The 15% Corporate Minimum Tax Is Live for 2023, and the Rules Keep Changing

What the corporate minimum tax is

The Inflation Reduction Act (IRA), Pub. L. 117-169, added the corporate alternative minimum tax (CAMT) in § 10101, amending IRC § 55 and adding §§ 56A and 59. It imposes a 15 percent minimum tax on the adjusted financial statement income (AFSI) of an applicable corporation, effective for taxable years beginning after December 31, 2022 — which, for calendar-year corporations, means 2023.

The tax does not apply to most companies. An applicable corporation is generally one — other than an S corporation, a regulated investment company, or a real estate investment trust — whose average annual AFSI over a three-year period exceeds $1 billion. A lower $100 million test applies to certain corporations that are members of a foreign-parented multinational group. This is a tax aimed at the largest companies, but for those companies it is a substantial new computation layered on top of the regular corporate tax.

The defining feature is the base. CAMT is computed on financial-statement income — the income a company reports to investors — rather than on taxable income. That divergence is what makes the rules complex, because financial-statement income and taxable income are calculated under entirely different systems.

Guidance arriving in installments

What makes 2023 difficult is not the concept of the tax but the state of the guidance. The detailed rules have been issued through a sequence of interim notices, each addressing a slice of the problem.

• Notice 2023-7 provided the first interim guidance, addressing corporate transactions, troubled companies, depreciation under § 168, a safe-harbor method for determining applicable-corporation status, and the status determination itself.
• Notice 2023-20 addressed insurance-related issues affecting the AFSI calculation.
• Notice 2023-42 provided estimated-tax penalty relief for 2023, discussed below.
• Notice 2023-64, issued September 12, 2023, is the most comprehensive of the set, clarifying the earlier notices and addressing how to identify the financial statements that govern, how to determine AFSI and applicable-corporation status, how consolidated groups are treated, and more.

Taxpayers may rely on this interim guidance. The reliance runs until the forthcoming proposed regulations are published, and in any event for any tax year beginning before January 1, 2024. In other words, for the first CAMT year, corporations are working from notices and the reliance they provide, not from final rules.

The near-term risk is estimated tax

Here is the practical problem. CAMT applies to 2023, and corporations must make estimated tax payments during the year. But determining whether a corporation is even an applicable corporation — let alone calculating its AFSI and CAMT liability — was difficult while the rules were incomplete. A corporation could face an underpayment penalty for failing to pay estimated tax on a liability it could not yet reliably compute.

The IRS recognized this. In Notice 2023-42, issued June 7, 2023, it waived the addition to tax under § 6655 for a corporation's failure to pay estimated tax attributable to its CAMT liability for any tax year beginning after December 31, 2022 and before January 1, 2024.

The relief is narrower than it may first appear, and the limits matter. It waives only the estimated-tax addition to tax under § 6655. It does not waive the underlying CAMT, and it does not waive the late-payment penalty under § 6651 if the liability is not paid by the return's due date. Affected corporations must also still file Form 2220 with the return and follow the procedure the notice specifies, or risk a penalty notice that then requires an abatement request. The relief addresses the estimated-payment timing problem; it does not make the tax go away.

What this means in practice

For a corporation that may be in scope, the work this year proceeds on two tracks. The first is determining applicable-corporation status and modeling potential CAMT liability using the interim notices, recognizing that the rules may shift when proposed regulations arrive. The second is managing the estimated-tax exposure deliberately — relying on the § 6655 relief where it applies, while planning to pay any CAMT liability by the return due date to avoid the late-payment penalty the relief does not cover. CAMT is reported on Form 4626. The defensible posture is to document the status determination and the AFSI computation against the interim guidance as it stood when the return was prepared, and to revisit the analysis as the guidance is finalized.

Key takeaways

• The corporate alternative minimum tax, added by IRA § 10101, imposes a 15 percent minimum tax on adjusted financial statement income for tax years beginning after December 31, 2022.
• It applies to applicable corporations — generally those, other than S corporations, RICs, and REITs, with average annual AFSI over $1 billion (a $100 million test applies to certain foreign-parented groups).
• The detailed rules arrived through a series of interim notices — Notice 2023-7, Notice 2023-20, Notice 2023-42, and Notice 2023-64 (September 12, 2023) — that taxpayers may rely on until proposed regulations are published.
• Notice 2023-42 (June 7, 2023) waived the § 6655 estimated-tax addition to tax for CAMT liability for tax years beginning in 2023.
• That relief does not waive the underlying tax or the § 6651 late-payment penalty, so affected corporations should still plan to pay any CAMT by the return due date.

Frequently asked questions

Which corporations are subject to the corporate alternative minimum tax?

Generally, an applicable corporation — one other than an S corporation, regulated investment company, or real estate investment trust whose average annual adjusted financial statement income over a three-year period exceeds $1 billion. A lower $100 million test applies to certain corporations in foreign-parented multinational groups.

What income is the 15% tax based on?

Adjusted financial statement income (AFSI), which starts from the income a company reports on its applicable financial statements rather than from taxable income, with adjustments specified in IRC § 56A and the interim guidance.

Is there relief from estimated-tax penalties for the first CAMT year?

Yes. Notice 2023-42 waived the § 6655 addition to tax for a corporation's failure to pay estimated tax attributable to CAMT for tax years beginning after December 31, 2022 and before January 1, 2024. It does not waive the underlying tax or the § 6651 late-payment penalty.

Can corporations rely on the interim CAMT notices?

Yes. Reliance runs until the forthcoming proposed regulations are published, and in any event for any tax year beginning before January 1, 2024.