Code Sec. 383 Credit Limitation Had No Impact On Election To Increase AMT Credit Limit

Chief Counsel Advice 201126029

In Chief Counsel Advice (CCA), IRS has concluded that a taxpayer's Code Sec. 168(k)(4) election (as in effect for the tax year at issue) to increase its alternative minimum tax (AMT) credit under Code Sec. 53 by foregoing 50% of additional first-year depreciation wasn't subject to the application of Code Sec. 383.

Background. Code Sec. 382 limits, after an ownership change, the amount of a loss corporation's taxable income for any post-change year that may be offset by pre-change losses. The amount of the limitation each year is equal to the product of the fair market value of all the stock of the loss corporation immediately before the ownership change multiplied by the applicable long-term tax-exempt rate (section 382 limitation). An ownership change is a change in the percentage of ownership of the loss corporation's stock owned by the 5% shareholders of more than 50 percentage points (by value) over a 3-year period. (Code Sec. 382(g), Reg. §1.382-2T(a)(1))

Similarly, Code Sec. 383(a)(1) provides that if an ownership change occurs with respect to a corporation, the amount of any excess credit (i.e., any unused general business credits and unused minimum tax credits of the corporation) for any tax year which may be used in any post-change year is limited. The limitation on the amount of any such excess credit that may be used is based on the corporation's tax liability which is attributable to so much of the taxable income as does not exceed the section 382 limitation for the post-change year to the extent available after the application of Code Sec. 382, the limitation on net capital losses, and the limitation of foreign tax credits.

Reg. §1.383-1(d) states that the amount of the regular tax liability of a new loss corporation for any post-change year that may be offset by pre-change credits will not exceed the amount of the Code Sec. 383 credit limitation for the post-change year. The Code Sec. 383 credit limitation for any tax year is equal to the excess of: (1) the corporation's income tax liability for the tax year; over (2) the amount of that liability, if an additional deduction were allowed for the amount of the corporation's remaining Code Sec. 382 limitation for that year, after being absorbed by pre-change losses. (Reg. §1.383-1(b), Reg. §1.383-1(c)(6))

Code Sec. 168(k)(4) (as in effect for the tax year at issue) generally allowed a corporation to make an election to forego 50% additional first-year depreciation and instead to increase its business credit limitation under Code Sec. 38(c) or AMT limitation under Code Sec. 53(c). Code Sec. 168(k)(4)(F) generally treated the increased credits as refundable credits.

Facts. On Date 1, Taxpayer had a Code Sec. 382 ownership change. For the tax year at issue, Taxpayer had a net operating loss (NOL) and no regular tax liability. Taxpayer made an election under Code Sec. 168(k)(4) to increase its AMT credit under Code Sec. 53.

CCA's conclusion. The CCA concluded that because no regular tax liability of Taxpayer was offset, the refundable AMT credit resulting from a Code Sec. 168(k)(4) election wasn't subject to Code Sec. 383.

The CCA reasoned that Code Sec. 383, as implemented by regs, applies to limit the use of certain credits available to offset regular tax liability. In this case, Code Sec. 383 didn't apply because the taxpayer had no regular tax liability in the tax year at issue, and the credits at issue would be refunded, per Code Sec. 168(k)(4), without offsetting regular tax liability.

References: For Code Sec. 383 limitation on credits, see FTC 2d/FIN ¶E-8953.1; United States Tax Reporter ¶3834.01; TaxDesk ¶240,328; TG ¶5359.