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CHAPTER 15
ALTERNATIVE MINIMUM TAX
LECTURE NOTES
INDIVIDUAL ALTERNATIVE MINIMUM TAX (AMT)
1.
Purpose of AMT
.
The purpose of the AMT is to accomplish a more equitable
distribution of the tax burden among taxpayers
.
2.
Statistical data compiled by the Department of the Treasury revealed that some taxpayers
with large economic incomes were able to minimize or even avoid the payment of
income tax by taking advantage of the various tax incentives Congress had enacted.
a.
Many of the favorable treatments
allowed for computing the regular income tax
liability are disallowed
for computing the AMT
.
b.
The AMT has been referred to as a “tax on loopholes
.”
OVERVIEW OF THE AMT COMPUTATION
3.
Direct versus Indirect Approach
for Calculating Alternative Minimum Tax.
a.Direct approach
.
The AMT is actually a separate tax system
with its own provisions for
calculating income, deductions, and credits.
Therefore
, the AMT could be
calculated using the direct approach
with the following model
.
Gross income computed by applying the AMT rules
Minus:
Deductions computed by applying the AMT rules
Equals:
AMT before tax preferences
Plus:
Tax preferences
Equals:
Alternative minimum taxable income (AMTI)
Minus:
Exemption
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2009 Comprehensive Volume/Instructor’s Guide with Lecture Notes
Equals:
Alternative minimum tax base
Times:
AMT rates
Equals:
Tentative minimum tax (before credits)
Minus:
AMT credits
Equals:
Tentative AMT
The taxpayer could then compare
the regular income tax liability
(before credits
other than the foreign tax credit) with the tentative AMT
and pay the larger
of the
two.
b.
Indirect approach
.
Both the Code
and the tax forms
adopt the indirect approach
(see
Figure 152 in the text
).
4.
The AMT model can be presented first
as the basic AMT model
and then
as the com
plete AMT model
.
a.
Basic AMT model
.
Regular taxable income
Plus:
Positive AMT adjustments
Minus:
Negative AMT adjustments
Equals:
Taxable income after AMT adjustments
Plus:
Tax preferences (always a positive amount)
Equals:
Alternative minimum taxable income (AMTI)
Minus:
Exemption
Equals:
Alternative minimum tax base
Times:
AMT rates
Equals:
Tentative minimum tax
Minus:
Regular income tax liability
Equals:
Alternative minimum tax (if amount is positive)
b.
Complete AMT model
(see
Figure 152 in the text
).
Regular taxable income
Plus:
Regular income tax NOL
Plus:
Positive AMT adjustments
Minus:
Negative AMT adjustments
Plus:
Tax preferences (always a positive amount)
Equals:
Alternative minimum taxable income (before ATNOLD)
Minus:
ATNOLD (cannot exceed 90% of AMTI before deduction of
ATNOLD)
Equals:
Alternative minimum taxable income (AMTI)
Minus:
Exemption
Equals:
Alternative minimum tax base
Times:
AMT rates (26% on first $175,000 or $87,500 if marriedfiling
separately, 28% thereafter)
Equals:
Tentative minimum tax before AMT foreign tax credit (AMT FTC)
Minus:
AMT FTC *
Alternative Minimum Tax
153
Equals:
Tentative minimum tax
Minus:
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This note was uploaded on 03/17/2009 for the course ACC 483 taught by Professor Susankuniyoshi during the Spring '08 term at University of Phoenix.
 Spring '08
 SUSANKUNIYOSHI

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