[tingtuzii]

I am reading both Wiley and Becker to review C Corp. taxes. They have different sayings regarding AMT exemption. I feel so confused. Could someone please help me clarify it?

Becker: “Certain small C Corps are exempt from AMT. The exemption applies if the annual average gross receipts from the previous 3 periods are $7.5 million or less. this amount is $5 million for a C Corp’s first 3 years of existence. A C corp is exempt from AMT in its first year of existence.”

Wiley: “A Corp is exempt from the corp AMT for tis first tax year. after the first year, it is exempt from AMT if it passes a gross receipts test. it is exempt for its 2nd year if the 1st year gross receipts do not exceed $5 million. To be exempt for its 3rd year, the corp. average gross recipe for the first 2 years must not exceed $7.5 million. To be exempt for the 4th year and subsequent years, the corp average gross receipts for all prior 3-year periods must not exceed $7.5 million.”

Appreciate someone can explain the idea based on the attached example. Millions thanks!

Year Gross Receipts

2010 4,500,000

2011 9,000,000

2012 9,500,000

2013 6,500,000

The C corp formed in 2010. What is the first taxable year that the C Corp is not exempt from AMT?

Wiley’s answer is 2013. From what i understood from Becker, the answer should be 2011.

[Andyred04]

Yeah this is a pretty difficult area to memorize, Becker looked right to me when I first saw it but I looked it up in my Gleim book to make sure and I was right. Per Gleim:

“A corporation will initially qualify as a small corporation if it had average gross receipts of $5 million or less for the 3 years that ended with its first tax year” This is consistent with Becker saying “this amount is $5 million for a C Corp's first 3 years of existence”.

“Small corporation status is maintained as long as average gross receipts for the prior 3 years [beginning year 4] do not exceed $7.5 million” This is consistent with Becker saying “The exemption applies if the annual average gross receipts from the previous 3 periods are $7.5 million or less”.

The part of Wiley that is not consistent with Becker and Gleim is when it says “To be exempt for its 3rd year, the corp. average gross recipe for the first 2 years must not exceed $7.5 million”. I would say that $7.5 million should be $5 million.

Therefore, I disagree with Wiley's answer that 2013 is the first year the corp would be subject to AMT, the answer should be 2011 as the year 1 and 2 average gross receipts exceeds $5 million.

FAR: 80 (Gleim, Ninja Notes, Ninja MCQs)
REG: 87 (Gleim, Ninja Notes, Ninja MCQs)
BEC: 87 (Gleim, Ninja Notes, Ninja MCQs)
AUD: 8/27/16

PA Candidate

[tingtuzii]

I failed REG on my first attempt. Fresh experience from CPA exam is that reading Becker is not enough. It does not cover well the knowledge points. That's why i have been careful in reading Wiley. I found a few discrepancies.Thanks for your reply.

[waitspring]

Hi my answer to this question is Year2012.

The requirement for the AMT exemption is after the 1st year, the future year's gross receipt is not greater than $7.5M in average.

2010: 4.5M, 1st yr AMT Exempt Taxable yr.
2011: 9M, (4.5M+9M)/2=6.75M, 2 years average receipt is lesser than $7.5M, so 2011 is qualified to the AMT exemption.
2012: 9.5M, (4.5+9+9.5)/3=7.66M, 3 years average receipt isis greater than $7.5M, so 2012 is not exempt from AMT.

Please let me know if I am wrong. Thank you for your time!

[Author]

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