## Facts

- Henry and Linda Klaassen filed a joint federal income tax return for 1994 and claimed 12 personal exemptions (two for themselves and ten for dependent children).
- They itemized deductions, including medical/dental expenses and state/local taxes, and reported taxable income of about $34,092 after deductions and exemptions.
- They reported no alternative minimum tax (AMT) liability and did not complete the AMT form.
- The IRS issued a notice of deficiency asserting AMT under I.R.C. § 55 after recomputing their liability under the AMT rules, which disallow personal exemptions in determining alternative minimum taxable income (AMTI).
- Disallowing the exemptions and applying AMT adjustments increased AMTI to about $68,832, producing tentative minimum tax in excess of regular tax.
- The Klaassens argued that the AMT’s denial of dependent exemptions effectively penalized large families, including families whose size was motivated by religious belief, and therefore was improper and unconstitutional as applied.

## Issues

1. Whether the Klaassens were liable for AMT for 1994 under I.R.C. §§ 55–59 when personal exemptions are disallowed in computing AMTI.
2. Whether imposing AMT by disallowing personal exemptions, as applied to a large family allegedly motivated by religious belief, violated the Free Exercise Clause of the First Amendment.

## Decision

- The Tax Court sustained the IRS deficiency determination and held the Klaassens liable for AMT for 1994.
- The court treated the AMT computation as a mechanical application of the statute, including the required exclusion of personal exemptions in computing AMTI.
- The court rejected the Free Exercise challenge, concluding the AMT is a neutral, generally applicable tax law with secular purposes and any burden on religiously motivated conduct was incidental.
- The decision was later affirmed on appeal.

## Legal Principles

- Under I.R.C. § 55, AMT equals the excess of tentative minimum tax over regular tax for the year.
- In computing AMTI for AMT purposes, personal exemptions under I.R.C. § 151 are not allowed, even though they reduce regular taxable income.
- Courts apply tax statutes as written; policy arguments for a “large-family” exception cannot override unambiguous statutory text.
- Under Employment Division v. Smith, a neutral and generally applicable law does not violate the Free Exercise Clause merely because it incidentally burdens religious practice; absent religious targeting, such a law is evaluated under rational-basis review.

## Conclusion

The Tax Court held that the Klaassens owed AMT because the Internal Revenue Code requires disallowance of personal exemptions when computing AMTI, and it further held that applying these neutral AMT rules to a large family did not violate the Free Exercise Clause.


Klaassen v. Commissioner, T.C. Memo 1998-241 (1998)