[Anonymous]

Could some try to explain these to me. I’m really struggling on them. Also here is a problem I can’t even begin to understand.

Axel Corp. was incorporated and began business in 2012. In computing its alternative minimum tax for 2013, 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 2014, 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 2014?

$( 37,500)

$( 50,000)

$( 75,000)

$(100,000)

the correct answer is A

[Tux]

The rule is –

ACE adjustment = 75% (ACE-AMTI)

If this results in a negative amount in the current year, you go back and compute ACE adjustment for the previous year.

The current year's negative ACE adjustment amount —- “cannot be greater than the cumulative net positive ACE adjustments in previous years”

So, since the previous year's ACE adjustment was a smaller negative amount,

the current year's negative amount cannot be a “greater” negative amount than last year's.

Does that make sense?

FAR - 86 - 2/27/14
AUD - 75 - 5/29/14
BEC - 80 - 8/31/14
REG - 89 - 2/27/15
Praise Jesus! I'm done!!

Study resources:
Becker
Wiley test bank

[Tux]

More info from Becker –

Example 1 –

current year ACE adjustment = $8,000

cumulative net positive from previous year = $60,000

Cumulative net positive of $60K is > current year $8,000

Therefore, current year's amount is not limited.

Example 2 –

current year ACE adjustment = $8,000

cumulative net positive from previous year = $2,000

cumulative net positive of $2,000 is < $8,000

Therefore, current year's amount is limited to $2,000.

So, the same rule applies to negative numbers.

If I remember correctly, I had a problem something like this –

current year's amount was negative $51,000

cumulative net positive was positive $37,500

So, the current year's amount was limited to NEGATIVE $37,500

FAR - 86 - 2/27/14
AUD - 75 - 5/29/14
BEC - 80 - 8/31/14
REG - 89 - 2/27/15
Praise Jesus! I'm done!!

Study resources:
Becker
Wiley test bank

[Anonymous]

Soooo if the cumulative net positive is greater than the ace adjustment it isnt limited, but if its less then its limited to the adjustment.

However for the problem i posted I am still having difficulty understanding why its negative.

[Tux]

I understand your confusion, and I hope I'm able to explain it correctly –

current year's ACE adjustment = negative $75,000

the previous year's net cumulative positive ACE adjustment was positive $37,500

Because the current year's amount is negative, it will remain negative.

The limitation is ONLY from the number value of the net cumulative positive.

Disregarding the positive or negative part, – $37,500 is smaller than $75,000.

So, the current year's amount is limited to $37,500, but it remains a negative number.

So, the answer is NEGATIVE $37,500.

Does that help?

I KNOW it's confusing.

FAR - 86 - 2/27/14
AUD - 75 - 5/29/14
BEC - 80 - 8/31/14
REG - 89 - 2/27/15
Praise Jesus! I'm done!!

Study resources:
Becker
Wiley test bank

[Anonymous]

It does help, I really appreciate it. You shed some light on a topic I was completely lost in. I'm still not very comfortable with it but you definitely helped.

[Anonymous]

also just to clarify, you get the limitation from the prior year, and the sign (positive or negative) from the current year if i understand correctly.

[Tux]

Yes, that's how I understand it.

FAR - 86 - 2/27/14
AUD - 75 - 5/29/14
BEC - 80 - 8/31/14
REG - 89 - 2/27/15
Praise Jesus! I'm done!!

Study resources:
Becker
Wiley test bank

[nika_cpa]

Just focus on adjustments and preferences and basic formula for AMT. AMT is not heavily tested…

Becker self-study, Wiley Test Bank and books, Becker final review. NINJA MCQ bank and NINJA notes for BEC only!

AUD - PASSED!
FAR - PASSED!
REG - PASSED!
BEC - PASSED!

[Anonymous]

nika, just a heads up I got 3 mcq's and a tbs on AMT on the actual exam. I also most likely got them wrong.

[nika_cpa]

I also got mcqs on the actual exam but they were on amt basics. luckily i didnt have any amt sim.

Becker self-study, Wiley Test Bank and books, Becker final review. NINJA MCQ bank and NINJA notes for BEC only!

AUD - PASSED!
FAR - PASSED!
REG - PASSED!
BEC - PASSED!

[Tux]

Based on my experience with REG a couple of days ago – if they say “it isn't heavily tested” – LEARN IT

FAR - 86 - 2/27/14
AUD - 75 - 5/29/14
BEC - 80 - 8/31/14
REG - 89 - 2/27/15
Praise Jesus! I'm done!!

Study resources:
Becker
Wiley test bank

[Ninja20]

Have this doubt, the restriction to previous year's ACE amount is only applicable when the current year's ACE is negative ?

[Author]

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