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Notice 2023-64 provides interim CAMT guidance on key issues
September 2023
In brief
Treasury and the IRS on September 12 released Notice 2023-64 (Notice), providing additional guidance on the application of the corporate alternative minimum tax (CAMT). The Inflation Reduction Act (IRA), enacted in 2022, imposes a 15% minimum tax based on the adjusted financial statement income (AFSI) of an ‘applicable corporation.’ The CAMT is effective for tax years beginning after December 31, 2022.
Action item: The Notice clarifies key issues while requesting comments on a number of topics to be addressed in future guidance. 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.
In detail
The Notice provides interim guidance on when corporations are subject to CAMT, CAMT foreign tax credits, tax consolidated groups, foreign corporations, depreciable property, wireless spectrum, duplications and omissions of certain items, and financial statement net operating losses. The Notice addresses:
- Definition of taxpayer - The Notice provides that a taxpayer is any entity identified in Section 7701 and the regulations thereunder (including a disregarded entity) regardless of whether the entity meets the definition of a taxpayer under Section 7701(a)(14) (i.e., any person subject to any internal revenue tax).
- Determining a taxpayer’s applicable financial statement (AFS) - The Notice provides a list of financial statements that meet the definition of an AFS and priority rules for identifying a taxpayer’s AFS.
- General rules for determining AFSI - The Notice provides general rules for financial statement income (FSI) and AFSI, including when a taxpayer’s financial results are reported on a consolidated financial statement. According to the Notice, FSI does not include amounts reflected elsewhere in the taxpayer’s AFS, including in equity accounts such as retained earnings and other comprehensive income.
- Determining FSI, AFSI, and tax imposed for tax consolidated groups - For a taxpayer that is part of an affiliated group of corporations that join in filing (or that are required to join in filing) a consolidated return for Federal income tax purposes (tax consolidated group), the Notice clarifies the determination of the FSI and AFSI as well as the amount of CAMT imposed on a tax consolidated group.
- Determining AFSI with respect to certain foreign corporations - The Notice includes guidance on timing of an appropriate adjustment to AFSI and when federal income or foreign income tax is considered taken into account on an AFS of a taxpayer. The guidance confirms that a taxpayer that is a US shareholder of a controlled foreign corporation (CFC) must apply adjustments set forth in both Section 56A(c)(2)(C) (relating to certain dividends) and Section 56A(c)(3) (relating to certain items of foreign income) to determine its AFSI with respect to such CFC.
- AFSI adjustments for certain taxes - The Notice provides that an an appropriate adjustment to AFSI with respect to any federal income taxes or foreign income taxes that are taken into account on the taxpayer’s AFS is made in the tax year or years in which such taxes increase or decrease the taxpayer’s FSI or are included as a component of an adjustment to AFSI.
- AFSI adjustments for Section 168 property - The Notice modifies and clarifies certain provisions of Notice 2023-7 in determining AFSI adjustments for Section 168 property, including adjustments for accounting method changes, adjustments for tax depreciation capitalized and subsequently deducted, adjustments for tax depreciation capitalized to non-inventory property held for sale, and adjustments related to dispositions of Section 168 property that occur for AFS purposes before they occur for regular income tax purposes.
- AFSI adjustments for qualified wireless spectrum - The Notice provides certain defined terms, AFSI adjustments for qualified wireless spectrum, adjustments for dispositions of qualified wireless spectrum and an example illustrating the adjustments. A taxpayer’s AFSI is not adjusted for wireless spectrum property that is not subject to amortization under Section 197 for regular tax purposes.
- AFSI adjustments to prevent duplications and omissions - The Notice provides guidance on AFSI adjustments for change in financial accounting principle, restatement of a prior year’s AFS, adjustment for amounts disclosed in an auditor’s opinion, and that timing differences do not give rise to duplications or omissions, even if the timing difference originated before the effective date of the CAMT and reversed after such effective date.
- Financial statement net operating losses (NOLs) - The Notice provides that the amount of a financial statement NOL carried forward to the first tax year a corporation is an applicable corporation (and subsequent tax years) is determined without regard to whether a taxpayer was an applicable corporation. The Notice also provides an example of this rule.
- Determining applicable corporation status - The Notice provides additional guidance on the aggregation rules under Section 59(k)(1)(D), including the application of Section 52 aggregation to aggregation of corporations, to partnerships and other noncorporate organizations, and to S corporations, RICs, and REITs. It also provides additional guidance on determining the applicable corporation status of members of a foreign-parented multinational group and disregarding the distributive share adjustment related to partnerships.
- CAMT foreign tax credit (FTC) - The Notice provides additional guidance on the definition of an eligible tax, when a tax is treated as taken into account on an AFS, foreign tax redetermination, and the treatment of partnership taxes. The Notice also provides that CFC taxes and the CFC FTC limitation is determined on an aggregate basis.
Notice 2023-64 states that taxpayers may rely on the guidance provided for tax years ending on or before the publication of the forthcoming proposed regulations in the Federal Register. A taxpayer also may rely on the interim guidance described in the Notice for any tax year that begins before January 1, 2024.
Observation: Notice 2023-64 is the fourth piece of interim guidance (following Notice 2023-7, Notice 2023-20, and Notice 2023-42) on the application of the CAMT since it was enacted in 2022. According to the Notice, Treasury and the IRS intend to issue proposed regulations addressing the application of the CAMT that would include proposed rules consistent with Notice 2023-64 and portions of the prior interim guidance. The Notice anticipates that forthcoming proposed regulations would apply for tax years beginning on or after January 1, 2024.
Issues not addressed by Notice 2023-64 include the determination of the AFSI of any corporation that is not included on a consolidated return with the taxpayer, the extent to which any unrealized marked-to-market gains and losses that are recognized in the taxpayer’s FSI should be adjusted in determining the taxpayer’s AFSI, and the manner in which a partner in a partnership should determine its distributive share of partnership AFSI. Notice 2023-64 states that Treasury and the IRS intend to address these issues in the forthcoming proposed regulations.
Treasury and the IRS request comments regarding the interim guidance provided in the Notice including specific issues on which additional CAMT guidance is needed (e.g., depreciation adjustments, qualified wireless spectrum adjustments, and AFSI adjustments to prevent duplications and omissions). The Notice also requests comments on circumstances in which adjustments to AFSI are required to clearly reflect income; the scope of the portion of the definition of Covered Benefit Plan set forth in Section 56A(c)(11)(B)(iii); treatment of dividends received from, and gains or losses from dispositions of stock of, foreign corporations for purposes of computing a taxpayer’s AFSI; and whether a branch that is not a disregarded entity should be treated the same as a disregarded entity when applying the rules in determining FSI from a consolidated AFS. Written comments are due by October 12, 2023; however, consideration will be given to any written comments submitted after that date if such consideration will not delay the issuance of the forthcoming regulations.
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