Refundable corporate minimum tax credit may be limited
Alternative minimum tax and minimum tax credit
As was well covered following the passage of the Tax Cuts and Jobs Act (TCJA), Congress repealed the alternative minimum tax (AMT) for corporations. This was accomplished by merely adding a phrase to section 55(a) that read “[i]n the case of a taxpayer other than a corporation” thereby excluding corporations from the provision.
The new law allows taxpayers with significant corporate AMT carryovers to use such credits by reducing or eliminating tax liability in the subsequent year or to obtain a tax refund to the extent the AMT credit exceeds taxable income for the subsequent year. For tax years beginning in 2018, 2019 and 2020, to the extent that AMT credit carryovers exceed regular tax liability, 50 percent of the excess AMT credit carryovers will be refundable. Any remaining credits will be fully refundable in 2021.
What may surprise taxpayers is that the refundable AMT credits are subject to mandatory limitations by the Balanced Budget and Emergency Deficit Control Act of 1985 and amendedments. The act and subsequent amendments limit refund payments issued to corporations claiming prior year minimum tax liability.
For the 2018 fiscal year, refund payments processed between Oct. 1, 2017 and Sept. 31, 2018—regardless of when the original or an amended return was filed—will be subject to a 6.6 percent sequestration rate reduction. The sequestration rate for the current year is at its lowest rate in recent years.
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In the past, the IRS has stated that the sequestration rate would be applied unless, and until, a law is enacted that cancels or otherwise affects the sequester. TCJA changed the way AMT carryovers are used, but it did not directly affect the sequestration rules. For this reason, any refunds claimed under the new law may be subject to a 6.6 percent reduction due to sequestration requirements.