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Beneficial AMT calculation.

Avril George-Robinson and Paul Cox's article that appeared in the February 2010 issue of The CPA Journal ("The 2009 AMT Stimulus Patch") presents a fairly comprehensive overview of the alternative minimum tax (AMT). The authors, however, make no mention of a factor that could have substantial impact on taxpayers who have incurred sizeable net operating losses. This is the provision found in IRC section 56(d)(1)(A)(i) limiting the net operating loss deduction for AMT purposes to 90% of alternative minimum taxable income. Net operating losses originating in 2001 and 2002 that are carried back and net operating losses carried over to these two years, however, are not subject to the 90% rule.

Differences between net operating losses for regular tax purposes and for the AMT should reflect any disallowances of net operating loss deductions under the 90% limitation provision. Any AMT adjustments and preferences that arise in any loss year and that arise in any tax year to which these losses are either carried back or carried over also contribute to such differences. Differences attributable to the disallowances under the 90% rule should reverse themselves in future years and have the potential of generating a credit for prior-year minimum tax. In order to give effect to the deductions disallowed under section 56(d)(1)(A)(i), a minimum tax credit net operating loss deduction (MTCNOLD) has to be entered on line 3 of Form 8801.

The term MTCNOLD does not appear anywhere in the code or regulations and is only referred to in the instructions to Form 8801. Per the instructions, the MTCNOLD is defined as the total of the minimum tax credit net operating losses (MTCNOLDs) carried over from prior years. MTCNOLs are in turn determined by calculating any AMT net operating loss as if the only adjustments and preferences were exclusion items. In making this calculation, MTCNOL carryovers and carrybacks are calculated as if the 90% of AMT loss limitations did not apply. Since many tax programs do not automatically calculate the MTCNOLD, it is important that tax practitioners who are dealing with clients who have suffered substantial tax losses and have also been subject to the AMT are mindful of the fact that this calculation has to be made. Computation of the MTCNOLD and its inclusion on Form 8801 can sometimes yield significant tax savings.

Robert Jellinek, CPA Norwalk, Conn.

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Title Annotation:inbox: letters to the editor
Author:Jellinek, Robert
Publication:The CPA Journal
Article Type:Letter to the editor
Date:May 1, 2010
Words:396
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