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Unformatted text preview: CHAPTER 13THE ALTERNATIVE MINIMUM TAX AND TAX CREDITS TRUE/FALSE 1. The AMT applies only to individual taxpayers. ANS: F The AMT applies to all taxpayers: individuals, estates, trusts, and C corporations. Note that partner- ships and S corporations are not "taxpayers" but flow-through entities. Partners and S corporation shareholders are subjected to AMT as are all individuals. PTS: 1 REF: p. 13-4 and 55 2. Generally, business income tax credits reduce the AMT liability of individual taxpayers. ANS: F To ensure that taxpayers who are subject to AMT pay some tax, most income tax credits are not avail- able to reduce the tentative minimum tax, with the exceptions of the AMT foreign tax credit and the empowerment zone credit which can offset 25% of the AMT. PTS: 1 REF: p. 13-4 3. Taxpayers are allowed to use the double declining balance method of depreciation for both the regular tax and the AMT computations. ANS: F For AMT purposes taxpayers can use a maximum 150 percent declining-balance for tangible personal property and straight-line for real property. PTS: 1 REF: Exhibit 13-4, p. 13-10 and 56(a)(1) 4. When figuring the AMT, one can usually predict that the accelerated depreciation from assets depreci- ated under MACRS will produce a large "tax preference" item. ANS: F As a rule of thumb, if the asset is depreciated under old ACRS or pre-ACRS, the accelerated depreci- ation will give rise to a tax preference item. By contrast, MACRS depreciation will give rise to an ad- justment item for AMT purposes. PTS: 1 REF: p. 13-8 5. If the taxpayer elects the ADS method of depreciation for regular tax purposes, he will also be allowed to use ADS for AMT purposes. ANS: T If the taxpayer elects ADS under 168(g)(7) for regular tax purposes, he will be allowed to use that system for AMT purposes. PTS: 1 REF: Exhibit 13-4, p. 13-9 and 56(a)(1)(A) 6. Circulation and research expenditures are AMT adjustments for both corporate and individual taxpay- ers. ANS: F Circulation and research expenditures are AMT adjustments for individual taxpayers only. Note that this falls within the section of the chapter beginning on p. 13-11 entitled Adjustments Applicable Only to Individuals. PTS: 1 REF: p. 13-13 and 56(b)(2) 7. The child care credit is always computed using the applicable percentage, which is 30% times the less- er of employment-related expenses or earned income. ANS: F The applicable percentage of 30% must be reduced by one percentage point for each $2,000 of the tax- payer's A.G.I, in excess of $10,000, but it cannot be reduced below 20%. PTS: 1 REF: p. 13-47 8. An eligible small business can elect to take a non-refundable tax credit equal to the amount of the eli- gible access expenditures exceeding $250 but not exceeding $10,250 for any taxable year....
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