Accounting for AMT Credit Refunds Resulting from Tax Reform

Summary

A recent determination increasing the amount of available AMT credit carryovers was reached in the fourth quarter of 2018, but, due to the government shutdown, was not publicly communicated until the first quarter of 2019. Affected registrants may elect to recognize the effects of this development in the period of the change (December) or the period in which it was publicized (January). As a result, 2018 year-end financial statements may be impacted.

Main Provisions

Corporate alternative minimum tax (AMT) was repealed as part of the Tax Cuts and Jobs Act (TCJA) for taxable years beginning after December 31, 2017.  The TCJA also amended Internal Revenue Code (IRC) Section 53 allowing corporations to treat a portion of their prior year AMT credit carryover as refundable. Under the TCJA, the credit carryover is available to offset regular tax and is refundable for 50% of the uncredited balance for tax years 2018-2020 and 100% refundable in 2021.

On January 14, 2019, the Internal Revenue Service (IRS) announced on its website that “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.”  This overturned a previous announcement in March 2018 indicating that minimum tax credit refunds authorized by IRC Section 53 (as amended by TCJA) would be subject to sequestration pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985 as amended.

During December 2018, there were reports that the Office of Management Budget in consultation with the Department of Treasury conducted a legal analysis on this provision and determined that these particular credits are not subject to sequestration. However, due to the partial government shutdown, the IRS was not able to publish the determination on its website until January 14, 2019.

We believe affected registrants may record adjustments to their AMT credit carryover in the period which includes December 2018.  We also recognize registrants may view the 2019 announcement as a new fact or circumstance to be recorded in the period which includes January 14, 2019. Consequently, we believe both views are acceptable.

 

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