AMT Alternative Minimum Tax could impair R&D tax credit in Senate Bill

Although the R&D tax credit has been retained in the 2017 tax bills (both versions), in Conference Committee, the Congress will have to work out what to do with AMT. The House bill repealed the corporate AMT (Alternative Minimum Tax that corporations must  pay) whereas in a last minute attempt to find funds to keep the tax bill under the limits, the Senate bill which passed on Saturday morning retained the AMT tax. With a rate of 20%, same as the proposed regular corporate tax rate, this risks putting many companies into AMT if this bill were passed, once companies figure in AMT adjustments such as depreciation differences for example. Under the AMT rules, a company must pay the higher of either AMT, figured under special rules and adjustments, or the regular tax (at the lower 20% rate).

As to the R&D credit, under current law, businesses under $50 million in receipts (considered small businesses) can still use the R&D credit even if in AMT, whereas larger companies over $50M are limited – if in AMT, then no R&D credit for the current year. This has many ‘large’ businesses complaining that they could perpetually be in AMT and not be able to utilize the R&D tax credit, even if they qualify.

The rub is that the Conference Committee has to come up with the funds to pay for this fix; one solution could be to retain the AMT but like small businesses, allow companies of all sizes to use the R&D credit even if in AMT. That would be a less costly fix than a repeal of the AMT. The President has signaled that he could live with a 22% corporate tax rate, so that would be another fix potentially – eliminate the AMT but raise the rate to 22%.

In any event, a lot of work on this and other issues in the next 2 weeks!

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