Research Problem 5. Margaret is the owner of a housing unit in a cooperative housing corporation.

As a tenant-stockholder, she deducts $6,000 of real estate taxes (i.e., her proportionate share of the property taxes paid by the cooperative) as an itemized deduction.

She claims the $6,000 under § 216(a)(1), rather than under § 164(a)(1), because she does not have direct ownership of the housing unit.

Margaret is aware that § 56(b)(1)(A)(ii) disallows the deduction for real estate property taxes in determining the AMT. In calculating her AMT, however, Margaret deducts the $6,000 (i.e., does not treat it as a positive adjustment) in converting regular taxable income to AMTI. Her justification for this treatment is the statutory language of § 56(b)(1)(A)(ii), which refers only to taxes deducted under § 164(a).

The IRS disagrees with Margaret’s interpretation and assesses a tax deficiency. In its opinion, the disallowance of the deduction in calculating the AMT applies to real estate taxes deducted under either § 164(a)(1) or § 216(a)(1).