Alternative Minimum Tax - Corporations

Line 2j - Tax Shelter Farm Activities

Important: Complete this line only if the corporation is a personal service corporation and it has a gain or loss from a tax shelter farm activity (as defined in section 58(a)(2)) that is not a passive activity. If the tax shelter farm activity is a passive activity, include the gain or loss in the computations for line 2k.

Refigure all gains and losses reported for the regular tax from tax shelter farm activities by taking into account any AMT adjustments and preferences. Determine the AMT gain or loss using the rules for the regular tax with the following modifications.

• No loss is allowed except to the extent the personal service corporation is insolvent (see section 58(c)(1)).
• Do not use a loss in the current tax year to offset gains from other tax shelter farm activities. Instead, suspend any loss and carry it forward indefinitely until the corporation has a gain in a subsequent tax year from that same tax shelter farm activity or it disposes of the activity.

  Note: Keep adequate records for losses that are not deductible (and therefore carried forward) for both the AMT and regular tax.

Enter on line 2j the difference between the AMT gain or loss and the regular tax gain or loss. Enter the difference as a negative amount if the corporation had:

• An AMT loss and a regular tax gain,
• An AMT loss that exceeds the regular tax loss, or
• A regular tax gain that exceeds the AMT gain.

Line 2k - Passive Activities

Note: This adjustment applies only to closely held corporations and personal service corporations.

Refigure all passive activity gains and losses reported for the regular tax by taking into account the corporation's AMT adjustments, preferences, and AMT prior year unallowed losses.

Determine the corporation's AMT passive activity gain or loss using the same rules used for the regular tax. If the corporation is insolvent, see section 58(c)(1).

Disallowed losses of a personal service corporation are suspended until the corporation has income from that (or any other) passive activity or until the passive activity is disposed of (i.e., its passive losses cannot offset net active income (defined in section 469(e)(2)(B)) or portfolio income). Disallowed losses of a closely held corporation that is not a personal service corporation are treated the same except that, in addition, they may be used to offset net active income.

Note: Keep adequate records for losses that are not deductible (and therefore carried forward) for both the AMT and regular tax.

Enter on line 2k the difference between the AMT gain or loss and the regular tax gain or loss. Enter the difference as a negative amount if the corporation had:

• An AMT loss and a regular tax gain,
• An AMT loss that exceeds the regular tax loss, or
• A regular tax gain that exceeds the AMT gain.

Tax Shelter Farm Activities That Are Passive Activities

Refigure all gains and losses reported for the regular tax by taking into account the corporation's AMT adjustments and preferences and AMT prior year unallowed losses.

Use the same rules as outlined above for other passive assets, with the following modifications.

• AMT gains from tax shelter farm activities that are passive activities may be used to offset AMT losses from other passive activities.
• AMT losses from tax shelter farm activities that are passive activities may not be used to offset AMT gains from other passive activities. These losses must be suspended and carried forward indefinitely until the corporation has a gain in a subsequent year from that same activity or it disposes of the activity.

Line 2l - Loss Limitations

Refigure gains and losses reported for the regular tax from at-risk activities and partnerships by taking into account the corporation's AMT adjustments and preferences. If the corporation has recomputed losses that must be limited for the AMT (under section 59(h)) by section 465 or section 704(d) or the corporation reported losses for the regular tax from at-risk activities or partnerships that were limited by those sections, figure the difference between the loss limited for the AMT and the loss limited for the regular tax for each applicable at-risk activity or partnership. Loss limited means the amount of loss that is not allowable for the year because of the limitation of section 465 or 704(d).

Enter on line 2l the excess of the loss limited for the AMT over the loss limited for the regular tax. If the loss limited for the regular tax is more than the loss limited for the AMT, enter the difference as a negative amount.

Line 2m - Depletion

Refigure depletion using only income and deductions allowed for the AMT when refiguring the limit based on taxable income from the property under section 613(a) and the limit based on taxable income, with certain adjustments, under section 613A(d)(1). Also, the depletion deduction for mines, wells, and other natural deposits under section 611 is limited to the property's adjusted basis at the end of the year, as refigured for the AMT, unless the corporation is an independent producer or royalty owner claiming percentage depletion for oil and gas wells under section 613A(c). Figure this limit separately for each property. When refiguring the property's adjusted basis, take into account any AMT adjustments the corporation made this year or in previous years that affect basis (other than the current year's depletion). Do not include in the property's adjusted basis any unrecovered costs of depreciable tangible property used to exploit the deposits (e.g., machinery, tools, pipes, etc.).

For iron ore and coal (including lignite), apply the section 291 adjustment before figuring this preference.

Enter on line 2m the difference between the regular tax and the AMT deduction. If the AMT deduction is more than the regular tax deduction, enter the difference as a negative amount.

Line 2n - Tax-Exempt Interest Income From Specified Private Activity Bonds

Enter interest income from specified private activity bonds, reduced by any deduction that would have been allowable if the interest were includible in gross income for the regular tax. Generally, a specified private activity bond is any private activity bond (as defined in section 141) issued after August 7, 1986. See section 57(a)(5) for exceptions and details.

Line 2o - Intangible Drilling Costs

Note: This preference applies only to costs for which the corporation did not elect the optional 60-month write-off under section 59(e) for the regular tax.

Intangible drilling costs (IDCs) from oil, gas, and geothermal properties are a preference to the extent excess IDCs exceed 65% of the net income from the properties. Figure the preference for all geothermal deposits separately from the preference for all oil and gas properties that are not geothermal deposits.

Excess IDCs are the excess of:

• The amount of IDCs the corporation paid or incurred for oil, gas, or geothermal properties that it elected to expense for the regular tax under section 263(c) (not including any section 263(c) deduction for nonproductive wells) reduced by the section 291(b)(1) adjustment for integrated oil companies and increased by any amortization of IDCs allowed under section 291(b)(2) over
• The amount that would have been allowed if the corporation had amortized that amount over a 120-month period starting with the month the well was placed in production.

Note: If the corporation prefers not to use the 120-month period, it can elect any method that is permissible in determining cost depletion.

Net income is the gross income the corporation received or accrued from all oil, gas, and geothermal wells minus the deductions allocable to these properties (reduced by the excess IDCs). When refiguring net income, use only income and deductions allowed for the AMT.

Exception. The preference for IDCs from oil and gas wells does not apply to corporations that are independent producers (i.e., not integrated oil companies as defined in section 291(b)(4)). However, this benefit may be limited. First, figure the IDC preference as if this exception did not apply. Then, for purposes of this exception, complete a second Form 4626 through line 5, including the IDC preference. If the amount of the IDC preference exceeds 40% of the amount figured for line 5, enter the excess on line 2o (the benefit of this exception is limited). If the amount of the IDC preference is equal to or less than 40% of the amount figured for line 5, do not include an amount on line 2o for oil and gas wells (the benefit of this exception is not limited).

Line 2p - Accelerated Depreciation of Real Property (Pre-1987)

Refigure depreciation for the AMT using the straight line method for real property for which accelerated depreciation was determined for the regular tax using pre-1987 rules. Use a recovery period of 19 years for 19-year real property and 15 years for low-income housing property. Figure the excess of the regular tax depreciation over the AMT depreciation separately for each property and include only positive adjustments on line 2p.

Line 2q - Accelerated Depreciation of Leased Personal Property (Pre-1987)

Note: This preference applies only to personal holding companies.

For leased personal property other than recovery property, enter the excess of the depreciation claimed for the property for the regular tax using the pre-1987 rules over the depreciation allowable for the AMT as refigured using the straight line method.

For leased 10-year recovery property and leased 15-year public utility property, enter the amount by which the regular tax depreciation exceeds the depreciation allowable using the straight line method with a half-year convention, no salvage value, and a recovery period of 15 years (22 years for 15-year public utility property).

Figure this amount separately for each property and include only positive adjustments on line 2q.

Line 2r - Other Adjustments

Enter the net amount of the following adjustments.

• Income eligible for the possessions tax credit. If this income was included in the corporation's taxable income for the regular tax, include this amount on line 2r as a negative amount.
• Income from the alcohol fuel credit. If this income was included in the corporation's income for the regular tax, include this amount on line 2r as a negative amount.
• Income as the beneficiary of an estate or trust. If the corporation is the beneficiary of an estate or trust, include on line 2r the minimum tax adjustment from Schedule K-1 (Form 1041), line 9.
• Net AMT adjustment from an electing large partnership. If the corporation is a partner in an electing large partnership, include on line 2r the amount from Schedule K-1 (Form 1065-B), box 6. Also include on line 2r any amount from Schedule K-1 (Form 1065-B), box 5, unless the corporation is closely held or a personal service corporation. Closely held and personal service corporations should take any amount from box 5 into account when figuring the amount to enter on line 2k.
• Patron's AMT adjustment. Distributions the corporation received from a cooperative may be includible in income. Unless the distributions are nontaxable, include on line 2r the total AMT patronage dividend adjustment reported to the corporation from the cooperative.
• Cooperative's AMT adjustment. If the corporation is a cooperative, refigure the cooperative's deduction for patronage dividends by taking into account the cooperative's AMT adjustments and preferences. Subtract the cooperative's AMT deduction for patronage dividends from its regular tax deduction for patronage dividends and include the result on line 2r. If the AMT deduction is more than the regular tax deduction, include the result as a negative amount.
• Related adjustments. AMT adjustments and preferences may affect deductions that are based on an income limit (e.g., charitable contributions). Refigure these deductions using the income limit as modified for the AMT. Include on line 2r an adjustment for the difference between the regular tax and AMT amounts for all such deductions. If the AMT deduction is more than the regular tax deduction, include the difference as a negative amount.

Line 4 - Adjusted Current Earnings (ACE) Adjustment

Note: The ACE adjustment does not apply to a regulated investment company or a real estate investment trust.

Line 4b

Important: For an affiliated group filing a consolidated return under the rules of section 1501, figure line 4b on a consolidated basis.

The following examples illustrate the manner in which line 3 is subtracted from line 4a to get the amount to enter on line 4b.

Example 1. Corporation A has line 4a ACE of $25,000. If Corporation A has line 3 pre-adjustment AMTI in the amounts shown below, its line 3 pre-adjustment AMTI and line 4a ACE would be combined as follows to determine the amount to enter on line 4b.

Example 2. Corporation B has line 4a ACE of $(25,000). If Corporation B has line 3 pre-adjustment AMTI in the amounts shown below, its line 3 pre-adjustment AMTI and line 4a ACE would be combined as shown below to determine the amount to enter on line 4b.

Line 4d. A potential negative ACE adjustment (i.e., a negative amount on line 4b multiplied by 75%) is allowed as a negative ACE adjustment on line 4e only if the corporation's total increases in AMTI from prior year ACE adjustments exceed its total reductions in AMTI from prior year ACE adjustments (line 4d). The purpose of line 4d is to provide a running balance of this limitation amount. As such, the corporation must keep adequate records (e.g., a copy of Form 4626 completed at least through line 5) from year to year (even in years in which it does not owe any AMT).

Any potential negative ACE adjustment that is not allowed as a negative ACE adjustment in a tax year because of the line 4d limitation may not be used to reduce a positive ACE adjustment in any other tax year. Combine lines 4d and 4e of the 2000 Form 4626 and enter the result on line 4d of the 2001 form, but not less than zero.

Example. Corporation C, a calendar-year corporation, was incorporated January 1, 1997. Its ACE and pre-adjustment AMTI for 1997 through 2001 were as follows.

Corporation C subtracts its pre-adjustment AMTI from its ACE in each of the years and then multiplies the result by 75% to get the following potential ACE adjustments for 1997 through 2001.

Under these facts, Corporation C has the following increases or reductions in AMTI for 1997 through 2001.

In 1997, Corporation C was not allowed to reduce its AMTI by any part of the potential negative ACE adjustment because it had no increases in AMTI from prior year ACE adjustments.

In 1998, Corporation C had to increase its AMTI by the full amount of its potential ACE adjustment. It was not allowed to use any part of its 1997 unallowed potential negative ACE adjustment of $75,000 to reduce its 1998 positive ACE adjustment of $225,000.

In 1999, Corporation C was allowed to reduce its AMTI by the full amount of its potential negative ACE adjustment because that amount is less than its line 4d limit of $225,000.

In 2000, Corporation C was allowed to reduce its AMTI by only $150,000. Its potential negative ACE adjustment of $300,000 was limited to its 1998 increase in AMTI of $225,000 minus its 1999 reduction in AMTI of $75,000.

In 2001, Corporation C must increase its AMTI by the full amount of its potential ACE adjustment. It may not use any part of its 2000 unallowed potential negative ACE adjustment of $150,000 to reduce its 2001 positive ACE adjustment of $112,500. Corporation C would complete the relevant portion of its 2001 Form 4626 as follows.

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