Until now, C corporations were subject to the alternative minimum tax (AMT) to the extent their tentative minimum tax exceeded their regular tax. There was an exemption from the AMT for "small" C corporations. The Tax Cuts and Jobs Act repealed the corporate AMT for all C corporations for tax years beginning after December 31, 2017. This generally means greater simplicity in corporate taxation and considerable tax savings (an estimated $40.3 billion over a 10-year period, according to the Joint Committee on Taxation). But there are some wrinkles to consider with the repeal of the corporate AMT.
Fiscal year C corporations
A C corporation on a calendar year basis has no AMT concerns for 2018. But if a C corporation has a fiscal year that includes December 31, 2017, it must figure AMT for the portion of the year through this date. According to the Internal Revenue Service, the AMT is essentially figured for the number of days in the year through December 31, 2017, in the same way as fiscal year C corporations figure a blended tax rate for their 2018 fiscal year.
The tentative minimum tax is 20 percent of a C corporation's alternative minimum taxable income, which is income refigured using special rules applicable to the AMT, minus an exemption amount and reduced by the foreign tax credit refigured for the AMT.
Minimum tax carryovers
C corporations may be sitting with unused minimum tax credits, which result when they paid AMT in a prior year. The minimum tax credit is the amount that regular tax liability, reduced by nonrefundable credits (other than the minimum tax), exceeds tentative minimum tax for the year. In the past, unused minimum tax credits were simply carried forward until used up (although there was an option to claim the credits in lieu of using bonus depreciation to write off the cost of buying qualified property, such as equipment).
Fortunately, the new tax act allows C corporations to fully use their credit carryovers to:
- Reduce or eliminate regular tax liability.
- Obtain tax refunds to the extent the AMT credit carryovers are greater than regular tax liability. For tax years beginning in 2018, 2019, and 2020, AMT minimum credit carryovers exceeding regular tax liability (reduced by certain other tax credits) are refundable up to 50 percent of this excess amount. If there is any remaining AMT credit, it is fully refundable in 2021.
While owners of pass-throughs, such as partners and S corporation shareholders, continue to face AMT liability based in whole or in part from adjustments and tax preferences passed through from their businesses, C corporations will no longer have to contend with any AMT liability. And they can cut their taxes in 2018 and beyond by using up any lingering minimum tax credits.