Instructions for Form 4626

Transcription

1 2004 Instructions for Form 4626 Alternative Minimum Tax Corporations Section references are to the Internal Revenue Code unless otherwise noted. Department of the Treasury Internal Revenue Service General Instructions The following rules apply when Enter zero on line 2c of the Adjusted figuring gross receipts under 2b above. Current Earnings (ACE) Worksheet on Gross receipts must be figured using page 11. When completing line 5 of the Purpose of Form the corporation s tax accounting ACE Worksheet, take into account only Use Form 4626 to figure the alternative method and include total sales (net of amounts from tax years beginning on or minimum tax (AMT) under section 55 returns and allowances), amounts after the change date. Also, for line 8 of for a corporation that is not exempt received for services, and income from the ACE Worksheet, take into account from the AMT. investments and other sources. See only property placed in service on or Temporary Regulations section after the change date. Consolidated returns. For an T(f)(2)(iv) for more details. affiliated group filing a consolidated See section 55(e)(3) for exceptions Gross receipts include those of any return under the rules of section 1501, related to any item acquired in a predecessor of the corporation, AMT must be figured on a consolidated corporate acquisition or to any including non-corporate entities. basis. substituted basis property, if an AMT For a short tax year, gross receipts provision applied to the item or property must be annualized by multiplying them Who Must File while it was held by the transferor. by 12 and dividing the result by the number of months in the tax year. Once the corporation loses its If the corporation is a small The gross receipts of all persons small corporation status, it! corporation exempt from the! treated as a single employer under CAUTION cannot qualify for any CAUTION AMT (as explained below), do section 52(a), 52(b), 414(m), or 414(o) subsequent tax year. not file Form must be aggregated. Generally, file Form 4626 if either of Loss of small corporation status. If Credit for Prior Year the following apply. The corporation s taxable income or the corporation qualified as a small Minimum Tax (loss) before the net operating loss corporation exempt from the AMT for its previous tax year, but does not meet A corporation may be able to take a (NOL) deduction plus its adjustments the gross receipts test for its tax year minimum tax credit against the regular and preferences total more than beginning in 2004, it loses its AMT tax for AMT incurred in prior years. See $40,000 or, if smaller, its allowable exemption status. Special rules apply in Form 8827, Credit for Prior Year exemption amount. figuring AMT for the tax year beginning Minimum Tax Corporations, for The corporation claims any general in 2004 and all later years based on the details. business credit, the qualified electric vehicle credit, the nonconventional change date. The change date is the first day of the corporation s tax year Recordkeeping source fuel credit, or the credit for prior year minimum tax. beginning in Where this applies, Certain items of income, deductions, complete Form 4626 taking into credits, etc., receive different tax Exemption for Small account the following modifications. treatment for the AMT than for the Corporations The adjustments for depreciation and regular tax. Therefore, the corporation amortization of pollution control facilities should keep adequate records to A corporation is treated as a small apply only to property placed in service support items refigured for the AMT. corporation exempt from the AMT for its on or after the change date. Examples include: current tax year beginning in 2004 if: The adjustment for mining Tax forms completed a second time 1. The current year is the exploration and development costs to refigure the AMT; corporation s first tax year in existence applies only to amounts paid or The computation of a carryback or (regardless of its gross receipts for the incurred on or after the change date. carryforward to other tax years of year), or The adjustment for long-term certain deductions or credits (for 2. Both of the following apply. contracts applies only to contracts example, net operating loss, capital a. It was treated as a small entered into on or after the change loss, and foreign tax credit) if the AMT corporation exempt from the AMT for all date. amount is different from the regular tax prior tax years beginning after When figuring the amount to enter on amount; b. Its average annual gross receipts line 6, for any loss year beginning The computation of a carryforward of for the 3-tax-year period (or portion before the change date, use the a passive loss or tax shelter farm thereof during which the corporation corporation s regular tax NOL for that activity loss if the AMT amount is was in existence) ending before its tax year. different from the regular tax amount; year beginning in 2004 did not exceed Figure the limitation on line 4d only and $7.5 million ($5 million if the corporation for prior tax years beginning on or after A running balance of the excess of had only 1 prior tax year). the change date. the corporation s total increases in Cat. No L

2 alternative minimum taxable income section 203(a)(1)(B) of the Tax Reform (AMTI) from prior year adjusted current Specific Instructions Act of 1986, this rule applies to property earnings (ACE) adjustments over the placed in service after July 31, 1986.) total reductions in AMTI from prior year ACE adjustments (see the instructions Line 1. Taxable Income What Depreciation Is Not for line 4d on page 6). or (Loss) Before Net Refigured for the AMT? Do not refigure depreciation for the Operating Loss AMT for the following. Short Period Return Deduction Residential rental property placed in If the corporation is filing for a period of service after less than 12 months, AMTI must be Enter the corporation s taxable income or (loss) before the NOL deduction, Nonresidential real property with a annualized and the tentative minimum after the special deductions, and class life of 27.5 years or more tax prorated based on the number of without regard to any excess inclusion (generally, a building and its structural months in the short period. Complete (for example, if filing Form 1120, components) placed in service after Form 4626 as follows. subtract line 29b from line 28 of that 1998 that is depreciated for the regular 1. Complete lines 1 through 6 in the form). tax using the straight line method. normal manner. Subtract line 6 from Other section 1250 property placed line 5 to figure AMTI for the short in service after 1998 that is depreciated Line 2. Adjustments and period, but do not enter it on line 7. for the regular tax using the straight line 2. Multiply AMTI for the short period Preferences method. by 12. Divide the result by the number Property (other than section 1250 of months in the short period. Enter this To avoid duplication, do not property) placed in service after 1998 result on line 7 and write Sec.! include any AMT adjustment or that is depreciated for the regular tax CAUTION 443(d)(1) on the dotted line to the left preference taken into account using the 150% declining balance of the entry space. on line 2i, 2j, 2k, or 2o in the amounts method or the straight line method. 3. Complete lines 8 through 11. to be entered on any other line of this Property for which the corporation form. 4. Subtract line 11 from line 10. elected to use the alternative Multiply the result by the number of depreciation system (ADS) of section Line 2a. Depreciation of 168(g) for the regular tax. months in the short period and divide Post-1986 Property that result by 12. Enter the final result Qualified property eligible for the on line 12 and write Sec. 443(d)(2) on special depreciation allowance under What Adjustments Are Not the dotted line to the left of the entry section 168(k) if the depreciable basis Included As Depreciation of the property for the AMT is the same space. Adjustments? as for the regular tax. The special 5. Complete the rest of the form in Do not make a depreciation adjustment allowance is deductible for the AMT. the normal manner. on line 2a for: And, there also is no adjustment A tax shelter farm activity. Take this required for any depreciation figured on adjustment into account on line 2i. the remaining basis of the qualified Allocating Differently Passive activities. Take this property if the depreciable basis of the adjustment into account on line 2j. property for the AMT is the same as for Treated Items Between An activity for which the corporation the regular tax. Property for which an Certain Entities and is not at risk or income or loss from a election is in effect to not have the partnership interest or stock in an S special allowance apply is not qualified Their Investors corporation if the basis limitations property. See the Instructions for Form For a regulated investment company, a apply. Take this adjustment into 4562 for the definition of qualified real estate investment trust, or a account on line 2k. property. common trust fund, see section 59(d) Any part of the cost of any property for details on allocating certain What Depreciation Must Be that the corporation elected to expense differently treated items between the Refigured for the AMT? under section 179. The reduction to the entity and its investors. Generally, the corporation must refigure depreciable basis of section 179 depreciation for the AMT, including property by the amount of the section depreciation allocable to inventory 179 expense deduction is the same for Optional Write-Off for costs, for: the regular tax and the AMT. Property placed in service after 1998 Certain public utility property (if a Certain Expenditures depreciated for the regular tax using normalization method of accounting is There is no AMT adjustment for the the 200% declining balance method not used), motion picture films and following items if the corporation elects (generally 3-, 5-, 7-, or 10-year property video tape, sound recordings, and to deduct them ratably over the period under the modified accelerated cost property that the corporation elects to of time shown for the regular tax. recovery system (MACRS)); exclude from MACRS by using a Circulation expenditures (personal Section 1250 property placed in depreciation method based on a term holding companies only) 3 years. service after 1998 that is not of years, such as the unit-of-production Mining exploration and development depreciated for the regular tax using method. costs 10 years. the straight line method; and Qualified Indian reservation property. Intangible drilling costs 60 months. Tangible property placed in service Qualified revitalization expenditures after 1986 and before (If the for a building for which the corporation See section 59(e) for more details. transitional election was made under elected to claim the commercial -2-

3 revitalization deduction under section 2a. If the AMT deduction is more than allowable for the costs had they 1400I. the regular tax deduction, enter the remained capitalized or (b) the difference as a negative amount. remaining costs to be amortized for the How Is Depreciation Refigured In addition to the AMT adjustment to AMT. for the AMT? the deduction for depreciation, also Subtract the AMT deduction from the Property placed in service after adjust the amount of depreciation that regular tax deduction. Enter the result Use the same convention and recovery was capitalized, if any, to account for on line 2c. If the AMT deduction is more period used for the regular tax. Use the the difference between the rules for the than the regular tax deduction, enter straight line method for section 1250 regular tax and the AMT. Include on the difference as a negative amount. property. Use the 150% declining this line the current year adjustment to balance method, switching to the taxable income, if any, resulting from Line 2d. Amortization of straight line method the first tax year it the difference. Circulation Expenditures gives a larger deduction, for other property. Line 2b. Amortization of This adjustment applies only to Property placed in service before Certified Pollution Control! expenditures of a personal CAUTION Refigure depreciation for the Facilities holding company for which the AMT using ADS, with the same company did not elect the optional For facilities placed in service before convention used for the regular tax. 3-year write-off under section 59(e) for 1999, figure the amortization deduction See the table below for the method and the regular tax. for the AMT using ADS (that is, the recovery period to use. straight line method over the facility s For the regular tax, circulation class life). For facilities placed in expenditures may be deducted in full Property Placed in Service service after 1998, figure the when paid or incurred. For the AMT, Before 1999 amortization deduction for the AMT these expenditures must be capitalized under MACRS using the straight line and amortized over 3 years beginning IF the property is THEN use the... method. Figure the AMT deduction with the tax year in which the using 100% of the asset s amortizable expenditures were made. Section 1250 Straight line method basis. Do not reduce the corporation s If the corporation had a loss on property. over 40 years. AMT basis by the 20% section 291 property for which circulation Tangible property Straight line method adjustment that applied for the regular expenditures have not been fully (other than section over the property s tax. amortized for the AMT, the AMT 1250 property) AMT class life. Enter the difference between the deduction is the smaller of (a) the loss depreciated using AMT deduction and the regular tax allowable for the expenditures had they straight line method deduction on line 2b. If the AMT remained capitalized or (b) the for the regular tax. deduction is more than the regular tax remaining expenditures to be amortized Any other tangible 150% declining deduction, enter the difference as a for the AMT. property. balance method, negative amount. Subtract the AMT deduction from the switching to straight regular tax deduction. Enter the result line method the first Line 2c. Amortization of on line 2d. If the AMT deduction is tax year it gives a Mining Exploration and more than the regular tax deduction, larger deduction, Development Costs enter the difference as a negative over the property s AMT class life. How is the AMT class life determined? For property placed in service before 1999, the class life used for the AMT is not necessarily the same as the recovery period used for the regular tax. This adjustment applies only to! costs for which the corporation CAUTION did not elect the optional 10-year write-off under section 59(e) for the regular tax. amount. Line 2e. Adjusted Gain or Loss If, during the tax year, the corporation disposed of property for which it is making (or previously made) any of the adjustments described on lines 2a through 2d above, refigure the property s adjusted basis for the AMT. Then refigure the gain or loss on the disposition. For the AMT, the regular tax deductions under sections 616(a) and 617(a) are not allowed. Instead, The class lives are listed in Rev. capitalize these costs and amortize Proc , C.B. 674, and in them ratably over a 10-year period Pub. 946, How To Depreciate Property. beginning with the tax year in which the See Pub. 946 for tables that corporation paid or incurred them. The The property s adjusted basis for the TIP may be used to figure AMT 10-year amortization applies to 100% of AMT is its cost minus all applicable depreciation. Rev. Proc , the mining development and depreciation or amortization deductions C.B. 816, has special rules for exploration costs paid or incurred allowed for the AMT during the current short tax years and for property during the tax year. Do not reduce the tax year and previous tax years. disposed of before the end of the corporation s AMT basis by the 30% Subtract this AMT basis from the sales recovery period. section 291 adjustment that applied for price to get the AMT gain or loss. the regular tax. Dispositions for which line 2i, 2j, and How Is the Line 2a Adjustment If the corporation had a loss on 2k adjustments are made. The Figured? property for which mining exploration corporation may also have gains or Subtract the AMT deduction for and development costs have not been losses from lines 2i, 2j, and 2k that depreciation from the regular tax fully amortized for the AMT, the AMT must be considered on line 2e. For deduction and enter the result on line deduction is the smaller of (a) the loss example, if for the regular tax the -3-

4 corporation reports a loss from the Line 2i. Tax Shelter Farm (or any other) passive activity or until disposition of an asset used in a the passive activity is disposed of (that passive activity, include the loss in the Activities is, its passive losses cannot offset net computations for line 2j to determine if active income (defined in section any passive activity loss is limited for Complete this line only if the 469(e)(2)(B) or portfolio income )). the AMT. Then, include the AMT! corporation is a personal service Disallowed losses of a closely held CAUTION passive activity loss allowed that relates corporation and it has a gain or corporation that is not a personal to the disposition of the asset on line 2e loss from a tax shelter farm activity that service corporation are treated the in determining the corporation s AMT is not a passive activity. If the tax same except that, in addition, they may basis adjustment. It may be helpful to shelter farm activity is a passive be used to offset net active income. refigure the following for the AMT: Form activity, include the gain or loss in the 8810 and related worksheets, Schedule computations for line 2j. Keep adequate records for D (Form 1120), Form 4684 (Section B), Refigure all gains and losses TIP losses that are not deductible or Form reported for the regular tax from tax (and therefore carried forward) shelter farm activities by taking into for both the AMT and regular tax. Enter on line 2e the difference account any AMT adjustments and Enter on line 2j the difference between the regular tax gain or loss preferences. Determine the AMT gain between the AMT gain or loss and the and the AMT gain or loss. Enter the or loss using the rules for the regular regular tax gain or loss. Enter the difference as a negative amount if any tax with the following modifications. difference as a negative amount if the of the following apply. No loss is allowed except to the corporation had: The AMT gain is less than the regular extent the personal service corporation An AMT loss and a regular tax gain, tax gain. is insolvent. An AMT loss that exceeds the The AMT loss exceeds the regular Do not use a loss in the current tax regular tax loss, or tax loss. year to offset gains from other tax A regular tax gain that exceeds the The corporation has an AMT loss shelter farm activities. Instead, suspend AMT gain. and a regular tax gain. any loss and carry it forward indefinitely until the corporation has a gain in a Tax Shelter Farm Activities That Line 2f. Long-Term Contracts subsequent tax year from that same tax Are Passive Activities For the AMT, the corporation generally shelter farm activity or it disposes of the Refigure all gains and losses reported must use the percentage-of-completion activity. for the regular tax by taking into method described in section 460(b) to Keep adequate records for account the corporation s AMT determine the taxable income from any losses that are not deductible adjustments and preferences and AMT TIP long-term contract (defined in section (and therefore carried forward) prior year unallowed losses. 460(f)). However, this rule does not for both the AMT and regular tax. Use the same rules as outlined apply to any home construction contract Enter on line 2i the difference above for other passive activities, with (as defined in section 460(e)(6)). between the AMT gain or loss and the the following modifications. For contracts excepted from the regular tax gain or loss. Enter the AMT gains from tax shelter farm percentage-of-completion method for difference as a negative amount if the activities that are passive activities may the regular tax by section 460(e)(1), corporation had: be used to offset AMT losses from determine the percentage of completion An AMT loss and a regular tax gain, other passive activities. using the simplified procedures for An AMT loss that exceeds the AMT losses from tax shelter farm allocating costs outlined in section regular tax loss, or activities that are passive activities may 460(b)(3). A regular tax gain that exceeds the not be used to offset AMT gains from AMT gain. other passive activities. These losses Subtract the regular tax income from must be suspended and carried forward the AMT income. Enter the difference Line 2j. Passive Activities indefinitely until the corporation has a on line 2f. If the AMT income is less gain in a subsequent year from that than the regular tax income, enter the This adjustment applies only to same activity or it disposes of the difference as a negative amount.! closely held corporations and activity. CAUTION personal service corporations. Line 2g. Merchant Marine Capital Construction Funds Line 2k. Loss Limitations Refigure all passive activity gains Refigure gains and losses reported for and losses reported for the regular tax Amounts deposited in these funds are the regular tax from at-risk activities by taking into account the corporation s not deductible for the AMT. Earnings on and partnerships by taking into account AMT adjustments and preferences and these funds must be included in gross the corporation s AMT adjustments and AMT prior year unallowed losses. income for the AMT. If the corporation preferences. If the corporation has Determine the corporation s AMT deducted these amounts or excluded recomputed losses that must be limited passive activity gain or loss using the them from income for the regular tax, for the AMT by section 465 or section same rules used for the regular tax. add them back on line 2g. 704(d) or the corporation reported Generally, no loss is allowed. However, losses for the regular tax from at-risk if the corporation is insolvent, losses activities or partnerships that were Line 2h. Section 833(b) are allowed to the extent the limited by those sections, figure the Deduction corporation is insolvent (see section difference between the loss limited for This deduction is not allowed for the 58(c)). the AMT and the loss limited for the AMT. If the corporation took this Disallowed losses of a personal regular tax for each applicable at-risk deduction for the regular tax, add it service corporation are suspended until activity or partnership. Loss limited back on line 2h. the corporation has income from that means the amount of loss that is not -4-

5 allowable for the year because of the Line 2n. Intangible Drilling Line 2o. Other Adjustments limitations above. Costs And Preferences Enter on line 2k the excess of the Enter the net amount of any other loss limited for the AMT over the loss This preference applies only to adjustments and preferences, including limited for the regular tax. If the loss! costs for which the corporation the following. CAUTION limited for the regular tax is more than did not elect the optional 60-month write-off for the regular tax. Income eligible for the possessions the loss limited for the AMT, enter the tax credit. If this income was included difference as a negative amount. Intangible drilling costs (IDCs) from in the corporation s taxable income for oil, gas, and geothermal properties are the regular tax, include this amount on Line 2l. Depletion a preference to the extent excess IDCs line 2o as a negative amount. Refigure depletion using only income exceed 65% of the net income from the Income from the alcohol fuel credit. and deductions allowed for the AMT properties. Figure the preference for all If this income was included in the when refiguring the limit based on geothermal deposits separately from corporation s income for the regular tax, taxable income from the property under the preference for all oil and gas include this amount on line 2o as a section 613(a) and the limit based on properties that are not geothermal negative amount. taxable income, with certain deposits. Income as the beneficiary of an adjustments, under section 613A(d)(1). Excess IDCs are the excess of: estate or trust. If the corporation is the Also, the depletion deduction for mines, The amount of IDCs the corporation beneficiary of an estate or trust, include wells, and other natural deposits is paid or incurred for oil, gas, or on line 2o the minimum tax adjustment limited to the property s adjusted basis geothermal properties that it elected to from Schedule K-1 (Form 1041), line 9. at the end of the year, as refigured for expense for the regular tax (not Net AMT adjustment from an electing the AMT, unless the corporation is an including any deduction for large partnership. If the corporation independent producer or royalty owner nonproductive wells) reduced by the is a partner in an electing large claiming percentage depletion for oil section 291(b)(1) adjustment for partnership, include on line 2o the and gas wells. Figure this limit integrated oil companies and increased amount from Schedule K-1 (Form separately for each property. When by any amortization of IDCs allowed 1065-B), box 6. Also include on line 2o refiguring the property s adjusted basis, under section 291(b)(2) over any amount from Schedule K-1 (Form take into account any AMT adjustments The amount that would have been 1065-B), box 5, unless the corporation the corporation made this year or in allowed if the corporation had is a closely held or personal service previous years that affect basis (other amortized that amount over a corporation. Closely held and personal than the current year s depletion). Do 120-month period starting with the service corporations should take any not include in the property s adjusted month the well was placed in amount from box 5 into account when basis any unrecovered costs of production or, alternatively, had elected figuring the amount to enter on line 2j. depreciable tangible property used to any method that is permissible in Patron s AMT adjustment. exploit the deposits (for example, determining cost depletion. Distributions the corporation received machinery, tools, pipes, etc.). Net income is the gross income the from a cooperative may be includible in For iron ore and coal (including corporation received or accrued from all income. Unless the distributions are lignite), apply the section 291 oil, gas, and geothermal wells minus nontaxable, include on line 2o the total adjustment before figuring this the deductions allocable to these AMT patronage dividend adjustment preference. properties (reduced by the excess reported to the corporation from the IDCs). When refiguring net income, use cooperative. Enter on line 2l the difference only income and deductions allowed for Cooperative s AMT adjustment. If the between the regular tax and the AMT the AMT. corporation is a cooperative, refigure deduction. If the AMT deduction is Exception. The preference for IDCs the cooperative s deduction for more than the regular tax deduction, from oil and gas wells does not apply to patronage dividends by taking into enter the difference as a negative corporations that are independent account the cooperative s AMT amount. producers (that is, not integrated oil adjustments and preferences. Subtract companies as defined in section the cooperative s AMT deduction for Line 2m. Tax-Exempt Interest 291(b)(4)). However, this benefit may patronage dividends from its regular tax be limited. First, figure the IDC deduction for patronage dividends and Income From Specified preference as if this exception did not include the result on line 2o. If the AMT Private Activity Bonds apply. Then, for purposes of this deduction is more than the regular tax Enter interest income from specified exception, complete a second Form deduction, include the result as a private activity bonds, reduced by any 4626 through line 5, including the IDC negative amount. deduction that would have been preference. If the amount of the IDC Installment sales. The installment allowable if the interest were includible preference exceeds 40% of the amount method does not apply for the AMT to in gross income for the regular tax. figured for line 5, enter the excess on any nondealer disposition of property Generally, a specified private activity line 2n (the benefit of this exception is that occurred after August 16, 1986, but bond is any private activity bond (as limited). If the amount of the IDC before the first day of the corporation s defined in section 141) issued after preference is equal to or less than 40% tax year that began in 1987, if an August 7, 1986, on which the interest is of the amount figured for line 5, do not installment obligation to which the not includible in gross income for the include an amount on line 2n for oil and proportionate disallowance rule applied regular tax. See section 57(a)(5) for gas wells (the benefit of this exception arose from the disposition. Include as a exceptions and details. is not limited). negative adjustment on line 2o the -5-

6 amount of installment sale income because of the line 4d limitation cannot reported for the regular tax. Line 4. Adjusted Current be used to reduce a positive ACE Earnings (ACE) adjustment in any other tax year. Accelerated depreciation of real Combine lines 4d and 4e of the 2003 property and certain leased personal Adjustment Form 4626 and enter the result on line property (pre-1987). 4d of the 2004 form, but do not enter The ACE adjustment does not less than zero. apply to a regulated investment This preference generally! Example. Corporation C, a CAUTION company or a real estate applies only to property placed calendar-year corporation, was! investment trust. Also, for an affiliated CAUTION in service after 1987, but incorporated January 1, Its ACE group filing a consolidated return under depreciated using pre-1987 rules due to and pre-adjustment AMTI for 2000 the rules of section 1501, figure line 4b transition provisions of the Tax Reform through 2004 were as follows. on a consolidated basis. Act of Pre- Line 4b. The following examples adjustment illustrate the manner in which line 3 is Refigure depreciation for the AMT Year ACE AMTI subtracted from line 4a to get the using the straight line method for real amount to enter on line 4b $700,000 $800,000 property for which accelerated , ,000 depreciation was determined for the Example 1. Corporation A has line 4a , ,000 regular tax using pre-1987 rules. Use a ACE of $25,000. If Corporation A has 2003 (100,000) 300,000 recovery period of 19 years for 19-year line 3 pre-adjustment AMTI in the , ,000 real property and 15 years for amounts shown below, its line 3 and low-income housing property. Figure line 4a amounts would be combined as Corporation C subtracts its the excess of the regular tax follows to determine the amount to pre-adjustment AMTI from its ACE in depreciation over the AMT depreciation enter on line 4b. each of the years and then multiplies separately for each property and the result by 75% to get the following include only positive adjustments on Line 4a ACE $25,000 $25,000 $25,000 potential ACE adjustments for 2000 line 2o. through Line 3 pre-adj. ACE minus Potential AMTI 10,000 30,000 (50,000) The adjustment for leased personal pre-adjustment ACE property only applies to personal Year AMTI adjustment Amount to enter holding companies. For leased on line 4b $15,000 $(5,000) $75, $(100,000) $ (75,000) personal property other than recovery , ,000 property, enter the excess of the Example 2. Corporation B has line 4a 2002 (100,000) (75,000) depreciation claimed for the property for ACE of $(25,000). If Corporation B has 2003 (400,000) (300,000) the regular tax using pre-1987 rules line 3 pre-adjustment AMTI in the , ,500 over the depreciation allowable for the amounts shown below, its line 3 and AMT as refigured using the straight line line 4a amounts would be combined as Under these facts, Corporation C method. follows to determine the amount to has the following increases or enter on line 4b. reductions in AMTI for 2000 through For leased 10-year recovery property and leased 15-year public Line 4a ACE $(25,000) $(25,000) $(25,000) Increase or (reduction) utility property, enter the excess of the in AMTI from ACE regular tax depreciation over the Line 3 pre-adj. Year adjustment depreciation allowable using the AMTI (10,000) (30,000) 50, $0 straight line method with a half-year Amount to enter ,000 convention, no salvage value, and a on line 4b $(15,000) $5,000 $(75,000) 2002 (75,000) recovery period of 15 years (22 years 2003 (150,000) for 15-year public utility property). Line 4d. A potential negative ACE ,500 adjustment (that is, a negative amount Figure this amount separately for on line 4b multiplied by 75%) is allowed each property and include only positive as a negative ACE adjustment on line In 2000, Corporation C was not adjustments on line 2o. 4e only if the corporation s total allowed to reduce its AMTI by any part increases in AMTI from prior year ACE of the potential negative ACE adjustments exceed its total reductions adjustment because it had no increases Related adjustments. AMT in AMTI from prior year ACE in AMTI from prior year ACE adjustments and preferences may adjustments (line 4d). The purpose of adjustments. affect deductions that are based on an income limit (for example, charitable line 4d is to provide a running balance In 2001, Corporation C had to contributions). Refigure these of this limitation amount. As such, the increase its AMTI by the full amount of deductions using the income limit as corporation must keep adequate its potential ACE adjustment. It was not modified for the AMT. Include on line records (for example, a copy of Form allowed to use any part of its o an adjustment for the difference 4626 completed at least through line 5) unallowed potential negative ACE between the regular tax and AMT from year to year (even in years in adjustment of $75,000 to reduce its amounts for all such deductions. If the which it does not owe any AMT) positive ACE adjustment of AMT deduction is more than the regular Any potential negative ACE $225,000. tax deduction, include the difference as adjustment that is not allowed as a In 2002, Corporation C was allowed a negative amount. negative ACE adjustment in a tax year to reduce its AMTI by the full amount of -6-

7 its potential negative ACE adjustment because that amount is less than its regard to the ATNOLD, use a second Form 4626 as a worksheet. Complete Line 11. Alternative line 4d limit of $225,000. the second Form 4626 through line 5, Minimum Tax Foreign In 2003, Corporation C was allowed but when figuring lines 2l and 2o, treat line 6 as if it were zero. The amount Tax Credit (AMTFTC) to reduce its AMTI by only $150,000. Its potential negative ACE adjustment of figured on line 5 of the second Form The AMTFTC is the foreign tax credit $300,000 was limited to its is the corporation s AMTI refigured as follows. increase in AMTI of $225,000 minus its determined without regard to the ATNOLD. 1. Complete a separate AMT Form 2002 reduction in AMTI of $75, , Foreign Tax Credit In 2004, Corporation C must The ATNOL may be carried back or Corporations, for each separate increase its AMTI by the full amount of forward using the rules outlined in limitation category specified at the top its potential ACE adjustment. It cannot section 172(b). An election under of Form Include as a separate use any part of its 2003 unallowed section 172(b)(3) to forego the limitation category dividends received potential negative ACE adjustment of carryback period for the regular tax also from a corporation that qualifies for the $150,000 to reduce its 2004 positive applies for the AMT. possessions tax credit if the ACE adjustment of $112,500. dividends-received deduction for those Corporation C would complete the The ATNOL carried back or forward dividends is disallowed under the ACE relevant portion of its 2004 Form 4626 may differ from the NOL (if any) that is rules. as follows. carried back or forward for the regular In determining if any income is Line Amount tax. Keep adequate records for both the high-taxed in applying the separate AMT and the regular tax. limitation categories, use the AMT rate 4a $250,000 (20%) instead of the regular tax rate. 4b 150,000 4c 112,500 Line 7. Alternative 2. For each separate AMT Form 4d , if the corporation previously 4e 112,500 Minimum Taxable made or is making the simplified Income limitation election (discussed on page 8), skip Schedule A and enter on For a corporation that held a residual Line 6. Alternative Tax Schedule B, Part II, line 6, the same interest in a REMIC and is not a thrift amount you entered on that line for the Net Operating Loss institution, line 7 may not be less than regular tax. Otherwise, complete the total of the amounts shown on Schedule A using only income and Deduction (ATNOLD) Schedule(s) Q (Form 1066), Quarterly deductions that are allowed for the The ATNOLD is the sum of the ATNOL Notice to Residual Interest Holder of AMT and attributable to sources outside carrybacks and carryforwards to the tax REMIC Taxable Income or Net Loss the United States. year, subject to the limitation explained Allocation, line 2c, for the periods included in the corporation s tax year. If 3. For each separate AMT Form below. For a corporation that held a the total of the line 2c amounts is larger 1118, complete Schedule B, Part II. residual interest in a real estate than the amount the corporation would Enter any AMTFTC carryover on mortgage investment conduit (REMIC), otherwise enter on line 7, enter that Schedule B, Part II, line 4. Enter the figure the ATNOLD without regard to total and write Sch. Q on the dotted AMTI from Form 4626, line 7, on any excess inclusion. line next to line 7. Schedule B, Part II, line 7a. Enter the NOLs arising in tax years amount from Form 4626, line 10, on! beginning before August 6, Schedule B, Part II, line 9. CAUTION 1997, may be carried forward no Line 8. Exemption When completing Schedule B, treat more than 15 years. Therefore, the Phase-Out Computation as a tax paid to a foreign country 75% corporation may not carry forward an of any withholding or income tax paid to NOL to this tax year from a loss year Line 8a. If this Form 4626 is for a a U.S. possession on dividends beginning before member of a controlled group of received from a corporation that The ATNOL for a loss year is the corporations, subtract $150,000 from qualifies for the possessions tax credit excess of the deductions allowed in the combined AMTI of all members of (if the dividends-received deduction for figuring AMTI (excluding the ATNOLD) the controlled group. Divide the result those dividends is disallowed under the over the income included in AMTI. This among the members of the group in the ACE rules). excess is figured with the modifications same manner as the $40,000 tentative 4. For the AMT Form 1118, in section 172(d), taking into account exemption is divided among the complete Schedule B, Part III, the adjustments in sections 56 and 58 members. Enter this member s share Summary of Separate Credits. The total and preferences in section 57 (that is, on line 8a. The tentative exemption foreign tax credit on line 13 is limited to the section 172(d) modifications must must be divided equally among the the tax on Form 4626, line 10, minus be separately figured for the ATNOL). members, unless all members consent 10% of the tax that would be on that to a different allocation. See section In applying the rules relating to the line if Form 4626 were refigured using 1561 for details. determination of the amount of zero on line 6 and without regard to the carrybacks and carryforwards, use the Line 8c. If this Form 4626 is for a exception for intangible drilling costs modification to those rules described in member of a controlled group of (IDCs) under section 57(a)(2)(E). section 56(d)(1)(B)(ii). corporations, reduce the member s The ATNOLD is limited to 90% of share of the $40,000 tentative If there is no entry on Form 4626, AMTI determined without regard to the exemption by the amount entered on line 6, and no IDCs (or the exception ATNOLD. To figure AMTI without line 8b. does not apply to the corporation), -7-

8 enter on Form 4626, line 11, the the ACE depreciation is the same as smaller of: Line 13 the AMT depreciation. Therefore, enter 90% of Form 4626, line 10, or Enter the corporation s regular tax on line 2b(1) the same depreciation The amount from the AMT Form liability (as defined in section 26(b)) expense you included on line 2a of this 1118, Schedule B, Part III, line 13. minus any foreign tax credit and worksheet for such property. possessions tax credit (for example, for Line 2b(2). Post-1989, pre-1994 If Form 4626, line 6, has an amount Form 1120: Schedule J, line 3, minus property. For property placed in entered or the exception for IDCs the sum of Schedule J, lines 6a and service in a tax year that began after applies to the corporation, complete the 6b). Do not include any: 1989 and before 1994, use the ADS following steps. Tax on nondeductible portion of depreciation described in section qualifying dividends from a controlled 1. Refigure what the tax on line (g). However, for property (a) foreign corporation reported on Form would have been if line 6 were zero and placed in service in a tax year that 8895, the exception did not apply. began after 1989 and (b) described in Tax on accumulation distribution of 2. Multiply that amount by 10%. sections 168(f)(1) through (4), use the trusts from Form 4970, 3. Subtract the result from the tax same depreciation claimed for the Recapture of investment credit on line 10. regular tax and enter it on line 2b(5). (under section 49(b) or 50(a)) from 4. Enter on Form 4626, line 11, the Form 4255, Line 2b(3). Pre-1990 MACRS smaller of that amount or the amount Recapture of low-income housing property. For property placed in from the AMT Form 1118, Schedule B, credit (under section 42(j) or (k)) from service after 1986 (after July 1, 1986, if Part III, line 13. Form 8611, or an election to apply MACRS was made) Recapture of any other credit. and in a tax year that began before 1990 (MACRS property), use the The corporation can use any straight line method over the remainder reasonable method, consistently of the recovery period for the property applied, to apportion the disallowed ACE Worksheet under the ADS of section 168(g). In amount among the separate limitation Instructions doing so, use the convention that would categories (including the general have applied to the property under limitation income category). Any AMT Treatment of Certain section 168(d). For more information foreign tax credit for each separate (including an example that illustrates limitation category that the corporation Ownership Changes the application of these rules), see cannot claim (because of the limitation If a corporation with a net unrealized Regulations section 1.56(g)-1(b)(2). fraction and/or the 90% limit) is treated built-in loss (within the meaning of as a credit carryback or carryforward for Line 2b(4). Pre-1990 original ACRS section 382(h)) undergoes an that limitation category under section property. For property generally ownership change (within the meaning 904(c). (Because these amounts may placed in service in a tax year that of Regulations section 1.56(g)-1(k)(2)), differ from the amounts that are carried began after 1980 and before 1987 (to refigure the adjusted basis of each back or forward for the regular tax, which the original ACRS applies), use asset of the corporation (immediately keep adequate records for both the the straight line method over the after the ownership change). The new AMT and regular tax.) When carried remainder of the recovery period for the adjusted basis of each asset is its back or forward, the credit is reported property under ADS. In doing so, use proportionate share (based on on Schedule B, Part II, line 4, of the the convention that would have applied respective fair market values) of the fair carryover year s AMT Form 1118 for to the property under section 168(d) market value of the corporation s assets that separate limitation category. (without regard to section 168(d)(3)). (determined under section 382(h)) For more information (including an immediately before the ownership example that illustrates the application Simplified Limitation change. of these rules), see Regulations section Election To determine if the corporation has a 1.56(g)-1(b)(3). net unrealized built-in loss immediately The corporation may elect to use a Line 2b(5). Property described in before an ownership change, use the simplified section 904 limitation to figure sections 168(f)(1) through (4). For aggregate adjusted basis of its assets its AMTFTC. The corporation must property described in sections 168(f)(1) used for figuring its ACE. Also, use make the election for its first tax year through (4), use the regular tax these new adjusted bases for all future beginning after 1997 for which it claims depreciation, regardless of when the ACE calculations (such as depreciation an AMTFTC. If it does not make the property was placed in service. and gain or loss on disposition of an election for that tax year, it may not asset). make the election for a later tax year. Line 2b(5) takes priority over Once made, the election applies to all Line 2. ACE Depreciation! lines 2b(1), 2b(2), 2b(3), and CAUTION later tax years and may only be 2b(4) (that is, for property that is Adjustment revoked with IRS consent. described in sections 168(f)(1) through Line 2a. AMTdepreciation. Generally, (4), use line 2b(5) instead of the line If the corporation made the election the amount entered on this line is the 2b(1), 2b(2), 2b(3), or 2b(4) that would for each of its AMT separate limitations, depreciation the corporation claimed for otherwise apply). the corporation uses its separate the regular tax (Form 4562, line 22), Line 2b(6). Other property. Use the limitation income or loss that it modified by the AMT depreciation regular tax depreciation for (a) property determined for the regular tax (instead adjustments reported on lines 2a and placed in service before 1981 and (b) of refiguring the separate limitation 2o of Form property placed in service after 1980, in income or loss for the AMT, as Line 2b(1). Post-1993 property. For a tax year that began before 1990, that described earlier). property placed in service after 1993, is excluded from MACRS by section -8-

9 168(f)(5)(A)(i) or original ACRS by Line 3d. Include in ACE the income on Meals and entertainment expenses section 168(e)(4), as in effect before life insurance contracts (as determined that exceed the limitations of section the Tax Reform Act of under section 7702(g)) for the tax year 274; Line 2c. Total ACE depreciation. minus the part of any premium Federal taxes disallowed under Subtract line 2b(7) from line 2a and attributable to insurance coverage. section 275; and enter the result on line 2c. If line 2b(7) Golden parachute payments that Line 3e. Do not include any adjustment exceeds line 2a, enter the difference as exceed the limitation of section 280G. related to the E&P effects of any a negative amount. charitable contribution. Line 4e. Do not include any adjustment related to the E&P effects of any Line 3. Inclusion in ACE of Line 4. Disallowance of Items charitable contribution. Items Included in Earnings and Not Deductible From E&P Profits (E&P) Line 5. Other Adjustments Generally, no deduction is allowed In general, any income item that is not when figuring ACE for items not taken Line 5a. Except as noted below, in taken into account (see below) in into account (see below) in figuring figuring ACE, determine the deduction determining the corporation s E&P for the tax year. These amounts for intangible drilling costs under pre-adjustment AMTI but that is taken increase ACE if they are deductible in section 312(n)(2)(A). into account in determining its E&P figuring pre-adjustment AMTI (that is, must be included in ACE. Any such Subtract the ACE expense (if any) they would be positive adjustments). income item may be reduced by all from the AMT expense (used to figure items related to that income item and However, there are exceptions. Do line 2n of Form 4626) and enter the that would be deductible when figuring not add back: result on line 5a. If the ACE expense pre-adjustment AMTI if the income Any deduction allowable under exceeds the AMT amount, enter the items to which they relate were section 243 or 245 for any dividend that result as a negative amount. included in the corporation s qualifies for a 100% dividends-received Exception. The above rule does not pre-adjustment AMTI for the tax year. deduction under section 243(a), 245(b), apply to amounts paid or incurred for Examples of adjustments for these or 245(c) and any oil or gas well by corporations that income items include: Any dividend received from a are independent producers (that is, not Interest income from tax-exempt 20%-owned corporation (see section integrated oil companies as defined in obligations excluded under section (c)(2)), but only if the dividend is section 291(b)(4)). If this exception minus any costs incurred in carrying from income of the paying corporation applies, do not enter an amount on line these tax-exempt obligations and that is subject to Federal income tax. 5a for oil and gas wells. Proceeds of life insurance contracts excluded under section 101 minus the Special rules apply to the following. Line 5b. When figuring ACE, the basis in the contract for purposes of Dividends from section 936 current year deduction for circulation ACE. corporations (including section 30A expenditures under section 173 does corporations) (section 56(g)(4)(C)(iii)). not apply. Therefore, treat circulation An income item is considered taken Certain dividends received by certain expenditures for ACE using the case into account without regard to the cooperatives (section 56(g)(4)(C)(iv)). law that existed before section 173 was timing of its inclusion in a corporation s Certain distributions from controlled enacted. pre-adjustment AMTI or its E&P. Only foreign corporations under section 965 income items that are permanently (section 56(g)(4)(C)(vi)). Subtract the ACE expense (if any) excluded from pre-adjustment AMTI are from the regular tax expense (for a included in ACE. An income item will An item is considered taken into personal holding company, from the not be considered taken into account account without regard to the timing of AMT expense used to figure line 2d of merely because the proceeds from that its deductibility in figuring Form 4626) and enter the result on line item might eventually be reflected in the pre-adjustment AMTI or E&P. 5b. If the ACE expense exceeds the pre-adjustment AMTI of another Therefore, only deduction items that are regular tax amount (for a personal taxpayer (for example, that of a permanently disallowed in figuring E&P holding company, the AMT amount), shareholder) on the liquidation or are disallowed in figuring ACE. enter the result as a negative amount. disposal of a business. Items for which no adjustment is Do not make this adjustment for Exceptions. Do not make an necessary. Generally, no deduction is expenditures for which the adjustment for the following. allowed for an item in figuring ACE if! CAUTION corporation elected the optional Any income from discharge of the item is not deductible in figuring 3-year write-off under section 59(e) for indebtedness excluded from gross pre-adjustment AMTI (even if the item the regular tax. income under section 108 (or the is deductible in figuring E&P). The only corresponding provision of prior law). exceptions to this general rule are the Line 5c. When figuring ACE, the Any extraterritorial income excluded related reductions to an income item amortization provisions of section 248 from gross income under section 114. described in the second sentence of do not apply. Therefore, charge all For an insurance company taxed the instructions for line 3 above. organizational expenditures to a capital under section 831(b), any amount not Deductions that are not allowed in account and do not take them into included in gross investment income figuring ACE include: account when figuring ACE until the (as defined in section 834(b)). Capital losses that exceed capital corporation is sold or otherwise Any special subsidy payment for gains; disposed of. Enter on line 5c all prescription drug plans excluded from Bribes, fines, and penalties amortization deductions for gross income under section 139A. disallowed under section 162; organizational expenditures that were Any qualified shipping income Charitable contributions that exceed taken for the regular tax during the tax excluded under section the limitations of section 170; year. -9-