On the Lookout for
Alternative Minimum Tax
Issues
Presented by
Manuel E. Pravia, CPA
Director, Tax & Accounting Services
Morrison, Brown, Argiz & Farra LLC
Florida Institute of Federal Taxation
November 10, 2011
About the Presenter
Manuel E. Pravia, CPA, is a Director in the Tax & Accounting Services department of Morrison, Brown, Argiz & Farra,
LLC. His experience since 1991 spans various industries, such as insurance and financial institutions, as well as
international tax (including corporate, foreign nationals, and expatriates). He also focuses on corporate tax accounting
issues (now ASC 740), an area that he dealt with extensively during his ten years of experience at several prominent
South Florida companies.
Manny regularly presents at continuing professional education seminars and has been an instructor for Becker CPA
Review. He is also an adjunct professor in the FIU School of Accounting.
Morrison, Brown, Argiz & Farra, LLC is one of the nation's Top 40 certified public accounting and advisory firms and the largest
Florida-based accounting firm in the state. Ranked for the last 15 years as one of the top 25 performing firms in the country on
INSIDE Public Accounting's "Best of the Best" list, MBAF provides value-added assurance, domestic and international tax services
and management advisory services such as litigation support, business consulting and technology solutions to entrepreneurs,
privately-held businesses, wealthy individuals, family groups, private and public corporations, exempt organizations and legal
practitioners across a broad range of industries.
More than 400 highly-qualified partners and employees serve domestic and international clients in more than 45 states and 44
countries from offices in Miami, New York, Baltimore, Boca Raton, Boulder, Fort Lauderdale, Orlando, Valhalla (NY) and
Ahmedabad (India). For more information about the Firm, visit http://www.mbafcpa.com.
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Disclaimer
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This document is a general discussion. The outcome of
any specific matter depends upon the specific facts and
circumstances.
The information presented is not a substitute for
professional advice.
The views expressed do not necessarily represent
MBAF’s views or policies.
Pursuant to Internal Revenue Service Circular 230, you
are hereby informed that any tax advice set forth herein
with respect to U.S. federal tax issues was not intended
or written to be used, and cannot be used, by you or any
taxpayer, for the purpose of avoiding any penalties that
may be imposed on you or any other person under the
Internal Revenue Code.
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Overview
 Purpose:
generate tax revenue from taxpayer
that would otherwise not be in a tax-paying
position
 It is separate from, but parallel to, the regular
income tax system.
 AMT computation reconciles taxable income,
through adjustments and preferences, with
Alternative Minimum Taxable Income (AMTI)
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AMT Adjustments
Most relate to timing differences
 Eventually reverse; current positive adjustments
will be offset by negative adjustments in the
future, and vice versa
 Depreciation
 Percentage completion v. completed contract
 Rationale: eliminate acceleration of some benefits
which, though allowable by tax law, are income
(and therefore tax) deferrals

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Fixed assets
Adjustment arises from different life/method
(convention same)
 Pre-1986: no adjustment
 Post-1986 personal property depreciation

 AMT: 150% DB over ADS life (post 98=MACRS life)
 Regular tax: Generally 200% DB

Post-1986/pre-1999 real property depreciation
 AMT: straight-line over 40 year life
 Regular tax: straight-line over 27.5, 31.5, or 39
yrs
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Fixed assets (cont.)
 Special
(Bonus) Depreciation Allowance
§168(k) allowed for AMT
 No adjustment triggered
 §179 depreciation rules apply
 No adjustment triggered
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Fixed assets (cont.)
Since the adjusted basis of an asset can be
different for regular tax and AMT, gain or loss
recognized upon the disposition of an asset
would vary for the two tax systems
 Difference between regular tax gain (loss) and
AMT gain (loss) is an AMT adjustment (positive
or negative).
 This AMT adjustment would completely offset
the cumulative prior AMT adjustments

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Construction contracts
Regular tax allows completed contract method
for certain long term contracts
 AMT only allows percentage of completion for all
long term contract.
 AMT adjustment triggered
 Negative in initial years when income is
reported on percentage of completion method
under AMT
 Positive (reversing) when income is greater for
regular tax due to recognition of revenue from
completed contract

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Other adjustments
 Pollution
control facilities
Regular: Amortize over 60 mos.
AMT: depreciate under ADS over MACRS
life
 Mining exploration, development costs and
research/experimental expenditures
Regular: immediate expense
AMT: Amortized over 10 years
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Preferences
 Designed
to permanently take back all (or part
of) tax benefits obtained from certain items
for regular income tax purposes
 Preferences are only positive
 Addback increases AMTI, effectively
disallowing those tax benefits for AMT
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Examples of preferences
Percentage depletion in excess of basis
 Excess intangible drilling costs
 Excess of accelerated over straight-line
depreciation on pre-1987 real property
 Excess of amortization over depreciation on pre1987 certified pollution control facilities
 7% of the exclusion from gross income of gains
on the sale of certain small business stock

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Preferences:
Private activity bonds
 Municipal
bond proceeds of which are used by
private entity
 “Qualified” PABs are exempt for regular tax
 For AMT, preference item; added back to
income and therefore taxed
 2009/2010 issues: not preference items
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Corporate-only items
 Adjusted
Current Earnings adjustment
 75% of difference between AMTI and
“earnings and profit” driven system
 Adjustment can be positive or negative
oNegative adjustment limited aggregate
positive adjustments in prior years
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ACE Adjustments
Depreciation
 Not applicable post 1993
 Income from state and local bonds except
bonds
 Not applicable for 2009/2010 issuances
 Life insurance proceeds in excess over basis

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Corporation AMT calculation
 Exemption
amount = $40,000
 Phase-out: 25% of amount by which AMTI
exceeds $150,000
 Tax is a flat 20% rate
 AMT is a prepayment of corporate tax; 100%
available in future as credit
 Need to consider AMT when calculating
estimated taxes; otherwise, exposed to
underpayment penalty
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Small corporations
 3-year
average annual gross receipts less than
$7.5 million
 AMT repealed post-1997
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ASC Topic 740
 Generally, not
an income tax expense – more
like a prepaid tax as a future tax benefit is
available
 Realizability of this deferred tax asset is
generally “more likely than not” unless entity
not expected to be in regular tax position
 Going concern
 Preference items
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AMT Adjustments - Individuals

Certain AMT adjustments permanently eliminate
otherwise allowable individual tax benefits
 All state/local taxes and real estate taxes
oIf gross income includes a refund of taxes, a
negative AMT adjustment is allowed
 Miscellaneous itemized deductions subject to the
2% AGI limit
 Medical expense floor increased to 10% (from 7.5%)
 Standard deduction
 Personal/dependency exemptions
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AMT for Individual


Progressive rate structure
 26% on first $175,000 ($87,500 for MFS) of tax
base
 28% on remaining amount of tax base
AMT Credit:
 Only allowed to the extent of AMT attributable to
timing differences
 Cannot be carried back
 Indefinite carryforward
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The Infamous AMT Patch
 Exemption
amount not indexed for
inflation
 But for Congressional action, many
taxpayers would have been subject
Income
$75,000$100,000
$100,000$200,000
$200,000$500,000
Year
Year
Year
2000
2005
2010
2.3%
14.7%
29.3%
5.7%
16.1%
35.6%
18.8%
34.0%
64.0%
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Net Operating Loss (NOL)
 Separate/parallel
system, but concept is same
as regular tax
 Carryback 2 years
oElection to forego the NOL carryback
for regular tax purposes also applies for
AMT purposes
oCannot be decoupled
 Carryforward 20 years
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Net Operating Loss (NOL)
 Alternative
tax NOL deduction (ATNOLD)
cannot offset more than 90% of AMTI.
 Does not apply to ATNOLDs for which
extended carryback was elected in 20082009
oWorker, Homeownership, Business
Assistance Act (WHBAA) or American
Recovery and Reinvestment Act (ARRA)
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AMT Considerations
 Leasing
rather than purchasing to avoid
depreciation adjustment (temp)
 Invest in tax-exempt bonds that are not also
private activity bonds (perm)
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When all else fails…
 If
expectation is that AMT will be applicable on
a yearly basis, plan timing of preferences and
permanent adjustments
 Put off/speed up state tax payments
 Take advantage of rate differential between
regular income tax and the AMT in AMT
years.
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Q&A