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House Approves New AMT Fix Legislation, Senate Prospects Still Grim

by Mike Godfrey,, Washington

13 December 2007

The US House of Representatives on Wednesday approved an amended AMT fix put forward by Ways and Means Committee Chairman, Charles Rangel.

However, its fate in the Senate and beyond is uncertain to say the least, given the differences of opinion between House Democrats and Senate Republicans over how the legislation should be paid for.

According to a Bloomberg report on the matter, Rangel observed following the passage of the fix in the House that:

"Senate Republicans have defined themselves as an obstacle to providing responsible AMT relief. The new House bill gives the Senate one more chance to do the right thing and pass this critical tax relief without adding to the deficit.''

Rangel (D-NY), jettisoned a number of revenue-raising provisions from alternative minimum tax legislation, in a bid to get an AMT relief bill through the Senate before the Congressional recess.

Rangel’s new bill, called the AMT Relief Act of 2007, was introduced in direct response to a Senate Republican filibuster of a previous House-passed bill to provide AMT relief because some provisions in the bill were too controversial for the Senate to accept this year.

Rangel’s legislation removed a number of the 'pay for' provisions opposed by Senate Republicans - including the contentious proposal to change the tax treatment of private equity funds' carried interest - and instead included others that have received broad bipartisan support.

Rangel argued that the bill would also provide a tax cut to millions of families by enhancing the refundable child tax credit, estimated to help more than 12 million children nationwide.

Rangel's bill would extend for one year AMT relief for nonrefundable personal credits, and increase the AMT exemption amount to $66,250 for joint filers and $44,350 for single filers, to ensure that no additional taxpayers are liable for the AMT this year. The legislation would also increase the eligibility for the refundable child tax credit in 2008 by lowering the income floor for qualification to $8,500.

On the revenue side, the bill retained a provision that would prevent hedge fund managers from deferring compensation and tax by using offshore accounts.

The legislation would also: delay the implementation of a liberalized rule for allocating interest expense between United States sources and foreign sources for purposes of determining a taxpayer’s foreign tax credit limitation; clarify the economic substance doctrine; introduce a uniform penalty for failure to file partnership and S corporation returns increase information return penalties; and increase general failure to file return penalties by taking inflation into account.

By delaying action on AMT relief, Congress risks dragging an estimated 21 million extra taxpayers, some with incomes as low as $75,000, into a system designed to prevent a wealthy handful from avoiding tax altogether.

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