In a pair of notices issued in late September and early October, the IRS announced its intention to partially withdraw the proposed regulations issued in September of last year for the corporate alternative minimum tax (“CAMT”) and to provide additional interim guidance for complying with CAMT before regulations are finalized. As discussed previously in Brass Tax, those proposed regulations set out an extensive set of rules for determining “adjusted financial statement income” (“AFSI”) (the base for CAMT), drawing from a mix of traditional income tax rules, financial statement accounting principles and new methods developed specifically for CAMT. Although the proposed regulations received a large number of specific comments, one theme common to most was the tremendous compliance burden that calculating AFSI would place on both taxpayers currently subject to CAMT and those that may be subject to CAMT (since many corporate groups with significant financial statement income must calculate their AFSI in full in order to determine whether they are an “applicable corporation” that could be subject to CAMT in the first place).

Responding to those comments, the IRS announced that it would be revising the CAMT rules to ease compliance for taxpayers subject to CAMT, generally by allowing or requiring taxpayers to calculate AFSI based on rules that adhere more closely to traditional income tax principles. For example, the new guidance will adapt normal tax principles in calculating the AFSI of consolidated corporate groups engaging in intercompany transactions, companies that are insolvent or in bankruptcy determining the effect of discharges of indebtedness, and companies acquiring domestic corporations from unrelated parties.

The notices also included the following additional guidance:

• Holders of many assets that must be marked to fair value on their financial statements will not be required to include in AFSI gain or loss associated with increases or decreases in asset value. This provision was much sought by holders of cryptocurrencies and other digital assets, who feared that unrealized appreciation in those volatile asset classes might cause them to become subject to CAMT.
• Certain shipping companies may opt to be taxed on certain shipping income under an alternative “tonnage tax” regime, based on the net tonnage of their fleets, rather than under CAMT.
• The rules regarding the availability and use of financial statement net operating losses to reduce AFSI will be simplified. Other changes will also be made to the rules governing the use of net operating losses, including by corporations with certain depreciation deductions and nonlife insurance companies that carry back net operating losses (“NOLs”) for tax purposes.
• Corporations will be able to adjust AFSI for certain goodwill that is amortizable under Section 197.

Lastly, the guidance contains revised rules regarding the application of both the proposed regulations and other CAMT-related guidance with respect to tax years before the regulations are finalized. These revisions to the proposed CAMT regulations follow guidance issued earlier this year simplifying CAMT compliance for partnerships with partners that are subject to CAMT.

While the prospect of simplified compliance will no doubt be welcome news for taxpayers who are (or may be) subject to CAMT, the rules for calculating AFSI remain extremely complex. Indeed, that complexity is arguably inherent in the nature of CAMT itself: an alternative minimum tax based on book income that nonetheless incorporates (in some cases as required by statute) a number of deviations from financial statement income to incorporate certain regular income tax principles. It is unsurprising such a hybrid system would result in considerable complexity—and no less surprising that the IRS and Treasury would require multiple attempts in order to strike the right balance not only between two different sets of accounting methodologies, but also between administrability and the policy goals underlying CAMT. Further revisions are almost certain before the CAMT rules are finalized.