January 15, 2019 IRS announces corporate AMT refundable credits under Section 53 will not be subject to sequestration The IRS has announced on IRS.gov that alternative minimum tax (AMT) refundable credits claimed by corporations under Section 53(e) will not be subject to sequestration for tax years beginning after December 31, 2017. The IRS had previously announced that a portion of such credits would be subject to sequestration. Background The Tax Cuts and Jobs Act (TCJA) repealed the corporate AMT and amended Section 53 of the Internal Revenue Code to allow for refunds of AMT credit carryforwards (Section 53(e)). Under Section 53(e), taxpayers receive 50% of their uncredited balance in years 2018–2020. Taxpayers receive 100% of the remaining balance in 2021. After the enactment of Section 53(e), it was unclear whether the IRS would take the position, under the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, that refund payments issued to, and credit elect and refund offset transactions for, corporations claiming refundable prior-year minimum tax liability, would be subject to sequestration. The IRS previously announced last year that refund credits under Section 53 would be reduced by the fiscal-year 2019 6.2% sequestration rate for payments processed on or after October 1, 2018, and on or before September 30, 2019. The previous announcement added that a sequestration rate would continue to apply unless and until amending legislation was enacted. New announcement In a reversal of its earlier announcement, the latest IRS announcement states that 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 for tax years beginning after December 31, 2017. Implications It is welcome news for taxpayers that the IRS, after coordination with the Office of Management and Budget and the Department of Treasury, determined that the Section 53(e) refundable minimum tax credits will not be subject to sequestration and, therefore, that taxpayers will receive 100% of their requested refund. This policy change is only for the Section 53(e) refundable minimum tax credits starting with the 2018 tax year, and this does not change the government's prior position for corporations making a Section 168(k)(4) election and claiming a refund of prior year minimum tax credits for tax years beginning before January 1, 2018. Many companies with AMT credit carryforwards have recorded deferred tax assets (DTAs) or receivables on their balance sheets for the refundable AMT credits under Section 53(e). Companies that previously recorded a valuation allowance against the AMT DTAs or an allowance against their AMT receivables in anticipation of sequestration now need to reverse those allowances. We believe a company may reverse these amounts in 2018 or in the reporting period that includes January 14, 2019. A company would make the reversal in the period that includes January 14, 2019, if it concludes that the latest IRS announcement constitutes new information that was made available after its balance sheet date. However, we would not expect a company that did not previously record an allowance to now provide one, based on the earlier IRS announcement. We believe that, if the effect of reversing an allowance or reserve related to sequestration is significant, a company should provide disclosures about the IRS announcement and the period in which it reversed or intends to reverse the allowance or reserve. ——————————————— — For more information about EY's Tax Accounting services, visit us at www.ey.com/US/TaxAccounting ———————————————
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