IRS releases CAMT guidance for certain CFC distributions and additional rules for determining an AFS

In brief

What happened? 

The IRS on December 15 released Notice 2024-10 (Notice), providing additional guidance on the application of the corporate alternative minimum tax (CAMT), which is effective for tax years beginning after December 31, 2022. 

The Notice provides interim guidance on several issues, including additional rules for determining the adjusted financial statement income (AFSI) of a US Shareholder when a controlled foreign corporation (CFC) pays a dividend to the US Shareholder or another CFC. The Notice also modifies and clarifies the interim guidance provided in Notice 2023-64 regarding the applicable financial statement (AFS) to be used by members of a tax consolidated group. 

Why is it relevant?

The Notice is the fifth piece of substantive guidance on the CAMT and comes as calendar-year corporations wrap up the 2023 calendar tax year.  

The Notice states that taxpayers may rely on the guidance provided in the Notice for Covered CFC Distributions (defined below) that are received on or before the date forthcoming proposed regulations are published in the Federal Register and, regardless of when forthcoming proposed regulations are published in the Federal Register, for Covered CFC Distributions received before January 1, 2024. As the Notice guidance is applicable to distributions occurring in 2023 and in 2024 prior to the proposed regulations, the relief provided may be limited. 

The Notice also states that taxpayers may rely on the guidance provided related to the modifications and clarifications to the AFS guidance for tax years ending before the date forthcoming proposed regulations are published in the Federal Register and, regardless of when forthcoming proposed regulations are published in the Federal Register, for any tax year beginning before January 1, 2024. However, taxpayers may not rely on the unmodified text of sections 4.02(5)(b)(i) or 6.02 of Notice 2023-64 for any tax return filed on or after December 15, 2023.  

What to consider  

As the CAMT is effective for tax years beginning after December 31, 2022, taxpayers potentially subject to the CAMT should consider how guidance in the Notice may impact previous positions that may have been taken based on a reasonable interpretation of the statute and prior interim guidance. Treasury and the IRS have indicated an intent to issue proposed regulations in early 2024 consistent with the interim guidance provided in, and modified and clarified by, the Notice. 

Comments are due by January 15, 2024. Although this provides a short window, taxpayers should consider submitting comments including whether an exclusion or dividends-received deduction for all CFC earnings should be provided. Comments also could recommend that Treasury and the IRS continue to follow the general approach taken in the Notice of relying on general tax principles (as opposed to a separate, CAMT-specific framework) for purposes of determining when CFC dividends should be included in AFSI.