By Ryan Carney, Lina Dimachkieh, Natan Leyva, John Lynch, David Peck, Mary Alexander, Curt Wimberly, and Miron Klimkowski
Lawmakers have been making their lists and checking them twice, and soon we will find out who’s been naughty or nice. However, taxpayers and their advisors wishing for a repeal of the corporate alternative minimum tax in 2025 may need to prepare themselves for stockings full of coal.
As we’ve covered in our prior alerts, the Inflation Reduction Act of 2022 revived and reimagined the corporate alternative minimum tax (the “CAMT”). In enacting the CAMT, Congress was focused on the phenomenon of large publicly traded corporations with significant accounting earnings paying little or no tax. In general, the CAMT imposes a 15% corporate alternative minimum tax on the adjusted financial statement income of certain large corporations for tax years beginning after December 31, 2022. The decision by Congress to have the CAMT calculated based on book income rather than taxable income creates significant complexity, and Congress delegated substantial authority to the Department of Treasury (the “Treasury”) to fill gaps in the legislation.
On September 12, 2024, the Treasury and the Internal Revenue Service (the “IRS”) issued long-awaited proposed regulations (89 FR 75062) (the “Proposed Regulations”) on the application of the CAMT. The Treasury initially requested comments on the Proposed Regulations by December 12, 2024, but the Treasury has now extended that deadline to January 16, 2025. Our prior coverage of the CAMT can be found here.
Taxpayers and their advisors are only beginning to unpack the complex regulatory regime set forth in the Proposed Regulations and many have been holding out hope for a repeal of the CAMT in 2025. As our coverage has indicated, the complexity of the CAMT regime makes it unworkable, making us among those most hopeful for a full repeal. GAAP and tax concepts are complicated enough without trying to blend the two together. Taxpayers and their advisors are having significant difficulty in interpreting the rules and, as evidenced by the length of time it took the Treasury and the IRS to provide initial guidance (even without answering some of the more difficult questions), it appears as though they also are struggling with administering the CAMT regime.
However, repeal of the CAMT does not appear to be high on the legislative agenda. President-elect Donald Trump and congressional Republicans are expected to focus on extending the expiring provisions of the Tax Cuts and Jobs Act (the “TCJA”) in 2025. Extending the expiring TCJA provisions, including the lower tax rates applicable to individuals and pass-through businesses, is estimated to come with a $4.5 trillion price tag in the budget reconciliation process. And President-elect Trump’s other campaign promises (e.g., no tax on tips, no tax on overtime pay, no tax on social security benefits, etc.) would only further increase the cost. As such, there is growing expectation and disappointment that lawmakers will be focused on finding additional revenue raisers during budget reconciliation instead of adding to the price tag with a repeal of the CAMT.
Nonetheless, companies and their tax advisors have continued to make clear to lawmakers and the Treasury that the CAMT is an extraordinarily complex regulatory package that is creating an undue compliance burden – even for those that are not subject to the tax. However, because the cost and complexity of the CAMT predominately falls on large publicly traded corporations and their advisors (and not individual taxpayers), the calls for repeal do not appear to be resonating. If you talk to Dasher, Dancer, Prancer, Johnson, Smith, Thune, Crapo, or any of the elves, be sure to put in a good word for full CAMT repeal!
Nothing would make us happier than to let you know that you can toss the Proposed Regulations in the fire as you cozy up with a hot chocolate next week. Barring a Christmas miracle, stay tuned for additional analysis and insight with respect to the CAMT and the Proposed Regulations as we further explore additional aspects in the new year.