Printer Friendly
The Free Library
4,491,237 articles and books
Member login
User name  
Password 
 
Join us Forgot password?

Potential loss of contribution carryforwards in AMT.


In November 1994, Treasury adopted final regulations under Sec. 55. These seemingly innocuous regulations can have unexpected effects on taxpayers with net operating loss (NOL NOL - Naval Ordnance Laboratory
NOL - Neptune Orient Lines (container shipping company)
NOL - Net Operating Loss
NOL - Netscape Online (ISP)
NOL - New Orleans International Airport
NOL - New Orleans, Louisiana
NOL - No Operators License
NOL - Nokia Logo Manager Format (filename extension synonymous with NLM)
NOL - Nokia Operator Logo
NOL - Normal Operating Loss
NOL - Normal Overload
NOL - Not on List
NOL - Notice of Loss
NOL - Now or Later
) and contribution carryovers carryover n. in taxation accounting, using a tax year's deductions, business losses or credits to apply to the following year's tax return to reduce the tax liability. (See: carryback).

Regs. Sec. 1.55-1(a) requires taxpayers to compute all items for alternative minimum tax (AMT) purposes using regular tax adjusted gross income (AGI AGI - Adjusted Gross Income
AGI - Above Ground Installation
AGI - Academy for Guided Imagery
AGI - Acute Gastrointestinal Illness
AGI - Advanced Global Imager
AGI - Adventure Game Interpreter (Sierra)
AGI - Agenzia Giornalistica Italiana (Italian Reporters Agency)
AGI - Agility
AGI - Air Global International
AGI - Alan Guttmacher Institute
AGI - Alternative Gifts International
AGI - American Geological Institute
AGI - Analytical Graphics, Inc.
) or modified AGI. This regulation, supposedly a simplification, can yield a surprising result for an individual with an NOL carryover to a year in which he makes a charitable contribution charitable contribution n. in taxation, a contribution to an organization which is officially created for charitable, religious, educational, scientific, artistic, literary, or other good works. Such contributions are deductible from gross income, and thus lower the taxes paid. (See: charitable remainder trust, charity).

The easiest way to explain this anomaly is by an example.

Example: Assume individual A has AGI for 1995 of $1,000,000 and no preference items; he has an NOL carryover to 1995 of $2,000,000 for regular tax and none for AMT. In 1995, A makes a cash contribution of $800,000 to a public charity. The NOL reduces A's regular tax AGI to zero. This eliminates the regular tax contribution deduction. Under final Regs. Sec. 1.55-1, A gets no contribution deduction for AMT purposes either, even though his AGI for AMT purposes is $1,000,000.

Under Regs. Sec. 1.170A-10(d), for regular tax purposes, the $500,000 that A could deduct absent the NOL becomes an NOL carryover rather than a contribution carryover. Thus, for 1996, A has an NOL carryover of $1,500,000 and a contribution carryover of $300,000 (subject to the percentage limitations). A has no other NOL carryover for AMT. Thus, it appears that A's only 1996 carryover deduction is the contribution carryover, subject to the limitations that apply for regular tax purposes. If A is in a similar position in 1996, more of the contribution carryover will become conversed to an NOL carryover.

Informal conversations with the IRS National Office indicate that, in this situation, the proper result is that there will be an AMT NOL carryover to 1996 of $500,000. Assuming there are no 1995 preferences, the taxpayer may treat the contribution portion of the $1.5 million NOL carryover as having arisen in 1995. Consequently, in the example, A will have a $500,000 AMT NOL carryover and a $300,000 contribution carryover to 1996. If A had any 1995 preferences, this result would be different.

Prior to the final regulations, the Service issued Letter Ruling (TAM) 9320003. This ruling required taxpayers to separately compute percentage limits based on AMT AGI and compute separate carryovers. The 1994 instructions to Form 6251, Alternative Minimum Tax-Individuals, also require separate computations for AMT purposes. These items have no further effect after the adoption of final regulations.

For year-end planning, taxpayers may want to reduce AMT exposure by making substantial charitable contributions. If there are NOL carryovers to 1995, such contributions may not yield any current year benefit. Practitioners should contact those clients in this situation and advise them of the possible adverse results.
COPYRIGHT 1997 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1997, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

 Reader Opinion

Title:

Comment:



 

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:alternative minimum tax
Author:Berger, Harvey J.
Publication:The Tax Adviser
Date:Feb 1, 1997
Words:478
Previous Article:Check-the-box: European options, U.S. and European consequences.
Next Article:Do environmental regulations constitute an involuntary conversion?
Topics:



Related Articles
Corporate alternative minimum tax: ACE simplified and MTC liberalized.
Proposed adjusted current earnings regulations. (includes related article of supplemental comments)
Sec. 58(c)(1) creates potential future AMT from PAL carryforwards. (alternative minimum tax, passive activity loss)
Welcome AMT reform for independent producers.
Practitioners must deal with new AMT complexities: AICPA comments prompt issuance of Notice 94-28 and proposed regulations. (alternative minimum tax,...
Potential loss of contribution carryforwards in AMT. (alternative minimum tax)
S Corporations and the AMT credit.(alternative minimum tax)
A primer on individual NOLs.(net operating loss)
Capital loss limits apply to AMTI.(alternative minimum taxable income)
Can capital losses be carried back for the AMT?(Merlo v. Commissioner)

Terms of use | Copyright © 2008 Farlex, Inc. | Feedback | For webmasters | Submit articles