The amount of the allowable credit can be summarised as follows: if the total long-term credit is less than $5,000 then the full amount will be allowed; between $5,000 and $25,000 the allowable credit is $5,000; over $25,000 then 20% of the credit.

There is a phase-out for taxpayers whose Adjusted Gross Income (AGI) is above a threshold of $150,000 for joint filers (half that if married filing separately) and $100,000 for single filers. When looking at AGI for these purposes, any deduction for foreign housing or earned income is not considered. The allowable credit is reduced by 2% for every $2,500 ($1,250 for separate filers) over the threshold.

Many of our clients will have accrued minimum tax credits because of the 90% limit that until 2005 applied to foreign tax credits under AMT. For those with the appropriate AGI, this provision allows an opportunity to release credits carried forward on Form 8801.

The Alternative Minimum Tax (AMT) has run parallel to regular income tax since its introduction in 1969. Its purpose was to stop taxpayers with high incomes from paying little or no income tax by taking advantage of various preferences in the tax code. It is currently not indexed to inflation (unlike regular tax) and, as a result, each year more and more taxpayers are finding themselves faced with an AMT liability. The 2003 report to Congress of the Internal Revenue Service's National Taxpayer Advocate went so far as to describe AMT as, "the most serious problem faced by taxpayers." Inevitably there have increasingly been calls for the whole system to be revisited but given the level of revenue produced, such a wholesale reassessment is politically sensitive. Instead various sunset provisions have been introduced over recent years.

One such provision, which applies for calendar year taxpayers from 2007 and ceases after 2012, was introduced by the 2006 Tax Relief and Health Care Act (2006 TRHCA). This allows a refundable credit for a prior year minimum tax liability after a period of years (the Refundable Long-Term Unused Minimum Tax Credit). The period of years is three, the liability having arisen "before the third taxable year immediately preceding the taxable year at issue" (so 2003 or earlier for a 2007 return).