CHAPTER 15 ALTERNATIVE MINIMUM TAX

1. 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.

a. True

b. False

2. The required adjustment for AMT purposes for pollution control facilities placed in service in 2014 is equal to the difference between the amortization deduction allowed for regular income tax purposes and the depreciation deduction computed under ADS.

a. True

b. False

.

3. The AMT adjustment for mining exploration and development costs canbe avoided if the taxpayer elects to write off 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.

a. True

b. False

4. 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.

a. True

b. False

5. 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.

a. True

b. False

6. 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.

a. True

b. False

.

7. 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. Unfortunately, this will have the effect of increasing Evan’s AMT adjustment associated with long-term contracts for the current year.

a. True

b. False

8. Elmer exercises an incentive stock option (ISO) in 2014 for $6,000 (fair market value of the stock on the exercise date is $7,600). If Elmer sells the stock later in 2014 for $8,000, the AMT positive adjustment is $1,600 and the AMT negative adjustment is $2,000.

a. True

b. False

9. 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. 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).

a. True

b. False

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

a. True

b. False

11.The sale of business property might result in an AMT adjustment.

a. True

b. False

12.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.

a. True

b. False

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

a. True

b. False

14.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.

a. True

b. False

15.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. ModifiedAGI is used as the base for application of percentage limitations that apply to the charitable contribution deduction for AMT purposes.

a. True

b. False

16.If a gambling loss itemized deduction is permitted for regular income tax purposes, there will be no AMT adjustment associated with the gambling loss.

a. True

b. False

17.Nell has a personal casualty loss deduction of $14,500 for regular income tax purposes. The deduction would have been $26,600, but it had to be reduced by $100 and by $12,000 (10% × $120,000 AGI). For AMT purposes, the casualty loss deduction also is $14,500.

a. True

b. False