What Is the Corporate🉐 Alternative Minimum Tax (CAMT)?

The U.S. Congress enacted the corporate alternative minimum tax (CAMT) as part of the Inflation Reduction Act of 2022. It applies for 澳洲幸运5官方开奖结果体彩网:tax years beginning after Dec. 31, 2022.

Generally, corporations with average annual adjusted financial statement income (AFSI), or adjusted 澳洲幸运5官方开奖结果体彩网:book income, exceeding $1 billion for three consecutive tax years are taxed at a flat 15% rate in the third year, if the CAMT liability exceeds a corporation’s regular corporate tax liability.

Corporations subject to the CAMT must calculate their taxes under both the regular corporate tax rules and under the CAMT, and will be liable for the higher of the two amounts. The law does not apply to 澳洲幸运5官方开奖结果体彩网:S corporations, 澳洲幸运5官方开奖结果体彩网:real estate investment trusts, 澳洲幸运5官方开奖结果体彩网:regulated investment companies, and 澳洲幸运5官方开奖结果体彩网:private equity funds.

Reaso🤡ns for the Corporate Alternative Min♏imum Tax (CAMT)

CAMT supporters urged this tax as a remedy to the unfairness of very large corporations reporting significant income on their financial statements while paying little or no federal income tax. This focus on book income differs from an earlier federal CAMT that eliminated the use of tax incentives to avoid taxation, but was repealed by the Tax Cuts and Jobs Act (TCJA) of 2017. 

Because of the $1 billion threshold and categorical exemptions, the CAMT is expected to apply to fewer than 150 corporations. The Congressional Budget Office (CBO) has estimated that over a 10-year period, 澳洲幸运5官方开奖结果体彩网:fiscal years 2022–2031, the CAMT will increase federal tax revenues by more than $222 billion.

Interim IRS Guidance

On Dec. 27, 2022, the 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS) published initial interim guidance for the CAMT on issues that are time-sensitive because the law applies to tax year 2023. Taxpayers can rely on the interim guidance until the IRS issues proposed regulations.

The Dec. 2022 interim guidance addresses a number of statutory complexities. It provided a safe-harbor method for determining if a corporation’s income falls below the $1 billion threshold. Although characterized as a simplified method, it nonetheless entails complicated determinations, particularly for some consolidated corporations. In this and subsequent guidance, the IRS requested taxpayers’ comments and questions and suggested specific topics for consideration.

The IRS published additional interim guidance in 2023, some of which has clarified or revised its previous guidance (based in part on feedback). Guidance released in Feb. 2023 focuses on avoiding substantial unintended adverse consequences for life insurance companies and certain other taxpayers determining their AFSI, in part as it relates to variable contracts and similar contracts, and funds withheld reinsurance and modified coinsurance agreements.

In Sept. 2023, the IRS provided more extensive interim guidance, publishing general rules for determining a taxpayer's financial statement income and AFSI (including when the taxpayer's financial results are reported on a consolidated financial statement) as well as on "when corporations are subject to CAMT, CAMT foreign tax credits, tax consolidated groups, foreign corporations, depreciable property, wireless spectrum, duplications and omissions of certain items, and financial statement net operating losses." Included are revisions to the first interim guidance from Dec. 2022 regarding depreciation adjustments.

Finally, additional IRS interim guidance published on Dec. 15, 2023 provides rules for determining the AFSI of a U.S. shareholder when a controlled foreign corporation (CFC) pays a dividend to the U.S. shareholder or another CFC. This guidance also modifies and clarifies the rules published in September for determining the applicable financial statement of a corporation that's included in a consolidated tax return.

How CAMT Calculates Income

Because the CAMT applies only to corporations with average annual adjusted financial statement income exceeding $1 billion over three consecutive years, the adjustments that it requires corporations to make in calculating their income are critical factors. These include the substitution of certaﷺin tax rules for financial ones.  

For example, the CAMT deducts depreciation according to tax rules, which allow accelerated depreciation as an incentive, rather than using financial accounting rules. The financial rules approximate actual economic decline in asset values and spread deductions over longer periods. The CAMT also allows deductions for state and local taxes, which financial rules treat as expenses to be added back in determining book income. 澳洲幸运5官方开奖结果体彩网:Net operating losses and tax credits also receive special treatment under the CAMT. On the other hand, the CAMT does not allow 澳洲幸运5官方开奖结果体彩网:amortization deductions for goodwill and intangibles—such as 澳洲幸运5官方开奖结果体彩网:going concern value, workforce in place, and intellectual property—that are permitted by the regular corporate tax.

Financial statements reporting income potentially subject to the CAMT include generally accepted acc𝓀ounting principles (GAAP) st♏atements such as a 澳洲幸运5官方开奖结果体彩网:Form 10-K or other annual statement to shareholders filed with the U.S. 澳洲幸运5官方开奖结果体彩网:Secuဣrities and Exchange Commission (SEC), an audited financial statement used for a substantial nontax purpose such as for reporting to shareholders or partners, or a statement filed with a federal agency for other than tax purposes.

The CAMT also applies special rules for multinational enterprises. Determining if U.S. corporations belonging ♔to a multinational group with a foreign parent are subject to the CAMT involves two tests:

• The financial statement income of the entire group must exceed $1 billion.
• The three-year average annual financial statement income of all the U.S. corporations in the group must exceed $100 million. Thus, the $100 million test applies the CAMT to the U.S. subsidiaries only if they have significant income.

In determining the members of a corporate group, the required related ownership must exceed 50% in most circumstances, a level that is lower than the general rule of 80% used for consolidating corporations.

CAMT and the Global Corporate Minimum Tax

There is international support for a global corporate minimum tax to reduce tax competition among nations. In 2021, more than 130 countries agreed to a 澳洲幸运5官方开奖结果体彩网:global c𒊎orporate minimum tax proposal developed by the Organisat𓄧io𒈔n for Economic Co-operation and Development (OECD). The U.S. is a me🅰mber of the OECD and the most important signatory to the tax proposal. Implementation is scheduled for 2023.

The OECD minimum tax is a flat 15% tax on the profits of multinational corporations whose ultimate parent entity has average revenues of 750 million euros (€750 million), or approximately $814 million, or more in two of four years. The OECD plan is intended to discourage profit shifting and tax base erosion. To be effective, the flat rate tax must apply to a consistent and commonly defined income base.

Although the U.S. has signed the OECD agreement and employs the same flat tax rate, the structure of the U.S. CAMT does not conform to the basic OECD requirements. For example, the OECD plan applies to many more corporations than does the U.S. law. Because U.S. participation is necessary for the global minimum tax to achieve its goals, either amendments to the U.S. law or adjustments of the OECD design—or some combination of both—are necessary for an effective global minimum corporate tax.

The Bottom Line

The CAMT entails complexity for a small number of large corporations. However, it should improve fairness in taxation and is projected to raise more than $222 billion for the U.S. Treasury.

Although the U.S. CAMT employs the same rate as the OECD proposal, the structure of the U.S. law does not conform to the minimum basic requirements of the OECD proposal. Because U.S. participation in the global effort is critical, either the U.S. must amend its law and/or the more than 130 adherents to the OECD proposal must adapt their proposal. At least for the immediate
future, any revision presents serious challeﷺnges.