Chapter 5

Question 0

AMT exemption first three years?

Answer 0

Exempt year 2 if first year average gross receipts <$5m

Do not include current year in calculation (eg: year 2 elig is based on Y1 income, Y3 is based on average of Y1 + Y2)

Question 1

AMT first year?

Answer 1

Exempt

Question 2

AMT exemption eligibility

Answer 2

Average gross receipts <$7.5m for all three taxable years before the year for which corp is determining eligibility

Question 3

Compute AMT exemption amount for corporations

Answer 3

$40,000 - {25% x (AMTI - $150,000)}

exemption phases out at AMTI >$310,000

Question 4

What is Accumulated Earnings Tax

Answer 4

only appears on RAR (Revenue Agent Report). Penalty tax for holding excess E&P

BOD can avoid by listing reasons for E&P in minutes

Question 5

AMT corporate tax form?

Answer 5

Form 4626

Question 6

PHC tax form?

Answer 6

Schedule PH must accompany Form 1120

Question 7

C corporations may be responsible for what taxes?

Answer 7

• Income tax
• AMT
• Accumulated earnings tax
• PHC tax

Question 8

AMT formula

Answer 8

Reg TI
\+ tax preference items
\+/- AMT adjustment items
= Pre-adjustment AMTI
\+/- 75% x {Pre-adjustment AMTI - ACE}
- alternative tax NOL deduction
= AMTI
- AMT exemption
= Tax base for AMT
x .20
= TMT before credits
- AMT foreign tax credit
= TMT
- regular income tax
= AMT

Question 9

Tax preference items always increase AMTI T/F

Answer 9

True - always add tax preference items

Question 10

AMT adjustment items _________ AMTI

Answer 10

can increase or decrease AMTI

Question 11

AMT depreciation calculation

Answer 11

150% declining balance for AMT
200% declining balance for regular tax

creates AMT adjustment item

Question 12

ACE - adjusted current earnings adjustment

Answer 12

The ACE adjustment = 75% x {ACE - pre-adjustment AMTI)

can be positive or negative

negative adjustment is limited to the cumulative net ACE adjustments in all prior years

Question 13

What is the minimum tax credit?

Answer 13

credit for AMT paid that generates carry-forward deduction to reduce future AMT

TMT (tentative minimum tax)
- regular tax
= AMT

AMT + regular tax = total tax due

$ 70,000 TMT
- 59,300 regular tax
= 10,700 AMT

in following years, if regular tax > AMT, corp can claim unused minimum tax credit (amount of AMT paid)

Question 14

Personal holding company defined

Answer 14

1) has 5 or fewer shareholders that own >50% of stock during the last half of the tax year
2) has PHC income that is >60% of regular income

Question 15

Adjusted income for rent (AIR)

Answer 15

gross income from rents is reduced by deductions for depreciation, property tax, interest, and rental payments. No other expenses reduce OGI (ordinary gross income)

Question 16

What are AMT tax preference items?

Answer 16

Deductions allowed for regular tax but not AMT.
Must ADD to pre-adjustment AMTI.

eg: must add back depletion deduction in excess of basis that was allowed for regular taxable income or Tax-exempt interest on private activity bonds

Question 17

Earnings Accumulation justification to avoid AET (accumulated earning tax)

Answer 17

• Expansion
• Retirement of debt
• Acquiring a business enterprise
• Loans to suppliers
• Business contingencies

Question 18

Accumulated Earnings Credit maximum E&P allowed?

Answer 18

$250,000
or $150,000 for personal service companies (doctors, architect, consulting)

This is actually a DEDUCTION to derive accumulated taxable income

Question 19

Accumulated Earnings Tax is reported on what form?

Answer 19

Not self-assessed. appears on RAR from auditor, not on regular tax return