Question 1

Keosha acquires 10-year personal property to use in her business in 2016 and takes the maximum cost recovery deduction for regular income tax purposes. As a result of this, Keosha will incur a positive AMT adjustment in 2016.

Accepted Answer

Taking the maximum cost recovery deduction (depreciation) for regular income tax purposes will result in a lower basis for the property for AMT purposes. This will create a positive AMT adjustment, which will increase taxable income for AMT purposes.

Question 2

Elmer exercises an incentive stock option (ISO) in 2016 for $6,000 (fair market value of the stock on the exercise date is $7,600). If Elmer sells the stock later in 2016 for $8,000, the AMT positive adjustment is $1,600 and the AMT negative adjustment is $2,000.

Accepted Answer

The AMT positive adjustment is actually $1,600 (($8,000 selling price - $6,000 exercise price) x 28% AMT rate). However, there is no AMT negative adjustment in this scenario.

Question 3

All foreign taxes qualify for the foreign tax credit.

Accepted Answer

Not all foreign taxes qualify for the foreign tax credit. Only income taxes paid or accrued to a foreign country or U.S. possession qualify for the credit. Other types of taxes, such as foreign social security taxes or foreign value-added taxes, do not qualify.

Question 4

Paul incurred circulation expenditures of $180,000 in 2016 and deducted that amount for regular income tax purposes. Paul has a $60,000 negative AMT adjustment for each of 2017, 2018, and for 2019.

Accepted Answer

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

Question 5

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

Accepted Answer

According to IRS regulations, unless circulation expenditures are amortized over a three-year period for regular income tax purposes, there will be an AMT (Alternative Minimum Tax) adjustment.

Question 6

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

Once personal property has been fully depreciated, any differences between regular income tax and AMT adjustments will no longer exist and will net to zero.

Question 7

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.

Accepted Answer

This statement is true. The completed contract method is an acceptable method of accounting for long-term contracts for regular income tax purposes, but the percentage of completion method is required for AMT (Alternative Minimum Tax) purposes. This is because the AMT system aims to eliminate certain tax benefits and encourages the use of more conservative accounting methods to reduce the potential for tax shelters.

Question 8

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

Accepted Answer

The sale of business property can trigger an adjustment for the Alternative Minimum Tax (AMT) calculation, depending on the specific circumstances of the sale and the taxpayer's overall tax situation.

Question 9

BlueCo incurs $900,000 during the year to construct a facility that will be used exclusively for the care of its employees' pre-school age children during normal working hours. The credit for employer-provided child care available to BlueCo this year is $225,000.

Accepted Answer

The credit for employer-provided child care facilities is limited to 25% of the qualified expenses, plus 10% of qualified resource and referral expenditures, with an overall limit of $150,000 per year. Therefore, 25% of $900,000 is $225,000, but the credit cannot exceed $150,000.

Question 10

Unused foreign tax credits can be carried back three years and forward fifteen years.

Accepted Answer

The answer of Unused foreign tax credits can be carried...

Question 11

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 12

Joel placed real property in service in 2016 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 2016 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 13

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 14

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 15

Cardinal Company incurs $800,000 during the year to construct a facility that will be used exclusively for the care of its employees' pre-school age children during normal working hours. Assuming Cardinal claims the credit for employer-provided child care this year, its basis in the newly constructed facility is $640,000.

Accepted Answer

The answer of Cardinal Company incurs $800,000 during the year...

Question 16

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

This statement accurately reflects the reason why Congress enacted the alternative minimum tax. The AMT was designed to ensure that high-income taxpayers could not use tax loopholes and deductions to avoid paying their fair share of taxes.

Question 17

In computing the foreign tax credit, the greater of the foreign income taxes paid or the overall limitation is allowed.

Accepted Answer

The foreign tax credit is limited to the lower of the foreign income taxes paid or the overall limitation, which is calculated based on the taxpayer's U.S. tax liability on their foreign taxable income.

Question 18

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. This increases Evan's AMT adjustment associated with long-term contracts for the current year.

Accepted Answer

The answer of Evan is a contractor who constructs both...

Question 19

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

Accepted Answer

The answer of AMT adjustments can be positive or negative,...

Question 20

Because current U.S. corporate income tax rates are higher than many foreign corporate income tax rates only infrequently will the credit's, the overall limitation yield a lower foreign tax credit than the amount of foreign taxes actually paid.

Accepted Answer

This is because the higher U.S. tax rates result in a larger foreign tax credit, but the overall limitation can reduce the credit to an amount lower than the actual foreign taxes paid.

Quiz 17: Business Tax Credits and Corporate Alternative Minimum Tax