Understanding the New Corporate Alternative Minimum Tax: What Large Companies Need to Know

The Treasury Department and IRS recently released proposed regulations to clarify the application of the new Corporate Alternative Minimum Tax (CAMT). This development is significant for large corporations, especially as many will face CAMT for the first time on October 15, 2023, the extended corporate tax-filing deadline. 

What is CAMT? 

CAMT is designed to ensure that large companies pay at least 15% in taxes on the income they report on their financial statements, also referred to as “book income.” This is different from traditional taxable income, which companies often reduce through tax-planning strategies, deductions, and credits. According to the Treasury, the goal of CAMT is to address corporate tax avoidance by some of the most profitable companies. 

Who Will Be Affected? 

The Treasury expects CAMT to impact around 100 large corporations. These companies currently pay an average effective federal tax rate of just 2.6%, with some paying zero taxes. Under CAMT, they will now be required to pay a minimum of 15%, ensuring they contribute a fairer share of taxes. 

This change is seen as a way to level the playing field, offering small businesses a fairer competitive environment. The Treasury estimates that CAMT will raise $20 billion in revenue by 2025 and $250 billion over the next decade. 

Key Details of the Proposed Rules 

The proposed regulations are comprehensive, spanning more than 600 pages. Here are some key points: 

• Who’s Subject to CAMT? Generally, companies with at least $1 billion in average book profits over the past three years will be subject to CAMT. 

• Limited Deductions: CAMT allows very few deductions, as it is primarily focused on companies’ financial-statement income. 

• Safe Harbor Provision: Companies with less than $500 million in unadjusted book profits can continue to consider themselves exempt from CAMT. 

• Foreign Ownership and Partnerships: The regulations also address how CAMT applies to U.S. companies with foreign parents and how partnership earnings are treated. 

What’s Next? 

Public comments on the proposed rules are due by December 12, 2024, and a public hearing is scheduled for January 16, 2025. These proposed regulations will continue to evolve based on feedback and implementation challenges. 

How Can Tonneson + Co Help? 

Navigating CAMT can be complex, especially for companies unfamiliar with how their book income impacts tax liability. At Tonneson + Co, we offer comprehensive tax advisory services that can help you understand these regulations, assess your company’s exposure, and develop strategies to minimize any potential tax burdens. 

If you have questions or need guidance, our team is here to assist. Proactive tax planning is key in a shifting regulatory landscape, and consulting with a tax advisor can ensure your company remains compliant while optimizing its tax position. 

Reach out to our team for further information on how CAMT might affect your business.