Corporate Alternative Minimum Tax (CAMT)

The corporate alternative minimum tax (CAMT) was passed by the United States Congress as part of the Inflation Reduction Act of 2022. It applies to tax years beginning after December 31, 2022.

Corporations that have an average yearly adjusted financial income statement of more than $1 billion for three consecutive tax years are typically subject to a flat 15% tax rate in the third year, provided that their CAMT liability exceeds the corporation's standard corporate tax due.

Corporations subject to the CAMT must compute their taxes in accordance with both standard corporate tax regulations and the CAMT, and will be liable for the greater of the two amounts. S corporations, real estate investment trusts, regulated investment companies, and private equity funds are exempt from the law.

Understanding Corporate Minimum Tax

A corporate alternative minimum tax (CAMT) is a flat tax rate applied to company income that is defined more broadly than income subject to the ordinary corporate income tax.

Previously, the United States used a CAMT, which was repealed in 2017, that restored certain incentive deductions and credits allowed under the ordinary regime to business income. A new U.S. CAMT of 15% on adjusted financial statement income will be implemented for tax years beginning in 2023. The CAMT is an alternative tax in that corporations subject to it must pay the greater of the CAMT or their ordinary income tax.

How Corporate Minimum Tax Works

Incomes that exceed the yearly AMT exemption thresholds are usually subject to the alternative minimum tax. AMT payers, who tend to have higher salaries, basically calculate their income tax twice — once under conventional tax rules and once under the tougher AMT regulations — and then pay the larger amount required.

The calculation of AMT differs from the calculation of your tax under ordinary IRS guidelines. Certain forms of income and deductions that you may remove or deduct when calculating your regular taxes may need to be re-added to your taxable income. AMT calculations, for example, require you to include income from an exercised incentive stock option as well as any refunds you received for state and local income taxes.

Special Considerations

The Act establishes a notion of financial statement net operating loss (FSNOL) that is analogous to the AMT NOL concept established under the prior AMT system. The FSNOL is any net loss calculated using AFSI for tax years ending after December 31, 2019.

This allows businesses to calculate an FSNOL for tax years ending after December 31, 2019 and carry that NOL forward to offset any positive AFSI earned in tax years commencing after December 31, 2022. The FSNOL can be carried forward forever, but its use is limited to 80% of AFSI in the year it is used.

The new IRC 59(l) addresses the foreign tax credit permitted against the minimum tax liability. The Act mandates for credit to be allocated pro rata depending on foreign items included in AFSI. The United States Treasury is authorized to make regulations governing the new AMT foreign tax credit.

The Act reinstates the concept of the AMT credit and amends IRC 53(e) to provide for the new AMT credits, which can be carried forward forever

Key Takeaways

The United States will implement a 15% corporate alternative minimum tax (CAMT) beginning in 2023. The CAMT is applicable to corporations having average yearly adjusted book income of more than $1 billion for three consecutive years.

Corporations must calculate and pay the greater of their CAMT liability and their ordinary corporate tax liability. The CAMT does not apply to real estate investment trusts, regulated investment companies, private equity funds, or S corporations.