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	   58.5(1) Rescinded IAB 11/24/04, effective 12/29/04.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. 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 Schedule IA 8827F. The minimum tax credit is computed on Schedule IA 8827F from information on Schedule IA 4626F for prior tax years, Form IA 1120F and Schedule IA 4626F for the current year and from Schedule IA 8827F for prior tax years.
	      b.    	  Examples of computation of the minimum tax credit and carryover of the credit.
Example 1. Taxpayer reported $5,000 of minimum tax for 2011. For 2012, taxpayer reported regular tax less credits of $8,000, and the minimum tax liability is $6,000. The minimum tax credit is $2,000 for 2012 because, although the taxpayer had an $8,000 regular tax liability, the credit is allowed only to the extent that the regular tax exceeds the minimum tax. Since only $2,000 of the carryover credit from 2011 was used, there is a $2,000 minimum tax carryover credit to 2013.
Example 2. Taxpayer reported $2,500 of minimum tax for 2011. For 2012, taxpayer reported regular tax less credits of $8,000, and the minimum tax liability is $5,000. The minimum tax credit is $2,500 for 2012 because, although the regular tax less credits exceeded the minimum tax by $3,000, the credit is allowed only to the extent of minimum tax paid for prior tax years. There is no minimum tax carryover credit to 2013.
	      c.    	  Minimum tax credit after merger. When two or more financial institutions merge or consolidate into one financial organization, the minimum tax credit of the merged or consolidated operation is available for use by the survivor of the merger or consolidation.
This rule is intended to implement Iowa Code section 422.60.
[ARC 1303C, IAB 2/5/14, effective 3/12/14]