CAMT Touch This: Treatment of Tax Credits, Direct Pay, and Transferability under the Corporate Alternative Minimum Tax

As taxpayers continue to take advantage of the IRA’s expansion and extension of tax credits for clean energy property and projects ( “Energy Credits”)¹, a key question has been how Energy Credits impact a corporation’s AFSI. In general, the Proposed Regulations work to ensure that the benefits afforded by the IRA with respect to Energy Credits are not undercut as a result of the application of the CAMT. The impact on AFSI of a few common transactions involving Energy Credits under the Proposed Regulations is outlined below.

• Claiming Energy Credits: A taxpayer that generates an Energy Credit may, in computing its AFSI, disregard any financial statement income resulting from claiming such credit on its tax return.² This rule applies to tax years ending after September 13, 2024.
• Selling Energy Credits: For a seller of an Energy Credit, Notice 2023-7 previously established that AFSI is not increased by amounts received from the transfer.³ The Proposed Regulations adopt the same approach. On the other side of the transaction, the buyer of an Energy Credit is required to disregard any amount paid for the Energy Credit in computing its AFSI. However, such buyer may also disregard any increase in financial statement income resulting from claiming the purchased Energy Credit on its tax return.
• Claiming Direct Pay for Energy Credits: In line with the guidance provided in Notice 2023-7, a taxpayer claiming a direct payment for an Energy Credit may disregard the amount received for such Energy Credit in computing its AFSI.
• Recapture of Energy Credits: AFSI is generally increased to disregard any decrease in financial statement income resulting from the recapture of an Energy Credit.⁴

Except as specifically noted, the rules described above apply to taxable years ending after the date of publication of final regulations in the Federal Register. However, a taxpayer may rely on sections of the Proposed Regulations for any taxable year ending on or before the date final regulations are applicable.⁵ The Treasury has requested comments on the Proposed Regulations by December 12, 2024, and a hearing is scheduled for January 16, 2025. Stay tuned for additional analysis and insight with respect to the Proposed Regulations as we explore additional aspects in the coming weeks.

¹ For purposes of this discussion, the “Energy Credits” include certain tax credits found in sections of the Internal Revenue Code of 1986, as amended: the advanced manufacturing investment credit (Section 48D); the alternative fuel vehicle refueling property credit (Section 30C); the renewable electricity production credit (Section 45(a)); the carbon oxide sequestration credit (Section 45Q); the nuclear power production credit (Section 45U); the clean hydrogen production credit (Section 45V); the qualified commercial vehicles credit (Section 45W); the advanced manufacturing production credit (Section 45X); the clean electricity production credit (Section 45Y); the clean fuel production credit (Section 45Z); the energy credit (Section 48); the advanced energy project credit (Section 48C); and the electricity investment credit (Section 48E).

² The Proposed Regulations provide that AFSI disregards “applicable income taxes.”  Applicable income taxes generally include “Federal income taxes” that are taken into account in a CAMT entity’s adjusted financial statement. The term “Federal income taxes” is defined to include “amounts allowed as credits against taxes imposed by subtitle A….” 

³ The advanced manufacturing credit (Section 48D) and the qualified commercial vehicles credit (Section 45W) may not be sold, so this guidance is inapplicable with respect to such credits.

⁴ The “recapture” that this rule applies to is any recapture that occurs pursuant to Section 48D(d)(5), Section 50(a)(3), Section 6417(g), or Section 6418(g)(3).

⁵ The taxpayer must rely on such sections in their entirety in each applicable tax year.