The Inflation Reduction Act of 2022 and the Corporate Alternative Minimum Tax
CPA Conversations Podcast icon

 CPA CONVERSATIONS  PODCAST



Sep 26, 2022

The Inflation Reduction Act of 2022 and the Corporate Alternative Minimum Tax

Greater Potential Applicability than Originally Thought, and a Lot More Complexity in Making the Determination


Robert Duquette, CPABy Robert E. Duquette, CPA


On Aug. 16, CPA Now posted the blog “Key Tax Changes Included in Inflation Reduction Act” by Alex Fabian, PICPA’s manager of government relations, as an early summary of the Inflation Reduction Act and some of its key headlines. In this blog, and others to follow, I will go deeper into key tax provisions of the act, focusing on one major provision at a time. I will also include commentary as to the possible implications, but will avoid weighing down this piece with the numerous estimates of economic costs, revenue raisers, or impact on inflation.  

In this blog, I summarize the elements common to various descriptions and commentary published about the new 15% Corporate Alternate Minimum Tax (CAMT), including that from the Congressional Research Service as of Aug. 10; the Tax Foundation as of Aug. 12; and EY as of Aug. 16, 2022.

Note that the Inflation Reduction Act (the act) contains many special definitions and exceptions to the matters I summarize below that are not included in this writing. Also, substantial additional guidance will be needed from the U.S. Treasury Department and the IRS. At the time of this writing, the normal Joint Committee of Tax explanation has not been released, although there is a House of Representatives report from the related Build Back Better proposal. Therefore, due to substantial uncertainty in how some of the provisions will apply, and lack of guidance, the following represents only my best understanding and is a preliminary high-level summary on this topic based on my readings of other professional services and analysts, and is not based on my own reading of the entire act.  

Corporate Alternative Minimum Tax  

As originally proposed, the CAMT was going to generate over $300 billion over the next 10 years, but last-minute revisions (primarily to benefit manufacturers) resulted in a substantial narrowing of its applicability. Currently, the estimates are that it will bring in just over $200 billion over the next 10 years. The effective date for the CAMT will be for tax years beginning after Dec. 31, 2022, for “applicable corporations.” So, what is an “applicable corporation”? It seems the CAMT applies to any corporation (other than S corporations, regulated investment companies, or real estate investment trusts) whose “average annual adjusted financial statement income” (AFSI) exceeds $1 billion for any three consecutive tax years preceding the tax year (apparently without any net operating loss offsets). However, due to how AFSI is defined (as we will see below), there are situations in which the CAMT could apply that would not at first seem obvious.  

Large, red, 3-D "15%"A corporation is liable for the CAMT to the extent that its "tentative minimum tax" exceeds its regular U.S. federal income tax liability after applicable foreign tax credits, plus its tax liability for the base erosion anti-abuse tax (BEAT). An applicable corporation's tentative minimum tax is a 15% minimum tax on its AFSI, adjusted for net operating losses (explained below), to the extent the tax exceeds that year’s CAMT foreign tax credit (which generally includes foreign tax credits paid or accrued by the taxpayer and its controlled foreign corporations; but the credit from controlled foreign corporations is apparently generally limited to 15% of the taxpayer’s share of the controlled foreign corporation income). Domestic credits under the general business tax (such as an R&D credit) appear to be allowed to offset up to 75% of the combined regular and minimum tax.

It may seem on first blush that the CAMT is the same as the Organisation for Economic Co-operation and Development’s (OECD’s) global minimum tax of 15% and “Pillar 1 and 2” of its proposal to address multinational base erosion techniques, but it apparently is not. Although the rate is the same and there are a few other similarities, there are several technical differences as to how this new tax will be computed, especially considering the existing global intangible low-taxed income (GILTI), BEAT, Subpart F, and foreign tax credit provisions. (Note: this may be analyzed in greater detail in a future article in the Pennsylvania CPA Journal in early 2023.)  

How Many Corporations Will Be Impacted?  

The Joint Committee on Taxation estimates that only about 150 U.S. corporations would be subject to the CAMT. Other analysts initially estimated it would be less than 100, and that the impact would be “modest” or “not material” since many already pay more than 15% or will adjust their AFSI to escape the tax. However, a more careful reading of the act reveals some interesting expansive language regarding whose income is to be included in AFSI.  

All persons constituting a single employer within a corporation under IRC Sections 52(a) or (b) are to be considered AFSI of the corporation. Thus, it appears that the determination of AFSI will include businesses that are members of the same controlled group of corporations, such as certain parent-subsidiary and brother-sister corporations, and possibly some related foreign corporations and any pass-through businesses these members may have.   

For corporations that are foreign-owned or otherwise a member of an international financial reporting group, the threshold amount for the three-year average annual AFSI that triggers the CAMT is met if there is over $1 billion in average AFSI collectively from all members of that foreign-parented group, and $100 million or more of income from only the U.S. corporation (after presumably including the implication of Section 52(a) and (b) described above) and including a U.S. shareholder's pro rata share of CFC AFSI, and effectively connected income and certain partnership income.

A foreign-parented multinational group would be two or more entities if at least one entity is a domestic corporation and another is a foreign corporation, the entities are included in the same applicable financial statement, and the common parent of those entities is a foreign corporation (or the entities are treated as having a common parent that is a foreign corporation).  

I personally wonder, based on prior practice experience, if the component member and foreign parent provisions discussed above were considered in the earlier estimate of how many corporations would be swept into at least having to analyze the applicability tests – especially the foreign parent provisions that may apply to U.S. corporations at $100 million of AFSI, not S1 billion, depending on the size of the foreign group.

Calculation of AFSI  

New IRC Section 56A defines "adjusted financial statement income" of a corporation as the taxpayer's net income or loss reported in the taxpayer's “applicable financial statement” as defined in IRC Section 451(b)(3), with adjustments for certain items. If a taxpayer's financial results are reported on the financial statement for a group of entities, such as part of a foreign parent group, the act treats that consolidated financial statement as the taxpayer's applicable financial statement.  

There are several adjustments required to AFSI under Section 56A. Here are some of the more significant ones:  

  • Tax depreciation – AFSI does not include book depreciation and amortization with respect to such property, but it apparently does include a reduction equal to the tax depreciation and amortization, including bonus depreciation.
  • Net operating losses (NOLs) – This deduction equals the lesser of the aggregate amount of financial statement NOL carryovers to the tax year, or 80% of the AFSI computed before the NOL deduction. ("Financial statement net operating loss" means the net loss on the corporation's applicable financial statement, but only for tax years ending after Dec. 31, 2019. The act contemplates a taxpayer may carry forward a financial statement NOL indefinitely.)
  • Taxes – Disregard federal income taxes. No adjustment is required for income, war profits, or excess profits taxes imposed by a foreign country or possession of the United States if the taxpayer chooses not to claim foreign tax credits for the tax year.
  • Other possible adjustments – There are numerous other adjustments that relate to periods other than the tax year; consolidated group adjustments; dividends and gains and losses from unconsolidated ventures, disregarded entities, hybrid entities, and partnerships; CFC income or loss, Subpart F, GILTI, and related carryforwards; pension expense of “covered benefit plans”; and other adjustments for special industries and tax-exempt entity unrelated business income.
CAMT Credit  

A CAMT credit will be available to be carried forward indefinitely for the CAMT paid. It can be used to reduce regular tax liability in future years if the regular tax liability exceeds the CAMT liability.  

This suggests that companies and advisers should consider carefully projecting their CAMT position with regard to GAAP pretax income, AFSI, CAMT credits, and regular taxable income. To the extent there are opportunities to properly and legally plan within GAAP, tax law, and business considerations, companies might now be encouraged to revisit when certain expenses or income for book versus tax will be recognized to optimize years when CAMT is triggered versus the ability to use the CAMT credit in other years. For example, will companies be revisiting compensation arrangements – i.e., timing of bonuses, pension contributions, and equity-based compensation such as restricted stock and stock options and their related vesting periods – because of their significant book and tax differences, some of which are permanent and some timing?  

GAAP Valuation of CAMT Credit  

Companies apparently will need to consider ASC 740 as to how CAMT and related credits may impact their deferred tax balances, deferred tax valuation allowances, and income tax expense reporting and disclosures. This includes the impact going forward as they consider the prospects of possibly being subject to CAMT indefinitely, thus increasing the chances of a valuation allowance on the usefulness of its CAMT credit carryforward.  

Needed Guidance  

It is clear that future regulations will have to address almost all the above matters, and more. Guidance will be needed on the interaction with existing BEAT, GILTI, and FTC provisions; how “other comprehensive income” in the financial statements could impact AFSI; situations in which a U.S. corporation or its predecessors have not yet existed for at least three years; what to do when a tax year is less than 12 months; changes in ownership; what happens when affected companies fall below the AFSI threshold; and whether any GAAP mark to market or valuation adjustments are included or not.

Taxpayers and advisers will have to do their best to comply with the statute as written, and hope for speedy IRS temporary guidance as was done for the Tax Cuts and Jobs Act in 2017-2018. Then conduct tax planning as appropriate to minimize its impact.  

I personally wonder if more midsize companies and their CPAs will now have to analyze what has passed in greater detail to determine its potential broader applicability when considering if the controlled group and foreign ownership provisions apply to them, and to what extent.


The information in this article is very general in nature and is not intended to be legal, accounting, or tax advice. Nor should it be relied upon in connection with any specific situation or client. Please refer to professional tax and legal advisers for specific advice.

Robert E. Duquette, CPA, is a teaching full professor in the College of Business at Lehigh University and a retired EY tax partner and Philadelphia Transactions Tax Leader. He has served on PICPA’s Federal Tax Thought Leadership Committee for about 30 years, focusing on federal tax matters. The views expressed here are of the author, not Lehigh University. He can be reached at red209@lehigh.edu.


For more on the corporate alternative minimum tax, plan to attend PICPA's 2022 Tax Con on Nov. 15-16.




Leave a comment


Podcast transcripts are provided as a summary of the conversation and have been lightly edited for the written medium. The transcript is not a verbatim representation of the interview.
Thousands of CPE Courses  

With the highest quality CPE and thousands of options for online, self-study, and in-person learning, PICPA's CPE meets all of your professional education needs.

Search Courses
Topic Suggestions
Have a suggestion for a topic? Want to be a guest blogger or speaker?

Let us know! Fill out this form.
Follow @PaCPAs on Twitter