Once AMT adjustment reverse, they are deducted from taxable income to arrive at AMTI□Because most adjustment only defer taxes, corporation may recoup AMT paid on these adjustments when deferral of regular tax created by adjustment is reversed. Positive adjustment arise as a result of timing differences are added back to taxable income in computing AMTI○NOL = negative adjustment○Depreciation allowance for purpose of AMT are much less favorable than regular corporation income tax□Adjustment is difference between depreciation claimed for regular tax purpose and depreciation using 150% declining method over property's shorter regular MACRS recover period Property placed into service after 1998 adjustment only apply to MACRS 3, 5, 7 and 10 year property depreciated using 200% declining balance method □Portion of depreciation on property placed in service after 1986Other adjustment to regular taxable income included: ○Basis adjustment necessary to reflect difference in AMT gain or loss and regular tax gain or loss ○Passive activity losses of certain closely held corporation and persona services corporation○Excess of mining exploration and development cost deducted over what would have resulted if the cost had been capitalized and written off over 10 years ○Difference between completed contract and % of completion reporting on long-term construction contracts, for some contracts reported under the completed contract method ○Amortization claimed on certified pollution control facilities○Not allowed for AMTI purpose Difference between installment and total gain for dealers using installment method to account for sales○Portion of difference between adjusted current earning ACEand unadjusted AMTI○AMTI includes designated tax preference items○Tax-exempt interest on state and local bond where funds are not used for essential function of government% depletion claimed in excess of adjusted basis of propertyNot a tax preference for independent oil and gas producers and royalty owner□Integrated oil companies, excess of intangible drilling cost over 10 year amortization if in excess of 65% of net oil and gas incomeAccelerated depreciation on real property in excess of straight-line depreciation Common tax preference:○3-2c (Tax Preferences)•3-2d (Computing Alternative Minimum Taxable Income)•Taxation Page 7
○Purpose is to ensure that mismatching of E&P and taxable income will not produce inequitable results ○Calculation of ACE is similar to calculation of E&P○Regular taxAMTACEE&PRegular corporation must keep at least 4 sets of books for Federal tax purpose:○S CorporationReal estate investment trustRegulated investment companiesReal estate mortgage investment conduitsNot subjected to ACE○Unique to federal income tax and can be +/-○Negative adjustment limited to aggregated of positive adjustment under ACE for prior years reduced by previously claimed negative adjustments
