Documents
Resources
Learning Center
Upload
Plans & pricing Sign in
Sign Out

IRS Form- 4626 Instructions for Form 4626

VIEWS: 1,109 PAGES: 11

									2007                                                                                                    Department of the Treasury
                                                                                                        Internal Revenue Service



Instructions for Form 4626
Alternative Minimum Tax—Corporations
Section references are to the Internal         • Gross receipts must be figured using         after the change date. Also, for line 8 of
Revenue Code unless otherwise noted.           the corporation’s tax accounting               the ACE Worksheet, take into account
                                               method and include total sales (net of         only property placed in service on or
General Instructions                           returns and allowances), amounts               after the change date.
                                               received for services, and income from
                                                                                              Note. No additional modification in
Purpose of Form                                investments and other sources. See
                                                                                              figuring AMT is required for exceptions
                                               Temporary Regulations section
Use Form 4626 to figure the alternative                                                       related to any item acquired in a
                                               1.448-1T(f)(2)(iv) for more details.
                                                                                              corporate acquisition under section 381
minimum tax (AMT) under section 55             • Gross receipts include those of any          or to any substituted basis property, if
for a corporation that is not exempt           predecessor of the corporation,
from the AMT.                                                                                 any of the AMT adjustment
                                               including non-corporate entities.
                                                                                              modifications listed earlier applied to
Consolidated returns. For an                   • For a short tax year, gross receipts         the item or property while it was held by
affiliated group filing a consolidated         must be annualized by multiplying them
                                                                                              the transferor.
return under the rules of section 1501,        by 12 and dividing the result by the
AMT must be figured on a consolidated          number of months in the tax year.                      Once the corporation loses its
basis.                                         • The gross receipts of all persons
                                               treated as a single employer under               !     small corporation status, it
                                                                                              CAUTION cannot qualify for any
Who Must File                                  section 52(a), 52(b), 414(m), or 414(o)        subsequent tax year.
                                               must be aggregated.
         If the corporation is a “small        Loss of small corporation status. If
  !      corporation” exempt from the          the corporation qualified as a small
                                                                                              Credit for Prior Year
 CAUTION AMT (as explained below), do

not file Form 4626.
                                               corporation exempt from the AMT for its        Minimum Tax
                                               previous tax year, but does not meet           A corporation may be able to take a
    Generally, file Form 4626 if either of     the gross receipts test for its tax year       minimum tax credit against the regular
the following apply.                           beginning in 2007, it loses its AMT            tax for AMT incurred in prior years. See
• The corporation’s taxable income or          exemption status. Special rules apply in       Form 8827, Credit for Prior Year
(loss) before the net operating loss           figuring AMT for the tax year beginning        Minimum Tax — Corporations, for
(NOL) deduction plus its adjustments           in 2007 and all later years based on the       details.
and preferences total more than                “change date.” The change date is the
$40,000 or, if smaller, its allowable          first day of the corporation’s tax year
exemption amount.                              beginning in 2007 (the first tax year for      Recordkeeping
• The corporation claims any general           which the corporation ceased to be a           Certain items of income, deductions,
business credit, any qualified electric        small corporation). Where this applies,        credits, etc., receive different tax
vehicle credit, or the credit for prior year   complete Form 4626 taking into                 treatment for the AMT than for the
minimum tax.                                   account the following modifications.           regular tax. Therefore, the corporation
                                               • The adjustments for depreciation and         should keep adequate records to
Exemption for Small                            amortization of pollution control facilities   support items refigured for the AMT.
Corporations                                   apply only to property placed in service       Examples include:
                                               on or after the change date.                   • Tax forms used for regular tax
A corporation is treated as a small            • The adjustment for mining                    purposes that are completed a second
corporation exempt from the AMT for its        exploration and development costs              time to refigure items of income,
current tax year beginning in 2007 if:         applies only to amounts paid or                deductions, etc., for the AMT;
    1. The current year is the                 incurred on or after the change date.          • The computation of a carryback or
corporation’s first tax year in existence      • The adjustment for long-term                 carryforward to other tax years of
(regardless of its gross receipts for the      contracts applies only to contracts            certain deductions or credits (for
year), or                                      entered into on or after the change            example, net operating loss, capital
    2. Both of the following apply.            date.                                          loss, and foreign tax credit) if the AMT
    a. It was treated as a small               • When figuring the amount to enter on         amount is different from the regular tax
corporation exempt from the AMT for all        line 6, for any loss year beginning            amount;
prior tax years beginning after 1997.          before the change date, use the                • The computation of a carryforward of
    b. Its average annual gross receipts       corporation’s regular tax NOL for that         a passive loss or tax shelter farm
for the 3-tax-year period (or portion          year.                                          activity loss if the AMT amount is
thereof during which the corporation           • Figure the limitation on line 4d only        different from the regular tax amount;
was in existence) ending before its tax        for prior tax years beginning on or after      and
year beginning in 2007 did not exceed          the change date.                               • A “running balance” of the excess of
$7.5 million ($5 million if the corporation    • Enter zero on line 2c of the Adjusted        the corporation’s total increases in
had only 1 prior tax year).                    Current Earnings (ACE) Worksheet on            alternative minimum taxable income
                                               page 11. When completing line 5 of the         (AMTI) from prior year adjusted current
   The following rules apply when              ACE Worksheet, take into account only          earnings (ACE) adjustments over the
figuring gross receipts under 2b above.        amounts from tax years beginning on or         total reductions in AMTI from prior year

                                                             Cat. No. 64443L
ACE adjustments (see the instructions                                                        Act of 1986, this rule applies to property
for line 4d on page 6).                        Specific Instructions                         placed in service after July 31, 1986.)

                                                                                             What Depreciation Is Not
                                               Line 1. Taxable Income                        Refigured for the AMT?
Short Period Return                            or (Loss) Before Net                          Do not refigure depreciation for the
If the corporation is filing for a period of                                                 AMT for the following.
less than 12 months, AMTI must be              Operating Loss                                • Residential rental property placed in
annualized and the tentative minimum           Deduction                                     service after 1998.
tax prorated based on the number of                                                          • Nonresidential real property with a
                                               Enter the corporation’s taxable income        class life of 27.5 years or more
months in the short period. Complete
                                               or (loss) before the NOL deduction,           (generally, a building and its structural
Form 4626 as follows.                          after the special deductions, and             components) placed in service after
    1. Complete lines 1 through 6 in the       without regard to any excess inclusion        1998 that is depreciated for the regular
normal manner. Subtract line 6 from            (for example, if filing Form 1120,            tax using the straight line method.
line 5 to figure AMTI for the short            subtract line 29b from line 28 of that        • Other section 1250 property placed
period, but do not enter it on line 7.         form).                                        in service after 1998 that is depreciated
    2. Multiply AMTI for the short period                                                    for the regular tax using the straight line
by 12. Divide the result by the number         Line 2. Adjustments and                       method.
of months in the short period. Enter this                                                    • Property (other than section 1250
                                               Preferences                                   property) placed in service after 1998
result on line 7 and write “Sec.                                                             that is depreciated for the regular tax
443(d)(1)” on the dotted line to the left               To avoid duplication, do not         using the 150% declining balance
of the entry space.                              !      include any AMT adjustment or        method or the straight line method.
   3. Complete lines 8 through 11.
                                                CAUTION preference taken into account
                                                                                             • Property for which the corporation
                                               on line 2i, 2j, 2k, or 2o in the amounts      elected to use the alternative
   4. Subtract line 11 from line 10.           to be entered on any other line of this       depreciation system (ADS) for the
Multiply the result by the number of           form.                                         regular tax.
months in the short period and divide                                                        • Qualified property eligible for a
that result by 12. Enter the final result      Line 2a. Depreciation of                      special depreciation allowance if the
on line 12 and write “Sec. 443(d)(2)” on       Post-1986 Property                            depreciable basis of the property for the
the dotted line to the left of the entry                                                     AMT is the same as for the regular tax.
space.                                         What Adjustments Are Not                      If the depreciable basis for the AMT is
                                               Included As Depreciation                      the same as for the regular tax, no
   5. Complete the rest of the form in                                                       adjustment is required for any
the normal manner.                             Adjustments?                                  depreciation figured on the remaining
                                               Do not make a depreciation adjustment         basis of the qualified property.
                                               on line 2a for:                               However, if an election is in effect to
                                               • A tax shelter farm activity. Take this      not have the special allowance apply,
Allocating Differently                         adjustment into account on line 2i.           the corporation must refigure
                                               • Passive activities. Take this               depreciation for the AMT.
Treated Items Between                          adjustment into account on line 2j.           • Any part of the cost of any property
                                               • An activity for which the corporation       that the corporation elected to expense
Certain Entities and                           is not at risk or income or loss from a       under section 179. The reduction to the
                                               partnership interest or stock in an S
Their Investors                                corporation if the basis limitations
                                                                                             depreciable basis of section 179
For a regulated investment company, a                                                        property by the amount of the section
                                               apply. Take this adjustment into              179 expense deduction is the same for
real estate investment trust, or a             account on line 2k.                           the regular tax and the AMT.
common trust fund, see section 59(d)                                                         • Certain public utility property (if a
for details on allocating certain              What Depreciation Must Be                     normalization method of accounting is
differently treated items between the          Refigured for the AMT?                        not used), motion picture films and
entity and its investors.                      Generally, the corporation must refigure      video tape, sound recordings, and
                                               depreciation for the AMT, including           property that the corporation elects to
                                               depreciation allocable to inventory           exclude from MACRS by using a
                                               costs, for the following.                     depreciation method based on a term
Optional Write-Off for                         • Property placed in service after 1998       of years, such as the unit-of-production
Certain Expenditures                           depreciated for the regular tax using         method.
                                               the 200% declining balance method             • Qualified Indian reservation property.
There is no AMT adjustment for the             (generally 3-, 5-, 7-, or 10-year property    See section 168(j).
following items if the corporation elects      under the modified accelerated cost           • Qualified revitalization expenditures
to deduct them ratably over the period         recovery system (MACRS)), except for          for a building for which the corporation
of time shown for the regular tax.             qualified property eligible for the special   elected to claim the commercial
• Circulation expenditures (personal           depreciation allowance.                       revitalization deduction.
holding companies only) — 3 years.
                                               • Section 1250 property placed in             • Any natural gas gathering line (as
                                               service after 1998 that is not                defined in section 168(i)(17)) placed in
• Mining exploration and development           depreciated for the regular tax using         service after April 11, 2005, the original
costs — 10 years.                              the straight line method.                     use of which begins with the
• Intangible drilling costs — 60 months.       • Tangible property placed in service         corporation after April 11, 2005, and
                                               after 1986 and before 1999. (If the           which is not under self-construction or
                                               transitional election was made under          subject to a binding contract in
   See section 59(e) for more details.         section 203(a)(1)(B) of the Tax Reform        existence before April 12, 2005.
                                                                  -2-
How Is Depreciation Refigured                     In addition to the AMT adjustment to    than the regular tax deduction, enter
for the AMT?                                   the deduction for depreciation, also       the difference as a negative amount.
                                               adjust the amount of depreciation that
Property placed in service after 1998.         was capitalized, if any, to account for    Line 2d. Amortization of
Use the same convention and recovery           the difference between the rules for the   Circulation Expenditures
period used for the regular tax. Use the       regular tax and the AMT. Include on
straight line method for section 1250          this line the current year adjustment to             Do not make this adjustment for
property. For property other than
section 1250 property, use the 150%
                                               taxable income, if any, resulting from
                                               the difference.
                                                                                            !       expenditures of a personal
                                                                                           CAUTION holding company for which the
declining balance method, switching to                                                    company elected the optional 3-year
the straight line method the first tax         Line 2b. Amortization of                   write-off for the regular tax.
year it gives a larger deduction.
                                               Certified Pollution Control                    For the regular tax, circulation
Property placed in service before              Facilities                                 expenditures may be deducted in full
1999. Refigure depreciation for the                                                       when paid or incurred. For the AMT,
AMT using ADS, with the same                   For facilities placed in service before
                                               1999, figure the amortization deduction    these expenditures must be capitalized
convention used for the regular tax.                                                      and amortized over 3 years beginning
See the table below for the method and         for the AMT using ADS (that is, the
                                               straight line method over the facility’s   with the tax year in which the
recovery period to use.                                                                   expenditures were made.
                                               class life). For facilities placed in
                                               service after 1998, figure the                 If the corporation had a loss on
Property Placed in Service                     amortization deduction for the AMT         property for which circulation
Before 1999                                    under MACRS using the straight line        expenditures have not been fully
                                               method. Figure the AMT deduction           amortized for the AMT, the AMT
 IF the property is    THEN use the . . .      using 100% of the asset’s amortizable      deduction is the smaller of (a) the loss
 Section 1250          Straight line method    basis. Do not reduce the corporation’s     allowable for the expenditures had they
 property.             over 40 years.          AMT basis by the 20% section 291           remained capitalized or (b) the
                                               adjustment that applied for the regular    remaining expenditures to be amortized
 Tangible property     Straight line method    tax.                                       for the AMT.
 (other than section   over the property’s
 1250 property)        AMT class life.           Enter the difference between the             Subtract the AMT deduction from the
 depreciated using                             AMT deduction and the regular tax          regular tax deduction. Enter the result
 the straight line                             deduction on line 2b. If the AMT           on line 2d. If the AMT deduction is
 method for the                                deduction is more than the regular tax     more than the regular tax deduction,
 regular tax.                                  deduction, enter the difference as a       enter the difference as a negative
                                               negative amount.                           amount.
 Any other tangible    150% declining
 property.             balance method,                                                    Line 2e. Adjusted Gain or
                       switching to the
                                               Line 2c. Amortization of
                       straight line method    Mining Exploration and                     Loss
                       the first tax year it   Development Costs                          If, during the tax year, the corporation
                       gives a larger                                                     disposed of property for which it is
                       deduction, over the             Do not make this adjustment for    making (or previously made) any of the
                       property’s AMT
                       class life.               !     costs for which the corporation
                                               CAUTION elected the optional 10-year
                                                                                          adjustments described on lines 2a
                                                                                          through 2d above, refigure the
                                               write-off for the regular tax.             property’s adjusted basis for the AMT.
   How is the AMT class life                                                              Then refigure the gain or loss on the
                                                  For the AMT, the regular tax            disposition.
determined? For property placed in             deductions under sections 616(a) and
service before 1999, the class life used       617(a) are not allowed. Instead,               The property’s adjusted basis for the
for the AMT is not necessarily the same        capitalize these costs and amortize        AMT is its cost minus all applicable
as the recovery period used for the            them ratably over a 10-year period         depreciation or amortization deductions
regular tax.                                   beginning with the tax year in which the   allowed for the AMT during the current
   The class lives are listed in Rev.          corporation paid or incurred them. The     tax year and previous tax years.
Proc. 87-56, 1987-2 C.B. 674, Rev.             10-year amortization applies to 100% of    Subtract this AMT basis from the sales
Proc. 88-22, 1988-1 C.B. 785, and in           the mining development and                 price to get the AMT gain or loss.
Pub. 946, How To Depreciate Property.          exploration costs paid or incurred         Dispositions for which line 2i, 2j, and
                                               during the tax year. Do not reduce the     2k adjustments are made. The
        See Pub. 946 for tables that can       corporation’s AMT basis by the 30%         corporation may also have gains or
 TIP be used to figure AMT                     section 291 adjustment that applied for    losses from lines 2i, 2j, and 2k that
        depreciation. Rev. Proc. 89-15,        the regular tax.                           must be considered on line 2e. For
1989-1 C.B. 816, and Pub. 946 have                                                        example, if for the regular tax the
special rules for short tax years and for          If the corporation had a loss on
                                                                                          corporation reports a loss from the
property disposed of before the end of         property for which mining exploration
                                                                                          disposition of an asset used in a
the recovery period.                           and development costs have not been
                                                                                          passive activity, include the loss in the
                                               fully amortized for the AMT, the AMT
                                                                                          computations for line 2j to determine if
How Is the Line 2a Adjustment                  deduction is the smaller of (a) the loss
                                                                                          any passive activity loss is limited for
Figured?                                       allowable for the costs had they
                                                                                          the AMT. Then, include the AMT
                                               remained capitalized or (b) the
Subtract the AMT deduction for                                                            passive activity loss allowed that relates
                                               remaining costs to be amortized for the
depreciation from the regular tax                                                         to the disposition of the asset on line 2e
                                               AMT.
deduction and enter the result on line                                                    in determining the corporation’s AMT
2a. If the AMT deduction is more than             Subtract the AMT deduction from the     basis adjustment. It may be helpful to
the regular tax deduction, enter the           regular tax deduction. Enter the result    refigure the following for the AMT: Form
difference as a negative amount.               on line 2c. If the AMT deduction is more   8810 and related worksheets, Schedule
                                                                 -3-
D (Form 1120), Form 4684 (Section B),        or loss using the rules for the regular       • An AMT loss and a regular tax gain,
or Form 4797.                                tax with the following modifications.         • An AMT loss that exceeds the
    Enter on line 2e the difference          • No loss is allowed except to the            regular tax loss, or
between the regular tax gain or loss         extent the personal service corporation       • A regular tax gain that exceeds the
and the AMT gain or loss. Enter the          is insolvent.                                 AMT gain.
difference as a negative amount if any       • Do not use a loss in the current tax        Tax Shelter Farm Activities That
of the following apply.                      year to offset gains from other tax
                                                                                           Are Passive Activities
• The AMT gain is less than the regular      shelter farm activities. Instead, suspend
tax gain.                                    any loss and carry it forward indefinitely    Refigure all gains and losses reported
• The AMT loss exceeds the regular           until the corporation has a gain in a         for the regular tax by taking into
tax loss.                                    subsequent tax year from that same tax        account the corporation’s AMT
• The corporation has an AMT loss            shelter farm activity or it disposes of the   adjustments and preferences and AMT
and a regular tax gain.                      activity.                                     prior year unallowed losses.
                                                       Keep adequate records for               Use the same rules as outlined
Line 2f. Long-Term Contracts                  TIP losses that are not deductible           above for other passive activities, with
For the AMT, the corporation generally               (and therefore carried forward)       the following modifications.
must use the percentage-of-completion        for both the AMT and regular tax.             • AMT gains from tax shelter farm
method described in section 460(b) to                                                      activities that are passive activities may
                                                 Enter on line 2i the difference           be used to offset AMT losses from
determine the taxable income from any        between the AMT gain or loss and the
long-term contract (defined in section                                                     other passive activities.
460(f)). However, this rule does not
                                             regular tax gain or loss. Enter the           • AMT losses from tax shelter farm
                                             difference as a negative amount if the        activities that are passive activities may
apply to any home construction contract      corporation had:                              not be used to offset AMT gains from
(as defined in section 460(e)(6)).           • An AMT loss and a regular tax gain,         other passive activities. These losses
    For contracts excepted from the          • An AMT loss that exceeds the                must be suspended and carried forward
percentage-of-completion method for          regular tax loss, or                          indefinitely until the corporation has a
the regular tax by section 460(e)(1),        • A regular tax gain that exceeds the         gain in a subsequent year from that
determine the percentage of completion       AMT gain.                                     same activity or it disposes of the
using the simplified procedures for                                                        activity.
allocating costs outlined in section         Line 2j. Passive Activities
460(b)(3).                                                                                 Line 2k. Loss Limitations
                                                       This adjustment applies only to
    Subtract the regular tax income from                                                   Refigure gains and losses reported for
the AMT income. Enter the difference           !
                                             CAUTION
                                                       closely held corporations and
                                                       personal service corporations.      the regular tax from at-risk activities
on line 2f. If the AMT income is less                                                      and the corporation’s share of
than the regular tax income, enter the            Refigure all passive activity gains      distributive items from partnerships by
difference as a negative amount.             and losses reported for the regular tax       taking into account the corporation’s
                                             by taking into account the corporation’s      AMT adjustments and preferences. If
Line 2g. Merchant Marine                     AMT adjustments and preferences and           the corporation has recomputed losses
Capital Construction Funds                   AMT prior year unallowed losses that          that must be limited for the AMT by
Amounts deposited in these funds are         apply to that activity.                       section 465 or section 704(d) or the
not deductible for the AMT. Earnings on          Determine the corporation’s AMT           corporation reported losses for the
these funds must be included in gross        passive activity gain or loss using the       regular tax from at-risk activities or
income for the AMT. If the corporation       same rules used for the regular tax.          distributive shares of partnership losses
deducted these amounts or excluded           Generally, no loss is allowed. However,       that were limited by those sections,
them from income for the regular tax,        if the corporation is insolvent, losses       figure the difference between the loss
add them back on line 2g.                    are allowed to the extent the                 limited for the AMT and the loss limited
                                             corporation is insolvent (see section         for the regular tax for each applicable
Line 2h. Section 833(b)                      58(c)).                                       at-risk activity or distributive share of
                                                                                           partnership loss. “Loss limited” means
Deduction                                        Disallowed losses of a personal
                                                                                           the amount of loss that is not allowable
This deduction is not allowed for the        service corporation are suspended until
                                             the corporation has income from that          for the year because of the limitations
AMT. If the corporation took this                                                          above.
deduction for the regular tax, add it        (or any other) passive activity or until
                                             the passive activity is disposed of (that         Enter on line 2k the excess of the
back on line 2h.
                                             is, its passive losses cannot offset “net     loss limited for the AMT over the loss
Line 2i. Tax Shelter Farm                    active income” (defined in section            limited for the regular tax. If the loss
                                             469(e)(2)(B) or “portfolio income”)).         limited for the regular tax is more than
Activities                                   Disallowed losses of a closely held           the loss limited for the AMT, enter the
                                             corporation that is not a personal            difference as a negative amount.
         Complete this line only if the
                                             service corporation are treated the
  !      corporation is a personal service
 CAUTION corporation and it has a gain or
                                             same except that, in addition, they may       Line 2l. Depletion
                                             be used to offset “net active income.”        Refigure depletion using only income
loss from a tax shelter farm activity that                                                 and deductions allowed for the AMT
is not a passive activity. If the tax                  Keep adequate records for           when refiguring the limit based on
shelter farm activity is a passive            TIP losses that are not deductible           taxable income from the property under
activity, include the gain or loss in the            (and therefore carried forward)       section 613(a) and the limit based on
computations for line 2j.                    for both the AMT and regular tax.             taxable income, with certain
    Refigure all gains and losses                Enter on line 2j the difference           adjustments, under section 613A(d)(1).
reported for the regular tax from tax        between the AMT gain or loss and the          Also, the depletion deduction for mines,
shelter farm activities by taking into       regular tax gain or loss. Enter the           wells, and other natural deposits is
account any AMT adjustments and              difference as a negative amount if the        limited to the property’s adjusted basis
preferences. Determine the AMT gain          corporation had:                              at the end of the year, as refigured for
                                                                  -4-
the AMT, unless the corporation is an       section 291(b)(1) adjustment for            partnership, include on line 2o the
independent producer or royalty owner       integrated oil companies and increased      amount from Schedule K-1 (Form
claiming percentage depletion for oil       by any IDCs allowed to be amortized         1065-B), box 6. Also include on line 2o
and gas wells. Figure this limit            under section 291(b)(2) over                any amount from Schedule K-1 (Form
separately for each property. When          • The amount that would have been           1065-B), box 5, unless the corporation
refiguring the property’s adjusted basis,   allowed if the corporation had              is a closely held or personal service
take into account any AMT adjustments       amortized that amount over a                corporation. Closely held and personal
the corporation made this year or in        120-month period starting with the          service corporations should take any
previous years that affect basis (other     month the well was placed in                amount from box 5 into account when
than the current year’s depletion). Do      production or, alternatively, had elected   figuring the amount to enter on line 2j.
not include in the property’s adjusted      any method that is permissible in           Patron’s AMT adjustment.
basis any unrecovered costs of              determining cost depletion.                 Distributions the corporation received
depreciable tangible property used to       Net income from oil, gas, and               from a cooperative may be includible in
exploit the deposits (for example,          geothermal properties. Net income is        income. Unless the distributions are
machinery, tools, pipes, etc.).             the gross income the corporation            nontaxable, include on line 2o the total
   For iron ore and coal (including         received or accrued from all oil, gas,      AMT patronage dividend adjustment
lignite), apply the section 291             and geothermal wells minus the              reported to the corporation from the
adjustment before figuring this             deductions allocable to these properties    cooperative.
preference.                                 (reduced by the excess IDCs). When          Cooperative’s AMT adjustment. If
   Enter on line 2l the difference          refiguring net income, use only income      the corporation is a cooperative,
between the regular tax and the AMT         and deductions allowed for the AMT.         refigure the cooperatives deduction for
deduction. If the AMT deduction is          Exception. The preference for IDCs          patronage dividends by taking into
more than the regular tax deduction,        from oil and gas wells does not apply to    account the cooperatives AMT
enter the difference as a negative          corporations that are independent           adjustments and preferences. Subtract
amount.                                     producers (that is, not integrated oil      the cooperatives AMT deduction for
                                            companies as defined in section             patronage dividends from its regular tax
Line 2m. Tax-Exempt Interest                291(b)(4)). However, this benefit may       deduction for patronage dividends and
Income From Specified                       be limited. First, figure the IDC           include the result on line 2o. If the AMT
Private Activity Bonds                      preference as if this exception did not     deduction is more than the regular tax
                                            apply. Then, for purposes of this           deduction, include the result as a
Enter on line 2m interest income from       exception, complete a second Form           negative amount.
specified private activity bonds,           4626 through line 5, including the IDC
reduced by any deduction that would                                                     Domestic production activities
                                            preference. If the amount of the IDC        deduction. For the AMT, figure the
have been allowable if the interest were    preference exceeds 40% of the amount
includible in gross income for the                                                      corporation’s domestic production
                                            figured for line 5, enter the excess on     activities deduction under section 199
regular tax. Generally, a specified         line 2n (the benefit of this exception is
private activity bond is any private                                                    without taking into account any AMT
                                            limited). If the amount of the IDC          adjustments and preferences. The
activity bond (as defined in section 141)   preference is equal to or less than 40%
issued after August 7, 1986, on which                                                   section 199 deduction for the
                                            of the amount figured for line 5, do not    corporation’s AMT is 6% of the smaller
the interest is not includible in gross     include an amount on line 2n for oil and
income for the regular tax. See section                                                 of (a) the qualified production activities
                                            gas wells (the benefit of this exception    income or (b) the alternative minimum
57(a)(5) for exceptions and details.        is not limited).                            taxable income (AMTI), determined
   Do not include interest on qualified                                                 without taking into account the section
Gulf Opportunity Zone bonds                 Line 2o. Other Adjustments                  199 deduction. Subtract the
(described in section 1400N(a)).            And Preferences                             corporation’s AMT section 199
Line 2n. Intangible Drilling                Enter the net amount of any other           deduction from its regular tax section
                                            adjustments and preferences, including      199 deduction and include the result on
Costs                                       the following.                              line 2o. If the AMT deduction is more
                                            Income eligible for the American            than the regular tax deduction, include
         Do not make this adjustment for                                                the result as a negative amount.
                                            Samoa economic development
  !      costs for which the corporation
 CAUTION elected the optional 60-month
                                            credit. If this income was included in      Installment sales. The installment
write-off for the regular tax.              the corporation’s taxable income for the    method does not apply for the AMT to
                                            regular tax, include this amount on line    any nondealer disposition of property
    Intangible drilling costs (IDCs) from   2o as a negative amount.                    that occurred after August 16, 1986, but
oil, gas, and geothermal properties are                                                 before the first day of the corporation’s
a preference to the extent excess IDCs      Income from the alcohol, biodiesel,
                                            and renewable diesel fuels credits.         tax year that began in 1987, if an
exceed 65% of the net income from the                                                   installment obligation to which the
properties. Figure the preference for all   If this income was included in the
                                            corporation’s income for the regular tax,   proportionate disallowance rule applied
geothermal deposits separately from                                                     arose from the disposition. Include as a
the preference for all oil and gas          include this amount on line 2o as a
                                            negative amount.                            negative adjustment on line 2o the
properties that are not geothermal                                                      amount of installment sale income
deposits.                                   Income as the beneficiary of an             reported for the regular tax.
Excess IDCs. Excess IDCs are the            estate or trust. If the corporation is
                                            the beneficiary of an estate or trust,      Accelerated depreciation of real
excess of:                                                                              property and certain leased personal
• The amount of IDCs the corporation        include on line 2o the AMT adjustment
                                                                                        property (pre-1987).
paid or incurred for oil, gas, or           from Schedule K-1 (Form 1041), Part
geothermal properties that it elected to    III, box 12.                                        This preference generally
expense for the regular tax (not
including any IDCs paid or incurred for
                                            Net AMT adjustment from an electing
                                            large partnership. If the corporation
                                                                                          !     applies only to property placed
                                                                                        CAUTION in service after 1987, but

nonproductive wells) reduced by the         is a partner in an electing large           depreciated using pre-1987 rules due to
                                                               -5-
transition provisions of the Tax Reform     line 3 pre-adjustment AMTI in the                    Corporation C subtracts its
Act of 1986.                                amounts shown below, its line 3 and               pre-adjustment AMTI from its ACE in
    Refigure depreciation for the AMT       line 4a amounts would be combined as              each of the years and then multiplies
using the straight line method for real     follows to determine the amount to                the result by 75% to get the following
property for which accelerated              enter on line 4b.                                 potential ACE adjustments for 2003
depreciation was determined for the                                                           through 2007.
regular tax using pre-1987 rules. Use a     Line 4a ACE        $25,000 $25,000 $25,000                       ACE minus      Potential
recovery period of 19 years for 19-year                                                                     pre-adjustment    ACE
real property and 15 years for              Line 3 pre-adj.                                   Year              AMTI       adjustment
low-income housing property. Figure         AMTI                10,000     30,000 (50,000)
                                                                                              2003           $(100,000)     $ (75,000)
the excess of the regular tax                                                                 2004             300,000        225,000
                                            Amount to enter
depreciation over the AMT depreciation      on line 4b         $15,000 $(5,000) $75,000       2005            (100,000)       (75,000)
separately for each property and                                                              2006            (400,000)      (300,000)
include only positive adjustments on                                                          2007             150,000        112,500
line 2o.                                    Example 2. Corporation B has line 4a
                                            ACE of $(25,000). If Corporation B has
    The adjustment for leased personal      line 3 pre-adjustment AMTI in the                    Under these facts, Corporation C
property only applies to personal           amounts shown below, its line 3 and               has the following increases or
holding companies. For leased               line 4a amounts would be combined as              reductions in AMTI for 2003 through
personal property other than recovery       follows to determine the amount to                2007.
property, enter the excess of the           enter on line 4b.                                                  Increase or (reduction)
depreciation claimed for the property for                                                                         in AMTI from ACE
the regular tax using pre-1987 rules                                                                 Year             adjustment
                                            Line 4a ACE       $(25,000) $(25,000) $(25,000)
over the depreciation allowable for the
                                                                                                     2003                $0
AMT as refigured using the straight line    Line 3 pre-adj.                                          2004              225,000
method.                                     AMTI              (10,000) (30,000)     50,000           2005              (75,000)
    For leased 10-year recovery                                                                      2006             (150,000)
property and leased 15-year public          Amount to enter                                          2007              112,500
utility property, enter the excess of the   on line 4b      $(15,000)      $5,000 $(75,000)
regular tax depreciation over the
depreciation allowable using the            Line 4d. A potential negative ACE
                                            adjustment (that is, a negative amount                In 2003, Corporation C was not
straight line method with a half-year                                                         allowed to reduce its AMTI by any part
convention, no salvage value, and a         on line 4b multiplied by 75%) is allowed
                                            as a negative ACE adjustment on line              of the potential negative ACE
recovery period of 15 years (22 years
for 15-year public utility property).       4e only if the corporation’s total                adjustment because it had no increases
                                            increases in AMTI from prior year ACE             in AMTI from prior year ACE
    Figure this amount separately for                                                         adjustments.
each property and include only positive     adjustments exceed its total reductions
adjustments on line 2o.                     in AMTI from prior year ACE
                                            adjustments (line 4d). The purpose of                 In 2004, Corporation C had to
Related adjustments. AMT                    line 4d is to provide a “running balance”         increase its AMTI by the full amount of
adjustments and preferences may             of this limitation amount. As such, the           its potential ACE adjustment. It was not
affect deductions that are based on an      corporation must keep adequate                    allowed to use any part of its 2003
income limit (for example, charitable       records (for example, a copy of Form              unallowed potential negative ACE
contributions). Refigure these              4626 completed at least through line 5)           adjustment of $75,000 to reduce its
deductions using the income limit as        from year to year (even in years in
modified for the AMT. Include on line                                                         2004 positive ACE adjustment of
                                            which it does not owe any AMT).                   $225,000.
2o an adjustment for the difference
between the regular tax and AMT                Any potential negative ACE
amounts for all such deductions. If the     adjustment that is not allowed as a                   In 2005, Corporation C was allowed
AMT deduction is more than the regular      negative ACE adjustment in a tax year             to reduce its AMTI by the full amount of
tax deduction, include the difference as    because of the line 4d limitation cannot          its potential negative ACE adjustment
a negative amount.                          be used to reduce a positive ACE                  because that amount is less than its
                                            adjustment in any other tax year.                 line 4d limit of $225,000.
Line 4. Adjusted Current                    Combine lines 4d and 4e of the 2006
                                            Form 4626 and enter the result on line               In 2006, Corporation C was allowed
Earnings (ACE)                              4d of the 2007 form, but do not enter             to reduce its AMTI by only $150,000. Its
Adjustment                                  less than zero.                                   potential negative ACE adjustment of
                                            Example. Corporation C, a                         $300,000 was limited to its 2004
         The ACE adjustment does not        calendar-year corporation, was                    increase in AMTI of $225,000 minus its
  !      apply to a regulated investment
 CAUTION company or a real estate
                                            incorporated January 1, 2003. Its ACE             2005 reduction in AMTI of $75,000.
                                            and pre-adjustment AMTI for 2003
investment trust. Also, for an affiliated   through 2007 were as follows.                         In 2007, Corporation C must
group filing a consolidated return under                                                      increase its AMTI by the full amount of
the rules of section 1501, figure line 4b                                        Pre-
                                                                              adjustment      its potential ACE adjustment. It cannot
on a consolidated basis.                    Year                 ACE             AMTI         use any part of its 2006 unallowed
Line 4b. The following examples                                                               potential negative ACE adjustment of
illustrate the manner in which line 3 is    2003               $700,000        $800,000       $150,000 to reduce its 2007 positive
subtracted from line 4a to get the          2004                900,000         600,000
                                                                                              ACE adjustment of $112,500.
amount to enter on line 4b.                 2005                400,000         500,000
                                                                                              Corporation C would complete the
                                            2006               (100,000)        300,000
Example 1. Corporation A has line 4a                                                          relevant portion of its 2007 Form 4626
                                            2007                250,000         100,000
ACE of $25,000. If Corporation A has                                                          as follows.
                                                                 -6-
        Line                Amount               a. The sum of the ATNOL                  Line 8c. If this Form 4626 is for a
         4a                $250,000
                                             carrybacks and carryforwards to the tax      member of a controlled group of
         4b                 150,000          year attributable to net operating losses    corporations, reduce the member’s
         4c                 112,500          other than qualified Gulf Opportunity        share of the $40,000 tentative
         4d                   -0-            Zone losses, or                              exemption by the amount entered on
         4e                 112,500              b. Ninety percent of AMTI for the tax    line 8b.
                                             year (figured without regard to the
                                             ATNOLD, as discussed earlier, and the
                                             domestic production activities deduction     Line 11. Alternative
Line 6. Alternative Tax                      under section 199) plus                      Minimum Tax Foreign
Net Operating Loss                               2. The smaller of:
                                                 a. The sum of the ATNOL                  Tax Credit (AMTFTC)
Deduction (ATNOLD)                           carrybacks and carryforwards to the tax      The AMTFTC is the foreign tax credit
The ATNOLD is the sum of the                 year attributable to qualified Gulf          refigured as follows.
alternative tax net operating loss           Opportunity Zone losses, or                      1. Complete a separate AMT Form
(ATNOL) carrybacks and carryforwards             b. 100% of AMTI for the tax year         1118, Foreign Tax Credit —
to the tax year, subject to the limitation   (figured without regard to the ATNOLD,       Corporations, for each separate
explained below. For a corporation that      as discussed earlier, and the domestic       limitation category specified at the top
held a residual interest in a real estate    production activities deduction under        of Form 1118. Include as a separate
mortgage investment conduit (REMIC),         section 199) reduced by the amount           limitation category dividends received
figure the ATNOLD without regard to          determined under 1, above.                   from a corporation that qualifies for the
any excess inclusion.                                                                     American Samoa economic
                                                The ATNOL can be carried back or          development credit if the
        NOLs arising in tax years            forward using the rules outlined in          dividends-received deduction for those
  !     beginning before August 6,
CAUTION 1997, can be carried forward no
                                             section 172(b). An election under
                                             section 172(b)(3) to forego the
                                                                                          dividends is disallowed under the ACE
                                                                                          rules.
more than 15 years. Therefore, the           carryback period for the regular tax also
corporation cannot carry forward an          applies for the AMT.                            In determining if any income is
NOL to this tax year from a loss year                                                     “high-taxed” in applying the separate
                                                 The ATNOL carried back or forward        limitation categories, use the AMT rate
beginning before 1992.                       may differ from the NOL (if any) that is     (20%) instead of the regular tax rate.
   The ATNOL for a loss year is the          carried back or forward for the regular          2. For each separate AMT Form
excess of the deductions allowed in          tax. Keep adequate records for both the      1118, if the corporation previously
figuring AMTI (excluding the ATNOLD)         AMT and the regular tax.                     made or is making the simplified
over the income included in AMTI. This                                                    limitation election (discussed below),
excess is figured with the modifications     Line 7. Alternative                          skip Schedule A and enter on Schedule
in section 172(d), taking into account                                                    B, Part II, line 6, the same amount you
the adjustments in sections 56 and 58        Minimum Taxable                              entered on that line for the regular tax.
and preferences in section 57 (that is,      Income                                       Otherwise, complete Schedule A using
the section 172(d) modifications must                                                     only income and deductions that are
                                             For a corporation that held a residual
be separately figured for the ATNOL).                                                     allowed for the AMT and attributable to
                                             interest in a REMIC and is not a thrift
   In applying the rules relating to the     institution, line 7 may not be less than     sources outside the United States.
determination of the amount of               the total of the amounts shown on                3. For each separate AMT Form
carrybacks and carryforwards, use the        Schedule(s) Q (Form 1066), Quarterly         1118, complete Schedule B, Part II.
modification to those rules described in     Notice to Residual Interest Holder of        Enter any AMTFTC carryover on
section 56(d)(1)(B)(ii).                     REMIC Taxable Income or Net Loss             Schedule B, Part II, line 4. Enter the
                                             Allocation, line 2c, for the periods         AMTI from Form 4626, line 7, on
    The ATNOLD is generally limited to       included in the corporation’s tax year. If   Schedule B, Part II, line 7a. Enter the
90% of AMTI determined without regard        the total of the line 2c amounts is larger   amount from Form 4626, line 10, on
to the ATNOLD and any domestic               than the amount the corporation would        Schedule B, Part II, line 9. When
production activities deduction under        otherwise enter on line 7, enter that        completing Schedule B, treat as a tax
section 199. To figure AMTI without          total and write “Sch. Q” on the dotted       paid to a foreign country 75% of any
regard to the ATNOLD, use a second           line next to line 7.                         withholding or income tax paid to
Form 4626 as a worksheet. Complete                                                        American Samoa on dividends received
the second Form 4626 through line 5,                                                      from a corporation that qualifies for the
but when figuring lines 2l and 2o, treat     Line 8. Exemption                            American Samoa economic
line 6 as if it were zero. The amount        Phase-Out Computation                        development credit (if the
figured on line 5 of the second Form                                                      dividends-received deduction for those
4626 is the corporation’s AMTI               Line 8a. If this Form 4626 is for a
                                                                                          dividends is disallowed under the ACE
determined without regard to the             member of a controlled group of
                                                                                          rules).
ATNOLD. Add any domestic production          corporations, subtract $150,000 from
                                             the combined AMTI of all members of              4. For the AMT Form 1118,
activities deduction to this tentative                                                    complete Schedule B, Part III,
total. The ATNOLD limitation is 90% of       the controlled group. Divide the result
                                             among the members of the group in the        Summary of Separate Credits. The total
this amount.                                                                              foreign tax credit is the amount on line
                                             same manner as the $40,000 tentative
   However, if an ATNOL carried back         exemption is divided among the               6.
or carried forward to the tax year is        members. Enter this member’s share               5. Enter on Form 4626, line 11, the
attributable to qualified Gulf Opportunity   on line 8a. The tentative exemption          smaller of:
Zone losses (as defined in section           must be divided equally among the               • The amount on Form 4626, line
1400N(k)(2)), the ATNOLD for the tax         members, unless all members consent          10, or
year is limited to the sum of:               to a different allocation. See section          • The amount from the AMT Form
    1. The smaller of:                       1561 for details.                            1118, Schedule B, Part III, line 6.
                                                                -7-
   The corporation can use any                                                            recovery period for the property under
reasonable method, consistently               Adjusted Current                            ADS. In doing so, use the convention
applied, to apportion the disallowed                                                      that would have applied to the property
amount among the separate limitation          Earnings (ACE)                              under section 168(d). For more
categories (including the general                                                         information (including an example that
                                              Worksheet Instructions                      illustrates the application of these
limitation income category). Any AMT
foreign tax credit for each separate                                                      rules), see Regulations section
                                              Treatment of Certain                        1.56(g)-1(b)(2).
limitation category that the corporation
cannot claim (because of the limitation       Ownership Changes                           Line 2b(4). Pre-1990 original ACRS
fraction) is treated as a credit carryback    If a corporation with a net unrealized      property. For ACRS property
or carryforward for that limitation           built-in loss (within the meaning of        generally placed in service in a tax year
category under section 904(c). Because        section 382(h)) undergoes an                that began after 1980 and before 1987,
                                              ownership change (within the meaning        figure depreciation by using the
these amounts may differ from the
                                              of section 382(g) and Regulations           property’s regular tax adjusted basis as
amounts that are carried back or                                                          of the close of the last tax year
                                              section 1.56(g)-1(k)(2)), refigure the
forward for the regular tax, keep             adjusted basis of each asset of the         beginning before 1990 and by using the
adequate records for both the AMT and         corporation (immediately after the          straight line method over the remainder
regular tax. When carried back or             ownership change). The new adjusted         of the recovery period for the property
forward, the credit is reported on            basis of each asset is its proportionate    under ADS. In doing so, use the
Schedule B, Part II, line 4, of the           share (based on respective fair market      convention that would have applied to
carryover year’s AMT Form 1118 for            values) of the fair market value of the     the property under section 168(d)
that separate limitation category.            corporation’s assets (determined under      (without regard to section 168(d)(3)).
                                              section 382(h)) immediately before the      For more information (including an
                                              ownership change.                           example that illustrates the application
Simplified Limitation                                                                     of these rules), see Regulations section
                                                  To determine if the corporation has a
Election                                      net unrealized built-in loss immediately    1.56(g)-1(b)(3).
The corporation may elect to use a            before an ownership change, use the         Line 2b(5). Property described in
simplified section 904 limitation to figure   aggregate adjusted basis of its assets      sections 168(f)(1) through (4). For
its AMTFTC. The corporation must              used for figuring its ACE. Also, use        this property, use the regular tax
make the election for its first tax year      these new adjusted bases for all future     depreciation, regardless of when the
beginning after 1997 for which it claims      ACE calculations (such as depreciation      property was placed in service.
an AMTFTC. If it does not make the            and gain or loss on disposition of an                Line 2b(5) takes priority over
                                              asset).
election for that tax year, it may not
make the election for a later tax year.
                                                                                            !      lines 2b(1), 2b(2), 2b(3), and
                                                                                           CAUTION 2b(4). For property that is
                                              Line 2. ACE Depreciation
Once made, the election applies to all        Adjustment                                  described in sections 168(f)(1) through
later tax years and may only be                                                           (4), use line 2b(5) instead of the line
revoked with IRS consent.                     Line 2a. AMT depreciation.                  2b(1), 2b(2), 2b(3), or 2b(4) that would
                                              Generally, the amount entered on this       otherwise apply.
                                              line is the depreciation the corporation    Line 2b(6). Other property. Use the
   If the corporation made the election       claimed for the regular tax (Form 4562,
for each of its AMT separate limitations,                                                 regular tax depreciation for (a) property
                                              line 22), modified by the AMT               placed in service before 1981 and (b)
the corporation uses its separate             depreciation adjustments reported on
limitation income or loss that it                                                         property placed in service after 1980, in
                                              lines 2a and 2o of Form 4626.               a tax year that began before 1990, that
determined for the regular tax (instead       Line 2b(1). Post-1993 property. For         is excluded from MACRS by section
of refiguring the separate limitation         property placed in service after 1993,      168(f)(5)(A)(i) or original ACRS by
income or loss for the AMT, as                the ACE depreciation is the same as         section 168(e)(4), as in effect before
described earlier).                           the AMT depreciation. Therefore, enter      the Tax Reform Act of 1986.
                                              on line 2b(1) the same depreciation         Line 2c. Total ACE depreciation.
                                              expense you included on line 2a of this     Subtract line 2b(7) from line 2a and
Line 13                                       worksheet for such property.                enter the result on line 2c. If line 2b(7)
Enter the corporation’s regular tax           Line 2b(2). Post-1989, pre-1994             exceeds line 2a, enter the difference as
liability (as defined in section 26(b))       property. For property placed in            a negative amount.
minus any foreign tax credit and              service in a tax year that began after
                                              1989 and before 1994, use the ADS           Line 3. Inclusion in ACE of
American Samoa economic                                                                   Items Included in Earnings and
                                              depreciation described in section
development credit (for example, Form                                                     Profits (E&P)
                                              168(g). However, for property (a)
1120, Schedule J, line 2, minus line 5a,      placed in service in a tax year that
and minus any credit from Form 5735                                                       In general, any income item that is not
                                              began after 1989 and (b) described in       taken into account (see below) in
reported on line 5b). Do not include          sections 168(f)(1) through (4), use the     determining the corporation’s
any:                                          same depreciation claimed for the           pre-adjustment AMTI but that is taken
• Tax on accumulation distribution of         regular tax and enter it on line 2b(5).     into account in determining its E&P
trusts from Form 4970,                        Line 2b(3). Pre-1990 MACRS                  must be included in ACE. Any such
• Recapture of investment credit              property. For MACRS property                income item can be reduced by all
(under section 49(b) or 50(a)) from           generally placed in service after 1986      items related to that income item and
Form 4255,                                    and in a tax year that began before         that would be deductible when figuring
                                              1990, figure depreciation by using the      pre-adjustment AMTI if the income
• Recapture of low-income housing             property’s AMT adjusted basis as of the     items to which they relate were
credit (under section 42(j) or (k)) from      close of the last tax year beginning        included in the corporation’s
Form 8611, or                                 before 1990 and by using the straight       pre-adjustment AMTI for the tax year.
• Recapture of any other credit.              line method over the remainder of the       Examples of these income items and
                                                                 -8-
the adjustments that relate to them          from income of the paying corporation      expenditures for ACE using the case
include:                                     that is subject to federal income tax.     law that existed before section 173 was
• Interest income from tax-exempt            • Any allowable domestic production        enacted.
obligations excluded under section 103       activities deduction under section 199.        Subtract the ACE expense (if any)
minus any costs incurred in carrying             Special rules apply to:                from the regular tax expense (for a
these tax-exempt obligations and             • Dividends from certain possession        personal holding company, from the
• Proceeds of life insurance contracts       corporations operating in American         AMT expense used to figure line 2d of
excluded under section 101 minus the         Samoa.                                     Form 4626) and enter the result on line
basis in the contract for purposes of        • Certain dividends received by certain    5b. If the ACE expense exceeds the
ACE.                                         cooperatives.                              regular tax amount (for a personal
   An income item is considered taken            An item is considered taken into       holding company, the AMT amount),
into account without regard to the           account without regard to the timing of    enter the result as a negative amount.
timing of its inclusion in a corporation’s   its deductibility in figuring
pre-adjustment AMTI or its E&P. Only                                                             Do not make this adjustment for
income items that are permanently
                                             pre-adjustment AMTI or E&P.
                                             Therefore, only deduction items that are
                                                                                          !      expenditures for which the
                                                                                         CAUTION corporation elected the optional
excluded from pre-adjustment AMTI are        permanently disallowed in figuring E&P
included in ACE. An income item will                                                    3-year write-off under section 59(e) for
                                             are disallowed in figuring ACE.            the regular tax.
not be considered taken into account
merely because the proceeds from that        Items for which no adjustment is           Line 5c. When figuring ACE, the
item might eventually be reflected in the    necessary. Generally, no deduction is      amortization provisions of section 248
pre-adjustment AMTI of another               allowed for an item in figuring ACE if     do not apply. Therefore, charge all
taxpayer (for example, that of a             the item is not deductible in figuring     organizational expenditures to a capital
shareholder) on the liquidation or           pre-adjustment AMTI (even if the item      account and do not take them into
disposal of a business.                      is deductible in figuring E&P). The only   account when figuring ACE until the
                                             exceptions to this general rule are the    corporation is sold or otherwise
Exceptions. Do not make an                   related reductions to an income item
adjustment for the following.                                                           disposed of. Enter on line 5c all
                                             described in the second sentence of
• Any income from discharge of               the instructions for line 3 on page 8.
                                                                                        amortization deductions for
indebtedness excluded from gross                                                        organizational expenditures that were
                                             Deductions that are not allowed in         taken for the regular tax during the tax
income under section 108 (or the             figuring ACE include:
corresponding provision of prior law).                                                  year.
• Any extraterritorial income excluded       • Capital losses that exceed capital       Line 5d. The adjustments provided in
                                             gains;
from gross income under section 114.         • Bribes, fines, and penalties             section 312(n)(4) apply in figuring ACE.
• For an insurance company taxed             disallowed under section 162;              See Regulations section 1.56(g)-1(f)(3).
under section 831(b), any amount not         • Charitable contributions that exceed     Line 5e. For any installment sale in a
included in gross investment income          the limitations of section 170;            tax year that began after 1989, a
(as defined in section 834(b)).              • Meals and entertainment expenses         corporation generally cannot use the
• Any special subsidy payment for            that exceed the limitations of section     installment method to figure ACE.
prescription drug plans excluded from        274;                                       However, it may use the installment
gross income under section 139A.             • Federal taxes disallowed under           method for the applicable percentage
• Any qualified shipping income              section 275; and                           (as determined under section 453A) of
excluded under section 1357.                 • Golden parachute payments that           the gain from any installment sale to
Line 3d. Include in ACE the income           exceed the limitation of section 280G.     which section 453A(a)(1) applies.
on life insurance contracts (as                                                             Subtract the installment sale income
                                             Line 4e. Do not include any
determined under section 7702(g)) for                                                   reported for AMT from the ACE income
                                             adjustment related to the E&P effects of
the tax year minus the part of any                                                      from the sales and enter the result on
                                             any charitable contribution.
premium attributable to insurance                                                       line 5e. If the ACE income from the
coverage.                                    Line 5. Other Adjustments                  sales is less than the AMT amount,
Line 3e. Do not include any                  Line 5a. Except as noted below, in         enter the difference as a negative
adjustment related to the E&P effects of     figuring ACE, determine the deduction      amount.
any charitable contribution.                 for intangible drilling costs under        Line 6. Disallowance of Loss on
Line 4. Disallowance of Items                section 312(n)(2)(A).
                                                                                        Exchange of Debt Pools
Not Deductible From E&P                         Subtract the ACE expense (if any)       When figuring ACE, a corporation may
Generally, no deduction is allowed           from the AMT expense (used to figure       not recognize any loss on the exchange
when figuring ACE for items not taken        line 2n of Form 4626) and enter the        of any pool of debt obligations for any
into account (see below) in figuring         result on line 5a. If the ACE expense      other pool of debt obligations having
E&P for the tax year. These amounts          exceeds the AMT amount, enter the          substantially the same effective interest
increase ACE if they are deductible in       result as a negative amount.               rates and maturities. Add back (that is,
figuring pre-adjustment AMTI (that is,       Exception. The above rule does not         enter as a positive adjustment) on line
they would be positive adjustments).         apply to amounts paid or incurred for      6 any such loss to the extent
    However, there are exceptions. Do        any oil or gas well by corporations that   recognized for the regular tax.
not add back:                                are independent producers (that is, not
                                                                                        Line 7. Acquisition Expenses of
• Any deduction allowable under              integrated oil companies as defined in
section 243 or 245 for any dividend that     section 291(b)(4)). If this exception      Life Insurance Companies for
qualifies for a 100% dividends-received      applies, do not enter an amount on line    Qualified Foreign Contracts
deduction under section 243(a), 245(b),      5a for oil and gas wells.                  For ACE, acquisition expenses of life
or 245(c) and                                Line 5b. When figuring ACE, the            insurance companies for qualified
• Any dividend received from a               current year deduction for circulation     foreign contracts (as defined in section
20%-owned corporation (see section           expenditures under section 173 does        807(e)(4) without regard to the
243(c)(2)), but only if the dividend is      not apply. Therefore, treat circulation    treatment of reinsurance contract rules
                                                               -9-
of section 848(e)(5)) must be                Line 9. Basis Adjustments in                   You are not required to provide the
capitalized and amortized by applying        Determining Gain or Loss From               information requested on a form that is
the treatment generally required under       Sale or Exchange of Pre-1994                subject to the Paperwork Reduction Act
generally accepted accounting                                                            unless the form displays a valid OMB
principles (and as if this rule applied to   Property                                    control number. Books or records
such contracts for all applicable tax        If, during the tax year, the corporation    relating to a form or its instructions
years).                                      disposed of property for which it is        must be retained as long as their
    Subtract the ACE expense (if any)        making (or previously made) any of the      contents may become material in the
from the regular tax expense and enter       ACE adjustments, refigure the               administration of any Internal Revenue
the result on line 7. If the ACE expense     property’s adjusted basis for ACE. Then     law. Generally, tax returns and return
is more than the regular tax expense,        refigure the property’s gain or loss.       information are confidential, as required
enter the result as a negative amount.           Enter the difference between the        by section 6103.
Line 8. Depletion                            AMT gain or loss (used to figure line 2e        The time needed to complete and
                                             of Form 4626) and the ACE gain or           file this form will vary depending on
When figuring ACE, the allowance for         loss. Enter the difference as a negative
depletion for any property placed in                                                     individual circumstances. The
                                             amount if any of the following apply.       estimated average time is:
service in a tax year that began after       • The ACE gain is less than the AMT
1989 generally must be determined            gain.                                       Recordkeeping . . . . . . . 17 hr., 13 min.
under the cost depletion method.             • The ACE loss is more than the AMT         Learning about the law
   Subtract the ACE expense (if any)         loss.                                       or the form . . . . . . . . . . 12 hr., 36 min.
from the AMT expense (used to figure         • The corporation had an ACE loss           Preparing and sending
line 2l of Form 4626) and enter the          and an AMT gain.                            the form to the IRS . . . . 13 hr., 27 min.
result on line 8 of the worksheet. If the
ACE expense is more than the AMT             Paperwork Reduction Act Notice.
amount, enter the result as a negative                                                      If you have comments concerning
                                             We ask for the information on this form
amount.                                                                                  the accuracy of these time estimates or
                                             to carry out the Internal Revenue laws
                                                                                         suggestions for making this form
Exception. Independent oil and gas           of the United States. You are required
                                                                                         simpler, we would be happy to hear
producers and royalty owners that            to give us the information. We need it to
                                                                                         from you. See the instructions for the
figured their regular tax depletion          ensure that you are complying with
                                                                                         tax return with which this form is filed.
deduction under section 613A(c) do not       these laws and to allow us to figure and
have an adjustment for ACE purposes.         collect the right amount of tax.




                                                               -10-
                                                   Adjusted Current Earnings (ACE) Worksheet
                                                            See ACE Worksheet Instructions (which begin on page 8).



1      Pre-adjustment AMTI . Enter the amount from line 3 of Form 4626 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                             1
2     ACE depreciation adjustment:
    a AMT depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            2a
    b ACE depreciation:
        (1) Post-1993 property . . . . . . . . . . . . . . . . . . . . . . 2b(1)
        (2) Post-1989, pre-1994 property . . . . . . . . . . . . . . . 2b(2)
        (3) Pre-1990 MACRS property . . . . . . . . . . . . . . . . 2b(3)
        (4) Pre-1990 original ACRS property . . . . . . . . . . . . 2b(4)
        (5) Property described in sections 168(f)(1) through
            (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2b(5)
        (6) Other property . . . . . . . . . . . . . . . . . . . . . . . . . 2(b6)
        (7) Total ACE depreciation. Add lines 2b(1) through 2b(6) . . . . . . . . . . . . . . . 2b(7)
    c ACE depreciation adjustment. Subtract line 2b(7) from line 2a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                          2c
3     Inclusion in ACE of items included in earnings and profits (E&P):
    a Tax-exempt interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                3a
    b Death benefits from life insurance contracts . . . . . . . . . . . . . . . . . . . . . . . . . .                    3b
    c All other distributions from life insurance contracts (including surrenders) . . . . . .                            3c
    d Inside buildup of undistributed income in life insurance contracts . . . . . . . . . . .                            3d
    e Other items (see Regulations sections 1.56(g)-1(c)(6)(iii) through (ix) for a partial
      list) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3e
    f Total increase to ACE from inclusion in ACE of items included in E&P. Add lines 3a through 3e                                                          3f
4     Disallowance of items not deductible from E&P:
    a Certain dividends received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              4a
    b Dividends paid on certain preferred stock of public utilities that are deductible
      under section 247 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           4b
    c Dividends paid to an ESOP that are deductible under section 404(k)                                                  4c
    d Nonpatronage dividends that are paid and deductible under section 1382(c) . . .                                     4d
    e Other items (see Regulations sections 1.56(g)-1(d)(3)(i) and (ii) for a partial list)                               4e
    f Total increase to ACE because of disallowance of items not deductible from E&P. Add lines 4a through 4e                                                4f
5     Other adjustments based on rules for figuring E&P:
    a Intangible drilling costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           5a
    b Circulation expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              5b
    c Organizational expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               5c
    d LIFO inventory adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                5d
    e Installment sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         5e
    f Total other E&P adjustments. Combine lines 5a through 5e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                           5f
6      Disallowance of loss on exchange of debt pools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                    6
7      Acquisition expenses of life insurance companies for qualified foreign contracts . . . . . . . . . . . . . . . . . . . .                              7
8      Depletion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   8
9      Basis adjustments in determining gain or loss from sale or exchange of pre-1994 property . . . . . . . . . . . . .                                    9
10 Adjusted current earnings. Combine lines 1, 2c, 3f, 4f, and 5f through 9. Enter the result here and on line
   4a of Form 4626 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           10




                                                                                               -11-

								
To top