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Exam 17: Tax Credits and Corporate Alternative Minimum Tax

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Question 1

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BlueCo incurs $900,000 during the year to construct a facility that will be used exclusively for the care of its employees' pre-school age children during normal working hours.The credit for employer-provided child care available to BlueCo this year is $225,000.

A) True
B) False

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Question 2

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Any unused general business credit must be carried back 3 years and then forward for 20 years.

A) True
B) False

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Question 3

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Melinda is in the 35% marginal regular tax bracket.She reports a net capital gain of $150,000 on the sale of land which is eligible for the lower tax on net capital gain in calculating the regular income tax.Discuss the tax rate that applies to the $150,000 net capital gain in calculating the tentative minimum tax (TMT) for Melinda.

How can interest on a private activity bond issued in 2008 result in both an AMT adjustment that decreases AMTI and an AMT preference that increases AMTI?

The recognized gain for regular income tax purposes and the recognized gain for AMT purposes on the sale of stock acquired with an incentive stock option (ISO) are always the same, because the adjusted basis is the same.

The ACE adjustment can be positive or negative.

Summer Corporation's business is international in scope and is subject to income taxes in several countries.Summer's earnings and income taxes paid in the relevant foreign countries are: $\begin{array} { l r r } \text { Country } & \text { Income } & \text { Taxes } \\\text { A } & \$ 1,000,000 & \$ 500,000 \\\text { B } & 300,000 & 30,000 \\\text { C } & 400,000 & \underline { 120,000 } \\\text { Total } & \$ 1,700,000 & \$ 650,000 \\\hline\end{array}$ ​ If Summer Corporation's worldwide income subject to taxation in the United States is $2,400,000 and the U.S.income tax due prior to the foreign tax credit is $816,000, compute the allowable foreign tax credit.If, instead, the total foreign income taxes paid were $550,000, compute the allowable foreign tax credit.

If the cost of a building constructed and placed into service by an eligible small business in the current year includes the cost of a wheelchair ramp, the cost of the ramp qualifies for the disabled access credit.

Golden Corporation is an eligible small business for purposes of the disabled access credit.During the year, Golden makes the following expenditures on a structure originally placed in service in 1988. $\begin{array} { l r } \text { Removal of architectural barriers } & \$ 8,500 \\\text { Acquired equipment for disabled persons } & 6,250 \\\hline &14,750\end{array}$ ​ In addition, $8,000 was expended by Golden on a building originally placed in service in the current year to ensure easy accessibility by disabled individuals.Calculate the amount of the disabled access credit available to Golden Corporation.

In the current tax year, Ben exercised an incentive stock option (ISO), acquiring stock with a fair market value of $190,000 for $170,000.As a result, his AMT basis for the stock is $170,000, his regular income tax basis for the stock is $170,000, and his AMT adjustment is $0 ($170,000 - $170,000).

Evan is a contractor who constructs both commercial and residential buildings.Even though some of the contracts could qualify for the use of the completed contract method, Evan decides to use the percentage of the completion method for all of his contracts.This increases Evan's AMT adjustment associated with long-term contracts for the current year.

Qualified research and experimentation expenditures are not only eligible for the 20% tax credit, but also can be expensed in the year incurred.

Cher sold undeveloped land that originally cost $150,000 for $225,000.There is a positive AMT adjustment of $75,000 associated with the sale of the land.

The components of the general business credit include all of the following except:

C corporations are not required to make AMT adjustments for depreciation.

In determining the amount of the AMT adjustments, discuss the difference in the treatment of a building placed in service after 1986 and before 1999 and a building placed in service after December 31, 1998.

Which of the following best describes the treatment applicable to unused business credits?

An employer's tax deduction for wages is affected by the work opportunity tax credit.

Green Company, in the renovation of its building, incurs $9,000 of expenditures that qualify for the disabled access credit.The disabled access credit is:

Use the following selected data to calculate Devon's taxable income prior to any personal exemption taken.Devon itemizes deductions. $\begin{array} { l r } \text { Tax preferences } & \$ 45,000 \\\text { Positive AMT adjustments } & 52,000 \\\text { Negative AMT adjustments } & 15,000 \\\text { AMTI } & 290,000\end{array}$