Deck 17: Business Tax Credits and Corporate Alternative Minimum Tax

Question 1

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

Answer 1

False

Question 2

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.

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

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.

Question 7

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

Question 8

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

Question 9

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 10

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

Question 11

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

Question 12

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

Question 13

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 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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 19

All taxpayers are eligible to take the basic research credit.

Question 20

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 21

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 22

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 23

In March 2015,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 2015.Only one of the individuals continued to work for Gray Corporation in 2016,earning $9,000 during the year.No additional workers were hired in 2016.Gray Corporation's work opportunity tax credit amounts for 2015 and 2016 are:

A) $4,000 in 2015,$4,000 in 2016.
B) $8,000 in 2015,$4,500 in 2016.
C) $8,000 in 2015,$5,000 in 2016.
D) $8,000 in 2015,$9,000 in 2016.
E) None of the above.

Question 24

Several years ago,Tom purchased a structure for $300,000 that was originally 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 25

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 26

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

Question 27

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 28

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 29

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

Question 30

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 31

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 32

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 33

Amber is in the process this year of renovating the office building (originally 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
E) None of the above

Question 34

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 35

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 36

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 37

All foreign taxes qualify for the foreign tax credit.

Question 38

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 39

Several years ago,Sarah purchased a structure for $150,000 that was originally 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.
E) None of the above.

Question 40

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.
E) None of the above.

Question 41

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 42

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 43

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

Question 44

The required adjustment for AMT purposes for pollution control facilities placed in service in 2015 is equal to the difference between the amortization deduction allowed for regular income tax purposes and the depreciation deduction computed under ADS.

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

Question 46

Discuss the treatment of unused general business credits.

Question 47

Paul incurred circulation expenditures of $180,000 in 2015 and deducted that amount for regular income tax purposes.Paul has a $60,000 negative AMT adjustment for 2016,2017,and for 2018.

Question 48

In May 2011,Cindy incurred qualifying rehabilitation expenditures of $500,000 on a certified historic structure and properly claimed the tax credit for rehabilitation expenditures.In March 2015,she sold the building at a loss.Calculate the rehabilitation expenditures credit recapture that she must report in 2015.

Question 49

Keosha acquires 10-year personal property to use in her business in 2015 and takes the maximum cost recovery deduction for regular income tax purposes.As a result of this,Keosha will have a positive AMT adjustment in 2015.

Question 50

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 51

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

Question 52

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 53

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

Question 54

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 55

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

Question 56

Explain the purpose of the tax credit for rehabilitation expenditures and describe the general characteristics of its computation.

Question 57

Explain the purpose of the disabled access credit and describe the general characteristics of its computation.

Question 58

Elmer exercises an incentive stock option (ISO)in 2015 for $6,000 (fair market value of the stock on the exercise date is $7,600).If Elmer sells the stock later in 2015 for $8,000,the AMT positive adjustment is $1,600 and the AMT negative adjustment is $2,000.

Question 59

Joel placed real property in service in 2015 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 2015 for the excess of depreciation calculated for regular income tax purposes over the depreciation calculated for AMT purposes.

Question 60

Steve records a tentative general business credit of $110,000 for the current year.His net regular tax liability before the general business credit is $125,000,and his tentative minimum tax is $100,000.Compute Steve's allowable general business credit for the year.

Question 61

How can the positive AMT adjustment for research and experimental expenditures be avoided?

Question 62

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

Question 63

Omar acquires used 7-year personal property for $100,000 to use in his business in February 2015.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 2015 of what amount?

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

Question 64

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 65

Durell owns a construction company that builds residential housing.The company is eligible to use the completed contract method for regular income tax purposes.What can Durell do to minimize his AMT?

Question 66

In calculating the AMT using the indirect method,do AMT adjustments and AMT tax preferences increase or decrease AMTI?

Question 67

The corporate AMT no longer applies.

Question 68

In 2015,Glenn had 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 2015,Glenn can deduct $108,000 for regular income tax purposes and for AMT purposes.
B) Glenn will have a $108,000 tax preference in 2015 as a result of the passive activity.
C) For regular income tax purposes,none of the loss is allowed in 2015.
D) In 2015,Glenn will have a positive adjustment of $25,000 as a result of the passive loss.
E) None of the above.

Question 69

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 tax preference for excess depletion?

A) $15,000
B) $23,000
C) $25,000
D) $0
E) None of the above

Question 70

C corporations are subject to a positive AMT adjustment equal to 75% of the excess of ACE over AMTI before the ACE adjustment.

Question 71

In determining the amount of the AMT adjustments,discuss the difference in the treatment of a building placed in service after 1986 and before January 1,1999 and a building placed in service after December 31,1998.

Question 72

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 73

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 2015,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.

Question 74

Will all AMT adjustments reverse? That is,do they relate to timing differences?

Question 75

Melinda is in the 35% marginal tax bracket.She has a net capital gain of $150,000 on the sale of land which is eligible for the alternative tax on net capital gain in calculating the regular income tax.Discuss the tax rate that applies to the $150,000 net capital gain in calculating the tentative AMT for Melinda.

Question 76

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

Question 77

Sand Corporation,a calendar year taxpayer,has alternative minimum taxable income [before adjustment for adjusted current earnings (ACE)] of $900,000 for 2015.If Sand's (ACE)is $975,000,its tentative minimum tax for 2015 is:

A) $0.
B) $56,250.
C) $180,000.
D) $191,250.
E) None of the above.

Question 78

How can an AMT adjustment be avoided for a taxpayer who incurs circulation expenditures in the current tax year?

Question 79

Vicki owns and operates a news agency (as a sole proprietorship).During 2015,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 2015.In addition,Vicki incurred $15,000 in circulation expenditures in 2016 and again elected expense treatment.What AMT adjustments will be required in 2015 and 2016 as a result of the circulation expenditures?

A) $16,000 positive in 2015,$2,000 positive in 2016.
B) $16,000 negative in 2015,$2,000 positive in 2016.
C) $16,000 negative in 2015,$10,000 positive in 2016.
D) $16,000 positive in 2015,$10,000 positive in 2016.
E) None of the above.

Question 80

The AMT exemption for a C corporation is $50,000 reduced by 25% of the amount by which AMTI exceeds $150,000.