
On Sept. 12, the IRS and the Treasury Department released proposed regulations offering guidance on the Corporate Alternative Minimum Tax (CAMT).
The Treasury Department, in a press release, said that the Notice of Proposed Rulemaking was issued “to increase tax fairness and address significant corporate tax avoidance by some of the largest and most profitable U.S. corporations by implementing the Inflation Reduction Act’s Corporate Alternative Minimum Tax.”
Treasury Secretary Janet Yellen said “The proposed rules released by Treasury today are an important step toward realizing Congress’ efforts to address the most egregious U.S. corporate tax avoidance and ensure the largest and most profitable corporations in the country cannot pay little to no taxes.”
Yellen added that the CAMT "will also help level the playing field for small businesses while generating hundreds of billions of dollars in revenue.”
The CAMT imposes a 15% minimum tax on large corporations' adjusted financial statement income for taxable years starting post Dec. 31, 2022. It generally applies to large corporations with an average annual adjusted financial statement income of over $1 billion, according to an IRS
release.
The proposed regulations offer definitions and general rules for determining and identifying adjusted financial statement income. They also include rules on different statutory and regulatory adjustments in determining adjusted financial statement income and whether a corporation is subject to the CAMT. The proposal also includes rules for members of a foreign-parented multinational group and determining the CAMT foreign tax credit.
The proposed regulations also address the application of the CAMT to affiliated corporations that are filing a consolidated income tax return.
The Treasury Department is estimating that roughly 100 of the largest and most profitable firms will pay the CAMT annually. Otherwise, these companies would have only paid an average effective federal tax rate of 2.6 percent. Additionally, about 60% of CAMT payers would otherwise have paid an effective tax rate of less than 1%, which also includes 25% of payers that would have paid an effective tax rate of zero.
The agency attributed these companies’ ability to avoid paying taxes to their use of “tax preferences and aggressive planning strategies to pay little to no taxes. These corporations report record profits to shareholders while often paying lower tax rates than nurses, firefighters, police officers, and teachers. Their ability to use complex strategies to avoid tax also gives them an unfair competitive advantage over small businesses, which don’t have access to the same tax planning techniques and high-paid lawyers and accountants.”
Bloomberg Tax reported that many tax experts are still in the process of understanding the 603-page regulations. These professionals believe that, although the rules are a thorough attempt to address several ongoing questions regarding the CAMT, their broadness and complex nature will compel firms to take on a heavier compliance burden while doing a copious number of new calculations.
In order to provide interim guidance on the CAMT, the IRS previously issued Notice 2023-07, Notice 2023-20, Notice 2023-64 and Notice 2024-10. The proposed regulations issued on Sept 12 include rules incorporating this interim guidance.
Public comments on the proposed rules are due on Dec. 12 and a public hearing on them is set for Jan. 16, 2025.
Meanwhile, the IRS also issued Notice 2024-66 on Sept. 12. This notice waives the penalty for a corporation’s failure to pay estimated tax with respect to its CAMT for a taxable year that begins after Dec. 31, 2023, and before Jan. 1, 2025.