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Noncorporate Alternative Minimum Tax (Portfolio 587)

Tax Management Portfolio, Noncorporate Alternative Minimum Tax, No. 587-3rd, analyzes the alternative minimum tax (AMT) applicable to taxpayers other than corporations.

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DESCRIPTION

Tax Management Portfolio, Noncorporate Alternative Minimum Tax, No. 587-3rd, analyzes the alternative minimum tax (AMT) applicable to taxpayers other than corporations.


The AMT is a separate federal income tax system that runs parallel to the regular federal income tax system. Although the minimum tax provisions have been amended several times since the concept of a minimum tax was first introduced, the underlying purpose of the AMT provisions has always been to ensure that taxpayers with substantial economic income pay a minimum amount of federal income tax.


This Portfolio discusses the general applicability of the noncorporate AMT. The Portfolio analyzes the interaction of the AMT with the regular tax; the computation of AMT liability, including the adjustments (§§56 and 58) and items of tax preference (§57) used in determining the amount of alternative minimum taxable income (AMTI); the use of nonrefundable credits against regular tax; the minimum tax credit; and collateral tax issues that arise under the AMT.


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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; 752 T.M., Corporate Alternative Minimum Tax; 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 the Tax 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 Noncorporate Alternative Minimum Tax

1. Legislation Prior to the Taxpayer Relief Act of 1997

2. The Taxpayer Relief Act of 1997

3. Legislation After the Taxpayer Relief Act of 1997

B. General Applicability

1. Individual Taxpayers

2. Nonresident Alien Individuals

3. Shareholders and Partners in Pass-Through Entities

4. Trusts and Estates

a. In General

b. AMT Rules

C. AMT as a Separate Tax System

D. Computation of Noncorporate AMT

II. Computation of AMTI

A. In General

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. First-Year Bonus Depreciation

(1) 2008-2009 Bonus Depreciation for Property Placed in Service After 2007

(2) Fifty Percent Bonus Depreciation for Property Placed in Service Before 2008

(3) Thirty Percent Bonus Depreciation for Property Placed in Service Before 2008

e. Property Placed in Service Before 1999

(1) Section 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

3. 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

(1) Taxpayer Currently Deducts Costs

(2) Taxpayer Elects to Expense Costs over 10 Years

c. AMT Planning

(1) Mining Exploration Costs

(2) Mining Development Costs

4. 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

5. Alternative Tax Net Operating Loss Deduction

a. Regular Tax Net Operating Loss Deduction

b. Computation of Alternative Tax Net Operating Loss Deduction

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

d. Special Rule Applicable to Carrybacks to Pre-1987 Tax Years

6. Amortization of Pollution Control Facilities

a. Facilities Placed in Service After December 31, 1998

b. Facilities Placed in Service Before 1999 and After 1986

7. Gain (Loss) from Sale/Exchange of Property (Special Basis Rule)

8. Inapplicability of Fuel Credits

a. Regular Tax Treatment

b. AMT Treatment

9. Limitation on Itemized Deductions

a. In General

b. Inapplicability of § 68 Limitation

c. Miscellaneous Itemized Deductions

(1) Regular Tax Purposes

(2) AMT Purposes

d. Deduction for Taxes

(1) Regular Tax Purposes

(2) AMT Purposes

e. Medical Expense Deduction

(1) Regular Tax Purposes

(2) AMT Purposes

f. Interest Deduction

(1) Personal Interest

(2) Investment Interest

(a) Regular Tax Purposes

(b) AMT Purposes

(3) Qualified Residence Interest

(a) Regular Tax Deduction - In General

(b) AMT Deduction - In General

(c) Refinanced Debt

(d) Indebtedness Incident to Divorce

(e) Pre-July 1, 1982 Debt

10. Standard Deduction and Personal Exemptions

11. Exclusion of Certain Tax Recoveries

a. Regular Tax

b. AMT

12. Circulation and Research and Experimental Expenditures

a. Circulation Expenditures

(1) Treatment for Regular Tax Purposes

(a) In General

(b) Applicable Elections

(i) Election to Capitalize

(ii) Election of Three-Year Amortization

(2) AMT Treatment

(3) AMT Planning

b. Research and Experimental Expenditures

(1) Regular Tax Treatment

(a) In General

(b) Applicable Elections

(i) Election to Capitalize

(ii) Election of Ten-Year Amortization

(2) Treatment for AMT Purposes

(3) AMT Planning

13. Treatment of Incentive Stock Options

a. Regular Tax Treatment

(1) Incentive Stock Options

(2) Nonstatutory Stock Options

b. AMT Treatment

(1) Taxation on Exercise of Substantially-Vested Option

(2) Effect of Restrictions on Option or Underlying Stock

(3) Effect of Subsequent Lapse of Option

(4) Special Rule Applicable to Dispositions Within One Year of Exercise

14. Limitation on Passive Farm Losses

a. In General

b. Calculating Disallowed Loss

c. Effect of Insolvency

d. Carryover of Losses

15. Disallowance of Passive Activity Loss and Credits

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

16. Adjustment Based on Energy Preference Deduction (1991 and 1992 Tax Years Only)

17. Domestic Production Activities Deduction

C. Preferences

1. In General

2. Depletion

a. Regular Tax Treatment

(1) In General

(2) Cost Depletion

(3) Percentage Depletion

(a) In General

(b) 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) Section 57(b)(2) Election

(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. Exclusion for Gains on Sale of Certain Small Business Stock

a. Regular Tax Treatment

b. AMT Treatment

III. Computation of AMT

A. In General

B. Exemption Amount

1. In General

2. Special Rule Applicable to Married Individuals Filing Separate Returns

3. Special Rule Applicable to Unearned Income of Children

a. Regular Tax Provisions (Kiddie Tax)

b. AMT Provisions

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 Pre- 2005 90% Limit

d. Interaction Between 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

IV. Use of Nonrefundable Credits Against Regular Tax

A. In General

B. Limitation on Use of General Business Credit

1. Credits Included in the General Business Credit

2. Limitation Amount

3. Ordering Rules Applicable to General Business Credit

C. Other Credits

V. Minimum Tax Credit

A. In General

B. Computation of Credit

C. Limitation on Use of the Credit

D. Refundable Long-Term Unused Minimum Tax Credit

VI. Collateral Issues

A. Short Taxable Year

B. Apportionment of Differently Treated Items

C. Tax Benefit Rule

D. Estimated Taxes




WORKING PAPERS

Table of Worksheets

Worksheet 1 Checklist of Adjustments and Preferences

Bibliography