Proposed adjusted current earnings regulations.

• Author: Ezrati, Lester D.
• Position: Includes related article of supplemental comments

Proposed Adjusted Current Earnings Regulations

On May 2, 1990, the Internal Revenue Service issued proposed regulations under section 56 of the Internal Revenue Code (concerning the computation of adjusted current earnings for purposes of the alternative minimum tax) and proposed amendments to the temporary regulations under section 926 (concerning foreign sales corporations). The regulations were published in the Federal Register on May 3, 1990 (55 Fed. Reg. 18626) and in the May 29, 1990, issue of the Internal Revenue Bulletin (1990-22 I.R.B. 18).

For simplicity's sake, the proposed regulations are referred to as the "proposed regulations" and the temporary regulations as the "temporary regulations"; specific provisions are cited as "Prop. Reg. [section]" or "Temp. Reg. [section]." References to page numbers are to the proposed and temporary regulations (and preamble) as published in the Internal Revenue Bulletin.

BACKGROUND

Tax Executives Institute is the principal association of corporate tax executives in North America. Our nearly 4,500 members represent more than 2,000 of the leading corporations in the United States and Canada. TEI represents a cross-section of the business community, and is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. As a professional association, TEI is firmly committed to maintaining a tax system that works -- one that is administrable and with which taxpayers can comply.

Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the tax law relating to the operation of business enterprises. We believe that the diversity and professional training of our members enable us to bring an important, balanced, and practical perspective to the issues raised by the proposed regulations relating to adjusted current earnings and the temporary regulations relating to foreign sales corporations.

1. Prop. Reg. [section] 1.56(g)-1(e):

   Computation of Deductions

   Under Prop Reg. [section] 1.56(g)-1(c), adjusted current earnings (ACE) include all income items that are not taken into acount in computing preadjustment alternative minimum taxable income (AMTI), but are taken into account in determining earnings and profits (E&P). An item is generally not deductible in computing ACE, however, unless it is deductible in determining both pre-adjustment AMTI and current E&P. See Prop. Reg. [section] 1.56(g)-1(e). Thus, no deduction is allowed in computing ACE for charitable contributions in excess of the limitations of section 170, losses limited by section 277, or amounts in excess of the separate return limitation year (SRLY) limitations. See 1990-22 I.R.B. at 19.

   In the preamble, the IRS states that ACE is a separate and distinct tax system...