Instructions For Form 4626 - 2005 (Page 9 of 12) in pdf

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Tax on nondeductible portion of

Line 2b(2). Post-1989, pre-1994

section 168(e)(4), as in effect before

qualifying dividends from a controlled

property. For property placed in

the Tax Reform Act of 1986.

foreign corporation reported on Form

service in a tax year that began after

Line 2c. Total ACE depreciation.

1989 and before 1994, use the ADS

8895,

Subtract line 2b(7) from line 2a and

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depreciation described in section

Tax on accumulation distribution of

enter the result on line 2c. If line 2b(7)

168(g). However, for property (a)

trusts from Form 4970,

exceeds line 2a, enter the difference as

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placed in service in a tax year that

Recapture of investment credit

a negative amount.

began after 1989 and (b) described in

(under section 49(b) or 50(a)) from

sections 168(f)(1) through (4), use the

Line 3. Inclusion in ACE of

Form 4255,

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same depreciation claimed for the

Items Included in Earnings and

Recapture of low-income housing

regular tax and enter it on line 2b(5).

Profits (E&P)

credit (under section 42(j) or (k)) from

Form 8611, or

Line 2b(3). Pre-1990 MACRS

In general, any income item that is not

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property. For MACRS property

Recapture of any other credit.

taken into account (see below) in

generally placed in service after 1986

determining the corporation’s

and in a tax year that began before

pre-adjustment AMTI but that is taken

1990, figure depreciation by using the

into account in determining its E&P

Adjusted Current

property’s AMT adjusted basis as of the

must be included in ACE. Any such

close of the last tax year beginning

income item can be reduced by all

Earnings (ACE)

before 1990 and by using the straight

items related to that income item and

Worksheet Instructions

line method over the remainder of the

that would be deductible when figuring

recovery period for the property under

pre-adjustment AMTI if the income

ADS. In doing so, use the convention

items to which they relate were

Treatment of Certain

that would have applied to the property

included in the corporation’s

Ownership Changes

under section 168(d). For more

pre-adjustment AMTI for the tax year.

If a corporation with a net unrealized

information (including an example that

Examples of these income items and

built-in loss (within the meaning of

illustrates the application of these

the adjustments that relate to them

section 382(h)) undergoes an

rules), see Regulations section

include:

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ownership change (within the meaning

1.56(g)-1(b)(2).

Interest income from tax-exempt

of section 382(g) and Regulations

obligations excluded under section 103

Line 2b(4). Pre-1990 original ACRS

section 1.56(g)-1(k)(2)), refigure the

minus any costs incurred in carrying

property. For ACRS property generally

adjusted basis of each asset of the

these tax-exempt obligations and

placed in service in a tax year that

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corporation (immediately after the

Proceeds of life insurance contracts

began after 1980 and before 1987,

ownership change). The new adjusted

excluded under section 101 minus the

figure depreciation by using the

basis of each asset is its proportionate

basis in the contract for purposes of

property’s regular tax adjusted basis as

share (based on respective fair market

ACE.

of the close of the last tax year

values) of the fair market value of the

beginning before 1990 and by using the

An income item is considered taken

corporation’s assets (determined under

straight line method over the remainder

into account without regard to the

section 382(h)) immediately before the

of the recovery period for the property

timing of its inclusion in a corporation’s

ownership change.

under ADS. In doing so, use the

pre-adjustment AMTI or its E&P. Only

convention that would have applied to

income items that are permanently

To determine if the corporation has a

the property under section 168(d)

excluded from pre-adjustment AMTI are

net unrealized built-in loss immediately

(without regard to section 168(d)(3)).

included in ACE. An income item will

before an ownership change, use the

For more information (including an

not be considered taken into account

aggregate adjusted basis of its assets

example that illustrates the application

merely because the proceeds from that

used for figuring its ACE. Also, use

of these rules), see Regulations section

item might eventually be reflected in the

these new adjusted bases for all future

1.56(g)-1(b)(3).

pre-adjustment AMTI of another

ACE calculations (such as depreciation

taxpayer (for example, that of a

and gain or loss on disposition of an

Line 2b(5). Property described in

shareholder) on the liquidation or

asset).

sections 168(f)(1) through (4). For

disposal of a business.

this property, use the regular tax

Line 2. ACE Depreciation

depreciation, regardless of when the

Exceptions. Do not make an

Adjustment

property was placed in service.

adjustment for the following.

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Any income from discharge of

Line 2a. AMT depreciation.

Line 2b(5) takes priority over

indebtedness excluded from gross

Generally, the amount entered on this

lines 2b(1), 2b(2), 2b(3), and

income under section 108 (or the

line is the depreciation the corporation

2b(4). For property that is

CAUTION

corresponding provision of prior law).

claimed for the regular tax (Form 4562,

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described in sections 168(f)(1) through

Any extraterritorial income excluded

line 22), modified by the AMT

(4), use line 2b(5) instead of the line

from gross income under section 114.

depreciation adjustments reported on

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2b(1), 2b(2), 2b(3), or 2b(4) that would

For an insurance company taxed

lines 2a and 2o of Form 4626.

otherwise apply.

under section 831(b), any amount not

Line 2b(1). Post-1993 property. For

Line 2b(6). Other property. Use the

included in gross investment income

property placed in service after 1993,

regular tax depreciation for (a) property

(as defined in section 834(b)).

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the ACE depreciation is the same as

placed in service before 1981 and (b)

Any special subsidy payment for

the AMT depreciation. Therefore, enter

property placed in service after 1980, in

prescription drug plans excluded from

on line 2b(1) the same depreciation

a tax year that began before 1990, that

gross income under section 139A.

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expense you included on line 2a of this

is excluded from MACRS by section

Any qualified shipping income

worksheet for such property.

168(f)(5)(A)(i) or original ACRS by

excluded under section 1357.

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Instructions For Form 4626 - 2005 Page 9

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