United States: IRS releases initial interim guidance on new corporate alternative minimum tax

In brief

On 27 December  2022, Treasury and the IRS released Notice 2023-7 ("Notice"), the first installment of interim guidance on the corporate alternative minimum tax (CAMT), added as part of the Inflation Reduction Act (IRA). The guidance covers what the IRS considers to be "time-sensitive" CAMT issues intended to be addressed in forthcoming proposed regulations. The CAMT is effective for tax years beginning after 31 December 2022 and, therefore, is already effective for calendar-year corporate taxpayers. The Treasury and IRS intend on issuing additional guidance before anticipated proposed regulations, and they also intend on addressing issues not addressed in these series of notices in the proposed regulations. 


Key takeaways

  • While limited in scope, the Notice provides useful guidance to corporations in computing their adjusted financial statement income (AFSI) both for purposes of determining their status as an applicable corporation and their CAMT liability (if any). Specifically, the provisions of the Notice:
    • Eliminate the impact (if any) on AFSI of certain transactions that qualify for nonrecognition treatment under sections 332, 337, 351, 354, 355, 357, 361, 368, 721, 731, and 1032 and provide guidance on the applicable corporation status of the parties following such transactions.
    • Eliminate the impact (if any) on AFSI of discharge of indebtedness income in an amount equal to the cancellation of debt income excluded under section 108 (and reduce AFSI tax attributes under the principles of section 108(b)).
    • Increase AFSI by the amount of book cost of goods sold (COGS) depreciation, depreciation expense, and other expenses and reduce AFSI by the amount tax COGS depreciation and deductible tax depreciation.
    • Provide a simplified AFSI test for determining applicable corporation status in which the dollar thresholds of the AFSI tests are halved but many of the more complicated adjustments to AFSI are eliminated.
    • Disregard the impact on AFSI of certain credits under sections 48D, 6417 and 6418.
    • Request comments on a myriad of topics addressed in the Notice and not addressed in the Notice.
  • Taxpayers may rely on the Notice pending the release of proposed regulations, which are expected to apply to tax years beginning after 31 December 2022.

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