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August 27, 1990

HOWARD M. WEISER and LENORE H. WEISER, et al., Plaintiffs,

The opinion of the court was delivered by: PECKHAM




 We are presented with cross-motions for summary judgment in four related cases involving application of the Internal Revenue Code's tax benefit rule, 26 U.S.C. § 58(h), to the determination of tax liability under the alternative minimum tax ("AMT") scheme set forth in 26 U.S.C. § 55. *fn1" Plaintiffs in these four cases are 1) Howard and Lenore Weiser; 2) Robert J. and Helen M. L. Stein; 3) John McLeish; and 4) Nils Parson. All plaintiffs seek tax refunds for some or all of the tax years 1984, 1985, and 1986, on the theory that the § 58(h) tax benefit rule applied to the AMT during these tax years. Plaintiffs state that the tax return they were required to use -- Form 6251 -- fails to include the tax benefit concept in its computational structure, meaning that they were unable to take advantage of the tax benefit provision. Applying the tax benefit rule, they argue that they must be excused from paying AMT on preference items from which they received no tax benefit.

 Defendant United States takes the position that, as a matter of law, plaintiffs are not entitled to refunds. The United States advances two separate theories. First, the government argues that the § 58(h) tax benefit rule does not apply to calculation of tax liability under the AMT. It argues that Congress built certain tax benefit rules into the AMT, never intending that the tax benefit rule of § 58(h) apply to calculation of AMT liability under § 55. Rather, § 58(h) applied only to the minimum tax structure which preceded implementation of the AMT. The AMT's own tax benefit rules are reflected in the computational structure of Form 6251, meaning that plaintiffs were afforded the benefit of the tax benefit rule to the extent Congress intended. Second, the United States argues that, even were the court to find that the § 58(h) tax benefit rule applied to the AMT, the language of that rule prohibits its use to reduce plaintiffs' tax liability.

 The facts and exhibits underlying these motions consist of plaintiffs' tax returns for the years in question, plaintiffs' cancelled checks made out to the Internal Revenue Service, and notices from the Internal Revenue Service addressed to plaintiffs denying their applications for refunds. These facts and exhibits are jointly stipulated to by the parties, meaning that there are no questions of fact for the court to resolve in these cases. Thus, the court must determine whether plaintiffs or the United States are entitled to summary judgment as a matter of law. The parties support their own summary judgment motions and oppose their opponents' based on the theories outlined below regarding the applicability of the tax benefit rule to the AMT. Agreeing with one party's theory requires us both to grant that party's motion for summary judgment and deny the motion by that party's opponent. Therefore, the court's discussion will focus on the theories advanced regarding application of the tax benefit rule to the AMT rather than the individual motions.


 The plaintiffs in these four cases all claimed deductions *fn2" in the tax years at issue so large that they resulted in negative taxable income. Under the regular provisions of the Internal Revenue Code, as shown on plaintiffs' 1040 Forms, they were not liable for payment of any tax. However, they were also required to complete Form 6251, dealing with the AMT. Because the AMT designates certain deductions as "tax preference items" and requires the taxpayer to include them in income for purposes of calculating AMT, all plaintiffs were charged with AMT liability.

 All plaintiffs except Howard and Lenore Weiser then applied for refunds, using Form 1040X, the amended return form. Joint Stipulation of Facts, Exhibits 7, 12, 18, 22, 26, 29, and 37. (The Weisers had included a tax benefit adjustment on their original tax returns -- presumably on the 6251 Form). They based their refund applications on the theory outlined below regarding the tax benefit rule. The Internal Revenue Service denied their applications for refunds. Joint Stipulation of Facts, Exhibits 2, 8, 13, 19, 23, 27, 32, and 38. Plaintiffs then filed suit to require the Internal Revenue Service to pay them the refunds claimed.

 The facts applicable to the individual plaintiffs are given below. Since plaintiffs all calculate the effect of the tax benefit rule on their AMT liability in the same manner, only the calculation for the Weisers will be included as an example.

 A. Howard and Lenore Weiser. The Weisers' complaint refers only to the 1986 tax year, when they had gross income of $ 464,215.00. On their 1040 Form for that year, the Weisers reported negative taxable income of $ 84,379.00, because of the inclusion of large capital gains deductions and partnership losses. They were eventually required to pay $ 42,000.00 in tax under the AMT, because the AMT calculation required them to include in alternative minimum taxable income $ 285,791.00 worth of tax preference items which would not have been included in regular taxable income. They believed their AMT liability should be only $ 17,533.00, however, based on the following application of the tax benefit rule: Gross Income $ 464,215 Non-preference deductions $ 247,207 Itemized deductions and personal exemptions Remaining Income $ 201,412 Tax Preference deductions Excess deductions for which no tax benefit received.


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