SERVICE PROVIDES GUIDANCE ON RETROACTIVE INCREASE OF ALTERNATIVE MINIMUM TAXABLE INCOME BY PERSONAL EXEMPTION AMOUNT.

Notice 89-103

Section 1007(b)(2) of the Technical and Miscelleneous Revenue Act of 1988 ("TAMRA") requires taxpayers to add personal exemptions back to taxable income when figuring their alternative minimum taxable income ("AMTI"). This provision, which retroactively applies to 1987 income tax returns, will increase the alternative minimum tax ("AMT") liability of some taxpayers, and will require other taxpayers who originally reported no AMT liability to pay AMT for 1987.

Because of this change in the law, persons having AMT liability for 1987, as well as persons who would have AMT liability for 1987 if personal exemptions are added back in computing AMTI, will need to recompute their AMT liability for 1987, generally using Forms 6251, Alternative Minimum Tax-Individuals, and 1040X, Amended U.S. Individual Income Tax Return. Those who have already properly amended their 1987 returns should disregard this Notice.

Some taxpayers anticipated that the pending legislation would be approved and filed 1987 returns on which they added back personal exemptions in computing AMTI. Since the IRS must process returns according to the existing law, the agency corrected these returns and refunded the overpayments.

In the legislative history to TAMRA, Congress stated that it expects the Internal Revenue Service to waive interest on the underpayments attributable to such refunds in the same manner it waives interest on repayments of erroneous refunds. H.R. Conf. Rep. No. 1104, 100th Cong., 2d Sess. II-15 (1988). Accordingly, in such cases, the taxpayer will not be required to pay interest on the portion of any underpayment of AMT resulting from such refund if (A) the taxpayer's 1987 return was filed on or before the due date (with extensions), (B) either (1) an amended return is filed, or (2) a copy of the original Form 6251 and a copy of either the I.R.S. notice which reflected the tax change or the front and back of the taxpayer's 1987 Form 1040 (U.S. Individual Income Tax Return) is submitted, and (C) the underpaid AMT is paid before November 1, 1989. All other persons will be required to pay interest. In general, this interest accrues beginning on April 15, 1988 (the last date prescribed for payment of 1987 tax by individual taxpayers using a calendar year tax year), rather than the date of enactment of TAMRA. See Rev. Rul. 87-53, 1987-1 C.B. 348.

ADMINISTRATIVE PRONOUNCEMENT

This document serves as an "administrative pronouncement" as that term is described in section 1.6661-3(b)(2) of the regulations and may be relied upon to the same extent as a revenue ruling or revenue procedure.

DRAFTING INFORMATION

The principal author of this Notice is Stephen J. Toomey of the Office of the Associate Chief Counsel (Technical). For further information about the Notice, call Mr. Toomey at (202) 566-4104 (not a toll-free call).