Sequestration has been blamed for everything from cancelled White House tours to military cutbacks that threaten national security to government worker furloughs. The latest victim of sequestration, however, might have a more difficult time garnering sympathy: corporate tax credits. The Internal Revenue Service has just announced that for corporate tax returns filed or amended on or after August 13, 2013, the "refundable portion of the credit for prior year minimum tax liability" will be cut by 38 percent. The announcement was made on the IRS website under the heading "Effect of Sequestration on the Alternative Minimum Tax Credit for Corporations":
The Balanced Budget and Emergency Deficit Reduction Act of 1985, as amended, requires certain spending cuts during Fiscal Year 2013 due to the sequester triggered earlier this year. These required cuts reduce the refundable portion of the credit for prior year minimum tax liability made to corporations, which will be effective for original or amended tax returns beginning August 13, 2013. As a result, the refundable portion of these credits will be reduced by 38 percent. The sequestration reduction rate will be applied until the end of fiscal year (September 30, 2013) at which time the sequestration rate is subject to change depending on congressional action.
A corporation that can claim an additional first-year depreciation deduction under section 168(k) can choose instead to accelerate the use of its prior year minimum tax credits, treating the accelerated credits as refundable credits. Corporations making this section 168(k)(4) election and claiming a refund of prior year minimum tax credits should complete Form 8827. These corporations will be notified that a portion of their requested refund was subject to the sequester reduction.
Corporations making the section 168(k)(4) election but not claiming a refund of prior year minimum tax credits are not subject to this reduction.