Alternative Minimum Tax

Memorandum

To: Alex Lee, ABI Inc.

CC: Vanessa Monfort

From: Gibbons, Johnson & Tannun, LLP

Date: 2/3/2013

Re: Alternative Minimum Tax

Mr. Lee,

Thank you for taking the time to meet with myself and obtain the services of Gibbons, Johnson & Tannun, LLP. As the owner of a construction company, your services are currently in great demand, as discussed and reflected in your financial statements. It is great that ABI, Inc. has witnessed such a tremendous growth in business just within one year's time. Projects seem to be plentiful, which means more revenue and profits for your company. However, the downside is that you will be taxed on the additional revenues you have earned during the year. I know we touched on additional taxation on the company's profit during our meeting. I want to give you a more thorough explanation regarding the purpose behind the Alternative Minimum Tax, why will be applicable to your company, along with ways we can minimize the impact of this tax upon ABI, Inc.

The purpose of the AMT is to accomplish a more equitable distribution of the tax burden among taxpayers. The AMT was enacted by Congress in 1969. Statistics compiled by the U.S. Department of the Treasury revealed that some Taxpayers with large economic incomes were able to minimize or even avoid the payment of income tax by taking advantage of the various tax incentives Congress had enacted. The underlying purpose was that Congress had concluded that both the perception and the reality of fairness in taxation had been harmed by instances in which corporations paid little or no tax in years when they reported substantial earnings, and may even have paid substantial dividends to shareholders. The alternative minimum tax (AMT) attempts create a regulation over corporations and individuals to pay their share of a minimum tax by excluding deductions and credits. Its basic inception was designed to keep wealthy Taxpayers from using loopholes to avoid paying taxes.

In accordance with the Internal Revenue Service, "The AMT is the excess of the tentative minimum tax over the regular tax." AMT is owed only if the tentative minimum tax is greater than the regular tax. The tentative minimum tax is figured separately from the regular tax. The starting point with computing AMT is your company's taxable income. Taxable income is then modified for certain items (any tax preferences) and reduced by an exemption amount. Some of these items include: Depreciation (using MACRS depreciation on assets), Mining and exploration costs, Long-term contracts, Net operating losses, Pollution control facilities, Installment sales, Circulation expenses, Capital construction funds, Insurance companies deduction, and Farming losses. The result is called the net alternative minimum taxable income, and is multiplied by 20% to yield a tentative minimum tax (TMT). If TMT is more than your company's regular income tax, then the excess is your AMT liability and must be added to its regular tax liability to determine the total tax due. If TMT is less than the corporation's regular tax, then there is no AMT liability. Small corporations are not liable for the corporate AMT. A corporation qualifies as a small corporation