## Facts

- Harvey and Janet Klaassen filed a joint federal income tax return for 1994.
- They had ten children and reported adjusted gross income of $83,056.42.
- On their return, the Klaassens claimed itemized deductions (including state and local taxes and medical expenses) and 12 personal exemptions.
- Their reported regular federal income tax liability for 1994 was $5,111.00.
- The IRS audited the return and determined the Klaassens owed alternative minimum tax (AMT) of $1,085.43 for 1994.
- The Klaassens did not dispute the IRS’s AMT computations; they argued that the AMT should not apply to them as a matter of law.
- They contended the AMT was intended to reach only wealthy taxpayers who claim tax preference items listed in I.R.C. § 57, not taxpayers whose AMT results largely from the AMT rules that disregard personal exemptions.
- The Tax Court upheld the IRS’s determination, and the Klaassens appealed to the Tenth Circuit.

## Issues

1. Whether the AMT provisions in I.R.C. § 55 and related sections apply only to wealthy taxpayers claiming § 57 tax preference items, so that the Klaassens were not subject to AMT.
2. Whether imposing AMT on the Klaassens violated the First Amendment Free Exercise Clause because their large family was tied to religious beliefs.

## Decision

- The Tenth Circuit affirmed the Tax Court and sustained the AMT deficiency.
- The court held the AMT’s statutory scheme applied by its terms and was not limited to wealthy taxpayers or to those claiming only § 57 preference items.
- The court held the AMT’s application did not violate the Free Exercise Clause because the AMT is a neutral tax law of general applicability and any burden on religious practice was incidental.

## Legal Principles

- The AMT applies when a taxpayer’s tentative minimum tax exceeds regular tax, and liability turns on the statutory calculation rather than the taxpayer’s wealth label or the presence of specific preference items alone.
- Where the Internal Revenue Code’s text is clear, courts apply it as written; arguments about legislative purpose cannot override unambiguous statutory language.
- Taxpayers may not avoid AMT by claiming Congress intended the AMT only for a subset of taxpayers when Congress enacted a broad computational rule that reaches others.
- Under *Employment Division v. Smith*, a neutral and generally applicable law that incidentally burdens religious conduct ordinarily does not violate the Free Exercise Clause, absent targeting of religion.

## Conclusion

*Klaassen v. Commissioner* held that the AMT applied to a couple with ten children even though their AMT liability stemmed largely from AMT adjustments that disregard personal exemptions, and it rejected both the claim that AMT is limited to wealthy taxpayers claiming § 57 preference items and the claim that AMT liability violated the taxpayers’ Free Exercise rights.


Klaassen v. Commissioner, 182 F.3d 932, 83 A.F.T.R.2d 99-1750 (1999)