Net Capital Gain Alternative Minimum Tax by pms18725


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									2008                                                                                                  Department of the Treasury
                                                                                                      Internal Revenue Service

Instructions for Form 4626
(Rev. March 2009)
Alternative Minimum Tax—Corporations
Section references are to the Internal         Generally, file Form 4626 if either of      corporation exempt from the AMT for its
Revenue Code unless otherwise noted.        the following apply.                           previous tax year, but does not meet
                                            • The corporation’s taxable income or          the gross receipts test for its tax year
                                            (loss) before the net operating loss           beginning in 2008, it loses its AMT
What’s New                                  (NOL) deduction plus its adjustments
                                            and preferences total more than
                                                                                           exemption status. Special rules apply in
                                                                                           figuring AMT for the tax year beginning
• This March 2009 revision of the 2008      $40,000 or, if smaller, its allowable          in 2008 and all later years based on the
Instructions for Form 4626 reflects         exemption amount.                              “change date.” The change date is the
changes made by the American                • The corporation claims any general           first day of the corporation’s tax year
Recovery and Reinvestment Tax Act of        business credit, any qualified electric        beginning in 2008 (the first tax year for
2009 and affects fiscal tax years ending    vehicle credit, or the credit for prior year   which the corporation ceased to be a
in 2009.                                    minimum tax.                                   small corporation). Where this applies,
• Interest on private activity bonds                                                       complete Form 4626 taking into
issued after December 31, 2008, and         Exemption for Small                            account the following modifications.
before January 1, 2011, is not a tax
                                            Corporations                                   • The adjustments for depreciation and
preference item. In addition, there is no                                                  amortization of pollution control facilities
adjustment to adjusted current earnings     A corporation is treated as a small
                                            corporation exempt from the AMT for its        apply only to property placed in service
(ACE) for such interest. See the                                                           on or after the change date.
instructions for line 2m on page 5 and      current tax year beginning in 2008 if:
the instructions for line 3 of the ACE          1. The current year is the
                                                                                           • The adjustment for mining
Worksheet on page 9.                                                                       exploration and development costs
                                            corporation’s first tax year in existence
• For tax years ending after May 22,                                                       applies only to amounts paid or
                                            (regardless of its gross receipts for the
2008, and tax years beginning before                                                       incurred on or after the change date.
                                            year), or
May 23, 2009, if a corporation has both         2. Both of the following apply.            • The adjustment for long-term
a net capital gain and a qualified timber                                                  contracts applies only to contracts
                                                a. It was treated as a small               entered into on or after the change
gain, for purposes of the alternative       corporation exempt from the AMT for all
minimum tax, a maximum 15% tax may                                                         date.
                                            prior tax years beginning after 1997.
apply to the qualified timber gain. Use         b. Its average annual gross receipts       • When figuring the amount to enter on
new Part II to figure the corporation’s     for the 3-tax-year period (or portion          line 6, for any loss year beginning
alternative tax. See the instructions for   thereof during which the corporation           before the change date, use the
Part II.                                    was in existence) ending before its tax        corporation’s regular tax NOL for that
• The 90% limit on the alternative tax      year beginning in 2008 did not exceed          year.
net operating loss deduction (ATNOLD)       $7.5 million ($5 million if the corporation    • Figure the limitation on line 4d only
does not apply to the portion of the        had only 1 prior tax year).                    for prior tax years beginning on or after
ATNOLD attributable to certain qualified                                                   the change date.
disaster losses. See the instructions for      The following rules apply when              • Enter zero on line 2c of the Adjusted
line 6 on page 7.                           figuring gross receipts under 2b above.        Current Earnings (ACE) Worksheet on
                                            • Gross receipts must be figured using         page 11. When completing line 5 of the
General Instructions                        the corporation’s tax accounting               ACE Worksheet, take into account only
                                                                                           amounts from tax years beginning on or
                                            method and include total sales (net of
                                            returns and allowances), amounts               after the change date. Also, for line 8 of
Purpose of Form                             received for services, and income from         the ACE Worksheet, take into account
Use Form 4626 to figure the alternative     investments and other sources. See             only property placed in service on or
minimum tax (AMT) under section 55          Temporary Regulations section                  after the change date.
for a corporation that is not exempt        1.448-1T(f)(2)(iv) for more details.
                                                                                           Note. No additional modification in
from the AMT.                               • Gross receipts include those of any          figuring AMT is required for exceptions
Consolidated returns. For an                predecessor of the corporation,
                                                                                           related to any item acquired in a
affiliated group filing a consolidated      including non-corporate entities.
                                                                                           corporate acquisition under section 381
return under the rules of section 1501,     • For a short tax year, gross receipts         or to any substituted basis property, if
AMT must be figured on a consolidated       must be annualized by multiplying them
                                                                                           any of the AMT adjustment
basis.                                      by 12 and dividing the result by the
                                                                                           modifications listed earlier applied to
                                            number of months in the tax year.
                                                                                           the item or property while it was held by
Who Must File                               • The gross receipts of all persons            the transferor.
                                            treated as a single employer under
                                            section 52(a), 52(b), 414(m), or 414(o)
         If the corporation is a “small     must be aggregated.                                    Once the corporation loses its
  !      corporation” exempt from the
CAUTION AMT (as explained below), do        Loss of small corporation status. If
                                                                                             !     small corporation status, it
                                                                                           CAUTION cannot qualify for any

not file Form 4626.                         the corporation qualified as a small           subsequent tax year.

                                                          Cat. No. 64443L
                                                  5. Complete the rest of the form in      • Passive activities. Take this
Credit for Prior Year                          the normal manner.                          adjustment into account on line 2j.
Minimum Tax                                                                                • An activity for which the corporation
                                                                                           is not at risk or income or loss from a
A corporation may be able to take a            Allocating Differently                      partnership interest or stock in an S
minimum tax credit against the regular
tax for AMT incurred in prior years. See       Treated Items Between                       corporation if the basis limitations
                                                                                           apply. Take this adjustment into
Form 8827, Credit for Prior Year               Certain Entities and                        account on line 2k.
Minimum Tax — Corporations, for
details.                                       Their Investors                             What Depreciation Must Be
                                               For a regulated investment company, a       Refigured for the AMT?
Recordkeeping                                  real estate investment trust, or a
                                                                                           Generally, the corporation must refigure
                                               common trust fund, see section 59(d)
Certain items of income, deductions,                                                       depreciation for the AMT, including
                                               for details on allocating certain
credits, etc., receive different tax                                                       depreciation allocable to inventory
                                               differently treated items between the
treatment for the AMT than for the                                                         costs, for the following.
                                               entity and its investors.
regular tax. Therefore, the corporation                                                    • Property placed in service after 1998
should keep adequate records to                                                            depreciated for the regular tax using
support items refigured for the AMT.           Optional Write-Off for                      the 200% declining balance method
Examples include:                              Certain Expenditures                        (generally 3-, 5-, 7-, or 10-year property
• Tax forms used for regular tax               There is no AMT adjustment for the
                                                                                           under the modified accelerated cost
purposes that are completed a second                                                       recovery system (MACRS)), except for
                                               following items if the corporation elects   qualified property eligible for the special
time to refigure items of income,              to deduct them ratably over the period
deductions, etc., for the AMT;                                                             depreciation allowance.
                                               of time shown for the regular tax.
• The computation of a carryback or            • Circulation expenditures (personal        • Section 1250 property placed in
carryforward to other tax years of                                                         service after 1998 that is not
                                               holding companies only) — 3 years.
                                                                                           depreciated for the regular tax using
certain deductions or credits (for             • Mining exploration and development        the straight line method.
example, net operating loss, capital           costs — 10 years.
loss, and foreign tax credit) if the AMT       • Intangible drilling costs — 60 months.    • Tangible property placed in service
amount is different from the regular tax                                                   after 1986 and before 1999. (If the
amount;                                            See section 59(e) for more details.     transitional election was made under
• The computation of a carryforward of                                                     section 203(a)(1)(B) of the Tax Reform
a passive loss or tax shelter farm                                                         Act of 1986, this rule applies to property
activity loss if the AMT amount is
different from the regular tax amount;
                                               Specific Instructions                       placed in service after July 31, 1986.)

and                                                                                        What Depreciation Is Not
• A “running balance” of the excess of         Line 1. Taxable Income                      Refigured for the AMT?
the corporation’s total increases in
alternative minimum taxable income
                                               or (Loss) Before Net                        Do not refigure depreciation for the
                                                                                           AMT for the following.
(AMTI) from prior year adjusted current        Operating Loss                              • Residential rental property placed in
earnings (ACE) adjustments over the                                                        service after 1998.
total reductions in AMTI from prior year       Deduction                                   • Nonresidential real property with a
ACE adjustments (see the instructions          Enter the corporation’s taxable income      class life of 27.5 years or more
for line 4d on page 6).                        or (loss) before the NOL deduction,         (generally, a building and its structural
                                               after the special deductions, and           components) placed in service after
                                               without regard to any excess inclusion      1998 that is depreciated for the regular
Short Period Return                            (for example, if filing Form 1120,          tax using the straight line method.
If the corporation is filing for a period of   subtract line 29b from line 28 of that      • Other section 1250 property placed
less than 12 months, AMTI must be              form).                                      in service after 1998 that is depreciated
annualized and the tentative minimum                                                       for the regular tax using the straight line
tax prorated based on the number of            Line 2. Adjustments and                     method.
months in the short period. Complete                                                       • Property (other than section 1250
Form 4626 as follows.                          Preferences                                 property) placed in service after 1998
    1. Complete lines 1 through 6 in the                                                   that is depreciated for the regular tax
normal manner. Subtract line 6 from                     To avoid duplication, do not
                                                                                           using the 150% declining balance
line 5 to figure AMTI for the short              !      include any AMT adjustment or
                                                CAUTION preference taken into account
                                                                                           method or the straight line method.
period, but do not enter it on line 7.
                                               on line 2i, 2j, 2k, or 2o in the amounts    • Property for which the corporation
    2. Multiply AMTI for the short period                                                  elected to use the alternative
                                               to be entered on any other line of this
by 12. Divide the result by the number                                                     depreciation system (ADS) for the
of months in the short period. Enter this                                                  regular tax.
result on line 7 and write “Sec.               Line 2a. Depreciation of                    • Any qualified property eligible for a
443(d)(1)” on the dotted line to the left                                                  special depreciation allowance if the
of the entry space.                            Post-1986 Property                          depreciable basis of the property for the
    3. Complete lines 8 through 11.                                                        AMT is the same as for the regular tax.
    4. Subtract line 11 from line 10.
                                               What Adjustments Are Not                    If the depreciable basis for the AMT is
Multiply the result by the number of           Included As Depreciation                    the same as for the regular tax, no
months in the short period and divide          Adjustments?                                adjustment is required for any
that result by 12. Enter the final result      Do not make a depreciation adjustment       depreciation figured on the remaining
on line 12 and write “Sec. 443(d)(2)” on       on line 2a for:                             basis of the qualified property.
the dotted line to the left of the entry       • A tax shelter farm activity. Take this    However, if an election is in effect to
space.                                         adjustment into account on line 2i.         not have the special allowance apply,
the corporation must refigure                           How is the AMT class life                   For the AMT, the regular tax
depreciation for the AMT.                            determined? For property placed in          deductions under sections 616(a) and
• Any part of the cost of any property               service before 1999, the class life used    617(a) are not allowed. Instead,
that the corporation elected to expense              for the AMT is not necessarily the same     capitalize these costs and amortize
under section 179. The reduction to the              as the recovery period used for the         them ratably over a 10-year period
depreciable basis of section 179                     regular tax.                                beginning with the tax year in which the
property by the amount of the section                   The class lives are listed in Rev.       corporation paid or incurred them. The
179 expense deduction is the same for                Proc. 87-56, 1987-2 C.B. 674, Rev.          10-year amortization applies to 100% of
the regular tax and the AMT.                         Proc. 88-22, 1988-1 C.B. 785, and in        the mining development and
• Certain public utility property (if a              Pub. 946, How To Depreciate Property.       exploration costs paid or incurred
normalization method of accounting is                                                            during the tax year. Do not reduce the
not used), motion picture films and                         See Pub. 946 for tables that can     corporation’s AMT basis by the 30%
video tape, sound recordings, and                     TIP be used to figure AMT                  section 291 adjustment that applied for
property that the corporation elects to                      depreciation. Rev. Proc. 89-15,     the regular tax.
exclude from MACRS by using a                        1989-1 C.B. 816, and Pub. 946 have              If the corporation had a loss on
depreciation method based on a term                  special rules for short tax years and for   property for which mining exploration
of years, such as the unit-of-production             property disposed of before the end of      and development costs have not been
method.                                              the recovery period.                        fully amortized for the AMT, the AMT
• Qualified Indian reservation property.                                                         deduction is the smaller of (a) the loss
See section 168(j).                                  How Is the Line 2a Adjustment
                                                                                                 allowable for the costs had they
• Qualified revitalization expenditures              Figured?                                    remained capitalized or (b) the
for a building for which the corporation             Subtract the AMT deduction for              remaining costs to be amortized for the
elected to claim the commercial                      depreciation from the regular tax           AMT.
revitalization deduction.                            deduction and enter the result on line
• Any natural gas gathering line (as                 2a. If the AMT deduction is more than          Subtract the AMT deduction from the
defined in section 168(i)(17)) placed in             the regular tax deduction, enter the        regular tax deduction. Enter the result
service after April 11, 2005, the original           difference as a negative amount.            on line 2c. If the AMT deduction is more
use of which begins with the                                                                     than the regular tax deduction, enter
corporation after April 11, 2005, and                   In addition to the AMT adjustment to     the difference as a negative amount.
which is not under self-construction or              the deduction for depreciation, also
subject to a binding contract in                     adjust the amount of depreciation that      Line 2d. Amortization of
existence before April 12, 2005.                     was capitalized, if any, to account for
                                                     the difference between the rules for the    Circulation Expenditures
How Is Depreciation Refigured                        regular tax and the AMT. Include on
for the AMT?                                         this line the current year adjustment to            Do not make this adjustment for

Property placed in service after 1998.
                                                     taxable income, if any, resulting from        !     expenditures of a personal
                                                                                                 CAUTION holding company for which the
                                                     the difference.
Use the same convention and recovery                                                             company elected the optional 3-year
period used for the regular tax. Use the             Line 2b. Amortization of                    write-off for the regular tax.
straight line method for section 1250
property. For property other than                    Certified Pollution Control                    For the regular tax, circulation
section 1250 property, use the 150%                  Facilities                                  expenditures may be deducted in full
declining balance method, switching to                                                           when paid or incurred. For the AMT,
                                                     For facilities placed in service before     these expenditures must be capitalized
the straight line method the first tax               1999, figure the amortization deduction
year it gives a larger deduction.                                                                and amortized over 3 years beginning
                                                     for the AMT using ADS (that is, the         with the tax year in which the
Property placed in service before                    straight line method over the facility’s    expenditures were made.
1999. Refigure depreciation for the                  class life). For facilities placed in
AMT using ADS, with the same                         service after 1998, figure the                 If the corporation had a loss on
convention used for the regular tax.                 amortization deduction for the AMT          property for which circulation
See the table below for the method and               under MACRS using the straight line         expenditures have not been fully
recovery period to use.                              method. Figure the AMT deduction            amortized for the AMT, the AMT
                                                     using 100% of the asset’s amortizable       deduction is the smaller of (a) the loss
Property Placed in Service                           basis. Do not reduce the corporation’s      allowable for the expenditures had they
Before 1999                                          AMT basis by the 20% section 291            remained capitalized or (b) the
                                                     adjustment that applied for the regular     remaining expenditures to be amortized
 IF the property is . . . THEN use the . . . . .     tax.                                        for the AMT.
 Section 1250 property. Straight line method           Enter the difference between the             Subtract the AMT deduction from the
                        over 40 years.               AMT deduction and the regular tax           regular tax deduction. Enter the result
 Tangible property        Straight line method       deduction on line 2b. If the AMT            on line 2d. If the AMT deduction is
 (other than section      over the property’s        deduction is more than the regular tax      more than the regular tax deduction,
 1250 property)           AMT class life.            deduction, enter the difference as a        enter the difference as a negative
 depreciated using the                               negative amount.                            amount.
 straight line method for
 the regular tax.
                                                     Line 2c. Amortization of                    Line 2e. Adjusted Gain or
 Any other tangible      150% declining              Mining Exploration and                      Loss
 property.               balance method,
                         switching to the straight   Development Costs                           If, during the tax year, the corporation
                         line method the first tax                                               disposed of property for which it is
                         year it gives a larger              Do not make this adjustment for     making (or previously made) any of the
                         deduction, over the
                         property’s AMT class          !     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.
Then refigure the gain or loss on the        deducted these amounts or excluded            Generally, no loss is allowed. However,
disposition.                                 them from income for the regular tax,         if the corporation is insolvent, losses
    The property’s adjusted basis for the    add them back on line 2g.                     are allowed to the extent the
AMT is its cost minus all applicable                                                       corporation is insolvent (see section
depreciation or amortization deductions
                                             Line 2h. Section 833(b)                       58(c)).
allowed for the AMT during the current       Deduction                                         Disallowed losses of a personal
tax year and previous tax years.             This deduction is not allowed for the         service corporation are suspended until
Subtract this AMT basis from the sales       AMT. If the corporation took this             the corporation has income from that
price to get the AMT gain or loss.           deduction for the regular tax, add it         (or any other) passive activity or until
Dispositions for which line 2i, 2j, and      back on line 2h.                              the passive activity is disposed of (that
2k adjustments are made. The                                                               is, its passive losses cannot offset “net
corporation may also have gains or
                                             Line 2i. Tax Shelter Farm                     active income” (defined in section
losses from lines 2i, 2j, and 2k that        Activities                                    469(e)(2)(B) or “portfolio income”)).
must be considered on line 2e. For                                                         Disallowed losses of a closely held
example, if for the regular tax the                   Complete this line only if the       corporation that is not a personal
corporation reports a loss from the            !      corporation is a personal service
                                              CAUTION corporation and it has a gain or
                                                                                           service corporation are treated the
                                                                                           same except that, in addition, they may
disposition of an asset used in a
passive activity, include the loss in the    loss from a tax shelter farm activity that    be used to offset “net active income.”
computations for line 2j to determine if     is not a passive activity. If the tax                Keep adequate records for
any passive activity loss is limited for     shelter farm activity is a passive             TIP losses that are not deductible
the AMT. Then, include the AMT               activity, include the gain or loss in the             (and therefore carried forward)
passive activity loss allowed that relates   computations for line 2j.                     for both the AMT and regular tax.
to the disposition of the asset on line 2e       Refigure all gains and losses                 Enter on line 2j the difference
in determining the corporation’s AMT         reported for the regular tax from tax         between the AMT gain or loss and the
basis adjustment. It may be helpful to       shelter farm activities by taking into        regular tax gain or loss. Enter the
refigure the following for the AMT: Form     account any AMT adjustments and               difference as a negative amount if the
8810 and related worksheets, Schedule        preferences. Determine the AMT gain           corporation had:
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
of the following apply.                      year to offset gains from other tax           Tax Shelter Farm Activities That
• The AMT gain is less than the regular      shelter farm activities. Instead, suspend     Are Passive Activities
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
determine the taxable income from any                                                      be used to offset AMT losses from
                                             between the AMT gain or loss and the
long-term contract (defined in section                                                     other passive activities.
                                             regular tax gain or loss. Enter the
460(f)). However, this rule does not
                                             difference as a negative amount if the        • AMT losses from tax shelter farm
apply to any home construction contract                                                    activities that are passive activities may
                                             corporation had:
(as defined in section 460(e)(6)).
                                             • An AMT loss and a regular tax gain,         not be used to offset AMT gains from
    For contracts excepted from the          • An AMT loss that exceeds the                other passive activities. These losses
percentage-of-completion method for          regular tax loss, or                          must be suspended and carried forward
the regular tax by section 460(e)(1),        • A regular tax gain that exceeds the         indefinitely until the corporation has a
determine the percentage of completion       AMT gain.                                     gain in a subsequent year from that
using the simplified procedures for                                                        same activity or it disposes of the
allocating costs outlined in section         Line 2j. Passive Activities                   activity.
                                                       This adjustment applies only to     Line 2k. Loss Limitations
    Subtract the regular tax income from
the AMT income. Enter the difference           !
                                                       closely held corporations and
                                                       personal service corporations.
                                                                                           Refigure gains and losses reported for
                                                                                           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
that were limited by those sections,         such bond issued after December 31,         4626 through line 5, including the IDC
figure the difference between the loss       2008, is not interest on a specified        preference. If the amount of the IDC
limited for the AMT and the loss limited     private activity bond, and is therefore     preference exceeds 40% of the amount
for the regular tax for each applicable      not treated as a tax preference item to     figured for line 5, enter the excess on
at-risk activity or distributive share of    be entered on line 2m. See section          line 2n (the benefit of this exception is
partnership loss. “Loss limited” means       57(a)(5)(C)(vi). Private activity bonds     limited). If the amount of the IDC
the amount of loss that is not allowable     also do not include certain housing         preference is equal to or less than 40%
for the year because of the limitations      bonds issued after July 30, 2008. See       of the amount figured for line 5, do not
above.                                       section 57(a)(5)(C)(iii). See section       include an amount on line 2n for oil and
    Enter on line 2k the excess of the       57(a)(5)(C) for other exceptions.           gas wells (the benefit of this exception
loss limited for the AMT over the loss          Do not include interest on qualified     is not limited).
limited for the regular tax. If the loss     Gulf Opportunity Zone bonds described
limited for the regular tax is more than     in section 1400N(a) or qualified            Line 2o. Other Adjustments
the loss limited for the AMT, enter the      Midwestern disaster area bonds.             And Preferences
difference as a negative amount.                                                         Enter the net amount of any other
                                             Line 2n. Intangible Drilling                adjustments and preferences, including
Line 2l. Depletion                           Costs                                       the following.
Refigure depletion using only income                                                     Income eligible for the American
and deductions allowed for the AMT                    Do not make this adjustment for    Samoa economic development
when refiguring the limit based on             !      costs for which the corporation
                                              CAUTION elected the optional 60-month
                                                                                         credit. If this income was included in
taxable income from the property under                                                   the corporation’s taxable income for the
section 613(a) and the limit based on        write-off for the regular tax.              regular tax, include this amount on line
taxable income, with certain                     Intangible drilling costs (IDCs) from   2o as a negative amount.
adjustments, under section 613A(d)(1).       oil, gas, and geothermal properties are
Also, the depletion deduction for mines,                                                 Income from the alcohol, biodiesel,
                                             a preference to the extent excess IDCs      and renewable diesel fuels credits.
wells, and other natural deposits is         exceed 65% of the net income from the
limited to the property’s adjusted basis                                                 If this income was included in the
                                             properties. Figure the preference for all   corporation’s income for the regular tax,
at the end of the year, as refigured for     geothermal deposits separately from
the AMT, unless the corporation is an                                                    include this amount on line 2o as a
                                             the preference for all oil and gas          negative amount.
independent producer or royalty owner        properties that are not geothermal
claiming percentage depletion for oil        deposits.                                   Income as the beneficiary of an
and gas wells. Figure this limit                                                         estate or trust. If the corporation is
                                             Excess IDCs. Excess IDCs are the
separately for each property. When                                                       the beneficiary of an estate or trust,
                                             excess of:
refiguring the property’s adjusted basis,                                                include on line 2o the AMT adjustment
                                             • The amount of IDCs the corporation        from Schedule K-1 (Form 1041), Part
take into account any AMT adjustments        paid or incurred for oil, gas, or
the corporation made this year or in                                                     III, box 12.
                                             geothermal properties that it elected to
previous years that affect basis (other      expense for the regular tax (not            Net AMT adjustment from an electing
than the current year’s depletion). Do       including any IDCs paid or incurred for     large partnership. If the corporation
not include in the property’s adjusted       nonproductive wells) reduced by the         is a partner in an electing large
basis any unrecovered costs of               section 291(b)(1) adjustment for            partnership, include on line 2o the
depreciable tangible property used to        integrated oil companies and increased      amount from Schedule K-1 (Form
exploit the deposits (for example,           by any IDCs allowed to be amortized         1065-B), box 6. Also include on line 2o
machinery, tools, pipes, etc.).              under section 291(b)(2) over                any amount from Schedule K-1 (Form
    For iron ore and coal (including         • The amount that would have been           1065-B), box 5, unless the corporation
lignite), apply the section 291              allowed if the corporation had              is a closely held or personal service
adjustment before figuring this              amortized that amount over a                corporation. Closely held and personal
preference.                                  120-month period starting with the          service corporations should take any
                                             month the well was placed in                amount from box 5 into account when
    Enter on line 2l the difference                                                      figuring the amount to enter on line 2j.
between the regular tax and the AMT          production or, alternatively, had elected
deduction. If the AMT deduction is           any method that is permissible in           Patron’s AMT adjustment.
more than the regular tax deduction,         determining cost depletion.                 Distributions the corporation received
enter the difference as a negative           Net income from oil, gas, and               from a cooperative may be includible in
amount.                                      geothermal properties. Net income is        income. Unless the distributions are
                                             the gross income the corporation            nontaxable, include on line 2o the total
Line 2m. Tax-Exempt Interest                 received or accrued from all oil, gas,      AMT patronage dividend adjustment
Income From Specified                        and geothermal wells minus the              reported to the corporation from the
                                             deductions allocable to these properties    cooperative.
Private Activity Bonds                       (reduced by the excess IDCs). When          Cooperative’s AMT adjustment. If
Enter on line 2m interest income from        refiguring net income, use only income      the corporation is a cooperative,
specified private activity bonds,            and deductions allowed for the AMT.         refigure the cooperatives deduction for
reduced by any deduction that would          Exception. The preference for IDCs          patronage dividends by taking into
have been allowable if the interest were     from oil and gas wells does not apply to    account the cooperatives AMT
includible in gross income for the           corporations that are independent           adjustments and preferences. Subtract
regular tax.                                 producers (that is, not integrated oil      the cooperatives AMT deduction for
   Generally, a specified private activity   companies as defined in section             patronage dividends from its regular tax
bond is any private activity bond (as        291(b)(4)). However, this benefit may       deduction for patronage dividends and
defined in section 141) issued after         be limited. First, figure the IDC           include the result on line 2o. If the AMT
August 7, 1986, on which the interest is     preference as if this exception did not     deduction is more than the regular tax
not includible in gross income for the       apply. Then, for purposes of this           deduction, include the result as a
regular tax. However, interest on any        exception, complete a second Form           negative amount.
Domestic production activities               convention, no salvage value, and a               as a negative ACE adjustment on line
deduction. For the AMT, figure the           recovery period of 15 years (22 years             4e only if the corporation’s total
corporation’s domestic production            for 15-year public utility property).             increases in AMTI from prior year ACE
activities deduction under section 199          Figure this amount separately for              adjustments exceed its total reductions
without taking into account any AMT          each property and include only positive           in AMTI from prior year ACE
adjustments and preferences. The             adjustments on line 2o.                           adjustments (line 4d). The purpose of
section 199 deduction for the                                                                  line 4d is to provide a “running balance”
corporation’s AMT is 6% of the smaller       Related adjustments. AMT                          of this limitation amount. As such, the
of (a) the qualified production activities   adjustments and preferences may                   corporation must keep adequate
income or (b) the alternative minimum        affect deductions that are based on an            records (for example, a copy of Form
taxable income (AMTI), determined            income limit (for example, charitable             4626 completed at least through line 5)
without taking into account the section      contributions). Refigure these                    from year to year (even in years in
199 deduction. Subtract the                  deductions using the income limit as              which it does not owe any AMT).
corporation’s AMT section 199                modified for the AMT. Include on line
                                             2o an adjustment for the difference                   Any potential negative ACE
deduction from its regular tax section                                                         adjustment that is not allowed as a
199 deduction and include the result on      between the regular tax and AMT
                                             amounts for all such deductions. If the           negative ACE adjustment in a tax year
line 2o. If the AMT deduction is more                                                          because of the line 4d limitation cannot
than the regular tax deduction, include      AMT deduction is more than the regular
                                             tax deduction, include the difference as          be used to reduce a positive ACE
the result as a negative amount.                                                               adjustment in any other tax year.
                                             a negative amount.
Installment sales. The installment                                                             Combine lines 4d and 4e of the 2007
method does not apply for the AMT to         Line 4. Adjusted Current                          Form 4626 and enter the result on line
any nondealer disposition of property                                                          4d of the 2008 form, but do not enter
that occurred after August 16, 1986, but     Earnings (ACE)                                    less than zero.
before the first day of the corporation’s                                                      Example. Corporation C, a
tax year that began in 1987, if an           Adjustment                                        calendar-year corporation, was
installment obligation to which the                                                            incorporated January 1, 2004. Its ACE
proportionate disallowance rule applied               The ACE adjustment does not
                                                                                               and pre-adjustment AMTI for 2004
arose from the disposition. Include as a        !     apply to a regulated investment
                                              CAUTION company or a real estate
                                                                                               through 2008 were as follows.
negative adjustment on line 2o the
amount of installment sale income            investment trust. Also, for an affiliated                                         Pre-
                                             group filing a consolidated return under                                       adjustment
reported for the regular tax.                                                                  Year              ACE           AMTI
                                             the rules of section 1501, figure line 4b
Accelerated depreciation of real             on a consolidated basis.                          2004            $700,000      $800,000
property and certain leased personal
                                             Line 4b. The following examples                   2005             900,000       600,000
property (pre-1987).
                                             illustrate the manner in which line 3 is          2006             400,000       500,000
         This preference generally           subtracted from line 4a to get the                2007            (100,000)      300,000
  !      applies only to property placed
 CAUTION in service after 1987, but
                                             amount to enter on line 4b.                       2008             250,000       100,000
                                             Example 1. Corporation A has line 4a                 Corporation C subtracts its
depreciated using pre-1987 rules due to      ACE of $25,000. If Corporation A has
transition provisions of the Tax Reform                                                        pre-adjustment AMTI from its ACE in
                                             line 3 pre-adjustment AMTI in the                 each of the years and then multiplies
Act of 1986.                                 amounts shown below, its line 3 and               the result by 75% to get the following
    Refigure depreciation for the AMT        line 4a amounts would be combined as              potential ACE adjustments for 2004
using the straight line method for real      follows to determine the amount to                through 2008.
property for which accelerated               enter on line 4b.
depreciation was determined for the                                                                           ACE minus      Potential
regular tax using pre-1987 rules. Use a                                                                      pre-adjustment    ACE
                                             Line 4a ACE        $25,000 $25,000 $25,000        Year              AMTI       adjustment
recovery period of 19 years for 19-year
real property and 15 years for               Line 3 pre-adj.                                   2004           $(100,000)     $ (75,000)
low-income housing property. Figure          AMTI                10,000   30,000 (50,000)      2005             300,000        225,000
the excess of the regular tax                                                                  2006            (100,000)       (75,000)
depreciation over the AMT depreciation       Amount to enter                                   2007            (400,000)      (300,000)
separately for each property and             on line 4b         $15,000 $(5,000) $75,000       2008             150,000        112,500
include only positive adjustments on         Example 2. Corporation B has line 4a
line 2o.                                                                                          Under these facts, Corporation C
                                             ACE of $(25,000). If Corporation B has            has the following increases or
    The adjustment for leased personal       line 3 pre-adjustment AMTI in the                 reductions in AMTI for 2004 through
property only applies to personal            amounts shown below, its line 3 and               2008.
holding companies. For leased                line 4a amounts would be combined as
personal property other than recovery        follows to determine the amount to                                 Increase or (reduction)
property, enter the excess of the            enter on line 4b.                                                     in AMTI from ACE
                                                                                                      Year             adjustment
depreciation claimed for the property for
the regular tax using pre-1987 rules         Line 4a ACE       $(25,000) $(25,000) $(25,000)          2004                $0
over the depreciation allowable for the                                                               2005              225,000
AMT as refigured using the straight line     Line 3 pre-adj.                                          2006              (75,000)
method.                                      AMTI              (10,000) (30,000)    50,000            2007             (150,000)
    For leased 10-year recovery                                                                       2008              112,500
                                             Amount to enter
property and leased 15-year public           on line 4b      $(15,000)     $5,000 $(75,000)
utility property, enter the excess of the                                                          In 2004, Corporation C was not
regular tax depreciation over the            Line 4d. A potential negative ACE                 allowed to reduce its AMTI by any part
depreciation allowable using the             adjustment (that is, a negative amount            of the potential negative ACE
straight line method with a half-year        on line 4b multiplied by 75%) is allowed          adjustment because it had no increases
in AMTI from prior year ACE                  the section 172(d) modifications must          The ATNOL can be carried back or
adjustments.                                 be separately figured for the ATNOL).       forward using the rules outlined in
    In 2005, Corporation C had to                                                        section 172(b). An election under
                                                In applying the rules relating to the
increase its AMTI by the full amount of                                                  section 172(b)(3) to forego the
                                             determination of the amount of
its potential ACE adjustment. It was not                                                 carryback period for the regular tax also
                                             carrybacks and carryforwards, use the
allowed to use any part of its 2004                                                      applies for the AMT.
                                             modification to those rules described in
unallowed potential negative ACE             section 56(d)(1)(B)(ii).                        The ATNOL carried back or forward
adjustment of $75,000 to reduce its                                                      may differ from the NOL (if any) that is
2005 positive ACE adjustment of                  The ATNOLD is generally limited to
                                             90% of AMTI determined without regard       carried back or forward for the regular
$225,000.                                                                                tax. Keep adequate records for both the
                                             to the ATNOLD and any domestic
    In 2006, Corporation C was allowed       production activities deduction under       AMT and the regular tax.
to reduce its AMTI by the full amount of     section 199. To figure AMTI without
its potential negative ACE adjustment
because that amount is less than its
                                             regard to the ATNOLD, use a second          Line 7. Alternative
                                             Form 4626 as a worksheet. Complete
line 4d limit of $225,000.                   the second Form 4626 through line 5,        Minimum Taxable
    In 2007, Corporation C was allowed       but when figuring lines 2l and 2o, treat
to reduce its AMTI by only $150,000. Its     line 6 as if it were zero. The amount       Income
potential negative ACE adjustment of         figured on line 5 of the second Form        For a corporation that held a residual
$300,000 was limited to its 2005             4626 is the corporation’s AMTI              interest in a REMIC and is not a thrift
increase in AMTI of $225,000 minus its       determined without regard to the            institution, line 7 may not be less than
2006 reduction in AMTI of $75,000.           ATNOLD. Add any domestic production         the total of the amounts shown on
                                             activities deduction to this tentative      Schedule(s) Q (Form 1066), Quarterly
    In 2008, Corporation C must              total. The ATNOLD limitation is 90% of      Notice to Residual Interest Holder of
increase its AMTI by the full amount of      this amount.                                REMIC Taxable Income or Net Loss
its potential ACE adjustment. It cannot                                                  Allocation, line 2c, for the periods
use any part of its 2007 unallowed               However, if an ATNOL carried back       included in the corporation’s tax year. If
potential negative ACE adjustment of         or carried forward to the tax year is       the total of the line 2c amounts is larger
$150,000 to reduce its 2008 positive         attributable to qualified disaster losses   than the amount the corporation would
ACE adjustment of $112,500.                  (as defined in section 172(j)), qualified   otherwise enter on line 7, enter that
Corporation C would complete the             Gulf Opportunity Zone losses (as            total and write “Sch. Q” on the dotted
relevant portion of its 2008 Form 4626       defined in section 1400N(k)(2)),            line next to line 7.
as follows.                                  qualified recovery assistance losses (as
        Line                Amount
                                             defined in Pub. 4492-A, Information for
                                             Taxpayers Affected by the May 4, 2007       Line 8. Exemption
         4a                $250,000          Kansas Storms and Tornadoes), or
         4b                 150,000          qualified disaster recovery assistance      Phase-Out Computation
         4c                 112,500          losses (as defined in Pub. 4492-B); the     Line 8a. If this Form 4626 is for a
         4d                   -0-            ATNOLD for the tax year is limited to       member of a controlled group of
         4e                 112,500          the sum of:                                 corporations, subtract $150,000 from
                                                 1. The smaller of:                      the combined AMTI of all members of
                                                 a. The sum of the ATNOL                 the controlled group. Divide the result
Line 6. Alternative Tax                      carrybacks and carryforwards to the tax     among the members of the group in the
                                                                                         same manner as the $40,000 tentative
Net Operating Loss                           year attributable to net operating losses
                                             other than qualified disaster losses,       exemption is divided among the
Deduction (ATNOLD)                           qualified Gulf Opportunity Zone losses,     members. Enter this member’s share
The ATNOLD is the sum of the                 qualified recovery assistance losses,       on line 8a. The tentative exemption
alternative tax net operating loss           and qualified disaster recovery             must be divided equally among the
(ATNOL) carrybacks and carryforwards         assistance losses; or                       members, unless all members consent
to the tax year, subject to the limitation       b. Ninety percent of AMTI for the tax   to a different allocation. See section
explained below. For a corporation that      year (figured without regard to the         1561 for details.
held a residual interest in a real estate    ATNOLD, as discussed earlier, and the       Line 8c. If this Form 4626 is for a
mortgage investment conduit (REMIC),         domestic production activities deduction    member of a controlled group of
figure the ATNOLD without regard to          under section 199) plus                     corporations, reduce the member’s
any excess inclusion.                            2. The smaller of:                      share of the $40,000 tentative
                                                 a. The sum of the ATNOL                 exemption by the amount entered on
         NOLs arising in tax years           carrybacks and carryforwards to the tax     line 8b.
  !      beginning before August 6,
 CAUTION 1997, can be carried forward no
                                             year attributable to qualified disaster
                                             losses, qualified Gulf Opportunity Zone
more than 15 years. Therefore, the           losses, qualified recovery assistance       Line 10. Reduction of
corporation cannot carry forward an          losses, and qualified disaster recovery
NOL to this tax year from a loss year        assistance losses; or
                                                                                         Alternative Minimum Tax
beginning before 1992.                           b. 100% of AMTI for the tax year        for Corporations Having
    The ATNOL for a loss year is the         (figured without regard to the ATNOLD,
excess of the deductions allowed in          as discussed earlier, and the domestic      Qualified Timber Gain
figuring AMTI (excluding the ATNOLD)         production activities deduction under       If the corporation has qualified timber
over the income included in AMTI. This       section 199) reduced by the amount          gain under section 1201(b), complete
excess is figured with the modifications     determined under 1, above.                  new Part II. Enter the amount from Part
in section 172(d), taking into account                                                   II, line 24 on Part I, line 10. Otherwise,
the adjustments in sections 56 and 58          Enter on line 6 the smaller of the        multiply line 9 by 20% and enter that
and preferences in section 57 (that is,      ATNOLD or the ATNOLD limitation.            amount on line 10.
                                            foreign tax credit for each separate          section 382(h)) undergoes an
Line 11. Alternative                        limitation category that the corporation      ownership change (within the meaning
Minimum Tax Foreign                         cannot claim (because of the limitation       of section 382(g) and Regulations
                                            fraction) is treated as a credit carryback    section 1.56(g)-1(k)(2)), refigure the
Tax Credit (AMTFTC)                         or carryforward for that limitation           adjusted basis of each asset of the
The AMTFTC is the foreign tax credit        category under section 904(c). Because        corporation (immediately after the
refigured as follows.                       these amounts may differ from the             ownership change). The new adjusted
                                            amounts that are carried back or              basis of each asset is its proportionate
    1. Complete a separate AMT Form         forward for the regular tax, keep             share (based on respective fair market
1118, Foreign Tax                           adequate records for both the AMT and         values) of the fair market value of the
Credit — Corporations, for each             regular tax. When carried back or             corporation’s assets (determined under
separate limitation category specified at   forward, the credit is reported on            section 382(h)) immediately before the
the top of Form 1118. Include as a          Schedule B, Part II, line 5, of the           ownership change.
separate limitation category dividends      carryover year’s AMT Form 1118 for
received from a corporation that                                                             To determine if the corporation has a
                                            that separate limitation category.            net unrealized built-in loss immediately
qualifies for the American Samoa
economic development credit if the                                                        before an ownership change, use the
                                            Simplified Limitation                         aggregate adjusted basis of its assets
dividends-received deduction for those
dividends is disallowed under the ACE       Election                                      used for figuring its ACE. Also, use
rules.                                      The corporation may elect to use a            these new adjusted bases for all future
                                            simplified section 904 limitation to figure   ACE calculations (such as depreciation
   In determining if any income is
                                            its AMTFTC. The corporation must              and gain or loss on disposition of an
“high-taxed” in applying the separate
                                            make the election for its first tax year      asset).
limitation categories, use the AMT rate
(20%) instead of the regular tax rate.      beginning after 1997 for which it claims      Line 2. ACE Depreciation
                                            an AMTFTC. If it does not make the
    2. For each separate AMT Form                                                         Adjustment
                                            election for that tax year, it may not
1118, if the corporation previously
                                            make the election for a later tax year.       Line 2a. AMT depreciation.
made or is making the simplified
                                            Once made, the election applies to all        Generally, the amount entered on this
limitation election (discussed below),
                                            later tax years and may only be               line is the depreciation the corporation
skip Schedule A and enter on Schedule
                                            revoked with IRS consent.                     claimed for the regular tax (Form 4562,
B, Part II, line 7, the same amount you
entered on that line for the regular tax.       If the corporation made the election      line 22), modified by the AMT
Otherwise, complete Schedule A using        for each of its AMT separate limitations,     depreciation adjustments reported on
only income and deductions that are         the corporation uses its separate             lines 2a and 2o of Form 4626.
allowed for the AMT and attributable to     limitation income or loss that it             Line 2b(1). Post-1993 property. For
sources outside the United States.          determined for the regular tax (instead       property placed in service after 1993,
    3. For each separate AMT Form           of refiguring the separate limitation         the ACE depreciation is the same as
1118, complete Schedule B, Part II.         income or loss for the AMT, as                the AMT depreciation. Therefore, enter
Enter any AMTFTC carryover on               described earlier).                           on line 2b(1) the same depreciation
Schedule B, Part II, line 5. Enter the                                                    expense you included on line 2a of this
AMTI from Form 4626, line 7, on             Line 13                                       worksheet for such property.
Schedule B, Part II, line 8a. Enter the     Enter the corporation’s regular tax           Line 2b(2). Post-1989, pre-1994
amount from Form 4626, line 10, on          liability (as defined in section 26(b))       property. For property placed in
Schedule B, Part II, line 10. When          minus any foreign tax credit and minus        service in a tax year that began after
completing Schedule B, treat as a tax       any American Samoa economic                   1989 and before 1994, use the ADS
paid to a foreign country 75% of any        development credit (for example, Form         depreciation described in section
withholding or income tax paid to           1120, Schedule J, line 2; minus any           168(g). However, for property (a)
American Samoa on dividends received        foreign tax credit entered on Schedule        placed in service in a tax year that
from a corporation that qualifies for the   J, line 5a; and minus any American            began after 1989 and (b) described in
American Samoa economic                     Samoa economic development credit             sections 168(f)(1) through (4), use the
development credit (if the                  from Form 5735). Do not include any:          same depreciation claimed for the
dividends-received deduction for those      • Tax on accumulation distribution of         regular tax and enter it on line 2b(5).
dividends is disallowed under the ACE       trusts from Form 4970,                        Line 2b(3). Pre-1990 MACRS
rules).                                     • Recapture of investment credit              property. For MACRS property
    4. For the AMT Form 1118,               (under section 49(b) or 50(a)) from           generally placed in service after 1986
complete Schedule B, Part III,              Form 4255,                                    and in a tax year that began before
Summary of Separate Credits. The total      • Recapture of low-income housing             1990, figure depreciation by using the
foreign tax credit is the amount on line    credit (under section 42(j) or (k)) from      property’s AMT adjusted basis as of the
6.                                          Form 8611, or                                 close of the last tax year beginning
    5. Enter on Form 4626, line 11, the     • Recapture of any other credit.              before 1990 and by using the straight
smaller of:                                                                               line method over the remainder of the
   • The amount on Form 4626, line                                                        recovery period for the property under
10, or                                      Adjusted Current                              ADS. In doing so, use the convention
   • The amount from the AMT Form                                                         that would have applied to the property
1118, Schedule B, Part III, line 6.         Earnings (ACE)                                under section 168(d). For more
                                                                                          information (including an example that
                                            Worksheet Instructions                        illustrates the application of these
   The corporation can use any
reasonable method, consistently                                                           rules), see Regulations section
applied, to apportion the disallowed
                                            Treatment of Certain                          1.56(g)-1(b)(2).
amount among the separate limitation        Ownership Changes                             Line 2b(4). Pre-1990 original ACRS
categories (including the general           If a corporation with a net unrealized        property. For ACRS property
limitation income category). Any AMT        built-in loss (within the meaning of          generally placed in service in a tax year
that began after 1980 and before 1987,          An income item is considered taken        • Any allowable domestic production
figure depreciation by using the             into account without regard to the           activities deduction under section 199.
property’s regular tax adjusted basis as     timing of its inclusion in a corporation’s
                                                                                            Special rules apply to:
of the close of the last tax year            pre-adjustment AMTI or its E&P. Only
beginning before 1990 and by using the       income items that are permanently
                                                                                          • Dividends from certain possession
                                                                                          corporations operating in American
straight line method over the remainder      excluded from pre-adjustment AMTI are
of the recovery period for the property      included in ACE. An income item will
under ADS. In doing so, use the              not be considered taken into account
                                                                                          • Certain dividends received by certain
convention that would have applied to        merely because the proceeds from that
the property under section 168(d)            item might eventually be reflected in the        An item is considered taken into
(without regard to section 168(d)(3)).       pre-adjustment AMTI of another               account without regard to the timing of
For more information (including an           taxpayer (for example, that of a             its deductibility in figuring
example that illustrates the application     shareholder) on the liquidation or           pre-adjustment AMTI or E&P.
of these rules), see Regulations section     disposal of a business.                      Therefore, only deduction items that are
1.56(g)-1(b)(3).                             Exceptions. Do not make an                   permanently disallowed in figuring E&P
                                             adjustment for the following.                are disallowed in figuring ACE.
Line 2b(5). Property described in
sections 168(f)(1) through (4). For          • Any income from discharge of               Items for which no adjustment is
this property, use the regular tax           indebtedness excluded from gross             necessary. Generally, no deduction is
depreciation, regardless of when the         income under section 108 (or the             allowed for an item in figuring ACE if
property was placed in service.              corresponding provision of prior law).       the item is not deductible in figuring
                                             • Any extraterritorial income excluded       pre-adjustment AMTI (even if the item
         Line 2b(5) takes priority over      from gross income under section 114.         is deductible in figuring E&P). The only
  !      lines 2b(1), 2b(2), 2b(3), and
 CAUTION 2b(4). For property that is
                                             • For an insurance company taxed             exceptions to this general rule are the
                                             under section 831(b), any amount not         related reductions to an income item
described in sections 168(f)(1) through      included in gross investment income          described in the second sentence of
(4), use line 2b(5) instead of the line      (as defined in section 834(b)).              the instructions for line 3 above.
2b(1), 2b(2), 2b(3), or 2b(4) that would     • Any special subsidy payment for            Deductions that are not allowed in
otherwise apply.                             prescription drug plans excluded from        figuring ACE include:
Line 2b(6). Other property. Use the          gross income under section 139A.             • Capital losses that exceed capital
regular tax depreciation for (a) property    • Any qualified shipping income              gains;
placed in service before 1981 and (b)        excluded under section 1357.                 • Bribes, fines, and penalties
property placed in service after 1980, in    • Tax-exempt interest on certain             disallowed under section 162;
a tax year that began before 1990, that      housing bonds issued after July 30,          • Charitable contributions that exceed
is excluded from MACRS by section            2008, excluded under section                 the limitations of section 170;
168(f)(5)(A)(i) or original ACRS by          57(a)(5)(C)(iii).                            • Meals and entertainment expenses
section 168(e)(4), as in effect before       • Tax-exempt interest on private             that exceed the limitations of section
the Tax Reform Act of 1986.                  activity bonds issued after December         274;
                                             31, 2008, excluded under section             • Federal taxes disallowed under
Line 2c. Total ACE depreciation.             56(g)(4)(B)(iv).                             section 275; and
Subtract line 2b(7) from line 2a and
                                             Line 3d. Include in ACE the income           • Golden parachute payments that
enter the result on line 2c. If line 2b(7)                                                exceed the limitation of section 280G.
exceeds line 2a, enter the difference as     on life insurance contracts (as
a negative amount.                           determined under section 7702(g)) for        Line 4e. Do not include any
                                             the tax year minus the part of any           adjustment related to the E&P effects of
Line 3. Inclusion in ACE of                  premium attributable to insurance            any charitable contribution.
Items Included in Earnings and               coverage.
                                             Line 3e. Do not include any                  Line 5. Other Adjustments
Profits (E&P)
In general, any income item that is not      adjustment related to the E&P effects of     Line 5a. Except as noted below, in
taken into account (see below) in            any charitable contribution.                 figuring ACE, determine the deduction
determining the corporation’s                                                             for intangible drilling costs under
                                             Line 4. Disallowance of Items                section 312(n)(2)(A).
pre-adjustment AMTI but that is taken        Not Deductible From E&P
into account in determining its E&P                                                          Subtract the ACE expense (if any)
must be included in ACE. Any such            Generally, no deduction is allowed
                                             when figuring ACE for items not taken        from the AMT expense (used to figure
income item can be reduced by all                                                         line 2n of Form 4626) and enter the
items related to that income item and        into account (see below) in figuring
                                             E&P for the tax year. These amounts          result on line 5a. If the ACE expense
that would be deductible when figuring                                                    exceeds the AMT amount, enter the
pre-adjustment AMTI if the income            increase ACE if they are deductible in
                                             figuring pre-adjustment AMTI (that is,       result as a negative amount.
items to which they relate were
included in the corporation’s                they would be positive adjustments).         Exception. The above rule does not
pre-adjustment AMTI for the tax year.            However, there are exceptions. Do        apply to amounts paid or incurred for
Examples of these income items and           not add back:                                any oil or gas well by corporations that
the adjustments that relate to them          • Any deduction allowable under              are independent producers (that is, not
include:                                     section 243 or 245 for any dividend that     integrated oil companies as defined in
• Interest income from tax-exempt            qualifies for a 100% dividends-received      section 291(b)(4)). If this exception
obligations excluded under section 103       deduction under section 243(a), 245(b),      applies, do not enter an amount on line
minus any costs incurred in carrying         or 245(c) and                                5a for oil and gas wells.
these tax-exempt obligations and             • Any dividend received from a               Line 5b. When figuring ACE, the
• Proceeds of life insurance contracts       20%-owned corporation (see section           current year deduction for circulation
excluded under section 101 minus the         243(c)(2)), but only if the dividend is      expenditures under section 173 does
basis in the contract for purposes of        from income of the paying corporation        not apply. Therefore, treat circulation
ACE.                                         that is subject to federal income tax.       expenditures for ACE using the case
law that existed before section 173 was     Line 7. Acquisition Expenses of              • The ACE loss is more than the AMT
enacted.                                    Life Insurance Companies for                 loss.
    Subtract the ACE expense (if any)       Qualified Foreign Contracts                  • The corporation had an ACE loss
from the regular tax expense (for a                                                      and an AMT gain.
                                            For ACE, acquisition expenses of life
personal holding company, from the          insurance companies for qualified
AMT expense used to figure line 2d of       foreign contracts (as defined in section
Form 4626) and enter the result on line     807(e)(4) without regard to the              Part II
5b. If the ACE expense exceeds the          treatment of reinsurance contract rules
regular tax amount (for a personal                                                       Line 15. Enter qualified timber gain
                                            of section 848(e)(5)) must be                from Schedule D (Form 1120), line 15,
holding company, the AMT amount),           capitalized and amortized by applying
enter the result as a negative amount.                                                   as refigured for the AMT, if necessary
                                            the treatment generally required under       (for example, after any timber depletion
         Do not make this adjustment for    generally accepted accounting                adjustments for the AMT). If the
  !      expenditures for which the
 CAUTION corporation elected the optional
                                            principles (and as if this rule applied to
                                            such contracts for all applicable tax
                                                                                         corporation is filing Form 1120-RIC,
                                                                                         enter the amount from Part II, line 4, of
3-year write-off under section 59(e) for    years).                                      Form 1120-RIC, as refigured for the
the regular tax.                                Subtract the ACE expense (if any)        AMT, if necessary.
Line 5c. When figuring ACE, the             from the regular tax expense and enter
amortization provisions of section 248      the result on line 7. If the ACE expense
do not apply. Therefore, charge all                                                      Paperwork Reduction Act Notice.
                                            is more than the regular tax expense,
organizational expenditures to a capital                                                 We ask for the information on this form
                                            enter the result as a negative amount.
account and do not take them into                                                        to carry out the Internal Revenue laws
account when figuring ACE until the         Line 8. Depletion                            of the United States. You are required
corporation is sold or otherwise                                                         to give us the information. We need it to
                                            When figuring ACE, the allowance for         ensure that you are complying with
disposed of. Enter on line 5c all           depletion for any property placed in
amortization deductions for                                                              these laws and to allow us to figure and
                                            service in a tax year that began after       collect the right amount of tax.
organizational expenditures that were       1989 generally must be determined
taken for the regular tax during the tax    under the cost depletion method.
year.                                                                                       You are not required to provide the
Line 5d. The adjustments provided in           Subtract the ACE expense (if any)         information requested on a form that is
section 312(n)(4) apply in figuring ACE.    from the AMT expense (used to figure         subject to the Paperwork Reduction Act
See Regulations section 1.56(g)-1(f)(3).    line 2l of Form 4626) and enter the          unless the form displays a valid OMB
Line 5e. For any installment sale in a      result on line 8 of the worksheet. If the    control number. Books or records
tax year that began after 1989, a           ACE expense is more than the AMT             relating to a form or its instructions
corporation generally cannot use the        amount, enter the result as a negative       must be retained as long as their
installment method to figure ACE.           amount.                                      contents may become material in the
However, it may use the installment         Exception. Independent oil and gas           administration of any Internal Revenue
method for the applicable percentage        producers and royalty owners that            law. Generally, tax returns and return
(as determined under section 453A) of       figured their regular tax depletion          information are confidential, as required
the gain from any installment sale to       deduction under section 613A(c) do not       by section 6103.
which section 453A(a)(1) applies.           have an adjustment for ACE purposes.
    Subtract the installment sale income                                                     The time needed to complete and
reported for AMT from the ACE income        Line 9. Basis Adjustments in                 file this form will vary depending on
from the sales and enter the result on      Determining Gain or Loss From                individual circumstances. The
line 5e. If the ACE income from the         Sale or Exchange of Pre-1994                 estimated average time is:
sales is less than the AMT amount,          Property
enter the difference as a negative                                                       Recordkeeping . . . . . . . 18 hr., 39 min.
                                            If, during the tax year, the corporation     Learning about the law
amount.                                     disposed of property for which it is         or the form . . . . . . . . . . 12 hr., 00 min.
Line 6. Disallowance of Loss on             making (or previously made) any of the       Preparing and sending
Exchange of Debt Pools                      ACE adjustments, refigure the                the form to the IRS . . . . 12 hr., 51 min.
                                            property’s adjusted basis for ACE. Then
When figuring ACE, a corporation may        refigure the property’s gain or loss.
not recognize any loss on the exchange
                                                                                            If you have comments concerning
of any pool of debt obligations for any         Enter the difference between the
                                                                                         the accuracy of these time estimates or
other pool of debt obligations having       AMT gain or loss (used to figure line 2e
                                                                                         suggestions for making this form
substantially the same effective interest   of Form 4626) and the ACE gain or
                                                                                         simpler, we would be happy to hear
rates and maturities. Add back (that is,    loss. Enter the difference as a negative
                                                                                         from you. See the instructions for the
enter as a positive adjustment) on line     amount if any of the following apply.
                                                                                         tax return with which this form is filed.
6 any such loss to the extent               • The ACE gain is less than the AMT
recognized for the regular tax.             gain.

                                                   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


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