Deck 17: Business Tax Credits and the 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

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

All taxpayers are eligible to take the basic research credit.

Question 5

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

Question 6

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

Question 7

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

Question 8

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 9

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

Question 10

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

Question 11

Cardinal Company incurs $800,000 during the year to construct a facility that will be used exclusively for the care of its employees' preschool age children during normal working hours.Assuming that Cardinal claims the credit for employer-provided child care this year, its basis in the newly constructed facility is $640,000.

Question 12

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

Question 13

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 14

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

Question 15

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, which qualifies for the disabled access credit.

Question 16

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

Question 17

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 18

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

Question 19

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

Question 20

A small employer incurs $31,500 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 21

Paul incurred circulation expenditures of $180,000 in 2019 and deducted that amount for regular income tax purposes.Paul has a $60,000 negative AMT adjustment for each of 2020, 2021, and for 2022.

Question 22

Joel placed real property in service in 2019 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 2019 for the excess of depreciation calculated for regular income tax purposes over the depreciation calculated for AMT purposes.

Question 23

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 24

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

Question 25

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 26

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

Question 27

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

Question 28

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 29

Assuming no phaseout, the AMT exemption amount for a married taxpayer filing separately for 2019 is exactly half of the AMT exemption amount for an individual taxpayer.

Question 30

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 in calculating both the regular income tax and the AMT.

Question 31

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

Question 32

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

Question 33

Keosha acquires used 10-year personal property to use in her business in 2019 and uses MACRS depreciation for regular income tax purposes, even though the asset is eligible for full expensing.As a result, Keosha will incur a positive AMT adjustment in 2019, because AMT depreciation is slower.

Question 34

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 35

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 the phaseout for a single taxpayer.

Question 36

If the AMT base is greater than $194,800, the AMT rate for an individual taxpayer is the same as the AMT rate for married taxpayer, filing jointly.

Question 37

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 for the year is $165,000.

Question 38

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

Question 39

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

Question 40

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

Question 41

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 10 years.

Question 42

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 43

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%, 50%, and 60%) may be applied to a different base amount.

Question 44

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 45

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 his AMT adjustment associated with long-term contracts for the current year.

Question 46

In 2019, the amount of the deduction for medical expenses for regular tax purposes may be different than for AMT purposes.

Question 47

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 actual loss was $26,600, but it was reduced by $100 and by $12,000 (10% × $120,000 AGI) for regular tax purposes.For AMT purposes, the casualty loss deduction also is $14,500.

Question 48

Cher sold undeveloped land that originally cost $150,000 for $225,000.A positive AMT adjustment of $75,000 is required as a result of the sale.

Question 49

The standard deduction is allowed for regular income tax purposes but is disallowed for AMT purposes.This results in a positive AMT adjustment.

Question 50

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 51

Kerri, who has AGI of $120,000, itemized her deductions in the current year.She paid mortgage interest of $17,000 on her primary residence and $2,400 of interest on a home equity loan.The proceeds of the home equity loan were used to purchase a new minivan for her family.Kerri incurs a positive AMT adjustment of $19,400 in computing AMT.

Question 52

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

Question 53

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 54

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 55

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

Question 56

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 57

Interest on a home equity loan that is not used to acquire or improve the taxpayer's principal residence cannot be deducted for AMT purposes.

Question 58

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 59

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 60

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 61

The AMT credit is created for any AMT that results from timing differences, but it is not created by any AMT that results from the adjustment for itemized deductions or exclusion preferences.

Question 62

In March 2019, 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 2019.Gray's work opportunity tax credit amounts for 2019 is:

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

Question 63

Black Company paid wages of $180,000 of which $40,000 was qualified 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 64

Interest income on private activity bonds issued in 2015 reduced by expenses incurred in carrying the bonds is a preference item that is included in computing AMTI.

Question 65

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

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

Question 66

Ahmad is considering making a $10,000 investment in a venture whose promoter promises will generate immediate tax benefits for him.Ahmad, who normally itemizes his deductions, is in the 32% 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 is likely 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)$3,200, take the itemized deduction.
D)Both options produce the same benefit.

Question 67

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 68

In the renovation of its building, Green Company 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 69

Kay claimed percentage depletion of $119,000 for the current year for regular income tax purposes.Cost depletion would have been $60,000.Her basis in the property was $90,000 at the beginning of the current year.Kay must treat the percentage depletion deducted in excess of cost depletion, or $59,000, as a preference in computing AMTI.

Question 70

Cardinal Corporation hires two persons who are 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.

Question 71

Molly has generated general business credits over the years that have not been utilized.The amounts generated and not utilized equal: In the current year, 2019, her business generates an additional $15,000 general business credit.In 2019, 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 2019 is available for future years?
a.$0.
b.$1,000.
c.$14,000.
d.$15,000.

Question 72

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

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

Question 73

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 74

Which of the following, if any, 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.

Question 75

If a taxpayer elects to capitalize and to amortize intangible drilling costs over a three-year period for regular income tax purposes, there is no adjustment or preference for AMT purposes.

Question 76

Jackson sells qualifying small business stock for $125,000 (adjusted basis of $105,000) in 2019 (the stock was acquired in 2012).In calculating gross income for regular income tax purposes, he excludes all of his realized gain of $20,000.The $20,000 exclusion is a preference in calculating Jackson's AMTI.

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 a nonhistoric structure.

Question 78

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 these.

Question 79

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 these are components of the general business credit.

Question 80

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.