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Tax planning after AMT reform.

EXECUTIVE SUMMARY

* Many small corporations that meet the Sec. 55(e) revenue test are exempt from the AMT.

* Legislative conformity of the AMT, ACE and RT cost recovery systems has significantly reduced the AMT for many corporations, including real estate and capital-intensive companies.

* For corporations still subject to the AMT, a number of planning strategies can potentially lower overall tax liability.

**********

As a result of recent legislative changes, many corporations have significantly reduced their alternative minimum tax (AMT) liability, and others have become exempt.

This article summarizes the relevant changes and provides AMT planning strategies.

In 1986, Congress was concerned that profitable corporate taxpayers were using legitimate tax incentives and deferral techniques to the point of paying little or no Federal income taxes. In effect, businesses were deferring income, accelerating expenses and using tax credits to minimize or eliminate their tax liability. To stop these perceived abuses, Congress enacted a parallel or "shadow" corporate tax, the alternative minimum tax (AMT), embodied within the regular corporate income tax system. This system has embedded in it a parallel system, adjusted current earnings (ACE), which further complicates the tax planning and compliance functions.

The AMT's purpose is to ensure that no taxpayer with substantial economic income avoids paying tax by using selected exclusions, deductions, net operating losses (NOLs) and tax credits. Compliance with AMT and ACE requires numerous computations. Although not every corporation will pay tax under this system, most must incur significant recordkeeping costs to comply.

One measure of how well a tax provision works is the lobbying pressure to repeal it; by that standard, the AMT is working very well. (1) Congress began the repeal of the corporate AMT in 1993, while ignoring the fact that the individual AMT is ensnaring more taxpayers than ever. (2) Although the threat of the corporate AMT has been lessened for many corporations (particularly smaller ones), this "shadow tax" can result in disastrous consequences for corporations that fail to plan properly for it. This article examines the revisions of the corporate AMT and offers planning strategies for corporations still subject to it.

This article illustrates the effects of some of the AMT and ACE rules discussed below by using Z Corp. as a case study. Readers less familiar with the complex computations needed to determine the AMT may find this article's exhibits useful in reviewing those rules, including Exhibit 1 on p. 216 (a summary of the ACE cost recovery rules), Exhibit 2 on p. 217 (Z Corp's schedule of assets), Exhibit 3 on p. 218 (Z's regular tax (RT) computation) and Exhibit 4 on p. 220 (Z's AMT computation). Z's alternative minimum taxable income (AMTI) is more than double (205%) its taxable income.
Exhibit 1: Summary of ACE cost recovery rules under Sec. 56(g)(4)

Date placed in service Recovery method

Property placed in service AMT cost recovery deductions
 (P/S) after 1993
Property P/S after Alternative depreciation
 1989 and before 1994 system (ADS)
Property P/S after ADS, using the AMT basis
 1986 and before 1990 as of 1/1/90
Property P/S after ADS, using the RT basis of
 1980 and before 1987 the property
Property P/S before 1981 Same calculation as required
 for RT purposes

Exhibit 2: Z's asset schedule

 Placed in Class MACRS
Asset service Cost life life

Cement mixers * 1/1/93 $400,000 20 15
Machinery/equipment 1/1/98 $350,000 10 7
Drill equipment 1/1/04 $400,000 10 7
Nonresidential realty 6/1/89 $300,000 N/A 31.5
Nonresidential realty 1/1/04 $200,000 N/A 39

 Cost recovery deductions
Asset
 MACRS AMT ACE
Cement mixers *
Machinery/equipment $11,800 $8,922 $10,000
Drill equipment 31,255 30,590 30,590
Nonresidential realty 271,435 271,435 271,435
Nonresidential realty 9,525 7,500 7,500
 Total cost recovery deductions 4,922 4,922 4,922
 AMT adjustment (MARS
 deduction--AMT deduction) $328,937 $323,369 $324,447
 ACE adjustment (AMT
 deduction--ACE deduction) $5,568
 $(1,078)

* The cement mixers were sold in 2004, creating
gain/loss adjustments for AMT and ACE purposes.

Exhibit 3: Z Corp.'s RT computation

Gross sales revenue $7,800,520
Cost of goods sold (a) (5,199,320)
 Gross profit $2,601,200
Gross dividends received
 (5% interest in domestic ACE corporation) 200,000
Gross dividends received
 (22% interest in domestic corporation) 100,000
Interest income--U.S. treasury notes 30,400
Interest income--state
 of Ohio bonds ($200,000) (b) 0
Interest income--1996 private
 activity bond issue ($400,000) (c) 0
Life insurance proceeds--death
 of company officer ($1,000,000) (d) 0
Gain (ordinary) on the
 sale of depreciable property (e) 115,520
Gain (capital) on installment sale of land (f) 250,000
 Gross income $3,297,120
Organization costs 0
Depreciation cost recovery (g) (328,937)
NOL carryforward to current year 0
Other ordinary operating expenses (908,041)
 Income before charitable deduction $2,060,142
Contributions (128,620)
NOL carryback to current year 0
 Income before DRD $1,931,522
DRD (h) (220,000)
 Taxable income $1,711,522
Gross tax liability 581,917
AMT (see Exhibit 4 on p. 220) 118,743
Credits against RT liability 0
Estimated Federal income
 tax payments for the year (640,000)
 Net RT liability $60,660

(a) Z uses LIFO. Current-year LIFO layer was $60,000.

(b) Related expenses of $12,000 were incurred.

(c) Related expenses of $18,000 were incurred.

(d) Life insurance proceeds received from the death of a key employee.
Premiums of $60,000 were paid on the policy during the current year;
the cash surrender value of the date of death was $80,000. (There is
no cash surrender value increase for the current year.)

(e) A cement mixer (personalty) was sold on June 1 of the current
year for $210,000; see Exhibit 2 on p. 217 for details.

(f) Five hundred acres of business land were sold at the end of the
current tax year for a total gain of $970,000, of which $250,000 was
reported for RT purposes in the current tax year, using the
installment method.

(g) See Exhibit 2 for details on the
computation of the cost recovery deduction.

(h) Deduction is ($200,000 x 0.70) + ($100,000 x 0.80).

Exhibit 4: Z Corp.'s AMT computation

Taxable income (before NOL deduction) $1,711,522
Adjustments to taxable income (plus or minus):
 Excess depreciation on post-'86 property
 (see Exhibit 2 (on p. 217)
 asset schedule) 5,568
 Excess recovery on other
 specified costs in the Code 0
 Long-term construction contracts
 (percentage of completion/
 completed contract) 0
 Gain (loss) adjustments on asset sales
 (AMT gain--RT gain) (85,520)
 Expense adjustments
 (expenses on private activity bonds) (18,000)
 Disallowed passive losses
 (personal holding companies (PHCs)
 and closely held (corporations only) 0
 Miscellaneous industry-
 specific adjustments 0
Taxable income (plus or minus adjustments) $1,613,570
Tax preference items:
 Excess depreciation on pre-'87
 realty and leased PHC personalty 0
 Excess recovery on other
 specified costs in the Code 0
 Tax-exempt interest income on post-
 8/7/86-issue private activity bonds 400,000
 Intangible drilling costs
 exceeding 65% of taxable income 0
 Statutory depletion in excess
 of basis of depletion properties 0
 Bad debt reserves of
 financial institutions 0
AMTI before ACE adjustment $2,013,510
ACE adjustment:
 Adjustments to current earnings:
 Depreciation (see asset schedule) ($1,078)
 Gain (loss) on asset sales
 (AMT gain--ACE gain) (19,388)
 Earnings and profits (E&P) income--tax-
 exempt interest on state of Ohio bonds 200,000
 E&P expense--expenses related
 to interest on state of Ohio bonds (12,000)
 E&P income--life insurance
 proceeds (net cash surrender value) 920,000
 E&P expense--life
 insurance policy premiums paid (60,000)
 E&P income--current-year increase
 in life-insurance cash surrender value 0
 E&P income--disallowance of the
 installment method for nondealers 720,000
 E&P income--disallowance of
 current-year layer of LIFO inventory 60,000
 E&P income--disallowance
 of 70% DRD deduction 140,000
 E&P income--disallowance of
 organization expense amortization
 Total adjustments to current earnings $1,986,310
 x .75
 ACE adjustment $1,489,732
AMTI before NOL deduction 3,503,302
 AMTI NOL deduction
 (subject to AMT limits) 0
AMTI before AMT exemption deduction $3,503,302
 AMT exemption
 ($40,000 - ((AMT] - $150,000) x 0.25)) 0
AMTI $3,503,302
 AMT tax rate x .20
TMT before AMT credits $700,660
 AMT credits: FTC (subject to AMT limits) 0
TMT $700,660
 Less: RT liability (581,917)
AMT (add to RT liability) * $118,743

* Current-year AMT can be used as credit against RT
liability of future years, not to exceed the TMT
liability of the carryover year.


Reduction in Corporate AMT

Since 1993, Congress has enacted legislation that eliminates or significantly reduces the AMT for many corporations, both small and large. The major changes are summarized below.

Conformity of AMT and ACE Cost Recovery Deductions

Congress reacted to corporate complaints about the myriad cost recovery rules for RT, AMT and ACE, by conforming AMT and ACE recoveries for properties placed in service after 1993. This reduced the likelihood that large ACE cost recovery adjustments in the early years alter an asset acquisition would trigger an AMT liability.

Exhibit 1 Summarizes the ACE cost recovery rules. Exhibit 2 shows Z's computation of the ACE and AMT cost recovery adjustments. (3) The detrimental effects of ACE cost recovery adjustments are rapidly diminishing over time. (For example, see Z's negative $1,078 ACE adjustment in Exhibit 2.)

Small Corporation Exception

The most important step in the modification of the corporate AMT for small businesses was the enactment of Sec. 55(e) by the Taxpayer Relief Act of 1997 (TRA '97). This provision eliminated the AMT for many small C corporations for tax years beginning after 1997. To be exempt from the AMT, a corporation must have average annual gross receipts not exceeding $7.5 million for the prior three years ($5 million for the first three-year period or portion thereof). If the corporation is a new entity and not a continuation of a prior business, it is automatically exempt in its initial year. When a small business is exempt from the AMT, Sec. 55(e)(5) provides that the previous years' minimum tax credit (MTC) may offset RT in the exempt year to the extent of $25,000, plus 75% of the RT liability exceeding $25,000.

Example 1: D Corp. was formed in 2001 and had $4 million in gross receipts that year. Regardless of its gross receipts, it was exempt from AMT in its first year. Because it had less than $5 million of gross revenue in 2001, it was also exempt in 2002; it was exempt in 2003 if the average for the first two years did not exceed $5 million. It is exempt in 2004 if the average of the first three years is below $5 million. From 2004 forward, D remains exempt from the AMT if its moving average of the prior three years does not exceed $7.5 million.

Example 2: H Corp. was formed in 1970, was subject to the AMT from 1987 to 2002 and has a $250,000 MTC carryforward to 2003. In 2003, H's RT liability was $25,000 and it was exempt from the AMT. H uses $25,000 of its MTC carryforward to reduce its tax liability to zero. (4) H has a $225,000 MTC carryover to 2004. If in 2004, H has a $125,000 RT liability, its MTC is $100,000 ($25,000 + (75% x ($125,000 - $25,000)), its net corporate tax liability is $25,000 ($125,000 - $100,000) and its MTC carryover to 2005 is $125,000.

Conformity of MACRS and AMT Cost Recovery Deductions

Another step in corporate AMT reform was a change to Sec. 56(a) AMT depreciation by the TRA '97; for assets placed in service after 1998, the same depreciable life is permitted for AMT cost recovery as for RT cost recovery. This eliminated one part of the adjustment for tangible personalty (prior law required the use of class lives, not modified accelerated cost recovery system (MACRS) lives), while retaining another part (such properties are still subject to a 150% declining-balance AMT recovery rate, versus a 200% MACRS rate for the first four classes of personalty). The MACRS/AMT conformity for real estate eliminates the AMT for real property placed in service after 1998; however, assets placed in service before 1999 are still subject to an AMT adjustment.

After Sept. 11, 2001, Congress passed the Job Creation and Worker Assistance Act of 2002 (JCWAA), which continued AMT modification. Although the two changes discussed below are temporary, they are nonetheless a move toward virtual elimination of the corporate AMT. First, under JCWAA Section 101(a), Sec. 168(k)(2)(F) provided for total conformity of AMT depreciation (including 30% bonus depreciation) to RT depreciation for qualified property (with a recovery period of 20 years or less) placed in service after Sept. 10, 2001 and before Sept. 11, 2004.

Example 3: In Exhibit 2, there is no AMT adjustment for Z's drill equipment, because it was placed in service after Sept. 10, 2001. There is no difference in the 2004 realty recovery deductions, because both MACRS and the AMT require 39-year straight-line recovery. However, if the drill machine were placed in service on Jan. 1, 2001, the 2001 MACRS deduction, the AMT deduction and the AMT adjustment would have been as follows:
MACRS recovery ($100,000 x 1/7
 x 200% x 0.5) $14,290
AMT recovery ($l00,000 x 1/7
 x 150% x 0.5) (10,714)
AMT adjustment $3,576


This provision was modified by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTR-RA), increasing the bonus percentage to 50% for new personalty placed in service for the first time after May 5, 2003 and before 2005. For assets placed in service in this period, there are no AMT or ACE adjustments, even if the 30% or 50% bonus is used.

Example 4: The cost recovery computations for Z's drill equipment in Exhibit 2 show the total conformity of the MACRS and AMT computations for both the 30% bonus and regular cost recovery deductions; thus, there is no AMT adjustment.

The JGTRRA also amended Sec. 179(b)(1) to increase the expensing amount from $25,000 to $100,000 for tax years beginning after 2002 and before 2006. In addition, the $200,000 threshold used to compute the phaseout was increased to $400,000. Once again, the JCWAA conformity rules completely eliminated any AMT or ACE adjustments on such qualified personalty.

Example 5: As shown in Exhibit 2, Z placed $400,000 of qualified personalty into service in 2004. Its cost recovery deduction is computed as follows:
Sec. 179 deduction ($100,000 - $0
 (acquisitions exceeding $400,000)) $100,000
Bonus depreciation (($400,000 -
 $100,000) x 0.5)) 150,000
MACRS recovery (($400,000 -
 $100,000 - $150,000) x 0.1429) 21,435
Total cost recovery deduction $271,435


NOL AMT Offset

JCWAA Section 102(c)(1) also amended Sac. 56(d), by increasing from 90% to 100% the AMTI that can be offset by AMTNOL carryforwards to, and carrybacks from, 2001 and 2002. Prior to that, and after 2002, only 90% of AMTI may be offset by NOL carryovers and the credit equivalent thereof, as a result, total credits and NOLs cannot reduce tax liability below 2% of AMTI (i.e., 10% remaining AMTI x 20% AMT rate).

Example 6: B Corp. has a $10 million NOL carryforward from the prior year for both RT and AMT purposes, taxable income of $5.5 million and AMTI of $6 million. Compared below are the tax treatments for 2000 and 2002.
 2000 2002
Taxable income
 before NOL $5,500,000 $5,500,000
Regular NOL $5,500,000 $5,500,000
Taxable income
 after NOL $0 $0
RT $0 $0
Regular NOL
 carry forward
 ($10,000,000 -
 $5,500,000) $4,500,000 $4,500,000
AMTI before NOL $6,000,000 $6,000,000
AMT NOL (5,400,000) (6,000,000)
AMTI after NOL $600,000 $0
AMT @ 20% $120,000 $0
MTC carryover $120,000
AMTNOL carryforward:
($10,000,000
 $5,400,000) = $4,600,000
($10,000,000 -
$6,000,000) = $4,000,000


AMT Planning

The corporate AMT has been virtually repealed for small corporations and is significantly reduced for other corporations whose primary AMT adjustments stein from depreciation deductions and NOLs. For those corporations subject to the AMT, the following strategies should be considered.

Conform AMT Intangibles Recoveries

Sec. 59(e) allows a taxpayer to conform RT and AMT cost recovery methods for certain intangibles that otherwise create tax preferences, including circulation and research and experimentation (R&E) expenditures and intangible drilling and mining exploration and development costs. Further, Sec. 59(e)(4)(A) states that such election may be made for any portion of such expenditures. Thus, current deductions need only be forgone to the extent they create AMT.

Elect Deductions Over Credits

Under Sec. 280C, taxpayers can deduct certain items rather than taking a credit, including the research credit (Sec. 41), the work opportunity credit (Sec. 51) and the orphan drug credit (Sec. 45C). Although such credits cannot reduce the tentative minimum tax (TMT), the related expenses may be deducted for both RT and TMT purposes.

Deduct Foreign Taxes

The foreign tax credit (FTC) is different from other tax credits in that it may offset TMT liability. However, under Sec. 59(a)(2), the credit is limited in any one year to 90% of AMTI. If this limit applies and the taxpayer expects to be in the AMT for several years, the deduction election may offer an attractive alternative given the relatively short carryover period for FTCs.

NOLs

Sec. 172 requires RT and AMT consistency on the issue of forgoing a NOL carryback period. An AMT-NOL carryback must offset any AMTI in a carryback year, even if the corporation does not owe AMT that year. Thus, taxpayers should carefully consider the effects on both regular and TMT liability in carryback years if no AMT benefit is derived in the carryback years (i.e., there is no AMT liability in those years). Under JCWAA changes, taxpayers could elect to carry back the NOL to either the second (using the "old" law) or the fifth prior year (for NOLs incurred in either 2001 or 2002). Electing to forgo the carryback would preserve the AMTNOL benefits for carryforward years.

Avoid ACE Investment Adjustments

Investments in tax-exempt securities other than private activity bonds generate positive adjustments for ACE purposes. The same is true for less-than-20% investments in corporate stock, as the 70% dividends-received deduction (DRD) (allowed for RT and AMT purposes) is not allowed for ACE. If an AMT results from such investments, a corporate taxpayer receives an AMT credit. Thus, the only "cost" of these investments stems from the time value of the additional tax paid in one year and returned in a future year as an AMT credit. Corporations with investments in other corporations may want to increase their ownership percentage to more than 20% to take advantage of the 80% DRD (which is not an ACE adjustment).

Both corporate and noncorporate taxpayers are also faced with a tax preference item for interest earned on private activity bonds. For corporate taxpayers, this may just be a temporary-time value of money problem, because of the full AMT credit. In Exhibit 4, Z has an AMT preference item due to a private activity bond investment, an ACE adjustment item due to the investment in other tax-exempt securities and another ACE adjustment item for the DRD (from having a less than-20%-corporate investment). Because only 15% of the ACE adjustments enter the AMT computation, the corporation might consider investing in tax-exempt bonds that are not private activity bonds, especially if it has few other ACE adjustments and the interest rate differential is not substantial.

Timing Negative ACE Adjustments

Negative ACE adjustments are allowed in a tax year only to the extent of post-1989 positive adjustments. This rule does not work in reverse; positive ACE adjustments in the current year cannot be used to offset net negative adjustments of prior years. Thus, a corporation should avoid a potential negative ACE adjustment in the current year if there are no positive ACE adjustments in prior years; otherwise, the negative adjustment will simply be lost. This is particularly important for companies that outgrow their exempt status under Sec. 55(e), because any prior AMT attributes (including positive ACE adjustments from 1987-1997) are no longer available.

Accelerating Income

A common AMT planning tool advocated over the years was to accelerate income into a year in which the AMT applied, because the rate (20%) was lower than the RT rate that would otherwise apply. The same result could be achieved by decelerating an equivalent amount of expenses, as this would also increase current year income subject to the AMT. However, with the advent of the AMT credit system, this strategy is less useful. When a corporation generates an AMT credit, accelerating income may very well generate an unnecessary prepayment of tax when the credit can be applied against the RT liability in the following tax year.

Example 7: A corporate taxpayer with $1.2 million of income expected for the current year (year 1) and the following year (year 2) is considering accelerating $600,000 of the income from year 2 into year 1. This would actually increase the present value of the total taxes paid over the two tax years by almost $9,000, as illustrated in Exhibit 5 on p. 222. The total taxes paid before discounting for the two years combined are the same ($816,000) under either method.
Exhibit 5: Accelerating income

Income accelerated? No

 Year 1 Year 2

Regular taxable income $1,200,000 $1,200,000
AMT adjustments 1,800,000 0
Adjusted income $3,000,000 $1,200,000
TMT $600,000 $240,000
RT (408,000) (408,000)
AMT $192,000 $0
 Larger of RT or TMT 600,000 408,000
AMT credit 0 (192,000)
Total tax liability $600,000 $216,000
Net present value (NPV) @8% $600,000 $200,000
NPV years 1 and 2 $800,000

Income accelerated? Yes

 Year 1 Year 2

Regular taxable income $1,800,000 $600,000
AMT adjustments 1,800,000 0
Adjusted income $3,600,000 $600,000
TMT $720,000 $120,000
RT (612,000) (204,000)
AMT $108,000 $0
 Larger of RT or TMT 720,000 204,000
AMT credit 0 (108,000)
Total tax liability $720,000 $96,000
Net present value (NPV) @8% $720,000 $88,889
NPV years 1 and 2 $808,889


Slower Cost Recovery Options

Taxpayers can elect cost recovery options for depreciation purposes that will mitigate or eliminate AMT and ACE adjustments. These options include ADS, straight-line MACRS and even an option to use AMT recovery methods for RT purposes. Is this advisable? Usually the answer is no, for much the same reasons explained above as to the acceleration-of-income issue. In some limited cases, expiring NOLs or state tax considerations may justify such an election, but otherwise, a needless tax prepayment may occur. With the recent movement toward RT/AMT/ ACE conformity, such an election would probably make little difference in overall AMT exposure.

Postpone Regular Tax Deductions

Because deductions are worth more in the RT than the AMT system, it is wise to postpone some expenses deductible under both tax systems. If the corporation is already subject to the AMT, it may make sense to postpone a charitable deduction to a year in which the corporation will have a higher regular marginal tax rate. Taking the contribution in a year in which the AMT applies only reduces the MTC.

Timing Sales and Abandonments

The benefit to positive depreciation adjustments for AMT (and, for corporations, ACE) is that negative AMT (and possibly ACE) adjustments result when the property is sold, exchanged or abandoned, because the adjusted basis is higher for AMT (and ACE) purposes. The timing of asset disposition and abandonment should occur in a tax year in which an AMT problem already exists; the resulting negative adjustments will offset (or possibly eliminate) any AMT liability.

Example 8: The sale of Z's cement mixers (sec Exhibit 2) illustrates the positive AMT and ACE effects associated with asset dispositions. The sale generated a negative $85,520 AMT adjustment (because AMT cost recovery deductions were smaller than the RT MACRS deductions) and a negative $19,388 ACE adjustment (because ACE recovery deductions were smaller than AMT deductions); see Exhibit 4.

Forgo R&E Expense Reduction

R&E expenditures meeting the Sec. 174 definition may be deducted in the year incurred, provided the deduction is reduced for any Sec. 41 research credit on the expenditures. A taxpayer may elect to reduce the credit to avoid any reduction in the expense. For taxpayers already subject to the AMT, this election may make sense, because the deduction is allowed for both RT and AMT purposes, while the credit is allowed only for RT purposes. Interestingly, there are some unanswered questions on the proper treatment of R&E expenses for corporate AMT purposes. For example, Sec. 196 allows an RT deduction for certain unused credits (including the R&E credit) in the year after the carryforward period expires. Is this deduction also allowed for AMT purposes?

Opting Out of Installment Sales Treatment

The installment method is not allowed for ACE purposes and, in the year of the installment sale, 75% of the total gain may be an ACE adjustment. In addition, the 20% rate applies to the gain for a corporate taxpayer already in an AMT situation (as opposed to RT rates up to 35%). However, it may not be particularly advisable for a corporation to opt out of installment sale treatment, for two reasons. Although the ACE adjustment is eliminated (75% of the total gain), 100% of the total gain is reportable as additional AMTI. Second, because the AMT credit is always available, opting out of installment sale treatment may be an unnecessary acceleration of tax liability. However, this may make sense for corporations with expiring NOL carryovers that need additional income to offset them.

Applicable Percentage Rule

Corporate taxpayers with large dollar installment sales of nondealer property should be familiar with Sec. 56(g)(4)(D)(iv). Although the installment method is not allowed for ACE purposes, this provision states that the prohibition does not apply to the "applicable percentage" of such sales, as defined in Sec. 453A (the portion of total installment sales (including only those over $150,000) exceeding $5 million). For example, if installment sales total $20 million, the applicable percentage is 75% (15/20); no ACE adjustment is required for the gross profit on $15 million of the sales.

Conclusion

The complexity of the Federal income tax is exacerbated by the AMT and ACE provisions. Because of strong political sentiment that all taxpayers, especially corporations, should pay their "fair share," the corporate AMT may never be completely repealed. However, it has been significantly reduced for many corporate taxpayers, including real estate and capital-intensive companies, small businesses and companies with NOLs. For corporations subject to the AMT, the strategies discussed in this article can help mitigate its effect.

(1) The AICPA Tax Division, in its "Comments on H.R. 5166. Tax Simplification Act of 2002 (12/5/02)," recommended repeal of both the individual and the corporate AMT; see www.cpa2biz.com/ ResourceCenters/Tax/Legislative%2c+Administrative%2c+Judicial/portman.htm, Title 1, Sec. 101.

(2) Treasury estimates that there were 1.8 million individual taxpayers paying AMT in 2001 and predicts there will be 36 million in 2010, due mainly to the lack of an inflation adjustment for the AMT exemption.

(3) Detailed cost recovery computations and related gain/loss computations on the sale of the cement mixers are available by emailing cherie.oneil@business.colostate.edu.

(4) Under Sec. 6655 and Rev. Rul. 92-54, 1992-2 CB 320, the company may not rely on the prior-year estimated tax safe harbor if the tax liability is zero; this may be a trap for the unwary.

John O. Everett, Ph.D., CPA

Professor of Accounting

Virginia Commonwealth University

Richmond, VA

Stewart Karlinsky, Ph.D., CPA

Professor of Accounting

San Jose State University

San Jose, CA

Cherie J. O'Neil, Ph.D., CPA

Professor of Accounting

Colorado State University

Fort Collins, CO
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Title Annotation:alternative minimum tax
Author:O'Neil, Cherie J.
Publication:The Tax Adviser
Date:Apr 1, 2004
Words:4768
Previous Article:Revisiting sec. 704(c).
Next Article:Taxation of damages from securities lawsuits.
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