Long term contracts if the completion method is the completed contract method

Long term contracts if the completion method is the

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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:
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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.
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