Teal, Inc., owns total assets of $100 million, and it reports annual revenues of $700 million. Lavender, Inc., owns total assets of $12 million, and it reports annual revenues of $900,000. Both corporations have been in existence for three years.
a. Explain why neither Teal nor Lavender computes an AMT liability for its first tax year.
b. Explain why, in later years, Teal computes an AMT liability and Lavender is not required to do so.
c. Do you think that this different tax treatment for Teal and Lavender is equitable? Explain your position.