Question 1

Prior to consideration of tax credits, Clarence's regular income tax liability is $200,000 and his tentative minimum tax TMT) is $180,000. Clarence holds nonrefundable business tax credits of $35,000. His tax liability is $165,000.

Accepted Answer

Clarence's tax liability should be $200,000 - $20,000 (the difference between regular tax and TMT) = $180,000, as nonrefundable credits cannot reduce tax liability below TMT.

Question 2

Paul incurred circulation expenditures of $180,000 in 2018 and deducted that amount for regular income tax purposes. Paul has a $60,000 negative AMT adjustment for each of 2019, 2020, and for 2021.

Accepted Answer

False

Question 3

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

Accepted Answer

False

Question 4

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

Accepted Answer

AMT adjustments can either increase or decrease taxable income for AMT purposes, while AMT preferences are adjustments that only increase AMT taxable income.

Question 5

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

Accepted Answer

Business tax credits can reduce both the AMT (Alternative Minimum Tax) and the regular income tax, but they may not reduce them in the same way due to the different calculations and rules applied to the AMT versus the regular tax system.

Question 6

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.

Accepted Answer

The answer of The phaseout of the AMT exemption amount...

Question 7

Assuming no phaseout, the AMT exemption amount for a married taxpayer filing separately for 2018 is the same as the AMT exemption amount for married taxpayer filing jointly filing status.

Accepted Answer

The AMT exemption amount for a married taxpayer filing separately for 2018 is only 50% of the AMT exemption amount for married taxpayers filing jointly.

Question 8

In deciding whether 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.

Accepted Answer

This is the main reason why Congress enacted the alternative minimum tax (AMT) in 1969 - to prevent high-income earners from using tax loopholes and deductions to avoid paying their fair share of taxes. The AMT is intended to ensure that these taxpayers still pay a minimum level of tax, even if they have offsetting deductions or credits.

Question 9

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

Accepted Answer

This is true. The AMT system is designed to ensure that taxpayers with certain types of deductions or credits do not escape paying a minimum amount of tax. In some cases, taxpayers may have timing differences between when certain deductions or credits are claimed for regular tax purposes versus AMT purposes. Negative adjustments in the current year due to timing differences are generally offset by positive adjustments from prior years, as the AMT system seeks to equalize the tax treatment over time.

Question 10

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

Accepted Answer

The statement is true. The lower tax rate on net capital gain applies to both regular income tax and the AMT, and the net capital gain included in an individual taxpayer's AMT base is eligible for this favorable rate.

Question 11

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

Accepted Answer

The Alternative Minimum Tax (AMT) is a parallel tax system with its own rules and calculations, and the method (indirect or direct) used to calculate it does not affect the final amount. Both methods should yield the same AMT liability.

Question 12

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

Accepted Answer

Circulation expenditures are generally capitalized and amortized over a period of years for regular tax purposes, and the treatment for Alternative Minimum Tax (AMT) purposes follows the regular tax treatment, so expensing them in the year incurred does not lead to a positive AMT adjustment in the following year.

Question 13

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

Accepted Answer

To calculate AMT, the taxpayer must compare their regular tax liability to the Tentative Minimum Tax (TMT), and pay whichever is higher. In this case, Madge's TMT is $112,000, which is higher than her regular tax liability of $99,000. Therefore, she must pay the TMT, which is $13,000 more than her regular tax liability. Thus, Madge's AMT is $13,000.

Question 14

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

Accepted Answer

The answer of Since most tax preferences are merely timing...

Question 15

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

Accepted Answer

Circulation expenditures must be amortized over a three-year period for regular income tax purposes to avoid an AMT adjustment. If they are not amortized, the adjusted current earnings (ACE) for the alternative minimum tax (AMT) calculation will be increased, resulting in a higher potential AMT liability.

Question 16

Keosha acquires used 10-year personal property to use in her business in 2018 and uses MACRS depreciation for regular income tax purposes. As a result, Keosha will incur a positive AMT adjustment in 2018, because AMT depreciation is slower.

Accepted Answer

The answer of Keosha acquires used 10-year personal property to...

Question 17

After personal property is fully depreciated for both regular income tax purposes and AMT purposes, no AMT adjustment will be required as a result of the sale of the property.

Accepted Answer

Once personal property is fully depreciated for both regular income tax purposes and AMT purposes, no AMT adjustment is necessary when the property is sold. This is because there is no difference between the regular income tax basis and the AMT basis of the property.

Question 18

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

Accepted Answer

The answer of If Abby's alternative minimum taxable income exceeds...

Question 19

If the AMT base is greater than $191,100, the AMT rate for an individual taxpayer is the same as the AMT rate for married taxpayer, filing jointly.

Accepted Answer

The AMT rate for an individual taxpayer is 26% on the first $194,800 of AMT income and 28% on AMT income above $194,800. However, if the AMT base is greater than $191,100, the AMT rate for a married taxpayer filing jointly also becomes 26% on the first $194,800 of AMT income and 28% on AMT income above $194,800. Therefore, the AMT rate for an individual taxpayer and a married taxpayer filing jointly becomes the same.

Question 20

Joel placed real property in service in 2018 that cost $900,000 and used MACRS depreciation for regular income tax purposes. He is required to make a positive adjustment for AMT purposes in 2018 for the excess of depreciation calculated for regular income tax purposes over the depreciation calculated for AMT purposes.

Accepted Answer

The answer of Joel placed real property in service in...

Quiz 12: Alternative Minimum Tax