§ 56. Adjustments in computing alternative minimum taxable income
(a)
Adjustments applicable to all taxpayers
In determining the amount of the alternative minimum taxable income for any taxable year the following treatment shall apply (in lieu of the treatment applicable for purposes of computing the regular tax):
(1)
Depreciation
(A)
In general
(i)
Property other than certain personal property
Except as provided in clause (ii), the depreciation deduction allowable under section
167 with respect to any tangible property placed in service after December 31, 1986, shall be determined under the alternative system of section
168
(g). In the case of property placed in service after December 31, 1998, the preceding sentence shall not apply but clause (ii) shall continue to apply.
(ii)
150-percent declining balance method for certain property
The method of depreciation used shall be—
(II)
switching to the straight line method for the 1st taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of the year will yield a higher allowance.
The preceding sentence shall not apply to any section
1250 property (as defined in section
1250
(c)) (and the straight line method shall be used for such section
1250 property) or to any other property if the depreciation deduction determined under section
168 with respect to such other property for purposes of the regular tax is determined by using the straight line method.
(B)
Exception for certain property
This paragraph shall not apply to property described in paragraph (1), (2), (3), or (4) of section
168
(f), or in section
168
(e)(3)(C)(iv).
(C)
Coordination with transitional rules
(i)
In general
This paragraph shall not apply to property placed in service after December 31, 1986, to which the amendments made by section 201 of the Tax Reform Act of 1986 do not apply by reason of section 203, 204, or 251(d) of such Act.
(ii)
Treatment of certain property placed in service before 1987
This paragraph shall apply to any property to which the amendments made by section 201 of the Tax Reform Act of 1986 apply by reason of an election under section 203(a)(1)(B) of such Act without regard to the requirement of subparagraph (A) that the property be placed in service after December 31, 1986.
(2)
Mining exploration and development costs
(A)
In general
With respect to each mine or other natural deposit (other than an oil, gas, or geothermal well) of the taxpayer, the amount allowable as a deduction under section
616
(a) or
617
(a) (determined without regard to section
291
(b)) in computing the regular tax for costs paid or incurred after December 31, 1986, shall be capitalized and amortized ratably over the 10-year period beginning with the taxable year in which the expenditures were made.
(B)
Loss allowed
If a loss is sustained with respect to any property described in subparagraph (A), a deduction shall be allowed for the expenditures described in subparagraph (A) for the taxable year in which such loss is sustained in an amount equal to the lesser of—
(3)
Treatment of certain long-term contracts
In the case of any long-term contract entered into by the taxpayer on or after March 1, 1986, the taxable income from such contract shall be determined under the percentage of completion method of accounting (as modified by section
460
(b)). For purposes of the preceding sentence, in the case of a contract described in section
460
(e)(1), the percentage of the contract completed shall be determined under section
460
(b)(1) by using the simplified procedures for allocation of costs prescribed under section
460
(b)(3). The first sentence of this paragraph shall not apply to any home construction contract (as defined in section
460
(e)(6)).
(4)
Alternative tax net operating loss deduction
The alternative tax net operating loss deduction shall be allowed in lieu of the net operating loss deduction allowed under section
172.
(5)
Pollution control facilities
In the case of any certified pollution control facility placed in service after December 31, 1986, the deduction allowable under section
169 (without regard to section
291) shall be determined under the alternative system of section
168
(g). In the case of such a facility placed in service after December 31, 1998, such deduction shall be determined under section
168 using the straight line method.
(6)
Adjusted basis
The adjusted basis of any property to which paragraph (1) or (5) applies (or with respect to which there are any expenditures to which paragraph (2) or subsection (b)(2) applies) shall be determined on the basis of the treatment prescribed in paragraph (1), (2), or (5), or subsection (b)(2), whichever applies.
(b)
Adjustments applicable to individuals
In determining the amount of the alternative minimum taxable income of any taxpayer (other than a corporation), the following treatment shall apply (in lieu of the treatment applicable for purposes of computing the regular tax):
(1)
Limitation on deductions
(A)
In general
No deduction shall be allowed—
(ii)
for any taxes described in paragraph (1), (2), or (3) of section
164
(a) or clause (ii) of section
164
(b)(5)(A).
Clause (ii) shall not apply to any amount allowable in computing adjusted gross income.
(C)
Interest
In determining the amount allowable as a deduction for interest, subsections (d) and (h) of section
163 shall apply, except that—
(i)
in lieu of the exception under section
163
(h)(2)(D), the term “personal interest” shall not include any qualified housing interest (as defined in subsection (e)),
(iii)
interest on any specified private activity bond (and any amount treated as interest on a specified private activity bond under section
57
(a)(5)(B)), and any deduction referred to in section
57
(a)(5)(A), shall be treated as includible in gross income (or as deductible) for purposes of applying section
163
(d),
(iv)
in lieu of the exception under section
163
(d)(3)(B)(i), the term “investment interest” shall not include any qualified housing interest (as defined in subsection (e)), and
(D)
Treatment of certain recoveries
No recovery of any tax to which subparagraph (A)(ii) applied shall be included in gross income for purposes of determining alternative minimum taxable income.
(E)
Standard deduction and deduction for personal exemptions not allowed
The standard deduction under section
63
(c), the deduction for personal exemptions under section
151, and the deduction under section
642
(b) shall not be allowed. The preceding sentence shall not apply to so much of the standard deduction as is determined under subparagraphs (D) and (E) of section
63
(c)(1).
(2)
Circulation and research and experimental expenditures
(A)
In general
The amount allowable as a deduction under section
173 or
174
(a) in computing the regular tax for amounts paid or incurred after December 31, 1986, shall be capitalized and—
(i)
in the case of circulation expenditures described in section
173, shall be amortized ratably over the 3-year period beginning with the taxable year in which the expenditures were made, or
(B)
Loss allowed
If a loss is sustained with respect to any property described in subparagraph (A), a deduction shall be allowed for the expenditures described in subparagraph (A) for the taxable year in which such loss is sustained in an amount equal to the lesser of—
(3)
Treatment of incentive stock options
Section
421 shall not apply to the transfer of stock acquired pursuant to the exercise of an incentive stock option (as defined in section
422). Section
422
(c)(2) shall apply in any case where the disposition and the inclusion for purposes of this part are within the same taxable year and such section shall not apply in any other case. The adjusted basis of any stock so acquired shall be determined on the basis of the treatment prescribed by this paragraph.
(c)
Adjustments applicable to corporations
In determining the amount of the alternative minimum taxable income of a corporation, the following treatment shall apply:
(1)
Adjustment for adjusted current earnings
Alternative minimum taxable income shall be adjusted as provided in subsection (g).
(2)
Merchant marine capital construction funds
In the case of a capital construction fund established under chapter
535 of title
46, United States Code—
(A)
subparagraphs (A), (B), and (C) of section
7518
(c)(1) (and the corresponding provisions of such chapter 535) shall not apply to—
(B)
no reduction in basis shall be made under section
7518
(f) (or the corresponding provisions of such chapter 535) with respect to the withdrawal from the fund of any amount to which subparagraph (A) applies.
For purposes of this paragraph, any withdrawal of deposits or earnings from the fund shall be treated as allocable first to deposits made before (and earnings received or accrued before) January 1, 1987.
(d)
Alternative tax net operating loss deduction defined
(1)
In general
For purposes of subsection (a)(4), the term “alternative tax net operating loss deduction” means the net operating loss deduction allowable for the taxable year under section
172, except that—
(A)
the amount of such deduction shall not exceed the sum of—
(i)
the lesser of—
(I)
the amount of such deduction attributable to net operating losses (other than the deduction described in clause (ii)(I)), or
(II)
90 percent of alternative minimum taxable income determined without regard to such deduction and the deduction under section
199, plus
(ii)
the lesser of—
(I)
the amount of such deduction attributable to an applicable net operating loss with respect to which an election is made under section
172
(b)(1)(H), or
(II)
alternative minimum taxable income determined without regard to such deduction and the deduction under section
199 reduced by the amount determined under clause (i), and
(2)
Adjustments to net operating loss computation
(A)
Post-1986 loss years
(B)
Pre-1987 years
In the case of loss years beginning before January 1, 1987, the amount of the net operating loss which may be carried over to taxable years beginning after December 31, 1986, for purposes of paragraph (2), shall be equal to the amount which may be carried from the loss year to the first taxable year of the taxpayer beginning after December 31, 1986.
(e)
Qualified housing interest
For purposes of this part—
(1)
In general
The term “qualified housing interest” means interest which is qualified residence interest (as defined in section
163
(h)(3)) and is paid or accrued during the taxable year on indebtedness which is incurred in acquiring, constructing, or substantially improving any property which—
(A)
is the principal residence (within the meaning of section
121) of the taxpayer at the time such interest accrues, or
(B)
is a qualified dwelling which is a qualified residence (within the meaning of section
163
(h)(4)).
Such term also includes interest on any indebtedness resulting from the refinancing of indebtedness meeting the requirements of the preceding sentence; but only to the extent that the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness immediately before the refinancing.
(2)
Qualified dwelling
The term “qualified dwelling” means any—
including all structures or other property appurtenant thereto.
(g)
Adjustments based on adjusted current earnings
(1)
In general
The alternative minimum taxable income of any corporation for any taxable year shall be increased by 75 percent of the excess (if any) of—
(2)
Allowance of negative adjustments
(A)
In general
The alternative minimum taxable income for any corporation of any taxable year, shall be reduced by 75 percent of the excess (if any) of—
(3)
Adjusted current earnings
For purposes of this subsection, the term “adjusted current earnings” means the alternative minimum taxable income for the taxable year—
(4)
Adjustments
In determining adjusted current earnings, the following adjustments shall apply:
(A)
Depreciation
(i)
Property placed in service after 1989
The depreciation deduction with respect to any property placed in service in a taxable year beginning after 1989 shall be determined under the alternative system of section
168
(g). The preceding sentence shall not apply to any property placed in service after December 31, 1993, and the depreciation deduction with respect to such property shall be determined under the rules of subsection (a)(1)(A).
(ii)
Property to which new ACRS system applies
In the case of any property to which the amendments made by section 201 of the Tax Reform Act of 1986 apply and which is placed in service in a taxable year beginning before 1990, the depreciation deduction shall be determined—
(iii)
Property to which original ACRS system applies
In the case of any property to which section
168 (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986 and without regard to subsection (d)(1)(A)(ii) thereof) applies and which is placed in service in a taxable year beginning before 1990, the depreciation deduction shall be determined—
(B)
Inclusion of items included for purposes of computing earnings and profits
(i)
In general
In the case of any amount which is excluded from gross income for purposes of computing alternative minimum taxable income but is taken into account in determining the amount of earnings and profits—
(I)
such amount shall be included in income in the same manner as if such amount were includible in gross income for purposes of computing alternative minimum taxable income, and
(II)
the amount of such income shall be reduced by any deduction which would have been allowable in computing alternative minimum taxable income if such amount were includible in gross income.
The preceding sentence shall not apply in the case of any amount excluded from gross income under section
108 (or the corresponding provisions of prior law) or under section
139A or
1357. In the case of any insurance company taxable under section
831
(b), this clause shall not apply to any amount not described in section
834
(b).
(ii)
Inclusion of buildup in life insurance contracts
In the case of any life insurance contract—
(iii)
Tax exempt interest on certain housing bonds
Clause (i) shall not apply in the case of any interest on a bond to which section
57
(a)(5)(C)(iii) applies.
(iv)
Tax exempt interest on bonds issued in 2009 and 2010
(I)
In general
Clause (i) shall not apply in the case of any interest on a bond issued after December 31, 2008, and before January 1, 2011.
(C)
Disallowance of items not deductible in computing earnings and profits
(i)
In general
A deduction shall not be allowed for any item if such item would not be deductible for any taxable year for purposes of computing earnings and profits.
(ii)
Special rule for certain dividends
(I)
In general
Clause (i) shall not apply to any deduction allowable under section
243 or
245 for any dividend which is a 100-percent dividend or which is received from a 20-percent owned corporation (as defined in section
243
(c)(2)), but only to the extent such dividend is attributable to income of the paying corporation which is subject to tax under this chapter (determined after the application of sections
30A,
936 (including subsections (a)(4), (i), and (j) thereof) and 921 (as in effect before its repeal by the FSC Repeal and Extraterritorial Income Exclusion Act of 2000)).
(iii)
Treatment of taxes on dividends from 936 corporations
(I)
In general
For purposes of determining the alternative minimum foreign tax credit, 75 percent of any withholding or income tax paid to a possession of the United States with respect to dividends received from a corporation eligible for the credit provided by section
936 shall be treated as a tax paid to a foreign country by the corporation receiving the dividend.
(II)
Limitation
If the aggregate amount of the dividends referred to in subclause (I) for any taxable year exceeds the excess referred to in paragraph (1), the amount treated as tax paid to a foreign country under subclause (I) shall not exceed the amount which would be so treated without regard to this subclause multiplied by a fraction the numerator of which is the excess referred to in paragraph (1) and the denominator of which is the aggregate amount of such dividends.
(III)
Treatment of taxes imposed on 936 corporation
For purposes of this clause, taxes paid by any corporation eligible for the credit provided by section
936 to a possession of the United States shall be treated as a withholding tax paid with respect to any dividend paid by such corporation to the extent such taxes would be treated as paid by the corporation receiving the dividend under rules similar to the rules of section
902 (and the amount of any such dividend shall be increased by the amount so treated).
(IV)
Separate application of foreign tax credit limitations
In determining the alternative minimum foreign tax credit, section
904
(d) shall be applied as if dividends from a corporation eligible for the credit provided by section
936 were a separate category of income referred to in a subparagraph of section
904
(d)(1).
(V)
Coordination with limitation on 936 credit
Any reference in this clause to a dividend received from a corporation eligible for the credit provided by section
936 shall be treated as a reference to the portion of any such dividend for which the dividends received deduction is disallowed under clause (i) after the application of clause (ii)(I).
(iv)
Special rule for certain dividends received by certain cooperatives
In the case of an organization to which part I of subchapter T (relating to tax treatment of cooperatives) applies which is engaged in the marketing of agricultural or horticultural products, clause (i) shall not apply to any amount allowable as a deduction under section
245
(c).
(v)
Deduction for domestic production
Clause (i) shall not apply to any amount allowable as a deduction under section
199.
(vi)
Special rule for certain distributions from controlled foreign corporations
Clause (i) shall not apply to any deduction allowable under section
965.
(D)
Certain other earnings and profits adjustments
(i)
Intangible drilling costs
The adjustments provided in section
312
(n)(2)(A) shall apply in the case of amounts paid or incurred in taxable years beginning after December 31, 1989. In the case of a taxpayer other than an integrated oil company (as defined in section
291
(b)(4)), in the case of any oil or gas well, this clause shall not apply in the case of amounts paid or incurred in taxable years beginning after December 31, 1992.
(ii)
Certain amortization provisions not to apply
Sections
173 and
248 shall not apply to expenditures paid or incurred in taxable years beginning after December 31, 1989.
(iii)
LIFO inventory adjustments
The adjustments provided in section
312
(n)(4) shall apply, but only with respect to taxable years beginning after December 31, 1989.
(iv)
Installment sales
In the case of any installment sale in a taxable year beginning after December 31, 1989, adjusted current earnings shall be computed as if the corporation did not use the installment method. The preceding sentence shall not apply to the applicable percentage (as determined under section
453A) of the gain from any installment sale with respect to which section
453A
(a)(1) applies.