IRS reverses course on sequestering AMT refund credits

Tax Hot Topics newsletterThe IRS has announced that it will not apply the sequestration to reduce refundable payments of alternative minimum tax (AMT) credits allowed under the Tax Cuts and Jobs Act.

The TCJA repealed the corporate AMT and provides that unused AMT credits can be monetized and recovered as refundable tax credits over the tax years beginning in 2018, 2019, 2020 and 2021. The IRS had earlier announced that any refundable payments for these AMT credits paid between Oct. 1, 2018, and Sept. 30, 2019, would be reduced by 6.2% under the sequestration, with new sequestration rates set each government fiscal year.

The Budget Control Act of 2011 amended the Balanced Budget and Emergency Deficit Control Act of 1985 to require a mandatory reduction in certain government payments, and refundable business credits have generally been included. The sequestration has long applied to the refundable payments for AMT credit available under the election to forgo bonus depreciation under Section 168(k)(4). The Office of Management and Budget (OMB) had originally ruled that the new AMT credits under the TCJA would be treated the same way.

The OMB has reversed its decision and the IRS has announced that refundable payments for AMT credits allowed under Section 53(e) will not be subject to the sequester. Refundable credit for AMT payments in lieu of bonus depreciation will continue to be subject to the sequester. The IRS did not provide a full legal analysis, but the wording of the announcement seems to indicate that the government favored AMT credits in lieu of bonus depreciation because those refundable payments are elective.

The IRS has also launched a compliance campaign aimed at taxpayers who added back sequestered amounts of AMT credits to their AMT carryforward balance. The IRS position is that these sequestered amounts are permanently lost.

Dustin Stamper
Managing Director
Washington National Tax Office
T +1 202 861 4144

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