You are a practicing CPA at Gibbons, Johnson & Tannun, LLP. You recently received a new medium-sized client, ABI, Inc., a construction company that works custom projects. Since the tornado went through your town, ABI, Inc. has had more projects than they can handle. ABI’s gross revenues for 2010 were $12 million dollars, up from $150,000 in 2009. Alex Lee, owner of ABI, Inc., expects the revenues to grow by 30% for the next three years as cleanup of the devastating tornado will take that long. Vanessa Monfort, the company’s bookkeeper, prepared the 2009 tax returns for the corporation using an online tax program and feels she can prepare them again this year, but Alex Lee feels that he needs a CPA firm to prepare their taxes this year.
When the subject of Alternative Minimum Tax is brought up in your meeting, Alex Lee, the owner of ABI, is appalled that he will have to pay more taxes than he already has to pay. Vanessa Monfort, the company’s bookkeeper, thinks that the corporation is subject to the AMT. Your job is to explain what the AMT is and why he might have to pay it.
Given the scenario, your role and the information provided by the key players involved, it is time for you to make a decision.<br><br>If you are finished reviewing this scenario, close this window and return to this week’s You Decide item, in your course window, to complete the activity for this scenario.<br><br>You can return and review this scenario again at any time.
Write a three- to four-page (12-point, double-spaced) memo to Alex Lee, explaining the following in terms that he will understand.
• Explain the purpose behind the AMT.
• Describe how and when the AMT is applicable.
Discuss what can be done to minimize the impact of the AMT.