Here’s an overview of responses to our webinar poll questions,* along with additional information about the corporate alternative minimum tax.
Corporate alternative minimum tax: A quick rundown
What it is: Enacted as part of IRA as a revenue raiser, the corporate alternative minimum tax is expected to generate $222 billion to pay for the other credits and incentives within the act. It is computed at a 15% rate on adjustable financial statement income.
Who’s affected: Multinational groups operating in the United States with an average annual adjusted financial statement income (AFSI) that exceeds $1 billion for the three-tax-year period ending after Dec. 31, 2021, which includes income of all corporations that are treated as a single employer under IRC Section 52(a) or IRC Section 52(b).
When it takes effect: Effective for tax years beginning after Dec. 31, 2022.
Takeaway: Nearly half of respondents reported being in some state of uncertainty with respect to the corporate alternative minimum tax. But as it takes effect with the 2023 tax year, the time to figure out whether and how it applies is starting to run short.
Takeaway: Notice 2023-7, issued in January 2023, provides additional clarity regarding certain aspects of the corporate alternative minimum tax. The notice provides a safe harbor for U.S. multinationals and U.S. members of a foreign-parented multinational to simplify the process for determining if the entity is an applicable corporation subject to the corporate alternative minimum tax.
Takeaway: The U.S. Department of the Treasury has tended to take more time in working through international tax regulations, and deferrals on guidance are not uncommon. While guidance before the end of the year would be helpful for real-time planning, it seems unlikely at this point.
Preparing for the international impact of the corporate alternative minimum tax
Administrative burdens connected to AFSI computation and potential tax costs from current gaps due to incomplete integration efforts to date create significant uncertainty for taxpayers subject to the corporate alternative minimum tax. Here are some steps businesses can take to prepare:
- Build flexibility into tax forecasting models to accommodate continued change.
- Investigate and implement tax software solutions that will make compliance manageable.
- As potential thresholds for the simplified method under Notice 2023-7 approach, perform some level of modeling to determine whether that method would defer applicable corporation status for 2023.
- If the corporate alternative minimum tax is applicable, review operations and model the impact. Identify unresolved inequities and determine how to document and report any positions taken on income tax returns that would result in duplicative income or unintended omission of expenses.
Want more information on the corporate alternative minimum tax? Watch the webinar recording for our full overview.
