The Purpose of the Alternative Minimum Tax (amt)

The purpose of the AMT for corporations is to ensure that corporations pay at least a minimum amount of tax on economic income. A corporation is liable for AMT if its tentative minimum tax is more than its regular tax. A corporation is exempt from paying AMT if it is the corporation's first tax year in existence, or it was treated as a small corporation exempt from AMT for all prior tax years after Mary 1997, and average annual gross receipts for the three tax year period ending before the current tax year did not exceed $7.5 million.

Corporations subject to AMT begin employing AMT by modifying regular taxable income by a series of adjustments and preferences. The adjustments can increase or decrease taxable income, and preferences are calculated on a property-by-property basis, and only enter to the extent that they are positive.

The AMT has created a firestorm of controversy in recent times. Some analysts contend that the AMT is a second-best method to reduce the magnitude of deviations from economic measures of income, provided political constraints prevent their direct elimination. Income taxable to corporations under AMT guidelines is not the same as economic income. A corporation can legitimately undertakes a tax-preferred activity and avoid AMT if the corporation also undertakes certain other activities without preferences, and tax preferred activities would still attract investment.

Others argue that the AMT is doing exactly what it was designed to do. It provides tax incentives that encourage certain activities, while ensuring that corporations with positive incomes pay at least a minimum amount of tax.

Research has shown that some small corporations may have paid the IRS erroneously for AMT amounts that were never owed. Studies showed over 2,000