Instructions For Form 4626 - 2010 (Page 9 of 11) in pdf

recovery period for the property under

the adjustments that relate to them

However, there are exceptions. Do

ADS. In doing so, use the convention

include:

not add back:

•

that would have applied to the property

Interest income from tax-exempt

Any deduction allowable under

under section 168(d). For more

obligations excluded under section 103

section 243 or 245 for any dividend that

information (including an example that

minus any costs incurred in carrying

qualifies for a 100% dividends-received

illustrates the application of these

these tax-exempt obligations and

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

•

rules), see Regulations section

Proceeds of life insurance contracts

or 245(c) and

•

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

excluded under section 101 minus the

Any dividend received from a

basis in the contract for purposes of

20%-owned corporation (see section

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

ACE.

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

property. For ACRS property

from income of the paying corporation

generally placed in service in a tax year

An income item is considered taken

that is subject to federal income tax.

that began after 1980 and before 1987,

into account without regard to the

•

Any allowable domestic production

figure depreciation by using the

timing of its inclusion in a corporation’s

activities deduction under section 199.

property’s regular tax adjusted basis as

pre-adjustment AMTI or its E&P. Only

of the close of the last tax year

Special rules apply to:

income items that are permanently

•

beginning before 1990 and by using the

Dividends from certain possession

excluded from pre-adjustment AMTI are

straight line method over the remainder

corporations operating in American

included in ACE. An income item will

of the recovery period for the property

Samoa.

not be considered taken into account

•

under ADS. In doing so, use the

Certain dividends received by certain

merely because the proceeds from that

convention that would have applied to

cooperatives.

item might eventually be reflected in the

the property under section 168(d)

pre-adjustment AMTI of another

An item is considered taken into

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

taxpayer (for example, that of a

account without regard to the timing of

For more information (including an

shareholder) on the liquidation or

its deductibility in figuring

example that illustrates the application

disposal of a business.

pre-adjustment AMTI or E&P.

of these rules), see Regulations section

Therefore, only deduction items that are

Exceptions. Do not make an

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

permanently disallowed in figuring E&P

adjustment for the following.

Line 2b(5). Property described in

•

are disallowed in figuring ACE.

Any income from discharge of

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

indebtedness excluded from gross

Items for which no adjustment is

this property, use the regular tax

income under section 108 (or the

necessary. Generally, no deduction is

depreciation, regardless of when the

corresponding provision of prior law).

allowed for an item in figuring ACE if

property was placed in service.

•

Any extraterritorial income excluded

the item is not deductible in figuring

from gross income under section 114.

pre-adjustment AMTI (even if the item

Line 2b(5) takes priority over

•

For an insurance company taxed

is deductible in figuring E&P). The only

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

under section 831(b), any amount not

exceptions to this general rule are the

2b(4). For property that is

CAUTION

included in gross investment income

related reductions to an income item

described in sections 168(f)(1) through

(as defined in section 834(b)).

described in the second sentence of

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

•

Any special subsidy payment for

the instructions for line 3 above.

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

prescription drug plans excluded from

Deductions that are not allowed in

otherwise apply.

gross income under section 139A.

figuring ACE include:

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

•

Any qualified shipping income

Capital losses that exceed capital

regular tax depreciation for (a) property

excluded under section 1357.

gains;

placed in service before 1981 and (b)

•

Tax-exempt interest on certain

Bribes, fines, and penalties

property placed in service after 1980, in

housing bonds issued after July 30,

disallowed under section 162;

a tax year that began before 1990, that

•

2008, excluded under section

Charitable contributions that exceed

is excluded from MACRS by section

57(a)(5)(C)(iii).

the limitations of section 170;

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

•

Tax-exempt interest on certain

Meals and entertainment expenses

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

private activity bonds issued after

that exceed the limitations of section

the Tax Reform Act of 1986.

December 31, 2008, and before

274;

Line 2c. Total ACE depreciation.

•

January 1, 2011. Special rules apply to

Federal taxes disallowed under

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

refunding bonds. See section

section 275; and

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

•

56(g)(4)(B)(iv).

Golden parachute payments that

exceeds line 2a, enter the difference as

exceed the limitation of section 280G.

Line 3d. Include in ACE the income

a negative amount.

Line 4e. Do not include any

on life insurance contracts (as

Line 3. Inclusion in ACE of

adjustment related to the E&P effects of

determined under section 7702(g)) for

Items Included in Earnings and

any charitable contribution.

the tax year minus the part of any

Profits (E&P)

premium attributable to insurance

Line 5. Other Adjustments

coverage.

In general, any income item that is not

Line 5a. Except as noted below, in

Line 3e. Do not include any

taken into account (see below) in

figuring ACE, determine the deduction

adjustment related to the E&P effects of

determining the corporation’s

for intangible drilling costs under

any charitable contribution.

pre-adjustment AMTI but that is taken

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

into account in determining its E&P

Line 4. Disallowance of Items

Subtract the ACE expense (if any)

must be included in ACE. Any such

Not Deductible From E&P

from the AMT expense (used to figure

income item can be reduced by all

line 2n of Form 4626) and enter the

items related to that income item and

Generally, no deduction is allowed

result on line 5a. If the ACE expense

that would be deductible when figuring

when figuring ACE for items not taken

exceeds the AMT amount, enter the

pre-adjustment AMTI if the income

into account (see below) in figuring

result as a negative amount.

items to which they relate were

E&P for the tax year. These amounts

Exception. The above rule does not

included in the corporation’s

increase ACE if they are deductible in

pre-adjustment AMTI for the tax year.

figuring pre-adjustment AMTI (that is,

apply to amounts paid or incurred for

Examples of these income items and

they would be positive adjustments).

any oil or gas well by corporations that

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Instructions For Form 4626 - 2010 Page 9

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