The IRS today released an advance version of Notice 2018-38 as guidance for fiscal year corporate taxpayers concerning the federal income tax rates available under the new tax law (Pub. L. No. 115-97). The IRS noted that many U.S. corporations that use a fiscal year (and not a calendar year) for federal income tax purposes will pay a “blended” rate of federal income tax under the new tax law.
Under the new tax law, the rate of corporate income tax was reduced to a flat rate of 21%, effective for tax years beginning after December 31, 2017. The new law also repealed the application of the alternative minimum tax (AMT) imposed under section 55 to corporations, effective for tax years beginning after December 31, 2017.
Notice 2018-38 [PDF 22 KB] addresses the income tax rates under section 11(b) and the AMT for corporations under section 55 as well as the application of section 15 in determining the federal income tax (including the AMT) of a corporation with a fiscal or tax year that begins before January 1, 2018, and ends after December 31, 2017. The IRS notice explains that a corporation with a tax year that includes but does not start on January 1, 2018, must apply section 15(a) to determine the amount of federal income tax imposed under section 11 for that tax year. The notice further explains that certain taxpayers—e.g., life insurance companies and regulated investment companies—are not subject to the tax imposed under section 11(a), but are taxed under other Code provisions that use the rates of tax set forth in section 11(b). Examples are provided in the IRS notice to illustrate application of these measures.
A related IRS release—IR-2018-99—notes that with the new tax law, fiscal year corporate taxpayers will determine their federal income tax for fiscal years that include January 1, 2018, by:
The IRS release states that fiscal year taxpayers that already filed their federal income tax returns for the tax year that includes January 1, 2018, and that did not show the blended rate, may want to consider filing an amended return.
As noted in the IRS release, the federal sequester law remains in effect for the 2018 fiscal year, and corporations need to be mindful how these rules may affect their tax credits and refunds. Read an IRS release on the effect of sequestration on the alternative minimum tax credit for corporations.
© 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.KPMG International Cooperative (“KPMG International”) is a Swiss entity.
Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.