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using the straight-line method with a half-year convention,

• Related adjustments. AMT adjustments and tax

no salvage value, and the following recovery period:

preferences may affect deductions that are based on an

income limit other than AGI or modified AGI (e.g., farm

5-year property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 years

conservation expenses). Refigure these deductions

10-year property . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 years

using the income limit as modified for AMT. Include the

15-year public utility property . . . . . . . . . . . . . . . . 22 years

difference between the regular tax and AMT deduction

Enter on this line the excess of the regular tax depreciation

on line 4v. If the AMT deduction is more than the

over the AMT depreciation. Do not enter a negative amount

regular tax deduction, include the difference as a

on this line.

negative amount.

Line 4t – Intangible drilling costs

• Qualified small business stock exclusion (R&TC

Section 18152.5). California law provides an exclusion

If the estate or trust elected the optional 60-month write-off

similar to the federal exclusion under IRC Section 1202

under IRC Section 59(e) for all property in this category,

and allows exclusion of 50% of the gain on the sale of

skip this line.

qualifying small business stock originally issued after

For AMT, intangible drilling costs (IDCs) from oil, gas, and

August 10, 1993, and held for more than 5 years.

geothermal wells are preferences if the excess IDCs exceed

However, for California purposes, 80% of the issuing

65% of the net income from the wells. Figure the prefer-

corporation’s payroll as measured by total dollar value

ence for oil and gas properties separate from geothermal

must be attributable to employment located within

properties. To figure excess IDCs:

California, and at least 80% of the value of the assets of

A. Figure the amount of the IDCs allowed for regular tax

the corporation must be used by the corporation in the

under IRC Section 263(c). Do not include any deduction

active conduct of one or more qualified trades or

for nonproductive wells. Refigure the IDCs allowed for

businesses in California. If the estate or trust excluded

AMT by amortizing them over 120 months, starting with

gain as allowed under R&TC Section 18152.5, multiply

the month the well was placed in production. Then

the excluded amount by 50% and enter it on this line as

subtract the AMT IDCs from the regular tax IDCs to get

a positive amount.

the excess IDCs. The estate or trust may elect to use

The estate or trust (except a common trust fund) may not

any other method that is allowed in determining cost

pass through the exclusion for the gain on qualified small

depletion.

business stock (R&TC Section 18152.5) to a beneficiary.

B. Figure net income by reducing the gross income, from

Therefore, it would also not pass through the adjustment

all oil, gas, and geothermal wells that was received or

related to this exclusion to the beneficiary. When the estate

accrued during the taxable year by any deductions

or trust completes its first Schedule P (541) as explained in

allocable to these properties (reduced by the excess

General Information G, Alternative Minimum Taxable

IDCs). Use only income and deductions allowed for

Income (AMTI) Exclusion, it should include the adjustment

AMT.

for the exclusion of the gain on qualified small business

stock. When the estate or trust completes its second

C. Multiply the net income by 65% (.65). Subtract the

Schedule P (541) for the beneficiary, it should not include

result from the excess IDCs figured in Step A. This is

the adjustment for the exclusion of the gain on qualified

the excess IDCs. Enter the result on line 5.

small business stock, since the exclusion may not be

Exception. The preference for IDCs from oil and gas wells

passed through to the beneficiary (see R&TC

does not apply to taxpayers who are independent produc-

Section 18152(g)(4)).

ers (i.e., not integrated oil companies as defined in IRC

Note: Do not make an adjustment on line 4v for an item

Section 291(b)(4)). However, this benefit may be limited.

you refigured on another line of Schedule P (541).

First, figure the IDC preference as if this exception did not

apply. Then, for purposes of this exception, complete

Line 7a – Alternative minimum tax NOL deduction

Schedule P (541) through line 6, including the IDC

For loss years beginning after 1986, reduce any net

preference. If the amount of the IDC preference exceeds

operating loss (NOL) by any positive AMT adjustments in

40% of the amount figured for line 6, enter the excess on

that year. Increase the NOL by negative adjustments. Also,

line 4t (the benefit of this exception is limited). If the

reduce the NOL by any tax preferences, but only to the

amount of the IDC preference is equal to or less than 40%

extent they increase the NOL figured for regular tax.

of the amount figured for line 6, do not enter an amount on

For loss years beginning before 1987, refigure the AMT

line 4t (the benefit of this exception is not limited).

NOL deduction using the rules in IRC Section 56(d)(2)(B).

Line 4u – California qualified stock options

Enter on line 7 the smaller of the AMT NOL deduction or

Include the amount of compensation excluded from the

90% (.9) of the amount shown on line 6. If the 90%

employee’s gross income for regular tax from the exercise

amount is smaller, carry over the difference. The treatment

of California qualified stock options (CQSOs). This amount

of the NOL for AMT does not affect the amount of the NOL

is the difference between the fair market value of the

for regular tax.

corporation’s stock on the date the option is exercised and

Line 7b – AMTI Exclusion

the amount the employee paid for the stock.

Qualified taxpayers shall exclude income from any trade or

Line 4v – Other adjustments

business when figuring AMTI. If you are a qualified

Include on this line:

taxpayer (refer to General Information G, Alternative

Minimum Taxable Income (AMTI) Exclusion), enter your

• Patron’s adjustment. Distributions the estate or trust

taxable trade or business income on line 7b. If zero or less,

received from a cooperative may be includible in

enter -0-.

income. Unless the distributions are nontaxable, include

on line 4v the total AMT patronage dividend and per-

unit retain allocation adjustment reported to the estate

or trust by the cooperative.

Page 6 Schedule P (541) Instructions 1999

Instructions For Schedule P (541) - Alternative Minimum Tax And Credit Limitations - Fiduciaries - 1999 Page 6

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