Deck 15: Alternative Minimum Tax

Question 1

The required adjustment for AMT purposes for pollution control facilities placed in service in 2014 is equal to the difference between the amortization deduction allowed for regular income tax purposes and the depreciation deduction computed under ADS.

Answer 1

False

Question 2

AMT adjustments can be positive or negative, whereas AMT preferences are always positive.

Answer 2

True

Question 3

Unless circulation expenditures are amortized over a three-year period for regular income tax purposes, there will be an AMT adjustment.

Answer 3

True

Question 4

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 5

Prior to the effect of tax credits, Clarence's regular income tax liability is $200,000 and his tentative AMT is $180,000. Clarence has nonrefundable business tax credits of $35,000. His tax liability is $165,000.

Question 6

Joel placed real property in service in 2014 that cost $900,000 and used MACRS for regular income tax purposes. He is required to make a positive adjustment for AMT purposes in 2014 for the excess of depreciation calculated for regular income tax purposes over the depreciation calculated for AMT purposes.

Question 7

If the AMT base is greater than $182,500, the AMT rate for an individual taxpayer is the same as the AMT rate for a C corporation.

Question 8

Assuming no phaseout, the AMT exemption amount for a married taxpayer filing separately for 2014 is more than the AMT exemption amount for C corporations.

Question 9

The net capital gain included in an individual taxpayer's AMT base is eligible for the beneficial alternative tax rate on net capital gain. This favorable alternative rate applies both in calculating the regular income tax and the AMT.

Question 10

The AMT calculated using the indirect method will produce a different amount than the AMT calculated using the direct method.

Question 11

If Abby's alternative minimum taxable income exceeds her regular taxable income, she will have an alternative minimum tax.

Question 12

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

Question 13

Paul incurred circulation expenditures of $180,000 in 2014 and deducted that amount for regular income tax purposes. Paul has a $60,000 negative AMT adjustment for 2015, 2016, and for 2017.

Question 14

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

Question 15

A taxpayer who expenses circulation expenditures in the year incurred for regular income tax purposes will have a positive AMT adjustment in the following year.

Question 16

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.

Question 17

Keosha acquires 10-year personal property to use in her business in 2014 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 2014.

Question 18

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 19

In deciding to enact the alternative minimum tax, Congress was concerned about the inequity that resulted when taxpayers with substantial economic incomes could avoid paying regular income tax.

Question 20

Madge's tentative AMT is $112,000. Her regular income tax liability is $99,000. Madge's AMT is $13,000.

Question 21

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 22

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 23

Elmer exercises an incentive stock option (ISO) in 2014 for $6,000 (fair market value of the stock on the exercise date is $7,600). If Elmer sells the stock later in 2014 for $8,000, the AMT positive adjustment is $1,600 and the AMT negative adjustment is $2,000.

Question 24

Nell has a personal casualty loss deduction of $14,500 for regular income tax purposes. The deduction would have been $26,600, but it had to be reduced by $100 and by $12,000 (10% × $120,000 AGI). For AMT purposes, the casualty loss deduction also is $14,500.

Question 25

Interest on a home equity loan cannot be deducted for AMT purposes.

Question 26

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

Question 27

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.

Question 28

In the current tax year, Ben exercised an incentive stock option (ISO), acquiring stock with a fair market value of $190,000 for $170,000. His AMT basis for the stock is $170,000, his regular income tax basis for the stock is $170,000, and his AMT adjustment is $0 ($170,000 - $170,000).

Question 29

The amount of the deduction for medical expenses under the regular income tax may be different than for AMT purposes if the taxpayer is at least age 65.

Question 30

Benita expensed mining exploration and development costs of $500,000 incurred in the current tax year. She will be required to make negative AMT adjustments for each of the next ten years and a positive AMT adjustment in the current tax year.

Question 31

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 32

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 33

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 34

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 35

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

Question 36

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 37

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 38

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

Question 39

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.

Question 40

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 41

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 42

Vicki owns and operates a news agency (as a sole proprietorship). During 2014, she incurred expenses of $24,000 to increase circulation of newspapers and magazines that her agency distributes. For regular income tax purposes, she elected to expense the $24,000 in 2014. In addition, Vicki incurred $15,000 in circulation expenditures in 2015 and again elected expense treatment. What AMT adjustments will be required in 2014 and 2015 as a result of the circulation expenditures?

A) $16,000 positive in 2014, $2,000 positive in 2015.
B) $16,000 negative in 2014, $2,000 positive in 2015.
C) $16,000 negative in 2014, $10,000 positive in 2015.
D) $16,000 positive in 2014, $10,000 positive in 2015.
E) None of the above.

Question 43

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

Question 44

The corporate AMT no longer applies.

Question 45

Beula, who is a head of household and age 40, provides you with the following information from her financial records for 2014.
$\begin{array}{lr}\text { Regular income tax liability } & \$ 35,776 \\\text { AMT positive adjustments } & 33,000 \\\text { AMT preferences } & 25,000 \\\text { Taxable income } & 170,000\end{array}$

Calculate her AMTI for 2014.

A) $0.
B) $171,300.
C) $195,925.
D) $228,000.
E) None of the above.

Question 46

Which of the following statements is correct?

A) If the tentative AMT is $10,000 and the regular income tax liability is $12,000, the AMT is $2,000.
B) If the tentative AMT is $12,000 and the regular income tax liability is $10,000, the AMT is $12,000.
C) If the tentative AMT is $10,000 and the regular income tax liability is $12,000, the AMT is a negative $2,000.
D) If the tentative AMT is $12,000, and the regular income tax liability is $10,000, the AMT is $2,000.
E) None of the above.

Question 47

Which of the following statements is incorrect?

A) The AMT calculated under the direct and indirect methods produces the same amount.
B) The AMT calculated under the direct and the indirect methods produces different amounts.
C) The tax forms use the direct method to calculate the AMT.
D) Only b. and c. are incorrect.
E) a., b., and c. are incorrect.

Question 48

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:
Child tax credit $1,000
Adoption expenses credit 5,000
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 49

If the taxpayer elects to capitalize intangible drilling costs and to amortize them over a 3-year period for regular income tax purposes, there is no adjustment or preference for AMT purposes.

Question 50

Jackson sells qualifying small business stock for $125,000 (adjusted basis of $105,000) in 2013. 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 51

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) $57,950.
C) $61,600.
D) $77,000.
E) None of the above.

Question 52

Interest income on private activity bonds issued before 2009 and after 2010, reduced by expenses incurred in carrying the bonds, is a tax preference item that is included in computing AMTI.

Question 53

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 54

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.

Question 55

Which of the following statements is correct?

A) If the tentative minimum tax exceeds the regular income tax liability, the AMT is $0.
B) The exemption amount decreases as AMTI increases.
C) The AMT tax rate for an individual taxpayer can be as high as 26%.
D) Only a. and c. are correct.
E) a., b., and c. are correct.

Question 56

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

Question 57

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 58

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.

Question 59

The AMT exemption for a corporation with $225,000 of AMTI is $18,750.

Question 60

Ashby, who is single and age 30, provides you with the following information from his financial records for 2014.
$\begin{array}{lr}\text { Regular income tax liability } & \$ 47,228 \\\text { AMT positive adjustments } & 40,000 \\\text { AMT preferences } & 20,000 \\\text { Taxable income } & 195,000\end{array}$

Calculate his AMT exemption for 2014.

A) $0.
B) $17,000.
C) $51,900.
D) $52,800.
E) None of the above.

Question 61

Celia and Christian, 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 2014. What is their AMT base for 2014?

A) $0.
B) $77,838.
C) $94,450.
D) $150,250.
E) None of the above.

Question 62

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 completion method, the income recognized under the contract would have been $60,000. Wallace's AMT adjustment is:
A) $0.

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

Question 63

Dale owns and operates Dale's Emporium as a sole proprietorship. On January 30, 1998, Dale's Emporium acquired a warehouse for $100,000. For regular income tax purposes in 2014, depreciation was deducted under MACRS using a rate of 2.564%. Determine the AMT adjustment for depreciation and indicate whether it is positive or negative.

A) $64 negative adjustment.
B) $64 positive adjustment.
C) No adjustment is required because Dale's Emporium used the Alternative Depreciation System (ADS) to compute depreciation on the property for AMT purposes.
D) No adjustment is required because Dale's Emporium used MACRS to compute the depreciation of the property for regular income tax purposes.
E) None of the above.

Question 64

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 65

Vinny's AGI is $250,000. He contributed $200,000 in cash to the Boy Scouts, a public charity. What is Vinny's charitable contribution deduction for AMT purposes?

A) $0.
B) $50,000.
C) $75,000.
D) $125,000.
E) None of the above.

Question 66

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 67

Akeem, who does not itemize, incurred a net operating loss (NOL) of $50,000 in 2013. His deductions in 2013 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 2014?

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

Question 68

Sand Corporation, a calendar year taxpayer, has alternative minimum taxable income [before adjustment for adjusted current earnings (ACE)] of $900,000 for 2014. If Sand's (ACE) is $975,000, its tentative minimum tax for 2014 is:

A) $0.
B) $56,250.
C) $180,000.
D) $191,250.
E) None of the above.

Question 69

Omar acquires used 7-year personal property for $100,000 to use in his business in February 2014. Omar does not elect § 179 expensing, but does take the maximum regular cost recovery deduction. He elects not to take additional first-year depreciation. As a result, Omar will have a positive AMT adjustment in 2014 of what amount?

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

Question 70

Which of the following normally produces positive AMT adjustments?

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

Question 71

In 2014, Glenn had a $108,000 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 2014, Glenn can deduct $108,000 for regular income tax purposes and for AMT purposes.
B) Glenn will have a $108,000 tax preference in 2014 as a result of the passive activity.
C) For regular income tax purposes, none of the loss is allowed in 2014.
D) In 2014, Glenn will have a positive adjustment of $25,000 as a result of the passive loss.
E) None of the above.

Question 72

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

A) Interest on private activity bonds issued in 2013.
B) Percentage depletion.
C) Incentive stock options (ISOs).
D) Only a. and b.
E) a., b., and c.

Question 73

Prior to the effect of tax credits, Eunice's regular income tax liability is $325,000 and her tentative AMT is $312,000. Eunice has general business credits available of $20,000. Calculate Eunice's tax liability after tax credits.

A) $0.
B) $305,000.
C) $312,000.
D) $325,000.
E) None of the above.

Question 74

Kay, who is single, had taxable income of $0 in 2014. She has positive timing adjustments of $206,300 and exclusion items of $100,000 for the year. What is the amount of her alternative minimum tax credit for carryover to 2015?

A) $80,560.
B) $68,861.
C) $68,288.
D) $12,272.
E) None of the above.

Question 75

In 2005, Collies exercised an incentive stock option (ISO), acquiring 150 shares of stock at an option price of $75 per share (fair market value at the date of exercise was $130 per share). In 2014, the rights in the stock become freely transferable (fair market value is still $130 per share). Which of the following statements is incorrect?

A) Collis has no AMT adjustment from the ISO in 2011.
B) Collis has no taxable income from the ISO in 2011.
C) Collis has an AMT basis of $19,500 in the stock.
D) Collis has an income tax basis of $11,250 in the stock.
E) All of the above are correct.

Question 76

Marvin, the vice president of Lavender, Inc., exercises stock options for 100 shares of stock in March 2014. 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 2010 and all restrictions on the free transferability had lapsed by the exercise date.

A) If Marvin sells the stock in December 2014 for $3,000, his AMT adjustment in 2014 is a positive adjustment of $800.
B) If Marvin sells the stock in December 2015 for $3,000, his AMT adjustment in 2015 is $0.
C) If Marvin sells the stock in December 2014 for $3,000, his AMT adjustment in 2014 is a negative adjustment of $800.
D) If Marvin sells the stock in December 2015 for $3,000, his AMT adjustment in 2015 is a negative adjustment of $1,000.
E) None of the above.

Question 77

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 in 2014?

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

Question 78

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 79

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 2014, he borrowed $50,000 on a home equity loan and used the proceeds to acquire a luxury automobile. During 2014, he paid the following amounts of interest:

$\begin{array}{llr} \text {-on his personal residence } &\$15,500\\ \text { -on the condo } &6,200\\ \text { -on the home equity loan } &4,800\\ \text {-on credit card obligations } &1,700\\\end{array}$





What amount, if any, must Ted recognize as an AMT adjustment in 2014?

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

Question 80

In 2014, Blake incurs $270,000 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, Blake will have a positive adjustment of $243,000 in 2014.
B) Blake will have a negative AMT adjustment of $27,000 in 2019.
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.