EXEMPTION FROM ALTERNATIVE MINIMUM TAX FOR SMALL CORPORATIONS.

SEC. 401. EXEMPTION FROM ALTERNATIVE MINIMUM TAX FOR SMALL CORPORATIONS. (a) In General.—Section 55 (relating to alternative minimum tax imposed) is amended by adding at the end the following new subsection: “(e) Exemption for Small Corporations.— “(1) In general.—The tentative minimum tax of a corporation shall be zero for any taxable year if— “(A) such corporation met the $5,000,000 gross receipts test of section 448(c) for its first taxable year beginning after December 31, 1996, and “(B) such corporation would meet such test for the taxable year and all prior taxable years beginning after such first taxable year if such test were applied by substituting ‘$7,500,000’ for ‘$5,000,000’. “(2) Prospective application of minimum tax if small corporation CEASES TO BE SMALL.—In the case of a corporation whose tentative minimum tax is zero for any prior taxable year by reason of paragraph (1), the application of this part for taxable years beginning with the first taxable year such corporation ceases to be described in paragraph (1) shall be determined with the following modifications: “(A) Section 56(a)(1) (relating to depreciation) and section 56(a)(5) (relating to pollution control facilities) shall apply only to property placed in service on or after the change date. “(B) Section 56(a)(2) (relating to mining exploration and development costs) shall apply only to costs paid or incurred on or after the change date. “(C) Section 56(a)(3) (relating to treatment of longterm contracts) shall apply only to contracts entered into on or after the change date. “(D) Section 56(a)(4) (relating to alternative net operating loss deduction) shall apply in the same manner as if, in section 56(d)(2), the change date were substituted for ‘January 1, 1987’ and the day before the change date were substituted for ‘December 31, 1986’ each place it appears. “(E) Section 56(g)(2)(B) (relating to limitation on allowance of negative adjustments based on adjusted current earnings) shall apply only to prior taxable years beginning on or after the change date. “(F) Section 56(g)(4)(A) (relating to adjustment for depreciation to adjusted current earnings) shall not apply. “(G) Subparagraphs (D) and (F) of section 56(g)(4) (relating to other earnings and profits adjustments and depletion) shall apply in the same manner as if the day before the change date were substituted for ‘December 31, 1989’ each place it appears therein.111 STAT. 844 “(3) Exception.—The modifications in paragraph (2) shall not apply to— “(A) any item acquired by the corporation in a transaction to which section 381 applies, and “(B) any property the basis of which in the hands of the corporation is determined by reference to the basis of the property in the hands of the transferor, if such item or property was subject to any provision referred to in paragraph (2) while held by the transferor. “(4) Change date.—For purposes of paragraph (2), the change date is the first day of the first taxable year for which the taxpayer ceases to be described in paragraph (1). “(5) Limitation on use of credit for prior year minimum tax liability.—In the case of a taxpayer whose tentative minimum tax for any taxable year is zero by reason of paragraph (1), section 53(c) shall be applied for such year by reducing the amount otherwise taken into account under section 53(c)(1) by 25 percent of so much of such amount as exceeds $25,000. Rules similar to the rules of section 38(c)(3)(B) shall apply for purposes of the preceding sentence.”. (b) Effective Date.—The amendment made by this section shall apply to taxable years beginning after December 31, 1997.