Instructions For Form 4626 - 2005 (Page 10 of 12) in pdf

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Line 3d. Include in ACE the income on

Meals and entertainment expenses

Line 5d. The adjustments provided in

life insurance contracts (as determined

that exceed the limitations of section

section 312(n)(4) apply in figuring ACE.

under section 7702(g)) for the tax year

274;

See Regulations section 1.56(g)-1(f)(3).

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minus the part of any premium

Federal taxes disallowed under

Line 5e. For any installment sale in a

attributable to insurance coverage.

section 275; and

tax year that began after 1989, a

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Golden parachute payments that

Line 3e. Do not include any adjustment

corporation generally cannot use the

exceed the limitation of section 280G.

related to the E&P effects of any

installment method to figure ACE.

charitable contribution.

However, it may use the installment

Line 4e. Do not include any adjustment

method for the applicable percentage

related to the E&P effects of any

Line 4. Disallowance of Items

(as determined under section 453A) of

charitable contribution.

Not Deductible From E&P

the gain from any installment sale to

Generally, no deduction is allowed

Line 5. Other Adjustments

which section 453A(a)(1) applies.

when figuring ACE for items not taken

Subtract the installment sale income

Line 5a. Except as noted below, in

into account (see below) in figuring

reported for AMT from the ACE income

figuring ACE, determine the deduction

E&P for the tax year. These amounts

from the sales and enter the result on

for intangible drilling costs under

increase ACE if they are deductible in

line 5e. If the ACE income from the

section 312(n)(2)(A).

figuring pre-adjustment AMTI (that is,

sales is less than the AMT amount,

they would be positive adjustments).

Subtract the ACE expense (if any)

enter the difference as a negative

from the AMT expense (used to figure

However, there are exceptions. Do

amount.

line 2n of Form 4626) and enter the

not add back:

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Line 6. Disallowance of Loss on

result on line 5a. If the ACE expense

Any deduction allowable under

Exchange of Debt Pools

exceeds the AMT amount, enter the

section 243 or 245 for any dividend that

result as a negative amount.

qualifies for a 100% dividends-received

When figuring ACE, a corporation may

deduction under section 243(a), 245(b),

not recognize any loss on the exchange

Exception. The above rule does not

or 245(c) and

of any pool of debt obligations for any

apply to amounts paid or incurred for

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Any dividend received from a

other pool of debt obligations having

any oil or gas well by corporations that

20%-owned corporation (see section

substantially the same effective interest

are independent producers (that is, not

243(c)(2)), but only if the dividend is

rates and maturities. Add back (that is,

integrated oil companies as defined in

from income of the paying corporation

enter as a positive adjustment) on line

section 291(b)(4)). If this exception

that is subject to Federal income tax.

6 any such loss to the extent

applies, do not enter an amount on line

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Any allowable domestic production

recognized for the regular tax.

5a for oil and gas wells.

activities deduction under section 199.

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Line 7. Acquisition Expenses of

Line 5b. When figuring ACE, the

Any deduction allowable for certain

Life Insurance Companies for

current year deduction for circulation

distributions from controlled foreign

expenditures under section 173 does

Qualified Foreign Contracts

corporations under section 965.

not apply. Therefore, treat circulation

Special rules apply to the following.

For ACE, acquisition expenses of life

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expenditures for ACE using the case

Dividends from section 936

insurance companies for qualified

law that existed before section 173 was

corporations (including section 30A

foreign contracts (as defined in section

enacted.

corporations).

807(e)(4) without regard to the

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treatment of reinsurance contract rules

Certain dividends received by certain

Subtract the ACE expense (if any)

cooperatives.

of section 848(e)(5)) must be

from the regular tax expense (for a

capitalized and amortized by applying

personal holding company, from the

An item is considered taken into

the treatment generally required under

AMT expense used to figure line 2d of

account without regard to the timing of

generally accepted accounting

Form 4626) and enter the result on line

its deductibility in figuring

principles (and as if this rule applied to

5b. If the ACE expense exceeds the

pre-adjustment AMTI or E&P.

such contracts for all applicable tax

regular tax amount (for a personal

Therefore, only deduction items that are

years).

holding company, the AMT amount),

permanently disallowed in figuring E&P

enter the result as a negative amount.

are disallowed in figuring ACE.

Subtract the ACE expense (if any)

from the regular tax expense and enter

Items for which no adjustment is

Do not make this adjustment for

the result on line 7. If the ACE expense

necessary. Generally, no deduction is

expenditures for which the

is more than the regular tax expense,

allowed for an item in figuring ACE if

corporation elected the optional

CAUTION

enter the result as a negative amount.

the item is not deductible in figuring

3-year write-off under section 59(e) for

pre-adjustment AMTI (even if the item

Line 8. Depletion

the regular tax.

is deductible in figuring E&P). The only

When figuring ACE, the allowance for

exceptions to this general rule are the

Line 5c. When figuring ACE, the

depletion for any property placed in

related reductions to an income item

amortization provisions of section 248

service in a tax year that began after

described in the second sentence of

do not apply. Therefore, charge all

1989 generally must be determined

the instructions for line 3 on page 9.

organizational expenditures to a capital

under the cost depletion method.

Deductions that are not allowed in

account and do not take them into

figuring ACE include:

account when figuring ACE until the

Subtract the ACE expense (if any)

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Capital losses that exceed capital

corporation is sold or otherwise

from the AMT expense (used to figure

gains;

disposed of. Enter on line 5c all

line 2l of Form 4626) and enter the

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Bribes, fines, and penalties

amortization deductions for

result on line 8 of the worksheet. If the

disallowed under section 162;

organizational expenditures that were

ACE expense is more than the AMT

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Charitable contributions that exceed

taken for the regular tax during the tax

amount, enter the result as a negative

the limitations of section 170;

year.

amount.

-10-

Instructions For Form 4626 - 2005 Page 10

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