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Companies Seek Guidance on Alternative Minimum Tax

By:
S.J. Steinhardt
Published Date:
Aug 23, 2022

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The new corporate alternative minimum tax that will take effect in January 2023 is causing headaches for tax executives, who are seeking guidance from the U.S. Department of the Treasury, the Wall Street Journal reported.

A provision of the Inflation Reduction Act, the looming levy of 15 percent will apply to  U.S.-based companies that report income to shareholders averaging at least $1 billion over three years. The new tax is expected to raise about $222 billion over the next decade. The issue for many is trying to determine if they are one of the estimated 150 companies—most of which are expected to be manufacturers—that meet that threshold.

Uncertainties abound when making that determination. In addition to figuring out whether a company meets the $1 billion threshold, it must also find out whether adjustments included in the law will reduce its tax liability. Companies will also have to determine how they should disclose the potential effects of the minimum tax when they fill out financial statements.

For now, firms are grappling in a netherworld of unknowns. A big concern is that Treasury may not be able to issue guidance by the time the new tax takes effect.

“We’re going to get detailed guidance from the Treasury, IRS to tell us how to apply this,” John Gimigliano, principal-in-charge of the federal tax legislative and regulatory services group at KPMG, told the Journal. “But at the moment, there are as many questions as we have answers.”

Similarly, Ernst & Young requested “urgent guidance” from the Treasury that would prevent companies involved in split-off transactions from hitting the $1 billion threshold. EY’s global transaction advisory leader Karen Sowell voiced concern over the unintended results of such transactions.

“I think it’ll be a challenge for companies that are focused on their financial-statement reporting, because I don’t think we’ll have a lot of guidance by the time they’ll need to include it in their financial statements,” said Andersen Tax Managing Director Mary Duffy. “Companies are going to be scrambling."

 

 

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