Question 1

A negative ACE adjustment is beneficial to a corporation.

Accepted Answer

A negative ACE adjustment reduces the corporation's taxable income, resulting in lower tax liability.

Question 2

Which of the following correctly describes the tax credit for rehabilitation expenditures?

Accepted Answer

The tax credit for rehabilitation expenditures only applies to qualifying expenditures for the rehabilitation of a qualified building used in a trade or business or held for the production of income. It does not apply to personal use property such as a primary residence.

Question 3

Roger is considering making a $6,000 investment in a venture that its promoter promises will generate immediate tax benefits for him.Roger,who does not anticipate itemizing his deductions,is in the 30% marginal income tax bracket.If the investment is of a type that produces a tax credit of 40% of the amount of the expenditure,by how much will Roger's tax liability decline because of the investment?

Accepted Answer

Roger's investment of $6,000 will entitle him to a tax credit of 40% of the expenditure, which is $2,400 (40% of $6,000). This tax credit directly reduces his tax liability. Therefore, his tax liability will decrease by $2,400 x 30% (his marginal tax bracket) = $720. Therefore, Roger's tax liability will decline by $720 because of the investment.

Question 4

The ACE adjustment can be positive or negative.

Accepted Answer

The ACE adjustment can be positive or negative, depending on whether the foreign country's tax rate is higher or lower than the US tax rate. If the foreign tax rate is higher, the ACE adjustment will be positive, while if the foreign tax rate is lower, the ACE adjustment will be negative.

Question 5

AMTI may be defined as regular taxable income after AMT adjustments (other than the NOL and ACE adjustments)and after tax preferences.

Accepted Answer

The answer of AMTI may be defined as regular taxable...

Question 6

Certain adjustments apply in calculating the corporate AMT that do not apply in calculating the noncorporate AMT and certain adjustments apply in calculating the noncorporate AMT that do not apply in calculating the corporate AMT.

Accepted Answer

This statement is true. The corporate AMT and noncorporate AMT have different sets of adjustments that are applicable to each type of taxpayer.

Question 7

C corporations are subject to a positive AMT adjustment equal to 75% of the excess of ACE over AMTI before the ACE adjustment.

Accepted Answer

This is true, according to the tax code. The Alternative Minimum Tax (AMT) is designed to ensure that corporations and individuals with significant income pay at least a minimum amount of tax. One part of the calculation involves comparing the corporation's Adjusted Current Earnings (ACE) to its Alternative Minimum Taxable Income (AMTI). If ACE exceeds AMTI, then the corporation is subject to a positive AMT adjustment equal to 75% of the excess of ACE over AMTI before the ACE adjustment.

Question 8

Evan is a contractor who constructs both commercial and residential buildings.Even though some of the contracts could qualify for the use of the completed contract method,Evan decides to use the percentage of the completion method for all of his contracts.Unfortunately,this will have the effect of increasing Evan's AMT adjustment associated with long-term contracts for the current year.

Accepted Answer

The answer of Evan is a contractor who constructs both...

Question 9

All of a C corporation's AMT is available for carryover as a minimum tax credit regardless of whether the adjustments and preferences originate from timing differences or AMT exclusions.

Accepted Answer

All of a C corporation's AMT can be carried over as a minimum tax credit regardless of the origin of the adjustments and preferences (timing differences or AMT exclusions).

Question 10

The AMT exemption for a C corporation is $50,000 reduced by 25% of the amount by which AMTI exceeds $150,000.

Accepted Answer

The AMT exemption for a C corporation is calculated differently, based on a flat rate of 20% on alternative minimum taxable income (AMTI) up to $175,000 and 25% on AMTI above $175,000. There is no reduction based on a threshold of $150,000 as stated in option A.

Question 11

Cher sold undeveloped land that originally cost $150,000 for $225,000.There is a positive AMT adjustment of $75,000 associated with the sale of the land.

Accepted Answer

There is no information provided to suggest that there is an AMT adjustment associated with the sale of the land, so the statement is false.

Question 12

Ahmad is considering making a $10,000 investment in a venture which its promoter promises will generate immediate tax benefits for him.Ahmad,who normally itemizes his deductions,is in the 28% marginal tax bracket.If the investment is of a type where the taxpayer may claim either a tax credit of 25% of the amount of the expenditure or an itemized deduction for the amount of the investment,what treatment normally would be most beneficial to Ahmad and by how much will Ahmad's tax liability decline because of the investment?

Accepted Answer

The answer of Ahmad is considering making a $10,000 investment...

Question 13

Molly has generated general business credits over the years that have not been utilized.The amounts generated and not utilized follow: $$\begin{array} { l l } 
2009 & 52,500 \
2010 & 7,500 \
2011 & 5,000 \
2012 & 4,000
\end{array}$$ In the current year,2013,her business generates an additional $15,000 general business credit.In 2013,based on her tax liability before credits,she can utilize a general business credit of up to $20,000.After utilizing the carryforwards and the current year credits,how much of the general business credit generated in 2013 is available for future years?

Accepted Answer

Molly has previously generated general business credits that have not been utilized. However, the question does not provide us with the amount of previous credits.

In 2013, Molly's business generates an additional $15,000 general business credit, and she can utilize a general business credit of up to $20,000. Therefore, Molly can utilize a total of $20,000 in general business credit ($15,000 from the current year and an additional $5,000 from her carryforward credits).

Since she can utilize the entire $15,000 general business credit generated in 2013, none of it is available for future years. Therefore, the amount of general business credit available for future years is $0. The only choice that reflects this answer is C.

Question 14

Several years ago,Tom purchased a structure for $300,000 that was originally placed in service in 1929.Three and one-half years ago he incurred qualifying rehabilitation expenditures of $600,000.In the current year,Tom sold the property in a taxable transaction.Calculate the amount of the recapture of the tax credit for rehabilitation expenditures.

Accepted Answer

The answer of Several years ago,Tom purchased a structure for...

Question 15

Which of the following best describes the treatment applicable to unused business credits?

Accepted Answer

The answer of Which of the following best describes the...

Question 16

Because passive losses are not deductible in computing either taxable income or AMTI,no adjustment for passive losses is required for AMT purposes.

Accepted Answer

The answer of Because passive losses are not deductible in...

Question 17

The components of the general business credit include all of the following except:

Accepted Answer

All of the listed options are components of the general business credit, so none of them are excluded.

Question 18

Cardinal Corporation hires two persons certified to be eligible employees for the work opportunity tax credit under the general rules (e.g.,food stamp recipients),each of whom is paid $9,000 during the year.As a result of this event,Cardinal Corporation may claim a work opportunity credit of:

Accepted Answer

The work opportunity tax credit (WOTC) is a tax credit provided to employers who hire individuals from certain targeted groups who have faced employment barriers. The credit is based on a percentage of qualified first-year wages, up to a maximum amount, for each eligible employee.

For employees certified as eligible members of a targeted group, including food stamp recipients, the maximum credit is 40% of the first $6,000 of qualified first-year wages paid to the employee, which amounts to $2,400 per employee.

In this case, Cardinal Corporation hired two eligible employees and paid them each $9,000 during the year. However, since the maximum WOTC credit is based on the first $6,000 of wages, the credit for each employee is $2,400, for a total credit of $4,800 (2 employees x $2,400 per employee).

Therefore, the correct answer is C, $4,800.

Question 19

The sale of business property might result in an AMT adjustment.

Accepted Answer

The sale of business property may result in a taxable gain subject to the alternative minimum tax (AMT), which could lead to an AMT adjustment.

Question 20

Several years ago,Sarah purchased a structure for $150,000 that was originally placed in service in 1929.In the current year,she incurred qualifying rehabilitation expenditures of $200,000.The amount of the tax credit for rehabilitation expenditures,and the amount by which the building's basis for cost recovery would increase as a result of the rehabilitation expenditures are the following amounts:

Accepted Answer

The answer of Several years ago,Sarah purchased a structure for...

Quiz 14: Business Tax Credits and Corporate Alternative Minimum Tax