Treasury and IRS release long-anticipated CAMT proposed regulations

On Sept. 12, 2014, the Treasury and the IRS released long-awaited proposed regulations covering the corporate alternative minimum tax (CAMT). The 604-page proposed regulations and the accompanying Notice 2024-66 shed light on several important questions, which are outlined below.

Q: What is needed to document that a taxpayer has satisfied the Notice 2023-7 simplified method safe harbor and thus is not an applicable corporation required to file Form 4626?

A: The regulatory rules below require “books and records sufficient to demonstrate” eligibility for the simplified method and applicable corporation determinations.  

Specifically, the rules under treasury regulation section 1.56A-1(g)(1) provide:

“(i) Substantiation requirement: A corporation (other than an S corporation, a regulated investment company or a real estate investment trust) must maintain books and records sufficient to demonstrate whether it is an applicable corporation for any taxable year, including the identification of all persons treated as a single employer with such corporation under section 52(a) or (b) and whether the corporation is a member of [a foreign-parented multinational group] under §1.59-3. See §1.6001-1(a).” and

“(j) Reporting requirement: A corporation (other than an S corporation, a regulated investment company, or a real estate investment trust) that does not satisfy the simplified method under paragraph (g) of this section must provide information to demonstrate whether it is an applicable corporation, in such form and manner as Form 4626, Alternative Minimum Tax-Corporations (or any successor form), the Federal income tax return required to be filed by such corporation, or their respective instructions prescribe. See §§1.6011-1 and 601.602 of this chapter.”

Q: Can a partnership be penalized if it doesn’t respond to a request to provide information required to help determinate a partner’s distributive share for CAMT adjusted financial statement income (AFSI) purposes?

A: Yes, a partnership can face penalties under section 6031(b) for failing to help estimate data requested by a partner.   

Specifically, the rules under treasury regulation section 1.56A-5(i) provides:

“(ii) Required estimate: If a CAMT entity is required to estimate its distributive share amount under paragraph (h)(2)(i) of this section with respect to a partnership investment, it must base its estimate on whatever information it can reasonably obtain, if received before the expiration of the period of limitations under section 6501 of the Code, and it must continue to use its best efforts to obtain the requested information from the partnership. Except as provided in paragraph (h)(2)(iii)(B) of this section, once the CAMT entity receives the information from the partnership, the CAMT entity (if not also an applicable corporation) should report the information to its partners, including any [upper-tier partner] UTP (which would then report the information to its partners), until the information is received by an applicable corporation. A partnership that fails to furnish the required information may be subject to penalties and adjustment in accordance with paragraph (i)(6) of this section” and “(6) Penalties: The information required to be furnished under this paragraph (i) also is required to be furnished under section 6031(b). See also section 6722 of the Code.”

Q. Will I have to fill out a complex Form 4626 for my small business next year?

A. No, the simplified method now applies for any year.

Specifically, the preamble to the proposed regulations provides: “Under section 5.03(1) of Notice 2023-7, the simplified method applies only for the first taxable year beginning after December 31, 2022. Stakeholders recommended that the simplified method be extended to subsequent taxable years. The simplified method should be extended to apply for any taxable year for which applicable corporation status is relevant. See proposed §1.59-2(g)(1).”

Q. Can I currently rely on these proposed regulations?

A. Generally, in this instance, yes.

In general, taxpayers typically can rely on proposed regulations if: (1) there are no applicable final or temporary regulations in force, and (2) there is an express statement in the preamble to the proposed regulations that taxpayers may rely on them currently. The CAMT proposed regulations generally state that taxpayers may rely on many specified regulations for taxable years ending on or before Sept. 13, 2024, if they consistently follow the regulations in their entirety. Of course, not everything in the regulation package falls within this general allowance, and not all reliance is equal, as a proposed regulation is much different than a law.

Q. Was there any relief for tax penalties due to the uncertainty stemming from these regulations?

A. Yes, Notice 2024-66 provided penalty relief for quarterly estimated tax underpayments due to corporate alternative minimum tax (AMT) liability calculations.

Note that Notice 2023-42 relates to relief in the form of a limited waiver of the addition to tax under section 6655 that is attributable to a corporation’s CAMT liability with respect to any taxable year that begins after Dec. 31, 2022 and before Jan. 1, 2024.

We continue to analyze this guidance and will issue additional alerts as warranted. Please reach out to your Baker Tilly advisor if you have any questions about how the above impacts your tax situation.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.