KLAASSEN V. COMMISSIONER
182 F.3d 932 (10th Cir. 1999)
NATURE OF THE CASE: The Klaassen's (P) appeal from the Tax Court's ruling that they are
liable for an alternative minimum tax (AMT) in the amount of $1,085 for the 1994 tax year.
FACTS: Ps were the parents of ten dependent children. Ps earned an adjusted gross income
(AGI) of $83,056.42. On Schedule A, the Klaassens claimed deductions for medical expenses
and for state and local taxes in the respective amounts of $4,767.13 and $3,263.56.
Including their claimed deductions for interest and charitable contributions, their total
Schedule A itemized deductions equaled $19,563.95. Therefore, they subtracted that amount
from their AGI, and on line 35 of their Form 1040, they showed a balance of $63,492.47. On
line 36, they entered a total of $29,400 for twelve personal exemptions-one each for
themselves and their ten children. After subtracting that amount, they showed a taxable
income of $34,092.47 on line 37 of their Form 1040, and a resulting regular tax of $5,111.00
on line 38. They did not provide any computations for AMT liability. The IRS issued a notice
of deficiency, advising the Klaassens that they were liable for a $1,085.43 AMT pursuant to
I.R.C. 55-59. Specifically, the IRS concluded that, in the Klaassens' case, I.R.C.
55-56 required three specific adjustments, or increases, to the taxable income which they
showed on line 37 of their Form 1040. According to the IRS's interpretation, subsection
56(b)(1)(A)(ii) required the entire $3,263.56 deduction for state and local taxes to be
added back. Next, subsection 56(b)(1)(B) reduced the deduction allowable for medical
expenses by setting a 10% floor in lieu of the 7.5% floor normally allowed under
213(a)-resulting in a net adjustment of $2,076.41. Finally, 56(b)(1)(E) deprived the
Klaassens of the entire $29,400 deduction they claimed on line 36 of their Form 1040. After
adjusting the taxable income by these three amounts, the IRS set the alternative minimum
taxable income at $68,832.44. After deducting the $45,000 exemption, the tentative minimum
tax was computed on the excess: 26% x $23,832.44 = $6,196.43. The difference between that
figure and the Klaassens' regular tax was $1,085.43. The Tax Court affirmed and Ps appealed.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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