In the tax year at issue, the taxpayer, a non-integrated oil company, had negative alternative minimum taxable income (AMTI) both before and after considering its tentative alternative minimum tax (AMT) preference amount for intangible drilling costs (IDC). The taxpayer appears to have filed timely AMT returns on which it did not report an IDC preference, claiming the general independent producer IDC preference exception under Section 57 (a)(2)(E)(i).
IRS on audit appears to have proposed adding the full tentative IDC preference to the taxpayer’s negative AMTI, which would increase its AMTI (i.e., reduce its negative AMTI). The proposed IRS adjustment would reduce the taxpayer’s claimed AMT loss that could be carried forward to future tax years.
In the memorandum to the IRS Large Business and International Division, a branch chief in the IRS Office of Associate Chief Counsel (Income Tax and Accounting) agreed with the proposed audit adjustment and set forth an analysis of the issue.
This article, published in the Sept. 28th 2012 issue of the Bloomberg BNA Daily Tax Report (appearing with the permission of The Bureau of National Affairs, Inc.) explains the taxpayer’s facts, the memorandum’s determination, and why the memorandum may be wrong as a matter of statutory construction.