You are a practicing CPA at Gibbons, Johnson & Tannun, LLP. You recently received a new, medium-sized client, ABI, Inc., which is a construction company. Since the tornado went through your town, ABI, Inc. has had more projects than it can handle. ABI's gross revenues for 2011 were $12 million dollars, up from $350,000 in 2010. Alex Lee, owner of ABI, Inc., expects the revenues to grow by 30% for the next three years because cleanup of the devastating tornado will take that long.
Vanessa Monfort, the company's bookkeeper, prepared the 2010 tax returns for the corporation using an online tax program and feels she can prepare them again this year, but Matt Lever feels that he needs a CPA firm to prepare the company's taxes this year.
When the subject of alternative minimum tax is brought up in your meeting, Alex Lee is appalled that he will have to pay more taxes than he already has to pay. Vanessa Monfort thinks that the corporation is subject to the AMT. Your job is to explain what the AMT is and why he might have to pay it.
Write a three- to four-page (12-point, double-spaced) memo to Alex Lee, explaining the following in terms that he will understand:
Explain the purpose behind the AMT.
Describe how and when the AMT is applicable.
Discuss what can be done to minimize the impact of the AMT.
Key Players Role Position and Point of View
Bookkeeper I prepared the taxes for 2010 and I feel that the company will be subject to the AMT this year
Owner of ABI, Inc. I pay payroll taxes, sales taxes, use taxes, income taxes for the business, and income taxes for myself. I don’t think I should have to pay more taxes!
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