Deck 15: Alternative Minimum Tax

Question 1

Moore incurred circulation expenditures of $300,000 in 2011 and deducted that amount for regular income tax purposes.Moore has a $100,000 negative AMT adjustment for 2012,for 2013,and for 2014.

Answer 1

False

Question 2

Negative AMT adjustments for the current year caused by timing differences are offset by the positive AMT adjustments for prior tax years also caused by timing differences.

Answer 2

True

Question 3

If circulation expenditures are amortized over a ten-year period for regular income tax purposes,there will be no AMT adjustment.

Answer 3

False

Question 4

The purpose of the AMT is to replace the regular income tax.

Question 5

Keosha acquires 10-year personal property to use in her business in 2011 and takes the maximum cost recovery deduction for regular income tax purposes.As a result of this,Keosha will have a positive AMT adjustment in 2011.

Question 6

The net capital gain included in an individual taxpayer's AMT base is not eligible for the alternative tax rate on net capital gain.This favorable alternative rate applies only in calculating the regular income tax.

Question 7

If the AMT base is greater than $175,000,the AMT rate for an individual taxpayer is the same as the AMT rate for a C corporation.

Question 8

A tax preference increases alternative minimum taxable income while an adjustment decreases alternative minimum taxable income.

Question 9

Business tax credits reduce the AMT and the regular income tax in the same way.

Question 10

The required adjustment for AMT purposes for pollution control facilities placed in service in 2011 is equal to the difference between the amortization deduction allowed for regular income tax purposes and the depreciation deduction computed under ADS.

Question 11

The phaseout of the AMT exemption amount for a taxpayer filing as a head of household both begins and ends at a higher income level than it does for a single taxpayer.

Question 12

Julia's tentative AMT is $62,000.Her regular income tax liability is $59,000.Julia's AMT is $3,000.

Question 13

Assuming no phaseout,the AMT exemption amount for a married taxpayer filing separately for 2011 is less than the AMT exemption amount for C corporations.

Question 14

Joel placed real property in service in 2011 that cost $750,000 and used MACRS for regular income tax purposes.He is not required to make a positive or negative adjustment for AMT purposes in 2011.

Question 15

Danica incurs circulation expenditures of $120,000 in 2011.No additional circulation expenditures are incurred in 2012 or 2013.The cumulative adjustment for circulation expenditures for 2011,2012,and 2013 is $120,000.

Question 16

After personal property is fully depreciated for both regular income tax purposes and AMT purposes,the positive and negative adjustments that have been made for AMT purposes will net to zero.

Question 17

Since most tax preferences are merely timing differences,they eventually will reverse and net to zero.

Question 18

If the tentative AMT is less than the regular income tax,the AMT will be zero.

Question 19

The AMT can be calculated using either the direct or the indirect approaches.Both the tax law and the tax forms use the direct approach.

Question 20

Prior to the effect of tax credits,Brent's regular income tax liability is $160,000 and his tentative AMT is $145,000.Brent has nonrefundable business tax credits of $31,000.Brent's tax liability is $129,000.

Question 21

For a building placed in service before 1999,the adjusted basis can be different for regular income tax purposes and for AMT purposes.

Question 22

Carolyn has a personal casualty loss deduction of $8,500 for regular income tax purposes.The deduction would have been $17,600,but it had to be reduced by $100 and by $9,000 (10% ´ $90,000 AGI).For AMT purposes,the casualty loss deduction is $17,600.

Question 23

Kerri,who had AGI of $120,000,itemized her deductions in the current year.She incurred unreimbursed employee business expenses of $8,500.Kerri must make a positive AMT adjustment of $2,400 in computing AMT.

Question 24

The recognized gain for regular income tax purposes and the recognized gain for AMT purposes on the sale of stock acquired under an incentive stock option (ISO)program are always the same because the adjusted basis is the same.

Question 25

Tammy expensed mining exploration and development costs of $100,000 incurred in 2011.She will be required to make negative AMT adjustments for each of the next nine years and a positive AMT adjustment in the current tax year.

Question 26

The exercise of an incentive stock option (ISO)increases both the AMTI and regular taxable income in the year of exercise.

Question 27

In 2011,Alvin exercised an incentive stock option (ISO),acquiring stock with a fair market value of $250,000 for $170,000.His AMT basis for the stock is $250,000,his regular income tax basis for the stock is $170,000,and his AMT adjustment is $80,000 ($250,000 - $170,000).

Question 28

Interest on a home equity loan may be deductible for AMT purposes.

Question 29

If the regular income tax deduction for medical expenses is $0,under certain circumstances the AMT deduction for medical expenses can be greater than $0.

Question 30

The deduction for charitable contributions in calculating the regular income tax can differ from that in calculating the AMT because the percentage limitations (20%,30%,and 50%)may be applied to a different base amount.

Question 31

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

Question 32

Income from some long-term contracts can be reported using the completed contract method for regular income tax purposes,but the percentage of completion method is required for AMT purposes for all long-term contracts.

Question 33

The AMT adjustment for research and experimental expenditures can be avoided if the taxpayer capitalizes the expenditures and amortizes them over a 10-year period.

Question 34

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.Therefore,no AMT adjustment is required.

Question 35

Tricia sold land that originally cost $105,000 for $92,000.There is a negative AMT adjustment of $13,000 associated with the sale of the land.

Question 36

If a gambling loss itemized deduction is permitted for regular income tax purposes,there will be no AMT adjustment associated with the gambling loss.

Question 37

AGI is used as the base for application of percentage limitations (i.e.,20%,30%,50%)that apply to the charitable contribution deduction for regular income tax purposes.Modified AGI is used as the base for application of percentage limitations that apply to the charitable contribution deduction for AMT purposes.

Question 38

The deduction for personal and dependency exemptions usually is allowed for regular income tax purposes,but is disallowed for AMT purposes.This results in a positive AMT adjustment.

Question 39

Medical expenses are reduced by 10% of AGI to compute the amount deductible for AMT purposes and 7.5% of AGI for regular income tax purposes.

Question 40

The AMT adjustment for mining exploration and development costs can be avoided if the taxpayer elects to write off the expenditures in the year incurred for regular income tax purposes,rather than writing off the expenditures over a 10-year period for regular income tax purposes.

Question 41

Interest income on private activity bonds issued before 2009,reduced by expenses incurred in carrying the bonds,is a tax preference item that is included in computing AMTI.

Question 42

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

Question 43

Brady's regular income tax liability is $300,000 and his tentative AMT is $350,000.Brady's AMT is:

A) $0.
B) $50,000.
C) $350,000.
D) $650,000.
E) None of the above.

Question 44

Kay had percentage depletion of $119,000 for the current year for regular income tax purposes.Cost depletion was $60,000.Her basis in the property was $90,000 at the beginning of the current year.Kay must treat the percentage depletion deducted in excess of cost depletion,or $59,000,as a tax preference in computing AMTI.

Question 45

The C corporation AMT rate can be higher than the individual AMT rates.

Question 46

For individual taxpayers,the AMT credit is applicable for the AMT that results from timing differences,but it is not available for the AMT that results from the adjustment for itemized deductions or exclusion preferences.

Question 47

Miriam,who is a head of household and age 36,provides you with the following information from her financial records for 2011. Calculate her AMTI for 2011.

A) $0.
B) $171,300.
C) $195,925.
D) $218,000.
E) None of the above.

Question 48

The AMT does not apply to qualifying "small corporations."

Question 49

As to the AMT,a C corporation has no adjustments or preferences for itemized deductions or for the standard deduction.

Question 50

Ashly is able to reduce her regular income tax liability from $47,000 to $43,500 as the result of the alternative tax on net capital gain.Ashly's tentative AMT is $51,000.

A) Ashly's tax liability is reduced by $3,500 as the result of the alternative tax calculation on net capital gain.
B) Ashly's AMT is increased by $3,500 as the result of the alternative tax calculation on net capital gain.
C) Ashly's tax liability is $43,500.
D) Ashly's tax liability is $47,000.
E) None of the above.

Question 51

Applying the AMT rules,Lucinda has the following in 2011: If Lucinda's regular income tax liability is $42,647,her AMTI is:

A) $117,647.
B) $186,000.
C) $240,000.
D) $315,000.
E) None of the above.

Question 52

For regular income tax purposes,Yolanda,who is single,is in the 35% tax bracket.Her AMT base is $220,000.Her tentative AMT is:

A) $57,200.
B) $58,100.
C) $61,600.
D) $77,000.
E) None of the above.

Question 53

Jackson sells qualifying small business stock for $125,000 (adjusted basis of $105,000)in 2011.In calculating gross income for regular income tax purposes,he excludes all of his realized gain of $20,000.The $20,000 exclusion is a tax preference in calculating Jackson's AMTI.

Question 54

In 2011,the AMT exemption for a single or a head of household taxpayer is completely phased out when AMT reaches:

A) $48,450.
B) $112,500.
C) $160,950.
D) $193,800.
E) None of the above.

Question 55

During its first year of operations,Sherry's business incurred circulation expenditures of $150,000.Since the income of the business is small,Sherry decides to capitalize the expenditures and to amortize them over 3 years for regular income tax purposes.The AMT adjustment for circulation expenditures for the first year of operations is:

A) $0.
B) Negative adjustment of $50,000.
C) Positive adjustment of $50,000.
D) Positive adjustment of $100,000.
E) None of the above.

Question 56

If the taxpayer elects to capitalize intangible drilling costs and to amortize them over a 10-year period for regular income tax purposes,there is no adjustment or preference for AMT purposes.

Question 57

Prior to the effect of the tax credits,Justin's regular income tax liability is $200,000 and his tentative AMT is $195,000.Justin has the following credits: Calculate Justin's tax liability after credits.

A) $190,000.
B) $194,000.
C) $195,000.
D) $200,000.
E) None of the above.

Question 58

All of a 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.

Question 59

The AMT exemption for C corporations is $40,000 reduced by 25% of the amount by which AMTI exceeds $150,000.

Question 60

Meg,who is single and age 36,provides you with the following information from her financial records. Calculate her AMT exemption for 2011.

A) $0.
B) $23,450.
C) $14,075.
D) $48,450.
E) None of the above.

Question 61

Ted,who is single,owns a personal residence in the city.He also owns a condo near the ocean.He uses the condo as a vacation home.In March 2011,he borrowed $50,000 on a home equity loan and used the proceeds to acquire a luxury automobile.During 2011,he paid the following amounts of interest: What amount,if any,must Ted recognize as an AMT adjustment in 2011?

A) $0.
B) $4,800.
C) $6,200.
D) $11,000.
E) None of the above.

Question 62

Robin,who is a head of household and age 42,provides you with the following information from his financial records for 2011. Calculate his AMT for 2011.

A) $14,323.
B) $17,825.
C) $42,986.
D) $62,300.
E) None of the above.

Question 63

Which of the following normally produces positive AMT adjustments?

A) Real property taxes deduction.
B) Standard deduction.
C) Charitable contribution deduction.
D) Only a. and b. are correct.
E) a., b., and c. are correct.

Question 64

Prior to the effect of tax credits,Eunice's regular income tax liability is $225,000 and her tentative AMT is $212,000.Eunice has general business credits available of $15,000.Calculate Eunice's tax liability after tax credits.

A) $0.
B) $210,000.
C) $212,000.
D) $225,000.
E) None of the above.

Question 65

Eula owns a mineral property that had a basis of $23,000 at the beginning of the year.Cost depletion is $19,000.The property qualifies for a 15% depletion rate.Gross income from the property was $200,000 and net income before the percentage depletion deduction was $50,000.What is Eula's tax preference for excess depletion?

A) $15,000.
B) $23,000.
C) $25,000.
D) $0.
E) None of the above.

Question 66

In 2011,Glenda had a $97,000 loss on a passive activity.None of the loss is attributable to AMT adjustments or preferences.She has no other passive activities.Which of the following statements is correct?

A) In 2011, Glenda can deduct $97,000 for regular income tax purposes and for AMT purposes.
B) Glenda will have a $97,000 tax preference in 2011 as a result of the passive activity.
C) For regular income tax purposes, none of the loss is allowed in 2011.
D) In 2011, Glenda will have a positive adjustment of $25,000 as a result of the passive loss.
E) None of the above.

Question 67

Which of the following statements is correct?

A) The deduction for personal and dependency exemptions is not permitted in calculating the AMT. Therefore, in converting regular taxable income to AMTI, a positive adjustment is required.
B) To the extent that itemized deductions exceed the standard deduction for regular income tax purposes, a positive AMT adjustment is required in converting regular taxable income to AMTI.
C) The charitable contribution deduction for AMT purposes and for regular income tax purposes can be different. If this occurs, a positive AMT adjustment is required for the amount of the difference.
D) Only a. and b. are correct.
E) a., b., and c. are correct.

Question 68

Van's AGI is $195,000.He contributed $120,000 in cash to the Boy Scouts,a public charity.What is Van's charitable contribution deduction for AMT purposes?

A) $39,000.
B) $58,500.
C) $97,500.
D) $120,000.
E) None of the above.

Question 69

Tad is a vice-president of Ruby Corporation.In 2011,he acquired 500 shares of Ruby Corporation stock under the corporation's incentive stock option (ISO)plan for an option price of $33 per share.At the date of exercise in 2011,the fair market value of the stock was $43 per share.The stock became freely transferable in 2015.Tad sold the 500 shares for $50 per share in 2013.Which of the following statements is incorrect?

A) Acquisition of the stock in 2011 had no effect on Tad's taxable income, but increased AMTI by $5,000 in 2011.
B) Tad's regular income tax basis for the stock is $33,000 and his AMT basis is $43,000 in 2011.
C) Tad must report a positive AMT adjustment of $5,000 in 2015.
D) Tad will have a negative AMT adjustment of $5,000 in 2013.
E) All of the above are correct.

Question 70

Akeem,who does not itemize,incurred a net operating loss (NOL)of $50,000 in 2011.His deductions in 2011 included AMT tax preference items of $20,000,and he had no AMT adjustments.Assuming the NOL is not carried back,what is Akeem's ATNOLD carryover to 2012?

A) $50,000.
B) $30,000.
C) $20,000.
D) $40,000.
E) None of the above.

Question 71

Marvin,the vice president of Lavender,Inc.,exercises stock options for 100 shares of stock in March 2011.The stock options are incentive stock options (ISOs).Their exercise price is $20 and the fair market value on the date of exercise is $28.The options were granted in March 2008 and all restrictions on the free transferability had lapsed by the exercise date.

A) If Marvin sells the stock in December 2011 for $3,000, his AMT adjustment in 2011 is a positive adjustment of $800.
B) If Marvin sells the stock in December 2012 for $3,000, his AMT adjustment in 2012 is $0.
C) If Marvin sells the stock in December 2011 for $3,000, his AMT adjustment in 2011 is a negative adjustment of $800.
D) If Marvin sells the stock in December 2012 for $3,000, his AMT adjustment in 2012 is a negative adjustment of $1,000.
E) None of the above.

Question 72

Factors that can cause the adjusted basis for AMT purposes to be different from the adjusted basis for regular income tax purposes include the following:

A) A different amount of depreciation (cost recovery) has been deducted for AMT purposes and regular income tax purposes.
B) The spread on an incentive stock option (ISO) is recognized for AMT purposes, but is not recognized for regular income tax purposes.
C) A different amount has been deducted for circulation expenditures for AMT purposes and for regular income tax purposes.
D) Only a. and b.
E) a., b., and c.

Question 73

Which of the following itemized deductions definitely will be the same amount for the regular income tax and the AMT and thus result in no AMT adjustment?

A) Real property taxes.
B) Medical expenses.
C) Charitable contributions.
D) Only b. and c.
E) a., b., and c.

Question 74

Mitch,who is single and has no dependents,had AGI of $100,000 in 2011.His potential itemized deductions were as follows: What is the amount of Mitch's AMT adjustment for itemized deductions for 2011?

A) $14,800.
B) $16,800.
C) $19,300.
D) $25,800.
E) None of the above.

Question 75

Wallace owns a construction company that builds both commercial and residential buildings.He contracts to build a residential building for $800,000 for which he is eligible to use the completed contract method of accounting.In the current year for regular income tax purposes,Wallace does not recognize any income on the contract.Under the percentage of complete method,the income recognized under the contract would have been $60,000.Wallace's AMT adjustment is:

A) $0.
B) $60,000 negative adjustment.
C) $60,000 positive adjustment.
D) $800,000 positive adjustment.
E) None of the above.

Question 76

Celia and Amos,who are married filing jointly,have one dependent and do not itemize deductions.They have taxable income of $82,000 and tax preferences of $53,000 in 2011.What is their AMT base for 2011?

A) $0.
B) $85,175.
C) $94,450.
D) $157,700.
E) None of the above.

Question 77

On January 3,1997,White Corporation acquired an office building for $100,000 and claimed MACRS depreciation of 2.461%.The Alternative Depreciation System rate for the first recovery year is 2.396%.What was White's AMT adjustment (or preference)for depreciation with respect to the office building in 1997?

A) $65 positive adjustment.
B) $65 negative adjustment.
C) $0 adjustment or preference.
D) $2,461 positive adjustment.
E) None of the above.

Question 78

Omar acquires used 7-year personal property for $100,000 to use in his business in February 2011.Omar does not elect § 179 expensing,but does take the maximum regular cost recovery deduction.As a result,Omar will have a positive AMT adjustment in 2011 of what amount?

A) $0.
B) $3,580.
C) $10,710.
D) $14,290.
E) None of the above.

Question 79

In 2011,Sean incurs $90,000 of mining exploration expenditures,and deducts the entire amount for regular income tax purposes.Which of the following statements is correct?

A) For AMT purposes, Sean will have a positive adjustment of $81,000 in 2011.
B) Sean will have a negative AMT adjustment of $9,000 in 2016.
C) Over a 10-year period, positive and negative adjustments will net to zero.
D) Only a. and c. are correct.
E) a., b., and c. are correct.

Question 80

Which of the following can produce an AMT preference rather than an AMT adjustment?

A) Circulation expenditures.
B) Research and experimental expenditures.
C) Percentage depletion.
D) Incentive stock options (ISOs).
E) None of the above.