Question 1

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

Accepted Answer

The AMTI (Alternative Minimum Taxable Income) calculation, whether done through the indirect or direct method, should ultimately produce the same amount, as both methods are designed to arrive at the same taxable income figure, just through different computational approaches.

Question 2

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 3

Keosha acquires used 10-year personal property to use in her business in 2019 and uses MACRS depreciation for regular income tax purposes, even though the asset is eligible for full expensing.As a result, Keosha will incur a positive AMT adjustment in 2019, because AMT depreciation is slower.

Accepted Answer

For AMT purposes, depreciation on personal property placed in service after 1986 is generally computed using the 150% declining balance method over the ADS recovery period, which can be similar to or slower than regular tax depreciation methods. However, if Keosha opts out of full expensing for regular tax purposes and uses MACRS, the difference in depreciation methods between the regular tax and AMT may not necessarily result in a positive AMT adjustment, especially if the MACRS depreciation method used is slower or similar to the AMT depreciation method.

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 the phaseout for a single taxpayer.

Accepted Answer

The phaseout of the AMT exemption amount for a head of household begins at the same income level as for a single taxpayer, not at a higher level.

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

Assuming no phaseout, the AMT exemption amount for a married taxpayer filing separately for 2019 is exactly half of the AMT exemption amount for an individual taxpayer.

Accepted Answer

The AMT exemption amount for a married taxpayer filing separately is not exactly half of the exemption amount for an individual taxpayer; it is typically lower due to different tax rules and calculations.

Question 7

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, there is no basis left in the property for AMT purposes. Therefore, no AMT adjustment will be required upon the sale of the property.

Question 8

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 for the year is
$165,000.

Accepted Answer

Clarence's tax liability for the year, after considering the nonrefundable business tax credits, would be $165,000 only if his regular income tax liability before credits was equal to or less than his tentative minimum tax (TMT) plus the credits. However, since his regular tax liability ($200,000) is higher than his TMT ($180,000), and he has $35,000 in credits, his actual tax liability would be his regular tax liability minus the credits, assuming the credits do not reduce his tax below the TMT. Therefore, his tax liability would be $200,000 - $35,000 = $165,000, assuming the credits can fully apply. The statement as presented seems to ignore the comparison between regular tax liability and TMT after credits, which is a crucial step in determining the final tax liability under the Alternative Minimum Tax (AMT) rules. However, the calculation provided directly leads to a correct final tax liability by coincidence, not by correctly following the AMT rules, which involve comparing the regular tax liability and the TMT after applying credits.

Question 9

Joel placed real property in service in 2019 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 2019 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...

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 in calculating both 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 AMT calculations, so the net capital gain included in an individual taxpayer's AMT base is also eligible for this lower rate.

Question 11

Paul incurred circulation expenditures of $180,000 in 2019 and deducted that amount for regular income tax purposes.Paul has a $60,000 negative AMT adjustment for each of 2020, 2021, and for 2022.

Accepted Answer

Circulation expenditures are generally capitalized and amortized over a period of years for both regular tax and AMT purposes. The immediate deduction for regular income tax purposes and subsequent negative AMT adjustments described do not align with typical tax treatment of such expenditures.

Question 12

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

Accepted Answer

This statement is true. The AMT system accounts for timing differences in income and deductions by allowing negative adjustments in the current year, which are then offset by positive adjustments in future or prior years. This is meant to prevent taxpayers from manipulating their income and deductions to avoid paying AMT.

Question 13

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 14

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

The statement accurately reflects Congress's concern about the inequity of taxpayers with substantial economic incomes avoiding regular income tax through loopholes and deductions, which led to the creation of the alternative minimum tax.

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

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 17

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

Madge's AMT ($13,000) is higher than her regular income tax liability ($99,000), meaning she would be subject to paying the higher amount under AMT guidelines. Therefore, her AMT of $13,000 plus her regular income tax liability of $99,000 would equal her total tax liability of $112,000, which is her tentative minimum tax (TMT).

Question 18

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 19

If the AMT base is greater than $194,800, the AMT rate for an individual taxpayer is the same as the AMT rate for married taxpayer, filing jointly.

Accepted Answer

If the AMT base is greater than $194,800, both individual and married taxpayers filing jointly are subject to the same AMT rate.

Question 20

The AMT adjustment for mining exploration and development costs can be avoided if the taxpayer elects to deduct 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.

Accepted Answer

The answer of The AMT adjustment for mining exploration and...

Quiz 12: Alternative Minimum Tax