United States

OMB concludes that AMT credit refunds are not subject to sequestration

Reverses IRS’ prior conclusion regarding cash refund reductions

TAX ALERT  | 

Corporations claiming refunds of AMT credits would receive more cash following the U.S. Office of Management and Budget’s (OMB’s) newly reported conclusion that federal sequestration rules do not apply to the refunds.

The refundable AMT credit rules arose under 2017’s Tax Cuts and Jobs Act (TCJA). Congress repealed the corporate alternative minimum tax (AMT) for tax years beginning after Dec. 31, 2017. Corporations that have paid AMT generally have AMT credits (also known as minimum tax credits). Under the TCJA, the AMT credit is refundable over its tax years beginning after 2017 and before 2022. A prior RSM tax alert discussing this tax law change, and certain other tax issues that arose because of the change, is available here.   

Earlier in 2018, the Treasury department and IRS concluded that the sequestration rules (automatic federal budget cut rules) apply to refundable AMT credits. The IRS’ website still reflects the view that sequestration applies. Under that view, corporations could benefit from 100 percent of an AMT Credit offset against current year tax liability but could only receive a refund of a reduced percentage (100 percent of the credit, reduced by the sequestration rate). An RSM tax alert discussing this development is available here.

Now, OMB has reached the opposite conclusion, according to news reports. OMB has certain responsibilities mandated under federal sequestration law, so it is expected that the federal government will adopt OMB’s taxpayer-favorable conclusion on this issue.  Assuming that happens, the result will be increased AMT credit refunds for many corporate taxpayers. Corporations using their AMT credits would obtain benefit for 100 percent of the credit amount regardless of whether they apply the credit to reduce current tax liability or to obtain a refund of previously paid tax.

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