The Corporate Alternative Minimum Tax: Impacts on Financial Reporting

The US Congress included the alternative minimum tax provision in the Tax Reform Act of 1986 to ensure that the corporate tax liability is at least a minimum percentage of a broad-based concept of income. This provision will have 3 impacts: 1. It creates the concept of linking the amount of federal income tax liability to the timing and amount of income recognized for financial reporting purposes. 2. It will cause an increase in accounting, auditing, and tax preparation fees. 3. Although the law will undoubtedly achieve its purpose of raising additional federal income taxes, it is questionable whether the goal of $33.6 billion will be met. Other areas that are likely to cause concern or surprises to corporations include: 1. the redefinition of generally accepted accounting principles, 2. lease versus buy decisions, 3. transfer prices used for segment reporting, and 4. increased taxes caused by a corporation's first audited financial statements.