Corporate Alternative Minimum Tax Guidance: What We Know So Far

In a November 6 webcast, a panel of Ernst & Young (EY) tax professionals analyzed the suite of interim IRS guidance on the corporate alternative minimum tax (CAMT) issued to date, covering new safe harbors, simplified partnership rules, and alignment with regular tax principles for corporate transactions.

Four notices issued within the last year address criticism of September 2024 proposed regs by providing more taxpayer-favorable safe harbors and simplification methods, particularly for partnerships, corporate transactions, and fair value accounting, which taxpayers can rely on until final regulations are issued.

The CAMT, enacted as part of the Inflation Reduction Act of 2022, imposes a 15% minimum tax on the adjusted financial statement income (AFSI) of large corporations with average annual AFSI exceeding $1 billion. Often called the book minimum tax, the rules have proven complicated to implement. The IRS intends to partially withdraw and revise those proposed regs based on stakeholder feedback.

New Safe Harbor and Partnership Rules

Notice 2025-27 provides an optional safe harbor that reduces the compliance burden for many corporations. According to EY Partner Jeshua Wright, this is a “huge benefit for a lot of taxpayers who knew they weren’t going to have a liability and didn’t want to have to go through all the work of preparing” Forms 4626, Alternative Minimum Tax – Corporations. The notice raises the testing thresholds from $500 million to $800 million for domestic corporations and from $50 million to $80 million for the U.S. operations of foreign-parented groups.

However, the moderator of the panel, Partner Tim Powell, cautioned that even if a company fails to meet the safe harbor, it does not automatically make it an applicable corporation. “Then you just shift to the statutory test, which has higher thresholds,” he explained, but the tradeoff is an “enhanced compliance requirement. You’ve got to file a 4626, so compliance is more difficult.”

Notice 2025-28 provides three new elective methods for partners to calculate their distributive share of a partnership’s AFSI. This moves away from the “bottom-up” approach in the proposed regulations that could lead to “distributive share percentages that were not just in excess of 100%; they were in the four digits,” according to Principal Chris Mayer-Dempsey. He noted that while the new options simplify compliance, they also introduce new complexities.

“Now the hard part is figuring out what is the right combination of methods to use and navigating the fact that the choice you make for one of these issues can constrain your choice that you make for the other,” he said. The new options include the top-down election, the taxable-income election for partners with a small interest, and the full Subchapter K method, which more closely aligns the CAMT treatment of partnership contributions and distributions with regular tax rules.

Troubled Companies, Consolidated Groups, and Fair Value

Notice 2025-46 addresses domestic corporate transactions, troubled companies, and consolidated groups. For domestic corporate transactions, the notice largely abandons the complex “cliff effect” of the proposed regulations. National Tax Managing Director Marie Milnes-Vasquez explained that the notice “broadly adopts the rules of Subchapter C,” meaning financial statement income is disregarded and gain is recomputed under regular tax rules, but using CAMT basis.

This change was welcomed by the panel. Principal Brian Peabody noted that the proposed regulations had “introduced a whole separate concept” in the cliff effect rule that the notice simplified to help steer taxpayers back to familiar concepts they may have already computed.

For tax consolidated groups, however, the notice represents a “wholesale importation of the regular tax regime,” a welcome departure from the proposed regs’ approach, said Peabody. Changes he supported in the notice include ‘turning off’ the separate return limitation year (SRLY) and IRC § 382 rules for CAMT purposes.

The notice is “giving us a set of rules that folks already have spent time with,” Peabody added. “You know that the IRS has already developed significant administrative guidance around issues that the courts have already addressed.” These familiar guideposts, said Peabody, “can be more easily leveraged into the system rather than starting fresh again.”

Regarding the utilization of financial statement net operating losses (FSNOLs), Peabody noted that the notice provides a “very generous result” for acquired FSNOLs by shifting away from both the “quasi-SRLY” and IRC § 382 limitations. He added that “taxpayers will not have to deal with the administrative burden of computing limitations on losses, including built-in losses.”

Notice 2025-49 introduces several new elective AFSI adjustments. To address mismatches for items measured at fair value, taxpayers now have two new options. According to Partner Tim Kerr, the fair value item, or FVI, exclusion option allows a taxpayer to disregard the fair value measurement adjustment in determining AFSI for certain unrealized gains and losses.

The notice also provides a key adjustment for goodwill amortization. In what Powell called a “super helpful adjustment,” the notice allows an election for certain goodwill acquired before the CAMT was enacted. For this eligible goodwill, taxpayers can “remove the book amounts and replace them with your tax amortization on that goodwill,” explained Wright.

This is helpful, said Wright, because for book purposes, “goodwill isn’t running through AFSI … you have to wait [until] it’s impaired. And if it’s not impaired, it just sits out there and you have a big book tax difference.”

For more on issues addressed by existing corporate alternative minimum tax guidance, such as the definition of adjusted financial statement income, see Checkpoint’s Federal Tax Coordinator 2d ¶ A-8975.