Interim guidance clarifies certain key issues under new corporate AMT

In brief

The Inflation Reduction Act (IRA), enacted August 16, imposes a corporate alternative minimum tax (CAMT) based on adjusted financial statement income of ‘applicable corporations.’ The CAMT is effective for tax years beginning after December 31, 2022 (CAMT year).

Notice 2023-7 (Notice) provides interim guidance pending publication of proposed regulations on how the CAMT applies to corporations, certain partnerships, troubled corporations, and affiliated groups of corporations that file consolidated tax returns. The interim rules also address determining CAMT adjustments for depreciation and the treatment of federal income tax credits and provide a safe-harbor method for determining whether a corporation is an applicable corporation subject to the CAMT. 

The Notice also advises that, before issuing the proposed regulations, the IRS and Treasury intend to provide additional interim guidance on the CAMT treatment of items that are marked to market for financial statement purposes (such as life insurance company separate account assets and some financial products), the treatment of certain items reported in other comprehensive income (OCI), and the treatment of embedded derivatives arising from certain reinsurance contracts.

The Notice advises that the IRS and Treasury anticipate that future proposed regulations will be consistent with the substantive rules provided in the Notice and will be proposed to apply to tax years beginning after 2022, and that taxpayers may rely on the Notice’s interim guidance until the proposed regulations are issued.

Action item: The Notice covers a broad range of areas with some welcome guidance for taxpayers, while requesting comments on a number of issues to be addressed in future guidance. However, the Notice does not address specific international tax issues such as the potential double taxation of earnings distributed from foreign corporations and the determination of the existence and scope of a foreign-parented multinational group (FPMG). Companies and affected taxpayers should consider providing comments on these issues and other requested topics, as well as on areas not addressed by the Notice. Additionally, as the CAMT is effective for tax years beginning after December 31, 2022, taxpayers may need to take positions based on a reasonable interpretation of the statute along with the guidance provided by the Notice.

PwC professionals will discuss the Notice and issues related to the CAMT on a Tax Readiness webcast on January 11, 2023, at 2:00 PM ET. Please register here.