8962.1 / When does the Inflation Reduction Act’s 15% corporate alternative minimum tax apply?
Editor’s Note: The Inflation Reduction Act of 2022 adds a new 15 percent corporate alternative minimum tax to ensure that corporations with at least $1 billion in profits will be subject to a minimum 15 percent income tax rate. The tax applies to any corporation with an average annual adjusted financial statement income exceeds $1 billion over any consecutive three-year period preceding the current tax year. The 15 percent rate is applied to the company’s “book income”, rather than adjusted gross income as reported to the IRS, in an effort to prevent corporations from using deductions and credits to escape taxation. The law requires corporations with at least $1 billion in earnings to determine their tax liability in two ways. First, the corporation calculates taxes using the existing 21 percent rate structure, using currently available deductions and credits. Second, they calculate tax liability by applying the 15 percent rate to their book income as reported to shareholders and investors on financial statements. The corporation then owes whichever figure is higher.
Planning Point: the IRS waived penalties for failing to pay estimated taxes due because of the new corporate AMT for tax years beginning after December 31, 2022 and before January 1, 2024.1
The IRS has clarified what constitutes an "Applicable Financial Statement" (AFS) for the new corporate alternative minimum tax (CAMT).2
The qualifying financial statements are, in order of descending priority:
(a) GAAP statements. A financial statement that is certified (see below) as being prepared in accordance with U.S. generally accepted accounting principles (GAAP) and is: (i) A Form 10-K (or successor form), or annual statement to shareholders, filed with the SEC; (ii) An audited financial statement of the taxpayer that is used for: -15- (A) Credit purposes; (B) Reporting to shareholders, partners, or other proprietors, or to beneficiaries; or (C) Any other substantial non-tax purpose; or (iii) A financial statement, other than a tax return, filed with the federal government or any federal agency, other than the SEC or the IRS;