Scenario:
You are a practicing CPA at Gibbons, Johnson, & Tannun LLP. You recently received a new, medium-sized client, ABI Inc., which is a construction company. Since the tornado went through your town, ABI Inc. has had more projects than it can handle. ABI's gross revenues for the current year was $12 million, up from $350,000 in the prior year. Alex Lee, owner of ABI Inc., expects the revenues to grow by 30% for the next three years because cleanup of the devastating tornado will take that long.
Vanessa Monfort, the company's bookkeeper, prepared the current year's tax returns for the corporation using an online tax program and feels she can prepare them again this year, but Matt Lever feels that he needs a CPA firm to prepare the company's taxes this year.
Assignment;
When the subject of alternative minimum tax is brought up in your meeting, Alex Lee is appalled that he will have to pay more taxes than he already has to pay. Vanessa Monfort 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.
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.
Explain the purpose behind the AMT.