On December 27, 2022, the Treasury Department and the Internal Revenue Service (“IRS”) issued Notice 2023-7 (the “Notice”) describing proposed regulations Treasury intends to issue to address certain aspects relating to the application of a new corporate alternative minimum tax (“CAMT”)—a 15% tax on the adjusted financial statement income (“AFSI”) introduced by the Inflation Reduction Act and applicable to large corporations (so-called “applicable corporations”) for tax years beginning after December 31, 2022. Taxpayers are allowed to rely on the Notice until proposed regulations are issued, and the Notice provides welcome guidance on many critical issues as taxpayers evaluate the impact of the CAMT on their financial reporting and estimated tax payments for the first quarter of 2023.
This Legal Update discusses the Notice’s simplified safe harbor method for determining “applicable corporation” status in 2023; its guidance for determining AFSI and testing for “applicable corporation” status after certain tax-free and taxable acquisitions or divisions; its treatment of partnership income and consolidated groups; the relief it provides under the CAMT for tax-free transactions that qualify for one of the so-called non-recognition provisions of the Internal Revenue Code of 1986, as amended; its AFSI exclusions for financially distressed companies; its treatment of tax depreciation; its announcement of additional interim guidance to come; and its request for comments.
Read the complete Legal Update.