[Congressional Record (Bound Edition), Volume 151 (2005), Part 17]
[Extensions of Remarks]
[Page 22733]
[From the U.S. Government Publishing Office, www.gpo.gov]




INTRODUCTION OF LEGISLATION TO AMEND THE INTERNAL REVENUE CODE OF 1986 
TO PROVIDE THAT THE DEDUCTION FOR CERTAIN ATTORNEY FEES SHALL BE FULLY 
  ALLOWABLE IN COMPUTING BOTH TAXABLE INCOME AND ALTERNATIVE MINIMUM 
                             TAXABLE INCOME

                                 ______
                                 

                           HON. WALLY HERGER

                             of california

                    in the house of representatives

                        Friday, October 7, 2005

  Mr. HERGER. Mr. Speaker, after 19 years of legal challenges, the 
courts found the State of California responsible in an inverse 
condemnation for the failure of the Linda levee on the Yuba River, and 
ordered it to pay damages to victims of the 1986 Yuba County flood. 
Now, constituents in my northern California congressional district are 
receiving their long awaited just compensation. Unfortunately, an 
unforeseen consequence has arisen. Depending on the amount of an 
individual's award, he or she may be subject to the alternative minimum 
tax (AMT), due in part to the portion of the individual's judgment 
award paid to attorneys in the form of fees.
  Attorneys in the suit received their cut of the judgment right off 
the top, payment for services rendered, as ordered by the court's 
decision. The attorneys will owe regular tax on this payment. 
Unfortunately, the actual award recipients may also incur tax liability 
for this amount, effectively resulting in double taxation--once when 
the attorneys pay taxes and once if recipients incur AMT liability. 
Even though this is money my constituents never physically possessed, 
as currently written in law no AMT relief can be granted.
  Although there is no practical way to retrospectively address the tax 
treatment of the 1986 Yuba County flood victims, I believe their 
situation stands on its own as an example of the damaging impacts of 
the AMT on the American taxpayer. And the scope of the problem is only 
getting worse. The AMT is not indexed for inflation, meaning that what 
was conceived in 1969 as a way to compel the wealthy to pay at least a 
``minimum'' level of taxes has increasingly become a burden to middle-
class citizens. If the current AMT exemptions are allowed to expire, 
the number of taxpayers subject to the AMT will increase from 3 million 
in 2004 to 21 million in 2006. Also staggering is the cost of proposed 
solutions. In fact, the Treasury Department has estimated that by 2013, 
it would be less expensive to repeal the regular income tax than it 
would to repeal the AMT.
  Though I have long supported the outright repeal of the AMT, I 
believe it is equally important to highlight the nature in which 
attorney fees can result in AMT liability, as they may for many of my 
constituents. For this reason, today I am introducing two bills that 
would exempt attorney fees from the calculation of AMT tax liability. 
The first would apply to AMT liability resulting from attorney fees in 
certain floods that constitute natural disasters. The second would 
apply to AMT liability resulting from attorney fees in general.
  There is no easy fix to the problems encountered by a growing number 
of Americans due to the alternative minimum tax. It is my hope that in 
the near future Congress will constructively respond to this problem, 
whether through overall repeal of this onerous tax, or through 
consideration of intermediate measures such as these.

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