8963 / Were there any exceptions to the rule that corporations were subject to the alternative minimum tax? Could small corporations be exempt from AMT requirements?

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 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 (this basically means that the full amount of the credit will be available before 2022).² The rules discussed below generally apply for tax years beginning before 2018. See Q 8962 for a discussion of the 2020 CARES Act changes.

Certain small corporations were deemed to have a tentative minimum tax of zero and were, therefore, exempt from the AMT.³ To qualify, the corporation was required to meet a $5 million gross receipts test for its first taxable year beginning after 1996, under which average annual gross receipts for the previous three years could not exceed $5 million. If the corporation had not existed for three full years, the years the corporation was in existence were substituted for the three years (with annualization of any short taxable year). The corporation was required to continue to satisfy this test in each subsequent tax year to remain exempt, but with $7.5 million substituted for $5 million.⁴

Gross receipts means those receipts properly recognized under the taxpayer’s method of accounting for federal income tax purposes. Gross receipts include total sales (net of returns and allowances) and all amounts received for services. It also includes all investment income such as interest, dividends, rents and royalties. Gross receipts are generally reduced by the adjusted basis of capital assets or property sold in a trade or business.⁵

If a corporation loses its AMT exemption, certain adjustments used to determine the corporation’s AMTI were applied for only those transactions entered into or property placed in service in tax years beginning with the tax year in which the corporation ceased to be a small corporation and tax years thereafter.⁶

A corporation exempt from the AMT because of the small corporation provision may have been limited in the amount of credit it could take for AMT paid in previous years. In computing the AMT credit, the corporation’s regular tax liability (reduced by applicable credits) used to calculate the credit was reduced by 25 percent of the amount that such liability exceeded $25,000.⁷