Corporate Alternative Minimum Tax: IRS Guidance and Strategic Insights

Interim simplified method (Notice 2025-27)
The IRS has provided an optional interim simplified method for evaluating applicable corporation status. This simplified method includes a reduction of the AFSI thresholds to $800 million (general test) and $80 million (FPMG test) for specific tax years.

AFSI adjustments (Notice 2025-49)
The AFSI calculation begins with the company's net income or loss as reported in its financial statements, including statutory and regulatory adjustments as per Sec. 56A. Partnerships use methods like top-down and taxable-income approaches to allocate AFSI shares, simplifying compliance. Some AFSI adjustments can include costs for repairs and maintenance capitalized as regulatory assets under ASC 980.

Corporate transactions (Notice 2025-46)
AFSI for mergers, reorganizations, and covered transactions generally follow standard tax rules, incorporating CAMT basis inputs. This includes disregarding book remeasurement gains/losses and applying tax basis rules. For Sec. 338 and Sec. 336(e) elections, the target’s AFSI includes asset-level gains/losses using its CAMT basis in its assets, and the target’s CAMT basis in its assets immediately after the acquisition is equal to its regular tax basis. As in the 2024 Proposed Regulations, purchase and pushdown accounting adjustments are disregarded.

Financially struggling companies (Notice 2025-46)
AFSI excludes Cancellation of Debt (COD) income for CAMT entities under the jurisdiction of a court in a title 11 case (i.e., in bankruptcy) or CAMT entities that are outside bankruptcy but insolvent, to the extent of insolvency. Attribute reduction rules generally parallel Sec.108 and Sec.1017. Special rules apply for debt contributed to capital or settled with equity, paralleling standard tax treatment.

Consolidated groups (Notice 2025-46)
The consolidated return rules generally apply with modifications: AFSI replaces taxable income, CAMT basis replaces tax basis, and FSNOL replaces Net Operating Losses (NOL). Certain federal tax rules such as Separate Return Limitation Year and Sec. 382 limitations, do not apply to CAMT.

NOLs and FSNOLs (Notice 2025-46 and Notice 2025-49)
FSNOL carryovers can offset up to 80% of AFSI. Recent guidance removes previously proposed limits on acquired FSNOLs, easing compliance. Taxpayers can reduce AFSI using pre-2020 NOLs linked to depreciation. Special rules apply to NOL carrybacks and AFSI adjustments for nonlife insurers.

Other notable adjustments (Notice 2025-49)
For qualifying vessel operators, AFSI aligns with the tonnage tax regime to prevent double taxation. For goodwill acquired before October 28, 2021, AFSI may be reduced by tax amortization without respect to financial statement treatment. For AFSI adjustments to retained earnings for accounting principle changes, taxpayers may calculate such AFSI adjustments based on the entire cumulative adjustment to retained earnings rather than splitting pre- and post-2020 amounts.

Elections, reporting and compliance (Notice 2025-27 & Notice 2025-49)
Taxpayers can select the FVI exclusion, hedge coordination, top-down, or taxable-income options for partnerships by attaching statements to their returns to make or revoke these elections. Before the final regulations are issued, taxpayers may rely on the 2025 Notices (which lack the proposed regulations' consistency rules) or on the proposed regulations (which include consistency). The IRS has waived estimated tax penalties for CAMT for tax years beginning after December 31, 2024, and before January 1, 2026.

Strategic and practical considerations
CAMT interaction with regular tax, H.R. 1, P.L. 119-21, the law known as the One Big Beautiful Bill Act (OBBBA), and elections, such as R&E expensing, can lead to unexpected CAMT liabilities. Modeling is vital because the order and limits on CAMT and business credits significantly impact cash flow and reporting. Companies expecting perpetual CAMT should consider deferred tax asset realization under ASC 740.