Explain Congress’ intent for enacting the AMT.Determine whether the following statements relating to the AMT for a corporation are true or false. If false, explain why.
DISCUSSION QUESTIONS
C: 5-1
Explain Congress’ intent for enacting the AMT.
C: 5-2
Define the following terms relating to the AMT:
Tax preference item
AMT adjustment item
Adjusted current earnings
Alternative minimum taxable income
AMT exemption amount
Tentative minimum tax
Minimum tax credit
C: 5-3
Dunn Corporation is not a small corporation exempt from the AMT. Dunn’s CPA does not calculate the AMT because he knows that Dunn’s taxable income is less than the $40,000 AMT exemption amount allowed to corporations. Is the CPA correct in his belief? Explain.
C: 5-4
What special rules (if any) apply to the AMT calculation for the following entities:
Corporations, particularly small ones
Controlled groups
S corporations
C: 5-5
Agnew Corporation operates a small manufacturing business. During Year 1 (its first tax year, which is 12 months long), Agnew sells goods for $3.8 million for which the cost of goods sold is $2.8 million. Agnew’s owner estimates that future sales and cost of goods sold will grow by 25% each year. Agnew is not related to any other corporations. Is Agnew exempt from the AMT in Year 1? In any of the next five years? Explain.
C: 5-6
Menifee Corporation has conducted business for several years, and its annual gross receipts never have been more than $4 million. Jackie, who has owned all of Menifee’s stock since she incorporated it, purchases all of Estill Corporation’s stock in the current year. Estill’s annual gross receipts have been approximately $6 million in recent years. Explain to Jackie how her acquisition of Estill’s stock will affect the AMT that Menifee pays.
C: 5-7
Determine whether the following statements relating to the AMT for a corporation are true or false. If false, explain why.
Tax preference items only increase AMTI.
A corporation uses the same NOL carryover amount for regular tax and AMT purposes.
A corporation is allowed a tax credit for the excess of its AMT over its regular tax.
The general business credit can reduce a corporation’s regular tax and also its AMT.
The ACE adjustment only increases AMTI.
An S corporation is exempt from the AMT, regardless of its gross receipts.
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