Deck 17: Tax Credits and Corporate Alternative Minimum Tax

Question 1

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

Answer 1

False

Question 2

If a taxpayer is required to recapture any tax credit for rehabilitation expenditures, the recapture amount need not be added to the adjusted basis of the rehabilitation expenditures.

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

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 6

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.

Question 7

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 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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 14

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

Question 15

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

Question 16

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 17

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 18

All taxpayers are eligible to take the basic research credit.

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

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

Question 21

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 22

Joel placed real property in service in 2017 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 2017 for the excess of depreciation calculated for regular income tax purposes over the depreciation calculated for AMT purposes.

Question 23

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 24

Unused foreign tax credits can be carried back three years and forward fifteen years.

Question 25

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 26

Because current U.S.corporate income tax rates are higher than many foreign corporate income tax rates only infrequently will the credit's, the overall limitation yield a lower foreign tax credit than the amount of foreign taxes actually paid.

Question 27

In deciding 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 28

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

Question 29

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 30

After personal property is fully depreciated for both regular income tax purposes and AMT purposes, the positive and negative adjustments that have been made for AMT purposes will net to zero.

Question 31

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

Question 32

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

Question 33

In computing the foreign tax credit, the greater of the foreign income taxes paid or the overall limitation is allowed.

Question 34

All foreign taxes qualify for the foreign tax credit.

Question 35

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

Question 36

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

Question 37

Keosha acquires used 10-year personal property to use in her business in 2017 and uses MACRS depreciation for regular income tax purposes.As a result, Keosha will incur a positive AMT adjustment in 2017, because AMT depreciation is slower.

Question 38

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 39

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 40

Paul incurred circulation expenditures of $180,000 in 2017 and deducted that amount for regular income tax purposes.Paul has a $60,000 negative AMT adjustment for each of 2018, 2019, and for 2020.

Question 41

AMTI may be defined as regular taxable income after AMT adjustments (other than the NOL and ACE adjustments) and after tax preferences.

Question 42

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

Question 43

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 44

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

Question 45

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

Question 46

A negative ACE adjustment is beneficial to a corporation.

Question 47

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 48

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 49

All of a C corporation's AMT is available for carryover as a minimum tax credit, regardless of whether the adjustments and preferences originate from timing differences or AMT preferences.

Question 50

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 51

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 52

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.

Question 53

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 54

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.
E)None of the above.

Question 55

The ACE adjustment can be positive or negative.

Question 56

The AMT exemption for a corporation with $225,000 of AMTI is $18,750.

Question 57

The corporate AMT does not apply to "small" C corporations.

Question 58

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 59

The AMT exemption for a C corporation is $50,000, reduced by 50% of the amount by which AMTI exceeds $150,000.

Question 60

Certain adjustments apply in calculating the corporate AMT that do not apply in calculating the noncorporate AMT and certain adjustments apply in calculating the noncorporate AMT that do not apply in calculating the corporate AMT.

Question 61

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.
E)None of the above.

Question 62

In 2017, Glenn recorded a $108,000 loss on a passive activity.None of the loss is attributable to AMT adjustments or preferences.She has no other passive activities.Which of the following statements is correct?

A)In 2017, Glenn can deduct $108,000 for regular income tax purposes and for AMT purposes.
B)Glenn reports a $108,000 tax preference in 2017 as a result of the passive activity.
C)For regular income tax purposes, none of the passive activity loss is allowed in 2017.
D)In 2017, Glenn reports a positive adjustment of $25,000 as a result of the passive activity loss.

Question 63

During the year, Green Corporation (a U.S.corporation) has U.S.-source income of $750,000 and foreign income of $500,000.The foreign-source income generates foreign income taxes of $240,000.The U.S.income tax before the foreign tax credit is $425,000.Green Corporation's foreign tax credit is:

A)$170,000.
B)$240,000.
C)$425,000.
D)$500,000.

Question 64

During the year, Green, Inc., incurs the following research expenditures: $\begin{array} { l } \text {In-house wages, supplies, computer time }&\$600,000 \\ \text {Paid to Blue Foundation for research }& 30,000\\\end{array}$
? Green's qualifying research expenditures for the year are:

A)$60,000.
B)$75,000.
C)$79,500.
D)$90,000.
E)None of the above.

Question 65

Several years ago, Sarah purchased a 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)$20,000 credit, $200,000 basis.
C)$20,000 credit, $350,000 basis.
D)$40,000 credit, $160,000 basis.

Question 66

Cardinal Corporation hires two persons certified to be eligible employees for the work opportunity tax credit under the general rules (e.g., food stamp recipients), each of whom is paid $9,000 during the year.As a result of this event, Cardinal Corporation may claim a work opportunity credit of:

A)$1,440.
B)$2,880.
C)$4,800.
D)$7,200.
E)None of the above.

Question 67

Eula owns a mineral property that had a basis of $23,000 at the beginning of the year.Cost depletion is $19,000.The property qualifies for a 15% depletion rate.Gross income from the property was $200,000, and net income before the percentage depletion deduction was $50,000.What is Eula's AMT preference for excess depletion, if she maximized her regular-tax depletion deduction?

A)$15,000
B)$23,000
C)$25,000
D)$2,000

Question 68

Sand Corporation, a calendar year C corporation, reports alternative minimum taxable income of $900,000 for 2017.Sand's tentative minimum tax for 2017 is:

A)$0.
B)$40,000.
C)$180,000.
D)$191,250.

Question 69

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.

Question 70

During the year, Purple Corporation (a U.S.Corporation) has U.S.-source income of $1,800,000 and foreign income of $600,000.The foreign-source income generates foreign income taxes of $150,000.The U.S.income tax before the foreign tax credit is $816,000.Purple Corporation's foreign tax credit is:

A)$112,500.
B)$150,000.
C)$204,000.
D)$816,000.

Question 71

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.
E)None of the above.

Question 72

Dale owns and operates Dale's Emporium as a sole proprietorship.On January 30, 2003, Dale's Emporium acquired a warehouse for $100,000.For regular income tax purposes in 2017, depreciation was deducted under MACRS using a 2.564% rate.Determine the AMT adjustment for depreciation and indicate whether it is positive or negative.

A)$64 negative adjustment.
B)$64 positive adjustment.
C)No adjustment is required because Dale's Emporium used the Alternative Depreciation System (ADS) to compute depreciation on the property for AMT purposes.
D)No adjustment is required because Dale's Emporium used MACRS to compute the depreciation of the property for regular income tax purposes.

Question 73

Several years ago, Tom purchased a structure for $300,000 that was placed in service in 1929.Three and one-half years ago he incurred qualifying rehabilitation expenditures of $600,000.In the current year, Tom sold the property in a taxable transaction.Calculate the amount of the recapture of the tax credit for rehabilitation expenditures.

A)$0
B)$24,000
C)$36,000
D)$48,000
E)None of the above

Question 74

​Jesse placed equipment that cost $48,000 in service in 2015 (neither § 179 expensing nor bonus depreciation was elected).On July 1, 2017, Jesse sold the equipment for $22,000. ​
Regular tax and AMT depreciation amounts for the equipment are computed as follows.
​ ​
​
What AMT adjustments will be required for the equipment for 2017?
​

A)​$5,844 positive adjustment depreciation; $1,292 positive adjustment equipment sale
B)​$324 positive adjustment depreciation; $(5,844) negative adjustment equipment sale
C)$648 positive adjustment depreciation; $(2,276) negative adjustment equipment sale
D)​$324 positive adjustment depreciation; $0 adjustment for the equipment sale

Question 75

Vicki owns and operates a news agency (as a sole proprietorship).During 2017, she incurred expenses of $24,000 to increase circulation of newspapers and magazines that her agency distributes.For regular income tax purposes, she elected to expense the $24,000 in 2017.In addition, Vicki incurred $15,000 in circulation expenditures in 2018 and again elected expense treatment.What AMT adjustments will be required in 2017 and 2018 as a result of the circulation expenditures?

A)$16,000 positive in 2017, $2,000 positive in 2018.
B)$16,000 negative in 2017, $2,000 positive in 2018.
C)$16,000 negative in 2017, $10,000 positive in 2018.
D)$16,000 positive in 2017, $10,000 positive in 2018.
E)None of the above.

Question 76

On February 1, 2017, Omar acquires used 7-year personal property for $100,000 for use in his business.Omar does not elect § 179 expensing, but he does take the maximum regular cost recovery deduction.As a result, Omar incurs a positive AMT adjustment in 2017 of what amount?

A)$0
B)$3,580
C)$10,710
D)$14,290
E)None of the above

Question 77

Which of the following correctly describes the tax credit for rehabilitation expenditures?

A)The cost of enlarging any existing business building is a qualifying expenditure.
B)The cost of facilities related to the building (e.g., a parking lot) is a qualifying expenditure.
C)No recapture provisions apply.
D)No credit is allowed for the rehabilitation of personal use property.
E)None of the above.

Question 78

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 79

Mauve, Inc., records the following gross receipts in 2015, 2016, and 2017.

Question 80

Molly has generated general business credits over the years that have not been utilized.The amounts generated and not utilized follow: $$\begin{array} { r r } 2013 & \$ 2,500 \\2014 & 7,500 \\2015 & 5,000 \\2016 & 4,000\end{array}$$ ? In the current year, 2017, her business generates an additional $15,000 general business credit.In 2017, 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 2017 is available for future years?

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