Instructions For Form 4626 - 2001 (Page 9 of 11) in pdf

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when the property was placed in

income under section 108 (or the

Capital losses that exceed capital

service.

corresponding provision of prior law).

gains;

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Any extraterritorial income excluded

Bribes, fines, and penalties

Important: Line 2b(5) takes priority

from gross income under section 114.

disallowed under section 162;

over lines 2b(1), 2b(2), 2b(3), and 2b(4)

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For an insurance company taxed

Charitable contributions that exceed

(i.e., for property that is described in

under section 831(b), any amount not

the limitations of section 170;

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

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included in gross investment income

Meals and entertainment expenses

2b(5) instead of the line (2b(1), 2b(2),

(as defined in section 834(b)).

that exceed the limitations of section

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

274;

apply).

Line 3d. Include in ACE the income on

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Federal taxes disallowed under

life insurance contracts (as determined

Line 2b(6). Use the regular tax

section 275; and

under section 7702(g)) for the tax year

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depreciation for (a) property placed in

Golden parachute payments that

minus the part of any premium

service before 1981 and (b) property

exceed the limitation of section 280G.

attributable to insurance coverage.

placed in service after 1980, in a tax

Note: No adjustment is necessary for

year that began before 1990, that is

Line 3e. Do not include any adjustment

these items since they were not allowed

excluded from MACRS by section

related to the E&P effects of any

in figuring pre-adjustment AMTI.

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

charitable contribution (section

Line 4e. Do not include any adjustment

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

56(g)(4)(I)).

the Tax Reform Act of 1986.

related to the E&P effects of any

charitable contribution (section

Line 4—Disallowance of Items

Line 2c. Subtract line 2b(7) from line

56(g)(4)(I)).

2a and enter the result on line 2c. If line

Not Deductible From E&P

2b(7) exceeds line 2a, enter the

Line 5—Other Adjustments

Generally, no deduction is allowed

difference as a negative amount.

when figuring ACE for items not taken

Line 5a. Except as noted below, in

into account (see below) in figuring

Line 3—Inclusion in ACE of

figuring ACE, determine the deduction

E&P for the tax year. These amounts

Items Included in Earnings and

for intangible drilling costs (section

increase ACE if they are deductible in

263(c)) under section 312(n)(2)(A).

Profits (E&P)

figuring pre-adjustment AMTI (i.e., they

Subtract the ACE expense (if any)

In general, any income item that is not

would be positive adjustments).

from the AMT expense (used to figure

taken into account (see below) in

However, there are exceptions. Do

line 2o of Form 4626) and enter the

determining the corporation’s

not add back:

result on line 5a. If the ACE expense

pre-adjustment AMTI but that is taken

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Any deduction allowable under

exceeds the AMT amount, enter the

into account in determining its E&P

section 243 or 245 for any dividend that

result as a negative amount.

must be included in ACE. Any such

qualifies for a 100% dividends-received

income item may be reduced by all

Exception. The above rule does not

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

items related to that income item and

apply to amounts paid or incurred for

or 245(c) and

that would be deductible when figuring

any oil or gas well by corporations other

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Any dividend received from a

pre-adjustment AMTI if the income

than integrated oil companies (see

20%-owned corporation (see section

items to which they relate were

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

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

included in the corporation’s

applies, do not enter an amount on line

from income of the paying corporation

pre-adjustment AMTI for the tax year.

5a for oil and gas wells.

that is subject to Federal income tax.

Examples of adjustments for these

Line 5b. When figuring ACE, the

See sections 56(g)(4)(C)(iii) and (iv) for

income items include:

current year deduction for circulation

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special rules for dividends from section

Interest income from tax-exempt

expenditures under section 173 does

936 corporations (including section 30A

obligations excluded under section 103

not apply. Therefore, treat circulation

corporations) and certain dividends

minus any costs incurred in carrying

expenditures for ACE using the case

received by certain cooperatives.

these tax-exempt obligations and

law that existed before section 173 was

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An item is considered taken into

Proceeds of life insurance contracts

enacted.

account without regard to the timing of

excluded under section 101 minus the

Subtract the ACE expense (if any)

its deductibility in figuring

basis in the contract for purposes of

from the regular tax expense (for a

pre-adjustment AMTI or E&P.

ACE.

personal holding company, from the

Therefore, only deduction items that are

An income item is considered taken

AMT expense used to figure line 2d of

permanently disallowed in figuring E&P

into account without regard to the

Form 4626) and enter the result on line

are disallowed in figuring ACE.

timing of its inclusion in a corporation’s

5b. If the ACE expense exceeds the

pre-adjustment AMTI or its E&P. Only

Items described in Regulations

regular tax amount (for a personal

income items that are permanently

section 1.56(g)-1(e) for which no

holding company, the AMT amount),

excluded from pre-adjustment AMTI are

adjustment is necessary. Generally,

enter the result as a negative amount.

included in ACE. An income item will

no deduction is allowed for an item in

not be considered taken into account

Note: Do not make this adjustment for

figuring ACE if the item is not

merely because the proceeds from that

expenditures for which the corporation

deductible in figuring pre-adjustment

elected the optional 3-year writeoff

item might eventually be reflected in a

AMTI (even if the item is deductible in

under section 59(e) for the regular tax.

corporation’s pre-adjustment AMTI

figuring E&P). The only exceptions to

(e.g., that of a shareholder) on the

this general rule are the related

Line 5c. When figuring ACE, the

liquidation or disposal of a business.

reductions to an income item described

amortization provisions of section 248

Exception. Do not make an

in the second sentence of the

do not apply. Therefore, charge all

adjustment for the following.

instructions for line 3 above.

organizational expenditures to a capital

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Any income from discharge of

Deductions that are not allowed in

account and do not take them into

indebtedness excluded from gross

figuring ACE include:

account when figuring ACE until the

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Instructions For Form 4626 - 2001 Page 9

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