As the IRS considers guidance and proposed regs on the corporate alternative minimum tax (CAMT) established under the Inflation Reduction Act (PL 117-169), the American Institute of Certified Public Accountants (AICPA) on March 27 provided a list of recommendations not yet clarified in interim guidance.
The AICPA has weighed in on the so-called book minimum tax since the proposal was considered as part of President Biden’s Build Back Better Plan, submitting initial comments in October 2021. Before the legislative package that eventually became the inflation bill was enacted, the AICPA issued in July 2022 a more in-depth breakdown of tax issues presented by the 15% tax on certain high-profit companies based on adjusted financial statement income (AFSI).
The CPA group then called for immediate guidance last October, which the IRS released in an interim form in December, focusing on certain issues like how to determine CAMT adjustments for depreciation and income tax credit purposes. A safe-harbor method for determining an applicable corporation’s CAMT liability was also included in the interim guidance. (Notice 2023-7)
So far, CAMT guidance has been fairly limited and scope, oftentimes narrowly tailored to certain industries like insurance. In their latest batch of comments, AICPA Tax Executive Committee Chair Jan Lewis outlined to Treasury and IRS officials areas where proceeding guidance should touch on next. “The interim guidance released by Treasury and the IRS spotlights certain areas that should be addressed before the proposed regulations are released,” said Reema Patel, senior manager for tax policy and advocacy with the AICPA. “The AICPA’s recommendations and comments focus on four main issues that require some level of specificity and clarity in order to ensure tax compliance.”
The four areas are 1) financial reporting and accounting for income taxes; 2) passthrough issues; 3) general concepts and methods and periods; and 4) mergers and acquisitions issues.
First, the AICPA recommended that items within Other Comprehensive Income and other unrealized gains or losses of the like be excluded when calculating AFSI, as well as mark to market unrealized gains or losses. Additionally, the letter suggests that instead, the “taxpayer should only take into account dividends received from such corporation and other amounts includible in gross income or deductible as a loss for federal income tax purposes with respect to such corporation.”
Two recommendations under the passthroughs area relate to the distributive share adjustment, including clarifications of the scope of the Code Sec. 59(k)(1)(D) exception, and allowing for more flexibility of the meaning of “distributive share.” Examples of a “reasonable method” a partnership could use to determine its partners’ distributive shares of partnership AFSI should be added in future guidance. These may include, for instance, allocating AFSI “in accordance with the percentage share of net [Code Sec. 704(b)] income or loss,” according to the AICPA.
Much attention was given to the treatment of Code Sec. 168 property basis, such as for book depreciation. One recommendation given would have AFSI not increase when a tax credit is claimed with respect to Section 168 property. A de minimis safe harbor election should be allowed, according to the AICPA, “when the cumulative difference in basis between book and tax of all Section 168 Property of the same recovery period placed in service during the tax year is 5 percent or less of the taxpayer’s AFS basis in the property.”
Merger and acquisition issues outlined in the comments began with calling for more work at the definition level. For starters, the definition of a covered nonrecognition transaction and the scope of underlying adjustments should be modified to more closely specify when certain transactions are included (and under what circumstances), or excluded. Those transactions that “may technically qualify for nonrecognition treatment under the specified Code sections, but at the same time, do not result in the omission or duplication of an item in ADSI” should be excluded from the definition, the tax and accounting group said.
The American Bar Association’s Tax Section also recently commented on the interim CAMT guidance. Brett York, deputy tax legislative counsel at Treasury, said March 20 at a tax conference in Washington, D.C., that proposed CAMT regs are forthcoming but could not offer a timetable.
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