Department of the Treasury 2007 Internal Revenue Service

Instructions for Form 4626

Alternative Minimum Tax—Corporations

Section references are to the Internal • Gross receipts must be figured using after the change date. Also, for line 8 of

Revenue Code unless otherwise noted. the corporation’s tax accounting the ACE Worksheet, take into account

method and include total sales (net of only property placed in service on or General Instructions returns and allowances), amounts after the change date.

received for services, and income from Note. No additional modification in Purpose of Form investments and other sources. See figuring AMT is required for exceptions Temporary Regulations section Use Form 4626 to figure the alternative related to any item acquired in a 1.448-1T(f)(2)(iv) for more details. minimum tax (AMT) under section 55 corporate acquisition under section 381 • Gross receipts include those of any or to any substituted basis property, if for a corporation that is not exempt predecessor of the corporation, any of the AMT adjustment from the AMT. including non-corporate entities. modifications listed earlier applied to Consolidated returns. For an • For a short tax year, gross receipts the item or property while it was held by affiliated group filing a consolidated must be annualized by multiplying them the transferor. return under the rules of section 1501, by 12 and dividing the result by the

AMT must be figured on a consolidated number of months in the tax year. Once the corporation loses its basis. • The gross receipts of all persons small corporation status, it treated as a single employer under CAUTION cannot qualify for any

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Who Must File section 52(a), 52(b), 414(m), or 414(o) subsequent tax year. must be aggregated.

If the corporation is a “small Loss of small corporation status. If Credit for Prior Year corporation” exempt from the the corporation qualified as a small AMT (as explained below), do corporation exempt from the AMT for its CAUTION

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Minimum Tax not file Form 4626. previous tax year, but does not meet A corporation may be able to take a Generally, file Form 4626 if either of the gross receipts test for its tax year minimum tax credit against the regular the following apply. beginning in 2007, it loses its AMT tax for AMT incurred in prior years. See • The corporation’s taxable income or exemption status. Special rules apply in Form 8827, Credit for Prior Year (loss) before the net operating loss figuring AMT for the tax year beginning Minimum Tax—Corporations, for (NOL) deduction plus its adjustments in 2007 and all later years based on the details.

and preferences total more than “change date.” The change date is the

$40,000 or, if smaller, its allowable first day of the corporation’s tax year

beginning in 2007 (the first tax year for Recordkeeping exemption amount.

• The corporation claims any general which the corporation ceased to be a Certain items of income, deductions,

business credit, any qualified electric small corporation). Where this applies, credits, etc., receive different tax

vehicle credit, or the credit for prior year complete Form 4626 taking into treatment for the AMT than for the

minimum tax. account the following modifications. regular tax. Therefore, the corporation

• The adjustments for depreciation and should keep adequate records to

Exemption for Small amortization of pollution control facilities support items refigured for the AMT.

Corporations apply only to property placed in service Examples include:

on or after the change date. • Tax forms used for regular tax A corporation is treated as a small • The adjustment for mining purposes that are completed a second corporation exempt from the AMT for its exploration and development costs time to refigure items of income, current tax year beginning in 2007 if: applies only to amounts paid or deductions, etc., for the AMT; 1. The current year is the incurred on or after the change date. • The computation of a carryback or corporation’s first tax year in existence • The adjustment for long-term carryforward to other tax years of (regardless of its gross receipts for the contracts applies only to contracts certain deductions or credits (for year), or entered into on or after the change example, net operating loss, capital 2. Both of the following apply. date. loss, and foreign tax credit) if the AMT

a. It was treated as a small • When figuring the amount to enter on amount is different from the regular tax

corporation exempt from the AMT for all line 6, for any loss year beginning amount;

prior tax years beginning after 1997. before the change date, use the • The computation of a carryforward of

b. Its average annual gross receipts corporation’s regular tax NOL for that a passive loss or tax shelter farm

for the 3-tax-year period (or portion year. activity loss if the AMT amount is

thereof during which the corporation • Figure the limitation on line 4d only different from the regular tax amount;

was in existence) ending before its tax for prior tax years beginning on or after and

year beginning in 2007 did not exceed the change date. • A “running balance” of the excess of

$7.5 million ($5 million if the corporation • Enter zero on line 2c of the Adjusted the corporation’s total increases in

had only 1 prior tax year). Current Earnings (ACE) Worksheet on alternative minimum taxable income

page 11. When completing line 5 of the (AMTI) from prior year adjusted current

The following rules apply when ACE Worksheet, take into account only earnings (ACE) adjustments over the

figuring gross receipts under 2b above. amounts from tax years beginning on or total reductions in AMTI from prior year

Cat. No. 64443L
ACE adjustments (see the instructions Act of 1986, this rule applies to property

for line 4d on page 6). Specific Instructions placed in service after July 31, 1986.)

What Depreciation Is Not Line 1. Taxable Income Refigured for the AMT? Short Period Return or (Loss) Before Net Do not refigure depreciation for the If the corporation is filing for a period of AMT for the following. less than 12 months, AMTI must be Operating Loss • Residential rental property placed in

annualized and the tentative minimum Deduction service after 1998.

tax prorated based on the number of • Nonresidential real property with a Enter the corporation’s taxable income months in the short period. Complete class life of 27.5 years or more or (loss) before the NOL deduction, Form 4626 as follows. (generally, a building and its structural after the special deductions, and components) placed in service after 1. Complete lines 1 through 6 in the without regard to any excess inclusion 1998 that is depreciated for the regular normal manner. Subtract line 6 from (for example, if filing Form 1120, tax using the straight line method. line 5 to figure AMTI for the short subtract line 29b from line 28 of that • Other section 1250 property placed period, but do not enter it on line 7. form). in service after 1998 that is depreciated

2. Multiply AMTI for the short period for the regular tax using the straight line

Line 2. Adjustments and method. by 12. Divide the result by the number • Property (other than section 1250 of months in the short period. Enter this Preferences property) placed in service after 1998 result on line 7 and write “Sec. that is depreciated for the regular tax 443(d)(1)” on the dotted line to the left To avoid duplication, do not using the 150% declining balance of the entry space. include any AMT adjustment or method or the straight line method. preference taken into account • Property for which the corporation CAUTION

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3. Complete lines 8 through 11. on line 2i, 2j, 2k, or 2o in the amounts elected to use the alternative 4. Subtract line 11 from line 10. to be entered on any other line of this depreciation system (ADS) for the Multiply the result by the number of form. regular tax. months in the short period and divide • Qualified property eligible for a

that result by 12. Enter the final result Line 2a. Depreciation of special depreciation allowance if the

on line 12 and write “Sec. 443(d)(2)” on Post-1986 Property depreciable basis of the property for the

the dotted line to the left of the entry AMT is the same as for the regular tax.

space. What Adjustments Are Not If the depreciable basis for the AMT is

the same as for the regular tax, no 5. Complete the rest of the form in Included As Depreciation adjustment is required for any the normal manner. Adjustments? depreciation figured on the remaining Do not make a depreciation adjustment basis of the qualified property. on line 2a for: However, if an election is in effect to • A tax shelter farm activity. Take this not have the special allowance apply, Allocating Differently adjustment into account on line 2i. the corporation must refigure • Passive activities. Take this depreciation for the AMT. Treated Items Between adjustment into account on line 2j. • Any part of the cost of any property • An activity for which the corporation Certain Entities and that the corporation elected to expense is not at risk or income or loss from a under section 179. The reduction to the

Their Investors partnership interest or stock in an S depreciable basis of section 179 corporation if the basis limitations property by the amount of the section For a regulated investment company, a apply. Take this adjustment into 179 expense deduction is the same for real estate investment trust, or a account on line 2k. the regular tax and the AMT. common trust fund, see section 59(d) • Certain public utility property (if a for details on allocating certain What Depreciation Must Be normalization method of accounting is differently treated items between the Refigured for the AMT? not used), motion picture films and

entity and its investors. Generally, the corporation must refigure video tape, sound recordings, and

depreciation for the AMT, including property that the corporation elects to

depreciation allocable to inventory exclude from MACRS by using a

costs, for the following. depreciation method based on a term Optional Write-Off for • Property placed in service after 1998 of years, such as the unit-of-production

Certain Expenditures depreciated for the regular tax using method.

the 200% declining balance method • Qualified Indian reservation property. There is no AMT adjustment for the (generally 3-, 5-, 7-, or 10-year property See section 168(j). following items if the corporation elects under the modified accelerated cost • Qualified revitalization expenditures to deduct them ratably over the period recovery system (MACRS)), except for for a building for which the corporation

of time shown for the regular tax. qualified property eligible for the special elected to claim the commercial

depreciation allowance. revitalization deduction. • Circulation expenditures (personal • Section 1250 property placed in • Any natural gas gathering line (as holding companies only)—3 years. service after 1998 that is not defined in section 168(i)(17)) placed in

• Mining exploration and development depreciated for the regular tax using service after April 11, 2005, the original

costs—10 years. the straight line method. use of which begins with the

• Tangible property placed in service corporation after April 11, 2005, and • Intangible drilling costs—60 months. after 1986 and before 1999. (If the which is not under self-construction or

transitional election was made under subject to a binding contract in

See section 59(e) for more details. section 203(a)(1)(B) of the Tax Reform existence before April 12, 2005.

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How Is Depreciation Refigured In addition to the AMT adjustment to than the regular tax deduction, enter

the deduction for depreciation, also the difference as a negative amount. for the AMT?

adjust the amount of depreciation that Property placed in service after 1998. was capitalized, if any, to account for Line 2d. Amortization of

Use the same convention and recovery the difference between the rules for the Circulation Expenditures period used for the regular tax. Use the regular tax and the AMT. Include on straight line method for section 1250 this line the current year adjustment to Do not make this adjustment for property. For property other than taxable income, if any, resulting from expenditures of a personal section 1250 property, use the 150% the difference. CAUTION holding company for which the

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declining balance method, switching to company elected the optional 3-year the straight line method the first tax Line 2b. Amortization of write-off for the regular tax. year it gives a larger deduction. Certified Pollution Control For the regular tax, circulation Property placed in service before Facilities expenditures may be deducted in full 1999. Refigure depreciation for the For facilities placed in service before when paid or incurred. For the AMT, AMT using ADS, with the same these expenditures must be capitalized 1999, figure the amortization deduction convention used for the regular tax. and amortized over 3 years beginning for the AMT using ADS (that is, the See the table below for the method and with the tax year in which the straight line method over the facility’s recovery period to use. expenditures were made. class life). For facilities placed in

service after 1998, figure the If the corporation had a loss on Property Placed in Service amortization deduction for the AMT property for which circulation Before 1999 under MACRS using the straight line expenditures have not been fully

method. Figure the AMT deduction amortized for the AMT, the AMT IF the property is THEN use the ... using 100% of the asset’s amortizable deduction is the smaller of (a) the loss

Section 1250 Straight line method basis. Do not reduce the corporation’s allowable for the expenditures had they

property. over 40 years. AMT basis by the 20% section 291 remained capitalized or (b) the

adjustment that applied for the regular remaining expenditures to be amortized Tangible property Straight line method tax. for the AMT.

(other than section over the property’s

1250 property) AMT class life. Enter the difference between the Subtract the AMT deduction from the

depreciated using AMT deduction and the regular tax regular tax deduction. Enter the result

the straight line deduction on line 2b. If the AMT on line 2d. If the AMT deduction is

method for the deduction is more than the regular tax more than the regular tax deduction,

regular tax. deduction, enter the difference as a enter the difference as a negative

negative amount. amount. Any other tangible 150% declining

property. balance method, Line 2c. Amortization of Line 2e. Adjusted Gain or switching to the

straight line method Mining Exploration and Loss

the first tax year it Development Costs If, during the tax year, the corporation

gives a larger disposed of property for which it is

deduction, over the Do not make this adjustment for making (or previously made) any of the

property’s AMT costs for which the corporation adjustments described on lines 2a class life. CAUTION elected the optional 10-year through 2d above, refigure the !

write-off for the regular tax. property’s adjusted basis for the AMT.

How is the AMT class life Then refigure the gain or loss on the For the AMT, the regular tax disposition. determined? For property placed in deductions under sections 616(a) and service before 1999, the class life used The property’s adjusted basis for the 617(a) are not allowed. Instead, for the AMT is not necessarily the same AMT is its cost minus all applicable capitalize these costs and amortize as the recovery period used for the depreciation or amortization deductions them ratably over a 10-year period regular tax. allowed for the AMT during the current beginning with the tax year in which the tax year and previous tax years. The class lives are listed in Rev. corporation paid or incurred them. The Subtract this AMT basis from the sales Proc. 87-56, 1987-2 C.B. 674, Rev. 10-year amortization applies to 100% of price to get the AMT gain or loss. Proc. 88-22, 1988-1 C.B. 785, and in the mining development and

Pub. 946, How To Depreciate Property. exploration costs paid or incurred Dispositions for which line 2i, 2j, and

during the tax year. Do not reduce the 2k adjustments are made. The

See Pub. 946 for tables that can corporation’s AMT basis by the 30% corporation may also have gains or be used to figure AMT section 291 adjustment that applied for losses from lines 2i, 2j, and 2k that depreciation. Rev. Proc. 89-15, the regular tax. must be considered on line 2e. For

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1989-1 C.B. 816, and Pub. 946 have example, if for the regular tax the If the corporation had a loss on special rules for short tax years and for corporation reports a loss from the property for which mining exploration property disposed of before the end of disposition of an asset used in a and development costs have not been the recovery period. passive activity, include the loss in the fully amortized for the AMT, the AMT computations for line 2j to determine if How Is the Line 2a Adjustment deduction is the smaller of (a) the loss any passive activity loss is limited for Figured? allowable for the costs had they the AMT. Then, include the AMT remained capitalized or (b) the Subtract the AMT deduction for passive activity loss allowed that relates remaining costs to be amortized for the depreciation from the regular tax to the disposition of the asset on line 2e AMT. deduction and enter the result on line in determining the corporation’s AMT

2a. If the AMT deduction is more than Subtract the AMT deduction from the basis adjustment. It may be helpful to

the regular tax deduction, enter the regular tax deduction. Enter the result refigure the following for the AMT: Form

difference as a negative amount. on line 2c. If the AMT deduction is more 8810 and related worksheets, Schedule

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D (Form 1120), Form 4684 (Section B), or loss using the rules for the regular • An AMT loss and a regular tax gain,

or Form 4797. tax with the following modifications. • An AMT loss that exceeds the

• No loss is allowed except to the regular tax loss, or Enter on line 2e the difference extent the personal service corporation • A regular tax gain that exceeds the between the regular tax gain or loss is insolvent. AMT gain. and the AMT gain or loss. Enter the • Do not use a loss in the current tax difference as a negative amount if any Tax Shelter Farm Activities That year to offset gains from other tax of the following apply. Are Passive Activities shelter farm activities. Instead, suspend • The AMT gain is less than the regular any loss and carry it forward indefinitely Refigure all gains and losses reported tax gain. until the corporation has a gain in a for the regular tax by taking into • The AMT loss exceeds the regular subsequent tax year from that same tax account the corporation’s AMT tax loss. shelter farm activity or it disposes of the adjustments and preferences and AMT • The corporation has an AMT loss activity. prior year unallowed losses. and a regular tax gain. Use the same rules as outlined Keep adequate records for Line 2f. Long-Term Contracts above for other passive activities, with losses that are not deductible

For the AMT, the corporation generally the following modifications. (and therefore carried forward)

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must use the percentage-of-completion for both the AMT and regular tax. • AMT gains from tax shelter farm

method described in section 460(b) to activities that are passive activities may Enter on line 2i the difference determine the taxable income from any be used to offset AMT losses from between the AMT gain or loss and the other passive activities. long-term contract (defined in section regular tax gain or loss. Enter the 460(f)). However, this rule does not • AMT losses from tax shelter farm difference as a negative amount if the apply to any home construction contract activities that are passive activities may corporation had: (as defined in section 460(e)(6)). not be used to offset AMT gains from • An AMT loss and a regular tax gain, other passive activities. These losses For contracts excepted from the • An AMT loss that exceeds the must be suspended and carried forward percentage-of-completion method for regular tax loss, or indefinitely until the corporation has a the regular tax by section 460(e)(1), • A regular tax gain that exceeds the gain in a subsequent year from that determine the percentage of completion AMT gain. same activity or it disposes of the using the simplified procedures for Line 2j. Passive Activities activity. allocating costs outlined in section

460(b)(3). Line 2k. Loss Limitations This adjustment applies only to Subtract the regular tax income from Refigure gains and losses reported for closely held corporations and the AMT income. Enter the difference the regular tax from at-risk activities CAUTION personal service corporations.

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on line 2f. If the AMT income is less and the corporation’s share of

than the regular tax income, enter the Refigure all passive activity gains distributive items from partnerships by

difference as a negative amount. and losses reported for the regular tax taking into account the corporation’s

by taking into account the corporation’s AMT adjustments and preferences. If Line 2g. Merchant Marine AMT adjustments and preferences and the corporation has recomputed losses

Capital Construction Funds AMT prior year unallowed losses that that must be limited for the AMT by

apply to that activity. section 465 or section 704(d) or the Amounts deposited in these funds are Determine the corporation’s AMT corporation reported losses for the not deductible for the AMT. Earnings on passive activity gain or loss using the regular tax from at-risk activities or these funds must be included in gross same rules used for the regular tax. distributive shares of partnership losses income for the AMT. If the corporation Generally, no loss is allowed. However, that were limited by those sections, deducted these amounts or excluded

if the corporation is insolvent, losses figure the difference between the loss them from income for the regular tax, are allowed to the extent the limited for the AMT and the loss limited add them back on line 2g. corporation is insolvent (see section for the regular tax for each applicable

Line 2h. Section 833(b) 58(c)). at-risk activity or distributive share of

partnership loss. “Loss limited” means Deduction Disallowed losses of a personal the amount of loss that is not allowable service corporation are suspended until This deduction is not allowed for the for the year because of the limitations AMT. If the corporation took this the corporation has income from that above. (or any other) passive activity or until deduction for the regular tax, add it the passive activity is disposed of (that Enter on line 2k the excess of the back on line 2h. is, its passive losses cannot offset “net loss limited for the AMT over the loss

Line 2i. Tax Shelter Farm active income” (defined in section limited for the regular tax. If the loss

469(e)(2)(B) or “portfolio income”)). limited for the regular tax is more than Activities Disallowed losses of a closely held the loss limited for the AMT, enter the

corporation that is not a personal difference as a negative amount. Complete this line only if the service corporation are treated the corporation is a personal service Line 2l. Depletion same except that, in addition, they may CAUTION corporation and it has a gain or

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be used to offset “net active income.” Refigure depletion using only income loss from a tax shelter farm activity that and deductions allowed for the AMT is not a passive activity. If the tax Keep adequate records for when refiguring the limit based on shelter farm activity is a passive losses that are not deductible taxable income from the property under activity, include the gain or loss in the (and therefore carried forward)

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section 613(a) and the limit based on computations for line 2j. for both the AMT and regular tax. taxable income, with certain

Refigure all gains and losses Enter on line 2j the difference adjustments, under section 613A(d)(1).

reported for the regular tax from tax between the AMT gain or loss and the Also, the depletion deduction for mines,

shelter farm activities by taking into regular tax gain or loss. Enter the wells, and other natural deposits is

account any AMT adjustments and difference as a negative amount if the limited to the property’s adjusted basis

preferences. Determine the AMT gain corporation had: at the end of the year, as refigured for

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the AMT, unless the corporation is an section 291(b)(1) adjustment for partnership, include on line 2o the

independent producer or royalty owner integrated oil companies and increased amount from Schedule K-1 (Form

claiming percentage depletion for oil by any IDCs allowed to be amortized 1065-B), box 6. Also include on line 2o

and gas wells. Figure this limit under section 291(b)(2) over any amount from Schedule K-1 (Form

separately for each property. When • The amount that would have been 1065-B), box 5, unless the corporation

refiguring the property’s adjusted basis, allowed if the corporation had is a closely held or personal service

take into account any AMT adjustments amortized that amount over a corporation. Closely held and personal

the corporation made this year or in 120-month period starting with the service corporations should take any

previous years that affect basis (other month the well was placed in amount from box 5 into account when

than the current year’s depletion). Do production or, alternatively, had elected figuring the amount to enter on line 2j.

not include in the property’s adjusted any method that is permissible in Patron’s AMT adjustment. basis any unrecovered costs of determining cost depletion. Distributions the corporation received depreciable tangible property used to Net income from oil, gas, and from a cooperative may be includible in exploit the deposits (for example, geothermal properties. Net income is income. Unless the distributions are machinery, tools, pipes, etc.). the gross income the corporation nontaxable, include on line 2o the total

For iron ore and coal (including received or accrued from all oil, gas, AMT patronage dividend adjustment

lignite), apply the section 291 and geothermal wells minus the reported to the corporation from the

adjustment before figuring this deductions allocable to these properties cooperative.

preference. (reduced by the excess IDCs). When Cooperative’s AMT adjustment. If refiguring net income, use only income Enter on line 2l the difference the corporation is a cooperative, and deductions allowed for the AMT. between the regular tax and the AMT refigure the cooperatives deduction for

deduction. If the AMT deduction is Exception. The preference for IDCs patronage dividends by taking into

more than the regular tax deduction, from oil and gas wells does not apply to account the cooperatives AMT

enter the difference as a negative corporations that are independent adjustments and preferences. Subtract

amount. producers (that is, not integrated oil the cooperatives AMT deduction for

companies as defined in section patronage dividends from its regular tax Line 2m. Tax-Exempt Interest 291(b)(4)). However, this benefit may deduction for patronage dividends and

Income From Specified be limited. First, figure the IDC include the result on line 2o. If the AMT

Private Activity Bonds preference as if this exception did not deduction is more than the regular tax

apply. Then, for purposes of this deduction, include the result as a Enter on line 2m interest income from exception, complete a second Form negative amount. specified private activity bonds, 4626 through line 5, including the IDC Domestic production activities reduced by any deduction that would preference. If the amount of the IDC deduction. For the AMT, figure the have been allowable if the interest were preference exceeds 40% of the amount corporation’s domestic production includible in gross income for the figured for line 5, enter the excess on activities deduction under section 199 regular tax. Generally, a specified line 2n (the benefit of this exception is without taking into account any AMT private activity bond is any private limited). If the amount of the IDC adjustments and preferences. The activity bond (as defined in section 141) preference is equal to or less than 40% section 199 deduction for the issued after August 7, 1986, on which of the amount figured for line 5, do not corporation’s AMT is 6% of the smaller the interest is not includible in gross include an amount on line 2n for oil and of (a) the qualified production activities income for the regular tax. See section gas wells (the benefit of this exception 57(a)(5) for exceptions and details. income or (b) the alternative minimum is not limited). taxable income (AMTI), determined Do not include interest on qualified without taking into account the section Gulf Opportunity Zone bonds Line 2o. Other Adjustments 199 deduction. Subtract the (described in section 1400N(a)). And Preferences corporation’s AMT section 199

Enter the net amount of any other deduction from its regular tax section Line 2n. Intangible Drilling adjustments and preferences, including 199 deduction and include the result on Costs the following. line 2o. If the AMT deduction is more

than the regular tax deduction, include Income eligible for the American Do not make this adjustment for the result as a negative amount. Samoa economic development costs for which the corporation credit. If this income was included in Installment sales. The installment CAUTION elected the optional 60-month

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the corporation’s taxable income for the method does not apply for the AMT to write-off for the regular tax. regular tax, include this amount on line any nondealer disposition of property Intangible drilling costs (IDCs) from 2o as a negative amount. that occurred after August 16, 1986, but oil, gas, and geothermal properties are before the first day of the corporation’s Income from the alcohol, biodiesel, a preference to the extent excess IDCs tax year that began in 1987, if an and renewable diesel fuels credits. exceed 65% of the net income from the installment obligation to which the If this income was included in the properties. Figure the preference for all proportionate disallowance rule applied corporation’s income for the regular tax, geothermal deposits separately from arose from the disposition. Include as a include this amount on line 2o as a the preference for all oil and gas negative adjustment on line 2o the negative amount. properties that are not geothermal amount of installment sale income

deposits. Income as the beneficiary of an reported for the regular tax. estate or trust. If the corporation is Excess IDCs. Excess IDCs are the Accelerated depreciation of real the beneficiary of an estate or trust, excess of: property and certain leased personal include on line 2o the AMT adjustment • The amount of IDCs the corporation property (pre-1987). from Schedule K-1 (Form 1041), Part paid or incurred for oil, gas, or III, box 12. geothermal properties that it elected to This preference generally

expense for the regular tax (not Net AMT adjustment from an electing applies only to property placed

including any IDCs paid or incurred for large partnership. If the corporation CAUTION in service after 1987, but

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nonproductive wells) reduced by the is a partner in an electing large depreciated using pre-1987 rules due to

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transition provisions of the Tax Reform line 3 pre-adjustment AMTI in the Corporation C subtracts its

Act of 1986. amounts shown below, its line 3 and pre-adjustment AMTI from its ACE in

Refigure depreciation for the AMT line 4a amounts would be combined as each of the years and then multiplies

follows to determine the amount to the result by 75% to get the following using the straight line method for real enter on line 4b. potential ACE adjustments for 2003 property for which accelerated through 2007. depreciation was determined for the

regular tax using pre-1987 rules. Use a Line 4a ACE $25,000 $25,000 $25,000 ACE minus Potential

recovery period of 19 years for 19-year pre-adjustment ACE

real property and 15 years for Line 3 pre-adj. Year AMTI adjustment

AMTI 10,000 30,000 (50,000) low-income housing property. Figure 2003 $(100,000) $ (75,000) the excess of the regular tax Amount to enter 2004 300,000 225,000 depreciation over the AMT depreciation on line 4b $15,000 $(5,000) $75,000 2005 (100,000) (75,000) separately for each property and 2006 (400,000) (300,000) include only positive adjustments on Example 2. Corporation B has line 4a 2007 150,000 112,500 line 2o. ACE of $(25,000). If Corporation B has The adjustment for leased personal Under these facts, Corporation C line 3 pre-adjustment AMTI in the property only applies to personal has the following increases or amounts shown below, its line 3 and holding companies. For leased reductions in AMTI for 2003 through line 4a amounts would be combined as

personal property other than recovery 2007. follows to determine the amount to

property, enter the excess of the enter on line 4b. Increase or (reduction)

depreciation claimed for the property for in AMTI from ACE

the regular tax using pre-1987 rules Year adjustment Line 4a ACE $(25,000) $(25,000) $(25,000) over the depreciation allowable for the 2003 $0 AMT as refigured using the straight line Line 3 pre-adj. 2004 225,000 method. AMTI (10,000) (30,000) 50,000 2005 (75,000)

For leased 10-year recovery 2006 (150,000)

property and leased 15-year public Amount to enter 2007 112,500 on line 4b $(15,000) $5,000 $(75,000) utility property, enter the excess of the

regular tax depreciation over the

depreciation allowable using the Line 4d. A potential negative ACE In 2003, Corporation C was not straight line method with a half-year adjustment (that is, a negative amount allowed to reduce its AMTI by any part convention, no salvage value, and a on line 4b multiplied by 75%) is allowed of the potential negative ACE recovery period of 15 years (22 years as a negative ACE adjustment on line adjustment because it had no increases 4e only if the corporation’s total for 15-year public utility property). increases in AMTI from prior year ACE in AMTI from prior year ACE Figure this amount separately for adjustments exceed its total reductions adjustments. each property and include only positive in AMTI from prior year ACE adjustments on line 2o. adjustments (line 4d). The purpose of In 2004, Corporation C had to Related adjustments. AMT line 4d is to provide a “running balance” increase its AMTI by the full amount of adjustments and preferences may of this limitation amount. As such, the its potential ACE adjustment. It was not affect deductions that are based on an corporation must keep adequate allowed to use any part of its 2003 income limit (for example, charitable records (for example, a copy of Form unallowed potential negative ACE contributions). Refigure these 4626 completed at least through line 5) adjustment of $75,000 to reduce its deductions using the income limit as from year to year (even in years in 2004 positive ACE adjustment of modified for the AMT. Include on line which it does not owe any AMT). $225,000. 2o an adjustment for the difference

between the regular tax and AMT Any potential negative ACE

amounts for all such deductions. If the adjustment that is not allowed as a In 2005, Corporation C was allowed

AMT deduction is more than the regular negative ACE adjustment in a tax year to reduce its AMTI by the full amount of

tax deduction, include the difference as because of the line 4d limitation cannot its potential negative ACE adjustment

a negative amount. be used to reduce a positive ACE because that amount is less than its

adjustment in any other tax year. line 4d limit of $225,000.

Line 4. Adjusted Current Combine lines 4d and 4e of the 2006

Form 4626 and enter the result on line In 2006, Corporation C was allowed Earnings (ACE) 4d of the 2007 form, but do not enter to reduce its AMTI by only $150,000. Its

Adjustment less than zero. potential negative ACE adjustment of

$300,000 was limited to its 2004 Example. Corporation C, a The ACE adjustment does not increase in AMTI of $225,000 minus its calendar-year corporation, was apply to a regulated investment 2005 reduction in AMTI of $75,000. incorporated January 1, 2003. Its ACE CAUTION company or a real estate

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and pre-adjustment AMTI for 2003 investment trust. Also, for an affiliated In 2007, Corporation C must through 2007 were as follows. group filing a consolidated return under increase its AMTI by the full amount of Pre- the rules of section 1501, figure line 4b its potential ACE adjustment. It cannot adjustment on a consolidated basis. Year ACE AMTI use any part of its 2006 unallowed

Line 4b. The following examples potential negative ACE adjustment of 2003 $700,000 $800,000 illustrate the manner in which line 3 is $150,000 to reduce its 2007 positive 2004 900,000 600,000 subtracted from line 4a to get the ACE adjustment of $112,500. 2005 400,000 500,000 amount to enter on line 4b. Corporation C would complete the 2006 (100,000) 300,000 Example 1. Corporation A has line 4a relevant portion of its 2007 Form 4626 2007 250,000 100,000 ACE of $25,000. If Corporation A has as follows.

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Line Amount a. The sum of the ATNOL Line 8c. If this Form 4626 is for a

carrybacks and carryforwards to the tax member of a controlled group of 4a $250,000 year attributable to net operating losses corporations, reduce the member’s 4b 150,000 other than qualified Gulf Opportunity share of the $40,000 tentative 4c 112,500 Zone losses, or exemption by the amount entered on 4d -0- b. Ninety percent of AMTI for the tax line 8b. 4e 112,500 year (figured without regard to the

ATNOLD, as discussed earlier, and the

domestic production activities deduction Line 11. Alternative

Line 6. Alternative Tax under section 199) plus Minimum Tax Foreign Net Operating Loss 2. The smaller of: Tax Credit (AMTFTC) a. The sum of the ATNOL Deduction (ATNOLD) carrybacks and carryforwards to the tax The AMTFTC is the foreign tax credit

The ATNOLD is the sum of the year attributable to qualified Gulf refigured as follows.

alternative tax net operating loss Opportunity Zone losses, or 1. Complete a separate AMT Form (ATNOL) carrybacks and carryforwards b. 100% of AMTI for the tax year 1118, Foreign Tax Credit— to the tax year, subject to the limitation (figured without regard to the ATNOLD, Corporations, for each separate

explained below. For a corporation that as discussed earlier, and the domestic limitation category specified at the top held a residual interest in a real estate production activities deduction under of Form 1118. Include as a separate mortgage investment conduit (REMIC), section 199) reduced by the amount limitation category dividends received figure the ATNOLD without regard to determined under 1, above. from a corporation that qualifies for the

any excess inclusion. American Samoa economic The ATNOL can be carried back or development credit if the NOLs arising in tax years forward using the rules outlined in dividends-received deduction for those beginning before August 6, section 172(b). An election under dividends is disallowed under the ACE CAUTION 1997, can be carried forward no section 172(b)(3) to forego the

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rules. more than 15 years. Therefore, the carryback period for the regular tax also In determining if any income is corporation cannot carry forward an applies for the AMT. “high-taxed” in applying the separate NOL to this tax year from a loss year The ATNOL carried back or forward limitation categories, use the AMT rate beginning before 1992. may differ from the NOL (if any) that is (20%) instead of the regular tax rate.

The ATNOL for a loss year is the carried back or forward for the regular 2. For each separate AMT Form excess of the deductions allowed in tax. Keep adequate records for both the 1118, if the corporation previously AMT and the regular tax. figuring AMTI (excluding the ATNOLD) made or is making the simplified over the income included in AMTI. This limitation election (discussed below), excess is figured with the modifications Line 7. Alternative skip Schedule A and enter on Schedule in section 172(d), taking into account Minimum Taxable B, Part II, line 6, the same amount you the adjustments in sections 56 and 58 entered on that line for the regular tax. and preferences in section 57 (that is, Income Otherwise, complete Schedule A using the section 172(d) modifications must For a corporation that held a residual only income and deductions that are be separately figured for the ATNOL). allowed for the AMT and attributable to interest in a REMIC and is not a thrift sources outside the United States. In applying the rules relating to the institution, line 7 may not be less than

determination of the amount of the total of the amounts shown on 3. For each separate AMT Form

carrybacks and carryforwards, use the Schedule(s) Q (Form 1066), Quarterly 1118, complete Schedule B, Part II.

modification to those rules described in Notice to Residual Interest Holder of Enter any AMTFTC carryover on

section 56(d)(1)(B)(ii). REMIC Taxable Income or Net Loss Schedule B, Part II, line 4. Enter the

Allocation, line 2c, for the periods AMTI from Form 4626, line 7, on The ATNOLD is generally limited to included in the corporation’s tax year. If Schedule B, Part II, line 7a. Enter the 90% of AMTI determined without regard the total of the line 2c amounts is larger amount from Form 4626, line 10, on to the ATNOLD and any domestic than the amount the corporation would Schedule B, Part II, line 9. When production activities deduction under otherwise enter on line 7, enter that completing Schedule B, treat as a tax section 199. To figure AMTI without total and write “Sch. Q” on the dotted paid to a foreign country 75% of any regard to the ATNOLD, use a second line next to line 7. withholding or income tax paid to Form 4626 as a worksheet. Complete American Samoa on dividends received

the second Form 4626 through line 5, Line 8. Exemption from a corporation that qualifies for the but when figuring lines 2l and 2o, treat American Samoa economic

line 6 as if it were zero. The amount Phase-Out Computation development credit (if the figured on line 5 of the second Form dividends-received deduction for those

4626 is the corporation’s AMTI Line 8a. If this Form 4626 is for a dividends is disallowed under the ACE

determined without regard to the member of a controlled group of rules). ATNOLD. Add any domestic production corporations, subtract $150,000 from 4. For the AMT Form 1118, activities deduction to this tentative the combined AMTI of all members of complete Schedule B, Part III, the controlled group. Divide the result total. The ATNOLD limitation is 90% of Summary of Separate Credits. The total this amount. among the members of the group in the foreign tax credit is the amount on line same manner as the $40,000 tentative However, if an ATNOL carried back 6. exemption is divided among the or carried forward to the tax year is members. Enter this member’s share 5. Enter on Form 4626, line 11, the

attributable to qualified Gulf Opportunity on line 8a. The tentative exemption smaller of:

Zone losses (as defined in section must be divided equally among the • The amount on Form 4626, line

1400N(k)(2)), the ATNOLD for the tax members, unless all members consent 10, or

year is limited to the sum of: to a different allocation. See section • The amount from the AMT Form

1. The smaller of: 1561 for details. 1118, Schedule B, Part III, line 6.

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The corporation can use any recovery period for the property under

reasonable method, consistently Adjusted Current ADS. In doing so, use the convention

applied, to apportion the disallowed that would have applied to the property

amount among the separate limitation Earnings (ACE) under section 168(d). For more

information (including an example that categories (including the general Worksheet Instructions illustrates the application of these limitation income category). Any AMT rules), see Regulations section foreign tax credit for each separate Treatment of Certain 1.56(g)-1(b)(2). limitation category that the corporation

cannot claim (because of the limitation Ownership Changes Line 2b(4). Pre-1990 original ACRS

If a corporation with a net unrealized property. For ACRS property fraction) is treated as a credit carryback built-in loss (within the meaning of generally placed in service in a tax year or carryforward for that limitation section 382(h)) undergoes an that began after 1980 and before 1987, category under section 904(c). Because ownership change (within the meaning figure depreciation by using the these amounts may differ from the of section 382(g) and Regulations property’s regular tax adjusted basis as amounts that are carried back or section 1.56(g)-1(k)(2)), refigure the of the close of the last tax year forward for the regular tax, keep adjusted basis of each asset of the beginning before 1990 and by using the adequate records for both the AMT and corporation (immediately after the straight line method over the remainder regular tax. When carried back or ownership change). The new adjusted of the recovery period for the property forward, the credit is reported on basis of each asset is its proportionate under ADS. In doing so, use the Schedule B, Part II, line 4, of the share (based on respective fair market convention that would have applied to

carryover year’s AMT Form 1118 for values) of the fair market value of the the property under section 168(d)

that separate limitation category. corporation’s assets (determined under (without regard to section 168(d)(3)).

section 382(h)) immediately before the For more information (including an

ownership change. example that illustrates the application Simplified Limitation of these rules), see Regulations section To determine if the corporation has a Election 1.56(g)-1(b)(3). net unrealized built-in loss immediately

The corporation may elect to use a before an ownership change, use the Line 2b(5). Property described in

simplified section 904 limitation to figure aggregate adjusted basis of its assets sections 168(f)(1) through (4). For

used for figuring its ACE. Also, use this property, use the regular tax its AMTFTC. The corporation must

make the election for its first tax year these new adjusted bases for all future depreciation, regardless of when the

ACE calculations (such as depreciation property was placed in service. beginning after 1997 for which it claims and gain or loss on disposition of an an AMTFTC. If it does not make the Line 2b(5) takes priority over asset). election for that tax year, it may not lines 2b(1), 2b(2), 2b(3), and

make the election for a later tax year. Line 2. ACE Depreciation CAUTION 2b(4). For property that is

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Once made, the election applies to all Adjustment described in sections 168(f)(1) through

later tax years and may only be (4), use line 2b(5) instead of the line

revoked with IRS consent. Line 2a. AMT depreciation. 2b(1), 2b(2), 2b(3), or 2b(4) that would Generally, the amount entered on this otherwise apply. line is the depreciation the corporation Line 2b(6). Other property. Use the If the corporation made the election claimed for the regular tax (Form 4562, regular tax depreciation for (a) property for each of its AMT separate limitations, line 22), modified by the AMT placed in service before 1981 and (b) the corporation uses its separate depreciation adjustments reported on property placed in service after 1980, in limitation income or loss that it lines 2a and 2o of Form 4626. a tax year that began before 1990, that determined for the regular tax (instead Line 2b(1). Post-1993 property. For is excluded from MACRS by section of refiguring the separate limitation property placed in service after 1993, 168(f)(5)(A)(i) or original ACRS by income or loss for the AMT, as the ACE depreciation is the same as section 168(e)(4), as in effect before described earlier). the AMT depreciation. Therefore, enter the Tax Reform Act of 1986.

on line 2b(1) the same depreciation Line 2c. Total ACE depreciation. expense you included on line 2a of this Subtract line 2b(7) from line 2a and Line 13 worksheet for such property. enter the result on line 2c. If line 2b(7)

Enter the corporation’s regular tax Line 2b(2). Post-1989, pre-1994 exceeds line 2a, enter the difference as

property. For property placed in a negative amount. liability (as defined in section 26(b))

minus any foreign tax credit and service in a tax year that began after Line 3. Inclusion in ACE of 1989 and before 1994, use the ADS American Samoa economic depreciation described in section Items Included in Earnings and development credit (for example, Form 168(g). However, for property (a) Profits (E&P) 1120, Schedule J, line 2, minus line 5a, placed in service in a tax year that In general, any income item that is not and minus any credit from Form 5735 began after 1989 and (b) described in taken into account (see below) in reported on line 5b). Do not include sections 168(f)(1) through (4), use the determining the corporation’s any: same depreciation claimed for the pre-adjustment AMTI but that is taken • Tax on accumulation distribution of regular tax and enter it on line 2b(5). into account in determining its E&P trusts from Form 4970, Line 2b(3). Pre-1990 MACRS must be included in ACE. Any such

• Recapture of investment credit property. For MACRS property income item can be reduced by all

(under section 49(b) or 50(a)) from generally placed in service after 1986 items related to that income item and

Form 4255, and in a tax year that began before that would be deductible when figuring

1990, figure depreciation by using the pre-adjustment AMTI if the income • Recapture of low-income housing property’s AMT adjusted basis as of the items to which they relate were credit (under section 42(j) or (k)) from close of the last tax year beginning included in the corporation’s Form 8611, or before 1990 and by using the straight pre-adjustment AMTI for the tax year.

• Recapture of any other credit. line method over the remainder of the Examples of these income items and

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the adjustments that relate to them from income of the paying corporation expenditures for ACE using the case

include: that is subject to federal income tax. law that existed before section 173 was

• Interest income from tax-exempt • Any allowable domestic production enacted.

obligations excluded under section 103 activities deduction under section 199. Subtract the ACE expense (if any) minus any costs incurred in carrying Special rules apply to: from the regular tax expense (for a these tax-exempt obligations and • Dividends from certain possession personal holding company, from the • Proceeds of life insurance contracts corporations operating in American AMT expense used to figure line 2d of excluded under section 101 minus the Samoa. Form 4626) and enter the result on line basis in the contract for purposes of • Certain dividends received by certain 5b. If the ACE expense exceeds the ACE. cooperatives. regular tax amount (for a personal

An income item is considered taken holding company, the AMT amount), An item is considered taken into into account without regard to the enter the result as a negative amount. account without regard to the timing of timing of its inclusion in a corporation’s its deductibility in figuring Do not make this adjustment for pre-adjustment AMTI or its E&P. Only pre-adjustment AMTI or E&P. expenditures for which the income items that are permanently Therefore, only deduction items that are CAUTION corporation elected the optional

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excluded from pre-adjustment AMTI are permanently disallowed in figuring E&P 3-year write-off under section 59(e) for included in ACE. An income item will are disallowed in figuring ACE. the regular tax. not be considered taken into account

merely because the proceeds from that Items for which no adjustment is Line 5c. When figuring ACE, the

item might eventually be reflected in the necessary. Generally, no deduction is amortization provisions of section 248

pre-adjustment AMTI of another allowed for an item in figuring ACE if do not apply. Therefore, charge all

taxpayer (for example, that of a the item is not deductible in figuring organizational expenditures to a capital

shareholder) on the liquidation or pre-adjustment AMTI (even if the item account and do not take them into

disposal of a business. is deductible in figuring E&P). The only account when figuring ACE until the exceptions to this general rule are the corporation is sold or otherwise Exceptions. Do not make an related reductions to an income item disposed of. Enter on line 5c all adjustment for the following. described in the second sentence of amortization deductions for • Any income from discharge of the instructions for line 3 on page 8. organizational expenditures that were indebtedness excluded from gross Deductions that are not allowed in taken for the regular tax during the tax income under section 108 (or the figuring ACE include: year. corresponding provision of prior law). • Capital losses that exceed capital • Any extraterritorial income excluded Line 5d. The adjustments provided in gains; from gross income under section 114. section 312(n)(4) apply in figuring ACE. • Bribes, fines, and penalties • For an insurance company taxed See Regulations section 1.56(g)-1(f)(3). disallowed under section 162; under section 831(b), any amount not • Charitable contributions that exceed Line 5e. For any installment sale in a included in gross investment income the limitations of section 170; tax year that began after 1989, a (as defined in section 834(b)). • Meals and entertainment expenses corporation generally cannot use the • Any special subsidy payment for installment method to figure ACE. that exceed the limitations of section prescription drug plans excluded from 274; However, it may use the installment gross income under section 139A. • Federal taxes disallowed under method for the applicable percentage • Any qualified shipping income section 275; and (as determined under section 453A) of excluded under section 1357. • Golden parachute payments that the gain from any installment sale to

Line 3d. Include in ACE the income exceed the limitation of section 280G. which section 453A(a)(1) applies.

on life insurance contracts (as Line 4e. Do not include any Subtract the installment sale income determined under section 7702(g)) for adjustment related to the E&P effects of reported for AMT from the ACE income the tax year minus the part of any any charitable contribution. from the sales and enter the result on premium attributable to insurance line 5e. If the ACE income from the

coverage. Line 5. Other Adjustments sales is less than the AMT amount,

Line 3e. Do not include any Line 5a. Except as noted below, in enter the difference as a negative

adjustment related to the E&P effects of amount. figuring ACE, determine the deduction any charitable contribution. for intangible drilling costs under Line 6. Disallowance of Loss on

Line 4. Disallowance of Items section 312(n)(2)(A). Exchange of Debt Pools Not Deductible From E&P Subtract the ACE expense (if any) When figuring ACE, a corporation may Generally, no deduction is allowed from the AMT expense (used to figure not recognize any loss on the exchange when figuring ACE for items not taken line 2n of Form 4626) and enter the of any pool of debt obligations for any result on line 5a. If the ACE expense into account (see below) in figuring other pool of debt obligations having E&P for the tax year. These amounts exceeds the AMT amount, enter the substantially the same effective interest result as a negative amount. increase ACE if they are deductible in rates and maturities. Add back (that is, figuring pre-adjustment AMTI (that is, Exception. The above rule does not enter as a positive adjustment) on line they would be positive adjustments). apply to amounts paid or incurred for 6 any such loss to the extent any oil or gas well by corporations that recognized for the regular tax. However, there are exceptions. Do are independent producers (that is, not not add back: Line 7. Acquisition Expenses of integrated oil companies as defined in • Any deduction allowable under section 291(b)(4)). If this exception Life Insurance Companies for section 243 or 245 for any dividend that

qualifies for a 100% dividends-received applies, do not enter an amount on line Qualified Foreign Contracts

5a for oil and gas wells. deduction under section 243(a), 245(b), For ACE, acquisition expenses of life

or 245(c) and Line 5b. When figuring ACE, the insurance companies for qualified

• Any dividend received from a current year deduction for circulation foreign contracts (as defined in section

20%-owned corporation (see section expenditures under section 173 does 807(e)(4) without regard to the

243(c)(2)), but only if the dividend is not apply. Therefore, treat circulation treatment of reinsurance contract rules

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of section 848(e)(5)) must be You are not required to provide the Line 9. Basis Adjustments in capitalized and amortized by applying Determining Gain or Loss From information requested on a form that is

the treatment generally required under subject to the Paperwork Reduction Act Sale or Exchange of Pre-1994 generally accepted accounting unless the form displays a valid OMB Property principles (and as if this rule applied to control number. Books or records

such contracts for all applicable tax If, during the tax year, the corporation relating to a form or its instructions

years). disposed of property for which it is must be retained as long as their making (or previously made) any of the Subtract the ACE expense (if any) contents may become material in the ACE adjustments, refigure the from the regular tax expense and enter administration of any Internal Revenue property’s adjusted basis for ACE. Then the result on line 7. If the ACE expense law. Generally, tax returns and return refigure the property’s gain or loss. is more than the regular tax expense, information are confidential, as required

enter the result as a negative amount. by section 6103. Enter the difference between the

AMT gain or loss (used to figure line 2e Line 8. Depletion The time needed to complete and of Form 4626) and the ACE gain or When figuring ACE, the allowance for file this form will vary depending on loss. Enter the difference as a negative depletion for any property placed in individual circumstances. The amount if any of the following apply. estimated average time is: service in a tax year that began after • The ACE gain is less than the AMT 1989 generally must be determined gain. under the cost depletion method. Recordkeeping . . . . . . . 17 hr., 13 min. • The ACE loss is more than the AMT Learning about the law Subtract the ACE expense (if any) loss. or the form . . . . . . . . . . 12 hr., 36 min. from the AMT expense (used to figure • The corporation had an ACE loss Preparing and sending line 2l of Form 4626) and enter the and an AMT gain. the form to the IRS . . . . 13 hr., 27 min. result on line 8 of the worksheet. If the

ACE expense is more than the AMT Paperwork Reduction Act Notice. If you have comments concerning amount, enter the result as a negative We ask for the information on this form the accuracy of these time estimates or amount. to carry out the Internal Revenue laws suggestions for making this form Exception. Independent oil and gas of the United States. You are required simpler, we would be happy to hear producers and royalty owners that to give us the information. We need it to from you. See the instructions for the figured their regular tax depletion ensure that you are complying with tax return with which this form is filed. deduction under section 613A(c) do not these laws and to allow us to figure and

have an adjustment for ACE purposes. collect the right amount of tax.

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Adjusted Current Earnings (ACE) Worksheet

See ACE Worksheet Instructions (which begin on page 8).

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 ......................... 2(b6)

(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

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