No Sequestration on AMT Credit for Upcoming Tax Filings
Corporations will receive the full amount of refundable prior year alternative minimum tax credits (AMT credits) on their upcoming filings without losing any of the benefit to sequestration. The IRS released a statement on Monday, January 14th, stating that sequestration rules are not generally applicable to AMT credits for tax years beginning after December 31st, 2017. This news has been highly anticipated, and represents a favorable opportunity for many taxpayers.
Sequestration was originally established in 1985 as a way to cut down on government spending. Certain refundable credits represent a form of government spending rather than a return of taxes previously paid by taxpayers. In order to mitigate budget deficits, those government spending types of credits were reduced by the sequestration rate before being refunded to taxpayers. Additionally, AMT credit refunds could have been claimed in prior years in lieu of accelerated bonus depreciation, but the application of this provision would have triggered sequestration on such refunds. Therefore, any refund claim otherwise subject to sequestration and processed by the IRS on or before September 30, 2019 is still subject to a sequestration rate of 6.2%.
For the 2018 tax year, AMT credits are first applied towards the regular tax liability, after the application of nonrefundable credits. Of the remaining AMT credit, 50% may then be claimed as a refundable credit, unrestricted by any IRS sequestration. If your corporation has AMT credits available, it is important to talk with your tax preparer in order to see how this announcement may impact your annual filings.
Read the official IRS statement here.