Article Abstract:
The Tax Reform Act of 1986 replaced the add-on minimum tax with a new alternative minimum tax (AMT) for corporations, to ensure that corporations with a great amount of economic income could not avoid significant tax liabilities. An adjustment based on income tax principles replaces the adjustment based on financial statement principles in the computation of corporate income taxes for tax years beginning in 1990. An adjustment based on adjusted current earnings (ACE), which differs from earnings and profits, is used to compute the alternative minimum taxable income (AMTI). Depreciation determinations are complex, and are arrived at by comparing ACE depreciation with AMTI depreciation. A reasonable estimation of all adjustments to ACE must be taken into consideration when making estimated tax payments.
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Article Abstract:
Section 7872 was enacted in 1984 to remove the tax benefits associated with below-market loans. Under Section 7872, lenders who extend below-market loans are assumed to have interest income equivalent to the interest foregone as a result of the use of an interest rate lower than the applicable federal rate. Section 7872 therefore enables borrowers to reduce interest paid, but does not reduce the tax on the imputed interest income of lenders. Section 7872 recognizes four types of below-market loans and allows the assessment of tax on lenders' interest income on the basis of the classification of the loan involved. Below-market loans are usually treated either as a gift loan, a compensation loan, a corporation-shareholder loan or a tax avoidance loan.
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Article Abstract:
The Revenue Reconciliation Act of 1990 reinstated the preferential treatment of capital gains, which had been eliminated by the Tax Reform Act of 1986. Changes to tax law that restore the favorable treatment of capital gains have altered the bargaining positions between the buyers and sellers of business assets. Formerly, the capital gains preference created adversity between buyers, who preferred to characterize assets as ordinary income assets for the purposes of amortization or depreciation, and sellers, who preferred to characterize assets as capital resulting in gains that could be treated as long-term capital gains. The reinstatement of favorable treatment for capital gains has created a source of conflict related to covenants not to compete.
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