You are on page 1of 8

97 Department of the Treasury

Internal Revenue Service

Instructions for Form 4626
Alternative Minimum Tax—Corporations
Section references are to the Internal Revenue Code unless otherwise noted.

● The computation of a carryforward of a
Changes To Note
passive loss or tax shelter farm activity
The Taxpayer Relief Act of 1997 made loss if the AMT amount is different from Specific Instructions
the following changes that affect the the regular tax amount.
alternative minimum tax (AMT): ● A “running balance” of the excess of the
● For tax years beginning after 1986, the
Line 1—Taxable Income or
corporation's total increases in alternative
installment method is allowed for both the minimum taxable income (AMTI) from (Loss) Before Net Operating
regular tax and the AMT for dispositions prior year adjusted current earnings Loss Deduction
of property used or produced in a farming (ACE) adjustments over the total
business and held primarily for sale to Enter the corporation's taxable income or
reductions in AMTI from prior year ACE (loss) before the NOL deduction and after
customers. No adjustment should be adjustments (line 4d). See the instructions
made on line 2g for these sales. An the special deductions and without regard
for line 4d. to any excess inclusion (e.g., if filing Form
amended return should be filed to correct
any prior year income tax return affected 1120, subtract line 29b from line 28 of that
by this retroactive change. However, the
Short Period Return form).
corporation generally must file an If the corporation is filing for a period of
amended return within 3 years after the less than 12 months, AMTI must be Line 2—Adjustments and
date it filed its original return or within 2 placed on an annual basis and the AMT Preferences
years after the date it paid the tax, prorated based on the number of months
whichever is later. in the short period. Complete Form 4626 Caution: To avoid duplication, do not
● For tax years beginning after August 5, as follows. include any AMT adjustment or
Step 1. Complete lines 1 through 6 in preference taken into account on line 2j,
1997, all corporations are subject to the
the normal manner. Also subtract line 6 2k, 2l, or 2s in the amounts to be entered
90% limitation on the use of the foreign
from lilne 5 to figure AMTI for the short on any other line of this form.
tax credit for AMT purposes. The special
exception under section 59(a)(2)(C) has period, but do not enter it on line 7. Line 2a—Depreciation of Post-1986
been repealed. Step 2. Multiply AMTI for the short Property
period by 12. Divide the result by the
General Instructions number of months in the short period. This section describes when depreciation
Enter this result on line 7 and write “Sec. must be refigured for the AMT and how
443(d)(1)” on the dotted line to the left of to figure the adjustment to enter on line
Purpose of Form the entry space. 2a.
Use Form 4626 to figure the AMT Step 3. Complete lines 8 through 12. DO NOT make a depreciation
imposed on a corporation by section 55. Step 4. Subtract line 12 from line 11. adjustment on line 2a for:
Note: For an affiliated group filing a Multiply the result by a fraction, the ● Passive activities. Take this
consolidated return under the rules of numerator of which is the number of
section 1501, AMT must be figured on a months in the short period and the adjustment into account on line 2k.
● An activity for which the corporation
consolidated basis. denominator of which is 12. Enter the
result on line 13 and write “Sec. is NOT at risk OR income or loss from
Who Must File 443(d)(2)” on the dotted line to the left of a partnership if the base limitations
the entry space. apply. Take this adjustment into account
File Form 4626 if the corporation's taxable on line 2l.
income or (loss) before the net operating Step 5. Complete the rest of the form
● A tax shelter farm activity. Take this
loss (NOL) deduction plus its adjustments in the normal manner.
adjustment into account on line 2j.
and preferences total more than $40,000
or, if smaller, its allowable exemption Allocating Differently Treated What Depreciation MUST Be Refigured
amount. Items Between Certain for the AMT?
Entities and Their Investors Generally, depreciation must be refigured
Recordkeeping for the AMT if, for the regular tax, it is
For a regulated investment company, a either:
Certain Items of income, deductions, real estate investment trust, or a common ● Claimed for tangible property placed in
credits, etc., receive different tax trust fund, see section 59(d) for details on
treatment for the AMT than for the regular service after 1986, or
allocating certain differently treated items
tax. The corporation should keep ● Capitalized to inventory.
between the entity and its investors.
adequate records to support items Transitional election. If the transitional
refigured for the AMT. Examples include: Credit for Prior Year election was made under section
● Tax forms completed a second time to 203(a)(1)(B) of the Tax Reform Act of
refigure the AMT. Minimum Tax 1986, this rule applies to property placed
● The computation of a carryback or A corporation may be able to take a in service after July 31, 1986.
carryforward to other tax years of certain minimum tax credit against the regular tax What Depreciation Is NOT Refigured
deductions or credits (e.g., net operating for AMT incurred in prior years. See Form for the AMT?
loss, capital loss, and foreign tax credit) 8827, Credit for Prior Year Minimum
if the AMT amount is different from the Tax—Corporations, for details. Depreciation is not refigured for the AMT
regular tax amount. for:

Cat. No. 64443L
● Property for which the corporation depreciation, enter the difference as a they remained capitalized, or (b) the
made an election to use the alternative negative amount. remaining costs to be amortized for the
depreciation system (ADS) for the regular AMT.
tax. Line 2b—Amortization of Certified Subtract the AMT deduction from the
● Property expensed under section 179 Pollution Control Facilities regular tax deduction. Enter the result on
for the regular tax. For facilities placed in service after 1986, line 2d. If the AMT deduction is more than
● Property described in sections 168(f)(1) figure the amortization deduction for the the regular tax deduction, enter the
through (4). AMT using the ADS described in section difference as a negative amount.
168(g) (i.e., the straight line method over
How Is Depreciation Refigured for the the facility's class life). Section 168(g) Line 2e—Adjusted Gain or Loss
AMT? applies to 100% of the asset's amortizable If, during the tax year, the corporation
For the AMT, depreciation must be basis. Do not reduce the corporation's disposed of property for which it is making
refigured using ADS. The following table AMT basis by the 20% section 291 (or previously made) any of the
summarizes the rules for using ADS to adjustment that applied for the regular tax adjustments described on lines 2a
refigure depreciation. Subtract the AMT deduction from the through 2d above, refigure the property's
regular tax deduction. Enter the result on adjusted basis for the AMT. Then refigure
IF the property is... THEN figure AMT line 2b. If the AMT deduction is more than the gain or loss on the disposition.
depreciation using the regular tax deduction, enter the The property's adjusted basis for the
the... difference as a negative amount. AMT is its cost minus all applicable
depreciation or amortization deductions
Section 1250(c) real Straight line method Line 2c—Amortization of Mining allowed for the AMT during the current tax
property (generally over 40 years, with the Exploration and Development
nonresidential real same mid-month
year and previous tax years. Subtract this
and residential rental convention used for Costs AMT basis from the sales price to get the
property). the regular tax. AMT gain or loss.
Important: Do not make this adjustment
for costs for which the corporation elected Important: The corporation may also
Tangible property Straight line method have gains or losses from lines 2j, 2k, and
(other than section over the property's the optional 10-year writeoff under section
59(e) for the regular tax. 2l that must be considered on line 2e. For
1250(c) real property) class life with the
that was depreciated same convention used For the AMT, the regular tax deductions example, if for the regular tax the
under straight line for for the regular tax. under sections 616(a) and 617(a) for corporation reports a loss from the
the regular tax. costs paid or incurred after 1986 are not disposition of an asset used in a passive
allowed. Instead, capitalize these costs activity, include the loss in the
Any other tangible 150% declining computations for line 2k to determine if
property. balance method, and amortize them ratably over a 10-year
period beginning with the tax year in any passive activity loss is limited for the
switching to the AMT. Then, include the AMT passive
straight line method which the corporation paid or incurred
for the first tax year it them. The 10-year amortization applies to activity loss allowed that relates to the
gives a larger 100% of the mining development and disposition of the asset on line 2e in
deduction, over the exploration costs paid or incurred during determining the corporation's AMT basis
property's class life.
the tax year. Do not reduce the adjustment. It may be helpful to refigure
Use the same Form 8810 and related worksheets and
convention used for corporation's AMT basis by the 30%
section 291 adjustment that applied for Schedule D (Form 1120), Form 4684
the regular tax. (Section B), or Form 4797 for the AMT.
the regular tax.
If the corporation had a loss on property Enter the difference between the
How Is the AMT Class Life regular tax gain or loss and the AMT gain
Determined? for which mining exploration and
development costs have not been fully or loss. Enter the difference as a negative
The class life used for the AMT is not amount if:
amortized for the AMT, the AMT
necessarily the same as the recovery ● The AMT gain is less than the regular
deduction is the smaller of (a) the loss
period used for the regular tax. The class tax gain, OR
allowable for the costs had they remained
lives for the AMT are listed in Rev. Proc. ● The AMT loss exceeds the regular tax
capitalized, or (b) the remaining costs to
87–56, 1987–2, C.B. 674, and in Pub. loss, OR
be amortized for the AMT.
946, How to Depreciate Property. Use 12 ● The corporation has an AMT loss and
years for any tangible personal property Subtract the AMT deduction from the
regular tax deduction. Enter the result on a regular tax gain.
not assigned a class life.
line 2c. If the AMT deduction is more than
TIP. See Rev. Proc. 87–57, 1987–2 C.B. Line 2f—Long-Term Contracts
the regular tax deduction, enter the
687, for optional tables (14 through 18) difference as a negative amount. For the AMT, the corporation generally
that can be used to figure AMT must use the percentage-of-completion
depreciation. These optional tables also Line 2d—Amortization of method described in section 460(b) to
appear in Pub. 946. Rev. Proc. 89–15, Circulation Expenditures determine the taxable income from any
1989–1 C.B. 816, has special rules for long-term contract (defined in section
applying Rev. Proc. 87–57 to short years This adjustment applies only to personal
holding companies. 460(f)). However, this rule does not apply
and for property disposed of before the to any home construction contract (as
end of the recovery period. Important: Do not make this adjustment
for costs for which the corporation elected defined in section 460(e)(6)).
Special rules for transition property For contracts excepted from the
and public utility property. Be sure to the optional 3-year writeoff under section
59(e) for the regular tax. percentage-of-completion method for the
consider the transitional rules (described regular tax by section 460(e)(1),
in section 56(a)(1)(C)) and the For the regular tax, circulation
expenditures may be deducted in full determine the percentage of completion
normalization rules (described in section using the simplified procedures for
56(a)(1)(D)). when paid or incurred. For the AMT, these
expenditures must be capitalized and allocating costs outlined in section
How Is the Line 2a Adjustment amortized over 3 years. 460(b)(3).
Figured? If the corporation had a loss on property Subtract the regular tax income from
Subtract the AMT depreciation from the for which the circulation expenditures the AMT income. Enter the difference on
regular tax depreciation. If the AMT have not been fully amortized for the line 2f. If the AMT income is less than the
depreciation is more than the regular tax AMT, the AMT deduction is the smaller regular tax income, enter the difference
of (a) the loss allowable for the costs had as a negative amount.

Page 2
Line 2g—Installment Sales Line 2k—Passive Activities section 465 or by section 704(d) OR if, for
the regular tax, the corporation reported
The installment method does not apply for This adjustment applies only to closely
losses from at-risk activities or
the AMT to any nondealer disposition of held corporations and personal service
partnerships that were limited by those
property that occurred after August 16, corporations. Refigure all passive activity
sections, figure the difference between
1986, but before the first day of the gains and losses reported for the regular
the loss limited for the AMT and the loss
corporation's tax year that began in 1987, tax by taking into account the
limited for the regular tax for each
if an installment obligation to which the corporation's AMT adjustments,
applicable at-risk activity or partnership.
proportionate disallowance rule applied preferences, and AMT prior year
“Loss limited” means the amount of loss
arose from the disposition. unallowed losses.
that is not allowable for the year because
Enter as a negative adjustment on line Determine the corporation's AMT of the limitation of section 465 or 704(d).
2g the amount of installment sale income passive activity gain or loss using the
Enter on line 2l the excess of the loss
reported for the regular tax. same rules used for the regular tax. If the
limited for the AMT over the loss limited
corporation is insolvent, see section
Line 2h—Merchant Marine Capital for the regular tax. If the loss limited for
58(c)(1).
Construction Funds the regular tax is more than the loss
Disallowed losses of a personal service limited for the AMT, enter the difference
Amounts deposited in these funds corporation are suspended until the as a negative amount.
(established under section 607 of the corporation has income from that (or any
Merchant Marine Act of 1936) are not other) passive activity or until the passive Line 2m—Depletion
deductible for the AMT. Earnings on these activity is disposed of (i.e., its passive
Refigure depletion using only income and
funds are not excludable from gross losses cannot offset “net active income”
deductions allowed for the AMT when
income for the AMT. If the corporation (defined in section 469(e)(2)(B)) or
refiguring the limit based on taxable
deducted these amounts or excluded “portfolio income”). Disallowed losses of
income from the property under section
them from income for the regular tax, add a closely held corporation that is not a
613(a) and the limit based on taxable
them back on line 2h. See section personal service corporation are treated
income, with certain adjustments, under
56(c)(2) for more details. the same except that, in addition, they
section 613A(d)(1). Also, the depletion
may be used to offset “net active
Line 2i—Section 833(b) Deduction deduction for mines, wells, and other
income.”
natural deposits under section 611 is
This deduction is not allowed for the AMT. Note: Keep adequate records for losses limited to the property's adjusted basis at
If the corporation took this deduction for that are not deductible (and therefore the end of the year, as refigured for the
the regular tax, add it back on line 2i. carried forward) for both the AMT and AMT, unless the corporation is an
regular tax. independent producer or royalty owner
Line 2j—Tax Shelter Farm Enter on line 2k the difference between claiming percentage depletion for oil and
Activities the AMT gain or loss and the regular tax gas wells under section 613A(c). Figure
Important: Complete this line only if the gain or loss. Enter the difference as a this limit separately for each property.
corporation is a personal service negative amount if the corporation had: When refiguring the property's adjusted
corporation and it has a gain or loss from ● An AMT loss and a regular tax gain, basis, take into account any AMT
a tax shelter farm activity (as defined in OR adjustments the corporation made this
section 58(a)(2)) that is not a passive ● An AMT loss that exceeds the regular year or in previous years that affect basis
activity. If the tax shelter farm activity is tax loss, OR (other than the current year's depletion).
a passive activity, include the gain or loss ● A regular tax gain that exceeds the Do not include in the property's adjusted
in the computations for line 2k below. AMT gain. basis any unrecovered costs of
Refigure all gains and losses reported depreciable tangible property used to
for the regular tax from tax shelter farm Tax Shelter Farm Activities That Are exploit the deposits (e.g., machinery,
activities by taking into account any AMT Passive Activities tools, pipes, etc.).
adjustments and preferences. Determine Refigure all gains and losses reported for For iron ore and coal (including lignite),
the AMT gain or loss using the rules for the regular tax by taking into account the apply the section 291 adjustment before
the regular tax with the following corporation's AMT adjustments and figuring this preference.
modifications: preferences and AMT prior year Enter on line 2m the difference between
● No loss is allowed except to the extent unallowed losses. the regular tax and the AMT deduction. If
the personal service corporation is Use the same rules as outlined above the AMT deduction is more than the
insolvent (see section 58(c)(1)). for other passive assets, with the following regular tax deduction, enter the difference
● Do not use a loss in the current tax year modifications: as a negative amount.
to offset gains from other tax shelter farm ● AMT gains from tax shelter farm
Line 2n—Tax-Exempt Interest
activities. Instead, suspend any loss and activities that are passive activities may
carry it forward indefinitely until the be used to offset AMT losses from other From Specified Private Activity
corporation has a gain in a subsequent passive activities. Bonds
tax year from that same tax shelter farm ● AMT losses from tax shelter farm Enter interest earned on specified private
activity OR it disposes of the activity. activities that are passive activities may activity bonds reduced by any deduction
Note: Keep adequate records for losses not be used to offset AMT gains from that would have been allowable if the
that are not deductible (and therefore other passive activities. These losses interest were includible in gross income
carried forward) for both the AMT and must be suspended and carried forward for the regular tax. Generally, a specified
regular tax. indefinitely until the corporation has a gain private activity bond is any private activity
Enter on line 2j the difference between in a subsequent year from that same bond (as defined in section 141) issued
the AMT gain or loss and the regular tax activity or it disposes of the activity. after August 7, 1986. See section 57(a)(5)
gain or loss. Enter the difference as a for exceptions and for more details.
negative amount if the corporation had: Line 2l—Loss Limitations
Refigure gains and losses reported for the
Line 2o—Charitable Contributions
● An AMT loss and a regular tax gain,
OR regular tax from at-risk activities and Refigure this deduction using only income
● An AMT loss that exceeds the regular partnerships by taking into account the and deductions allowed for the AMT when
tax loss, OR corporation's AMT adjustments and refiguring the limit based on taxable
preferences. If the corporation has income under section 170(b)(2). Also, any
● A regular tax gain that exceeds the
recomputed losses that must be limited AMT carryover of charitable contributions
AMT gain. is limited to the cost or other basis
for the AMT (under section 59(h)) by

Page 3
(instead of fair market value) for any including the IDC preference. If the reported to the corporation from the
contribution of capital gain or section 1231 amount of the IDC preference exceeds cooperative.
property for which the preference for 40% of the amount figured for line 5, enter ● Cooperative's AMT adjustment. If the
charitable contributions of appreciated the excess on line 2p (the benefit of this corporation is a cooperative, refigure the
property applied. The preference for exception is limited). If the amount of the cooperative's deduction for patronage
charitable contributions of appreciated IDC preference is equal to or less than dividends by taking into account the
property does not apply to: 40% of the amount figured for line 5, do cooperative's AMT adjustments and
● Contributions made after 1992; not enter an amount on line 2p (the preferences. Subtract the cooperative's
● Contributions of tangible personal benefit of this exception is not limited). AMT deduction for patronage dividends
property made in a tax year beginning from its regular tax deduction for
Line 2q—Accelerated Depreciation patronage dividends. If the AMT
after 1990; or
● Contributions of property for which the
of Real Property (Pre-1987) deduction is more than the regular tax
corporation elected under section Refigure depreciation for the AMT using deduction, enter the difference as a
170(b)(1)(C)(iii) to figure the deduction the straight line method for real property negative amount.
using the property's adjusted basis rather for which accelerated depreciation was ● Related adjustments. AMT
than its fair market value. determined for the regular tax using adjustments and preferences may affect
Enter on line 2o the difference between pre-1987 rules. Use a recovery period of deductions that are based on an income
the regular tax and the AMT deduction. If 19 years for 19-year real property and 15 limit. Refigure these deductions using the
the AMT deduction is more than the years for low-income housing property. income limit as modified for the AMT.
regular tax deduction, enter the difference Figure the excess of the regular tax Include on line 2s an adjustment for the
as a negative amount. deduction over the AMT depreciation difference between the regular tax and
separately for each property and include AMT amounts for all such deductions. If
Line 2p—Intangible Drilling Costs only positive adjustments on line 2q. the AMT deduction is more than the
regular tax deduction, enter the difference
Important: Do not make this adjustment Line 2r—Accelerated Depreciation as a negative amount.
for cost for which the corporation elected of Leased Personal Property
the optional 60-month writeoff under (Pre-1987)
section 59(e) for the regular tax. Line 4—Adjusted Current
Intangible drilling costs (IDCs) from oil, This preference applies only to personal Earnings (ACE) Adjustment
gas, and geothermal properties are a holding companies.
For leased personal property other than Note: The ACE adjustment does not
preference to the extent excess IDCs apply to a regulated investment company
exceed 65% of the net income from the recovery property, enter the excess of the
depreciation claimed for the property for or a real estate investment trust.
properties. Figure the preference for all Line 4b.
geothermal deposits separately from the the regular tax using the pre-1987 rules
preference for all oil and gas properties over the depreciation allowable for the Important: For an affiliated group filing
that are not geothermal deposits. AMT as refigured using the straight line a consolidated return under the rules of
method. section 1501, figure line 4b on a
Excess IDCs are the excess of: consolidated basis.
1. The amount of IDCs the corporation For leased 10-year recovery property
and leased 15-year public utility property, The following examples illustrate the
paid or incurred for oil, gas, or geothermal manner in which line 3 is subtracted from
properties that it elected to expense for enter the amount by which the regular tax
depreciation exceeds the depreciation line 4a to get the amount to enter on line
the regular tax under section 263(c) (not 4b.
including any section 263(c) deduction for allowable using the straight line method
nonproductive wells) reduced by the with a half-year convention, no salvage Example 1. Corporation A has line 4a
section 291(b)(1) adjustment for value, and a recovery period of 15 years ACE of $25,000. If Corporation A has line
integrated oil companies and increased (22 years for 15-year public utility 3 pre-adjustment AMTI in the amounts
by any amortization of IDCs allowed property). shown below, its line 3 pre-adjustment
under section 291(b)(2); over Figure this amount separately for each AMTI and line 4a ACE would be
property and include only positive combined as follows to determine the
2. The amount that would have been amount to enter on line 4b:
allowed if the corporation had amortized adjustments on line 2r.
that amount over a 120-month period Line 2s—Other Adjustments Line 4a ACE $25,000 $25,000 $25,000
starting with the month the well was
placed in production. Include the following adjustments on this Line 3 pre-
line: adjustment AMTI 10,000 30,000 (50,000)
Note: If the corporation prefers not to use ● Income eligible for the possessions
the 120-month period, it can elect any Amount to enter on
tax credit. If this income was included in line 4b $15,000 $(5,000) $75,000
method that is permissible in determining
the corporation's taxable income for the
cost depletion. Example 2. Corporation B has line 4a
regular tax, include this amount on line
Net income is the gross income the 2s as a negative amount. ACE of $(25,000). If Corporation B has
corporation received or accrued from all ● Income from the alcohol fuel credit. line 3 pre-adjustment AMTI in the
oil, gas, and geothermal wells minus the amounts shown below, its line 3
If this income was included in the
deductions allocable to these properties pre-adjustment AMTI and line 4a ACE
corporation's income for the regular tax,
(reduced by the excess IDCs). When would be combined as shown below to
include this amount on line 2s as a
refiguring net income, use only income determine the amount to enter on line 4b:
negative amount.
and deductions allowed for the AMT.
● Income as the beneficiary of an
Exception. The preference for IDCs from Line 4a ACE $(25,000) $(25,000) $(25,000)
estate or trust. If the corporation is the
oil and gas wells does not apply to
beneficiary of an estate or trust, include Line 3 pre-
corporations that are independent (10,000) (30,000) 50,000
the minimum tax adjustment from adjustment AMTI
producers (i.e., not integrated oil
Schedule K-1 (Form 1041), line 9.
companies as defined in section Amount to enter on
● Patron's AMT adjustment. line 4b $(15,000) $5,000 $(75,000)
291(b)(4)). However, this benefit may be
limited. First, figure the IDC preference Distributions the corporation received
from a cooperative may be includible in Line 4d. A potential negative ACE
as if this exception did not apply. Then, for adjustment (i.e., a negative amount on
purposes of this exception, complete a income. Unless the distributions are
nontaxable, include on line 2s the total line 4b multiplied by 75%) is allowed as
second Form 4626 through line 5, a negative ACE adjustment on line 4e
AMT patronage dividend adjustment
only if the corporation's total increases in
Page 4
AMTI from prior year ACE adjustments In 1996, Corporation C was allowed to a worksheet by 90%. This is the
exceed its total reductions in AMTI from reduce its AMTI by only $150,000. Its corporation's ATNOLD limitation.
prior year ACE adjustments (line 4d). The potential negative ACE adjustment of The amount of any ATNOL that is not
purpose of line 4d is to provide a “running $300,000 was limited to its 1994 increase deductible may be carried back or carried
balance” of this limitation amount. As in AMTI of $225,000 minus its 1995 over using the rules outlined in section
such, the corporation must keep adequate reduction in AMTI of $75,000. 172(b). An election under section
records (e.g., a copy of Form 4626 In 1997, Corporation C must increase 172(b)(3) to forego the carryback period
completed at least through line 5) from its AMTI by the full amount of its potential for the regular tax also applies for the
year to year (even in years in which it ACE adjustment. It may not use any part AMT. The ATNOL carried back or carried
does not owe any AMT). of its 1996 unallowed potential negative over may differ from the NOL (if any) that
Any potential negative ACE adjustment ACE adjustment of $150,000 to reduce its is carried back or carried over for the
that is not allowed as a negative ACE 1997 positive ACE adjustment of regular tax. Keep adequate records for
adjustment in a tax year because of the $112,500. Corporation C would complete both the AMT and the regular tax.
line 4d limitation may not be used to the relevant portion of its 1997 Form 4626
reduce a positive ACE adjustment in any as follows: Line 7—Alternative Minimum
other tax year.
Combine lines 4d and 4e of the 1996
Line Amount Taxable Income
4a $250,000
Form 4626 and enter the result on line 4d 4b 150,000 For a corporation that held a residual
of the 1997 form. Do not enter a negative 4c 112,500 interest in a REMIC and is not a thrift
amount on line 4d for the reason given in 4d -0- institution, line 7 may not be less than the
4e 112,500
the preceding paragraph. total of the amounts shown on line 2c of
Example. Corporation C, a calendar-year Schedule(s) Q (Form 1066), Quarterly
corporation, was incorporated January 1, Line 6—Alternative Tax Net Notice to Residual Interest Holder of
1993. Its ACE and pre-adjustment AMTI REMIC Taxable Income or Net Loss
Operating Loss Deduction Allocation, for the periods included in the
for 1993 through 1997 were as follows:
(ATNOLD) corporation's tax year. If the total of the
Pre- The alternative tax net operating loss line 2c amounts is larger than the amount
adjustment deduction is the aggregate of the the corporation would otherwise enter on
Year ACE AMTI alternative tax net operating loss (ATNOL) line 7, enter that total and write “Sch. Q”
1993 $700,000 $800,000 carrybacks and carryovers to the tax year, on the dotted line next to line 7.
1994 900,000 600,000
1995 400,000 500,000 subject to the limitation explained below.
1996 (100,000) 300,000 For a corporation that held a residual Line 9—Exemption
1997 250,000 100,000 interest in a real estate mortgage Phase-out Computation
Corporation C subtracts its investment conduit (REMIC), figure the
ATNOLD without regard to any excess Line 9a. If this Form 4626 is for a
pre-adjustment AMTI from its ACE in each member of a controlled group of
of the years and then multiplies the result inclusion.
For a loss year that began after 1986, corporations, subtract $150,000 from the
by 75% to get the following potential ACE combined AMTI of all members of the
adjustments for 1993 through 1997: the ATNOL is the excess of the
deductions allowed in figuring AMTI controlled group. Divide the result among
ACE minus Potential
(excluding the ATNOLD) over the income the members of the group in the same
pre-adjustment ACE
included in AMTI. This excess is figured manner as the $40,000 tentative
Year AMTI adjustment
with the modifications in section 172(d), exemption is divided among the
1993 $(100,000) $(75,000) members. Enter this member's share on
1994 300,000 225,000 taking into account the adjustments in
1995 (100,000) (75,000) sections 56 and 58 and preferences in line 9a. The tentative exemption must be
1996 (400,000) (300,000)
section 57 (i.e., the section 172(d) divided equally among the members,
1997 150,000 112,500 unless all members consent to a different
modifications must be separately
Under these facts, Corporation C has computed in figuring the ATNOL). allocation. See section 1561 for more
the following increases or reductions in details.
In applying the rules relating to the
AMTI for 1993 through 1997: determination of the amount of carrybacks Line 9c. If this Form 4626 is for a
and carryovers, use the modification to member of a controlled group of
Increase or (reduction) in
Year AMTI from ACE adjustment those rules described in section corporations, reduce the member's share
1993 $0 56(d)(1)(B)(ii). of the $40,000 tentative exemption by the
1994 225,000 amount entered on line 9b.
1995 (75,000)
If, for any tax year that began before
1996 (150,000) 1987, the corporation had minimum tax
1997 112,500 that was deferred under section 56(b) (as Line 12—Alternative
In 1993, Corporation C was not allowed
in effect before the enactment of the Tax Minimum Tax Foreign Tax
Reform Act of 1986) and that deferred tax Credit
to reduce its AMTI by any part of the
has not been paid, reduce the amount of
potential negative ACE adjustment Refigure the regular tax foreign tax credit
ATNOL carryovers that may be carried
because it had no increases in AMTI from claimed for each separate limitation
over to this year by the corporation's
prior year ACE adjustments. category of income as follows:
preferences that caused the deferred
In 1994, Corporation C had to increase add-on minimum tax. (Section Step 1. Refigure both the numerator
its AMTI by the full amount of its potential 701(f)(2)(B) of the Tax Reform Act of (foreign source taxable income) and the
ACE adjustment. It was not allowed to use 1986.) denominator (worldwide taxable income)
any part of its 1993 unallowed potential of the limitation fraction by considering the
The corporation's ATNOLD is limited.
negative ACE adjustment of $75,000 to corporation's AMT adjustments and
To figure the ATNOLD limitation, first
reduce its 1994 positive ACE adjustment preferences.
figure AMTI without the ATNOLD. To do
of $225,000. Step 2. Substitute line 11 of Form 4626
this, use a second Form 4626 as a
In 1995, Corporation C was allowed to worksheet. Complete the form through for the “total U.S. income tax against
reduce its AMTI by the full amount of its line 5, but when figuring lines 2m, 2o, and which credit is allowed.”
potential negative ACE adjustment 2s, treat line 6 as if it were zero. Multiply Step 3. Multiply the fraction in Step 1
because that amount is less than its line line 5 of the second Form 4626 used as above by the amount in Step 2 above to
4d limit of $225,000. determine the refigured limitation.

Page 5
Step 4. Subtract the smaller of the total To determine if the corporation has a Line 2c. Subtract line 2b(7) from line 2a
foreign taxes paid for that separate net unrealized built-in loss, use the and enter the result on line 2c. If line 2b(7)
limitation category and the refigured aggregate adjusted basis of its assets exceeds line 2a, enter the difference as
limitation from Step 3 above. used for computing its ACE. a negative amount.
Step 5. Add the credits you refigured Note: Use these new adjusted bases for
Line 3—Inclusion in ACE of Items
for each separate limitation. Enter the all future ACE calculations (such as Included in Earnings and Profits (E&P)
result on line 12. depreciation and gain or loss on
In determining if any income is disposition of an asset). In general, any income item that is not
“high-taxed” in applying the separate taken into account (see below) in
Line 2—ACE Depreciation Adjustment determining the corporation's
limitation categories for the AMT foreign
tax credit, use the AMT rate instead of the Line 2a. Generally, the amount entered pre-adjustment AMTI but that is taken into
regular rate. on this line is: (a) the depreciation the account in determining its E&P must be
The AMT foreign tax credit is subject to corporation claimed for the regular tax included in ACE. Any such income item
a 90% limit (i.e., the credit cannot be more (Form 4562, line 21), modified by (b) the may be reduced by all items related to
than the amount on line 11 minus 10% of AMT depreciation adjustments reported that income item and that would be
the amount that would be on that line if on lines 2a, 2q, and 2r of Form 4626. deductible when figuring pre-adjustment
Form 4626 were refigured using zero on Line 2b(1). For property placed in service AMTI if the income items to which they
line 6 and if the exception for intangible after 1993, the ACE depreciation is the relate were included in the corporation's
drilling costs under section 57(a)(2)(E) did same as the AMT depreciation. pre-adjustment AMTI for the tax year.
not apply). For tax years beginning before Therefore, enter on line 2b(1) the same Examples of adjustments for these
August 6, 1997, the 90% limit does not depreciation expense you entered on line income items include: (a) interest income
apply to certain corporations that meet the 2a for such property. from tax-exempt obligations excluded
requirements of section 59(a)(2)(C). under section 103 minus any costs
Line 2b(2). For property placed in service
incurred in carrying these tax-exempt
Any AMT foreign tax credit the in a tax year that began after 1989, and
obligations; and (b) proceeds of life
corporation cannot claim (because of the before 1994, use the ADS described in
insurance contracts excluded under
limitation fraction or the 90% limit section 168(g). However, for property (a)
section 101 minus the basis in the
discussed above) may be carried back or placed in service in a tax year that began
contract for purposes of ACE.
carried over according to the rules in after 1989, and (b) described in sections
section 904(c). Also, any foreign tax credit 168(f)(1) through (4), use the same Note: Do not make an adjustment for any
that the corporation cannot claim (and can depreciation claimed for the regular tax income from discharge of indebtedness
therefore be carried back or carried over) and enter it on line 2b(5). excluded from gross income under
for the AMT may differ from the amount Line 2b(3). For property placed in service section 108 or any corresponding
(if any) that is carried back or carried over in a tax year that began after 1986 and provision of prior law.
for the regular tax. Keep adequate before 1990 (MACRS property), use the An income item is considered taken into
records for both the AMT and the regular straight line method over the remainder account without regard to the timing of its
tax. of the recovery period for the property inclusion in a corporation's pre-adjustment
under the ADS of section 168(g). In doing AMTI or its E&P. Only income items that
are permanently excluded from
Line 14 so, use the convention that would have
pre-adjustment AMTI are included in
applied to the property under section
Enter the corporation's regular tax liability 168(d). For more information (including ACE. An income item will not be
(as defined in section 26(b)) minus any an example that illustrates the application considered taken into account merely
foreign tax credit and possessions tax of these rules), see Regulations section because the proceeds from that item
credit (e.g., for Form 1120, Schedule J, 1.56(g)-1(b)(2). might eventually be reflected in a
line 3, minus the sum of Schedule J, lines corporation's pre-adjustment AMTI (e.g.,
Line 2b(4). For property placed in service
4a and 4b). Do not include any: that of a shareholder) on the liquidation
in a tax year that began after 1980 and
● Tax on accumulation distribution of
before 1987 (to which the original ACRS or disposal of a business.
trusts from Form 4970. applies), use the straight line method over Line 3d. Include in ACE the income on
● Recapture of investment credit (under the remainder of the recovery period for life insurance contracts (as determined
section 49(b) or 50(a)) from Form 4255. the property under ADS. In doing so, use under section 7702(g)) for the tax year
● Recapture of low-income housing credit the convention that would have applied to minus the part of any premium attributable
(under section 42(j) or (k)) from Form the property under section 168(d) (without to insurance coverage.
8611. regard to section 168(d)(3)). For more Line 3e. Do not include any adjustment
information (including an example that related to the E&P effects of any
illustrates the application of these rules), charitable contribution (section
ACE Worksheet Instructions see Regulations section 1.56(g)-1(b)(3). 56(g)(4)(I)).
Line 2b(5). For property described in Line 4—Disallowance of Items Not
Treatment of Certain Ownership sections 168(f)(1) through (4), use the Deductible From E&P
Changes regular tax depreciation, regardless of
when the property was placed in service. Generally, no deduction is allowed when
If a corporation with a net unrealized figuring ACE for items not taken into
built-in loss (within the meaning of section Important: Line 2b(5) takes priority over
account (see below) in computing E&P for
382(h)) undergoes an ownership change lines 2b(1), 2b(2), 2b(3), and 2b(4) (i.e.,
the tax year. These amounts increase
(within the meaning of Regulations for property that is described in sections
ACE if they are deductible in computing
section 1.56(g)-1(k)(2)), refigure the 168(f)(1) through (4), use line 2b(5)
pre-adjustment AMTI (i.e., they would be
adjusted basis of each asset of the instead of the line (2b(1), 2b(2), 2b(3), or
positive adjustments). However, there are
corporation (immediately after the 2b(4)) that would otherwise apply).
exceptions. Do not add back: (a) any
ownership change). The new adjusted Line 2b(6). Use the regular tax deduction allowable under section 243 or
basis of each asset is its proportionate depreciation for (a) property placed in 245 for any dividend that qualifies for a
share (based on respective fair market service before 1981 AND (b) property 100% dividends-received deduction under
values) of the fair market value of the placed in service after 1980, in a tax year section 243(a), 245(b), or 245(c); and (b)
corporation's assets (determined under that began before 1990, that is excluded any dividend received from a 20%-owned
section 382(h)) immediately before the from MACRS by section 168(f)(5)(A)(i) or corporation (see section 243(c)(2)), but
ownership change. original ACRS by section 168(e)(4), as in only if the dividend is from income of the
effect before the Tax Reform Act of 1986. paying corporation that is subject to

Page 6
Federal income tax. See sections Therefore, treat circulation expenditures Line 8—Depletion
56(g)(4)(C)(iii) and (iv) for special rules for using the case law that existed before When figuring ACE, the allowance for
dividends from section 936 corporations section 173 was enacted. Subtract the depletion for any property placed in
(including section 30A corporations) and ACE expense (if any) from the regular tax service in a tax year that began after 1989
certain dividends received by certain expense (for a personal holding company, generally must be determined under the
cooperatives. from the AMT expense used to figure line cost depletion method of section 611.
An item is considered taken into 2d of Form 4626) and enter the result on
Subtract the ACE expense (if any) from
account without regard to the timing of its line 5b. If the ACE expense exceeds the
the AMT expense (used to figure line 2m
deductibility in computing pre-adjustment regular tax amount (for a personal holding
of Form 4626) and enter the result on line
AMTI or E&P. Therefore, only deduction company, the AMT amount), enter the
8 of the worksheet. If the ACE expense is
items that are permanently disallowed in result as a negative amount.
more than the AMT amount, enter the
figuring E&P are disallowed in figuring Line 5c. When figuring ACE, the result as a negative amount.
ACE. amortization provisions of section 248 do
Exception. Independent oil and gas
Items described in Regulations section not apply. Therefore, charge all
producers and royalty owners that figured
1.56(g)-1(e) for which no adjustment is organizational expenditures to a capital
their regular tax depletion deduction
necessary. Generally, no deduction is account and do not take them into
under section 613A(c) do not have an
allowed for an item in figuring ACE if the account when figuring ACE until the
adjustment for ACE purposes.
item is not deductible in figuring corporation is sold or otherwise disposed
pre-adjustment AMTI (even if the item is of. Enter on line 5c all amortization Line 9—Basis Adjustments in
deductible in figuring E&P). The only deductions for organizational Determining Gain or Loss From Sale
exceptions to this general rule are the expenditures that were taken for the or Exchange of Pre-1994 Property
related reductions to an income item regular tax during the tax year.
If, during the tax year, the corporation
described in the second sentence of the Line 5d. The adjustments provided in disposed of property for which it is making
instructions for line 3 on page 6. section 312(n)(4) apply in figuring ACE. (or previously made) any of the section
Deductions that are not allowed in figuring See Regulations section 1.56(g)-1(f)(3) 56(g) ACE adjustments, refigure the
ACE include: for more details. property's adjusted basis for ACE. Then
● Capital losses that exceed capital Line 5e. For any installment sale in a tax refigure the property's gain or loss.
gains; year that began after 1989, the Enter the difference between the AMT
● Bribes, fines, and penalties disallowed corporation generally cannot use the gain or loss (used to figure line 2e of Form
under section 162; installment method to figure ACE. 4626) and the ACE gain or loss. Enter the
● Charitable contributions that exceed the However, it may use the installment difference as a negative amount if: (1) the
limitations of section 170; method for the applicable percentage (as ACE gain is less than the AMT gain, OR
● Meals and entertainment expenses that
determined under section 453A) of the (2) the ACE loss is more than the AMT
gain from any installment sale to which loss, OR (3) the corporation had an ACE
exceed the limitations of section 274;
section 453A(a)(1) applies. Subtract the loss and an AMT gain.
● Federal taxes disallowed under section
installment sale income reported for AMT
275; and from the ACE income from the sales and
● Golden parachute payments that enter the result on line 5e. If the ACE
exceed the limitation of section 280G. Paperwork Reduction Act Notice. We
income from the sales is less than the ask for the information on this form to
Note: No adjustment is necessary for AMT amount, enter the difference as a carry out the Internal Revenue laws of the
these items since they were not allowed negative amount. United States. You are required to give
in figuring pre-adjustment AMTI. us the information. We need it to ensure
Line 4e. Do not include any adjustment Line 6—Disallowance of Loss on
Exchange of Debt Pools that you are complying with these laws
related to the E&P effects of any and to allow us to figure and collect the
charitable contribution (section When figuring ACE, the corporation may right amount of tax.
56(g)(4)(I)). not recognize any loss on the exchange
of any pool of debt obligations for any You are not required to provide the
Line 5—Other Adjustments other pool of debt obligations having information requested on a form that is
substantially the same effective interest subject to the Paperwork Reduction Act
Line 5a. Except as noted below, in unless the form displays a valid OMB
figuring ACE, determine the deduction for rates and maturities. Add back (i.e., enter
as a positive adjustment) on line 6 any control number. Books or records relating
intangible drilling costs (section 263(c)) to a form or its instructions must be
under section 312(n)(2)(A). Subtract the such loss to the extent recognized for the
regular tax. retained as long as their contents may
ACE expense (if any) from the AMT become material in the administration of
expense (used to figure line 2p of Form any Internal Revenue law. Generally, tax
Line 7—Acquisition Expenses of Life
4626) and enter the result on line 5a. If returns and return information are
Insurance Companies for Qualified
the ACE expense exceeds the AMT confidential, as required by section 6103.
Foreign Contracts
amount, enter the result as a negative
amount. For ACE, acquisition expenses of life The time needed to complete and file
insurance companies for qualified foreign this form will vary depending on individual
Exception. The above rule does not circumstances. The estimated average
apply to amounts paid or incurred in a tax contracts (as defined in section 807(e)(4)
without regard to the treatment of time is:
year that began after 1992 for any oil and
gas well by corporations other than reinsurance contract rules of section Recordkeeping ................ 18 hr., 25 min.
integrated oil companies (as defined in 848(e)(5)) must be capitalized and
section 291(b)(4)). If this exception amortized by applying the treatment Learning about the law
applies, do not enter an amount on line generally required under generally or the form ...................... 14 hr., 42 min.
5a. accepted accounting principles (and as if Preparing and sending
Line 5b. this rule applied to such contracts for all the form to the IRS ......... 15 hr., 39 min.
applicable tax years). Subtract the ACE
Note: Do not make this adjustment for expense (if any) from the regular tax If you have comments concerning the
expenditures for which the corporation expense and enter the result on line 7. If accuracy of these time estimates or
elected the optional 3-year writeoff under the ACE expense is more than the regular suggestions for making this form simpler,
section 59(e) for the regular tax. tax expense, enter the result as a we would be happy to hear from you. See
When figuring ACE, the current year negative amount. the instructions for the tax return with
deduction for circulation expenditures which this form is filed.
under section 173 does not apply.

Page 7
Adjusted Current Earnings Worksheet
© See ACE Worksheet Instructions (which begin on page 6).

1 Pre-adjustment AMTI. Enter the amount from line 3 of Form 4626 1
2 ACE depreciation adjustment:
a AMT depreciation 2a
b ACE depreciation:
(1) Post-1993 property 2b(1)
(2) Post-1989, pre-1994 property 2b(2)
(3) Pre-1990 MACRS property 2b(3)
(4) Pre-1990 original ACRS property 2b(4)
(5) Property described in sections
168(f)(1) through (4) 2b(5)
(6) Other property 2b(6)
(7) Total ACE depreciation. Add lines 2b(1) through 2b(6) 2b(7)
c ACE depreciation adjustment. Subtract line 2b(7) from line 2a 2c
3 Inclusion in ACE of items included in earnings and profits (E&P):
a Tax-exempt interest income 3a
b Death benefits from life insurance contracts 3b
c All other distributions from life insurance contracts (including surrenders) 3c
d Inside buildup of undistributed income in life insurance contracts 3d
e Other items (see Regulations sections 1.56(g)-1(c)(6)(iii) through (ix)
for a partial list) 3e
f Total increase to ACE from inclusion in ACE of items included in E&P. Add lines 3a through 3e 3f
4 Disallowance of items not deductible from E&P:
a Certain dividends received 4a
b Dividends paid on certain preferred stock of public utilities that are
deductible under section 247 4b
c Dividends paid to an ESOP that are deductible under section 404(k) 4c
d Nonpatronage dividends that are paid and deductible under section
1382(c) 4d
e Other items (see Regulations sections 1.56(g)-1(d)(3)(i) and (ii) for a
partial list) 4e
f Total increase to ACE because of disallowance of items not deductible from E&P. Add lines 4a
through 4e 4f
5 Other adjustments based on rules for figuring E&P:
a Intangible drilling costs 5a
b Circulation expenditures 5b
c Organizational expenditures 5c
d LIFO inventory adjustments 5d
e Installment sales 5e
f Total other E&P adjustments. Combine lines 5a through 5e 5f
6 Disallowance of loss on exchange of debt pools 6
7 Acquisition expenses of life insurance companies for qualified foreign contracts 7
8 Depletion 8
9 Basis adjustments in determining gain or loss from sale or exchange of pre-1994 property 9
10 Adjusted current earnings. Combine lines 1, 2c, 3f, 4f, and 5f through 9. Enter the result here
and on line 4a of Form 4626 10

Page 8