The new Statement on Accounting for Income Taxes

Article Abstract:

A new Statement of Accounting for Income Taxes becomes effective for fiscal years beginning after Dec 15, 1988. The old 'Opinion 11' required the deferral method to account for income taxes, but the new statement recognizes both current and deferred taxes. Calculated taxes payable or refundable must stem from all events that have been recognized in financial statements. Tax recognition must be measured under current tax law provisions. Tax planning strategy criteria must be feasible and prudent, with appropriate management control. The tax strategy must not bear significant cost to an enterprise, and consideration of tax planning strategies is not considered elective. It is suggested that companies should begin to design and implement a new tax strategy system and to gather data now, even though adoption of the new Statement is not required for at least a year.

Standards, Tax accounting, Accounting and auditing, Income tax, Financial Accounting Standards Board

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Planning for the corporate alternative minimum tax

Article Abstract:

The alternative minimum tax (AMT) provision of the Tax Reform Act of 1986 requires planning and extra record keeping. The purpose of AMT is to represent true corporate economic income and to prevent tax avoidance when reporting substantial earnings to stockholders. AMT is considered to be the tentative minimum tax (TMT) over regular tax. TMT is found by multiplying the excess of alternative minimum taxable income (AMTI) over the exemption amount by 20%, less the AMT foreign tax credit. The exemption amount is $40,000 and is phased out by 25% of the amount which the AMTI exceeds $150,000. Other issues affecting AMT, TMT, and AMTI include book income adjustment, adjusted net book income, estimated taxes, adjusted current earnings, alternative tax net operating loss deduction, AMT foreign tax credit, minimum tax credit, and environmental tax.

Taxation, Corporate taxes, Corporations, Minimum tax

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The new passive activity regulations: it is easy to run afoul of a myriad of tax rules

Article Abstract:

Section 469 of the Tax Reform Act of 1986 limits deductions for credits and losses for passive activity. The IRS recently issued temporary or proposed regulations for this class of activity. A passive activity is one in which the taxpayer runs a business or trade but does not participate materially. The law defines a taxpayer as a material participant if he or she is involved in an activity regularly, continually, or substantially. The most relevant parts of the proposed passive activity rules are reviewed, including rental activity, allocation of losses or credits, personal service and closely-held 'C' firms, spouses' activities, installment sales, portfolio earnings, retirement plans, changes in accounting method, passive activity deductions, 'S' corporations and partnerships, and conversion of active into passive income.

United States. Internal Revenue Service, Passive activity (Taxation)

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