Adjusted Current Earnings (ACE): An IRS-Based Overview for Corporate AMT Filers
Abstract
Adjusted Current Earnings (ACE) is an IRS-defined income measure formerly used in the calculation of the Corporate Alternative Minimum Tax (AMT). Although the AMT was repealed for most corporations after 2017, ACE remains relevant for historical filings and amended returns. This article explains ACE—its purpose, calculation steps, and continuing relevance—based solely on official IRS documentation.
Introduction
The concept of Adjusted Current Earnings (ACE) was introduced by the Internal Revenue Service (IRS) to ensure that corporations subject to the former Corporate Alternative Minimum Tax (AMT) reported a more economically accurate measure of income. ACE aligned taxable income with “earnings and profits” principles, offsetting the effect of tax preferences.
The corporate AMT was repealed by the Tax Cuts and Jobs Act (TCJA) after 2017, but the IRS continues to provide Form 4626 and its instructions for prior-year compliance.
1. Purpose of ACE in IRS Guidance
ACE prevents artificial reductions of alternative minimum taxable income (AMTI). It is defined in two official IRS sources:
- Form 4626: Alternative Minimum Tax—Corporations
- Instructions for Form 4626 (including the ACE Worksheet)
2. How ACE Is Calculated
Step 1 — Compute Pre-Adjustment AMTI
Corporations first calculate pre-adjustment AMTI as required on Form 4626.
Step 2 — Apply the IRS ACE Worksheet
The ACE Worksheet lists adjustments such as:
- Tax-exempt interest inclusion
- Depreciation and amortization differences
- LIFO reserve adjustments
- Intangible drilling cost adjustments
Worksheet: Instructions for Form 4626
Step 3 — Determine the ACE Adjustment
IRS rules require comparing ACE with pre-adjustment AMTI:
- ACE > AMTI: 75% of the difference is a positive ACE adjustment.
- ACE < AMTI: A negative adjustment may apply (subject to IRS limits).
3. Where ACE Appears in IRS Forms
- Form 4626 (line for ACE adjustment)
- Instructions for Form 4626 (full ACE rules and Worksheet)
4. Current IRS Status of ACE
The IRS now lists Form 4626 as a prior-year form. ACE still applies to:
- Returns for years prior to TCJA repeal
- Amended returns
- IRS audits involving historical AMT periods
IRS archive: Prior Year Forms and Instructions
Conclusion
ACE played a central role in determining corporate AMTI under the former AMT rules. While repealed for most current filings, ACE remains relevant for amended returns and historical tax analysis. Tax professionals should rely on official IRS materials—Form 4626, its instructions, and the ACE Worksheet—when calculating ACE for affected years.
References (APA 7th Edition)
Internal Revenue Service. (2017a). Form 4626: Alternative Minimum Tax—Corporations (2017).
Internal Revenue Service. (2023). Prior year forms and instructions.
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