IRS to refund AMT credit sequestration since 2013

Tax Hot Topics newsletter The IRS issued a news release (IR 2020-12) on Jan. 16 announcing that it will refund all amounts sequestered from refundable alternative minimum tax (AMT) credits since 2013.

The move is the latest in a series of escalating reversals from the Office of Management and Budget (OMB) on how the sequestration should apply. 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 OMB had required the sequestration of refundable payments for AMT credits available since 2013 under the election to forgo bonus depreciation in Section 168(k)(4).

When the Tax Cuts and Jobs Act repealed the corporate AMT altogether and provided that unused AMT credits could be recovered as refundable tax credits under Section 53(e), the OMB initially ruled that these credits would also be subject to sequestration. A few months later they reversed course, ruling that the old Section 168(k)(4) credits would remain subject to the sequestration but the new TCJA credits under Section 53(e) would not. The IRS did not publish any OMB legal analysis, but the wording of the announcement at the time seemed to indicate that the government treated AMT credits in lieu of bonus depreciation different because they were elective.

The OMB has now reversed course again, finding that neither type of refundable AMT credit should be subject to the sequestration. The IRS plans to refund all sequestration payment amounts beginning from when they were originally applied in 2013. The IRS offered no procedures for obtaining refunds, instead pledging that it is aware of all affected taxpayers and will automatically issue refunds and interest if applicable.

The refunds should also end the controversy over the treatment of sequestered AMT credits. The IRS had previously argued that these amounts were permanently lost and had launched a compliance campaign aimed at taxpayers who added them back to their AMT credit carryforward balance.

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

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