C is corrent. The ACE adjustment is equal to 75% of the difference between adjusted current earnings (ACE) and pre-ACE alternative minimum taxable income. The ACE adjustment can be positive or negative, but a negative ACE adjustment is limited in amount to prior years’ net positive ACE adjustments. For 2013 Klaus’ ACE is less than its pre-ACE AMTI leading to a tentative negative ACE adjustment of [($200,000 − $350,000) × 75%] = $112,500. However, this negative ACE adjustment is allowed only to the extent of $45,000, the amount of Klaus’ net positive adjustment for prior years (i.e., $75,000 for 2011 reduced by a negative $30,000 ACE adjustment for 2012).
A is incorrect. A negative ACE adjustment is limited to the net positive adjustment of prior years.
B is incorrect. A negative ACE adjustment is limited to the net positive adjustment of prior years.
D is incorrect. A negative ACE adjustment is limited to the net positive adjustment of prior years.
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