***This blog has been updated on December 21, 2017 to reflect the tax bill passed by Congress***
In the past month, the House and Senate have both voted along party lines to approve their own versions of comprehensive tax reform legislation. In order to gather the necessary votes to pass their respective chambers, Republican leaders made some significant modifications during the process. In a series of blog posts, we will cover the major pieces of both bills and compare them to current law. You can see all tax reform 2017 related blogs here.
This blog will cover the topic of corporate alternative minimum tax (AMT). If the alternative minimum tax and the top corporate tax rate are the same rates (like in the Senate bill), it will significantly distort the corporate tax system. The AMT excludes many deductions or credits, so that would make a business’s AMT frequently calculate higher than its regular tax bill. This would effectively repeal major incentives for corporations, like the research and development credit. We expect this provision will be adjusted during conference before the final bill is introduced.
CONFERENCE COMMITTEE APPROVED BILL
The corporate alternative minimum tax (AMT) would be eliminated beginning in 2018.
CURRENT LAW
The corporate AMT is intended to make sure that a corporation pays at least some minimum amount of tax by limiting or eliminating certain deductions, credits, and other tax preference items. As a result of these adjustments and limitations under this parallel system, a corporation determines its alternative minimum taxable income (“AMTI”), which is the first step in determining whether AMT is applicable for a given year. The corporate AMT is currently set at 20%.
HOUSE TAX REFORM BILL
The corporate alternative minimum tax (AMT) would be eliminated beginning in 2018.
If a taxpayer has an AMT credit carryforward, the taxpayer would be able to claim a refund of 50% of the remaining AMT credit carryforward for 2019-2021 and claim a refund of all remaining AMT credits in 2022.
SENATE TAX REFORM BILL
The corporate alternative minimum tax (AMT) would be retained and unchanged from the current system.