During 2016, Red Corporation (a calendar year taxpayer) has $4,000,000 of taxable income and the following transactions:
AMTI (not including adjusted current earnings) $5,000,000
Adjusted current earnings 8,000,000
Red Corporation's alternative minimum tax (AMT) for 2016 is:
a. $1,360,000.
b. $700,000.
c. $500,000.
d. $90,000.
e. None of the above.
d
RATIONALE: The positive adjustment for ACE is $2,250,000 [$8,000,000 ACE – $5,000,000 AMTI (not including ACE) = $3,000,000 × 75% = $2,250,000]. Thus, AMTI becomes $7,250,000 ($5,000,000 + $2,250,000). Since no exemption is allowed when AMTI is $310,000 or more, the AMT base becomes $7,250,000 . Multiplying $7,250,000 by the 20% rate yields a tentative minimum tax of $1,450,000 . Deducting the regular corporate income tax of $1,360,000 (34% × $4,000,000) results in AMT of $90,000.
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