Alternative Minimum Tax - Corporations

Line 6 - Alternative Tax Net Operating Loss Deduction (ATNOLD)

The ATNOLD is the sum of the ATNOL carrybacks and carryforwards to the tax year, subject to the limitation explained below. For a corporation that held a residual interest in a real estate mortgage investment conduit (REMIC), figure the ATNOLD without regard to any excess inclusion.

For a loss year that began after 1986, the ATNOL is the excess of the deductions allowed in figuring AMTI (excluding the ATNOLD) over the income included in AMTI. This excess is figured with the modifications in section 172(d), taking into account the adjustments in sections 56 and 58 and preferences in section 57 (that is, the section 172(d) modifications must be separately figured for the ATNOL).

In applying the rules relating to the determination of the amount of carrybacks and carryforwards, use the modification to those rules described in section 56(d)(1)(B)(ii).

If, for any tax year that began before 1987, the corporation had minimum tax that was deferred under section 56(b) (as in effect before the enactment of the Tax Reform Act of 1986) and that deferred tax has not been paid, reduce the amount of ATNOL carryforwards that may be carried forward to this year by the corporation's preferences that caused the deferred add-on minimum tax. (Section 701(f)(2)(B) of the Tax Reform Act of 1986.)

For tax years ending in 2001 or 2002, the ATNOLD is generally limited to AMTI (figured without regard to the ATNOLD). However, if an ATNOL is carried back to the tax year from a tax year ending after 2002, or for ATNOLs carried back from the tax year to tax years ending before 2001, the ATNOLD is limited to the sum of:

1. The smaller of:
   1. The sum of the ATNOL carrybacks to the tax year from tax years ending before 2001 or after 2002 and the ATNOL carryforwards to the tax year (unless the tax year ended in 2001 or 2002) or
   2. Ninety percent of AMTI for the tax year (figured without regard to the ATNOLD), plus
2. The smaller of:
   1. The sum of the ATNOL carrybacks to the tax year from a tax year ending in 2001 or 2002 and the ATNOL carryforwards to the tax year (if the tax year ended in 2001 or 2002), or
   2. AMTI for the tax year (figured without regard to the ATNOLD) reduced by the amount determined under 1 above.

To figure AMTI without regard to the ATNOLD, use a second Form 4626 as a worksheet. Complete the form through line 5, but when figuring lines 2m and 2r, treat line 6 as if it were zero. The amount figured on line 5 of the second Form 4626 is the corporation's AMTI figured without regard to the ATNOLD.

The amount of any ATNOL that is not deductible may be carried back or forward using the rules outlined in section 172(b). An election under section 172(b)(3) to forego the carryback period for the regular tax also applies for the AMT.

The ATNOL carried back or forward may differ from the NOL (if any) that is carried back or forward for the regular tax. Keep adequate records for both the AMT and the regular tax.

Line 7 - Alternative Minimum Taxable Income

For a corporation that held a residual interest in a REMIC and is not a thrift institution, line 7 may not be less than the total of the amounts shown on line 2c of Schedule(s) Q (Form 1066), Quarterly Notice to Residual Interest Holder of REMIC Taxable Income or Net Loss Allocation, for the periods included in the corporation's tax year. If the total of the line 2c amounts is larger than the amount the corporation would otherwise enter on line 7, enter that total and write Sch. Q on the dotted line next to line 7.

Line 9 - Exemption Phase-Out Computation

Line 9a. If this Form 4626 is for a member of a controlled group of corporations, subtract $150,000 from the combined AMTI of all members of the controlled group. Divide the result among the members of the group in the same manner as the $40,000 tentative exemption is divided among the members. Enter this member's share on line 9a. The tentative exemption must be divided equally among the members, unless all members consent to a different allocation. See section 1561 for details.

Line 9c. If this Form 4626 is for a member of a controlled group of corporations, reduce the member's share of the $40,000 tentative exemption by the amount entered on line 9b.

Line 12 - Alternative Minimum Tax Foreign Tax Credit (AMTFTC)

The AMTFTC is the foreign tax credit refigured as follows.

1. Complete a separate AMT Form 1118, Foreign Tax Credits - Corporations, for each separate limitation category specified at the top of Form 1118. Include as a separate limitation category dividends received from a corporation that qualifies for the possessions tax credit if the dividends-received deduction for those dividends is disallowed under the ACE rules.

   Note: In determining if any income is high-taxed in applying the separate limitation categories, use the AMT rate (20%) instead of the regular tax rate.

2. If the corporation previously made or is making the simplified limitation election (discussed below), skip Schedule A of the AMT Form 1118 and enter on Schedule B, Part II, line 6, the same amount you entered on that line for the regular tax. Otherwise, complete Schedule A using only income and deductions that are allowed for the AMT and attributable to sources outside the United States.
3. Complete Schedule B, Part II, of the AMT Form 1118. Enter any AMTFTC carryover on Schedule B, Part II, line 4, of the AMT Form 1118. Enter the AMTI from Form 4626, line 7, on Schedule B, Part II, line 7a. Enter the amount from Form 4626, line 11, on Schedule B, Part II, line 9.

   Note: When completing Schedule B of the AMT Form 1118, treat as a tax paid to a foreign country 75% of any withholding or income tax paid to a U.S. possession on dividends received from a corporation that qualifies for the possessions tax credit (if the dividends-received deduction for those dividends is disallowed under the ACE rules).

4. Complete Schedule B, Part III, of the AMT Form 1118. The foreign tax credit from line 13 of that part is limited to the tax on Form 4626, line 11, minus 10% of the tax that would be on that line if Form 4626 were refigured using zero on line 6 and if the exception for intangible drilling costs (IDCs) under section 57(a)(2)(E) did not apply.

If there is no entry on Form 4626, line 6, and no IDCs (or the exception does not apply to the corporation), enter on Form 4626, line 12, the smaller of:

• 90% of Form 4626, line 11, or
• The amount from the AMT Form 1118, Schedule B, Part III, line 13.

If Form 4626, line 6, has an amount or the exception for IDCs applies to the corporation:

1. Refigure what the tax on line 11 would have been if line 6 were zero and the exception did not apply,
2. Multiply that amount by 10%,
3. Subtract the result from the tax on line 11, and
4. Enter on Form 4626, line 12, the smaller of that amount or the amount from the AMT Form 1118, Schedule B, Part III, line 13.

Any AMT foreign tax credit the corporation cannot claim (because of the limitation fraction or the 90% limit) may be carried back or carried over using the rules in sections 59(a)(2)(B) and 904(c). This amount may differ from the amount (if any) that is carried back or carried over for the regular tax. Keep adequate records for both the AMT and the regular tax.

Simplified Limitation Election

The corporation may elect to use a simplified section 904 limitation to figure its AMTFTC. The corporation must make the election for its first tax year beginning after 1997 for which it claims an AMTFTC. If it does not make the election for that tax year, it may not make the election for a later tax year. Once made, the election applies to all later tax years and may only be revoked with IRS consent.

If the corporation made the election, use the corporation's regular tax income instead of refiguring its foreign source income for the AMT, as described earlier.

Line 14

Enter the corporation's regular tax liability (as defined in section 26(b)) minus any foreign tax credit and possessions tax credit (e.g., for Form 1120: Schedule J, line 3, minus the sum of Schedule J, lines 6a and 6b). Do not include any:

• Tax on accumulation distribution of trusts from Form 4970,
• Recapture of investment credit (under section 49(b) or 50(a)) from Form 4255,
• Recapture of low-income housing credit (under section 42(j) or (k)) from Form 8611, or
• Recapture of any other credit.

ACE Worksheet Instructions

Treatment of Certain Ownership Changes

If a corporation with a net unrealized built-in loss (within the meaning of section 382(h)) undergoes an ownership change (within the meaning of Regulations section 1.56(g)-1(k)(2)), refigure the adjusted basis of each asset of the corporation (immediately after the ownership change). The new adjusted basis of each asset is its proportionate share (based on respective fair market values) of the fair market value of the corporation's assets (determined under section 382(h)) immediately before the ownership change.

To determine if the corporation has a net unrealized built-in loss, use the aggregate adjusted basis of its assets used for figuring its ACE.

Note: Use these new adjusted bases for all future ACE calculations (such as depreciation and gain or loss on disposition of an asset).

Line 2 - ACE Depreciation Adjustment

Line 2a. Generally, the amount entered on this line is the depreciation the corporation claimed for the regular tax (Form 4562, line 21), modified by the AMT depreciation adjustments reported on lines 2a, 2p, and 2q of Form 4626.

Line 2b(1). For property placed in service after 1993, the ACE depreciation is the same as the AMT depreciation. Therefore, enter on line 2b(1) the same depreciation expense you entered on line 2a for such property.

Line 2b(2). For property placed in service in a tax year that began after 1989 and before 1994, use the ADS depreciation described in section 168(g). However, for property (a) placed in service in a tax year that began after 1989 and (b) described in sections 168(f)(1) through (4), use the same depreciation claimed for the regular tax and enter it on line 2b(5).

Line 2b(3). For property placed in service in a tax year that began after 1986 and before 1990 (MACRS property), use the straight line method over the remainder of the recovery period for the property under the ADS of section 168(g). In doing so, use the convention that would have applied to the property under section 168(d). For more information (including an example that illustrates the application of these rules), see Regulations section 1.56(g)-1(b)(2).

Line 2b(4). For property placed in service in a tax year that began after 1980 and before 1987 (to which the original ACRS applies), use the straight line method over the remainder of the recovery period for the property under ADS. In doing so, use the convention that would have applied to the property under section 168(d) (without regard to section 168(d)(3)). For more information (including an example that illustrates the application of these rules), see Regulations section 1.56(g)-1(b)(3).

Line 2b(5). For property described in sections 168(f)(1) through (4), use the regular tax depreciation, regardless of when the property was placed in service.

Important: Line 2b(5) takes priority over lines 2b(1), 2b(2), 2b(3), and 2b(4) (i.e., for property that is described in sections 168(f)(1) through (4), use line 2b(5) instead of the line (2b(1), 2b(2), 2b(3), or 2b(4)) that would otherwise apply).

Line 2b(6). Use the regular tax depreciation for (a) property placed in service before 1981 and (b) property placed in service after 1980, in a tax year that began before 1990, that is excluded from MACRS by section 168(f)(5)(A)(i) or original ACRS by section 168(e)(4), as in effect before the Tax Reform Act of 1986.

Line 2c. Subtract line 2b(7) from line 2a and enter the result on line 2c. If line 2b(7) exceeds line 2a, enter the difference as a negative amount.

Line 3 - Inclusion in ACE of Items Included in Earnings and Profits (E&P)

In general, any income item that is not taken into account (see below) in determining the corporation's pre-adjustment AMTI but that is taken into account in determining its E&P must be included in ACE. Any such income item may be reduced by all items related to that income item and that would be deductible when figuring pre-adjustment AMTI if the income items to which they relate were included in the corporation's pre-adjustment AMTI for the tax year. Examples of adjustments for these income items include:

• Interest income from tax-exempt obligations excluded under section 103 minus any costs incurred in carrying these tax-exempt obligations and
• Proceeds of life insurance contracts excluded under section 101 minus the basis in the contract for purposes of ACE.

An income item is considered taken into account without regard to the timing of its inclusion in a corporation's pre-adjustment AMTI or its E&P. Only income items that are permanently excluded from pre-adjustment AMTI are included in ACE. An income item will not be considered taken into account merely because the proceeds from that item might eventually be reflected in a corporation's pre-adjustment AMTI (e.g., that of a shareholder) on the liquidation or disposal of a business.

Exception. Do not make an adjustment for the following.

• Any income from discharge of indebtedness excluded from gross income under section 108 (or the corresponding provision of prior law).
• Any extraterritorial income excluded from gross income under section 114.
• For an insurance company taxed under section 831(b), any amount not included in gross investment income (as defined in section 834(b)).

Line 3d. Include in ACE the income on life insurance contracts (as determined under section 7702(g)) for the tax year minus the part of any premium attributable to insurance coverage.

Line 3e. Do not include any adjustment related to the E&P effects of any charitable contribution (section 56(g)(4)(I)).

Line 4 - Disallowance of Items Not Deductible From E&P

Generally, no deduction is allowed when figuring ACE for items not taken into account (see below) in figuring E&P for the tax year. These amounts increase ACE if they are deductible in figuring pre-adjustment AMTI (i.e., they would be positive adjustments).

However, there are exceptions. Do not add back:

• Any deduction allowable under section 243 or 245 for any dividend that qualifies for a 100% dividends-received deduction under section 243(a), 245(b), or 245(c) and
• Any dividend received from a 20%-owned corporation (see section 243(c)(2)), but only if the dividend is from income of the paying corporation that is subject to Federal income tax.

See sections 56(g)(4)(C)(iii) and (iv) for special rules for dividends from section 936 corporations (including section 30A corporations) and certain dividends received by certain cooperatives.

An item is considered taken into account without regard to the timing of its deductibility in figuring pre-adjustment AMTI or E&P. Therefore, only deduction items that are permanently disallowed in figuring E&P are disallowed in figuring ACE.

Items described in Regulations section 1.56(g)-1(e) for which no adjustment is necessary. Generally, no deduction is allowed for an item in figuring ACE if the item is not deductible in figuring pre-adjustment AMTI (even if the item is deductible in figuring E&P). The only exceptions to this general rule are the related reductions to an income item described in the second sentence of the instructions for line 3 above. Deductions that are not allowed in figuring ACE include:

• Capital losses that exceed capital gains;
• Bribes, fines, and penalties disallowed under section 162;
• Charitable contributions that exceed the limitations of section 170;
• Meals and entertainment expenses that exceed the limitations of section 274;
• Federal taxes disallowed under section 275; and
• Golden parachute payments that exceed the limitation of section 280G.

Note: No adjustment is necessary for these items since they were not allowed in figuring pre-adjustment AMTI.

Line 4e. Do not include any adjustment related to the E&P effects of any charitable contribution (section 56(g)(4)(I)).

Line 5 - Other Adjustments

Line 5a. Except as noted below, in figuring ACE, determine the deduction for intangible drilling costs (section 263(c)) under section 312(n)(2)(A).

Subtract the ACE expense (if any) from the AMT expense (used to figure line 2o of Form 4626) and enter the result on line 5a. If the ACE expense exceeds the AMT amount, enter the result as a negative amount.

Exception. The above rule does not apply to amounts paid or incurred for any oil or gas well by corporations other than integrated oil companies (see section 291(b)(4)). If this exception applies, do not enter an amount on line 5a for oil and gas wells.

Line 5b. When figuring ACE, the current year deduction for circulation expenditures under section 173 does not apply. Therefore, treat circulation expenditures for ACE using the case law that existed before section 173 was enacted.

Subtract the ACE expense (if any) from the regular tax expense (for a personal holding company, from the AMT expense used to figure line 2d of Form 4626) and enter the result on line 5b. If the ACE expense exceeds the regular tax amount (for a personal holding company, the AMT amount), enter the result as a negative amount.

Note: Do not make this adjustment for expenditures for which the corporation elected the optional 3-year writeoff under section 59(e) for the regular tax.

Line 5c. When figuring ACE, the amortization provisions of section 248 do not apply. Therefore, charge all organizational expenditures to a capital account and do not take them into account when figuring ACE until the corporation is sold or otherwise disposed of. Enter on line 5c all amortization deductions for organizational expenditures that were taken for the regular tax during the tax year.

Line 5d. The adjustments provided in section 312(n)(4) apply in figuring ACE. See Regulations section 1.56(g)-1(f)(3).

Line 5e. For any installment sale in a tax year that began after 1989, the corporation generally cannot use the installment method to figure ACE. However, it may use the installment method for the applicable percentage (as determined under section 453A) of the gain from any installment sale to which section 453A(a)(1) applies.

Subtract the installment sale income reported for AMT from the ACE income from the sales and enter the result on line 5e. If the ACE income from the sales is less than the AMT amount, enter the difference as a negative amount.

Line 6 - Disallowance of Loss on Exchange of Debt Pools

When figuring ACE, the corporation may not recognize any loss on the exchange of any pool of debt obligations for any other pool of debt obligations having substantially the same effective interest rates and maturities. Add back (i.e., enter as a positive adjustment) on line 6 any such loss to the extent recognized for the regular tax.

Line 7 - Acquisition Expenses of Life Insurance Companies for Qualified Foreign Contracts

For ACE, acquisition expenses of life insurance companies for qualified foreign contracts (as defined in section 807(e)(4) without regard to the treatment of reinsurance contract rules of section 848(e)(5)) must be capitalized and amortized by applying the treatment generally required under generally accepted accounting principles (and as if this rule applied to such contracts for all applicable tax years).

Subtract the ACE expense (if any) from the regular tax expense and enter the result on line 7. If the ACE expense is more than the regular tax expense, enter the result as a negative amount.

Line 8 - Depletion

When figuring ACE, the allowance for depletion for any property placed in service in a tax year that began after 1989 generally must be determined under the cost depletion method of section 611.

Subtract the ACE expense (if any) from the AMT expense (used to figure line 2m of Form 4626) and enter the result on line 8 of the worksheet. If the ACE expense is more than the AMT amount, enter the result as a negative amount.

Exception. Independent oil and gas producers and royalty owners that figured their regular tax depletion deduction under section 613A(c) do not have an adjustment for ACE purposes.

Line 9 - Basis Adjustments in Determining Gain or Loss From Sale or Exchange of Pre-1994 Property

If, during the tax year, the corporation disposed of property for which it is making (or previously made) any of the section 56(g) ACE adjustments, refigure the property's adjusted basis for ACE. Then refigure the property's gain or loss.

Enter the difference between the AMT gain or loss (used to figure line 2e of Form 4626) and the ACE gain or loss. Enter the difference as a negative amount if:

• The ACE gain is less than the AMT gain,
• The ACE loss is more than the AMT loss, or
• The corporation had an ACE loss and an AMT gain.

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