[Anonymous]

This question came from Wiley and I am so confused:

Axel Corp. was incorporated and began business in 2009. In computing its alternative minimum tax for 2010, it determined that it had adjusted current earnings (ACE) of $500,000 and alternative minimum taxable income (prior to the ACE adjustment) of $450,000. For 2011, it had adjusted current earnings of $200,000 and alternative minimum taxable income (prior to the ACE adjustment) of $300,000. What is the amount of Axel Corp.’s adjustment for adjusted current earnings that will be used in calculating its alternative minimum tax for 2011?

• $( 37,500)

• $( 75,000)

• $(100,000)

• $( 50,000)

Correct answer is $(37,500)

This answer is correct. The requirement is to determine the adjustment for adjusted current earnings (ACE) that will be used in the computation of Axel Corp.’s alternative minimum tax for 2011. The ACE adjustment is equal to 75% of the difference between ACE and pre-ACE alternative minimum taxable income (AMTI). The ACE adjustment can be positive or negative, but a negative ACE adjustment is limited in amount to prior years’ net positive ACE adjustments. For 2010, Axel had a positive ACE adjustment of ($500,000 — $450,000) x 75% = $37,500. For 2011, Axel’s ACE is less than its pre-ACE AMTI, leading to a tentative negative ACE adjustment of ($200,000 — $300,000) x 75% = ($75,000). However, this negative ACE adjustment is allowed only to the extent of $37,500, the amount of Axel’s net positive adjustment for prior years.

I have read this over and over and it just isn’t clicking. I even went back to my Ninja Notes and Becker book and still can’t grasp the concept.

Any help would be great!

[nolifecpa]

Corps have to make an additional adjustment (upward or downward) to taxable income.

so in 2010, the corp made an adjusted upward of $37,500

in 2011, the corp made an adjustment downward of (37,500) even though the ACE calculated to ($75,000), they can only subtract the positive amount that was calculated in the previous year

let me know if this helps

REG-65,71,74,73,70,74,79
BEC-60's,60's,69,71,76*,78
FAR-67,66,65,79
AUD-54,60's,65,83*,69,80
*expired

DONE

[Anonymous]

Where is the 75% coming from?

The 75000 versus the 37500 makes sense now. Thanks! I think I was just over thinking…Anytime I get a question on AMT I panic. I am not comfortable with that section at all!

[nolifecpa]

75% is just apart of the ACE adjustment equation

ACE adjustment = (ACE – AMTI) x 75%

REG-65,71,74,73,70,74,79
BEC-60's,60's,69,71,76*,78
FAR-67,66,65,79
AUD-54,60's,65,83*,69,80
*expired

DONE

[Anonymous]

I can't seem to find that in my Becker book or Ninja Notes…dang it! Well thanks for your help!

[Anonymous]

damn this question is hard…. I hate AMT and ACE 🙁

[nolifecpa]

@akb9874

are you using becker 2011? its on R3-39

REG-65,71,74,73,70,74,79
BEC-60's,60's,69,71,76*,78
FAR-67,66,65,79
AUD-54,60's,65,83*,69,80
*expired

DONE

[Anonymous]

@nolivecpa

Haha I am an idiot. I looked at that and saw 25%…

[Author]

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