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Cypress Corporation, a calendar year end corporation, has an AMT credit carryforward from 2017 in the...

Cypress Corporation, a calendar year end corporation, has an AMT credit carryforward from 2017 in the amount of $43,000. In 2018, Cypress has $170,000 of taxable income. What is the amount of refund Cypress can expect to receive from its 2018 tax return filing?

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Expert Solution

AMT was introduced to collect tax from zero tax companies and AMT paid by the companies. When the actual tax is lower than the AMT then AMT credit is created and carried forward which reduces the taxes to be paid in future by the amount of AMT credit.

Between 2017 and 2022, the AMT credit can be refunded to the amount of 50% of the excess of AMT credit over the normal tax liability. Only in 2021, 100% excess AMT credit refund is allowed.

In 2018, the corporate tax rate is 21%.

Income before tax = $170,000

Tax liability for 2018 = Income before Tax * Tax rate = $170,000*21% =$35,700

Thus the current year tax liability is $35,700.

Since AMT credit is $43,000, therefore it will offset the current year tax liability of $35,700.

Excess AMT credit = AMT credit carryforward - Tax liability in 2018 = $43,000 - $35,700 = $7300

AMT credit refunded = 50%*Excess AMT credit = 50%*$7300 = $3,650

Hence the refund amount expected is $3,650.

jeff jeffy answered 1 year ago
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