised.

http://groups.google.com/group/misc....2a2618a135c649

The four letters that were published were two from me and two
responses from IRS.

Here is what an IRS attorney wrote in paragraph [59] in one of those
letters regarding one of the issues that you raised. As explained
below, it is pure rubbish as is most of his letter.

" [59] As stated in prior correspondence we disagree with your
assertion
that recoveries of taxes described in paragraphs (1), (2), or (3) of
section
164(a) should only be excluded from gross income in computing AMTI to
the
extent deduction of the taxes did not reduce the taxpayer's income
tax
liability. Under your interpretation section 56(b)(1)(D) would be
unnecessary; it would only apply to exclude items from gross income
when
such items are already excluded from gross income under section 111."

What the IRS respondent wrote in paragraph [59] was pure rubbish when
published in Tax Analysts. What was ignored was that since 1997 there
could have been be a limited long-term capital gains rate based tax
benefit (LLTCGRBTB) in a year that the AMT was paid as a result of a
tax overpayment claimed on Schedule A. Section 56(b)(1)(D) is
necessary to preclude the inclusion of the refund of the tax
overpayment that produced the LLTCGRBTB in AMTI . Thus DOUBLE
TAXATION of the income/refund is avoided.

See page 2 of Form 6251 for 2007 and there you will find that capital
gains may be taxed at either 5 or 15 percent. Until the total of
capital gains and other taxable income exceed the threshold for the 25
percent tax rate, capital gains were taxed at 5 percent in 2007.
Once the total exceeds the threshold for the 25 percent tax rate, the
excess capital gains are taxed at 15 percent. In 2008 the 5 percent
rate is reduced to zero. Itemized deductions claimed on Schedule A
reduce “other taxable income” and thus can cause more of the capital
gains to be taxed at the lower capital gains rate and fewer at the
higher rate, thus a tax benefit which is revealed by instructions in
IRS Publication 525.

The thing you need to avoid is having a LLTCGRBTB in a year that the
AMT is paid and then paying the regular tax in the refund year. First
the income used for the tax overpayment is included in AMTI and then
the refund is included in regular taxable income per FRAUDULENT IRS
instructions. The refunds in that situation should only impact the
calculation of the capital gains portion of the regular tax per
section 111(a) of the IRC.

What will IRS do if you grossly overpay you state income tax in 2008?
Here is what the IRS attorney wrote in paragraph [74] on that issue.

[74] It is true that a taxpayer who anticipates paying the regular tax
in
one taxable year and the AMT in the succeeding taxable year, may, in
some
circumstances, achieve tax savings by overpaying state income taxes in
the
first taxable year. However, there are many situations in which
taxpayers
have opportunities to lessen their tax liability by shifting income
and
deductions from one taxable year to another taxable year, e.g.,
deferring
income until retirement when taxpayers may be subject to lower
marginal tax
rates. Many taxpayers subject to the AMT tend to be subject to it on
a
recurrent basis so that overpaying state income taxes may be of
limited
benefit. To the extent a taxpayer grossly overpays state income taxes
the
Service might challenge the propriety of the deduction. In any event,
the
fact that there may be some planning opportunities available by
overpaying
state income taxes does not justify ignoring the clear language of
section
56(b)(1)(D).

Actually, IRS has ignored the clear language in section 56(b)(1)(D)
since 1988 by allowing what you are considering. It is somewhat
unlikely that IRS would challenge what you are considering because
doing so would expose their multibillion fraud on the Treasury.

Cheers.

WDK

--
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On Jun 1, 12:44�pm, "Ted" <T...[at]yahoo.org> wrote:
- quote -

It depends. See paragraph [74] in this link,
http://groups.google.com/group/misc....2a2618a135c649

What the IRS attorney states in the letter that contains paragraph
[74] is basically a pact of lies to the extent that he claims that the
Internal Revenue Code allows "DOUBLE OR NOTHING TAXATION" OF state
income tax refunds.

The IRS attorney states that IRS MIGHT take exception to what you are
planning.
But that MIGHT be a can of worms that IRS would be reluctant to open.

As far as including the refund in the calculation of the AMTI in 2009,
it depends on whether the IRS decides to bring the instruction on Line
7 of Form 6251 into compliance with the Internal Revenue Code.
Section 56(b)(1)(D) does not permit the exclusion of refunds that
provided a tax benefit in a prior year when the regular tax was paid.
But that has not deterred IRS from issuing instructions that exclude
those refunds form AMTI since 1988.

If you did what you have indicated that you are considering and IRS
took exception, you could go into court and blow-up a multibillion
dollar fraud on the United States Treasury that IRS perpetrated since
1988. Sometimes you have to look beyond current self interest!

Cheers,

WDK

--
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On May 31, 10:04 am, Mark Bole <ma...[at]pacbell.net> wrote:

- quote -

Couldn't the deduction help a little? If you're in the 33% bracket
and subject to AMT, then an additional $10 income would save you $3.33
on your regular tax, but you add back $2.80 through the AMT; so your
net benefit is 5%. Or is something wrong with my formula?

--
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On May 30, 8:58 pm, "Ted" <T...[at]yahoo.org> wrote:

- quote -

Seems fine to me. See the thread " Is it okay to be optimistic on
State Estimated Taxes?" in this newsgroup. You should run your
scenarios through a computer program to be sure. One person on that
thread said that it might be fraud to do this.

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- quote -


I find that Taxcut says I don't run into AMT in 2008 until I pay 150% of my
actual state income tax.
Obviously I will get the 50% back as a refund in 2009, but I will already be
in AMT because I will have high deductions in 2009 but slight income. So
the refund increases my normal tax, but reduces my AMT. In effect the
refund is taxfree in 2009.
So I get a big tax benefit in 2008, but no extra tax in 2009.

Are you saying if I did this, I would have to refile 2008 without the extra
state estimated tax or pay extra tax in 2009?

--
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- quote -

I will be in AMT already in 2009 because I will have substantial deductions
without great income. So overpaying in 2008 and getting a refund in 2009
will increase my regular tax, but it won't exceed my AMT tax. In fact,
Taxcut shows I will save $1,000!

The discussion has gotten rather too technical for me. I gather the
consensus opinion is that even though it "works" the IRS won't like it. Is
that correct.

--
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On May 31, 2:26�pm, Mark Bole <ma...[at]pacbell.net> wrote:
- quote -


I agree with with the procedure used in Publication 525 to determine
if there as a tax benefit from a state income tax refund in a year the
AMT was paid. The first impression is there cannot be a tax benefit
from a state income tax overpayment because state income taxes are not
allowed as deductions in determining AMTI.

However, if you go to page 2 of Form 6251 you will find that a state
income tax overpayment included on Schedule A in a year that the AMT
is paid can produce a limited tax benefit by causing more capital
gains to be taxed at 5 percent and fewer capital gains to be taxed at
15 percent (tax year 2007).

The problem occurs going forward from the determination that there was
a tax benefit. IRS instructions would have you paying the regular tax
on the refund of that overpayment in a year that only the regular tax
is paid after the income used for the overpayment was taxed at the AMT
rate of 26 or 28 percent.

Following the provisions in section 111(a) of the IRC, the portion of
a refund of the tax overpayment that produced a limited long-term
capital gains rate tax benefit in a prior year when the AMT was paid
should only be included in gross income FOR PURPOSES OF DETERMINING
THE TAX ON CAPITAL GAINS in a year when only the regular tax is paid.
When the AMT is paid in both years, a refund of a tax overpayment that
produced a limited lon-term capital gains rate tax benefit in Year 1
is excluded from AMTI in Year 2 but is included in the calculation of
capital gains under the AMT in that year. Thus, there is NO violation
of the IRC

However, when the AMT is paid in one year and the regular tax is paid
in the other year following IRS instructions can produce DOUBLE OR
NOTHING TAXATION of the income/refund related to a state income tax
overpayment depending on the sequence in which the regular tax and the
AMT is paid. This is not what is provided by the IRC.

BTW, IRS has accepted returns that I have filed when I followed the
IRC regarding the tax treatment of state income tax refunds rather
than IRS instructions when the AMT was paid in one year and the
regular tax was paid in the other. They have also accepted amended
returns where I reduced the taxable income attributable to a state
income tax refund from being more than twice the amount of the refund
as determined using IRS instruction to being equal to the refund as
provided by section 111(a) of the Internal Revenue Code. The original
returns (my father"s) were "professionally prepared" by the
"professionals" who were responsible of determining his estimated
state income taxes.

Cheers,

WDK

--
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On May 31, 12:38*pm, KEBSCHU...[at]aol.com wrote:
- quote -

Indeed there are - the correct view and WDK's view.

--
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KEBSCHULLW[at]aol.com wrote:
[...]
- quote -

I almost mentioned in my previous reply how there was some subtlety to
the issue of taxable recoveries of state tax refunds, and I recollected
some long discussions on this issue in the unmoderated newsgroup. Now
it's all coming back to me! ;-)

First, let's note that the OP (Ted) made only the vaguest of references
to AMT, and did not specify in his question which tax system applied in
which year. Obviously that makes all the difference when discussing
results.

To cut straight to practicality, I did a quick check in Turbotax and in
the situation where taxpayer is subject to AMT in 2006 and got a refund
in 2007, they indicate that the simplest thing is to just pay tax on the
full amount, even if it results in overpaying. But, if you want to do a
lot more work (or get your hands on a copy of your return in Turbotax
2006), they guide you through re-calculating your 2006 taxes with a
deduction only for the actual state tax you owed (amount paid/deducted
less refund amount). Then, if your original 2006 tax bill was less than
what it would have been under the recalculation, only the difference is
the partly taxable portion of the refund for 2007 (which, of course,
might then be excluded when calculating AMT for 2007).

Does this method implement what WDKebschull refers to as the IRS view or
the tax code view? I checked Pub 525, and while it mentions the
"recalculate 2006" method, it doesn't provide a worksheet the way
Turbotax does, which also takes into account unused tax credits,
negative income, and other special cases mentioned in the pub.

-Mark Bole

--
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Bill Brown wrote:
- quote -

Agreed.

If you are subject to AMT in both year of payment and year of refund,
it's a wash, neither the deduction nor the refund applies.

The OP's scenario is high income in Year 1 due to capital gains,
relatively low income in Year 2. If AMT applies at all, it is likely to
apply in Year 1 and the deduction for estimated taxes won't help,
although in that case, the Year 2 refund should be non-taxable or only
partly taxable.

Even if you get a deduction under regular tax in Year 1, and in Year 2
when you get the refund you are subject to AMT, you really need to
understand that AMT is a *floor* amount, it will never take you below
what your regular tax would be. Under regular tax, your refund would be
taxable; therefore under AMT you are not going to get any break due to
that taxable refund somehow not being taxed. If you become subject to
AMT, you are going to pay every bit of that tax *plus* more.

There is a loophole of sorts in that you can shift some income from one
year to the next under regular tax rules by "grossly overpaying"
estimated state taxes. To me it comes down to the government requiring
quarterly payments but only issuing annual refunds, it can be used
against as well as for the benefit of the government. Generally this is
a one-time-only thing, just like prepaying a semi-annual property tax
bill or making 13 monthly mortgage payments in one year.

-Mark Bole

--
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On May 31, 10:27�am, Bill Brown <brow...[at]longwood.edu> wrote:
- quote -


Cheers,

WDK

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On May 31, 9:21�am, "Ted" <T...[at]yahoo.org> wrote:
- quote -

There are at least two different views as to whether the instruction
on Line 7 of Form 6251 that excludes from AMTI refunds of taxes that
provided a tax benefit in the prior year when the regular tax was paid
is consistent with section 56(b)(1)(D) of the Internal Revenue Code.

Here is the link to section 56 of the Internal Revenue Code.
http://www.fourmilab.ch/ustax/www/t26-A-1-A-VI-56.html

Here is section 56(b)(1)(D)

(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.

Here is section 56(b)(1)(A)(ii) which is referenced in section 56(b)(1)
(D).

b) Adjustments applicable to individuals
In determining the amount of the alternative minimum taxable income of
any taxpayer (other than a corporation), the following treatment shall
apply (in lieu of the treatment applicable for purposes of computing
the regular tax):
(1) Limitation on deductions
(A) In general
No deduction shall be allowed -
(ii) for any taxes described in paragraph (1), (2), or (3) of
section 164(a). Clause (ii) shall not apply to any amount allowable in
computing adjusted gross income.

Note: State and local income taxes are among the taxes described in
section 164(a).

Here is a question that you might want to consider in determining for
yourself if the instruction is correct.

How would the instruction for line 7 on Form 6251 (2007) change if
section 56(b)(1)(D) of the Internal Revenue Code were amended to read
as follows?

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

Here is the reason for the question.

Since 1988 IRS instructions have provided for excluding from AMTI tax
refunds that were deductible under paragraphs (1), (2), or (3) of
section 164(a) in years that only the regular tax was paid as well as
those that were not deductible in a year the AMT was paid under
section 56(b)(1)(a)(ii). During the period 1988 through 2007 neither
the income used for a tax overpayment that produced a tax benefit in
the year the regular tax was paid nor the refund of that overpayment
in a year the AMT was paid been taxed directly. Interestingly,
according to IRS Instructions both the income used for the overpayment
and the refund of the overpayment could have reduced the allowable
medical expense deduction during the period 1988 through 2007 except
for tax year 2003.

Here is a link to Tax Correspondence that was published in Tax
Analysts Tax Notes Today
that addresses the issue raised.

http://groups.google.com/group/misc....2a2618a135c649

See paragraph [74] where the issue that you raised is discussed by the
IRS respondent.

You might want to look at paragraph [59] also. What is stated there
by the IrS respondent does not take into account that, since 1997, a
state income tax overpayment, for example, could have produced a tax
benefit in a year the AMT was paid if the taxpayer's regular income
excluding capital gains was below the threshold for the 25 percent
regular tax rate. In that situation, the tax overpayment can produce
a tax benefit because the overpayment can cause more of the capital
gains to be taxed at 0 percent and fewer of the gains to be taxed at
15 percent (tax year 2008). See IRS publication 525 for the method of
determining if the deduction of a recovered item produced a tax
benefit.

As I stated previously there are two view as to the tax treatment of
tax refunds under the circumstances that you described, one view is
consistent with the Internal Revenue Code and then there is IRS's
view!

Cheers,

WDK

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On May 31, 9:21*am, "Ted" <T...[at]yahoo.org> wrote:

- quote -

Without checking anything, that sounds highly unlikely to me.

--
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"DF2" <replyvia[at]newsgroup_please.com> wrote in message
news:37k1441s0an4b8s9v52hiqrliubniq4fln[at]4ax.com...
- quote -

a refund I will get a deduction for the overpayment, but won't have to pay
tax on the refund; just the way AMT plays out according to taxcut.

Is that okay?

--
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In misc.taxes.moderated, Ted wrote:

- quote -

The former. No problem.

- quote -

Any state refund next year would be considered income if you itemize
for 2008. You don't want to grossly overpay, but you can move the
payments you want to make into 2008.

--
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In article <lk30k.33$Mi4.23[at]fe127.usenetserver.com> , Ted <Ted[at]yahoo.org> wrote:
- quote -


State and federal estimates are two completely different things.

--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

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I will have enough W2 withholding to put me in safe harbor this year, but I
will also have some very large and unique capital gains. I am afraid if I
pay the state tax on it next year I won't have enough income in 2009 to take
advantage of the deduction. As such I would like to pay estimated state
taxes this year to get the deduction against my 2008 income.

Can I just pay state estimated taxes, or must I also pay appropriate federal
estimated taxes as well? I would like to hold on to my money if I can, but
want to do things properly.

--
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