Rangel Introduces AMT Relief Bill

by Leroy Baker, Tax-News.com, New York

20 June 2008

The tax-writing committee of the House of Representatives has approved a new Alternative Minimum Tax relief bill offset in part by a change in tax treatment on carried interest earned by investment fund managers.

The legislation, authored by Ways and Means Committee Chairman Charles Rangel (D-NY) would provide tax relief to middle-class families by ensuring that the number of taxpayers subject to the AMT will not increase. Failure to pass this legislation would result in more than 25 million families facing a tax increase this year, according to Rangel.

The full House of Representatives is expected to consider the Alternative Minimum Tax Relief Act of 2008 (H.R. 6275) in the coming weeks.

“It was our hope at the beginning of this Congress that we would eliminate the AMT entirely, rather than continue wrestling with a yearly ‘patch’ as we have done in the past,” commented Rangel.

“However, since the Administration has failed to engage on tax reform, it is impossible to remove a provision like the AMT without simplifying the entire code to bring a greater sense of fairness and equity to our tax laws. So, we are going to do the right thing and offer more than 25 million taxpayers relief from the AMT this year without adding to the deficit. Not only are we doing the right thing in paying for the relief we provide today, but we are also doing the right thing by removing some of the inequities that exist in the code. The question before us today is not whether we patch the AMT, but who is going to pay for that relief," he observed.

The answer to this question is hedge fund manages and oil and gas companies. Under offset provisions, the bill would prevent investment fund managers from paying taxes at capital gains rates on investment management services income received as carried interest in an investment fund. The bill would require such managers to treat carried interest as ordinary income received in exchange for the performance of services to the extent that carried interest does not reflect a reasonable return on invested capital. This is projected to raise almost USD31bn ten years.

Another offset measure would freeze the 'section 199' domestic deduction for certain major integrated oil companies, raising a further USD13.5bn over ten years.

In addition, the bill would prevent foreign multinational corporations incorporated in tax haven countries from avoiding tax on income earned in the United States by routing their income through structures in which a US subsidiary of the foreign multinational corporation makes a deductible payment to a country with which the United States has a tax treaty, before ultimately repatriating these earning in the tax haven country. This would raise just under USD7bn over ten years.

Also, the bill would enact a proposal contained in the President’s FY 2009 Budget to require institutions that make payments to merchants in settlement of payment card transactions to file an information return with the Internal Revenue Service, to raise an additional USD10bn over ten years.

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