The Effect of the 2001 Recession and 

Recent Tax Changes on the 

Corporate Alternative Minimum Tax 

by 

Curtis P. Carlson 

U.S. Department of the Treasury 

OTA Paper 94 June 2005 

to revision. Views and opinions expressed are those of the authors and do not necessarily 
The Effect of the 2001 Recession and 

Recent Tax Changes on the 

Corporate Alternative Minimum Tax 

by 
 

Curtis P. Carlson 
 

U.S. Department of the Treasury 
 

OTA Paper 94 June 2005 
 

OTA Papers is an occasional series of reports on the research, models, and data sets developed to 

inform and improve Treasury’s tax policy analysis. The papers are works in progress and subject 

to revision. Views and opinions expressed are those of the authors and do not necessarily 

represent official Treasury positions or policy. OTA Papers are distributed in order to document 

OTA analytic methods and data and invite discussion and suggestions for revision and 

improvement. Comments are welcome and should be directed to the authors. 

Office of Tax Analysis 

Department of the Treasury 

Washington, DC 20220 

The views expressed in this paper are those of the author and do not necessarily reflect those of 

the U.S. Department of the Treasury. The author wishes to thank Robert Carroll, Geraldine 

Gerardi and Andrew Lyon for their comments and suggestions. Comments are welcome: Curtis 

Carlson, Office of Tax Analysis, U.S. Department of the Treasury, 1500 Pennsylvania Ave., 

NW, Washington D.C. 20220. Curtis.Carlson@do.treas.gov 
1. Introduction 

The corporate alternative minimum tax (AMT) makes corporations perform the 

expensive and burdensome task of complying with two separate tax systems without raising 

significant revenue. In addition to the compliance and financial burdens placed on companies by 

the AMT, the presence of two separate tax systems can lead to substantial economic 

inefficiencies. Differences in the tax treatment of an activity resulting from the presence of both 

the regular tax system and the alternative minimum tax produce investment decisions that are 

determined by tax differences, rather than economic differences. Some analysts (Lyon 1997 and 

Thorning 2001) have also indicated that the AMT may be pro-cyclical, causing firms to pay 

higher taxes than they otherwise would have in periods of low economic activity and lower taxes 

in periods of high economic activity. 

Preferences and adjustments under the corporate AMT will form a larger share of a firm’s 

income during times of lower profitability, if the firm attempts to maintain the same level of 

investments and other activities. In this case, a firm’s AMT liability will increase during 

economic downturns because the AMT serves to recapture the preferences as their use (relative 

to income) increases. An example of this pro-cyclical relationship was the dramatic rise in 

AMT during the 1990-91 recession when AMT payments reached an all time high of $20.7 

billion dollars or 8.4 percent of total taxes paid that year (Lyon, 1997). 

Recent changes to the corporate AMT appear to have reduced its cyclicality. This can be 

seen during the 2001 recession or the following year in 2002.1 AMT payments reached an all 

time low of $1.8 billion dollars in 2001 -- a 50 percent reduction from the previous year and only 

1.1 percent of total taxes paid that year (Table 1). AMT payments rebounded somewhat in 2002 

1

 The National Bureau of Economic Research, Business Cycle Dating Committee concluded that the 2001 recession 

started in March 2001 and ended eight months later in November 2001 (NBER 2003). 

1 
to $2.5 billion dollars, but were still only 1.7 percent of total taxes paid. Net AMT payments 

(payments minus AMT credits) also reached their lowest level ever in 2001 while remaining 

negative for the seventh consecutive year. In 2002, net AMT payments were slightly positive, 

$0.5 billion.2 

Aggregate historical data illustrate general trends, but may mask the annual effect of 

corporate AMT on individual firms. This paper uses a panel of corporate tax returns to examine 

the effect of changes in the economy and AMT rules on the probability that a firm was affected 

by the AMT between 1995 and 2002 while controlling for individual firm characteristics. 

Results from this analysis indicate that the AMT is pro-cyclical and that the effects of recent 

changes to the AMT rules have significantly reduced the effect of the AMT. In addition, the 

results show that the effects of the AMT vary considerably by industry, firm size and individual 

firm characteristics. Large firms with assets over $1 billion are over twice as likely to be 

affected by the AMT, than firms with assets between $50 and $100 million dollars. Firms in the 

agriculture and forestry, manufacturing, and transportation and public utilities industries have the 

highest odds of being affected by the AMT. 

AMT payments in one year generate AMT credits that can be used to offset regular tax in 

subsequent years. Individual firm level data also show that many firms fail to use all of their 

AMT credits for significant periods of time. Approximately half the firms that had AMT credits 

at the end of 1995 were able to use them fully by 2002. In addition, corporations that were 

affected by the AMT generally had a greater probability of being affected by the AMT in a 

subsequent year. 

2

 For further analysis of historical aggregate AMT data and a brief history of legislative changes to the AMT see 

Carlson (2005). 

2 
The next section of this paper provides a brief history of the AMT. Section three presents 

a model that separates out the effects of firm characteristics and economy wide factors on the 

probability of a firm being affected by the AMT. Section four examines the effects of the AMT 

on individual firms over time and section five concludes the paper. 

2. Brief History of the AMT 

Since the passage of the Tax Reform Act of 1986 the overall structure of the AMT has 

remained basically the same, although several important modifications to the AMT rules have 

been made. The Omnibus Reconciliation Act of 1993 repealed one of the AMT’s two 

depreciation adjustments, the ACE depreciation adjustment, for property placed in service after 

1993. The Taxpayer Relief Act of 1997 modified the remaining depreciation adjustments and 

repealed the AMT for small corporations. For property placed in service after December 31, 

1998, the AMT recovery period for computing the depreciation adjustment was made the same 

as for regular tax purposes, although, the AMT recovery method was not conformed. Property 

eligible for the 200-percent declining balance method under the regular tax must continue to be 

recovered using the slower 150-percent declining balance method under the AMT.3 Property 

placed in service on or before December 31, 1998 is generally recovered over longer periods 

under the AMT than for regular tax purposes in addition to being subject to the slower recovery 

method. For taxable years beginning after December 31, 1997, a corporation with average gross 

receipts of less than $7.5 million for the prior three taxable years is exempt from the AMT. The 

$7.5 million threshold is reduced to $5 million for the corporation’s first three-taxable year 

period. 

3

 Property recovered under the 150 percent declining balance method or the straight-line method for regular tax 

purposes is recovered using the same method under the AMT. 

3 
The Job Creation and Worker Assistance Act of 2002 (JCWAA) included 30 percent 

bonus depreciation, which allows a business to immediately write-off 30 percent of the original 

"adjusted (depreciable) basis" of most new investment in equipment, usually the fully installed 

cost of qualified property.4 Property must be acquired after September 10, 2001, and before 

September 11, 2004. The bonus depreciation is allowed for both the regular tax and the AMT. In 

addition, businesses are entitled to "normal" first-year MACRS depreciation. If bonus 

depreciation is claimed, no AMT adjustment is required on the regular MACRS deductions. 

In May 2003, the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) increased 

bonus depreciation to 50 percent. Under the JGTRRA, 50 percent “bonus” depreciation may be 

claimed for property acquired after May 5, 2003, and before January 1, 2005, and placed in 

service generally before January 1, 2005.5 As with the JCWAA, bonus depreciation is allowed 

for both the regular tax and the AMT. 

3. Analysis of AMT Status Using Firm Level Data 

Model and Data 

Several changes to the AMT rules may have affected firms over the last decade. 

Beginning in 1999, the AMT recovery period for computing the depreciation adjustment was 

conformed to the regular tax recovery period. Starting in 2001, the Job Creation and Workers 

Assistance Act of 2002 (JCWAA) allowed firms to temporarily take additional bonus 

depreciation on qualified property, and if bonus depreciation was claimed, no AMT adjustment 

was required on the regular MACRS deductions. One would expect the odds of an individual 

4

 Property eligible for this treatment includes business equipment, computer hardware and most software, but not 
 

real estate or buildings. 
 5 Property does not qualify for the 50 percent “bonus” depreciation if a binding written sales contract was in effect 
 

before May 6, 2003 (although the 30 percent “bonus” would be applicable). Property eligible for the 50 percent 
 

“bonus” depreciation is the same as for the 30 percent “bonus” under the JCWAA. 
 

4 
firm being subject to the AMT to fall in 1999 and again in 2001 due to these changes in the tax 

law, everything else being equal. 

On the other hand, the economy slowed considerably in 2001 and 2002. For any level of 

adjustment and preferences, a firm is more likely to pay AMT when its sales decline. Lyon 

(1997) suggests that there may be limited evidence that a decline in the growth rate of GDP is 

associated with an increase in the share of assets held by AMT firms. If this were the case in 

2001 and 2002, then everything else being equal, one would expect that the odds of an individual 

firm being subject to the AMT to increase during 2001 and 2002. 

To examine the effect of the changes in AMT rules and economic growth on the 

likelihood of a firm being affected by the AMT, the following relationship was estimated: 

d i , t =αy t 

+ βX i ,t +υ i + ε i , t 

, (1) 

where di,t is a dummy variable that equals one if firm i is affected by the AMT in period t and 

zero if it is not. Economy wide annual effects at time t are given by yt. Observable firm 

characteristics, Xi , at time t are included to control for firm characteristics. The error term εi,t is 

assumed to be distributed (identically and independently) normal with mean zero and variance 

one. The firm-specific error component νi is treated as a random disturbance that varies across 

individual firms but not over time, to account for the potentiality that unobservable firm 

characteristics may bias parameter estimates. Equation (1) is estimated as a random-effects 

probit model. Formally, 

Pr (di,t =1| Xi,t ) = Φ(αyt + βXi,t +υi), (2) 

where νi is assumed iid N (0,σ

2 ) and Φ(⋅) is the standard normal cumulative distribution υ

function. 

5
 
In addition to the random-effects probit model, I also estimate a series of cross-sectional 

probability models for each year in the time period (1995-2002). In cross-sectional estimation, 

the random effect is indistinguishable from the constant and thus, the model becomes a simple 

binary probit model. 

This analysis uses data from income tax returns from the Internal Revenue Service, 

Statistics of Income (SOI) Corporate Tax Return files for 1995 through 2002. The SOI files are 

constructed annually based on a sample of all corporate tax returns filed. The SOI files are 

stratified to sample larger firms at a greater rate than smaller firms. Most corporations with 

assets in excess of $50 million are included in the sample. From these samples, I construct a 

panel that includes all firms with at least three years of data in the SOI extracts during the 1995 

through 2002 period. In addition, firms with assets less than $50 million were eliminated from 

the panel because many of these firms were no longer subject to the AMT beginning in 1998. 

The panel consists of 121,095 observations from 24,339 individual firms. These firms accounted 

for 76 percent of AMT payments and 71 percent of all corporate income taxes paid in 2002. 

Table 2 provides definitions of the variables used in the estimation. The GDP growth 

rate variable is used to determine if the AMT is pro-cyclical, as some have suggested. The AMT 

variables indicate time periods when depreciation rules under the AMT are different. One would 

expect the effect of the AMT to diminish in later time periods as the treatment of depreciable 

assets under the AMT were brought more in line with the treatment of these assets under the 

regular tax. Firm characteristics used in both the random-effects probit models and the binary 

probit models include the firm’s asset class and industry classification. 

Table 3 presents descriptive statistics for the regression sample. In the entire data set, 17 

percent of all annual firm observations indicate that a firm is affected by the AMT. The number 

6
 
of observations is relatively equal in each year, although, the percent of observations in 2002 

falls to a low of 9.2 percent. Firms in the asset size class of $50 million to $100 million contain 

the most observations (33.6 percent) but only 29.8 percent of annual firm observations were in 

this asset class. Firms in the finance, insurance, real estate and management of companies 

industries make up the largest percentage of observations (46.9 percent). Firms in these 

industries, however, were a smaller percent of those firms observed to be affected by the AMT 

(32.3 percent). The manufacturing industries contain the next largest percent of observations 

(25.4 percent) while the agriculture, forestry, fishing and hunting industries contain the fewest 

observations (0.6 percent). The average GDP growth rate from 1995 to 2002 was 3.3 percent. 

Results and Discussion 

Table 4 presents results from the random effects probit regression. Marginal effects are 

reported in Column (2) for easier interpretation of the estimated coefficients. In addition to the 

log likelihood, a Wald Chi-squared statistic that tests the fit of the specification against a model 

with only a constant is presented. An estimate of the proportion of the total variance contributed 

2 

by the random-effect variance component calculated as ρ = συ is also included. A likelihood- 2

συ +1 

ratio test of ρ = 0 is also included for each specification. When ρ is zero, the panel level 

variance component is unimportant and the random effects probit model is no different from a 

binary probit model estimated with pooled data. The proportion of the total variance contributed 

by the firm-level variance in the estimated equation is above 50 percent, indicating that 

individual firm level attributes not accounted for by firm size or industry classification play an 

important role in determining the AMT status of the firm. 

7
 
The estimated coefficient on GDP growth is negative and significant, indicating that the 

AMT is pro-cyclical. The odds of being affected by the AMT increase when the economy slows 

down. For a one-percentage point decrease in GDP the odds of being affected by the AMT 

increases by 7 percent or 0.5 percentage points. The estimated coefficients on the time period 

dummies are negative and significant indicating that changes to the AMT rules have greatly 

reduced the impact of the AMT. When the recovery period was made the same for AMT and 

regular tax purposes for assets placed in service beginning in 1999 the odds of being affected by 

the AMT decreased by 2.6 percentage points or almost 30 percent. The odds of being affected 

by the AMT during the period of “bonus” depreciation fell by 8.2 percentage points or 

approximately 80 percent. It is possible that the AMT tax regime variables are picking up 

changes in firm’s investment behavior that is not reflected by changes in the tax laws, especially 

during the period 2001 through 2002. For example, if investment fell by more than one would 

expect during the 2001 and 2002 period due to increased economic and political uncertainty then 

the effect of the AMT tax regime variable for this period would be biased downward. 

The results from the regression show a wide disparity of the effect of the AMT across 

firm sizes and industries. Very large firms with assets over $1 billion are over twice as likely to 

be affected by the AMT than firms with assets between $50 and $100 million dollars (an increase 

of nearly 7 percentage points) and firms in the mining industry are six times more likely to be 

affected by the AMT as a firm in the finance, insurance and real estate industries. Firms in 

agriculture and forestry, manufacturing, and transportation and public utilities industries have 

three to four times the chance of being affected by the AMT as a firm in finance, insurance and 

real estate. 

8
 
Table 5 shows the results of repeating the analysis using cross-sectional binary probit 

models for each year of the data. Marginal effects for each variable are presented for ease of 

presentation. In general, the results mirror those obtained by the random-effects procedure 

estimated with pooled data, namely that firm size and industry classification have a significant 

effect on the probability of being affected by the AMT. The marginal effect of being a large firm 

(assets over $1 billion) on the probability of being affected by the AMT remains high throughout 

the 1995-2002 period. As the probability of being affected by the AMT has decreased over time 

the marginal effect of not being in the finance, insurance and real estate industries has decreased. 

4. AMT Status and Credit Use Over Time 

In order to examine the use of AMT credits over time and AMT status of individual firms 

annually, the unbalanced panel created for the random-effects probit model was restricted to 

firms that had data in every year from 1995 through 2002. The 5,801 firms in this balanced 

panel account for 63 percent of AMT payments in 2002 and 49 percent of total corporate income 

taxes in 2002. 

Between 1995 and 2002, almost 50 percent of the firms in this panel paid higher taxes 

due to the AMT in at least one year, either through direct AMT payments or through limits in the 

use of tax credits due to the AMT rules (Table 6). The duration for firms affected by the AMT 

was relatively short in many cases. Over 50 percent of the firms in the panel that were affected 

by the AMT (accounting for over 38 percent of the assets) were affected for only 1 or 2 years. 

On the other hand, over 20 percent of the firms in the panel that were affected by the AMT 

(accounting for 31 percent of total assets) were affected for 5 years or more. 

Because AMT payments generated in one year create credits that can be used to reduce 

regular tax liability in a subsequent year, the AMT has been viewed as a prepayment of tax rather 

9
 
than an additional tax.6 Many corporations, however, fail to receive credit for their AMT 

payments for at least several years after receipt. About 51 percent of the firms in the panel with 

minimum tax credits available at the end of 1995 were able to use all of these credits by 2002 

(Table 7).

7 A slightly larger percentage of all minimum tax credits available at the end of 1995 

(56.11 percent) were used by 2002. The use of minimum tax credits would have been greater in 

this period if the tentative minimum tax did not limit the use of these credits. 

A firm that either pays positive AMT in one year or has tax credits that are limited by the 

tentative minimum tax has a significant probability of being affected by the AMT in the 

following year. Table 8 shows the tax status across years for firms in the panel for the 1995-

2000 period. Of the firms affected by the AMT in one year over 60 percent remained affected in 

the following year. Over 90 percent of firms that are on regular tax status in one year remained 

that way in the following year. These transition probabilities remained relatively constant in the 

1995-2000 period. In the 2000-2001 period, however, the transition probabilities changed 

significantly. Conditional on AMT status in 2000, the chance of being affected by AMT in 2001 

fell to 35.58 percent (Table 9). With a smaller number of firms affected by the AMT in 2001, 

the conditional probability of being affected by the AMT in 2002 increased back to levels seen in 

previous periods (Table 10). 

5. Conclusion 

Even though changes to the AMT rules have lessened the effect of the AMT in recent 

years, the analysis indicates the AMT is still pro-cyclical, increasing a firm’s taxes over what 

6

 GAO (1995) page 3.
 7

 This assumes that minimum tax credits earned by the end of 1995 would be used before the credits earned after the 
 

1987-1995 period. Firms that exhausted all of their credits may have incurred AMT after 1995. This would have
 

left them with additional credits at the end of 2002. 
 

10
 
they would have been otherwise during periods of slower economic growth. This feature of the 

AMT has the opposite effect of what a more carefully designed tax code would create. 

The AMT continues to create economic inefficiencies by the disparate effect it has on 

firms from different industries and firms of different sizes, although the effect of the AMT has 

lessened due to legislative changes in recent years. Individual firm characteristics also play a 

significant role in determining if a firm is subject to the AMT even with seemingly similar firms. 

A more efficient tax system would treat all firms equally, so that investment and other business 

decisions would be based on their underlying economic characteristics rather than based on their 

tax consequences. 

11
 
References 

Carlson, Curtis. “Who Pays the Corporate Alternative Minimum Tax? Results from Corporate 

Panel Data for 1987-1998”, Proceedings of the Ninety-Forth Annual Conference on 

Taxation, National Tax Association, 2001. 

Carlson, Curtis. “The Corporate Alternative Minimum Tax: Aggregate Historical Trends,” 

Office of Tax Analysis, Department of the Treasury Working Paper 93, June 2005. 

General Accounting Office, Experience with the Corporate Alternative Minimum Tax. 

GAO/GGD-95-88. Washington D.C.: GAO, April 1995. 

Gerardi, Geraldine, Hudson Milner and Gerald Silverstein. “The Effects of Corporate 

Alternative Minimum Tax: Additional Results From Panel Data for 1987-1991,” 

Proceedings of the Eighty-Fifth Annual Conference on Taxation, National Tax 

Association, 1993. 

Lyon, Andrew B. Cracking the Code, Making Sense of the Corporate Alternative Minimum Tax. 

Washington D.C.: Brookings Institute Press, 1997. 

National Bureau of Economic Research (NBER), Business Cycle Dating Committee, The 

NBER’s Business-Cycle Dating Procedure, October 21, 2003 

http://www.nber.org/cycles/recessions.html 

Thorning, Margo, American Council for Capital Formation, Senior Vice President and Chief 

Economist, “The Role of Federal Tax Policy and Regulatory Reform in Promoting 

Economic Recovery and Long-Term Growth,” presentation before the Joint Economic 

Committee of the U.S. Congress, November 28, 2001. 

12
 
AMT paid 

paid (per

total ta

percen

Data exclude S-corporations, regulated investment companies, and r

estate investment trusts 

a. Alternative minimum tax does not include increases in tax liability from firms unable to claim regular business tax credits against t

regular tax because of the AMT. 

13 

Table 1. Number of Corporate Returns and Taxes Paid by Corporations with Alternative Minimum Tax

1987-2002a 

6.7 6.6 8.2 

21.5 14.2 12.3 

8.5 6.0 5.2 4.0 3.9 3.3 3.3 2.9 2.3 2.6 

AMT taxpayers as 

a percent of total 

Taxes paid by 

taxes paid 

(percent) 

5.8 6.3 7.9 

20.7 13.0 12.5 10.2 

8.2 8.1 6.8 7.2 6.0 6.3 5.8 3.9 3.0 

AMT taxpayers 

Taxes paid by 

($ billions) 

2.2 3.4 3.5 8.1 5.3 4.9 4.9 4.5 4.3 3.8 3.9 3.3 3.0 3.9 1.8 2.5 

minimum tax 

Alternative 

($ billions) 

Source: Statistics of Income, Corporate Tax Return Files, 1987-2002. 

0.7 1.1 1.1 1.5 1.5 1.3 1.4 1.3 1.1 1.2 1.1 0.8 0.7 0.6 0.3 0.3 

AMT returns 

as a percent 

(percent) 

returns 

of total 

17.4 25.2 25.2 32.5 30.5 28.0 29.3 29.5 25.8 27.7 25.0 18.4 14.9 13.1 

7.1 7.1 

(thousands) 

Number of 

with AMT 

returns 

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 

Year 
Table 2. Variable Definitions 

Variables Definition 

GDP Annual GDP growth rate (percent) 

=1 if firm affected by the AMT in year t (either positive AMT 

AMT payments or tentative minimum tax limited) 

tax1 = 1 if year = 1995-1998 

tax2 = 1 if year = 1999-2000 

tax3 = 1 if year = 2001-2002 

size1 =1 if asset size between $50-$100 million 

size2 =1 if asset size between $100-$250 million 

size3 =1 if asset size between $250-$500 million 

size4 =1 if asset size between $500-$1,000 million 

size5 =1if asset size Over $1 billion 

industry-1	 =1 if firm in Finance, Insurance, Real Estate & Management 

of Companies 

industry-2 =1 if firm in Agriculture, Forestry, Fishing and Hunting 

industry-3 =1 if firm in Mining 

industry-4 =1 if firm in Construction 

industry-5 =1 if firm in Manufacturing 

industry-6 =1 if firm in Transportaton and Public Utilities 

industry-7 =1 if firm in Wholesale and Retail Trade 

industry-8 =1 if firm in Services and Other 

Note: When not otherwise indicated, all variables represent information at year t 

Dummy Variables tax1, size1 and industry-1 not included in the estimated 

equation. 

14
 
Table 3. Summary Statistics 

Not 

Variables All Affected by Affected by AMT AMT 

AMT 0.171 

(0.376) 1 0 

1995 

1996 

1997 

1998 

1999 

2000 

2001 

2002 

0.109 0.146 0.105 

(0.312) (0.353) (0.306) 

0.122 0.152 0.116 

(0.327) (0.359) (0.320) 

0.134 0.155 0.127 

(0.341) (0.362) (0.333) 

0.136 0.150 0.132 

(0.343) (0.357) (0.338) 

0.138 0.146 0.134 

(0.345) (0.353) (0.341) 

0.140 0.129 0.141 

(0.347) (0.335) (0.348) 

0.129 0.069 0.143 

(0.335) (0.253) (0.350) 

0.092 0.052 0.103 

(0.289) (0.222) (0.303) 

firm asset size $50-$100 

million 

firm asset size $100-$250 

million 

firm asset size $250-$500 

million 

firm asset size $500-$1,000 

million 

firm asset size over $1 billion 

0.336 0.298 0.344 

(0.472) (0.457) (0.475) 

0.309 0.288 0.313 

(0.462) (0.453) (0.464) 

0.137 0.132 0.138 

(0.343) (0.339) (0.344) 

0.085 0.091 0.083 

(0.278) (0.287) (0.276) 

0.134 0.191 0.122 

(0.341) (0.393) (0.328) 

Finance, Insurance, Real Estate 0.469 0.323 0.498 

& Management of Companies (0.499) (0.470) (0.500) 

Agriculture, Forestry, Fishing and 0.006 0.008 0.005 

Hunting (0.076) (0.091) (0.073) 

Mining 0.018 0.041 0.014 

(0.134) (0.199) (0.116) 

Construction 0.018 0.017 0.018 

(0.132) (0.129) (0.133) 

Manufacturing 0.254 0.329 0.239 

(0.435) (0.470) (0.426) 

Transportaton and Public Utilities 0.039 0.065 0.034 

(0.194) (0.247) (0.181) 

Wholesale and Retail Trade 0.111 0.115 0.111 

(0.315) (0.318) (0.314) 

Services and Other 0.084 0.097 0.082 

(0.278) (0.296) (0.274) 

0.03302 0.0355 0.0325 

GDP (.01267) (0.01079) (0.01300) 

Source: Statistics of Income, Corporate Tax Return Files, 1995-2002. 

Data exclude S-corporations, regulated investment companies, and real estate 

investment trusts. 

Percents may not equal 100 due to rounding. 

Note: Entries are means, with standard deviations in parentheses. 

15
 
Table 4. mation of the Probability that a 

Firm is Affected by the AMT -- Marginal Effects of Independent 

Variables 

Model 

Coefficient 

(1) 

Marginal Effect 

(2) 

Evaluated at mean of all independent 

variables 0.0638 

-0.0377a 

GDP 

(0.0086) 

-0.0047 

AMT Tax Regime 

1995-1998 (reference) 0.0988 

-0.1731a 

1999-2000 

(0.0134) 

-0.0269 

-0.8365a 

2001-2002 

(0.0273) 

-0.0820 

Firm Asset Size 

$50-$100 million (reference) 0.0505 

0.0645a 

$100-$250 million (0.0184) 0.0071 

0.1401a 

$250-$500 million 

(0.0246) 

0.0163 

0.2053 a 

$500-$1,000 million 

(0.0291) 

0.0252 

0.4450 a 

Over $1 billion 

(0.0281) 0.0656 

Random Effects Probit Esti 

Table continued on next page. 

16
 
Industry 

Finance, Insurance, Real Estate & 

Management of Companies (reference) 0.0335 

0.8364 a 

Agriculture, Forestry, Fishing and Hunting (0.1097) 0.1263 

1.1442 a 

Mining (0.0617) 0.2123 

0.3375 a 

Construction 

(0.0637) 

0.0341 

0.6127 a 

Manufacturing (0.0233) 0.0779 

0.7540 a 

Transportaton and Public Utilities 

(0.0435) 

0.1071 

0.4342 a 

Wholesale and Retail Trade 

(0.0302) 

0.0476 

0.5066 a 

Services and Other 

(0.0310) 

0.0591 

-1.5884 a 

Constant 

(0.0382) 

0.5504

ρ (0.0057) 

LR Test (Ho: ρ=0) 14,000 

Log Likelihood -45,754 

Wald Chi2 3,135.37 

Obs. 121,095 

N 24,339 

Note: Changes in the predicted probabilities are evaluated at means of all other independent
 

variables. 
 

Source: Statistics of Income, Corporate Tax Return Files, 1995-2002. Data exclude S-
 

corporations, regulated investment companies, and real estate investment trusts. 
 

a

 Significant at the 1 percent level. 

17
 
Table 5. Probit Estimation of the Probability that a Firm is Affected by the AMT -- Marginal Effects of Independent 

Variables 

1995 1996 1997 1998 1999 2000 2001 2002

Firm Asset Size $50-$100 million (reference) 20.06 18.74 17.70 16.35 15.27 12.61 7.01 6.78

$100-$250 million 0.36 0.62 -0.01 1.07 1.56b 2.16a 1.64 a 2.04 

$250-$500 million 0.13c 1.92c 1.99b 2.18b 1.73c 2.74 a 1.79 a 2.33 $500-$1,000 million 2.32a 1.70 3.83a 4.22a 4.27a 4.65 a 0.93 1.45Over $1 billion 10.41a 9.51a 7.99a 8.24a 10.42a 9.83 a 6.90 a 8.27 Industry 

Finance, Insurance, Real Estate & Management of Companies (reference) 14.97 14.14 12.96 12.89 12.53 11.32 7.44 8.05 Agriculture, Forestry, Fishing and Hunting 15.56a 20.45a 15.16a 15.46a 15.00a 10.54 a 13.64 a 4.76 Mining 36.70a 42.11a 33.58a 19.11a 20.41a 29.58 a 14.45 a 7.12 Construction 6.62b 5.95b 9.34a 5.93a 6.14a 7.35 a 2.94c -4.17b Manufacturing 15.46a 13.83a 13.69a 12.10a 11.00a 7.48 a 2.14 a 3.16 Transportaton and Public Utilities 18.51a 17.83a 15.88a 17.13a 13.40a 10.76 a 7.01 a 4.67 Wholesale and Retail Trade 9.26a 8.13a 7.68a 7.15a 6.63a 4.53 a 1.04 -0.08 Services and Other 10.89a 11.60a 13.44a 11.03a 9.58a 7.30 a 0.89 a 1.19 Evaluated at mean of all independent variables Predicted Value 21.44 20.34 19.17 18.31 17.60 15.23 8.65 9.00 Note: Changes in the predicted probabilities are evaluated at means of all other independent variables. Source: Statistics of Income, Corporate Tax Return Files, 1995-2002. Data exclude S- corporations, regulated investment companies, and real estate 

investment trusts. Note: Changes in the predicted probabilities are evaluated at the means of all other variables. 

a Significant at the 1 percent level. b Significant at the 5 percent level. c Significant at the 10 percent level. 

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Table 6. Total Years of Alternative Minimum Tax Status, 1995-2002 

Percent 

Year(s) 

None 1 2 3 4 5 6 7 8 

Firms 50.72 14.6 10.38 8.24 5.86 4.69 2.71 1.59 1.22 

Assets 28.83 7.70 19.32 15.82 6.05 7.46 5.60 4.68 4.55 

Source: Statistics of Income, Corporate Tax Return Files, 1995-2002. Data exclude S- corporations, regulated 

investment companies, and real estate investment trusts. Panel of firms with assets exceeding $50 million in 1995 

for which continuous tax information was available. The final sample consists of 5,801 firms. AMT tax status 

includes positive AMT payments and increases in tax liability from firms unable to claim regular business tax credits 

against the regular tax because of the AMT. These firms account for 63 percent of AMT payments in 2002 and 49 

percent of total corporate income taxes in 2002. 

Table 7. Use of 1995 Minimum Tax Credits 

Percent 

Year 

1996 1997 1998 1999 2000 2001 2002 

Number of firms able to use minimum 

tax credits available at the end of 1995. a 

15.46 26.35 33.96 40.72 45.55 48.71 50.90 

1987-1995 minimum tax credits used a 

14.91 28.09 35.62 41.27 48.87 53.59 56.11 

Source: Statistics of Income, Corporate Tax Return Files, 1995-2002. Data exclude S- corporations, regulated investment 

companies, and real estate investment trusts. Panel of firms with assets exceeding $50 million in 1995 for which continuous 

tax information was available and had AMT credits available for use in 1996. The final sample consists of 1552 firms. 

These firms account for 33 percent of AMT payments in 2001 and 13 percent of total corporate income taxes in 2002. 

a: Includes both firms that made positive AMT payments in 1995 or had unused minimum tax credits available from 1987-

1995. 

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Table 8. Transition Probabilities on and off the Regular Tax, 1995-2000 

Percent 

Probability of moving to state of 

Previous State AMT Loss Regular Tax Total 

AMT 60.21 18.53 21.26 100 

Loss 26.67 64.14 9.19 100 

Regular Tax 5.19 3.97 90.85 100 

Addendum: Probability of initial tax status 23.01 14.01 62.97 

Source: Statistics of Income, Corporate Tax Return Files, 1995-2002. Data exclude S- corporations, regulated 

investment companies, and real estate investment trusts. Panel of firms with assets exceeding $50 million in 

1995 for which continuous tax information was available. The final sample consists of 5801 firms. AMT tax 

status includes positive AMT payments and increases in tax liability from firms unable to claim regular 

business tax credits against the regular tax because of the AMT. These firms account for 63 percent of AMT 

payments in 2002 and 49 percent of total corporate income taxes in 2002. 

Table 9. Transition Probabilities on and off the Regular Tax, 2000-2001 

Percent 

Probability of moving to state of 

Previous State AMT Loss Regular Tax Total 

AMT 35.34 42.79 21.87 100 

Loss 5.67 86.93 7.40 100 

Regular Tax 4.74 7.98 87.27 100 

Addendum: Probability of initial tax status 18.29 18.86 62.85 

Source: Statistics of Income, Corporate Tax Return Files, 1995-2002. Data exclude S- corporations, regulated 

investment companies, and real estate investment trusts. Panel of firms with assets exceeding $50 million in 

1995 for which continuous tax information was available. The final sample consists of 5801 firms. AMT tax 

status includes positive AMT payments and increases in tax liability from firms unable to claim regular 

business tax credits against the regular tax because of the AMT. These firms account for 63 percent of AMT 

payments in 2002 and 49 percent of total corporate income taxes in 2002. 

20
 
Table 10. Transition Probabilities on and off the Regular Tax, 2001-2002 

Percent 

Probability of moving to state of 

Previous State AMT Loss Regular Tax Total 

AMT 53.77 23.44 22.79 100 

Loss 8.14 82.96 8.90 100 

Regular Tax 4.81 6.67 88.53 100 

Addendum: Probability of initial tax status 10.52 29.24 60.25 

Source: Statistics of Income, Corporate Tax Return Files, 1995-2002. Data exclude S- corporations, regulated 

investment companies, and real estate investment trusts. Panel of firms with assets exceeding $50 million in 

1995 for which continuous tax information was available. The final sample consists of 5801 firms. AMT tax 

status includes positive AMT payments and increases in tax liability from firms unable to claim regular 

business tax credits against the regular tax because of the AMT. These firms account for 63 percent of AMT 

payments in 2002 and 49 percent of total corporate income taxes in 2002. 

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