701—58.5 (422) Minimum tax.
	 58.5(1) Rescinded IAB 11/24/04, effective 12/29/04.
	 58.5(2) For tax years beginning after 1997, a small business corporation or a new corporation, that is a financial institution, for its first year of existence, that through the operation of Internal Revenue Code Section 55(e) is exempt from the federal alternative minimum tax, is not subject to Iowa alternative minimum tax. A small business corporation that is a financial institution may apply any alternative minimum tax credit carryforward to the extent of its regular Iowa franchise tax liability.
For tax years beginning on or after January 1, 1987, the minimum tax is imposed only to the extent that it exceeds the taxpayer’s regular tax liability computed under Iowa Code section 422.63. The minimum tax rate is 60 percent of the maximum franchise tax rate rounded to the nearest one-tenth of 1 percent or 3 percent. Minimum taxable income is computed as follows:

 	State taxable income as adjusted by Iowa Code sections 422.35 and 422.61(4)	
Plus:	Tax preference items, adjustments and losses added back	
Less:	Allocable income including allocable preference items	
 	Subtotal	
Times:	Apportionment percentage	
 	Result	
Plus:	Income allocable to Iowa including allocable preference items	
Less:	Iowa alternative tax net operating loss deduction
$40,000 exemption amount	
Equals:	Iowa alternative minimum taxable income	
For taxable years beginning on or after January 1, 1987, the items of tax preference are the same items of tax preference under Section 57 except for subsections (a)(1) and (a)(5) of the Internal Revenue Code used to compute federal alternative minimum taxable income. The adjustments to state taxable income are those adjustments required by Section 56 except for subsections (a)(4), (c)(1), (d), and (g) of the Internal Revenue Code used to compute federal alternative minimum taxable income computed without adjustments and the $40,000 exemption. The state alternative tax net operating loss deduction shall be substituted for the amounts in Section 56(g)(1)(B) of the Internal Revenue Code. For tax years beginning on or after January 1, 1988, in making the adjustment under Section 56(c)(1) of the Internal Revenue Code, interest and dividends from state and other political subdivisions and from regulated investment companies exempt from federal income tax under the Internal Revenue Code shall be subtracted net of amortization of any discount or premium. Losses to be added are those losses required to be added by Section 58 of the Internal Revenue Code in computing federal alternative minimum taxable income.
	  a.   	 Tax preference items are:
	  1. 	 Intangible drilling costs;
	  2. 	 Incentive stock options;
	  3. 	 Reserves for losses on bad debts of financial institutions;
	  4. 	 Appreciated property charitable deductions;
	  5. 	 Accelerated depreciation or amortization on certain property placed in service before January 1, 1987.
	  b.   	 Adjustments are:
	  1. 	 Depreciation;
	  2. 	 Mining exploration and development;
	  3. 	 Long-term contracts;
	  4. 	 Iowa alternative minimum net operating loss deduction;
	  5. 	 Book income or adjusted earnings and profits.
	  c.   	 Losses added back are:
	  1. 	 Farm losses;
	  2. 	 Passive activity losses.
Computation of Iowa alternative minimum tax net operating loss deduction.
Net operating losses computed under rule 701—59.2(422) carried forward from tax years beginning before January 1, 1987, are deductible without adjustment.
Net operating losses from tax years beginning after December 31, 1986, which are carried back or carried forward to the current tax year shall be reduced by the amount of tax preferences and adjustments taken into account in computing the net operating loss prior to applying allocation and apportionment. The deduction for a net operating loss from a tax year beginning after December 31, 1986, which is carried back or carried forward shall not exceed 90 percent of the alternative minimum taxable income computed without regard for the net operating loss deduction.
The exemption amount shall be reduced by 25 percent of the amount that the alternative minimum taxable income computed without regard to the $40,000 exemption exceeds $150,000. The exemption shall not be reduced below zero.
Example:  The following example shows the computation of the alternative minimum tax when there are net operating loss carryforwards and carrybacks including an alternative minimum tax net operating loss.

For tax year 1987, the following information is available:	 	 	
 	Federal taxable income before NOL	$ 35,000	 	
 	Interest exempt from federal tax	5,000	 	
 	Tax preferences and adjustments	53,400	 	
 	Iowa income tax expensed on federal	878	 	
 	Iowa NOL carryforward	<25,000	>	
 	 	 	 	
For tax year 1988, the following information is available:	 	 	
 	Federal taxable income before NOL	$ <90,000	>	
 	Interest exempt from federal tax	4,000	 	
 	Tax preferences and adjustments	20,000	 	
 	Iowa franchise tax refund reported on federal	878	 	
 	 	 	 	
The alternative minimum tax for 1987 before the 1988 net operating loss carryback should be computed as follows:	
 	Regular Iowa Tax	 	 	
 	Federal taxable income	$ 35,000	 	
 	Add interest exempt from federal tax	5,000	 	
 	Add Iowa franchise tax expensed	878	 	
 	Iowa taxable income before NOL carryforward	$ 40,878	 	
 	Less NOL carryforward	<25,000	>	
 	Iowa taxable income	$ 15,878	 	
 	Iowa income tax	$ 794	 	
 	Alternative Minimum Tax	 	 	
 	Iowa taxable income before NOL	$ 40,878	 	
 	Add preferences and adjustments	53,400	 	
 	Total	$ 94,278	 	
 	Less NOL carryforward*	<25,000	>	
 	Iowa alternative taxable income	$ 69,278	 	
 	Less exemption amount	<40,000	>	
 	Total	$ 29,278	 	
 	Times 3%	878	 	
 	Less regular tax	794	 	
 	Alternative minimum tax	$ 84	 	
*Net operating loss carryforwards from tax years beginning before January 1, 1987, are deductible at 100 percent without reduction for items of tax preference or adjustments arising in the tax year.
The alternative minimum tax for 1987 after the 1988 net operating loss carryback should be computed as follows:

 	Regular Iowa Tax	 	 	
 	Federal taxable income	$ 35,000	 	
 	Add interest exempt from federal tax	5,000	 	
 	Add Iowa franchise tax expensed	878	 	
 	Iowa taxable income before NOL carryforward	$ 40,878	 	
 	Less NOL carryforward	<25,000	>	
 	 	$ 15,878	 	
 	Less NOL carryback from 19881	<86,878	>	
 	NOL carryforward	$ <71,000	>	
 	Alternative Minimum Tax	 	 	
 	Iowa taxable income before NOL	$ 40,878	 	
 	Add preferences and adjustments	53,400	 	
 	Total	$ 94,278	 	
 	Less NOL carryforward from pre-1987 tax year	<25,000	>	
 	Total	$ 69,278	 	
 	Less alternative minimum tax NOL2	<62,350	>	
 	Total	$ 6,928	 	
 	Less exemption	<40,000	>	
 	Alternative minimum taxable income after NOL	$ -0-	 	
1Computation of 1988 Iowa NOL	 	 	
 	Federal NOL	$ <90,000	>	
 	Add interest exempt from federal tax	4,000	 	
 	Less Iowa refund in federal income	<878	>	
 	Iowa NOL	$ <86,878	>	
2Computation of 1988 Alternative Minimum Tax NOL	 	 	
 	Iowa NOL	$ <86,878	>	
 	Add preferences and adjustments	20,000	 	
 	Total	$ <66,878	>	
 	NOL carryback limited to 90% of alternative minimum income before NOL and exemption*	$ <62,350	>	
 	Alternative minimum tax NOL carryforward	$ 4,528	 	
*For purposes of the alternative minimum tax, net operating loss carryforward or carryback from tax years beginning after December 31, 1986, must be reduced by items of tax preference and adjustments, and are limited to 90 percent of alternative minimum taxable income before deduction of the post-1986 NOL and the $40,000 exemption amount ($69,278 × 90% = $62,350).
	 58.5(3) Effective for tax years beginning on or after January 1, 1986, estimated payments are required for minimum tax.
	 58.5(4) Alternative minimum tax credit for minimum tax paid in a prior tax year. Minimum tax paid in prior tax years commencing with tax years beginning on or after January 1, 1987, by a taxpayer can be claimed as a tax credit against the taxpayer’s regular income tax liability in a subsequent tax year. Therefore, 1988 is the first tax year that the minimum tax credit is available for use and the credit is based on the minimum tax paid by the taxpayer for 1987. However, only the portion of the minimum tax which is attributable to those adjustments and tax preferences which are “deferral items” qualifies for the minimum tax credit for tax years beginning prior to January 1, 1990. “Deferral items” are those tax preferences and adjustments which result in a temporary change in a taxpayer’s tax liability. An example of a “deferral item” is the tax preference for accelerated depreciation of real property placed in service before 1987. On the other hand, the portion of the minimum tax which is attributable to the “exclusion item” for appreciated property charitable deduction does not qualify for the minimum tax credit. The appreciated property charitable deduction tax preference is the only state “exclusion item,” although there are several “exclusion items” which are used to compute federal minimum tax. For tax years beginning on or after January 1, 1990, the entire amount of minimum tax paid qualifies for the minimum tax credit, and there is no longer any distinction between “deferral items” and “exclusion items.” The minimum tax credit may only be used against regular income tax for a tax year to the extent that the regular tax is greater than the tentative minimum tax for the tax year. If the minimum tax credit is not used up against the regular tax for a tax year the remaining credit is carried to the following tax year to be applied against the regular income tax liability for that period.
	  a.   	 Computation of minimum tax credit on Form IA 8801C. The minimum tax credit is computed on Form IA 8801C from information on Form IA 4626 for the prior tax year, Form IA 1120 and Form IA 4626 for the current year and from Form IA 8801C for the prior year (applies in 1989 and in subsequent tax years).
Form IA 8801C is in three parts. In the first part, a calculation is made to determine the portion of the minimum tax paid in the prior year, if any, which is attributable to the exclusion item for appreciated property charitable deduction. In the second portion of Form IA 8801C, the minimum tax attributable to the appreciated property charitable deduction from Part I is subtracted from the total minimum tax paid for the prior year. The remaining amount of minimum tax is attributable to the deferral tax preference items and adjustment items. This remaining amount, if any, is added to the minimum tax carryover credit from Form IA 8801C for the prior tax year, if any. This total is compared to the regular income tax liability less nonrefundable credits, less the tentative minimum tax for the current year and the lesser amount is the allowable minimum tax credit for the current year.
The final part of Form IA 8801C is used to compute the minimum tax credit, if any, which will be carried over to the next tax year. The carryover credit is computed by subtracting the allowable credit for the current tax year from the total of the minimum tax credit attributable to deferral items and the carryover credit from the prior tax years.
	  b.   	 Example. The taxpayer had a 1989 taxable income of $450,000 and an accelerated depreciation tax preference of $280,000. In 1988 the taxpayer had taxable income of $500,000 and tax preferences of $370,000 which consisted of $320,000 of accelerated property charitable deduction and $50,000 of appreciated property charitable deduction. The minimum tax credit for 1989 was computed on Form IA 8801C using data from Form IA 4626F for 1988 and from Form IA 4626F for 1989 and Form IA 1120 for 1989.

 	 	Form IA 8801C	 	
Part I.	 	Computation of Minimum Tax on Exclusion Items	 	
Line 11	-	Gross tax on exclusion items	-0-	
Line 12	-	Less regular tax minus credits	$33,900	
Line 13	-	Net minimum tax on exclusion items	-0-	
Part II.	 	Computation of Allowable Credit for 1989	 	
Line 14	-	Enter amount from line 18 IA 4626F for 1988	$ 1,100	
Line 15	-	Enter amount from line 13 part I	-0-	
Line 16	-	Subtract line 15 from line 14	$ 1,100	
Line 17	-	Enter credit carryforward from 1987	-0-	
Line 18	-	Add lines 16 and 17	$ 1,100	
Line 19	-	Enter 1989 regular tax liability	$22,500	
Line 20	-	Enter 1989 tentative minimum tax	$21,600	
Line 21	-	Subtract line 20 from line 19	$ 900	
Line 22	-	Allowable minimum tax credit for 1989. Enter smaller of line 18 or line 21	$ 900	
Part III.	 	Computation of Minimum Tax Credit Carryovers	 	
Line 23	-	Enter amount from line 18 part II	$ 1,100	
Line 24	-	Enter amount from line 22 part II	900	
Line 25	-	Carryforward of minimum tax credit to 1990. Subtract line 24 from line 23	$ 200	
This rule is intended to implement Iowa Code section 422.60.