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Federal Tax

Commenters Call for Swift Clarification on Corporate AMT for Safe Harbor, Other Matters

Christopher Wood, CPP  

· 5 minute read

Christopher Wood, CPP  

· 5 minute read

Comments submitted to newly appointed IRS Commissioner Daniel Werfel on behalf of the American Bar Association’s (ABA) Section of Taxation say that guidance on the Corporate Alternative Minimum Tax (CAMT), a provision of 2022’s Inflation Reduction Act, is “needed as soon as possible in order to prepare financial statements, calculate taxes, and plan and execute transactions.”

At the end of 2022, Notice 2023-7 was issued by the IRS “to provide certainty to taxpayers in advance of the CAMT effective date.” Both the Treasury and IRS have referred to the CAMT as “a key provision of the Inflation Reduction Act” that imposes a 15% minimum tax on the adjusted financial statement income of large corporations for taxable years beginning after December 31, 2022 (see IRS Issues Corporate AMT Guidance (12/28/2022)).

The IRS’ late-2022 notice permitted comments on the CAMT, which generally applies to large corporations with average annual financial statement income exceeding $1 billion (see first-year safe harbor below). For 2023, the IRS posted more specific interim guidance on the CAMT in mid-February for insurance companies and certain other taxpayers.

Comments from Brett York, Treasury Deputy Tax Legislative Counsel, at the Tax Executives Institute’s (TEI) conference in Washington D.C. on March 20 explained that the proposed CAMT regulations are being worked on but York declined to provide a specific release date.

In the meantime, the more than 100-page document from the ABA’s Section of Taxation offers ample requests for modifying and clarifying the interim guidance released by the Service in Notice 2023-7. The submission applauds the information but calls for certain changes to the application of the new rules under Code Sec. 56ACode Sec. 59(k), and Code Sec. 59(I) in an expeditious manner “because CAMT is already in effect.”

Safe harbor for determining applicable corporation status.

Notice 2023-7 allows for an adjustment period this year for the new CAMT requirements with regard to determining applicable corporation status. As such, for 2023, the applicable corporation thresholds are reduced from $1 billion to $500 million, and from $100 million to $50 million for foreign-parented groups’ U.S. adjusted financial statement income (AFSI).

The ABA’s Section of Taxation supports the safe harbor, believing that it will “greatly simplify determinations for many corporations that are almost certainly not applicable corporations” this year. The comments also recommend a permanent simplified safe harbor be adopted and request certain refinements to the safe harbors, including rules for allocating book income on account of corporate transactions that occur during a safe harbor period.

Other recommendations.

The lengthy list of comments includes many other recommendations for the IRS and Treasury’s upcoming rules around the CAMT. One asks the agencies to adopt regulations that require Code Sec. 56A to be applied in a manner that will prevent duplications and omissions of book income.

Another recommendation calls for guidance treating computer software, qualified films or television productions, and qualified live theatrical productions as depreciable property for purposes of Code Sec. 56A(c)(13), even if a taxpayer elects to forgo the additional first-year depreciation deduction provided in Code Sec. 168(k).

There is also a request for guidance to clarify that a corporate partner may include its proportionate share of foreign taxes paid by a partnership for purposes of computing its amount of CAMT foreign tax credit (FTC) by applying the principles of Code Sec. 704(b) to allocate the appropriate amount of partnership creditable foreign tax expenditures to the corporate partner for CAMT FTC purposes.

In addition, the ABA’s Section of Taxation asks for guidance to clarify how to determine the basis of Code Sec. 168 Property for purposes of making adjustments under Code 56A(c)(13). with a simplifying assumption and a safe harbor for tracking differences in book and tax basis to ease administrative burdens.


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