Question 1

If the AMT base is greater than $187,800, the AMT rate for an individual taxpayer is the same as the AMT rate for a C corporation.

Accepted Answer

The AMT (Alternative Minimum Tax) rates differ for individuals and C corporations. For individuals, the AMT rate is typically 26% or 28%, while for C corporations, the AMT was repealed by the Tax Cuts and Jobs Act of 2017.

Question 2

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.

Accepted Answer

The alternative minimum tax was enacted to address the issue of wealthy taxpayers avoiding regular income tax, as Congress believed this to be inequitable.

Question 3

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 statement is true. The AMT (Alternative Minimum Tax) system adjusts certain items of income and deductions differently than the regular tax system. If there are timing differences in these adjustments, it can create negative adjustments in the current year. However, if there were positive adjustments in prior tax years also caused by timing differences, they can be used to offset the negative adjustments in the current year. This is known as an AMT credit.

Question 4

Joel placed real property in service in 2017 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 2017 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 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

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.

Accepted Answer

Circulation expenditures are not deductible for AMT purposes, so there would be no AMT adjustment in the following year.

Question 7

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 8

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.

Accepted Answer

This statement is true. Once personal property is fully depreciated for both regular income tax purposes and AMT purposes, any positive or negative adjustments made for AMT purposes will no longer affect the taxpayer's tax liability.

Question 9

Paul incurred circulation expenditures of $180,000 in 2017 and deducted that amount for regular income tax purposes. Paul has a $60,000 negative AMT adjustment for each of 2018, 2019, and for 2020.

Accepted Answer

The answer of Paul incurred circulation expenditures of $180,000 in...

Question 10

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

The TMT is the minimum amount that Madge must pay, which is higher than her regular income tax liability of $99,000. Therefore, she must pay her TMT of $112,000. Additionally, her AMT of $13,000 is irrelevant as she is already paying her TMT.

Question 11

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 net capital gain is eligible for a lower tax rate in both regular income tax and the AMT calculation for individual taxpayers.

Question 12

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

The nonrefundable business tax credits can only reduce Clarence's regular income tax liability, not his tentative minimum tax (TMT). Therefore, his total tax liability before considering tax credits would still be $180,000. After applying the $35,000 tax credit, his final tax liability would be $145,000.

Question 13

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

Accepted Answer

AMT (Alternative Minimum Tax) adjustments can increase or decrease taxable income, while AMT preferences are specific items that are always added back to income, thus always positive.

Question 14

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 15

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

The answer of The required adjustment for AMT purposes for...

Question 16

Keosha acquires used 10-year personal property to use in her business in 2017 and uses MACRS depreciation for regular income tax purposes. As a result, Keosha will incur a positive AMT adjustment in 2017, because AMT depreciation is slower.

Accepted Answer

Under the Alternative Minimum Tax (AMT) rules, taxpayers must use the slower straight-line method of depreciation instead of the accelerated MACRS method. As a result, the AMT depreciation adjustment is usually positive, meaning that the taxable income for AMT purposes will be higher than the regular tax. Since Keosha is using MACRS depreciation for regular tax purposes, she will incur a positive AMT adjustment in 2017.

Question 17

Assuming no phaseout, the AMT exemption amount for a married taxpayer filing separately for 2017 is more than the AMT exemption amount for C corporations.

Accepted Answer

The AMT exemption amount for a married taxpayer filing separately for 2017 is $54,300, while the AMT exemption amount for C corporations is a flat 20%. Therefore, assuming no phaseout, the AMT exemption amount for a married taxpayer filing separately is greater than that of a C corporation.

Question 18

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

Accepted Answer

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

Question 19

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

Accepted Answer

The AMT calculated using both methods should be the same, as the same tax preferences and adjustments are being accounted for. The difference between the two methods is in how those items are tracked and reported in the tax return, but the end result should be the same.

Question 20

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, they will be subject to an adjustment when calculating alternative minimum tax (AMT).

Quiz 12: Alternative Minimum Tax