Elimination of Corporate AMT and New NOL Limitations

Tax reform has changed the corporate income tax as we know it. In the midst of all the complications brought by the new law, the elimination of the corporate Alternative Minimum Tax (“AMT”) is a small gift from Congress. In conjunction with eliminating corporate AMT, the new law also created new limitations on the utilization of Net Operating Losses (“NOLs”), as discussed in further detail below.

Elimination of Corporate AMT

For tax years beginning after December 31, 2017, the corporate AMT is repealed.

Treatment of Existing AMT Credit Carryforwards

Given that corporate AMT no longer exists for tax years beginning after December 31, 2017, many corporations may be wondering what happens to their remaining AMT credit carryforwards that have not already been utilized to offset regular tax in 2017 or previous years.

Under the new law, AMT credit carryforwards may still be used to offset a corporation’s regular tax liability in any year. Additionally, the new law allows for a partial refund of AMT credits (under the old law, AMT credits were generally not refundable for corporations, except under a special election to receive a refund of AMT credits in lieu of claiming bonus depreciation).

For tax years beginning after 2017 and before 2022, a corporation can receive a refund of AMT credits equal to 50% of the amount by which the credit for the tax year exceeds the amount of the credit allowed against the regular tax liability for the year. Note that the refundable percentage increases to 100% for tax year 2021 only.

Example: Assume Corporation C has unused AMT credits of $100 as of 12/31/17 and its 2018 regular income tax liability is $20. Corporation C may offset its entire 2018 regular tax liability of $20 with its AMT credit carryforwards. Additionally, Corporation C also receives a refund of $40 of AMT credits on its 2018 tax return ($100 total AMT credits less $20 utilized against current year regular tax liability multiplied by 50%).

The corporate election to receive a refund of AMT credits in lieu of claiming bonus depreciation on eligible asset additions has been eliminated for tax years after December 31, 2017.

New Limitations on Utilization of NOL Carryforwards

Under the old law, a corporation could offset 100% of its regular taxable income with an NOL carryforward. NOLs could generally be carried back 2 years, absent an election to forego the carryback, or forward 20 years. The new law eliminates carrybacks for NOLs generated after December 31, 2017 (except for farming and certain insurance company NOLs) and creates an indefinite carryforward period. In addition, after 2017 the corporate NOL deduction for a given year is now limited to the lesser of all NOL carryovers and carrybacks or 80% of taxable income computed without regard to the NOL deduction.

It is important to note that these new carryforward rules only apply to NOLs generated after 2017. Existing NOLs that were generated in tax years ending before January 1, 2018 are still subject to the old carryback/carryforward regime. Therefore, a pre-2018 loss may be carried back for two years and only carried forward for 20 years. In addition, a pre-2018 loss is not subject to the 80% limitation when utilized.

Taxpayers will need to track pre-2018 and post-2017 NOLs separately in order to correctly apply these limitations.

This information is based on the statutes and guidance available as of the date of publication (January 2018) and is subject to change.