Expertise Beyond the Numbers

How the Prior-Year Minimum Tax Credit Changes Under the CARES Act

SC&H’s Key Takeaways

  • All prior year minimum tax credits are available for refund for the first taxable year of a corporation beginning in 2018.
  • Any prior year minimum tax credit carryforwards remaining after 2018 are 100 percent refundable.
  • Taxpayers should consider making an election to take 100 percent of the minimum tax credit carryforwards in 2018 by filing Form 1139 in order to obtain a cash refund sooner; however, if you have an NOL carryback, ordering rules apply, which may impact the overpayment attributable to the 100% refundable minimum tax credit refund.
  • The CARES Act provides corporations with the opportunity to increase cash flow and liquidity by accelerating a corporation’s ability to obtain a cash refund for its carryforward of minimum tax credits following the TCJA’s repeal of the corporate AMT.
  • Taxpayers will also need to consider the effect of the NOL carryback rules on AMT liabilities.   For additional information, please see our article on the five-year carryback for net operating losses.

The Tax Cuts and Jobs Act of 2017 (“TCJA”) repealed the corporate alternative minimum tax (AMT) effective for taxable years beginning after December 31, 2017; however, the TCJA retained the ability to carryover any unused AMT credits to be used against regular tax liability.  In addition, the TCJA provided an “AMT refundable credit amount” for any taxable year beginning after 2017 and before 2022 in an amount equal to 50 percent of the excess of the minimum tax credit for the taxable year over the amount of the credit allowable for the year against the regular tax liability imposed for that taxable year.  The “AMT refundable credit amount” for any taxable year beginning after 2021 is equal to 100 percent of the excess of the minimum tax credit for the taxable year over the amount of the credit allowable for the year against the regular tax liability imposed for that taxable year.

The recently signed Coronavirus Aid, Relief, and Economic Security Act (CARES Act, H.R. 748) included amendments to IRC Section 53(e) to provide an “AMT refundable credit amount” for any taxable year beginning after 2017 in an amount equal to 50 percent of the excess of the minimum tax credit for the taxable year over the amount of the credit allowable for the year against the regular tax liability imposed for that taxable year.  The “AMT refundable credit amount” for any taxable year beginning after 2018 is equal to 100 percent of the excess of the minimum tax credit for the taxable year over the amount of the credit allowable for the year against the regular tax liability imposed for that taxable year. Taxpayers can elect, however, to take the entire refundable credit amount in 2018 (Code Sec. 53(e)(5), as amended by Act Sec. 2305(b)(1)).

Claiming a Refund

In order to claim a refund of the “AMT refundable credit amount” for previously filed returns, taxpayers should file Form 1139, Corporation Application for Tentative Refund.  The tentative refund claim is due prior to December 31, 2020 and starting April 17, 2020 and until further notice, the IRS will accept eligible refund claims submitted via Fax to 844-249-6236.  The ability to fax Form 1139 is a temporary procedure that allows the faxing of Form 1139 to provide quick tentative refunds to taxpayers before IRS processing centers are able to reopen. In addition, if you previously mailed a Form 1139 after March 27, 2020 that contains changes permitted by the AMT provisions of the CARES Act, you can submit the same Form 1139 via fax. The initial fax submission is limited to 100 pages and taxpayers will be notified if additional documentation is required.  Please note:  if you choose to include a NOL carryback and a AMT credit amount on the same Form 1139, that filing is due by June 30, 2020 for calendar year 2018.  Once filed, the IRS will have 90 days to review the claim and, if approved, apply, credit or refund any overpayment.

For years in which the taxpayer has an open IRS audit, the Form 1139 should be submitted under normal procedures or via the temporary procedures outlined on the IRS website.  It should not be submitted to the IRS auditor.

SC&H Group’s Tax team continues to keep a close watch on updates as they take place. If you have any questions on how these changes apply to your organization, please reach out to our team today.