Multistate Audit Technique Manual

CALIFORNIA FRANCHISE TAX BOARD Internal Procedures Manual Page 1 of 18Multistate Audit Technique Manual _______________________________________________________________________________ 8500 ALTERNATIVE MINIMUM TAX The Federal alternative minimum tax (AMT) was enacted as a response to perceived abuses of the tax system. Congress believed that many taxpayers with substantial economic income were able to avoid paying income tax by utilizing exclusions, deductions, and tax credits. The Federal AMT is an alternative tax structure that responds to this problem by applying a single rate of tax to a tax base, which is intended to be more representative of "true economic income." It is a tax system unto itself, which is entirely distinct from, and runs parallel to, the regular tax system. The current federal AMT took effect for tax years beginning in 1987. Effective for taxable years beginning on or after January 1, 1988, California substantially conformed to the federal AMT by incorporating with modifications IRC §55 - IRC §59 (R&TC §23400). The AMT rules are still evolving, and quite a few changes have been made since the original enactment. When considering issues in this area, auditors should always refer to the law for the particular year they are examining to determine the applicable rules for that year. Since the rules are very specific, the discussion in this manual is intended only to provide a general overview of the major AMT provisions ...