Alternative Minimum Tax Credit Handling Details
With the successful passing of the Federal Tax Cuts and Jobs Act (TCJA), corporations are rushing to decipher the ramifications the tax reform will have on their company. One significant provision of the new tax reform is the elimination of the Alternative Minimum Tax (AMT) for corporations. For tax years beginning after December 31, 2017, the corporate AMT will no longer exist.
Under the new tax law, a reporting entity can either offset the recoverable with regular taxes or claim a refund for the recoverable. Under TCJA, a corporation has the potential to realize all of its AMT credit carryforwards in the 2018 tax year if it is used to reduce its regular tax liability. The credit balance (if any) can also be used in the same manner for the 2019 and 2020 tax years.
Additionally, the new law allows corporations to obtain a refund to the extent that the AMT credit carryovers exceed the regular tax liability. For tax years beginning in 2018 through 2020, a corporation can receive a refund equal to 50% of remaining credits not used to reduce regular tax. This option increases to 100% in 2021 for any remaining AMT credits. Electing to receive AMT credits as a refund may subject the refund payment to sequestration, which in turn may reduce the refund amount paid by the federal government.
AMT Credit Proposed Statutory Accounting Treatment
Per INT 18-03 – Additional Elements Under the Tax Cuts and Jobs Act, the AMT credit qualifies as a current income tax recoverable pursuant to paragraph 9 of SSAP No. 101 – Income Taxes. Although qualifying as a current year recoverable, some companies may elect to report the AMT credit as a deferred tax asset (DTA). In order to match provisions permitted under U.S. GAAP, reporting entities may elect to report the AMT credit as either a current-year recoverable or as a DTA. If reported as a DTA, it would be subject to the statutory accounting admittance limitations for DTAs. If the AMT credit accounted for as a DTA exceeds statutory admittance provisions, it would be non-admitted under SSAP No. 101.
INT 18-03 will require reporting entities with an AMT credit to include the following narrative disclosure as part of the income tax disclosures in note 9:
- Notification of whether the AMT credit was recognized as a current-year recoverable or DTA.
- The balance of the AMT credit carryforward as of the beginning year; the amount of the AMT credit recovered during the year; other current year adjustments to the AMT credit carryforward; the balance of the AMT credit carryforward at the end of the year; the amount, if any, by which ending balance has been reduced for sequestration and the amount, if any, by which the reporting entity has elected to non-admit.
The disclosures mentioned above shall be made beginning in the 2018 year-end statutory financial statements and continuing through the year-end statutory reporting period in which the AMT credit is fully utilized/received. Any accounting changes required by INT 18-03, if not otherwise covered by INT 18-01 – Unpaid Tax Estimates Under the Tax Cuts and Job Act, are to be recognized as a change in accounting estimate, pursuant to SSAP No. 3 – Accounting Changes and Corrections of Errors.