The 2017 Tax Reform Act repealed the corporate alternative minimum tax (AMT) and allowed corporate taxpayers to recover certain AMT taxes paid prior to the repeal as refundable credits against their regular tax liability, (Form 8827) but only over four years.

Background on the AMT

The corporate alternative minimum tax (“AMT”) was perhaps best understood as a separate and distinct method of taxation that runs parallel to the “regular” corporate income tax.  Every corporation had to calculate its tax burden under both the regular corporate income tax and the AMT and pay the higher of the two. 

In general, AMTI was taxable income, subject to a number of special adjustments. Some items, such as depreciation, pollution control facilities, depletion and intangible drilling costs, were treated differently for AMT than for regular tax. These adjustments increased AMTI for items excluded from regular tax such as tax-exempt interest, certain dividends received deductions, the difference between LIFO and FIFO inventory and a portion of the deferred gain on installment sales. The corporate AMT rate of 20% was then imposed on the AMTI, but only to the extent that AMTI exceeded an exemption amount of $40,000. The exemption amount of $40,000 was further subject to a phase-out as income increased; the exemption was reduced by 25% of the amount by which AMTI exceeds $150,000.

The corporate AMT generated a minimum tax credit for any AMT paid. This credit was/is used against regular tax (but limited by any AMT) where the taxpayer is paying regular tax. As a result, AMT was essentially a prepayment of regular tax. However, it could have been years before the prepayment of AMT represented by the minimum tax credit was recoverable.

Under the CARES Act, corporate AMT credits would be fully refundable starting in 2019, and for 2018 if the corporation did not claim the credits, the corporation can elect to claim the full credit, if the corporation claimed a 50% credit they are able to claim the remainder of the refundable credit amount unclaimed in 2018.  The Act instructs the IRS to process any refund claims within 90 days of filing.

Facts About the AMT

Assume corporation XYZ is a calendar year corporation with AMT Credits of $2 million that it generated in 2016-2018 and no other attributes.

In 2018, the actual AMT Credit would be refundable to the extent of 50 percent of the AMT Credit carryover of $2 million, or $1 million. The refundable amounts in future years would be $500,000 in 2019, $250,000 in 2020, $125,000 in 2021 and $62,500 in 2022. 

Under the CARES Act XYZ can use $2 million would be fully refundable in 2019 or XYZ can elect to claim the entire refundable credit in 2018.