CAMT Guidance for Calculating Corporate Tax Liability

The Corporate Alternative Minimum Tax (CAMT), introduced by the Inflation Reduction Act of 2022, is a 15% minimum tax calculated on the financial statement income of large corporations, rather than on their taxable income. This approach ensures that highly profitable corporations, which may report substantial earnings to shareholders but have low taxable income, contribute a minimum amount of tax.

The CAMT operates parallel to the regular corporate income tax system. An affected corporation must calculate its tax liability under both sets of rules and ultimately pays the higher amount. The tax is aimed at a small number of large corporate entities, with the Joint Committee on Taxation estimating that around 150 companies will be subject to it. This framework alters how these entities approach tax planning, focusing on their financial statement figures.

Determining CAMT Applicability

A corporation is subject to the CAMT if it is an “applicable corporation,” a status based on its adjusted financial statement income (AFSI). The general test applies to a U.S.-parented corporate group with an average annual AFSI of more than $1 billion. This average is calculated over a three-consecutive-taxable-year period. If a corporation has existed for fewer than three years, the test is based on the years of its existence.

A separate test applies to U.S. corporations within a foreign-parented multinational group. For the CAMT to apply, the global group must exceed the $1 billion average annual AFSI threshold. Additionally, the U.S. corporation and other U.S. entities in the group must have an average annual AFSI of at least $100 million over the same three-year period.

Broad aggregation rules prevent companies from avoiding the thresholds. For these income tests, the AFSI of all entities treated as a single employer must be combined. This includes parent-subsidiary controlled groups, where one corporation owns more than 50% of another, and brother-sister controlled groups. These rules require a corporation to consolidate the income of related entities to test for applicability.

Certain entities are exempt from the CAMT regardless of their income levels. These statutory exceptions include S corporations, Regulated Investment Companies (RICs), and Real Estate Investment Trusts (REITs).

Calculating Adjusted Financial Statement Income

Calculating Adjusted Financial Statement Income (AFSI) forms the tax base for the CAMT. The process begins with identifying the corporation’s Applicable Financial Statement (AFS). The IRS prioritizes certified financial statements filed with the SEC, such as a Form 10-K, as the AFS. The hierarchy then includes other audited financial statements used for credit or owner reporting, followed by statements filed with other government agencies.

The starting point for the AFSI calculation is the net income or loss figure from the AFS. For a group of corporations filing a consolidated tax return, the calculation begins with the consolidated financial statement income. This book income figure is then subjected to specific adjustments mandated by the tax code and detailed in IRS guidance. These adjustments align the financial accounting income more closely with tax principles.

Key AFSI Adjustments

Depreciation

For depreciable property, corporations must disregard the depreciation expense from their financial statements. Instead, AFSI is reduced by the amount of tax depreciation allowed for regular income tax purposes. This adjustment allows companies to benefit from accelerated depreciation methods for CAMT purposes, which can result in a lower AFSI.

Defined Benefit Pension Plans

For defined benefit pension plans, any related income, cost, or expense on the AFS is disregarded. AFSI is then adjusted for any plan-related income and deductions allowed for regular tax purposes. This effectively substitutes the tax treatment of pension plans for the financial accounting version.

Foreign Corporations

Income from foreign corporations, such as Controlled Foreign Corporations (CFCs), receives special treatment. A U.S. shareholder corporation disregards dividend income from a CFC recorded on its financial statements. Instead, the shareholder adjusts its AFSI to include its pro rata share of the CFC’s own adjusted net income or loss. This prevents double counting of a CFC’s earnings.

Disregarded Entities

The treatment of disregarded entities (DREs) aligns with regular tax rules, where the DRE and its owner are a single entity. The owner is considered to own all the DRE’s assets and liabilities and to have earned its income or loss. Transactions between the owner and the DRE are eliminated for the AFSI calculation.

Income Taxes

To create a pre-tax income base, AFSI is adjusted to disregard any federal and foreign income taxes taken into account on the corporation’s AFS. This adjustment applies to both current and deferred tax expenses.

Financial Statement Net Operating Losses

Financial statement net operating losses (FSNOLs) from tax years ending after December 31, 2019, can be carried forward to reduce AFSI. The deduction is limited to 80% of AFSI calculated before the loss deduction. This 80% limitation mirrors a similar rule for regular tax net operating losses.

Computing the Final CAMT Liability

After calculating AFSI, the next step is to compute the Tentative Minimum Tax (TMT). The TMT is calculated by multiplying the final AFSI figure by the 15% CAMT rate. This result represents the gross minimum tax before any credits are applied.

An applicable corporation can reduce its TMT by claiming a CAMT Foreign Tax Credit (FTC). This credit is for foreign income taxes paid or accrued by the corporation and its share of taxes paid by its Controlled Foreign Corporations (CFCs). The credit from CFCs cannot exceed 15% of the CFC income included in the corporation’s AFSI. The CAMT FTC for taxes paid directly by the U.S. corporation is not subject to a foreign source income limitation.

The final CAMT owed is the amount by which the TMT, after FTCs, exceeds the corporation’s regular federal income tax liability. The regular tax liability figure used for this comparison includes any tax owed under the Base Erosion and Anti-Abuse Tax (BEAT) regime. If the regular tax liability is higher than the TMT, no CAMT is due for that year.

When a corporation pays CAMT, the amount paid generates a credit. This CAMT credit can be carried forward indefinitely to reduce regular tax liability in future years. The credit can only be used in a future year to the extent that the regular tax liability exceeds the TMT for that year.

Reporting and Estimated Tax Payments

Compliance with the CAMT requires filing Form 4626, Alternative Minimum Tax—Corporations. This form is used to determine if a company is an “applicable corporation” and to calculate its CAMT liability. Most C corporations must file Form 4626 to document their status, even if no CAMT is owed.

Filers must attach a statement to Form 4626 detailing the specific guidance relied upon for the calculation. This includes specifying whether they followed proposed regulations or other IRS notices. If a position is taken that is not based on proposed regulations, an explanation of the legal basis is required.

Corporations expecting a CAMT liability must include this amount in their quarterly estimated tax payments. The CAMT liability is part of the required annual payment that must be prepaid to avoid penalties. Failure to make sufficient and timely estimated payments can result in underpayment penalties.

The IRS has provided transitional relief from underpayment penalties for the CAMT portion of a corporation’s tax liability. For tax years beginning before June 15, 2025, the penalty is waived for underpayment of estimated tax attributable to the CAMT. To claim this relief, corporations must file Form 2220, Underpayment of Estimated Tax by Corporations, with their tax return.