CHAPTER 15 ALTERNATIVE MINIMUM TAX

1. Which of the following statements is incorrect?

a. The AMT calculated under the direct and indirect methods produces the same amount.

b. The AMT calculated under the direct and the indirect methods produces different amounts.

c. The tax forms use the direct method to calculate the AMT.

d. Only b. and c. are incorrect.

e. a., b., and c. are incorrect.

2. Ashby, who is single and age 30, provides you with the following information from his financial records for 2014.

Regular income tax liability	$ 47,228
AMT positive adjustments	40,000
AMT preferences	20,000
Taxable income	195,000
Calculate his AMT exemption for 2014.
a. $0.
b. $17,000.
c. $51,900.
d. $52,800.
e. None of the above.

3. Beula, who is a head of household and age 40, provides you with the following information from her financial records for 2014.

Regular income tax liability	$ 35,776
AMT positive adjustments	33,000
AMT preferences	25,000
Taxable income	170,000
Calculate her AMTI for 2014.
a. $0.
b. $171,300.
c. $195,925.
d. $228,000.
e. None of the above.

4. Vicki owns and operates a news agency (as a sole proprietorship). During 2014, 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 2014. In addition, Vicki incurred $15,000 in circulation expenditures in 2015 and again elected expense treatment. What AMT adjustments will be required in 2014 and 2015 as a result of the circulation expenditures?

a. $16,000 positive in 2014, $2,000 positive in 2015.

b. $16,000 negative in 2014, $2,000 positive in 2015.

c. $16,000 negative in 2014, $10,000 positive in 2015.

d. $16,000 positive in 2014, $10,000 positive in 2015.

e. None of the above.

5. Which of the following statements is correct?

a. If the tentative AMT is $10,000 and the regular income tax liability is $12,000, the AMT is $2,000.

b. If the tentative AMT is $12,000 and the regular income tax liability is $10,000, the AMT is $12,000.

c. If the tentative AMT is $10,000 and the regular income tax liability is $12,000, the AMT is a negative $2,000.

d. If the tentative AMT is $12,000, and the regular income tax liability is $10,000, the AMT is $2,000.

e. None of the above.

6. Which of the following statements is correct?

a. If the tentative minimum tax exceeds the regular income tax liability, the AMT is $0.

b. The exemption amount decreases as AMTI increases.

c. The AMT tax rate for an individual taxpayer can be as high as 26%.

d. Only a. and c. are correct.

e. a., b., and c. are correct.

7. For regular income tax purposes, Yolanda, who is single, is in the 35% tax bracket. Her AMT base is $220,000. Her tentative AMT is:

a. $57,200.

b. $57,950.

c. $61,600.

d. $77,000.

e. None of the above.

8. Ashly is able to reduce her regular income tax liability from $47,000 to $43,500 as the result of the alternative tax on net capital gain. Ashly’s tentative AMT is $51,000.

a. Ashly’s tax liability is reduced by $3,500 as the result of the alternative tax calculation on net capital gain.

b. Ashly’s AMT is increased by $3,500 as the result of the alternative tax calculation on net capital gain.

c. Ashly’s tax liability is $43,500.

d. Ashly’s tax liability is $47,000.

e. None of the above.

9. Prior to the effect of the tax credits, Justin’s regular income tax liability is $200,000 and his tentative AMT is $195,000. Justin has the following credits:

Child tax credit $1,000

Adoption expenses credit 5,000

Calculate Justin’s tax liability after credits.

a. $190,000.

b. $194,000.

c. $195,000.

d. $200,000.

e. None of the above.

10.Prior to the effect of tax credits, Eunice’s regular income tax liability is $325,000 and her tentative AMT is $312,000. Eunice has general business credits available of $20,000. Calculate Eunice’s tax liability after tax credits.

a. $0.

b. $305,000.

c. $312,000.

d. $325,000.

e. None of the above.

11.Which of the following normally produces positive AMT adjustments?

a. Real property taxes deduction.

b. Personal exemption deduction.

c. Charitable contribution deduction.

d. Only a. and b. are correct.

e. a., b., and c. are correct.

12.Dale owns and operates Dale’s Emporium as a sole proprietorship. On January 30, 1998, Dale’s Emporium acquired a warehouse for $100,000. For regular income tax purposes in 2014, depreciation was deducted under MACRS using a rate of 2.564%. 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.

e. None of the above.

13.Omar acquires used 7-year personal property for $100,000 to use in his business in February 2014. Omar does not elect § 179 expensing, but does take the maximum regular cost recovery deduction. He elects not to take additional first-year depreciation. As a result, Omar will have a positive AMT adjustment in 2014 of what amount?

a. $0.

b. $3,580.

c. $10,710.

d. $14,290.

e. None of the above.

14.In 2014, Blake incurs $270,000 of mining exploration expenditures, and deducts the entire amount for regular income tax purposes. Which of the following statements is correct?

a. For AMT purposes, Blake will have a positive adjustment of $243,000 in 2014.

b. Blake will have a negative AMT adjustment of $27,000 in 2019.

c. Over a 10-year period, positive and negative adjustments will net to zero.

d. Only a. and c. are correct.

e. a., b., and c. are correct.

15.Wallace owns a construction company that builds both commercial and residential buildings. He contracts to build a residential building for $800,000 for which he is eligible to use the completed contract method of accounting. In the current year for regular income tax purposes, Wallace does not recognize any income on the contract. Under the percentage of completion method, the income recognized under the contract would have been $60,000. Wallace’s AMT adjustment is:

a. $0.

b. $60,000 negative adjustment.

c. $60,000 positive adjustment.

d. $800,000 positive adjustment.

e. None of the above.