AMT Relief in Bailout Bill

Besides “patching” the alternative minimum tax (AMT) exemption amount for 2008 (to $69,950 for joint filers and $46,200 for singles), the Emergency Economic Stabilization Act of 2008 (PL 110-343) increased the portion of the long-term unused minimum tax credit (MTC) that can be claimed in a year. Under prior law, the MTC allowable in a year was generally limited to the greater of $5,000, 20% of the long-term unused MTC, or the preceding year’s credit amount. Under the Act, the annual amount allowable is increased to 50% of the long-term MTC or the preceding year’s credit amount.

Many taxpayers with MTCs received them as a result of AMT liability arising from exercise of incentive stock options (ISOs). Congress has several times previously passed measures providing other forms of relief for situations in which stock lost most or all its value before taxpayers could receive cash on its disposal.

The Act also abates any underpayment of tax outstanding (and interest and penalties with respect to the underpayment) on the date of its enactment (Oct. 3, 2008) arising from application of the minimum tax adjustment for ISOs in tax years ending before Jan. 1, 2008, and provides, for the first two tax years beginning after Dec. 13, 2007, for an increase in the MTC by 50% of the aggregate amount of interest and penalties paid before the date of enactment. The Act also eliminated the adjusted gross income (AGI) phaseout of the AMT refundable credit amount. The AGI phaseout of the AMT exemption amount remains in place. In addition, the Act extends for 2008 the ability to use personal nonrefundable credits to reduce the AMT.