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Corporations.--Generally, the tax base for the
alternative minimum tax on corporations is the
taxpayer’s regular taxable income, increased by the
taxpayer’s tax preferences for the year and adjusted by
computing certain deductions in a special manner which
negates the acceleration of such deductions under the
regular tax. The resulting amount, called alternative
minimum taxable income, then is reduced by a $40,000
exemption and is subject to tax at a 25-percent rate.
The amount so determined may then be offset by the
minimum tax foreign tax credit to determine a
“tentative minimum tax.” These rules are designed to
ensure that, in each taxable year, the taxpayer must
pay tax equaling at least 25 percent of an amount more
nearly approximating its economic income (above the
exemption amount).
The net minimum tax, or amount of minimum tax due,
is the amount by which the tax computed under this
system (the tentative minimum tax) exceeds the
taxpayer’s regular tax. Although the minimum tax is,
in effect, a true alternative tax, in the sense that it
is paid only when it exceeds the regular tax,
technically the taxpayer’s regular tax continues to be
imposed, and the net minimum tax is added on.
Individuals.-–The structure for the alternative
minimum tax on individuals generally is the same as
under present law, except that certain deferral
preferences (such as incentive depreciation) give rise
to adjustments to the minimum tax base over a period of
years, in order properly to compute total income each
year in light of the fact that, in later years, the
regular tax deduction typically is smaller than the
deduction would be if calculated on a straight line
basis over a longer period. The alternative minimum
tax on individuals differs from that applying to
corporations in several respects. For example, there
are some differences between the preferences applying
to individuals and those applying to corporations, and
certain itemized deductions that individuals can claim
for regular tax purposes are not allowable under the
minimum tax. [H. Rept. 99-426, at 308 (1986), 1986-3
C.B. (Vol. 2) 308; emphasis added.]
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