Once a corporation makes the CARES Act election, the refundable minimum tax credit is not prorated in a short tax year

Plain-English summary

An exempt organization that owed tax on unrelated business income had built up an old alternative minimum tax (AMT) credit under section 53. The CARES Act (2020) made that leftover corporate AMT credit refundable and let a corporation elect to claim the whole refundable amount in its first tax year beginning in 2018. This taxpayer had a short tax year because it merged into a related organization, and section 53(e)(4) normally shrinks the AMT refundable credit for any year shorter than 365 days. The taxpayer asked whether that short-year proration still applies after it made the election to claim the full credit. Chief Counsel advised that it does not: once the election under section 53(e)(5) is made, subsection (e)(1) drops out by its own terms, which in turn switches off (e)(2), and since the short-year proration in (e)(4) exists only to limit the (e)(2) amount, it has nothing left to limit. The credit therefore flows through paragraph (3) as a fully refundable credit, and the taxpayer is entitled to a refund of 100 percent of the refundable minimum tax credit. This matters because it lets a corporation with a stub or merger-shortened year keep the entire CARES Act AMT refund instead of losing a day-count fraction of it.

Ruling snapshot

• Question: After a corporation makes the section 53(e)(5) election to claim the full refundable minimum tax credit, must the credit still be prorated under section 53(e)(4) for a short tax year?
• Outcome: Advice given (no proration; taxpayer entitled to a 100 percent refund).
• Key authorities: IRC § 53(e)(1)-(5); CARES Act § 2305 (Pub. L. No. 116-136); IRC § 11.

Full text (IRS public release)

 ID:           CCA_2021113015541842
 UILC:         53.00-00

Number: 202209012
Release Date: 3/4/2022
From: --------------------
Sent: Tuesday, November 30, 2021 3:54:18 PM
To: --------------------------
Cc: -------------------------------------------
Bcc:
Subject: FW: EO CASE ASSIGN: POSTU-121624-21 - CARES Act Refundable Minimum Tax Credit
Issue


-----------,

You asked us how section 53(e) of the Internal Revenue Code applies in the following
situation. Taxpayer-organization (Taxpayer) is an exempt entity that is subject to
income tax on unrelated business activity. Taxpayer's income for such activity is
calculated at the same rate as the corporate rate under Code section 11, and Taxpayer
was subject to alternative minimum tax (AMT) and accrued the section 53 minimum tax
credit. Taxpayer, which has a ------------year end, filed an original Form 990-T for the
short-year ending ---------- requesting a refund of $-------------, which included a $----------
----------------prepayment carried over from the ---------- return plus a credit of $------------
reported on Form 8827, Credit for Prior Year Minimum Tax - Corporations. Taxpayer
merged into a related organization on -------------------------- and therefore had a short
year ending ----------. As a result, taxpayer prorated the refundable minimum tax credit
on line 6 of Form 8827 and determined it to be $-----------.

Following the passage of the Coronavirus Aid, Relief, and Economic Security Act
(CARES Act), Pub. L. No. 116-136, 134 Stat. 281 (March 27, 2020), Taxpayer filed an
amended return (Form 990-T), which included a Form 8827 on which Taxpayer
calculated the refundable minimum tax credit on line 6 in the amount of $--------------------
---------. Taxpayer thus requested a refund of 100% of the refundable minimum tax
credit.

Section 2305 of the CARES Act amended section 53(e) of the Code to allow a
corporation to claim for its taxable years beginning in 2018 and 2019 the refundable
credit for AMT incurred by the corporation in prior taxable years (refundable minimum
tax credit). Section 2305 of the CARES Act also authorizes an election under which a
corporation can claim the entire amount of the refundable minimum tax credit in the
corporation's first taxable year that begins in 2018.

The question presented is whether Taxpayer's refundable minimum tax credit for its
short taxable year ending ---------- must be prorated under paragraph (4) of subsection
(e) when Taxpayer made an election under paragraph (5).
                                           2


Section 53 (e)(4), states that in the case of any taxable year of less than 365 days, the
AMT refundable credit is prorated in an amount based on the ratio of the number of
days in the tax year to 365. Once a taxpayer makes the (e)(5) election, paragraph (1) of
subsection (e) does not apply because of the express language in subparagraph (A) of
subsection (e)(5). As a result, paragraph (2) also does not apply because that
paragraph contains the following qualifying language: ". . . For purposes of paragraph
(1), the AMT refundable credit amount is . . ." And because paragraph (2) doesn't
apply, neither does paragraph (4) because the only effect of such paragraph is to limit
the refundable credit amount under subsection (e)(2) in short year situations. No
provision limits or negates the effect of paragraph (3) of subsection (e) and thus the
credit allowed is treated as a credit allowed under subpart C and therefore fully
refundable. As result, Taxpayer is entitled to a refund of 100 percent of the refundable
minimum tax credit for its year ending -------.

Please let us know if you need anything further.

Gerald Semasek
Attorney
Office of Associate Chief Counsel
(Income Tax & Accounting)
Branch 5, Room 4231
Washington DC 20224
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