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August 12, 2008

Robert Sperling
(202) 927-7164

TIGTA Releases Alterative Minimum Tax Audit

The Treasury Inspector General for Tax Administration (TIGTA) has publicly released its audit of the Internal Revenue Service's (IRS) handling of the Alternative Minimum Tax (AMT), titled "Procedures Were Not Always Followed When Resolving Alternative Minimum Tax Discrepancies."

In October 2007, TIGTA identified the AMT as a Major Management Challenge regarding the complexity of the tax law. The objective of this review was to determine whether the IRS's computer systems accurately identified and computed the AMT for taxpayers who might be liable, including both taxpayers who claimed the AMT and those who did not claim it but should have.

"The AMT has its own definition of income subject to tax and its own tax rates," explained J. Russell George, Inspector General, Treasury Inspector General for Tax Administration.

TIGTA reviewed a random sample of 52 tax returns filed in Calendar Year 2006 on which IRS computers identified a discrepancy. Computer checks correctly identified the discrepancies and the cases were sent to an examiner for further review. However, examiners did not follow procedures when resolving 11 of the sample 52 cases (or 21 percent). Three cases resulted in an incorrect assessment of taxes owed.

"Correctly identifying and resolving discrepancies will decrease the burden on taxpayers subject to the AMT," said George.

TIGTA recommended that the Commissioner, Wage and Investment Division provide information to tax examiners reiterating the importance of correctly resolving AMT discrepancies and highlighting specific issues that could lead to incorrect resolution. IRS officials agreed with TIGTA's recommendation. Management indicated it plans to emphasize the effect of the AMT on taxpayers and the current processing of returns during employee annual training. Additionally, they will issue a reminder as a "Hot Topic" on the Submission Processing Division's Web site during the filing season referencing the complexity of resolving AMT discrepancies and other specific issues as necessary.