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 lossesInstallment salesDPADPlus Tax preferences:Real property accelerated depreciation (pre-1987) > of S/L depreciationMunicipal bond interest where the bond is not used for essential function of the governmentPercentage depletion claimed > the property’s adjusted basisFor integrated oil companies, intangible drilling costs > 10 year amortization if > of 65% of net oil and gas incomeEquals AMTI before ACE adjustment and NOL deductionLess ACE adjustmentLess NOL deductionEquals AMTIe. 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 AdjustmentIf the result is positive, then increase AMTIIf the result is negative, then decrease AMTIoNote 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 NOLAdjust 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:oAdd back life insurance proceeds, tax exempt interest, and other income exclusions.Disallowed items: Generally, items not deductible in computing E&P.oAdd back the DRD, but only if subject to the 70% rule.oDeduct life insurance premiums paid on key employeesoNote a deduction is never allowed in computing ACE if it is not allowed in computing E&P.Other adjustments:oIntangible drilling costs,oCirculation expenditures,oOrganization expense amortization, oLIFO inventory adjustment, andoInstallment 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:oExcess charitable contributions,oExcess capital losses,oDisallowed travel and entertainment,oPenalties, fines, and bribes, andoGolden 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 Earningsg. AMT Exemption amount:The exemption amount for a corporation is $40,000.