Ch 15 Flashcards
Chapter definitions for South-Western Federal Taxation 2015: Comprehensive, 38th Edition
ACE adjustment
An adjustment in computing corporate alternative minimum taxable income (AMTI), computed at 75 percent of the excess of adjusted current earnings (ACE) over unadjusted AMTI. ACE computations reflect longer and slower cost recovery deductions and other restrictions on the timing of certain recognition events. Exempt interest, life insurance proceeds, and other receipts that are included in earnings and profits but not in taxable income also increase the ACE adjustment. If unadjusted AMTI exceeds ACE, the ACE adjustment is negative. The negative adjustment is limited to the aggregate of the positive adjustments under ACE for prior years, reduced by any previously claimed negative adjustments.
Alternative minimum tax (AMT)
The AMT is a fixed percentage of alternative minimum taxable income (AMTI). AMTI generally starts with the taxpayer’s adjusted gross income (for individuals) or taxable income (for other taxpayers). To this amount, the taxpayer (1) adds designated preference items (e.g., tax-exempt interest income on private activity bonds), (2) makes other specified adjustments (e.g., to reflect a longer, straight-line cost recovery deduction), (3) adjusts certain AMT itemized deductions for individuals (e.g., interest incurred on housing but not taxes paid), and (4) subtracts an exemption amount. The taxpayer must pay the greater of the resulting AMT (reduced for larger corporations by only the foreign tax credit) or the regular income tax (reduced by all allowable tax credits). The AMT does not apply at all to certain small C corporations. AMT preferences and adjustments are assigned to partners, LLC members, and S corporation shareholders.
Alternative minimum tax credit
The AMT can result from timing differences that give rise to positive adjustments in calculating the AMT base. To provide equity for the taxpayer when these timing differences reverse, the regular tax liability may be reduced by a tax credit for a prior year’s minimum tax liability attributable to timing differences. ? 53.
Alternative tax NOL deduction (ATNOLD)
In calculating the AMT, the taxpayer is allowed to deduct NOL carryovers and carrybacks. However, for this purpose, a special calculation is required that is referred to as the ATNOLD. The regular income tax is modified for AMT adjustments and preferences to produce the ATNOLD. ? 56(d).
AMT adjustments
In calculating AMTI, certain adjustments are added to or deducted from taxable income. These adjustments generally reflect timing differences. ? 56.
AMT exemption
After calculating AMTI, the taxpayer determines the AMT exemption amount. The exemption amounts for AMT are higher than the exemption amounts for regular tax liability purposes. The AMT exemption amount can be thought of as a materiality provision. Taxpayers with few or minimal positive adjustments and preferences will avoid being subject to the AMT as a result of the exemption.
AMT preferences
The preference is calculated separately for each mineral property owned by the taxpayer. As a result, a taxpayer cannot use basis in one property to reduce the preference for excess depletion on another property.
Incentive stock option (ISO)
A type of stock option that receives favorable tax treatment. If various qualification requirements can be satisfied, there are no recognition tax consequences when the stock option is granted. However, the spread (the excess of the fair market value at the date of exercise over the option price) is a tax preference item for purposes of the alternative minimum tax. The gain on disposition of the stock resulting from the exercise of the stock option will be classified as long-term capital gain if certain holding period requirements are met (the employee must not dispose of the stock within two years after the option is granted or within one year after acquiring the stock). ? 422.
Private activity bond
Interest on state and local bonds is excludible from gross income. ? 103. Certain such bonds are labeled private activity bonds. Although the interest on such bonds is excludible for regular income tax purposes, it is treated as a tax preference in calculating the AMT.
