General Instructions

Purpose of Form

Use Form 4626 to figure the alternative minimum tax (AMT) under section 55 for a corporation that is not exempt from the AMT.

Note: For an affiliated group filing a consolidated return under the rules of section 1501, AMT must be figured on a consolidated basis.

Who Must File

If the corporation is not a small corporation exempt from the AMT (as explained below), file Form 4626 if:

• The corporation's taxable income or (loss) before the net operating loss (NOL) deduction plus its adjustments and preferences total more than $40,000 or, if smaller, its allowable exemption amount or
• The corporation claims any general business credit, the qualified electric vehicle credit, the nonconventional source fuel credit, or the credit for prior year minimum tax.

Exemption for Small Corporations

A corporation is treated as a small corporation exempt from the AMT for its tax year beginning in 2002 if that year is the corporation's first tax year in existence (regardless of its gross receipts for the year) or:

1. It was treated as a small corporation exempt from the AMT for all prior tax years beginning after 1997 and
2. Its average annual gross receipts for the 3-tax-year period (or portion thereof during which the corporation was in existence) ending before its tax year beginning in 2002 did not exceed $7.5 million ($5 million if the corporation had only 1 prior tax year).

The following rules apply when figuring gross receipts under 2 above.

• Gross receipts must be figured using the corporation's tax accounting method and include total sales (net of returns and allowances), amounts received for services, and income from investments and other sources. See Temporary Regulations section 1.448-1T(f)(2)(iv) for more details.
• Gross receipts include those of any predecessor of the corporation.
• For a short tax year, gross receipts must be annualized by multiplying them by 12 and dividing the result by the number of months in the tax year.
• The gross receipts of all persons treated as a single employer under section 52(a), 52(b), 414(m), or 414(o) must be aggregated.

Loss of small corporation status.If the corporation qualified as a small corporation exempt from the AMT for its previous tax year, but does not meet the gross receipts test for its tax year beginning in 2002, it loses its AMT exemption status. Special rules apply in figuring AMT for the tax year beginning in 2002 and all later years based on the change date. The change date is the first day of the corporation's tax year beginning in 2002. Complete Form 4626 taking into account the following modifications.

• The adjustments for depreciation and amortization of pollution control facilities apply only to property placed in service on or after the change date.
• The adjustment for mining exploration and development costs applies only to amounts paid or incurred on or after the change date.
• The adjustment for long-term contracts applies only to contracts entered into on or after the change date.
• When figuring the amount to enter on line 6, for any loss year beginning before the change date, use the corporation's regular tax NOL for that year.
• Figure the limitation on line 4d only for prior tax years beginning on or after the change date.
• Enter zero on line 2c of the Adjusted Current Earnings (ACE) Worksheet on page 11. When completing line 5 of the ACE Worksheet, take into account only amounts from tax years beginning on or after the change date. Also, for line 8 of the ACE Worksheet, take into account only property placed in service on or after the change date.

See section 55(e)(3) for exceptions related to any item acquired in a corporate acquisition or to any substituted basis property, if an AMT provision applied to the item or property while it was held by the transferor.

Note: Once the corporation loses its small corporation status, it cannot qualify for any subsequent tax year.

Credit for Prior Year Minimum Tax

A corporation may be able to take a minimum tax credit against the regular tax for AMT incurred in prior years. See Form 8827, Credit for Prior Year Minimum Tax - Corporations, for details.

Recordkeeping

Certain items of income, deductions, credits, etc., receive different tax treatment for the AMT than for the regular tax. Therefore, the corporation should keep adequate records to support items refigured for the AMT. Examples include:

• Tax forms completed a second time to refigure the AMT;
• The computation of a carryback or carryforward to other tax years of certain deductions or credits (e.g., net operating loss, capital loss, and foreign tax credit) if the AMT amount is different from the regular tax amount;
• The computation of a carryforward of a passive loss or tax shelter farm activity loss if the AMT amount is different from the regular tax amount; and
• A running balance of the excess of the corporation's total increases in AMTI from prior year adjusted current earnings (ACE) adjustments over the total reductions in AMTI from prior year ACE adjustments (see the instructions for line 4d).

Short Period Return

If the corporation is filing for a period of less than 12 months, AMTI must be placed on an annual basis and the AMT prorated based on the number of months in the short period. Complete Form 4626 as follows.

1. Complete lines 1 through 6 in the normal manner. Subtract line 6 from line 5 to figure AMTI for the short period, but do not enter it on line 7.
2. Multiply AMTI for the short period by 12. Divide the result by the number of months in the short period. Enter this result on line 7 and write Sec. 443(d)(1) on the dotted line to the left of the entry space.
3. Complete lines 8 through 12.
4. Subtract line 12 from line 11. Multiply the result by the number of months in the short period and divide that result by 12. Enter the final result on line 13 and write Sec. 443(d)(2) on the dotted line to the left of the entry space.
5. Complete the rest of the form in the normal manner.

Allocating Differently Treated Items Between Certain Entities and Their Investors

For a regulated investment company, a real estate investment trust, or a common trust fund, see section 59(d) for details on allocating certain differently treated items between the entity and its investors.

Optional Write-Off for Certain Expenditures

There is no AMT adjustment for the following items if the corporation elects to deduct them ratably over the period of time shown for the regular tax.

• Circulation expenditures (personal holding companies) - 3 years (section 173).
• Mining exploration and development costs - 10 years (sections 616(a) and 617(a)).
• Intangible drilling costs - 60 months (section 263(c)).

See section 59(e) for more details.

Specific Instructions

Line 1 - Taxable Income or (Loss) Before Net Operating Loss Deduction

Enter the corporation's taxable income or (loss) before the NOL deduction and after the special deductions and without regard to any excess inclusion (e.g., if filing Form 1120, subtract line 29b from line 28 of that form).

Line 2 - Adjustments and Preferences

To avoid duplication, do not include any AMT adjustment or preference taken into account on line 2j, 2k, 2l, or 2r in the amounts to be entered on any other line of this form.

Line 2a - Depreciation of Post-1986 Property

Do not make a depreciation adjustment on line 2a for:

• A tax shelter farm activity. Take this adjustment into account on line 2j.
• Passive activities. Take this adjustment into account on line 2k.
• An activity for which the corporation is not at risk or income or loss from a partnership or an S corporation if the basis limitations apply. Take this adjustment into account on line 2l.

What Depreciation Must Be Refigured for the AMT?

Generally, the corporation must refigure depreciation for the AMT, including depreciation allocable to inventory costs, for:

• Property placed in service after 1998 depreciated for the regular tax using the 200% declining balance method (generally 3-, 5-, 7-, or 10-year property under the modified accelerated cost recovery system (MACRS));
• Section 1250 property placed in service after 1998 that is not depreciated for the regular tax using the straight line method; and
• Tangible property placed in service after 1986 and before 1999. (If the transitional election was made under section 203(a)(1)(B) of the Tax Reform Act of 1986, this rule applies to property placed in service after July 31, 1986.)

What Depreciation Is Not Refigured for the AMT?

Do not refigure depreciation for the AMT for the following.

• Residential rental property placed in service after 1998.
• Nonresidential real property with a class life of 27.5 years or more (generally, a building and its structural components) placed in service after 1998 that is depreciated for the regular tax using the straight line method.
• Other section 1250 property placed in service after 1998 that is depreciated for the regular tax using the straight line method.
• Property (other than section 1250 property) placed in service after 1998 that is depreciated for the regular tax using the 150% declining balance method or the straight line method.
• Property for which the corporation elected to use the alternative depreciation system (ADS) of section 168(g) for the regular tax.
• Qualified property eligible for the special depreciation allowance under section 168(k). The special allowance is deductible for the AMT, and there also is no adjustment required for any depreciation figured on the remaining basis of the qualified property. Property for which an election is in effect under section 168(k)(2)(C)(iii) to not have the special allowance apply is not qualified property. See the Instructions for Form 4562 for the definition of qualified property.
• Any part of the cost of any property for which the corporation made the election under section 179 to treat the cost of the property as a deductible expense. The reduction to the depreciable basis of section 179 property by the amount of the section 179 expense deduction is the same for the regular tax and the AMT.
• Property described in sections 168(f)(1) through (4).
• Qualified Indian reservation property.
• Qualified revitalization expenditures for a building for which the corporation elected to claim the commercial revitalization deduction under section 1400I.

How Is Depreciation Refigured for the AMT?

Property placed in service before 1999.Refigure depreciation for the AMT using ADS, with the same convention used for the regular tax. See the table below for the method and recovery period to use.

Property Placed in Service Before 1999

IF the property is	THEN use the
Section 1250 property.	Straight lline method over 40 years.
Tangible property (other than section 1250 property) depreciated using straight line for the regular tax.	Straight line method over the property's AMT class life.
Any other tangible property.	150% declining balance method, switching to straight line the first tax year it gives a larger deduction, over the property's AMT class life.

Property placed in service after 1998.Use the same convention and recovery period used for the regular tax. Use the straight line method for section 1250 property. Use the 150% declining balance method, switching to straight line the first tax year it gives a larger deduction, for other property.

How Is the AMT Class Life Determined?

The class life used for the AMT is not necessarily the same as the recovery period used for the regular tax. The class lives for the AMT are listed in Rev. Proc. 87-56, 1987-2 C.B. 674, and in Pub. 946, How To Depreciate Property. Use 12 years for any tangible personal property not assigned a class life.

See Pub. 946 for optional tables that may be used to figure AMT depreciation. Rev. Proc. 89-15, 1989-1 C.B. 816, has special rules for short years and for property disposed of before the end of the recovery period.

How Is the Line 2a Adjustment Figured?

Subtract the AMT deduction for depreciation from the regular tax deduction and enter the result. If the AMT deduction is more than the regular tax deduction, enter the difference as a negative amount.

In addition to the AMT adjustment to the deduction for depreciation, also adjust the amount of depreciation that was capitalized, if any, to account for the difference between the rules for the regular tax and the AMT. Include on this line the current year adjustment to taxable income, if any, resulting from the difference.

Line 2b - Amortization of Certified Pollution Control Facilities

For facilities placed in service before 1999, figure the amortization deduction for the AMT using ADS (i.e., the straight line method over the facility's class life). For facilities placed in service after 1998, figure the amortization deduction for the AMT under MACRS using the straight line method. Figure the AMT deduction using 100% of the asset's amortizable basis. Do not reduce the corporation's AMT basis by the 20% section 291 adjustment that applied for the regular tax.

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

Line 2c - Amortization of Mining Exploration and Development Costs

Note: This adjustment applies only to costs for which the corporation did not elect the optional 10-year write-off under section 59(e) for the regular tax.

For the AMT, the regular tax deductions under sections 616(a) and 617(a) are not allowed. Instead, capitalize these costs and amortize them ratably over a 10-year period beginning with the tax year in which the corporation paid or incurred them. The 10-year amortization applies to 100% of the mining development and exploration costs paid or incurred during the tax year. Do not reduce the corporation's AMT basis by the 30% section 291 adjustment that applied for the regular tax.

If the corporation had a loss on property for which mining exploration and development costs have not been fully amortized for the AMT, the AMT deduction is the smaller of (a) the loss allowable for the costs had they remained capitalized or (b) the remaining costs to be amortized for the AMT.

Subtract the AMT deduction from the regular tax deduction. Enter the result on line 2c. If the AMT deduction is more than the regular tax deduction, enter the difference as a negative amount.

Line 2d - Amortization of Circulation Expenditures

Note: This adjustment applies only to expenditures of a personal holding company for which the company did not elect the optional 3-year write-off under section 59(e) for the regular tax.

For the regular tax, circulation expenditures may be deducted in full when paid or incurred. For the AMT, these expenditures must be capitalized and amortized over 3 years.

If the corporation had a loss on property for which circulation expenditures have not been fully amortized for the AMT, the AMT deduction is the smaller of (a) the loss allowable for the expenditures had they remained capitalized or (b) the remaining expenditures to be amortized for the AMT.

Subtract the AMT deduction from the regular tax deduction. Enter the result on line 2d. If the AMT deduction is more than the regular tax deduction, enter the difference as a negative amount.

Line 2e - Adjusted Gain or Loss

If, during the tax year, the corporation disposed of property for which it is making (or previously made) any of the adjustments described on lines 2a through 2d above, refigure the property's adjusted basis for the AMT. Then refigure the gain or loss on the disposition.

The property's adjusted basis for the AMT is its cost minus all applicable depreciation or amortization deductions allowed for the AMT during the current tax year and previous tax years. Subtract this AMT basis from the sales price to get the AMT gain or loss.

Important: The corporation may also have gains or losses from lines 2j, 2k, and 2l that must be considered on line 2e. For example, if for the regular tax the corporation reports a loss from the disposition of an asset used in a passive activity, include the loss in the computations for line 2k to determine if any passive activity loss is limited for the AMT. Then, include the AMT passive activity loss allowed that relates to the disposition of the asset on line 2e in determining the corporation's AMT basis adjustment. It may be helpful to refigure for the AMT Form 8810 and related worksheets, Schedule D (Form 1120), Form 4684 (Section B), or Form 4797.

Enter the difference between the regular tax gain or loss and the AMT gain or loss. Enter the difference as a negative amount if:

• The AMT gain is less than the regular tax gain,
• The AMT loss exceeds the regular tax loss, or
• The corporation has an AMT loss and a regular tax gain.

Line 2f - Long-Term Contracts

For the AMT, the corporation generally must use the percentage-of-completion method described in section 460(b) to determine the taxable income from any long-term contract (defined in section 460(f)). However, this rule does not apply to any home construction contract (as defined in section 460(e)(6)).

For contracts excepted from the percentage-of-completion method for the regular tax by section 460(e)(1), determine the percentage of completion using the simplified procedures for allocating costs outlined in section 460(b)(3).

Subtract the regular tax income from the AMT income. Enter the difference on line 2f. If the AMT income is less than the regular tax income, enter the difference as a negative amount.

Line 2g - Installment Sales

The installment method does not apply for the AMT to any nondealer disposition of property that occurred after August 16, 1986, but before the first day of the corporation's tax year that began in 1987, if an installment obligation to which the proportionate disallowance rule applied arose from the disposition. Enter as a negative adjustment on line 2g the amount of installment sale income reported for the regular tax.

Line 2h - Merchant Marine Capital Construction Funds

Amounts deposited in these funds (established under section 607 of the Merchant Marine Act of 1936) are not deductible for the AMT. Earnings on these funds are not excludable from gross income for the AMT. If the corporation deducted these amounts or excluded them from income for the regular tax, add them back on line 2h. See section 56(c)(2) for details.

Line 2i - Section 833(b) Deduction

This deduction is not allowed for the AMT. If the corporation took this deduction for the regular tax, add it back on line 2i.

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.

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