In detail

Background

The CAMT imposes a 15% minimum tax on the AFSI of applicable corporations. In general, a taxpayer’s AFSI is defined as the net income or loss on a taxpayer’s applicable financial statement (AFS) for a tax year, adjusted to take into account only income or loss allocable to the applicable corporation as well as for certain book-tax differences associated with depreciation, certain taxes, defined benefit pensions and tax credits, among other items. Consistent with Section 451(b)(3) and the related regulations, an AFS is a financial statement prepared in accordance with GAAP or IFRS, reported to the SEC, or otherwise used for reporting to shareholders or credit purposes, or as otherwise specified by Treasury in regulations or other guidance.

An applicable corporation subject to the CAMT for a tax year is a corporation (other than an S corporation, regulated investment company, or real estate investment trust) that meets an AFSI test in one or more tax years before the current tax year and ending after December 31, 2021. Under the 'general AFSI test,' a corporation is an applicable corporation if its average AFSI (excluding NOL carryovers and aggregated with that of other members of the corporation’s single-employer group) over the three tax years ending with the relevant tax year exceeds $1 billion. However, a two-part AFSI test applies to corporations that are members of a foreign-parented multinational group.

Observation: Despite interim guidance issued by the IRS earlier this year in Notice 2023-7 and Notice 2023-20, taxpayers have continued to face uncertainty in determining (1) whether they are applicable corporations subject to CAMT and (2) various adjustments in computing AFSI, such as determining a partner’s distributive share of partnership AFSI, certain items of foreign income, effectively connected income, and the treatment of other comprehensive income. For additional information on the interim guidance, please see the PwC Insights Interim guidance clarifies certain key issues under new corporate AMT and IRS addresses key insurance issues under the corporate alternative minimum tax.

Waiver of estimated tax penalties

Under the Notice, the computation of a corporation’s required installments of estimated tax may exclude amounts attributable to its Section 55 liability for the CAMT in order to prevent the imposition of an addition to tax under Section 6655. Accordingly, taxpayers are able to avoid the estimated tax penalties imposed by Section 6655 for CAMT liability without taking positions about the applicability of the CAMT to a corporation or determining the adjustments needed to compute a corporation’s AFSI.

However, the Notice specifies that other sections of the Code continue to apply, such as additions to tax of a corporation that fails to timely pay its CAMT liability when due. For example, additions to tax could be imposed under Section 6651 if payment of the CAMT liability is not made by the due date (without regard to any extension) of the corporation’s federal income tax return.

Note: To benefit from the waiver provisions of the Notice, affected taxpayers must complete Form 2220 (without including the CAMT liability from Schedule J) and file Form 2220 with their federal income tax returns, even if they do not owe any estimated tax penalty. Otherwise, taxpayers may receive a penalty notice that will require an abatement request to apply the relief provided by the Notice. 

The IRS also indicated that it expects to make changes to the instructions to Form 2220, Underpayment of Estimated Tax by Corporations, to clarify that no addition to tax will be imposed under Section 6655 based on a corporation’s failure to make estimated tax payments of its CAMT liability for any Covered CAMT Year, and that a taxpayer may exclude such amounts when calculating the amount of its required annual payment on Form 2220.