8962 / Are C corporations subject to the alternative minimum tax? How is the corporate alternative minimum tax calculated?

Editor’s Note:The 2017 tax reform legislation eliminated the corporate AMT.¹ Corporate taxpayers with existing AMT credit from a prior year may offset regular tax liability with the credit for any taxable year. Existing AMT credits will be refundable for tax years after 2017 and before 2022 in an amount equal to 50percent (100percent before 2021) of the excess of the minimum tax credit for the taxable year over the amount of the credit allowable for the year against regular tax liability (this basically means that the full amount of the credit was available before 2022).² See heading below for modification of this treatment under the 2020 CARES Act. The discussion below generally applies for tax years beginning before 2018 unless otherwise noted. See Q for a discussion of the Inflation Reduction Act’s corporate alternative minimum tax.

Prior to 2018, a corporate taxpayer was required to calculate its liability under the regular tax and a tentative minimum tax, and then add to its regular tax the amount of tentative minimum tax as exceeds the regular tax. The amount added was the corporate alternative minimum tax (AMT).³

To calculate its AMT, a corporation first calculated its “alternative minimum taxable income” (AMTI), as explained below.⁴ The corporation then calculated its “adjusted current earnings” (ACE), also explained below. The corporation increased its AMTI by 75 percent of the amount by which ACE exceeded AMTI (or reduced its AMTI by 75 percent of the amount by which AMTI exceeded ACE).⁵ The tax itself was a flat 20 percent rate, applied to the corporation’s AMTI after it was adjusted based on ACE.⁶

Each corporation received a $40,000 exemption, similarly to the AMT exemption applicable to individuals (see Q 8578). The corporate exemption amount, however, was reduced by 25 percent of the amount by which AMTI exceeded $150,000 (phasing out completely at $310,000).⁷

AMTI is regular taxable income determined with certain adjustments and increased by tax preferences.⁸ “Tax preferences” for corporations are the same as for other taxpayers. Adjustments to income include:

(1) property is generally depreciated under a less accelerated or a straight line method over a longer period, except that a longer period is not required for property placed in service after 1998;

(2) mining exploration and development costs are amortized over 10 years;

(3) a percentage of completion method is required for long-term contracts;

(4) net operating loss deductions are generally limited to 90 percent of AMTI (although some relief was available in 2001 and 2002);

(5) certified pollution control facilities are depreciated under the alternative depreciation system except those that are placed in service after 1998, which will use the straight line method; and

(6) the adjustment based on the corporation’s ACE.⁹

To calculate ACE, a corporation begins with AMTI (determined without regard to ACE or the AMT net operating loss) and makes additional adjustments. These adjustments include adding certain amounts of income that are includable in earnings and profits but not in AMTI (including income on life insurance policies and receipt of key person insurance death proceeds). The amount of any such income added to AMTI is reduced by any deductions that would have been allowed in calculating AMTI had the item been included in gross income. The corporation is generally not allowed a deduction for ACE purposes if that deduction would not have been allowed for earnings and profits purposes, though a deduction is allowed for certain dividends received by a corporation. Generally, for property placed into service after 1989 but before 1994, the corporation must recalculate depreciation according to specified methods for ACE purposes. For ACE purposes, earnings and profits are adjusted further for certain purposes such as the treatment of intangible drilling costs, amortization of certain expenses, installment sales, and depletion.¹⁰

A corporation subject to the AMT in one year may be allowed a minimum tax credit against regular tax liability in subsequent years. The credit is equal to the excess of the adjusted net minimum taxes imposed in prior years over the amount of minimum tax credits allowable in prior years.¹¹ However, the amount of the credit cannot be greater than the excess of the corporation’s regular tax liability (reduced by certain credits such as certain business related credits and certain investment credits) over its tentative minimum tax.¹² For tax years beginning after 2017, existing AMT credits will be refundable for tax years after 2017 and before 2022 in an amount equal to 50 percent (100 percent before 2021) of the excess of the minimum tax credit for the taxable year over the amount of the credit allowable for the year against regular tax liability (i.e., the full amount of the credit was available before 2022).¹³

CARES Act

As noted above, the 2017 tax reform legislation generally repealed the corporate AMT, but also permitted corporations to continue claiming a minimum credit for prior year AMT paid. The credit was carried forward to offset corporate tax liabilityin a later year.The CARES Act eliminated certain limitations that applied to the carryover provision, so that corporations can claim refunds for their unused AMT credits for the first tax year that began in 2018 (i.e., the corporation can take the entire amount of the refundable credit for 2018).¹⁴The corporation was required to submit the application for refund before December 31, 2020.