Long-term contracts:
if the % completion method is > the completed contract method,
then it is a positive adjustment.
The opposite results in a negative adjustment.
Certified pollution control facilities:
if the regular deduction for amortization > AMT
amortization, this is a positive adjustment.
The opposite results in a negative
adjustment.
Passive activity losses
Installment sales
DPAD
Plus Tax preferences:
Real property accelerated depreciation (pre-1987) > of S/L depreciation
Municipal bond interest where the bond is not used for essential function of the
government
Percentage depletion claimed > the property’s adjusted basis
For integrated oil companies, intangible drilling costs > 10 year amortization if > of 65%
of net oil and gas income
Equals AMTI before ACE adjustment and NOL deduction
Less ACE adjustment
Less NOL deduction
Equals AMTI
e. ACE Adjustment Formula:
The purpose of the ACE Adjustment is to ensure that the mismatching of E&P and taxable
income will not produce inequitable results.
The ACE calculation is similar to the calculation of
E&P.
S corporations, real estate investment trusts, regulated investment companies, and real
estate mortgage investment conduits are not subject to the ACE provisions.
(Adjusted Current Earnings – AMTI before ACE Adjustment and NOL) X 75% = ACE Adjustment
If the result is positive, then increase AMTI
If the result is negative, then decrease AMTI
o
Note that the negative adjustment is limited to the aggregate of the positive
adjustments in prior years reduced by previously claimed negative adjustments.
f. Adjusted Current Earnings (ACE) Formula:
AMTI before ACE Adjustment and NOL
Adjust for the following items:
Income Exclusions:
Income items (net of related expenses) that are permanently
excluded from regular taxable income and AMTI and therefore are included in ACE.
Examples:
o
Add back life insurance proceeds, tax exempt interest, and other income
exclusions.
Disallowed items:
Generally, items not deductible in computing E&P.
o
Add back the DRD, but only if subject to the 70% rule.
o
Deduct life insurance premiums paid on key employees
o
Note a deduction is never allowed in computing ACE if it is not allowed in
computing E&P.
Other adjustments:
o
Intangible drilling costs,
o
Circulation expenditures,
o
Organization expense amortization,
o
LIFO inventory adjustment, and
o
Installment sales.
Both AMTI and ACE:
items must be deductible for both AMTI and E&P purposes to be
deductible for ACE.
Therefore the following items do not reduce ACE:
o
Excess charitable contributions,
o
Excess capital losses,
o
Disallowed travel and entertainment,
o
Penalties, fines, and bribes, and
o
Golden parachute payments.
Lessee improvements:
exclude from AMTI and ACE the value of improvement made by
a tenant to the landlord’s property that is excluded from landlord’s income.
LIFO recapture adjustment: An increase/decrease in the LIFO recapture amount results
in a corresponding increase/decrease in ACE.
Equals Adjusted Current Earnings
g. AMT Exemption amount:
The exemption amount for a corporation is $40,000.
