IRS Confirms Sequestration Reduction Will Not Apply to §53(e) Corporate Minimum Tax Credit Refunds

The IRS confirmed that AMT credit refunds under the Tax Cuts and Jobs Act will not be subject to reduction under sequestration in an announcement on the IRS website (Effect of Sequestration on the Alternative Minimum Tax Credit for Corporations (fiscal year 2019)).  However, claims for years beginning before January 1, 2018 by taxpayers making an election under IRC §168(k)(4) will be subject to a 6.2% sequestration reduction for claims processed on or after October 1, 2018 and on or before September 30, 2019.

The Office of Management and Budget had informed the IRS in December of 2018 that the agency was reversing the IRS’s position that TCJA minimum tax refunds for corporations were subject to the sequestration rules.[1] 

The IRS statement takes that change into account. The change impacts refunds under IRC §53(e), a provision added to the law by the Tax Cuts and Jobs Act.  Under that provision, a corporation that has a remaining minimum tax carryover in excess of its regular tax obligation will be granted a refundable credit equal to 50% of that excess for tax years beginning in 2018, 2019 or 2020, and 100% of that excess for a tax year beginning in 2021.

The IRS describes the amounts that will be subject to the 6.2% offset as follows:

For taxable years beginning before Jan. 1, 2018, a corporation that can claim an additional first-year depreciation deduction under section 168(k) can choose instead to accelerate the use of its prior year minimum tax credits, treating the accelerated credits as refundable credits.  Corporations making this section 168(k)(4) election and claiming a refund of prior year minimum tax credits should complete Form 8827.

Corporations claiming refundable credits under section 168(k) will be notified that a portion of their requested refund was sequestered.

But the agency then notes the different treatment for refundable amounts under IRC §53(e):

For taxable years beginning after December 31, 2017, refund payments and credit elect and refund offset transactions due to refundable minimum tax credits under section 53(e) will not be subject to sequestration.

[1] Emily Foster, “OMB Reverses IRS’s Stance on Sequestering AMT Credits,” Tax Notes Today, January 9, 2019, 2019 TNT 5-4