Repost: The Tax Advisor
Guidance issued on applicability and calculation of new corporate AMT By Martha Waggoner September, 2023
The notice provides interim guidance, on which taxpayers can rely until the proposed regulations are issued, that advises corporations on when they are subject to corporate AMT, which financial statements are applicable financial statements, how to calculate adjusted financial statement income (AFSI) and the corporate AMT foreign tax credits, and other aspects of the corporate AMT.
The notice clarifies and supplements Notice 2023-7 and Notice 2023-20, issued earlier this year. Meanwhile, the IRS said it anticipates that the proposed regulations will be consistent with the interim guidance in Tuesday's notice.
The Inflation Reduction Act imposed a 15% minimum tax based on book income rather than taxable income on corporations with AFSI over $1 billion (and foreign-parented companies must meet an additional $100 million income threshold) beginning after Dec. 31, 2022. The Sec. 6655 requirement to pay estimated tax applies to taxpayers that owe the Sec. 55 corporate AMT. However, earlier this year, in Notice 2023-42, the Service waived the Sec. 6655 estimated tax penalty with respect to a corporation's Sec. 55 corporate AMT liability for tax years beginning after Dec. 31, 2022, and before Jan. 1, 2024. The guidance in the notice covers 11 areas:
Determining a taxpayer's applicable financial statement: The interim guidance provides taxpayers with additional clarity in determining their applicable financial statement (AFS) before the proposed regulations are released. The guidance lists the acceptable financial statements in order of priority.
General rules for determining AFSI: The interim guidance provides taxpayers with additional clarity in determining their AFSI before the proposed regulations are released. For example, it includes definitions of AFSI and financial statement income (FSI). Generally, AFSI includes all items of income, expense, gain, and loss reflected in the taxpayer's FSI regardless of whether such amounts are realized, recognized, or otherwise taken into account for regular tax purposes.
Determining FSI, AFSI, and tax imposed for tax consolidated groups: The interim guidance provides clarity in determining several areas for tax consolidated groups, including their FSI and AFSI; the amount of tax imposed by Sec. 55; the priority of the consolidated AFS and the calculation of FSI of a tax consolidated group.
Determining AFSI with respect to certain foreign corporations: This guidance will address the application of Sec. 56A(c) in respect to certain foreign corporations.
AFSI adjustment for certain taxes: This section covers adjustments for certain taxes under Sec. 56A(c)(5).
AFSI adjustment for Sec. 168 property: This guidance provides modifications and clarifications to Notice 2023-7, including adjustments for accounting method changes and adjustments for tax depreciation capitalized and subsequently deducted.
AFSI adjustment for qualified wireless spectrum: This interim guidance is intended to facilitate the application of the qualified wireless spectrum adjustment rules in Sec. 56A(c)(14) prior to forthcoming proposed regulations.
AFSI adjustments to prevent certain duplications and omissions: Generally, AFSI must be adjusted for items described in Section 11.02 of the notice and for other items as required or permitted in regulations or in other guidance.
Financial statement net operating losses (FSNOL): This provides interim guidance on determining use of FSNOL carryovers.
Determining applicable corporation status: This provides interim guidance to help corporations determine if they are an applicable corporation under Sec. 59(k). This includes guidance on the aggregation rules under Sec. 59(k)(1)(D), determining the applicable corporation status of members of a foreign-parented multinational group, and disregarding the Sec. 56A(c)(2)(D)(i) distributive share adjustment.
AMT foreign tax credit: The notice's interim guidance provides corporations with additional clarity in determining their corporate AMT foreign tax credit. This includes the definition of an eligible tax, when a tax is treated as taken into account on an AFS, and the treatment of partnership taxes, among other guidance.
The IRS anticipates that the proposed regulations likely would apply for tax years beginning on or after Jan. 1, 2024. It is accepting comments on the interim guidance through Oct. 12.