Katherine Lynn McCarthy Trust Dated 12/27/76, Lynn McCarthy Successor Trustee v. Commissioner of Internal Revenue

The Katherine Lynn McCarthy Trust (trust or taxpayer) appeals the tax court’s deficiency judgment entered against it for the taxable year 1979 in the amount of $10,506, 86 T.C. 781 . The trust concedes that it was subject to the alternative minimum tax under I.R.C. § 55(a) (1979), but contends that for the purpose of this section its interest income and interest expense should be netted to determine its adjusted gross income. Because the trust’s interest income exceeded its interest expense, this computation, if allowed, would eliminate the interest expense from being included as an item of tax preference under I.R.C. § 55(b)(1)(C). We conclude that the plain language of the statute requires that the entire interest expense be included as an itemized deduction, and we therefore affirm the tax court’s decision.

FACTS

On December 27, 1976, two separate, irrevocable trusts were created by Richard P. McCarthy and K. Maureen McCarthy, husband and wife, for the benefit of their two children, Robert Patrick McCarthy and Katherine Lynn McCarthy. Taxpayer is one of those trusts. On December 30, 1976, Richard P. McCarthy (McCarthy) sold to taxpayer and the Robert Patrick McCarthy Trust…