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Corporate Alternative Minimum Tax (Portfolio 752)

Tax Management Portfolio, Corporate Alternative Minimum Tax, No. 752-3rd, analyzes the imposition of the corporate alternative minimum tax (AMT), as well as the special rules (§§55 through 59) concerning application of this tax.

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DESCRIPTION

Tax Management Portfolio, Corporate Alternative Minimum Tax, No. 752-3rd, analyzes the imposition of the corporate alternative minimum tax (AMT), as well as the special rules (§§55 through 59) concerning application of this tax.
The AMT is effectively a separate tax system, running parallel to the regular federal income tax system. The AMT is designed to insure that corporate taxpayers with economic income pay at least a threshold amount of federal income tax.
This Portfolio provides detailed discussion of the computation of the corporate AMT, including: (1) adjustments to taxable income (§§56 and 58) and tax preferences (§57) applicable to the calculation of a corporation's alternative minimum taxable income (AMTI); (2) the computation of the adjusted current earnings adjustment (§56(g)(3)); (3) the computation of the alternative tax net operating loss (§56(d)); (4) the computation of tentative minimum tax, final AMT, and the alternative minimum tax foreign tax credit (§§55 and 59); (5) the applicability of credits against AMT liability (§§26 and 38); (6) the computation of the minimum tax credit (§53); and (6) collateral issues related to short taxable years, apportionment of differently treated items and the tax benefit rule.


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AUTHORS

LISA MARIE STARCZEWSKI
Lisa Marie Starczewski, Smith College, B.A. (magna cum laude, 1985); Villanova University School of Law, J.D. (summa cum laude, 1988); Editor-in-Chief, Villanova Law Review (1987–88); member of adjunct faculty, Villanova University School of Law; former associate, Morgan, Lewis & Bockius; Schnader, Harrison, Segal & Lewis; author, 714 T.M., Partnerships — Allocation of Liabilities; Basis Rules; 550 T.M., At-Risk Rules; 565 T.M., Installment Sales; 621 T.M., IRS National Office Procedures — Rulings, Closing Agreements; co-author, 517 T.M., Scholarships and Educational Expenses; 5100 T.M., Revenue Recognition: Fundamental Principles (Accounting Series); 5101 T.M., Revenue Recognition: Product Sales and Services (Accounting Series); 5114 T.M., Accounting for Leases: Fundamental Principles (Accounting Series); 5117 T.M., Leases: Lessee Perspective (Accounting Series); 5118 T.M., Leases: Lessee Perspective — Selected Topics (Accounting Series); author of several chapters in theTax Practice Series and contributor to various tax publications; recipient of Distinguished Author award; member, Tax Management U.S. Income Advisory Board.

TABLE OF CONTENTS

Detailed Analysis

I. Overview

A. History of the Corporate Alternative Minimum Tax

B. General Applicability

C. Computation of Corporate AMT

D. Exemption for Small Corporations

II. Computation of Pre-ACE AMTI

A. General Explanation

B. Adjustments to Taxable Income

1. In General

2. Depreciation Adjustments

a. In General

b. AMT Depreciation Tables

c. Property Placed in Service After December 31, 1998

(1) Section 1250 Property and Other MACRS Property Depreciated Using Straight-Line Method

(2) MACRS Property Depreciated Using the 150% Declining Balance Method

(3) MACRS Property Depreciated Using the 200% Declining Balance Method

d. Bonus Depreciation

e. Property Placed in Service Before 1999

(1) § 1250 Property and Other MACRS Property Depreciated Using Straight-Line Method

(2) MACRS Property Not Depreciated Using Straight-Line Method

f. Property Placed in Service Before 1987

g. Property Excepted from Application of the AMTI Depreciation Adjustment Rules

h. Special Rule Applicable to Corporations that Cease to Be Small Corporations

3. Amortization of Pollution Control Facilities

a. Facilities Placed in Service After December 31, 1998

b. Facilities Placed in Service After 1986 and Before 1999

c. Special Rule Applicable to Corporations that Cease to Be Small Corporations

4. Mining Exploration and Development Costs

a. Treatment for Regular Tax Purposes

(1) In General

(2) Current Deduction of Mining Exploration Costs

(3) Current Deduction of Mining Development Costs

(4) Election to Expense Mining Exploration or Development Costs Over 10 Years

b. AMT Treatment

c. AMT Planning

(1) Mining Exploration Costs

(2) Mining Development Costs

d. Special Rule Applicable to Corporations That Cease to Be Small Corporations

5. Circulation Expenditures (Applicable Only to Corporations That Are Personal Holding Companies)

a. Treatment for Regular Tax Purposes

(1) In General

(2) Applicable Elections

(a) Election to Capitalize

(b) Election to Expense Circulation Expenditures Over Three Years

b. AMT Treatment

c. AMT Planning

6. Gain (Loss) from Sale or Exchange of Property (Special Basis Rule)

7. Treatment of Long-Term Contracts

a. Treatment for Regular Tax Purposes

(1) Required Use of Percentage-of-Completion Method

(2) Determining the Percentage of Completion

(3) Cost Allocation Rules

(4) Look-Back Interest Calculation

b. AMT Treatment

(1) Required Use of Percentage-of-Completion Method

(2) Determining the Percentage of Completion and Allocable Costs

(3) Effect of Look-Back Rules

(4) Special Rule Applicable to Corporations That Cease to Be Small Corporations

8. Inapplicability of Alcohol Fuel Credit

9. Merchant Marine Capital Construction Funds

a. Regular Tax Treatment

b. AMT Treatment

10. Disallowance of Special Deduction for Certain Insurance Providers

a. Regular Tax Treatment

b. AMT Treatment

11. Disallowance of Passive Activity Loss and Credits (Applicable Only to Personal Service Corporations and Closely Held Corporations)

a. Regular Tax Treatment

(1) In General

(2) Definition of Passive Activity

(3) Amount of Passive Activity Loss or Credit

(4) Suspended Losses and Credits

b. AMT Treatment

12. Limitation on Passive Farm Losses (Applicable Only to Personal Service Corporations)

a. In General

b. Calculating Disallowed Loss

c. Carryover of Losses

13. Special Rule Applicable to U.S. Possessions Income Subject to Credit Under § 30A or § 936

a. Regular Tax Treatment

b. AMT Treatment

C. Preferences

1. In General

2. Depletion

a. Regular Tax Treatment

(1) In General

(2) Cost Depletion

(3) Percentage Depletion

(a) In General

(b) Section 291 Limit on Corporate Percentage Depletion Deduction

(c) Exceptions from Application of Percentage Depletion

b. AMT Treatment

(1) In General

(2) Exception for Certain Independent Oil and Gas Producers and Royalty Owners

3. Intangible Drilling Costs

a. Regular Tax Treatment

(1) In General

(2) Election to Deduct Costs Over 60 Months

b. AMT Treatment

(1) In General

(2) Exception for Independent Producers

(3) Nonproductive Wells

(4) Election Under § 57(b)(2)

(5) AMT Planning

4. Tax-Exempt Interest

a. Regular Tax Treatment

b. AMT Treatment

5. Depreciation

a. In General

b. Depreciation on ACRS Property (Property Placed in Service After 1980 and Before 1987)

c. Depreciation on Pre-1981 Real Property

d. Depreciation on Pre-1981 Leased Personal Property

6. Amortization of Pollution Control Facilities Placed in Service Before 1987

a. In General

b. Preference Amount

7. Charitable Contributions of Appreciated Property (Pre-1993)

8. Bad Debt Reserves of Financial Institutions (for Years Beginning Prior to 1996)

III. Computation of ACE Adjustment

A. In General

1. Definition of ACE

2. Corporations Exempt from ACE Adjustment

B. Calculation of ACE

1. Depreciation Adjustment

a. Background

b. Special Rule Applicable to Corporations That Cease to Be Small Corporations

c. Property Placed in Service After 1993

d. Property Placed in Service After 1989 but Before 1994

e. MACRS Property Placed in Service Before 1990

f. Property Subject to ACRS

g. Other Property

2. E& P Adjustments

a. Excluded Income Items

(1) In General

(2) Treatment of Life Insurance Contracts

(a) In General

(b) Inclusion of Inside Buildup

(i) In General

(ii) Calculation of “Income on the Contract”

(3) Treatment of Distributions

(4) Treatment of Death Benefits

(5) Term Life Insurance Contract Without Net Surrender Values

(6) Life Insurance Contracts Involving Divided Ownership

b. Items Not Deductible in Computing E& P

(1) In General

(2) Compensation Deduction Related to Nonstatutory Stock Options

(3) Special Rules Related to Dividends Received Deduction

(4) Taxes on Dividends from Foreign Sales Corporations

(5) Treatment of Taxes on Dividends from § 936 Corporations

(6) Dividends Received from Cooperatives

(7) Deduction for Domestic Production

(8) Certain Distributions from Controlled Foreign Corporations

c. Other E& P Adjustments

(1) Intangible Drilling Costs

(a) Treatment for E& P Purposes

(b) Treatment for ACE Purposes

(i) Taxable Years Beginning After 1992

(ii) Taxable Years Beginning After 1989 and Before 1993

(2) Amortization of Circulation Expenditures

(3) Treatment of Organizational Expenditures

(4) LIFO Inventory Adjustment

(5) Installment Sales

(6) Special Rule Applicable to Corporations That Cease to Be Small Corporations

3. Losses on Debt Pools

4. Depletion

a. In General

b. Special Rule Applicable to Corporations That Cease to Be Small Corporations

5. Acquisition Expenses of Life Insurance Companies (Applicable to Taxable Years Beginning Before September 30, 1990)

6. Applicable Basis Rules

a. In General

b. Ownership Changes

c. Alternative Tax Energy Preference Deduction

C. Computation of ACE Adjustment

1. ACE Greater Than Pre-ACE AMTI

2. ACE Less than Pre-ACE AMTI

a. In General

b. Limit on Negative Adjustment

(1) In General

(2) Special Rule Applicable to Corporations That Cease to Be Small Corporations

IV. Computation of Final AMTI

A. In General

B. Adjustment Based on Energy Preference Deduction (for 1991 and 1992 Taxable Years Only)

C. Alternative Tax Net Operating Loss Deduction

1. Regular Tax Net Operating Loss Deduction

2. Computation of Alternative Tax Net Operating Loss Deduction

3. Special Rule Applicable to Carryforwards from Pre-1987 Tax Years

4. Special Rule Applicable to Carrybacks to Pre-1987 Years

5. Special Rule Applicable to Corporations That Cease To Be Small Corporations

V. Computation of AMT

A. In General

B. Exemption Amount

C. Computation of Tentative Minimum Tax

D. Alternative Minimum Tax Foreign Tax Credit

1. Regular Tax Foreign Tax Credit

2. Computation of AMT Foreign Tax Credit

a. In General

b. Application of § 904(a) Limit

c. Application of the Pre-2005 90% Limit

d. Interaction Between the Pre-2005 90% Limit and Foreign Treaties and Conventions

E. Computation of Net AMT

1. In General

2. Applicable Definition of “Regular Tax”

3. Computation of AMT Liability

VI. Nonrefundable Credits

A. Use of Nonrefundable Credits Against Regular Tax

B. Limitation on Use of General Business Credit

1. Credits Included in the General Business Credit

2. Limitation Amount

a. General Rule

b. Exceptions

3. Ordering Rules Applicable to General Business Credit

C. Other Credits

VII. Minimum Tax Credit

A. In General

B. Computation of Credit

C. Limitation on Use of the Credit

VIII. Collateral Issues

A. Short Taxable Year

B. Apportionment of Differently Treated Items

C. Tax Benefit Rule

D. Estimated Taxes

E. Environmental Tax


WORKING PAPERS

Working Papers

Table of Worksheets

Worksheet 1 General Explanation of the Tax Reform Act of 1986, Prepared by the Staff of the Joint Committee on Taxation, 99th Cong., 2d Sess., pages 429–473 (May 4, 1987); P.L. 99–514

Worksheet 2 Conference Report to Accompany H.R. 3838 H.R. Rep. No. 841, Vol II, 99th Cong., 2d Sess., II-250-284 (1986) (Tax Reform Act of 1986)

Worksheet 3 Flowchart for Computation of Corporate AMT

Bibliography

OFFICIAL

Statutes and Regulations:

Public Laws:

Legislative History:

Revenue Rulings and Procedures:

Cases:

UNOFFICIAL

T. M. Portfolios:

Articles:

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1988

1989

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