[Anonymous]

Does anyone get this? I’m having such a hard time with it, and don’t even understand the solution Wiley provides:(

Klaus Corporation, which is not exempt from the alternative minimum tax, reported adjusted current earnings (ACE) and alternative minimum taxable income (AMTI) prior to the alternative minimum tax NOL deduction and ACE adjustments for 2008 through 2010 as follows:

ACE:

2008: $200,000

2009: $200,000

2010: $200,000

AMTI

2008: $100,000

2009: $240,000

2010: $350,000

What is the amount of Klaus Corporation’s alternative minimum tax ACE adjustment for 2010?

A. $ 112,500

B. $( 45,000)

C. $( 75,000)

D. $(112,500)

Answer B is correct. The ACE adjustment is equal to 75% of the difference between adjusted current earnings (ACE) and pre-ACE alternative minimum taxable income. 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 Klaus’ ACE is less than its pre-ACE AMTI leading to a tentative negative ACE adjustment of [($200,000 – $350,000) x 75%] = $112,500. However, this negative ACE adjustment is allowed only to the extent of $45,000, the amount of Klaus’ net positive adjustment for prior years (i.e., $75,000 for 2008 reduced by a negative $30,000 ACE adjustment for 2009).

HELP!!!!!!

[SDTrojan1904]

I'm unsure too since my Becker material didn't say anything about being limited to the extent of the net positive adjustment of prior years.

Not sure exactly what part is confusing you but basically ACE adjustment equals 75% x (ACE – AMTI before ACE adjustment and NOL deduction) So for 2010 we have (112,500) since 75% x (200K-350K).

If we do the same for the prior years, 2008 = +75,000 and 2009 = (30,000) which leaves us with +45,000 to use for 2010. So our negative adjustment is limited to 45,000 for 2010.

Thanks for your question cus I seriously didn't know about being limited…I didn't find that anywhere in my book! It will be nice if someone else can also comment on this to clarify. I hope the way I derived my answer isn't a coincidence and it's totally wrong!

[mmen]

This is what I have from one of the Tax textbooks too: Special rules prohibit negative ACE adjustments in excess of cumulative positive prior year ACE adjustments.

The cumalative prior year adjustment is 75000-30000=45000

FAR: 5/31/11 Passed
AUD: 10/08/11 Passed
BEC: 01/07/12 Passed
REG: 11/27/11,2/27/12 5/12 passed
Got my license on 10/17/12........

[jeff]

I think this thread delves too deeply into the minutiae of AMT for exam purposes from a time cost vs benefit perspective 😀

[racogon]

I've never come accross this problem before. Thanks CPA628 for your query… and of course to those who replied, it is much appreciated.

[Anonymous]

I ran across this exact question last night in Wiley. I read the solution three times, didn't understand any of it, and just came to terms that if I get one like that on the test I'll just guess and moved on.

[Soproudofmyself]

Since you guys seem to be using Wiley….have any of you come across a simulation on corporate liquidations? I'm using Wiley 2012.

It is my understanding (after reviewing Wiley) that when a corporation goes through complete liquidation, a gain or loss can get recognized through the distribution of property; however, you can't recognize a loss on the distribution (when it's not a complete liquidation). Ok that makes sense to me now, but I just did a simulation and the explanation says the following:

“although a liquidating corporation must recognize gain on the distribution of appreciated property to a minority shareholder in Sec. 332 liquidation, no loss can can be recognized”

Oh goodness… =/

[Soproudofmyself]

Beckers book does say in complete liquidation you can recognize a loss (if you are a minority shareholder) if the FMV of the property is lower than the NBV….but you can't recognize a loss if it's a stock redemption or just a distribution.

If any of you guys have a come across this situation, let me know…or else I'm done going crazy about this =(

[Anonymous]

Thank you guys SO MUCH for responding AMT question, I kinda get it…but idk whether I'll remember it for actual exam day. Thanks, Jeff…I thought this questions went in much detailed than the actual exam. Hopefully, you are right:!)

@soproudofmyself: Haha my exact thought. I thought Crop didn't recognize loss in non-liquidating distribution, but did recognize loss for liquidation…Wiley doesn't say that. AHHH.

[Anonymous]

Usually, the 332 rule applies when the liquidation occurs between a parent co and its sub. The sub does not recognize no gain or loss. The tax attributes of the sub carry over to the parent.

[Author]

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