Deck 17: Business Tax Credits and the Alternative Minimum Tax

Question 1

The incremental research activities credit is 20% of the qualified research expenses that exceed the base amount.

Answer 1

True

Question 2

Qualified rehabilitation expenditures include the cost of acquiring the building, but not the cost of acquiring the land.

Answer 2

False

Question 3

The purpose of the tax credit for rehabilitation expenditures is to encourage the relocation of businesses from older, economically distressed areas i.e., inner city) to newer locations.

Answer 3

False

Question 4

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

Question 5

The purpose of the work opportunity tax credit is to encourage employers to hire individuals from specified target groups traditionally subject to high rates of unemployment.

Question 6

Some or all) of the tax credit for rehabilitation expenditures will have to be recaptured if the rehabilitated property is disposed of prematurely or if it ceases to be qualifying property.

Question 7

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

Question 8

All taxpayers are eligible to take the basic research credit.

Question 9

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

Question 10

A small employer incurs $1,500 for consulting fees related to establishing a qualified retirement plan for its 75 employees.As a result, the employer may claim the credit for small employer pension plan startup costs for $750.

Question 11

Employers are encouraged by the work opportunity tax credit to hire individuals who have been long-term recipients of family assistance welfare benefits.

Question 12

The disabled access credit was enacted to encourage small businesses to make their businesses more accessible to disabled individuals.

Question 13

A LIFO method is applied to general business credit carryovers, carrybacks, and utilization of credits earned during a particular year.

Question 14

The work opportunity tax credit is available only for wages paid to qualifying individuals during their first year of employment.

Question 15

The disabled access credit is computed at the rate of 50% of all access expenditures incurred by the taxpayer during the year.

Question 16

The tax benefits resulting from tax credits and tax deductions are affected by the tax rate bracket of the taxpayer.

Question 17

The tax credit for rehabilitation expenditures for certified historic structures differs from that for qualifying structures that are not certified historic structures.

Question 18

The tax benefit received from a tax credit is never affected by the tax rate of the taxpayer.

Question 19

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.

Question 20

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.

Question 21

During the year, Green, Inc., incurs the following research expenditures: Green's qualifying research expenditures for the year are:

A)$60,000.
B)$75,000.
C)$79,500.
D)$90,000.

Question 22

Which, if any, of the following correctly describes the research activities credit?

A)The research activities credit is the greater of the incremental research credit, the basic research credit, or the energy research credit.
B)If the research activities credit is claimed, no deduction is allowed for research and experimentation expenditures.
C)The credit is not available for research conducted outside the United States.
D)All corporations qualify for the basic research credit.
E)None of the above is correct.

Question 23

Steve records a tentative general business credit of $110,000 for the current year.His net regular tax liability before t general business credit is $125,000, and his tentative minimum tax is $100,000.Compute Steve's allowable general business credit for the year.

Question 24

Black Company paid wages of $180,000, of which $40,000 was qualified wages for the work opportunity tax credit under the general rules.Black Company's deduction for wages for the year is:

A)$140,000.
B)$164,000.
C)$166,000.
D)$180,000.

Question 25

In March 2018, Gray Corporation hired two individuals, both of whom were certified as long-term recipients of family assistance benefits.Each employee was paid $11,000 during 2018.Gray Corporation's work opportunity tax credit amounts for 2018 is:

A)$2,400.
B)$4,800.
C)$6,000.
D)$12,000.

Question 26

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.
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.

Question 27

Several years ago, Sarah purchased a certified historic structure for $150,000 that was placed in service in 1929.In the current year, she incurred qualifying rehabilitation expenditures of $200,000.The amount of the tax credit for rehabilitation expenditures, and the amount by which the building's basis for cost recovery would increase as a result of the rehabilitation expenditures are the following amounts.

A)$20,000 credit, $180,000 basis.
B)$40,000 credit, $200,000 basis.
C)$40,000 credit, $350,000 basis.
D)$40,000 credit, $160,000 basis.

Question 28

Cardinal Company incurs $800,000 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.Assuming Cardinal claims the credit for employer-provided child care this year, its basis in the newly constructed facility is $640,000.

Question 29

Amber is in the process this year of renovating the office building placed in service in 1976) used by her business.Because of current Federal Regulations that require the structure to be accessible to handicapped individuals, she incurs an additional $11,000 for various features, such as ramps and widened doorways, to make her office building more accessible.The $11,000 incurred will produce a disabled access credit of what amount?

A)$0
B)$5,000
C)$5,125
D)$5,500

Question 30

Explain the purpose of the tax credit for rehabilitation expenditures and describe the general characteristics of its computation.

Question 31

Waltz, Inc., a U.S.taxpayer, pays foreign taxes of $50,000 on foreign-source general basket income of $90,000.Waltz's worldwide taxable income is $450,000, on which it owes U.S.taxes of $94,500 before FTC.Waltz's FTC is
$50,000.

Question 32

Discuss the treatment of unused general business credits.

Question 33

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:

A)$8,750.
B)$4,500.
C)$4,375.
D)$4,250.

Question 34

Roger is considering making a $6,000 investment in a venture that its promoter promises will generate immediate tax benefits for him.Roger, who does not anticipate itemizing his deductions, is in the 30% marginal income tax bracket.If the investment is of a type that produces a tax credit of 40% of the amount of the expenditure, by how much will Roger's tax liability decline because of the investment?

A)$0
B)$1,800
C)$2,200
D)$2,400
E)None of the above

Question 35

Explain the purpose of the disabled access credit and describe the general characteristics of its computation.

Question 36

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

A)Credit for employer-provided child care.
B)Disabled access credit.
C)Research activities credit.
D)Tax credit for rehabilitation expenditures.
E)All of the above are components of the general business credit.

Question 37

Unused foreign tax credits are carried back two years and then forward 20 years.

Question 38

Ahmad is considering making a $10,000 investment in a venture which its promoter promises will generate immediate tax benefits for him.Ahmad, who normally itemizes his deductions, is in the 28% marginal tax bracket.If the investment is of a type where the taxpayer may claim either a tax credit of 25% of the amount of the expenditure or an itemized deduction for the amount of the investment, what treatment normally would be most beneficial to Ahmad and by how much will Ahmad's tax liability decline because of the investment?

A)$0, take neither the itemized deduction nor the tax credit.
B)$2,500, take the tax credit.
C)$2,800, take the itemized deduction.
D)Both options produce the same benefit.
E)None of the above.

Question 39

Molly has generated general business credits over the years that have not been utilized.The amounts generated and not utilized follow: In the current year, 2018, her business generates an additional $15,000 general business credit.In 2018, based on her tax liability before credits, she can utilize a general business credit of up to $20,000.After utilizing the carryforwards and the current year credits, how much of the general business credit generated in 2018 is available for future years?

A)$0.
B)$1,000.
C)$14,000.
D)$15,000.
E)None of the above.

Question 40

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

A)Unused amounts are carried forward indefinitely.
B)Unused amounts are first carried back one year and then forward for 20 years.
C)Unused amounts are first carried back one year and then forward for 10 years.
D)Unused amounts are first carried back three years and then carried forward for 15 years.

Question 41

Unless circulation expenditures are amortized over a three-year period for regular income tax purposes, there will be an AMT adjustment.

Question 42

Business tax credits reduce the AMT and the regular income tax in the same way.

Question 43

AMT adjustments can be positive or negative, whereas AMT preferences always are positive.

Question 44

Prior to consideration of tax credits, Clarence's regular income tax liability is $200,000 and his tentative minimum tax TMT) is $180,000.Clarence holds nonrefundable business tax credits of $35,000.His tax liability is $165,000.

Question 45

Keosha acquires used 10-year personal property to use in her business in 2018 and uses MACRS depreciation for regular income tax purposes.As a result, Keosha will incur a positive AMT adjustment in 2018, because AMT depreciation is slower.

Question 46

Assuming no phaseout, the AMT exemption amount for a married taxpayer filing separately for 2018 is the same as the AMT exemption amount for married taxpayer filing jointly filing status.

Question 47

In deciding whether to enact the alternative minimum tax, Congress was concerned about the inequity that resulted when taxpayers with substantial economic incomes could avoid paying regular income tax.

Question 48

In working with the foreign tax credit, a U.S.corporation may be able to alleviate the problem of excess foreign taxes by:

A)Deducting the excess foreign taxes that do not qualify for the credit.
B)Repatriating more foreign income to the United States in the year there is an excess limitation.
C)Generating "same basket" foreign-source income that is subject to a tax rate higher than the U.S.tax rate.
D)Generating "same basket" foreign-source income that is subject to a tax rate lower than the U.S.tax rate.

Question 49

If Abby's alternative minimum taxable income exceeds her regular taxable income, she will incur an alternative minimum tax.

Question 50

A U.S.taxpayer may take a current FTC equal to the greater of the FTC limit or the actual foreign taxes direct or indirect) paid or accrued.

Question 51

The AMT calculated using the indirect method will produce a different amount than the AMT calculated using the direct method.

Question 52

Since most tax preferences are merely timing differences, they eventually reverse and net to zero.

Question 53

Madge's tentative minimum tax TMT) is $112,000.Her regular income tax liability is $99,000.Madge's AMT is
$13,000.

Question 54

A taxpayer who expenses circulation expenditures in the year incurred for regular income tax purposes will incur a positive AMT adjustment in the following year.

Question 55

Negative AMT adjustments for the current year caused by timing differences are offset by the positive AMT adjustments in prior tax years also caused by timing differences.

Question 56

Without the foreign tax credit, double taxation would result when:

A)The United States taxes the U.S.-source income of a U.S.resident.
B)A foreign country taxes the foreign-source income of a nonresident alien.
C)The United States and a foreign country both tax the foreign-source income of a U.S.resident.
D)Terms of a tax treaty assign income taxing rights to the U.S.

Question 57

If the AMT base is greater than $191,100, the AMT rate for an individual taxpayer is the same as the AMT rate for married taxpayer, filing jointly.

Question 58

Paul incurred circulation expenditures of $180,000 in 2018 and deducted that amount for regular income tax purposes.Paul has a $60,000 negative AMT adjustment for each of 2019, 2020, and for 2021.

Question 59

The net capital gain included in an individual taxpayer's AMT base is eligible for the lower tax rate on net capital gain.This favorable alternative rate applies both in calculating the regular income tax and the AMT.

Question 60

The phaseout of the AMT exemption amount for a taxpayer filing as a head of household both begins and ends at a higher income level than it does for a single taxpayer.

Question 61

If the regular income tax deduction for medical expenses is $0, under certain circumstances the AMT deduction for medical expenses can be greater than $0.

Question 62

AGI is used as the base for application of percentage limitations i.e., 20%, 30%, 50%) that apply to the charitable contribution deduction for regular income tax purposes.Modified AGI is used as the base for application of percentage limitations that apply to the charitable contribution deduction for AMT purposes.

Question 63

Benita expensed mining exploration and development costs of $500,000 incurred in the current tax year.She will be required to make negative AMT adjustments for each of the next ten years and a positive AMT adjustment in the current tax year.

Question 64

The AMT adjustment for mining exploration and development costs can be avoided if the taxpayer elects to deduct the expenditures in the year incurred for regular income tax purposes, rather than writing off the expenditures over a 10-year period for regular income tax purposes.

Question 65

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.

Question 66

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).

Question 67

After personal property is fully depreciated for both regular income tax purposes and AMT purposes, no AMT adjustment will be required as a result of the sale of the property.

Question 68

The sale of business property could result in an AMT adjustment.

Question 69

The deduction for charitable contributions in calculating the regular income tax can differ from that in calculating the AMT, because the percentage limitations 20%, 30%, and 50%) may be applied to a different base amount.

Question 70

Because passive losses are not deductible in computing either taxable income or AMTI, no AMT adjustment for passive losses is required.

Question 71

Nell records a personal casualty loss deduction of $14,500 for regular income tax purposes The loss was the result of a Federally-declared disaster.).The loss was computed as $26,600, but it was reduced by $100 and by $12,000 10% × $120,000 AGI).For AMT purposes, the casualty loss deduction also is $14,500.

Question 72

The required adjustment for AMT purposes for pollution control facilities placed in service this year is equal to the difference between the amortization deduction allowed for regular income tax purposes and the depreciation deduction computed under ADS.

Question 73

Joel placed real property in service in 2018 that cost $900,000 and used MACRS depreciation for regular income tax purposes.He is required to make a positive adjustment for AMT purposes in 2018 for the excess of depreciation calculated for regular income tax purposes over the depreciation calculated for AMT purposes.

Question 74

The AMT adjustment for research and experimental expenditures can be avoided if the taxpayer capitalizes the expenditures and amortizes them over a 10-year period for regular tax purposes.

Question 75

In 2018, the amount of the deduction for medical expenses for regular tax purposes may be different than for AMT purposes.

Question 76

Income from some long-term contracts can be reported using the completed contract method for regular income tax purposes, but the percentage of completion method is required for AMT purposes for all long-term contracts.

Question 77

Elmer exercises an incentive stock option ISO) in March for $6,000 fair market value of the stock on the exercise date is $7,600).If Elmer sells the stock in November of the same tax year for $8,000, he reports a $1,600 AMT adjustment for the year.

Question 78

Kerri, who has AGI of $120,000, itemized her deductions in the current year.She incurred unreimbursed employee business expenses of $8,500.Kerri incurs a positive AMT adjustment of $2,400 in computing AMT.

Question 79

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.

Question 80

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.