Alternative Minimum Tax & Foreign Tax Credit

Partly because of the strong pound last year (most of it, anyway), my income in dollars last year is high enough to make me think about the AMT.  The part that is killing me is line 33, the "alternative minimum tax foreign tax credit".  I can't get my brain around the instructions.  What in general is the effect of re-calculating the FTC for purposes of AMT line 33? 

Assuming that the effect is to lower it (so that one is "captured" by the AMT in the end), what are the factors that result in its being lowered? 

As things stand for me, unadjusted FTC is larger than line 32 (the 26% of the amount in excess of 69,950, for "married filing jointly").  Even if recalculating it for line 33 produces a positive amount on line 34, I still get to subtract (via line 35) the tax liability that remains after reducing tax owed on 1040/44 by the amount of the FTC itself.

So in the end, they aren't going to get more money out of me.  Even if I'm "caught" by the AMT and my tax liability goes up, I can claim more child tax credit; as things stand, CTC takes care of what the FTC doesn't eliminate, and I doubt AMT is going to overpower what remains of CTC.  So I'm tempted to ignore 6251, in the expectation that the IRS will understand that in my case filing it would not actually result in their getting money from me.

In any event, my question here has to do with the "logic" of the "alternative minimum tax foreign tax credit" -- how it differs from "regular" FTC.  Thanks...

I have now waded through the instructions for line 33 (AMTFTC) in the light of day. As anticipated, the effect of the recalculation is a lower figure (relative to normal FTC). 

This is mainly the result of using, for 1116 line 17, total income (from 6251 line 29) instead of total income minus deductions (as on regular 1116); the result is a larger denominator and thus a smaller fraction for line 18.

Does this sound correct? 

In essence, then, my income (approx £50,000) is large enough to be "caught" by the AMT.  (Given the fall in the pound, I figure this won't be true for 2009...)  I still get to eliminate the resulting liability through Child Tax Credit, though.  If the pound gets stronger again or I get a big raise, maybe it'll be time to have another kid...

In any event, I'd really appreciate comment on whether what I describe in the second paragraph here appears to be correct (it seems to follow directly from step 6 of the instructions).  The logic (using total income instead of income minus deductions for the denominator of the fraction) seems to be a straightforward effort to prevent people at a relatively moderate income level from benefiting fully from foreign tax credit; part of what is removed via FTC is added back on via AMT.

Just double-checking, you are using the 31 December exchange rate?

Just double-checking, you are using the 31 December exchange rate?

Ah, interesting question.  The answer is no: I have been turning my pounds into dollars (for both salary and tax) using the exchange rate from the day salary is paid (last of month).  (In other words, twelve different rates, for each payment.)  I know that the 31 December rate applies when filing TDF90-22.1 -- but does it also apply to the conversion of salary and foreign tax into dollars on 1040 and 1116?  If so, lucky break this year...

Had another look at Pub 54 -- it's pretty clear that one must convert into dollars using the exchange rate prevailing on the day income is received and tax is paid/withheld. 

OK, thanks! Sorry, can't help with the rest of it.

This is mainly the result of using, for 1116 line 17, total income (from 6251 line 29) instead of total income minus deductions (as on regular 1116); the result is a larger denominator and thus a smaller fraction for line 18.

Does this sound correct?

This looks partly correct, but I believe another important point is that you use the AMT-based tax for Form 1116, line 19, instead of the regular tax.  If you are subject to AMT, this means line 20 of Form 1116 *could* be larger than that of regular 1116 (depending on the difference on line 18, Form 1116), which also means you may be able to get a bigger credit for AMT.

Considering the fact that the IRS gives you an option to use the regular (non AMT) tax to calculate the AMTFTC (called "simplified limitation election"), I believe the logic behind AMTFTC is to provide those subject to higher tax with *possibility* of a bigger credit; otherwise, everyone would elect the simplified limitation because it then should be simpler and more beneficial.