What Is the Corporate Alternative Minimum Tax (CAMT)?
Understand the 15% Corporate AMT, a tax on the book income of large firms that changes how liability is calculated and creates future tax credits.
The Corporate Alternative Minimum Tax (CAMT), introduced by the Inflation Reduction Act of 2022, ensures that the largest corporations contribute a base level of tax. It acts as a floor by imposing a 15% tax on profits reported for financial accounting purposes, called “book income,” regardless of deductions and credits used to lower standard tax liability.
The CAMT operates parallel to the regular corporate income tax system. This structure targets the gap between the income a company reports to its shareholders and the lower taxable income it reports to the Internal Revenue Service (IRS) after applying various tax provisions.
Determining Applicability
A corporation’s subjection to the CAMT depends on its size. A company is considered an “applicable corporation” if its average annual adjusted financial statement income (AFSI) over the three preceding tax years exceeds $1 billion. Once a corporation is classified as an applicable corporation, it retains that status in future years.
A different threshold applies to U.S. corporations within a foreign-parented multinational group. The CAMT applies if the group meets the $1 billion average income test and the U.S. corporation has an average annual AFSI of at least $100 million. This rule ensures the U.S. operations of large global companies are included, and a corporation must aggregate the AFSI of all entities treated as a single employer.
Certain types of entities are exempt from the CAMT regardless of their income levels. The law provides exceptions for S corporations, which pass their income through to shareholders for tax purposes. Regulated Investment Companies (RICs) and Real Estate Investment Trusts (REITs) are also excluded from the CAMT’s provisions.
Calculating Adjusted Financial Statement Income
The starting point for the CAMT calculation is a corporation’s net income or loss from its Applicable Financial Statement (AFS), such as a Form 10-K filed with the Securities and Exchange Commission (SEC). This book income figure is not the final tax base. It must be modified through specific adjustments to arrive at Adjusted Financial Statement Income (AFSI).
Several adjustments are required to calculate AFSI. Corporations must add back any federal income taxes deducted for book purposes to ensure the 15% tax is applied to a pre-tax income base. Adjustments are also made for foreign income taxes paid by controlled foreign corporations (CFCs). Depreciation must also be adjusted, as the CAMT requires using the tax-based depreciation amount rather than the financial reporting amount.
Further modifications relate to how income from other entities is treated. A corporation must adjust its financial statement income to account for its share of income from partnerships in which it holds an interest. These adjustments help align the financial statement income with the economic reality the tax is intended to capture.
Computing the Corporate AMT Liability
After calculating its AFSI, an applicable corporation computes its tax liability. The process begins by calculating the “tentative minimum tax,” which is done by applying the 15% tax rate to the final AFSI amount. This figure represents the baseline tax under CAMT rules before considering any credits.
The corporation can then reduce its tentative minimum tax by any allowable CAMT foreign tax credits. These credits are for foreign income taxes paid by the corporation and its controlled foreign subsidiaries. This prevents double taxation on income by both a foreign jurisdiction and the U.S. under the CAMT.
The adjusted tentative minimum tax is then compared to the corporation’s regular income tax liability for the year. If the tentative minimum tax is greater than the regular tax liability, the difference is the CAMT owed. If the regular tax is higher, no CAMT is due for that year.
The CAMT Credit
Any amount of CAMT paid generates a tax credit of an equal amount. This CAMT credit can be carried forward indefinitely to future tax years, creating an asset for the company. The credit cannot be carried back to prior years.
The credit is used in years when a corporation’s regular tax liability is higher than its tentative minimum tax. The company can apply its accumulated CAMT credits to reduce the regular tax it owes. This mechanism ensures that, over time, a corporation does not pay more than the statutory regular tax rate.
There is a limitation on the use of the CAMT credit. The credit can only reduce the regular tax liability down to the amount of the tentative minimum tax for that year. It cannot be used to reduce the tax bill below that floor, which upholds the principle of the minimum tax while allowing companies to recover the extra tax paid in CAMT years.