Question

How is the alternative minimum tax credit applied in the calculation of the tentative minimum tax (TMT)?

It is carried forward indefinitely and applied to regular tax only.

It is carried back five years and applied to regular tax only.

It is carried forward indefinitely and can be applied to regular tax or AMT.

Answer 1

Ans. it is carried forward indefinitely and applied to regular tax only.

Section 53(a) provides that “there shall be allowed as a credit against the tax imposed by this chapter for any taxable year an amount equal to the minimum tax credit for such year.” Whether a credit is allowed turns in part on the definition of minimum tax credit in section 53(b).5 It generally defines minimum tax credit for any tax year as the excess of “(1) the adjusted net minimum tax imposed for all prior taxable years beginning after 1986, over (2) the amount allowable as a credit under [section 53(a)] for such prior taxable years.” Therefore, the minimum tax credit is essentially the net minimum tax imposed during all prior periods over the amount allowable as a credit under section 53(a) for those prior years.

Section 53(c) then modifies the amount allowable under section 53(a), such that the amount of the minimum tax credit cannot reduce the taxpayer’s regular tax liability below the taxpayer’s potential AMT liability for the tax year in which the credit is claimed. Section 53(c) allows credit use only for the excess of the taxpayer’s regular tax liability (after being reduced by other credits allowable under the code) over the taxpayer’s tentative minimum tax for the year. For purposes of section 53, the terms “net minimum tax” and “tentative minimum tax” derive meaning from section 55 (the general operative AMT provision).