The New Corporate Alternative Minimum Tax: Five Not-So-Obvious Rule Applications to Consider
Like it or not, the CAMT rules have unexpected applications and potentially problematic effects

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Editor’s note: This article was written in mid-December 2022. It is expected that by the time of publication, the US Department of Treasury and the Internal Revenue Service may release guidance to address some issues this article discusses.

The corporate alternative minimum tax (CAMT) was enacted as part of the Inflation Reduction Act in August 2022. The CAMT is effective for tax years beginning after December 31, 2022, and applies to an “applicable corporation”—any corporation, other than an S corporation, regulated investment company, or real estate investment trust that meets a threshold test based on “average annual adjusted financial statement income” in one or more tax years ending after December 31, 2021, but prior to the tax year at issue.1 For example, if a corporation first meets the threshold test in its 2022 tax year (based on its average annual adjusted financial statement income for 2020, 2021, and 2022), it will be an applicable corporation beginning in its 2023 tax year and must apply the CAMT rules starting in 2023 to determine its CAMT liability, if any.

In this context, the CAMT has two major components:

  1. a threshold test to determine if a corporation is an applicable corporation; and
  2. rules that determine the CAMT liability (hereinafter the liability determination).

Both of these determinations are based on a company’s adjusted financial statement (AFS) income. Under Section 56A(a) of the Internal Revenue Code, AFS income refers to the net income or loss of the taxpayer (that is, the applicable corporation) set forth on the taxpayer’s AFS for a tax year, adjusted as provided in the statute.

A taxpayer’s AFS for CAMT, with respect to any tax year, is the AFS as defined in Section 451(b)(3) or as specified in regulations or other guidance by the US Secretary of the Treasury (hereinafter the Secretary). Section 451(b)(3) provides that an AFS generally includes a GAAP, IFRS, or other financial statement such as a Form 10-K used for reporting to a governmental agency such as the Securities and Exchange Commission or its foreign equivalent.

A corporation will generally meet the threshold test, as described in Section 59(k)(1)(B)(i), for a tax year if its average annual AFS income in the three tax years ending with the prior tax year exceeds $1 billion. Special rules also apply to newly formed corporations, predecessor corporations, and short tax years. Once a corporation is an applicable corporation, it remains one for all future years, subject to certain limited exceptions requiring action from the Secretary.

Solely for purposes of the threshold test, certain modifications are made to the computation of AFS income. First, aggregation rules apply to determine a corporation’s three-year average AFS income. Specifically, and solely for purposes of the threshold test, a corporation’s AFS income includes the AFS income of all persons treated as a single employer with that corporation under Section 52(a) or (b). In general, Section 52(a) provides for aggregation of a controlled group of corporations meeting a greater-than-fifty-percent common ownership standard under Section 1563(a), except that foreign corporations can be members of the controlled group.2 Section 52(b) provides a similar rule for trades or businesses under common control that are conducted by corporations, partnerships, trusts, estates, and sole proprietorships. Generally, these aggregation rules would count all the AFS income of domestic and foreign entities connected through greater-than-fifty-percent ownership toward the $1 billion threshold test.3 Second, as discussed further below, three of the “general adjustments” to AFS income, relating to partnerships, certain pension funds, and losses, do not apply toward the threshold test.

If the corporation is a member of a foreign-parented multinational group (MNG), under Section 59(k)(2) the $1 billion threshold test is modified to also include all the financial statement profits of all members of the foreign-parented MNG. For foreign corporations, this also includes income that is not effectively connected (non-ECI) with the conduct of a US trade or business; such non-ECI is not otherwise taken into account as AFS income. Additionally, for foreign-parented MNGs, there is a special $100 million threshold test that takes into account only the group’s actual AFS income, that is, US-related income including 1) AFS income of domestic corporations, 2) AFS income of foreign corporations (limited to book income effectively connected to US trade or business income), and 3) income of controlled foreign corporations (CFCs).4 The additional $100 million test for US-related AFS income applies based on the same average three-year period that applies to the $1 billion test.

A foreign-parented MNG exists when there are two or more entities included in the same AFS (described above) with respect to the same tax year if 1) either: a) at least one entity is a foreign corporation with ECI or b) one entity is a domestic corporation and another entity is a foreign corporation, and, generally, 2) the common parent of such entities is a foreign corporation.5 Additionally, Treasury has broad authority to determine which entities are included in a foreign-parented MNG and to determine (and even deem, if necessary) a common corporate parent.6

Sometimes the CAMT rules have unexpected applications because certain mechanical rules can apply in surprising contexts. Furthermore, more than one rule can apply to the same fact pattern, potentially leading to double taxation. Finally, some rules do not apply as expected. In this article, we identify some of these not-so-obvious and, in certain cases, unanticipated workings of the CAMT.

Problem: CAMT T reats NOL Carryovers & Requires AFS Computations…Confusingly

Different rules apply to financial statement net operating loss (NOL) carryovers for the CAMT’s threshold test versus its liability determination and when computing AFS income for the threshold test versus the liability determination.

The CAMT includes a reduction to AFS income for financial statement NOLs (FS NOLs) in Section 56A(d). Specifically, AFS income for a particular tax year is reduced by the lesser of 1) the aggregate amount of the corporation’s FS NOL carryovers to the year or 2) eighty percent of the AFS income for the year computed without regard to FS NOL carryovers.7 FS NOL carryovers, which may be carried over indefinitely, arise from AFS income net losses for tax years ending after December 31, 2019. Importantly, the NOL carryover rule applies only to calculating the CAMT liability determination and not to the threshold test.

When determining whether average annual AFS income exceeds $1 billion based on the three prior years, Section 59(k)(1)(B)(i) tells us that the average annual AFS income is determined without regard to FS NOL carryovers (that is, without regard to Section 56A(d)). Similarly, Section 59(k)(1)(B)(ii)(II) tells us that foreign-parented MNGs must also apply the $100 million test without regard to FS NOL carryovers (that is, also without regard to Section 56A(d)).

Presumably, the reason FS NOL carryovers are not considered in these two annual AFS income threshold determinations is that any losses incurred in those prior years will count as negative amounts in the year generated when making the three-year look-back determinations. Thus, disregarding FS NOL carryovers prevents taxpayers from obtaining a double benefit from FS NOLs. For example, if the taxpayer applying the threshold test in 2023 had a loss of $1.1 billion in 2020, income of $2.2 billion in 2021, and income of $2.1 billion in 2022, without a restriction on NOL carryforwards the taxpayer would have a prior three-year average of $700 million (–$1.1 billion + $1.1 billion8 + $2.1 billion, with the total divided by 3) and thereby would benefit from the $1.1 billion loss from 2020 in both 2020 and 2021, which would prevent the taxpayer from being considered an applicable corporation. In contrast, restricting NOL carryforwards results in a three-year average of $1.067 billion (–$1.1 billion + $2.2 billion + $2.1 billion, with the total divided by 3), with the taxpayer qualifying as an applicable corporation.

In addition, Section 59(k)(1)(D) tells us that solely for purposes of applying the threshold test for determining whether a corporation is an applicable corporation, the AFS income of that corporation is determined without regard to the special adjustments pertaining to the distributive share of partnership income and certain pension-related deductions.9

Thus, one complicating factor in applying the CAMT rules is that computations of AFS income differ for purposes of applying the threshold test and liability determination.

Problem: Separate AFS Income Inclusion Rules May Apply to CFC Income

In determining AFS income, Section 56A(c)(3) contains an adjustment (the CFC adjustment) for a taxpayer to include its pro rata share10 of the net aggregate CFC income of all the taxpayer’s CFCs as set forth on the CFCs’ AFS.11 That pro rata share includes all CFC income regardless of whether it is subpart F income,12 global intangible low-taxed income (GILTI),13 ECI, or income exempt under Section 245A, for the purposes of regular US federal income tax. Additionally, it is worth emphasizing that the taxpayer’s pro rata share of net income and loss from each CFC is netted for the CAMT and not computed country-by-country. However, under Section 56A(c)(3)(B), to the extent that a taxpayer’s cumulative pro rata share of net income and loss from CFCs would result in a negative adjustment to the taxpayer’s AFS income, such negative adjustment is disallowed and thus may not reduce the taxpayer’s AFS income, but rather is carried forward (and applied) to the taxpayer’s next tax year until it is used up.

Additionally under a second rule, for entities that are owned by a taxpayer but are not part of the taxpayer’s US consolidated group for tax purposes, Section 56A(c)(2)(C) requires the taxpayer to account in AFS income only for “dividends” and “other amounts includible in gross income or deductible as a loss under [chapter 1 of the Internal Revenue Code],” other than subpart F and GILTI inclusions, received from corporations that are not part of the taxpayer’s consolidated tax group (the “dividend pickup rule”). CFCs are by definition not part of the taxpayer’s US consolidated tax group, and so we expect that, absent guidance, they are subject to this rule notwithstanding the CFC adjustment.14

Under certain circumstances, applying these two rules at once creates a situation whereby a US shareholder that is a CAMT taxpayer will need to include both CFC earnings in AFS income under the CFC adjustment and any dividends received from the CFC under the dividend pickup rule. For example, assume a US corporate taxpayer owns all the stock of a single CFC with net income of $100 in 2023, which is eligible for a Section 245A deduction for regular tax purposes, and the CFC distributes the $100 to the taxpayer in 2024. The taxpayer will include the $100 of CFC income in its AFS income under the CFC adjustment in 2023. In addition, the taxpayer will include the $100 dividend out of those same earnings in its AFS income under the dividend pickup rule in 2024.

It would appear, however, that Treasury could issue guidance to resolve this double-counting problem. The dividend pickup rule provides specific authority for dividends to be “reduced to the extent provided by the Secretary in regulations or other guidance.” Additionally, under Section 56A(c)(15), the Secretary has broad authority to “issue regulations or other guidance to provide for such adjustments to [AFS income] as the Secretary determines necessary to carry out the purposes of this section, including adjustments . . . to prevent the omission or duplication of any item.”

Problem: Multiple Rules Apply to CFCs With ECI

What happens if a CFC has ECI? Again, two rules apply. First, under the Section 59(k)(1)(D) grouping rules described above, to determine whether a corporation is an applicable corporation, all AFS income of persons treated as a single employer with the corporation under Section 52 is treated as the corporation’s AFS income (the grouping rule). A CFC is often a member of a US parent corporation’s Section 52(a) group, because for many multinational corporate groups, CFCs are commonly greater-than-fifty-percent-owned by the US group. Accordingly, the US parent in this scenario would have to take into account the CFC’s AFS income in its own AFS income computation. But what AFS income does a CFC have? Section 56A(c)(4) tells us that a foreign corporation determines its AFS income using the Section 882 principles, that is, the regular tax rules for determining ECI. This should mean that all the CFC’s financial statement income determined to be attributable to ECI under the Section 882 principles is included in the US corporation’s AFS income under the grouping rule.

Second, as discussed above, the CFC adjustment rule in Section 56A(c)(3) tells us that the applicable corporation takes into account in AFS income its pro rata share of items used to compute the net income or loss set forth on the AFS (as adjusted) of each CFC with respect to which the taxpayer is a US shareholder. If both rules are applied, then the US shareholder corporation’s pro rata share of the ECI of the CFC could be picked up twice under both rules.

The good news, as noted above, is that, under Section 56A(c)(15), the Secretary has broad authority to issue regulations or other guidance “to prevent the omission or duplication of any item.” This would be a prototypical case of duplication. One could expect Treasury to write a rule saying only one of the two rules applies, or providing that to the extent that any income is picked up under both rules, it would be counted only once. In the latter case, if the US parent corporation owns only seventy percent of a CFC that has $100 of ECI and no other income, then $100 (100 percent) of the CFC’s ECI would be picked up under the grouping rule. Additionally, $70 (seventy percent) would be picked up under the pro rata CFC adjustment, so technically the duplication is only $70 CFC net income, and a rule addressing the duplication could only back out $70 of the CFC’s ECI.

Problem: Applying the Threshold Test to Foreign-Parented MNGs With Multiple Chains of US Operations

For foreign-parented MNGs, as noted above, Section 59(k)(2) applies special rules for the threshold test. Solely for purposes of the $1 billion threshold test, any corporation that is a member of a foreign-parented MNG must include in its average annual AFS income the financial statement profits of all members of the group (whether or not such profits meet the definition of AFS income).

A foreign-parented MNG exists, as described above, when two or more entities with a common foreign corporate parent are included in the same AFS and either 1) at least one entity is a foreign corporation with a US trade or business or 2) at least one entity is a US corporation and another entity is a foreign corporation.

These special aggregation rules clearly apply to members of a foreign-parented MNG, but it is not obvious whether they are purely additive (that is, apply on their own) or whether they apply in conjunction with the general Section 52-based aggregation rule. For example, what happens if a foreign parent has two chains of foreign subsidiaries each with greater-than-fifty-percent-owned US operations (a US sub or a US branch) underneath, and the two chains are not included in the same AFS? Does the general rule determining applicable corporation status in Section 59(k)(1)(D) apply, such that the two chains would be aggregated under Section 52 even though they would not be aggregated based only on the special foreign-parented MNG rule? If the two rules apply simultaneously, even if the foreign members of a foreign-parented group are not included on the same AFS, the general rule determining applicable corporation status in Section 59(k)(1)(D) would apply cumulatively to the US operations under both chains. And if the cumulative AFS income of both chains combined exceeds $1 billion, then under the general rule both US entities (US subs or foreign subs with US branches) would be applicable corporations.

Problem: What About Foreign Tax Credits Paid at Partnership Level?

If a taxpayer chooses to claim a foreign tax credit (FTC) under Section 901 for the year, a CAMT FTC is available under Section 59(l). The CAMT FTC for the year is the sum of two amounts:

  1. the total amount of Section 901 creditable foreign taxes paid or accrued (for US federal income tax purposes) by the domestic corporation and taken into account on its AFS; and
  2. the taxpayer’s pro rata share of Section 901 creditable foreign taxes paid or accrued (for US federal income tax purposes) by its CFCs that are taken into account on the AFS or AFSs of the CFCs, up to fifteen percent of the taxpayer’s CFC adjustment for the year, with the excess foreign taxes carrying over for five years.

There is no rule in the statute for taxes paid at the partnership level. The reference in the CAMT FTC language to taxes paid by a “domestic corporation” also do not obviously bring in taxes paid by a partnership. Furthermore, it is not clear what it means for the partnership-level taxes to be “taken into account” on the taxpayer’s AFS. Such latter determination may be a function of how the taxpayer accounts for its share of the partnership’s income: Does the taxpayer consolidate with the partnership on its AFS? Or does the taxpayer use the equity method to account for its share of the partnership’s income? Or does the taxpayer use fair value accounting? As in other areas, however, Treasury can provide guidance to prevent an unfair result that would disallow foreign tax credits for foreign taxes paid at the partnership level.

Doug Poms is a principal and Seevun Kozar is a senior manager, both in the international tax group of KPMG LLP’s Washington National Tax practice.


  1. Internal Revenue Code (hereinafter IRC) Section 59(k)(1)(A).
  2. It is noteworthy that, while the “applicable corporation” definition in new Section 59(k) does not, by its terms, limit the scope of such term only to companies that owe US tax (i.e., domestic corporations and foreign corporations with income that is effectively connected with the conduct of a US trade or business (ECI)), a foreign corporation that does not have ECI would not appear to be subject to the CAMT because it has no AFS income.
  3. Special considerations apply for US-parented groups with less-than-wholly-owned foreign affiliates or US non-corporate affiliates.
  4. IRC Section 59(k)(1)(B)(ii).
  5. IRC Section 59(k)(2)(B).
  6. IRC Section 59(k)(2)(D).
  7. This rule is similar to the NOL carryover rules for regular tax purposes. See IRC Section 172(a)(2).
  8. $2.2 billion in 2021 less the $1.1 billion loss carryforward from 2020.
  9. These adjustments to AFS income are found in IRC Sections 56A(c)(2)(D)(i) and 56A(c)(11).
  10. Pro rata share is determined under the principles of IRC Section 951(a)(2).
  11. This amount is adjusted under rules similar to those that apply in determining AFS income.
  12. IRC Section 952.
  13. IRC Section 951A.
  14. If the reference to dividends in Section 56A(c)(2)(C) is read to refer to the definition in the Internal Revenue Code, then arguably distributions of previously taxed earnings (i.e., earnings previously taxed as subpart F income or GILTI) do not constitute dividends. See Section 959(d).
  15. See Treasury Regulations Section 1.163(j)-1(b)(1)(iii) under which depreciation and amortization capitalized into inventory under Section 263A is counted toward the depreciation expense addback in computing ATI for tax years in which ATI is based on EBITDA (earnings before interest, taxes, depreciation, and amortization). ATI is relevant for determining the Section 163(j) limitation, which takes into account thirty percent of ATI for the tax year. Furthermore, since this article was written, on December 27, 2022, Treasury issued Notice 2023-7, which helpfully does treat depreciation deduction capitalized into inventory under Section 263A and recovered through COGS as within the scope of the Section 56A(c)(13) adjustment.

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