Module 5: Corporate AMT

Question 1

What is the alternative minimum tax amount?

Answer 1

20% of AMTI, less any exemption

Question 2

What corporations would be exempt from AMT?

Answer 2

smaller C corps with avg gross receipts from previous 3 periods of $7.5M or less

C corp in first year of existence

Question 3

What happens if the corporation’s tentative min. tax exceeds the regular tax?

Answer 3

The excess amount is the AMT, which is payable in additions to the regular tax

Question 4

What are the adjustments to regular taxable income to when calculating AMT?
(A LIE)

Answer 4

Adjustment for Gain/Loss
Long-term contracts
Installment sales-dealer
Excess of depreciation (difference b/w depreciation for regular tax purposes and depreciation for AMT purposes)

Question 5

What method for long-term contracts must be used for AMT purposes?

Answer 5

% completion

Question 6

What are the preferences to regular taxable income to when calculating AMT?
(PPP)

Answer 6

Percentage depletion
Private activity bonds (after 1986)
Pre-1987 ACRS depreciation

Question 7

What is the purpose of Adjusted Current Earnings (ACE) adjustments?

Answer 7

To ensure corps do not report a profit for FS purposes but pay little or no income taxes

Question 8

How is the ACE adjustment calculated?

Answer 8

Step 1: Determine adjusted current earnings

Step 2: Calculate actual ACE adjustment

Question 9

Adjusted current earnings calculation

MOLDD

Answer 9

ACE =
Unadjusted AMT income adjusted by the following primary items:
- Municipal bond interest (added back)
- Organizational expense - any deduction related to Org expense amortization (added back)
- Life insurance proceeds on key employee (added back)
- Depreciation - difference b/w AMT depreciation and ACE depreciation
- DRD - amount taken for 70% DRD (added back)

Question 10

Adjusted current earning (ACE) adjustment calculation

Answer 10

ACE adjustment =

75% of difference b/w ACE and AMTI before adjustment and alt. tax NOL deduction

Question 11

What is the limitation of a negative ACE adjustment?

Answer 11

In a particular tax year, it cannot be greater than the cumulative net positive ACE adjustment (prior positive adjustments less prior negative adjustments) in prior tax years

Question 12

Alternative Tax Net Operating Loss Deduction (ATNOLD)

Answer 12

Limited to 90% of AMTI, without regard to the ATNOLD and any domestic production activities deduction

Question 13

What is the AMT exemption amount?

Answer 13

$40,000 less 25% of AMTI in excess of $150,000

Question 14

What is the tax rate on AMTI?

Answer 14

20% flat

Question 15

What is the only credit allowed against tentative minimum tax?

Answer 15

Alternative minimum tax foreign tax credit (AMTFTC)

Question 16

What is the Minimum Tax Credit (MTC)?

Answer 16

AMT payed in one year may be used as a credit in future years against regular income tax liability

Question 17

What are the carry over rules for MTC?

Answer 17

May be carried forward indefinitely