This interpretation came about as a response to the Inflation Reduction Act (Act) enacted on August 16, 2022, and included a new corporate alternative minimum tax (CAMT). The CAMT is effective for tax years beginning after 2022. As with any new tax law, it created quite a “buzz” in the industry but turned out to be narrow, as most entities will not be taxed due to relatively high income thresholds.
The regulation has numerous provisions, but in a nutshell, the tentative CAMT is 15% of the corporation’s “adjusted financial statement income” for the tax year, reduced by corporate alternative minimum foreign tax credit. The CAMT applies only to corporations (determined on a tax-controlled group basis as defined for federal income tax purposes; this could include standalone unaffiliated entities that meet the specified income thresholds – see paragraph 3 below) with average annual adjusted financial statement income in excess of $1 billion for three prior taxable years. The threshold is reduced to $100 million in the case of certain foreign-owned corporations.
The INT provides detailed accounting guidance and disclosure requirements for CAMT based on the entity’s status. In an annual determination of status, all reporting entities are separated into the following categories:
- Nonapplicable reporting entities
- Applicable reporting entities
- Applicable reporting entities with tax allocation agreement (also called tax sharing agreements) exclusions
Important to note:
Nonapplicable reporting entities: Even though further assessment of the CAMT is not required for nonapplicable reporting entities, applicable disclosures are still required in the notes to the financial statements. The disclosure can simply state that the reporting entity is not subject to CAMT.
Applicable reporting entities (with or without tax allocation agreement exclusions): Since CAMT was newly enacted to be effective for 2023, tax allocation agreements in effect for periods prior to the 2023 taxable year include no explicit provisions relating to the CAMT. Thus, applicable reporting entities may need to amend tax allocation agreements to deal with the CAMT effective for the entire 2023 taxable year. Accordingly, if a reporting entity files the applicable Form D request(s) for tax allocation agreement amendment or a new tax allocation agreement prior to the end of 2023 to address the CAMT for 2023 and subsequent taxable years, and the domiciliary regulator has confirmed in writing that they have no objections to using the new tax allocation agreement amendment or new tax allocation agreement, while under review, the reporting entity shall be allowed to account for the tax allocation agreement as applicable for the entire 2023 reporting period.
Effective Date: for 2023 year-end financial reporting