One of the many provisions in the Tax Cuts and Jobs Act (TCJA) was the repeal of the corporate Alternative Minimum Tax (AMT) that went into effect for tax years beginning after 2017. Along with the repeal of AMT was the amendment of Internal Revenue Code section 53(e) to allow for refunds of outstanding AMT credit carryforwards that existed as of Dec. 31, 2017. AMT credit carryforwards remaining after utilization against the current year tax liability are refundable at a 50 percent rate in taxable years 2018, 2019 and 2020, with any remaining credits being fully refundable in 2021.
According to an Internal Revenue Service (IRS) release dated Nov. 5, 2018, the IRS deemed refundable AMT credits subject to sequestration under the Balanced Budget and Emergency Deficit Control Act of 1985, as amended. This meant that AMT credit refund payments processed on or after Oct. 1, 2017, and on or before Sept. 30, 2018, would be reduced by the fiscal year 2018 sequestration rate of 6.6 percent. The sequestration rate drops down to 6.2 percent for refund payments processed on or after Oct. 1, 2018, and on or before Sept. 30, 2019. Because of the refund holdback due to sequestration, it was recommended that companies consider a valuation allowance or reserve for the expected sequestration amount against their deferred tax asset or tax recoverable within their year-end Dec. 31, 2017 financial statements.
In a release dated Jan. 14, 2019, the IRS reversed their earlier announcement by stating that refundable AMT credits under section 53(e) will not be subject to sequestration. Therefore taxpayers that have an excess AMT credit carryforward after current year utilization will receive the full amount of the AMT credit refund (at the 50 percent rate per year through 2020) without any IRS holdback due to sequestration. Companies should consider the impact of this IRS release in their deferred tax valuation allowance or reserve calculations included in their financial statements.
We highly recommend you confer with your Baker Tilly tax advisor to understand your specific situation and how this impacts your organization.
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