Alternative Minimum Tax-Corporations

PAGER/SGML

Userid: ________
Fileid: I4626.SGM

Leading adjust: 60%
( 6-Feb-2006)

❏

Draft
(Init. & date)

❏

Ok to Print

Filename: D:\USERS\vj4bb\documents\Epicfiles\05i4626.sgm

Page 1 of 12

Instructions for Form 4626

15:36 - 6-FEB-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

2005

Department of the Treasury
Internal Revenue Service

Instructions for Form 4626
Alternative Minimum Tax—Corporations
Section references are to the Internal Revenue Code unless otherwise noted.

General Instructions

AMT must be figured on a consolidated
basis.

What’s New

Who Must File

adjustment is required for depreciation
of certain natural gas gathering lines
placed in service after April 11, 2005.
See page 3 of the instructions.
• No AMT adjustment is required for
depreciation of qualified Gulf
Opportunity Zone property acquired
after August 27, 2005, that is eligible for
the special depreciation allowance. See
page 3 of the instructions.
• Interest income from qualified Gulf
Opportunity Zone bonds issued after
December 21, 2005, is not a preference
item for AMT purposes. See page 5 of
the instructions.
• The 90%-of-alternative-minimumtaxable-income (AMTI) limit on the
alternative tax net operating loss
deduction (ATNOLD) does not apply to
alternative tax net operating loss
(ATNOL) carrybacks and carryforwards
attributable to qualified Gulf Opportunity
Zone losses arising in tax years ending
after August 27, 2005. Such ATNOL
carrybacks and carryforwards can be
applied to offset up to 100% of AMTI.
See the instructions beginning on page
7.
• The 90-percent limit on the use of the
AMT foreign tax credit to offset AMT no
longer applies. 100% of the AMT
foreign tax credit can be used in
figuring the AMT. See page 8 of the
instructions.
• An AMT adjustment is required for a
corporation’s domestic production
activities deduction. Adjusted current
earnings (ACE) is not increased. See
page 6 of the instructions.

If the corporation is a “small
corporation” exempt from the
CAUTION AMT (as explained below), do
not file Form 4626.

• No alternative minimum tax (AMT)

Purpose of Form
Use Form 4626 to figure the alternative
minimum tax (AMT) under section 55
for a corporation that is not exempt
from the AMT.
Consolidated returns. For an
affiliated group filing a consolidated
return under the rules of section 1501,

!

Generally, file Form 4626 if either of
the following apply.
• The corporation’s taxable income or
(loss) before the net operating loss
(NOL) deduction plus its adjustments
and preferences total more than
$40,000 or, if smaller, its allowable
exemption amount.
• The corporation claims any general
business credit, the qualified electric
vehicle credit, the nonconventional
source fuel credit, or the credit for prior
year minimum tax.

Exemption for Small
Corporations
A corporation is treated as a small
corporation exempt from the AMT for its
current tax year beginning in 2005 if:
1. The current year is the
corporation’s first tax year in existence
(regardless of its gross receipts for the
year), or
2. Both of the following apply.
a. It was treated as a small
corporation exempt from the AMT for all
prior tax years beginning after 1997.
b. Its average annual gross receipts
for the 3-tax-year period (or portion
thereof during which the corporation
was in existence) ending before its tax
year beginning in 2005 did not exceed
$7.5 million ($5 million if the corporation
had only 1 prior tax year).
The following rules apply when
figuring gross receipts under 2b above.
• Gross receipts must be figured using
the corporation’s tax accounting
method and include total sales (net of
returns and allowances), amounts
received for services, and income from
investments and other sources. See
Temporary Regulations section
1.448-1T(f)(2)(iv) for more details.
Cat. No. 64443L

• Gross receipts include those of any
predecessor of the corporation,
including non-corporate entities.
• For a short tax year, gross receipts
must be annualized by multiplying them
by 12 and dividing the result by the
number of months in the tax year.
• The gross receipts of all persons
treated as a single employer under
section 52(a), 52(b), 414(m), or 414(o)
must be aggregated.
Loss of small corporation status. If
the corporation qualified as a small
corporation exempt from the AMT for its
previous tax year, but does not meet
the gross receipts test for its tax year
beginning in 2005, it loses its AMT
exemption status. Special rules apply in
figuring AMT for the tax year beginning
in 2005 and all later years based on the
“change date.” The change date is the
first day of the corporation’s tax year
beginning in 2005 (the first tax year for
which the corporation ceased to be a
small corporation). Where this applies,
complete Form 4626 taking into
account the following modifications.
• The adjustments for depreciation and
amortization of pollution control facilities
apply only to property placed in service
on or after the change date.
• The adjustment for mining
exploration and development costs
applies only to amounts paid or
incurred on or after the change date.
• The adjustment for long-term
contracts applies only to contracts
entered into on or after the change
date.
• When figuring the amount to enter on
line 6, for any loss year beginning
before the change date, use the
corporation’s regular tax NOL for that
year.
• Figure the limitation on line 4d only
for prior tax years beginning on or after
the change date.
• Enter zero on line 2c of the Adjusted
Current Earnings (ACE) Worksheet on
page 12. When completing line 5 of the
ACE Worksheet, take into account only
amounts from tax years beginning on or
after the change date. Also, for line 8 of
the ACE Worksheet, take into account

Page 2 of 12

Instructions for Form 4626

15:36 - 6-FEB-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

only property placed in service on or
after the change date.
Note. No additional modification in
figuring AMT is required for exceptions
related to any item acquired in a
corporate acquisition under section 381
or to any substituted basis property, if
any of the AMT adjustment
modifications listed on page 1 applied
to the item or property while it was held
by the transferor.
Once the corporation loses its
small corporation status, it
CAUTION
cannot qualify for any
subsequent tax year.

!

Credit for Prior Year
Minimum Tax
A corporation may be able to take a
minimum tax credit against the regular
tax for AMT incurred in prior years. See
Form 8827, Credit for Prior Year
Minimum Tax — Corporations, for
details.

Recordkeeping
Certain items of income, deductions,
credits, etc., receive different tax
treatment for the AMT than for the
regular tax. Therefore, the corporation
should keep adequate records to
support items refigured for the AMT.
Examples include:
• Tax forms used for regular tax
purposes that are completed a second
time to refigure items of income,
deductions, etc., for the AMT;
• The computation of a carryback or
carryforward to other tax years of
certain deductions or credits (for
example, net operating loss, capital
loss, and foreign tax credit) if the AMT
amount is different from the regular tax
amount;
• The computation of a carryforward of
a passive loss or tax shelter farm
activity loss if the AMT amount is
different from the regular tax amount;
and
• A “running balance” of the excess of
the corporation’s total increases in
alternative minimum taxable income
(AMTI) from prior year adjusted current
earnings (ACE) adjustments over the
total reductions in AMTI from prior year
ACE adjustments (see the instructions
for line 4d on page 7).

Short Period Return
If the corporation is filing for a period of
less than 12 months, AMTI must be
annualized and the tentative minimum
tax prorated based on the number of

months in the short period. Complete
Form 4626 as follows.
1. Complete lines 1 through 6 in the
normal manner. Subtract line 6 from
line 5 to figure AMTI for the short
period, but do not enter it on line 7.
2. Multiply AMTI for the short period
by 12. Divide the result by the number
of months in the short period. Enter this
result on line 7 and write “Sec.
443(d)(1)” on the dotted line to the left
of the entry space.
3. Complete lines 8 through 11.
4. Subtract line 11 from line 10.
Multiply the result by the number of
months in the short period and divide
that result by 12. Enter the final result
on line 12 and write “Sec. 443(d)(2)” on
the dotted line to the left of the entry
space.
5. Complete the rest of the form in
the normal manner.

Allocating Differently
Treated Items Between
Certain Entities and
Their Investors
For a regulated investment company, a
real estate investment trust, or a
common trust fund, see section 59(d)
for details on allocating certain
differently treated items between the
entity and its investors.

Optional Write-Off for
Certain Expenditures
There is no AMT adjustment for the
following items if the corporation elects
to deduct them ratably over the period
of time shown for the regular tax.
• Circulation expenditures (personal
holding companies only) — 3 years.
• Mining exploration and development
costs — 10 years.
• Intangible drilling costs — 60 months.
See section 59(e) for more details.

Specific Instructions
If the corporation is electing the
85% dividends received
CAUTION deduction under section 965,
see the instructions for Part III of Form
8895, One-Time Dividends Received
Deduction for Certain Cash Dividends
from Controlled Foreign Corporations,
before completing Form 4626.

!

-2-

Line 1. Taxable Income
or (Loss) Before Net
Operating Loss
Deduction
Enter the corporation’s taxable income
or (loss) before the NOL deduction,
after the special deductions, and
without regard to any excess inclusion
(for example, if filing Form 1120,
subtract line 29b from line 28 of that
form).

Line 2. Adjustments and
Preferences
To avoid duplication, do not
include any AMT adjustment or
CAUTION preference taken into account
on line 2i, 2j, 2k, or 2o in the amounts
to be entered on any other line of this
form.

!

Line 2a. Depreciation of
Post-1986 Property
What Adjustments Are Not
Included As Depreciation
Adjustments?
Do not make a depreciation adjustment
on line 2a for:
• A tax shelter farm activity. Take this
adjustment into account on line 2i.
• Passive activities. Take this
adjustment into account on line 2j.
• An activity for which the corporation
is not at risk or income or loss from a
partnership interest or stock in an S
corporation if the basis limitations
apply. Take this adjustment into
account on line 2k.

What Depreciation Must Be
Refigured for the AMT?
Generally, the corporation must refigure
depreciation for the AMT, including
depreciation allocable to inventory
costs, for:
• Property placed in service after 1998
depreciated for the regular tax using
the 200% declining balance method
(generally 3-, 5-, 7-, or 10-year property
under the modified accelerated cost
recovery system (MACRS), except for
qualified property eligible for the special
depreciation allowance (see page 3));
• Section 1250 property placed in
service after 1998 that is not
depreciated for the regular tax using
the straight line method; and
• Tangible property placed in service
after 1986 and before 1999. (If the
transitional election was made under
section 203(a)(1)(B) of the Tax Reform

Page 3 of 12

Instructions for Form 4626

15:36 - 6-FEB-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Act of 1986, this rule applies to property
placed in service after July 31, 1986.)

What Depreciation Is Not
Refigured for the AMT?
Do not refigure depreciation for the
AMT for the following.
• Residential rental property placed in
service after 1998.
• Nonresidential real property with a
class life of 27.5 years or more
(generally, a building and its structural
components) placed in service after
1998 that is depreciated for the regular
tax using the straight line method.
• Other section 1250 property placed
in service after 1998 that is depreciated
for the regular tax using the straight line
method.
• Property (other than section 1250
property) placed in service after 1998
that is depreciated for the regular tax
using the 150% declining balance
method or the straight line method.
• Property for which the corporation
elected to use the alternative
depreciation system (ADS) of section
168(g) for the regular tax.
• Qualified property eligible for the
special depreciation allowance under
sections 168(k), 1400L(b) (in the case
of qualified Liberty Zone property), and
1400N(d) (in the case of qualified Gulf
Opportunity Zone property acquired
after August 27, 2005), if the
depreciable basis of the property for the
AMT is the same as for the regular tax.
The special allowance is deductible for
the AMT. And, there also is no
adjustment required for any
depreciation figured on the remaining
basis of the qualified property if the
depreciable basis of the property for the
AMT is the same as for the regular tax.
Property for which an election is in
effect to not have the special allowance
apply is not qualified property. See the
Instructions for Form 4562 for the
definition of qualified property.
• Any part of the cost of any property
that the corporation elected to expense
under section 179. The reduction to the
depreciable basis of section 179
property by the amount of the section
179 expense deduction is the same for
the regular tax and the AMT.
• Certain public utility property (if a
normalization method of accounting is
not used), motion picture films and
video tape, sound recordings, and
property that the corporation elects to
exclude from MACRS by using a
depreciation method based on a term
of years, such as the unit-of-production
method.

• Qualified Indian reservation property
placed in service after 1993 and before
2006.
• Qualified revitalization expenditures
for a building for which the corporation
elected to claim the commercial
revitalization deduction.
• Any natural gas gathering line (as
defined in section 168(i)(17)) placed in
service after April 11, 2005, the original
use of which begins with the
corporation after April 11, 2005, and
which is not under self-construction or
subject to a binding contract in
existence before April 12, 2005.

How Is Depreciation Refigured
for the AMT?
Property placed in service after 1998.
Use the same convention and recovery
period used for the regular tax. Use the
straight line method for section 1250
property. For property other than
section 1250 property, use the 150%
declining balance method, switching to
the straight line method the first tax
year it gives a larger deduction.
Property placed in service before
1999. Refigure depreciation for the
AMT using ADS, with the same
convention used for the regular tax.
See the table below for the method and
recovery period to use.

Property Placed in Service
Before 1999
IF the property is

THEN use the . . .

Section 1250
property.

Straight line method
over 40 years.

Tangible property
(other than section
1250 property)
depreciated using
the straight line
method for the
regular tax.

Straight line method
over the property’s
AMT class life.

Any other tangible
property.

150% declining
balance method,
switching to the
straight line method
the first tax year it
gives a larger
deduction, over the
property’s AMT
class life.

How is the AMT class life
determined? For property placed in
service before 1999, the class life used
for the AMT is not necessarily the same
as the recovery period used for the
regular tax.

-3-

The class lives are listed in Rev.
Proc. 87-56, 1987-2 C.B. 674, and in
Pub. 946, How To Depreciate Property.
See Pub. 946 for tables that can

TIP be used to figure AMT
depreciation. Rev. Proc. 89-15,
1989-1 C.B. 816, and Pub. 946 have
special rules for short tax years and for
property disposed of before the end of
the recovery period.

How Is the Line 2a Adjustment
Figured?
Subtract the AMT deduction for
depreciation from the regular tax
deduction and enter the result on line
2a. If the AMT deduction is more than
the regular tax deduction, enter the
difference as a negative amount.
In addition to the AMT adjustment to
the deduction for depreciation, also
adjust the amount of depreciation that
was capitalized, if any, to account for
the difference between the rules for the
regular tax and the AMT. Include on
this line the current year adjustment to
taxable income, if any, resulting from
the difference.

Line 2b. Amortization of
Certified Pollution Control
Facilities
For facilities placed in service before
1999, figure the amortization deduction
for the AMT using ADS (that is, the
straight line method over the facility’s
class life). For facilities placed in
service after 1998, figure the
amortization deduction for the AMT
under MACRS using the straight line
method. Figure the AMT deduction
using 100% of the asset’s amortizable
basis. Do not reduce the corporation’s
AMT basis by the 20% section 291
adjustment that applied for the regular
tax.
Enter the difference between the
AMT deduction and the regular tax
deduction on line 2b. If the AMT
deduction is more than the regular tax
deduction, enter the difference as a
negative amount.

Line 2c. Amortization of
Mining Exploration and
Development Costs
Do not make this adjustment for
costs for which the corporation
CAUTION elected the optional 10-year
write-off for the regular tax.
For the AMT, the regular tax
deductions under sections 616(a) and
617(a) are not allowed. Instead,
capitalize these costs and amortize

!

Page 4 of 12

Instructions for Form 4626

15:36 - 6-FEB-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

them ratably over a 10-year period
beginning with the tax year in which the
corporation paid or incurred them. The
10-year amortization applies to 100% of
the mining development and
exploration costs paid or incurred
during the tax year. Do not reduce the
corporation’s AMT basis by the 30%
section 291 adjustment that applied for
the regular tax.
If the corporation had a loss on
property for which mining exploration
and development costs have not been
fully amortized for the AMT, the AMT
deduction is the smaller of (a) the loss
allowable for the costs had they
remained capitalized or (b) the
remaining costs to be amortized for the
AMT.
Subtract the AMT deduction from the
regular tax deduction. Enter the result
on line 2c. If the AMT deduction is more
than the regular tax deduction, enter
the difference as a negative amount.

Line 2d. Amortization of
Circulation Expenditures
Do not make this adjustment for
expenditures of a personal
CAUTION holding company for which the
company elected the optional 3-year
write-off for the regular tax.

!

For the regular tax, circulation
expenditures may be deducted in full
when paid or incurred. For the AMT,
these expenditures must be capitalized
and amortized over 3 years beginning
with the tax year in which the
expenditures were made.
If the corporation had a loss on
property for which circulation
expenditures have not been fully
amortized for the AMT, the AMT
deduction is the smaller of (a) the loss
allowable for the expenditures had they
remained capitalized or (b) the
remaining expenditures to be amortized
for the AMT.
Subtract the AMT deduction from the
regular tax deduction. Enter the result
on line 2d. If the AMT deduction is
more than the regular tax deduction,
enter the difference as a negative
amount.

Line 2e. Adjusted Gain or
Loss
If, during the tax year, the corporation
disposed of property for which it is
making (or previously made) any of the
adjustments described on lines 2a
through 2d above, refigure the

property’s adjusted basis for the AMT.
Then refigure the gain or loss on the
disposition.
The property’s adjusted basis for the
AMT is its cost minus all applicable
depreciation or amortization deductions
allowed for the AMT during the current
tax year and previous tax years.
Subtract this AMT basis from the sales
price to get the AMT gain or loss.
Dispositions for which line 2i, 2j, and
2k adjustments are made. The
corporation may also have gains or
losses from lines 2i, 2j, and 2k that
must be considered on line 2e. For
example, if for the regular tax the
corporation reports a loss from the
disposition of an asset used in a
passive activity, include the loss in the
computations for line 2j to determine if
any passive activity loss is limited for
the AMT. Then, include the AMT
passive activity loss allowed that relates
to the disposition of the asset on line 2e
in determining the corporation’s AMT
basis adjustment. It may be helpful to
refigure the following for the AMT: Form
8810 and related worksheets, Schedule
D (Form 1120), Form 4684 (Section B),
or Form 4797.
Enter on line 2e the difference
between the regular tax gain or loss
and the AMT gain or loss. Enter the
difference as a negative amount if any
of the following apply.
• The AMT gain is less than the regular
tax gain.
• The AMT loss exceeds the regular
tax loss.
• The corporation has an AMT loss
and a regular tax gain.

Line 2f. Long-Term Contracts
For the AMT, the corporation generally
must use the percentage-of-completion
method described in section 460(b) to
determine the taxable income from any
long-term contract (defined in section
460(f)). However, this rule does not
apply to any home construction contract
(as defined in section 460(e)(6)).
For contracts excepted from the
percentage-of-completion method for
the regular tax by section 460(e)(1),
determine the percentage of completion
using the simplified procedures for
allocating costs outlined in section
460(b)(3).
Subtract the regular tax income from
the AMT income. Enter the difference
on line 2f. If the AMT income is less
than the regular tax income, enter the
difference as a negative amount.

-4-

Line 2g. Merchant Marine
Capital Construction Funds
Amounts deposited in these funds are
not deductible for the AMT. Earnings on
these funds must be included in gross
income for the AMT. If the corporation
deducted these amounts or excluded
them from income for the regular tax,
add them back on line 2g.

Line 2h. Section 833(b)
Deduction
This deduction is not allowed for the
AMT. If the corporation took this
deduction for the regular tax, add it
back on line 2h.

Line 2i. Tax Shelter Farm
Activities
Complete this line only if the
corporation is a personal service
CAUTION corporation and it has a gain or
loss from a tax shelter farm activity that
is not a passive activity. If the tax
shelter farm activity is a passive
activity, include the gain or loss in the
computations for line 2j.

!

Refigure all gains and losses
reported for the regular tax from tax
shelter farm activities by taking into
account any AMT adjustments and
preferences. Determine the AMT gain
or loss using the rules for the regular
tax with the following modifications.
• No loss is allowed except to the
extent the personal service corporation
is insolvent.
• Do not use a loss in the current tax
year to offset gains from other tax
shelter farm activities. Instead, suspend
any loss and carry it forward indefinitely
until the corporation has a gain in a
subsequent tax year from that same tax
shelter farm activity or it disposes of the
activity.
Keep adequate records for

TIP losses that are not deductible
(and therefore carried forward)
for both the AMT and regular tax.
Enter on line 2i the difference
between the AMT gain or loss and the
regular tax gain or loss. Enter the
difference as a negative amount if the
corporation had:
• An AMT loss and a regular tax gain,
• An AMT loss that exceeds the
regular tax loss, or
• A regular tax gain that exceeds the
AMT gain.

Page 5 of 12

Instructions for Form 4626

15:36 - 6-FEB-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Line 2j. Passive Activities

!

CAUTION

This adjustment applies only to
closely held corporations and
personal service corporations.

Refigure all passive activity gains
and losses reported for the regular tax
by taking into account the corporation’s
AMT adjustments and preferences and
AMT prior year unallowed losses that
apply to that activity.
Determine the corporation’s AMT
passive activity gain or loss using the
same rules used for the regular tax.
Generally, no loss is allowed. However,
if the corporation is insolvent, losses
are allowed to the extent the
corporation is insolvent (see section
58(c)).
Disallowed losses of a personal
service corporation are suspended until
the corporation has income from that
(or any other) passive activity or until
the passive activity is disposed of (that
is, its passive losses cannot offset “net
active income” (defined in section
469(e)(2)(B) or “portfolio income”)).
Disallowed losses of a closely held
corporation that is not a personal
service corporation are treated the
same except that, in addition, they may
be used to offset “net active income.”
Keep adequate records for

TIP losses that are not deductible
(and therefore carried forward)
for both the AMT and regular tax.
Enter on line 2j the difference
between the AMT gain or loss and the
regular tax gain or loss. Enter the
difference as a negative amount if the
corporation had:
• An AMT loss and a regular tax gain,
• An AMT loss that exceeds the
regular tax loss, or
• A regular tax gain that exceeds the
AMT gain.

Tax Shelter Farm Activities That
Are Passive Activities
Refigure all gains and losses reported
for the regular tax by taking into
account the corporation’s AMT
adjustments and preferences and AMT
prior year unallowed losses.
Use the same rules as outlined
above for other passive activities, with
the following modifications.
• AMT gains from tax shelter farm
activities that are passive activities may
be used to offset AMT losses from
other passive activities.
• AMT losses from tax shelter farm
activities that are passive activities may
not be used to offset AMT gains from
other passive activities. These losses

must be suspended and carried forward
indefinitely until the corporation has a
gain in a subsequent year from that
same activity or it disposes of the
activity.

Line 2k. Loss Limitations
Refigure gains and losses reported for
the regular tax from at-risk activities
and the corporation’s share of
distributive items from partnerships by
taking into account the corporation’s
AMT adjustments and preferences. If
the corporation has recomputed losses
that must be limited for the AMT by
section 465 or section 704(d) or the
corporation reported losses for the
regular tax from at-risk activities or
distributive shares of partnership losses
that were limited by those sections,
figure the difference between the loss
limited for the AMT and the loss limited
for the regular tax for each applicable
at-risk activity or distributive share of
partnership loss. “Loss limited” means
the amount of loss that is not allowable
for the year because of the limitations
above.
Enter on line 2k the excess of the
loss limited for the AMT over the loss
limited for the regular tax. If the loss
limited for the regular tax is more than
the loss limited for the AMT, enter the
difference as a negative amount.

Line 2l. Depletion
Refigure depletion using only income
and deductions allowed for the AMT
when refiguring the limit based on
taxable income from the property under
section 613(a) and the limit based on
taxable income, with certain
adjustments, under section 613A(d)(1).
Also, the depletion deduction for mines,
wells, and other natural deposits is
limited to the property’s adjusted basis
at the end of the year, as refigured for
the AMT, unless the corporation is an
independent producer or royalty owner
claiming percentage depletion for oil
and gas wells. Figure this limit
separately for each property. When
refiguring the property’s adjusted basis,
take into account any AMT adjustments
the corporation made this year or in
previous years that affect basis (other
than the current year’s depletion). Do
not include in the property’s adjusted
basis any unrecovered costs of
depreciable tangible property used to
exploit the deposits (for example,
machinery, tools, pipes, etc.).
For iron ore and coal (including
lignite), apply the section 291
adjustment before figuring this
preference.

-5-

Enter on line 2l the difference
between the regular tax and the AMT
deduction. If the AMT deduction is
more than the regular tax deduction,
enter the difference as a negative
amount.

Line 2m. Tax-Exempt Interest
Income From Specified
Private Activity Bonds
Enter on line 2m interest income from
specified private activity bonds,
reduced by any deduction that would
have been allowable if the interest were
includible in gross income for the
regular tax. Generally, a specified
private activity bond is any private
activity bond (as defined in section 141)
issued after August 7, 1986, on which
the interest is not includible in gross
income for the regular tax. See section
57(a)(5) for exceptions and details. Do
not include interest on qualified Gulf
Opportunity Zone bonds (described in
section 1400N(a)) issued after
December 21, 2005.

Line 2n. Intangible Drilling
Costs
Do not make this adjustment for
costs for which the corporation
CAUTION elected the optional 60-month
write-off for the regular tax.
Intangible drilling costs (IDCs) from
oil, gas, and geothermal properties are
a preference to the extent excess IDCs
exceed 65% of the net income from the
properties. Figure the preference for all
geothermal deposits separately from
the preference for all oil and gas
properties that are not geothermal
deposits.
Excess IDCs. Excess IDCs are the
excess of:
• The amount of IDCs the corporation
paid or incurred for oil, gas, or
geothermal properties that it elected to
expense for the regular tax (not
including any IDCs paid or incurred for
nonproductive wells) reduced by the
section 291(b)(1) adjustment for
integrated oil companies and increased
by any IDCs allowed to be amortized
under section 291(b)(2) over
• The amount that would have been
allowed if the corporation had
amortized that amount over a
120-month period starting with the
month the well was placed in
production or, alternatively, had elected
any method that is permissible in
determining cost depletion.
Net income from oil, gas, and
geothermal properties. Net income is
the gross income the corporation

!

Page 6 of 12

Instructions for Form 4626

15:36 - 6-FEB-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

received or accrued from all oil, gas,
and geothermal wells minus the
deductions allocable to these properties
(reduced by the excess IDCs). When
refiguring net income, use only income
and deductions allowed for the AMT.
Exception. The preference for IDCs
from oil and gas wells does not apply to
corporations that are independent
producers (that is, not integrated oil
companies as defined in section
291(b)(4)). However, this benefit may
be limited. First, figure the IDC
preference as if this exception did not
apply. Then, for purposes of this
exception, complete a second Form
4626 through line 5, including the IDC
preference. If the amount of the IDC
preference exceeds 40% of the amount
figured for line 5, enter the excess on
line 2n (the benefit of this exception is
limited). If the amount of the IDC
preference is equal to or less than 40%
of the amount figured for line 5, do not
include an amount on line 2n for oil and
gas wells (the benefit of this exception
is not limited).

Line 2o. Other Adjustments
And Preferences
Enter the net amount of any other
adjustments and preferences, including
the following.
Income eligible for the possessions
tax credit. If this income was included
in the corporation’s taxable income for
the regular tax, include this amount on
line 2o as a negative amount.
Income from the alcohol, biodiesel,
and renewable diesel fuels credits. If
this income was included in the
corporation’s income for the regular tax,
include this amount on line 2o as a
negative amount.
Income as the beneficiary of an
estate or trust. If the corporation is the
beneficiary of an estate or trust, include
on line 2o the AMT adjustment from
Schedule K-1 (Form 1041), Part III, box
12.
Net AMT adjustment from an electing
large partnership. If the corporation
is a partner in an electing large
partnership, include on line 2o the
amount from Schedule K-1 (Form
1065-B), box 6. Also include on line 2o
any amount from Schedule K-1 (Form
1065-B), box 5, unless the corporation
is a closely held or personal service
corporation. Closely held and personal
service corporations should take any
amount from box 5 into account when
figuring the amount to enter on line 2j.
Patron’s AMT adjustment.
Distributions the corporation received

from a cooperative may be includible in
income. Unless the distributions are
nontaxable, include on line 2o the total
AMT patronage dividend adjustment
reported to the corporation from the
cooperative.
Cooperative’s AMT adjustment. If the
corporation is a cooperative, refigure
the cooperative’s deduction for
patronage dividends by taking into
account the cooperative’s AMT
adjustments and preferences. Subtract
the cooperative’s AMT deduction for
patronage dividends from its regular tax
deduction for patronage dividends and
include the result on line 2o. If the AMT
deduction is more than the regular tax
deduction, include the result as a
negative amount.
Domestic production activities
deduction. For the AMT, refigure the
corporation’s domestic production
activities deduction under section 199
without taking into account any AMT
adjustments and preferences. The
section 199 deduction for the
corporation’s AMT is 3% of the smaller
of (a) the qualified production activities
income or (b) the alternative minimum
taxable income (AMTI), determined
without taking into account the section
199 deduction. Subtract the
corporation’s AMT section 199
deduction from its regular tax section
199 deduction and include the result on
line 2o. If the AMT deduction is more
than the regular tax deduction, include
the result as a negative amount.
Installment sales. The installment
method does not apply for the AMT to
any nondealer disposition of property
that occurred after August 16, 1986, but
before the first day of the corporation’s
tax year that began in 1987, if an
installment obligation to which the
proportionate disallowance rule applied
arose from the disposition. Include as a
negative adjustment on line 2o the
amount of installment sale income
reported for the regular tax.
Accelerated depreciation of real
property and certain leased personal
property (pre-1987).
This preference generally
applies only to property placed
CAUTION in service after 1987, but
depreciated using pre-1987 rules due to
transition provisions of the Tax Reform
Act of 1986.

!

Refigure depreciation for the AMT
using the straight line method for real
property for which accelerated
depreciation was determined for the
regular tax using pre-1987 rules. Use a
recovery period of 19 years for 19-year

-6-

real property and 15 years for
low-income housing property. Figure
the excess of the regular tax
depreciation over the AMT depreciation
separately for each property and
include only positive adjustments on
line 2o.
The adjustment for leased personal
property only applies to personal
holding companies. For leased
personal property other than recovery
property, enter the excess of the
depreciation claimed for the property for
the regular tax using pre-1987 rules
over the depreciation allowable for the
AMT as refigured using the straight line
method.
For leased 10-year recovery
property and leased 15-year public
utility property, enter the excess of the
regular tax depreciation over the
depreciation allowable using the
straight line method with a half-year
convention, no salvage value, and a
recovery period of 15 years (22 years
for 15-year public utility property).
Figure this amount separately for
each property and include only positive
adjustments on line 2o.
Related adjustments. AMT
adjustments and preferences may
affect deductions that are based on an
income limit (for example, charitable
contributions). Refigure these
deductions using the income limit as
modified for the AMT. Include on line
2o an adjustment for the difference
between the regular tax and AMT
amounts for all such deductions. If the
AMT deduction is more than the regular
tax deduction, include the difference as
a negative amount.

Line 4. Adjusted Current
Earnings (ACE)
Adjustment
The ACE adjustment does not
apply to a regulated investment
CAUTION company or a real estate
investment trust. Also, for an affiliated
group filing a consolidated return under
the rules of section 1501, figure line 4b
on a consolidated basis.

!

Line 4b. The following examples
illustrate the manner in which line 3 is
subtracted from line 4a to get the
amount to enter on line 4b.
Example 1. Corporation A has line 4a
ACE of $25,000. If Corporation A has
line 3 pre-adjustment AMTI in the
amounts shown on page 7, its line 3
and line 4a amounts would be

Page 7 of 12

Instructions for Form 4626

15:36 - 6-FEB-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

combined as follows to determine the
amount to enter on line 4b.
Line 4a ACE
Line 3 pre-adj.
AMTI
Amount to enter
on line 4b

$25,000 $25,000 $25,000

10,000

30,000 (50,000)

$15,000 $(5,000) $75,000

Example 2. Corporation B has line 4a
ACE of $(25,000). If Corporation B has
line 3 pre-adjustment AMTI in the
amounts shown below, its line 3 and
line 4a amounts would be combined as
follows to determine the amount to
enter on line 4b.
Line 4a ACE
Line 3 pre-adj.
AMTI

$(25,000) $(25,000) $(25,000)

(10,000) (30,000)

Amount to enter
on line 4b
$(15,000)

Corporation C subtracts its
pre-adjustment AMTI from its ACE in
each of the years and then multiplies
the result by 75% to get the following
potential ACE adjustments for 2001
through 2005.

50,000

$5,000 $(75,000)

Line 4d. A potential negative ACE
adjustment (that is, a negative amount
on line 4b multiplied by 75%) is allowed
as a negative ACE adjustment on line
4e only if the corporation’s total
increases in AMTI from prior year ACE
adjustments exceed its total reductions
in AMTI from prior year ACE
adjustments (line 4d). The purpose of
line 4d is to provide a “running balance”
of this limitation amount. As such, the
corporation must keep adequate
records (for example, a copy of Form
4626 completed at least through line 5)
from year to year (even in years in
which it does not owe any AMT).
Any potential negative ACE
adjustment that is not allowed as a
negative ACE adjustment in a tax year
because of the line 4d limitation cannot
be used to reduce a positive ACE
adjustment in any other tax year.
Combine lines 4d and 4e of the 2004
Form 4626 and enter the result on line
4d of the 2005 form, but do not enter
less than zero.
Example. Corporation C, a
calendar-year corporation, was
incorporated January 1, 2001. Its ACE
and pre-adjustment AMTI for 2001
through 2005 were as follows.

Year

ACE

Preadjustment
AMTI

2001
2002
2003
2004
2005

$700,000
900,000
400,000
(100,000)
250,000

$800,000
600,000
500,000
300,000
100,000

ACE minus
Potential
pre-adjustment
ACE
AMTI
adjustment

Year
2001
2002
2003
2004
2005

$(100,000)
300,000
(100,000)
(400,000)
150,000

$ (75,000)
225,000
(75,000)
(300,000)
112,500

Under these facts, Corporation C
has the following increases or
reductions in AMTI for 2001 through
2005.

Year

Increase or (reduction)
in AMTI from ACE
adjustment

2001
2002
2003
2004
2005

$0
225,000
(75,000)
(150,000)
112,500

In 2001, Corporation C was not
allowed to reduce its AMTI by any part
of the potential negative ACE
adjustment because it had no increases
in AMTI from prior year ACE
adjustments.
In 2002, Corporation C had to
increase its AMTI by the full amount of
its potential ACE adjustment. It was not
allowed to use any part of its 2001
unallowed potential negative ACE
adjustment of $75,000 to reduce its
2002 positive ACE adjustment of
$225,000.
In 2003, Corporation C was allowed
to reduce its AMTI by the full amount of
its potential negative ACE adjustment
because that amount is less than its
line 4d limit of $225,000.
In 2004, Corporation C was allowed
to reduce its AMTI by only $150,000. Its
potential negative ACE adjustment of
$300,000 was limited to its 2002
increase in AMTI of $225,000 minus its
2003 reduction in AMTI of $75,000.
In 2005, Corporation C must
increase its AMTI by the full amount of
its potential ACE adjustment. It cannot
use any part of its 2004 unallowed
potential negative ACE adjustment of
$150,000 to reduce its 2005 positive
ACE adjustment of $112,500.
Corporation C would complete the
relevant portion of its 2005 Form 4626
as follows.

-7-

Line

Amount

4a
4b
4c
4d
4e

$250,000
150,000
112,500
-0112,500

Line 6. Alternative Tax
Net Operating Loss
Deduction (ATNOLD)
The ATNOLD is the sum of the
alternative tax net operating loss
(ATNOL) carrybacks and carryforwards
to the tax year, subject to the limitation
explained below. For a corporation that
held a residual interest in a real estate
mortgage investment conduit (REMIC),
figure the ATNOLD without regard to
any excess inclusion.
NOLs arising in tax years
beginning before August 6,
CAUTION 1997, can be carried forward no
more than 15 years. Therefore, the
corporation cannot carry forward an
NOL to this tax year from a loss year
beginning before 1990.

!

The ATNOL for a loss year is the
excess of the deductions allowed in
figuring AMTI (excluding the ATNOLD)
over the income included in AMTI. This
excess is figured with the modifications
in section 172(d), taking into account
the adjustments in sections 56 and 58
and preferences in section 57 (that is,
the section 172(d) modifications must
be separately figured for the ATNOL).
In applying the rules relating to the
determination of the amount of
carrybacks and carryforwards, use the
modification to those rules described in
section 56(d)(1)(B)(ii).
The ATNOLD is generally limited to
90% of AMTI determined without regard
to the ATNOLD and any domestic
production activities deduction under
section 199. To figure AMTI without
regard to the ATNOLD, use a second
Form 4626 as a worksheet. Complete
the second Form 4626 through line 5,
but when figuring lines 2l and 2o, treat
line 6 as if it were zero. The amount
figured on line 5 of the second Form
4626 is the corporation’s AMTI
determined without regard to the
ATNOLD. Add any domestic production
activities deduction to this tentative
total. The ATNOLD limitation is 90% of
this amount.
However, if an ATNOL carried back
to the tax year is attributable to
qualified Gulf Opportunity Zone losses
(as defined in section 1400N(k)(2))

Page 8 of 12

Instructions for Form 4626

15:36 - 6-FEB-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

arising in tax years ending after August
27, 2005, the ATNOLD for the tax year
is limited to the sum of:
1. The smaller of:
a. The sum of the ATNOL
carrybacks and carryforwards to the tax
year attributable to net operating losses
other than qualified Gulf Opportunity
Zone losses, or
b. Ninety percent of AMTI for the tax
year (figured without regard to the
ATNOLD, as discussed on page 7, and
the domestic production activities
deduction under section 199) plus
2. The smaller of:
a. The sum of the ATNOL
carrybacks to the tax year attributable
to qualified Gulf Opportunity Zone
losses, or
b. 100% of AMTI for the tax year
(figured without regard to the ATNOLD,
as discussed on page 7, and the
domestic production activities deduction
under section 199) reduced by the
amount determined under 1, above.
Enter on line 6 the smaller of the
ATNOLD or the ATNOLD limitation.
The ATNOL can be carried back or
forward using the rules outlined in
section 172(b). An election under
section 172(b)(3) to forego the
carryback period for the regular tax also
applies for the AMT.
The ATNOL carried back or forward
may differ from the NOL (if any) that is
carried back or forward for the regular
tax. Keep adequate records for both the
AMT and the regular tax.

Line 7. Alternative
Minimum Taxable
Income
For a corporation that held a residual
interest in a REMIC and is not a thrift
institution, line 7 may not be less than
the total of the amounts shown on
Schedule(s) Q (Form 1066), Quarterly
Notice to Residual Interest Holder of
REMIC Taxable Income or Net Loss
Allocation, line 2c, for the periods
included in the corporation’s tax year. If
the total of the line 2c amounts is larger
than the amount the corporation would
otherwise enter on line 7, enter that
total and write “Sch. Q” on the dotted
line next to line 7.

Line 8. Exemption
Phase-Out Computation
Line 8a. If this Form 4626 is for a
member of a controlled group of
corporations, subtract $150,000 from

the combined AMTI of all members of
the controlled group. Divide the result
among the members of the group in the
same manner as the $40,000 tentative
exemption is divided among the
members. Enter this member’s share
on line 8a. The tentative exemption
must be divided equally among the
members, unless all members consent
to a different allocation. See section
1561 for details.
Line 8c. If this Form 4626 is for a
member of a controlled group of
corporations, reduce the member’s
share of the $40,000 tentative
exemption by the amount entered on
line 8b.

Line 11. Alternative
Minimum Tax Foreign
Tax Credit (AMTFTC)
The AMTFTC is the foreign tax credit
refigured as follows.
1. Complete a separate AMT Form
1118, Foreign Tax Credit —
Corporations, for each separate
limitation category specified at the top
of Form 1118. Include as a separate
limitation category dividends received
from a corporation that qualifies for the
possessions tax credit if the
dividends-received deduction for those
dividends is disallowed under the ACE
rules.
In determining if any income is
“high-taxed” in applying the separate
limitation categories, use the AMT rate
(20%) instead of the regular tax rate.
2. For each separate AMT Form
1118, if the corporation previously
made or is making the simplified
limitation election (discussed below),
skip Schedule A and enter on Schedule
B, Part II, line 6, the same amount you
entered on that line for the regular tax.
Otherwise, complete Schedule A using
only income and deductions that are
allowed for the AMT and attributable to
sources outside the United States.
3. For each separate AMT Form
1118, complete Schedule B, Part II.
Enter any AMTFTC carryover on
Schedule B, Part II, line 4. Enter the
AMTI from Form 4626, line 7, on
Schedule B, Part II, line 7a. Enter the
amount from Form 4626, line 10, on
Schedule B, Part II, line 9.
When completing Schedule B, treat
as a tax paid to a foreign country 75%
of any withholding or income tax paid to
a U.S. possession on dividends
received from a corporation that
qualifies for the possessions tax credit
(if the dividends-received deduction for

-8-

those dividends is disallowed under the
ACE rules).
4. For the AMT Form 1118,
complete Schedule B, Part III,
Summary of Separate Credits. The total
foreign tax credit is the amount on line
11.
5. Enter on Form 4626, line 11, the
smaller of:
• The amount on Form 4626, line
10, or
• The amount from the AMT Form
1118, Schedule B, Part III, line 11.
The corporation can use any
reasonable method, consistently
applied, to apportion the disallowed
amount among the separate limitation
categories (including the general
limitation income category). Any AMT
foreign tax credit for each separate
limitation category that the corporation
cannot claim (because of the limitation
fraction) is treated as a credit carryback
or carryforward for that limitation
category under section 904(c). Because
these amounts may differ from the
amounts that are carried back or
forward for the regular tax, keep
adequate records for both the AMT and
regular tax. When carried back or
forward, the credit is reported on
Schedule B, Part II, line 4, of the
carryover year’s AMT Form 1118 for
that separate limitation category.

Simplified Limitation
Election
The corporation may elect to use a
simplified section 904 limitation to figure
its AMTFTC. The corporation must
make the election for its first tax year
beginning after 1997 for which it claims
an AMTFTC. If it does not make the
election for that tax year, it may not
make the election for a later tax year.
Once made, the election applies to all
later tax years and may only be
revoked with IRS consent.
If the corporation made the election
for each of its AMT separate limitations,
the corporation uses its separate
limitation income or loss that it
determined for the regular tax (instead
of refiguring the separate limitation
income or loss for the AMT, as
described earlier).

Line 13
Enter the corporation’s regular tax
liability (as defined in section 26(b))
minus any foreign tax credit and
possessions tax credit (for example, for
Form 1120: Schedule J, line 3, minus
the sum of Schedule J, lines 6a and
6b). Do not include any:

Page 9 of 12

Instructions for Form 4626

15:36 - 6-FEB-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

• Tax on nondeductible portion of
qualifying dividends from a controlled
foreign corporation reported on Form
8895,
• Tax on accumulation distribution of
trusts from Form 4970,
• Recapture of investment credit
(under section 49(b) or 50(a)) from
Form 4255,
• Recapture of low-income housing
credit (under section 42(j) or (k)) from
Form 8611, or
• Recapture of any other credit.

Adjusted Current
Earnings (ACE)
Worksheet Instructions
Treatment of Certain
Ownership Changes
If a corporation with a net unrealized
built-in loss (within the meaning of
section 382(h)) undergoes an
ownership change (within the meaning
of section 382(g) and Regulations
section 1.56(g)-1(k)(2)), refigure the
adjusted basis of each asset of the
corporation (immediately after the
ownership change). The new adjusted
basis of each asset is its proportionate
share (based on respective fair market
values) of the fair market value of the
corporation’s assets (determined under
section 382(h)) immediately before the
ownership change.
To determine if the corporation has a
net unrealized built-in loss immediately
before an ownership change, use the
aggregate adjusted basis of its assets
used for figuring its ACE. Also, use
these new adjusted bases for all future
ACE calculations (such as depreciation
and gain or loss on disposition of an
asset).

Line 2b(2). Post-1989, pre-1994
property. For property placed in
service in a tax year that began after
1989 and before 1994, use the ADS
depreciation described in section
168(g). However, for property (a)
placed in service in a tax year that
began after 1989 and (b) described in
sections 168(f)(1) through (4), use the
same depreciation claimed for the
regular tax and enter it on line 2b(5).
Line 2b(3). Pre-1990 MACRS
property. For MACRS property
generally placed in service after 1986
and in a tax year that began before
1990, figure depreciation by using the
property’s AMT adjusted basis as of the
close of the last tax year beginning
before 1990 and by using the straight
line method over the remainder of the
recovery period for the property under
ADS. In doing so, use the convention
that would have applied to the property
under section 168(d). For more
information (including an example that
illustrates the application of these
rules), see Regulations section
1.56(g)-1(b)(2).
Line 2b(4). Pre-1990 original ACRS
property. For ACRS property generally
placed in service in a tax year that
began after 1980 and before 1987,
figure depreciation by using the
property’s regular tax adjusted basis as
of the close of the last tax year
beginning before 1990 and by using the
straight line method over the remainder
of the recovery period for the property
under ADS. In doing so, use the
convention that would have applied to
the property under section 168(d)
(without regard to section 168(d)(3)).
For more information (including an
example that illustrates the application
of these rules), see Regulations section
1.56(g)-1(b)(3).

Line 2. ACE Depreciation
Adjustment

Line 2b(5). Property described in
sections 168(f)(1) through (4). For
this property, use the regular tax
depreciation, regardless of when the
property was placed in service.

Line 2a. AMT depreciation.
Generally, the amount entered on this
line is the depreciation the corporation
claimed for the regular tax (Form 4562,
line 22), modified by the AMT
depreciation adjustments reported on
lines 2a and 2o of Form 4626.

Line 2b(5) takes priority over
lines 2b(1), 2b(2), 2b(3), and
CAUTION 2b(4). For property that is
described in sections 168(f)(1) through
(4), use line 2b(5) instead of the line
2b(1), 2b(2), 2b(3), or 2b(4) that would
otherwise apply.

Line 2b(1). Post-1993 property. For
property placed in service after 1993,
the ACE depreciation is the same as
the AMT depreciation. Therefore, enter
on line 2b(1) the same depreciation
expense you included on line 2a of this
worksheet for such property.

Line 2b(6). Other property. Use the
regular tax depreciation for (a) property
placed in service before 1981 and (b)
property placed in service after 1980, in
a tax year that began before 1990, that
is excluded from MACRS by section
168(f)(5)(A)(i) or original ACRS by

!

-9-

section 168(e)(4), as in effect before
the Tax Reform Act of 1986.
Line 2c. Total ACE depreciation.
Subtract line 2b(7) from line 2a and
enter the result on line 2c. If line 2b(7)
exceeds line 2a, enter the difference as
a negative amount.

Line 3. Inclusion in ACE of
Items Included in Earnings and
Profits (E&P)
In general, any income item that is not
taken into account (see below) in
determining the corporation’s
pre-adjustment AMTI but that is taken
into account in determining its E&P
must be included in ACE. Any such
income item can be reduced by all
items related to that income item and
that would be deductible when figuring
pre-adjustment AMTI if the income
items to which they relate were
included in the corporation’s
pre-adjustment AMTI for the tax year.
Examples of these income items and
the adjustments that relate to them
include:
• Interest income from tax-exempt
obligations excluded under section 103
minus any costs incurred in carrying
these tax-exempt obligations and
• Proceeds of life insurance contracts
excluded under section 101 minus the
basis in the contract for purposes of
ACE.
An income item is considered taken
into account without regard to the
timing of its inclusion in a corporation’s
pre-adjustment AMTI or its E&P. Only
income items that are permanently
excluded from pre-adjustment AMTI are
included in ACE. An income item will
not be considered taken into account
merely because the proceeds from that
item might eventually be reflected in the
pre-adjustment AMTI of another
taxpayer (for example, that of a
shareholder) on the liquidation or
disposal of a business.
Exceptions. Do not make an
adjustment for the following.
• Any income from discharge of
indebtedness excluded from gross
income under section 108 (or the
corresponding provision of prior law).
• Any extraterritorial income excluded
from gross income under section 114.
• For an insurance company taxed
under section 831(b), any amount not
included in gross investment income
(as defined in section 834(b)).
• Any special subsidy payment for
prescription drug plans excluded from
gross income under section 139A.
• Any qualified shipping income
excluded under section 1357.

Page 10 of 12

Instructions for Form 4626

15:36 - 6-FEB-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Line 3d. Include in ACE the income on
life insurance contracts (as determined
under section 7702(g)) for the tax year
minus the part of any premium
attributable to insurance coverage.
Line 3e. Do not include any adjustment
related to the E&P effects of any
charitable contribution.

Line 4. Disallowance of Items
Not Deductible From E&P
Generally, no deduction is allowed
when figuring ACE for items not taken
into account (see below) in figuring
E&P for the tax year. These amounts
increase ACE if they are deductible in
figuring pre-adjustment AMTI (that is,
they would be positive adjustments).
However, there are exceptions. Do
not add back:
• Any deduction allowable under
section 243 or 245 for any dividend that
qualifies for a 100% dividends-received
deduction under section 243(a), 245(b),
or 245(c) and
• Any dividend received from a
20%-owned corporation (see section
243(c)(2)), but only if the dividend is
from income of the paying corporation
that is subject to Federal income tax.
• Any allowable domestic production
activities deduction under section 199.
• Any deduction allowable for certain
distributions from controlled foreign
corporations under section 965.
Special rules apply to the following.
• Dividends from section 936
corporations (including section 30A
corporations).
• Certain dividends received by certain
cooperatives.
An item is considered taken into
account without regard to the timing of
its deductibility in figuring
pre-adjustment AMTI or E&P.
Therefore, only deduction items that are
permanently disallowed in figuring E&P
are disallowed in figuring ACE.
Items for which no adjustment is
necessary. Generally, no deduction is
allowed for an item in figuring ACE if
the item is not deductible in figuring
pre-adjustment AMTI (even if the item
is deductible in figuring E&P). The only
exceptions to this general rule are the
related reductions to an income item
described in the second sentence of
the instructions for line 3 on page 9.
Deductions that are not allowed in
figuring ACE include:
• Capital losses that exceed capital
gains;
• Bribes, fines, and penalties
disallowed under section 162;
• Charitable contributions that exceed
the limitations of section 170;

• Meals and entertainment expenses
that exceed the limitations of section
274;
• Federal taxes disallowed under
section 275; and
• Golden parachute payments that
exceed the limitation of section 280G.
Line 4e. Do not include any adjustment
related to the E&P effects of any
charitable contribution.

Line 5. Other Adjustments
Line 5a. Except as noted below, in
figuring ACE, determine the deduction
for intangible drilling costs under
section 312(n)(2)(A).
Subtract the ACE expense (if any)
from the AMT expense (used to figure
line 2n of Form 4626) and enter the
result on line 5a. If the ACE expense
exceeds the AMT amount, enter the
result as a negative amount.
Exception. The above rule does not
apply to amounts paid or incurred for
any oil or gas well by corporations that
are independent producers (that is, not
integrated oil companies as defined in
section 291(b)(4)). If this exception
applies, do not enter an amount on line
5a for oil and gas wells.
Line 5b. When figuring ACE, the
current year deduction for circulation
expenditures under section 173 does
not apply. Therefore, treat circulation
expenditures for ACE using the case
law that existed before section 173 was
enacted.
Subtract the ACE expense (if any)
from the regular tax expense (for a
personal holding company, from the
AMT expense used to figure line 2d of
Form 4626) and enter the result on line
5b. If the ACE expense exceeds the
regular tax amount (for a personal
holding company, the AMT amount),
enter the result as a negative amount.
Do not make this adjustment for
expenditures for which the
CAUTION corporation elected the optional
3-year write-off under section 59(e) for
the regular tax.

!

Line 5c. When figuring ACE, the
amortization provisions of section 248
do not apply. Therefore, charge all
organizational expenditures to a capital
account and do not take them into
account when figuring ACE until the
corporation is sold or otherwise
disposed of. Enter on line 5c all
amortization deductions for
organizational expenditures that were
taken for the regular tax during the tax
year.

-10-

Line 5d. The adjustments provided in
section 312(n)(4) apply in figuring ACE.
See Regulations section 1.56(g)-1(f)(3).
Line 5e. For any installment sale in a
tax year that began after 1989, a
corporation generally cannot use the
installment method to figure ACE.
However, it may use the installment
method for the applicable percentage
(as determined under section 453A) of
the gain from any installment sale to
which section 453A(a)(1) applies.
Subtract the installment sale income
reported for AMT from the ACE income
from the sales and enter the result on
line 5e. If the ACE income from the
sales is less than the AMT amount,
enter the difference as a negative
amount.

Line 6. Disallowance of Loss on
Exchange of Debt Pools
When figuring ACE, a corporation may
not recognize any loss on the exchange
of any pool of debt obligations for any
other pool of debt obligations having
substantially the same effective interest
rates and maturities. Add back (that is,
enter as a positive adjustment) on line
6 any such loss to the extent
recognized for the regular tax.

Line 7. Acquisition Expenses of
Life Insurance Companies for
Qualified Foreign Contracts
For ACE, acquisition expenses of life
insurance companies for qualified
foreign contracts (as defined in section
807(e)(4) without regard to the
treatment of reinsurance contract rules
of section 848(e)(5)) must be
capitalized and amortized by applying
the treatment generally required under
generally accepted accounting
principles (and as if this rule applied to
such contracts for all applicable tax
years).
Subtract the ACE expense (if any)
from the regular tax expense and enter
the result on line 7. If the ACE expense
is more than the regular tax expense,
enter the result as a negative amount.

Line 8. Depletion
When figuring ACE, the allowance for
depletion for any property placed in
service in a tax year that began after
1989 generally must be determined
under the cost depletion method.
Subtract the ACE expense (if any)
from the AMT expense (used to figure
line 2l of Form 4626) and enter the
result on line 8 of the worksheet. If the
ACE expense is more than the AMT
amount, enter the result as a negative
amount.

Page 11 of 12

Instructions for Form 4626

15:36 - 6-FEB-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Exception. Independent oil and gas
producers and royalty owners that
figured their regular tax depletion
deduction under section 613A(c) do not
have an adjustment for ACE purposes.

• The ACE loss is more than the AMT

Line 9. Basis Adjustments in
Determining Gain or Loss From
Sale or Exchange of Pre-1994
Property

Paperwork Reduction Act Notice.
We ask for the information on this form
to carry out the Internal Revenue laws
of the United States. You are required
to give us the information. We need it to
ensure that you are complying with
these laws and to allow us to figure and
collect the right amount of tax.
You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB
control number. Books or records
relating to a form or its instructions
must be retained as long as their
contents may become material in the
administration of any Internal Revenue

If, during the tax year, the corporation
disposed of property for which it is
making (or previously made) any of the
ACE adjustments, refigure the
property’s adjusted basis for ACE. Then
refigure the property’s gain or loss.
Enter the difference between the
AMT gain or loss (used to figure line 2e
of Form 4626) and the ACE gain or
loss. Enter the difference as a negative
amount if any of the following apply.
• The ACE gain is less than the AMT
gain.

loss.
• The corporation had an ACE loss
and an AMT gain.

-11-

law. Generally, tax returns and return
information are confidential, as required
by section 6103.
The time needed to complete and
file this form will vary depending on
individual circumstances. The
estimated average time is:
Recordkeeping . . . . . . . 17 hr., 13 min.
Learning about the law
or the form . . . . . . . . . . 12 hr., 36 min.
Preparing and sending
the form to the IRS . . . . 13 hr., 27 min.

If you have comments concerning
the accuracy of these time estimates or
suggestions for making this form
simpler, we would be happy to hear
from you. See the instructions for the
tax return with which this form is filed.

Page 12 of 12

Instructions for Form 4626

15:36 - 6-FEB-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Adjusted Current Earnings (ACE) Worksheet
䊳

1
2
a
b

c
3
a
b
c
d
e
f
4
a
b
c
d
e
f
5
a
b
c
d
e
f
6
7
8
9
10

See ACE Worksheet Instructions (which begin on page 9).

Pre-adjustment AMTI. Enter the amount from line 3 of Form 4626
ACE depreciation adjustment:
AMT depreciation
ACE depreciation:
2b(1)
(1) Post-1993 property
2b(2)
(2) Post-1989, pre-1994 property
2b(3)
(3) Pre-1990 MACRS property
2b(4)
(4) Pre-1990 original ACRS property
(5) Property described in sections
2b(5)
168(f)(1) through (4)
2b(6)
(6) Other property

1
2a

2b(7)
(7) Total ACE depreciation. Add lines 2b(1) through 2b(6)
ACE depreciation adjustment. Subtract line 2b(7) from line 2a
Inclusion in ACE of items included in earnings and profits (E&P):
3a
Tax-exempt interest income
3b
Death benefits from life insurance contracts
3c
All other distributions from life insurance contracts (including surrenders)
3d
Inside buildup of undistributed income in life insurance contracts
Other items (see Regulations sections 1.56(g)-1(c)(6)(iii) through (ix)
3e
for a partial list)
Total increase to ACE from inclusion in ACE of items included in E&P. Add lines 3a through 3e
Disallowance of items not deductible from E&P:
4a
Certain dividends received
Dividends paid on certain preferred stock of public utilities that are
4b
deductible under section 247
4c
Dividends paid to an ESOP that are deductible under section 404(k)
Nonpatronage dividends that are paid and deductible under section
4d
1382(c)
Other items (see Regulations sections 1.56(g)-1(d)(3)(i) and (ii) for a
4e
partial list)
Total increase to ACE because of disallowance of items not deductible from E&P. Add lines 4a
through 4e
Other adjustments based on rules for figuring E&P:
5a
Intangible drilling costs
5b
Circulation expenditures
5c
Organizational expenditures
5d
LIFO inventory adjustments
5e
Installment sales
Total other E&P adjustments. Combine lines 5a through 5e
Disallowance of loss on exchange of debt pools
Acquisition expenses of life insurance companies for qualified foreign contracts
Depletion
Basis adjustments in determining gain or loss from sale or exchange of pre-1994 property
Adjusted current earnings. Combine lines 1, 2c, 3f, 4f, and 5f through 9. Enter the result here
and on line 4a of Form 4626

-12-

2c

3f

4f

5f
6
7
8
9
10