principal residence of the taxpayer or a qualified dwelling used by the taxpayer or any member of his family during the year. A qualified dwelling is a house, apartment, condominium or mobile home not used by the taxpayer on a transient basis'". Qualified net investment income is equal to qualified investment income over qualified investment expenses, and qualified investment income is equal to the sum of gross interest, dividends, rents, royalties, items treated as ordinary income under the recapture rules, intangible drilling costs, any net capital gain on the sale of investment property, and items of tax preference for excluded interests and dividends". Qualified investment expenses are expenses directly connected with the production of investment income". However, any deductions which are tax preferences are excluded. In computing the minimum tax base, the taxpayer is permitted to reduce adjusted gross income by a specially computed alternative tax net operating loss deduction. The alternative tax NOL deduction is essentially the regular net operating loss deduction for a year with these two exceptions: (1) In computing the alternative NOL which may be carried forward the loss is reduced by the alternative minimum taxable income of the preceding year to which it was carried. (2) The alternative NOL is computed in the same manner as the regular NOL except that (a) it is reduced by the amount of the items of tax preference arising in that year which are taken into account in computing the NOL and (b) only those itemized deductions which qualify as alternative tax itemized deductions are taken into account. The alternative NOL is used up in the carryover year by the amount of alternative minimum taxable income whether or not the taxpayer is subject to the alternative minimum tax. And, the NOL deduction for purposes of the regular tax isn't affected by the special minimum tax computation". All of the pre-82 Act tax preferences whether for the add-on or alternative minimum tax will obtain as tax preferences under the new Act except those for the amortization of child care facilities and the preference for railroad rolling stock and qualified stock options". In addition, the Act adds the following as tax preferences; (1) interest excluded under all savers certifi70/Arkansas Lawyer/July 1983
cates and for post-4 net interest exclusions, (2) dividends excluded under the dividend exclusion, (3) the excess amounts which are expensed in regard to expenditures for mining exploration costs, development expenditures and circulation expenditures, research and experimental expenditures over the amount which would be deducted if these expenditures had been amortized and capitalized on a straight line basis over a ten year period, and (4) the bargain element in incentive stock options at the time the option is exercised. (This is the amount by which the fair market value of the shares at the time of exercise exceeds the option price.)" The alternative minimum tax may be reduced by the usual tax credits allowable except that the non-refundable credits are not allowable." The foreign tax credit is allowable to the extent of the foreign tax and the taxpayer's foreign source alternative minimum taxable income. Where the alternative minimum tax exceeds the regular tax amount and an allowable credit is wasted, there can be a carryforward or carryback of that credit under the usual rules and a use against the regular tax, and not the alternative tax, in the carryforward or carryback year. An example is as follows: "X" has a regular tax of $10,000 less $5,000 investment credit. His alternative tax is equal to $8,000 so his tax is equal to the $5,000 regular tax plus $3,000 excess for alternative tax. In effect, only $2,000 of the credit was used and $3,000 can then be carried forward or back."
PROLONGED WRITE OFF ELECTION
The Act permits a taxpayer to avoid the treatment of research and experimental expenditures, intangible drilling costs, mine development and exploration expenditures and circulation expenditures as tax preferences by electing to write off these expenditures over a ten year period". In the case of lOG's, the Act permits a special election in which the lOG can be written off over a five year period taking a certain percentage set out in the statute, of the lOG in each of the five years". Investment credit on the lOG is allowed in the year in which it is paid or incurred and in computing the applicable percentage, the lOG is reduced by the basis reduction under the new investment credit rules 2 " .
WITHHOLDING PROVISIONS
Section ยง301" of the new law requires the payor of interest, dividends or patronage dividends to withhold from payments a tax equalling 10% of the amount of the payment. The withholding is to be made at the time the payment is made or credited. The taxpayer receives a credit for the amount of withholding against his income tax in the year in which the Withholding was made. The Act establishes a category of exemptions from withholding, and it establishes a category of exempt recipients. It provides for the election out of withholding by the timely filing of an exemption certificate, and it defines in detail the term "payor" and the types of payments which are subject to withholding". The terms exempt individual includes persons who have filed an exemption certificate and whose tax liability for the preceding taxable year is $600.00 or less ($1,000.00 on a joint return), individuals who are 65 or over with a tax liability for preceding years of $1,500.00 or less or $2,500.00 on a joint return", and simple trusts (being defined as trusts which distribute all of their income). Also payments to corporations, governmental bodies, securities dealers, money market funds, exempt organizations and nominees, are exempted from withholding". Minimal interest payments not in excess of $150.00 per annum are exempt where the payor has so elected. And, qualified consumer cooperative payments are exempt where the cooperative has applied for and received an exemption. Financial institutions are permitted to elect annual withholdings as opposed to making with holdings every time an interest payment or dividend payment is made. This election is conditional on the balance of the account subject to the withholding not being permitted to fall below the amount of the tax that would otherwise be deducted and conditioned on the financial institution not permitting the account to be closed until the proper amount of tax has been withheld". "Payor" is the person paying or crediting the interest, dividend or patronage dividend". Middlemen such as custodians, nominees and corporate trustees who receive payments to be passed on the payee are treated as payors and are required to withhold the tax if the original payor does not".