Corporate Alternative Minimum Tax

Question 1

AMT formula?

Answer 1

Taxable income before the NOL deduction
\+/- Adjustments (excluding ACE adjustments)
\+ Preferences
= AMTI before ACE and NOL
\+/- ACE adjustment
= AMTI before NOL
- NOL deduction (limited to 90% of AMTI before NOL)
= AMTI
- exemption
= AMT base
x 20%
= Tentative minimum tax before the FTC
- Foreign tax credit
= Tentative minimum tax
- Regular tax reliability
= AMT (if positive)

Question 2

When TP pays AMT, is that only tax TP pays?

Answer 2

No, TP pays AMT plus regular tax liability, which equals tentative minimum tax,

Question 3

What are 2 situations AMT does not apply?

Answer 3

1. New corporations: the TMT is always 0 for its first yr of operations.
2. Small corporations that meet a gross receipts test (average annual gross receipts for all 3 yr tax periods ending before the tax year doesn’t exceed $7,500,000 (exempt in 2nd year if the 1st year was under $5,000,000 . If there are less than 3 yrs, use what’s there to determine).

Question 4

When corporation fails the gross receipt test for AMT, what happens?

Answer 4

If fails in any year, must be subject to AMT for all future yrs.

Question 5

AMT adjustments: re: depreciation?

Answer 5

For AMT, MACRS 3, 5, 7, and 10-yr property is depreciated using 150% declining balance method rather than 200%.

Question 6

AMT adjustments: re: assets purchased in 2008-2016 that use bonus depreciation?

Answer 6

No adjustment required.

Question 7

AMT adjustments: re: assets bases?

Answer 7

Differences in gain/loss between regular tax and AMT caused by different bases in assets (due to different depreciation methods) must be adjusted.

Question 8

AMT adjustments: re: completed contract method income?

Answer 8

Completed contract method can never be used under AMT. The difference with percentage of completion method must be adjusted.

Question 9

AMT adjustments: re: NOL?

Answer 9

Add regular tax net operating losses in excess of AMT net operating losses.

Question 10

AMT adjustments: re: installment method for sales of inventory-type items?

Answer 10

Can’t be used for AMT

Question 11

What does ACE stands for?

Answer 11

Adjusted current earnings.

Question 12

ACE adjustments: how does it apply?

Answer 12

AMTI is increased by 75% of the excess of ACE over pre-ACE AMTI.
OR AMTI is reduced by 75% of the excess of pre-ACe AMTI over ACE.

Question 13

ACE adjustments: the limit to the negative adjustment?

Answer 13

Limited to the aggregate of the positive adjustments under ACE for prior yrs reduced by any previously claimed negative adjustments.

Question 14

Question:
Corp began in Yr 2. In computing AMT for Yr 4. ACE: $400,000, AMTI (prior to the ACE adjustment) $300,000.
For Yr 5, it had ACE of $100,000 and AMTI (prior to ACE adjustment) $300,000.
What is the amount of adjustment for ACE used for computing AMT for Yr 5?

Answer 14

Yr 4:
ACE (400,000) - AMTI (300,000) = 100,000 x 75% = ACE adjustment: $75,000.
Yr 5:
ACE (100,000) - AMTI (300,000) = (200,000) x 75% = ACE adjustment: ($150,000).

Can take negative ACE adjustment to the extent of prior positive ACE adjustment. Therefore, Yr 5 ACE adjustment is ($75,000).

Question 15

ACE adjustments: what are items that increase ACE?

Answer 15

• Increase for life insurance proceeds less related expenses
• Increase in municipal interest income less related expenses.
• Increase for the 70% dividends received deduction (no allowed in ACE).
• Adjustment reflecting that installment sale method is not allowed
• Increase for intangible drilling cost
• Increase for organizational expense amortization.

Question 16

ACE adjustments: what are items that no adjustment is required?

Answer 16

• Excess charitable contribution
• Net capital losses
• Penalties
• Disallowed travel and entertainment
• Federal income taxes
• 80% and 100% dividends received deduction

Question 17

AMT preferences: re: bonds? Exception?

Answer 17

Tax-exempt interest on private activity bonds (net of related expenses)
Exception: private activity bonds issued in 2009 and 2010.

Question 18

AMT preferences: Re: percentage depletion deduction?

Answer 18

Excess of percentage depletion deduction over property’s adjusted basis is added.

Question 19

AMT preferences: re: intangible drilling cost?

Answer 19

The excess of intangible drilling costs using a ten-yr amortization over 65% of net oil and gas income must be added.

Question 20

What is AMT exemption for corporations? Phase-out limit?

Answer 20

$40,000.

• It pahses-out for AMTI over $150,000 - 25% of the amount of AMTI over this trigger.
• An exemption for the corporate AMT is completely phased out when AMTI equals $310,000 (this is $160,000 over the phase-out trigger of $150,000).

Question 21

What is AMT credit?

Answer 21

Any AMT amount paid (limited to the amount of AMT generated from timing differences) will be credit to offset future regular tax liability when the tentative tax is less than regular tax.

Question 22

What happens to unused AMT credit?

Answer 22

Carryforward indefinitely.

Question 23

What is the allowed exemption?

Answer 23

40,000. the $40,000 exemption is reduced by 25% of the corporation’s AMTI in excess of $150,000.