Corporate Tax | Just Tax

Corporate Alternative Minimum Tax (§§ 55(b), 56A)

This checklist guides practitioners through the Corporate Alternative Minimum Tax under §§ 55 through 59 as enacted by the Inflation Reduction Act of 2022 (Pub.L. 117-169). Use this checklist when advising C corporations with average annual financial statement income approaching or exceeding $1 billion for taxable years beginning after December 31, 2022.

Step 1. CAMT Statutory Framework and Background

"There is hereby imposed (in addition to any other tax imposed by this subtitle) a tax equal to the excess (if any) of (1) the tentative minimum tax for the taxable year, over (2) the regular tax for the taxable year plus, in the case of an applicable corporation, the tax imposed by section 59A." (§ 55(a))

• CAMT replaces the pre-TCJA corporate AMT with a fundamentally different structure. § 12001 of the TCJA (P.L. 115-97) repealed the prior corporate AMT (20% on alternative minimum taxable income above a $40,000 exemption) for taxable years beginning after December 31, 2017. § 10101 of the IRA (Pub.L. 117-169, enacted August 16, 2022) created CAMT effective for taxable years beginning after December 31, 2022. The JCT originally estimated CAMT would raise $222.2 billion from FY2023 through FY2031. Unlike the old AMT which started with taxable income and added back preferences, CAMT starts with book income and applies specific adjustments. The old AMT used a 20% rate. CAMT uses 15% on adjusted financial statement income. CAMT has no exemption. CAMT has no formal sunset and remains permanent law. The One Big Beautiful Bill Act (P.L. 119-21, July 4, 2025) made targeted modifications including adding intangible drilling cost deductions to § 56A(c)(13) but did not repeal CAMT. (Congressional Research Service R47328, August 7, 2022 / EY Global Tax Alert, December 6, 2023 / Bracewell, July 15, 2025)
  • TRAP. Do not confuse CAMT with the old corporate AMT repealed by the TCJA. The two regimes share only the name. The computations, thresholds, and tax bases are entirely different.
• CAMT applies to C corporations other than excluded entities. § 59(k)(1)(A) excludes S corporations, regulated investment companies, and real estate investment trusts from applicable corporation status. Publicly traded partnerships treated as corporations under § 7704 may be subject to CAMT. Tax-exempt corporations under § 501 are subject to CAMT only on unrelated business taxable income under § 511. The applicable corporation determination looks back to taxable years ending after December 31, 2021. A calendar-year corporation is first subject to CAMT for 2023. A fiscal-year corporation beginning November 1, 2022 and ending October 31, 2023 is subject to CAMT because its taxable year begins after December 31, 2022. (§ 59(k)(1)(A) / § 56A(c)(12) / Instructions for Form 4626 (2025))
  • EXAMPLE. A corporation with AFSI of $800 million in 2023, $1.2 billion in 2024, and $900 million in 2025 has average annual AFSI of $967 million. It is not an applicable corporation in 2025 but would be in 2026 if its 2026 AFSI causes the three-year average to exceed $1 billion.

Step 2. The CAMT Liability Formula

"In the case of an applicable corporation, the tentative minimum tax for the taxable year is the excess (if any) of (i) an amount equal to 15 percent of the adjusted financial statement income (as defined in section 56A) of the taxpayer for the taxable year, over (ii) the corporate alternative minimum tax foreign tax credit for the taxable year." (§ 55(b)(2)(A))

• TMT equals 15% of AFSI minus the CAMT foreign tax credit, and only applicable corporations have a nonzero TMT. § 55(b)(2)(A) computes tentative minimum tax as 15% multiplied by AFSI for the taxable year, reduced by the CAMT FTC under § 59(l). § 55(b)(2)(B) provides that any non-applicable corporation has a TMT of zero and can never owe CAMT. CAMT liability equals TMT minus the sum of regular tax plus BEAT under § 55(a). If TMT is less than or equal to regular tax plus BEAT, no CAMT is owed. Regular tax under § 55(c)(1) means regular tax liability under § 26(b) reduced by the § 27(a) foreign tax credit. The § 27(a) reduction is consistent with the old AMT computation. Regular tax does not include increases under §§ 45(e)(11)(C), 49, 50(a), 42(j), or 42(k). (§ 55(a) / § 55(b)(2) / § 55(c)(1) / IRS Form 4626 Instructions (2025))
  • The 15% rate applies to worldwide AFSI, not just U.S. income. The § 245A dividends received deduction and GILTI regime do not reduce AFSI. The CAMT FTC provides limited credit for foreign taxes but the overall base is broader than the regular tax base. (Miller & Chevalier, International Tax Journal, May-June 2024)
  • TRAP. BEAT is added to regular tax for the CAMT offset computation. A corporation cannot offset CAMT liability with BEAT credits. Instead, BEAT liability increases the threshold that TMT must exceed before CAMT is owed. Conversely, if CAMT exceeds regular tax plus BEAT, the corporation owes both BEAT and CAMT. The interaction is additive, not offsetting.
  • EXAMPLE. Corporation X has AFSI of $500 million after all adjustments. Its TMT is 15% times $500M equals $75M. X has a regular tax liability of $50M and BEAT of $10M. X's CAMT liability is $75M minus ($50M plus $10M) equals $15M. X pays $50M regular tax plus $10M BEAT plus $15M CAMT for total tax of $75M.
• CAMT credits carry forward indefinitely to offset future regular tax. Any CAMT paid creates a minimum tax credit under § 53(e) that can be carried forward to reduce future regular tax liability, but only to the extent of the excess of regular tax over tentative minimum tax in that future year. The credit limitation under § 53(c) is increased by the BEAT amount for applicable corporations, meaning BEAT liability creates additional room to absorb prior-year minimum tax credits. The regular tax definition for CAMT purposes does not reduce regular tax by the § 53 minimum tax credit itself, creating a circular computation where CAMT paid in one year generates credits that reduce regular tax in a future year, which may affect that future year's CAMT computation. (§ 53(e) / PwC Viewpoint, March 31, 2026)

Step 3. Applicable Corporation Determination

"The term 'applicable corporation' means, with respect to any taxable year, any corporation (other than an S corporation, a regulated investment company, or a real estate investment trust) which meets the average annual adjusted financial statement income test of subparagraph (B) for one or more taxable years which (i) are prior to such taxable year, and (ii) end after December 31, 2021." (§ 59(k)(1)(A))

• The general test requires average annual AFSI exceeding $1 billion, and FPMG members face a dual test. Under § 59(k)(1)(B)(i), a corporation meets the general test if its average annual AFSI (determined without FSNOL adjustments) for the 3-taxable-year period ending with the taxable year exceeds $1 billion. The threshold applies to the 3-year average, not any single year. For a corporation determining status for 2026, the relevant period is 2023, 2024, and 2025. Under § 59(k)(1)(B)(ii), a foreign-parented multinational group member must satisfy both (1) the group-level $1 billion general test (with FPMG aggregation under § 59(k)(2)) and (2) the individual corporation's average annual AFSI must be $100 million or more (without FPMG aggregation and without FSNOL adjustment). A foreign-parented multinational group is defined in Proposed § 1.59-2(c) as a group of entities that includes at least one foreign corporation and at least one U.S. corporation, where the foreign corporation owns (directly or indirectly) more than 50% of the stock of the U.S. corporation. The FPMG determination affects both the applicable corporation test and the AFS priority rules. An FPMG member must use the FPMG consolidated AFS. (§ 59(k)(1)(B) / § 59(k)(2) / Proposed § 1.59-2(c) / EY Global Tax Alert, December 6, 2023)
  • Excluded entities are S corporations, RICs, and REITs under § 59(k)(1)(A). Publicly traded partnerships taxed as corporations under § 7704 are not excluded. An entity that elects S status, makes a RIC election, or makes a REIT election may thereby avoid applicable corporation status. (§ 59(k)(1)(A) / Instructions for Form 4626 (2025))
  • Aggregation under § 52(a) or (b) applies solely for status determination. § 59(k)(1)(D) provides that all AFSI of persons treated as a single employer under § 52(a) or (b) is treated as AFSI of that corporation for status determination. The § 52(a) cross-reference applies § 1563(a) controlled group rules with the ownership threshold reduced from 80% to more than 50%. (REG-112129-23, IRB 2024-42)
  • For status determination, AFSI is computed without regard to the partnership distributive share adjustment under § 56A(c)(2)(D)(i), the CFC pro rata share adjustment under § 56A(c)(3), the ECI adjustment under § 56A(c)(4) (for FPMG $1B test), the covered benefit plan adjustments under § 56A(c)(11), and FSNOL adjustments under § 56A(d). These disregarded adjustments mean status determination uses a broader base than actual liability computation. (§ 59(k)(1)(D) and § 59(k)(2)(A))
• The simplified method provides safe harbors, and once applicable status is generally permanent. Proposed § 1.59-2(g)(2) allows a corporation to use reduced thresholds of $500 million and $50 million while disregarding most AFSI adjustments. Notice 2025-27 provides an interim simplified method with higher thresholds of $800 million and $80 million. If a corporation's average annual pre-tax financial statement income falls below the applicable threshold, it is not an applicable corporation. The simplified method is elective and is made by attaching a titled statement to the timely filed return. Once a corporation becomes applicable, it remains so indefinitely under § 59(k)(1)(A). § 59(k)(1)(C) provides two narrow declassification paths. First, the corporation has a change in ownership or fails the AFSI test for 5 consecutive taxable years (including the most recent year). Second, the Secretary determines it would not be inappropriate to continue treating the corporation as applicable. Both prongs must be satisfied. A declassified corporation that subsequently meets an AFSI test in a future year is reclassified as applicable. (Notice 2025-27, § 3 / Proposed § 1.59-2(g)(2) / Grant Thornton, September 12, 2024)
  • Special rules apply for new corporations and short tax years under § 59(k)(1)(E). If a corporation has been in existence for less than three taxable years, the AFSI tests are applied based on the period of existence. For short tax years (less than 12 months), AFSI is annualized by multiplying by 12 and dividing by the number of months in the short period. (§ 59(k)(1)(E) / Instructions for Form 4626 (2025))
  • Changes in ownership can trigger or terminate applicable status. If a corporation acquires a target with AFSI that causes the combined group's average to exceed $1 billion, the acquiring corporation may become applicable. Conversely, a deconsolidation that breaks the § 52(a) controlled group may allow former group members to re-test status independently. Under § 59(k)(1)(A), successor corporations that acquire substantially all assets or stock in a § 381(a) transaction inherit applicable corporation status. (Proposed § 1.59-2 / Notice 2025-27)
  • Private companies with audited financials may meet the test. While most private companies are not subject to CAMT because they lack audited financial statements, a large private company that voluntarily obtains audited financials or is required to do so by lenders or investors could meet the applicable corporation test. A private equity portfolio company with significant AFSI and audited financials should evaluate CAMT exposure. (Instructions for Form 4626 (2025))
  • TRAP. A corporation with average annual AFSI of $900 million that is not an FPMG member may still become an applicable corporation if it acquires a corporation with $200 million of AFSI, because the § 52(a) aggregation rule combines the AFSI of the controlled group. The $1 billion test is applied on an aggregated basis. This means acquisitions that would not change regular tax liability can trigger CAMT status.
  • TRAP. FSNOLs are NOT taken into account for applicable corporation status determination but ARE taken into account for computing actual CAMT liability. A corporation with large FSNOLs may meet the $1 billion threshold for status even though its AFSI for liability purposes is much lower.

Step 4. AFSI Starting Point and the Applicable Financial Statement

"For purposes of this part, the term 'adjusted financial statement income' means, with respect to any corporation for any taxable year, the net income or loss of the taxpayer set forth on the taxpayer's applicable financial statement for such taxable year, adjusted as provided in this section." (§ 56A(a))

• AFSI begins with net income or loss on the AFS, which is determined under a priority order. § 56A(a) defines AFSI as the net income or loss on the taxpayer's AFS for the taxable year, adjusted as provided throughout § 56A. AFSI is a tax-specific concept, not pure GAAP or IFRS income. The adjustments throughout § 56A(c) and § 56A(d) are mandatory and cannot be skipped. § 56A(b) provides that the AFS means an applicable financial statement as defined in § 451(b)(3) or as specified by the Secretary. The AFS priority hierarchy in descending order under the proposed regulations is (1) a certified GAAP financial statement, (2) a certified IFRS financial statement, (3) a certified statement under other accounting standards, (4) a statement filed with a federal, state, or foreign government agency or self-regulatory organization, (5) an unaudited external statement prepared for non-tax purposes, and (6) a federal income tax return or information return. A statement is certified if an independent auditor has provided an unqualified, qualified, modified except-for, or adverse opinion (where the auditor discloses the disagreement amount). A disclaimer of opinion does not constitute certification. The auditor must be independent under AICPA or PCAOB standards. The § 451(b)(3) AFS definition includes SEC-filed GAAP statements, statements provided to the federal government (other than the SEC or IRS), and certified audited statements used for credit or reporting purposes. (§ 56A(a) / § 56A(b) / § 451(b)(3) / Proposed § 1.56A-2 / Instructions for Form 4626 (2025))
  • When the AFS period differs from the tax year, § 56A(c)(1) requires appropriate adjustments. Proposed § 1.59-2(g)(2)(iv) provides a specific approach for taxpayers with mismatched AFS and taxable years. If a corporation's AFS covers a 52-53 week year that differs from its taxable year, adjustments must be made to align the periods. The AFS determination must be re-evaluated annually because a corporation that did not have a certified GAAP statement in one year may obtain one in the next year (e.g., through an IPO or lender requirement). (§ 56A(c)(1) / Proposed § 1.59-2(g)(2)(iv))
  • CAUTION. The AFS determination controls the starting point for the entire CAMT computation. An incorrect AFS determination will cascade through all subsequent calculations. Practitioners must verify which financial statement has the highest priority under the regulatory hierarchy before computing AFSI.
  • TRAP. A corporation that is a member of an FPMG must use the FPMG consolidated AFS even if it also prepares a separate certified GAAP financial statement. This rule overrides the general priority order and may significantly affect the AFSI computation.
  • TRAP. A corporation with only unaudited management accounts and no external financial statement uses its federal income tax return as its AFS. This means AFSI starts from taxable income rather than book income, which significantly changes the CAMT computation. All § 56A(c) adjustments still apply.
• Consolidated and separate AFS rules determine which statement governs. If a CAMT entity's financial results are reported on a consolidated AFS and separately on an AFS of equal or higher priority, the CAMT entity's AFS is generally the separate AFS. However, a member of a tax consolidated group must prioritize a consolidated AFS that includes other members of its tax consolidated group over a separate AFS. An FPMG member must use the FPMG consolidated AFS even if it also prepares a separate certified GAAP statement. Multiple AFS statements require careful priority analysis. A corporation that files a 10-K with the SEC and also prepares IFRS financials for a foreign parent must use the GAAP 10-K because certified GAAP outranks certified IFRS. A corporation that prepares only management accounts and a tax return must use the tax return as its AFS. (Proposed § 1.56A-2 / Instructions for Form 4626 (2025))
  • Restatements of prior-year AFS are treated as adjustments in the year of restatement. Under Proposed § 1.56A-17 and Notice 2025-49, restatements due to error correction do not change prior-year AFSI. The cumulative effect is included in the current year's AFSI with an offsetting adjustment. This prevents corporations from amending prior CAMT returns by restating financials.

Step 5. Entity Relationship and Distributive Share Adjustments

"If the financial results of a taxpayer are reported on the applicable financial statement for a group of entities, rules similar to the rules of section 451(b)(5) shall apply." (§ 56A(c)(2)(A))

• Tax consolidated groups and non-consolidated subsidiaries follow specific rules. Under § 56A(c)(2)(B), members of a tax consolidated group filing under § 1501 take into account items on the group's AFS properly allocable to members. Proposed § 1.1502-56A(a)(2) confirms members are treated as a single CAMT entity during consolidation and all intercompany transactions are eliminated. § 56A(c)(2)(C) provides that for any corporation not included on a consolidated return with the taxpayer, AFSI includes only dividends received (reduced as provided by the Secretary) and other amounts includible in gross income or deductible as a loss under chapter 1, other than amounts required to be included under §§ 951 and 951A. Subpart F and GILTI inclusions are explicitly excluded from the subsidiary rule, preventing double counting of CFC income. § 56A(c)(6) requires AFSI to include any AFSI of a disregarded entity owned by the taxpayer. The owner and disregarded entity are treated as a single CAMT entity. Insurance companies follow §§ 801 through 831 principles under § 56A(c)(2)(E). (§ 56A(c)(2) / Proposed § 1.1502-56A / Proposed § 1.56A-9)
  • Disregarded entity treatment is automatic and mandatory. There is no election out. The treatment applies to all entities disregarded as separate from their owner for federal tax purposes, including single-member LLCs, qualified subchapter S subsidiaries, and certain foreign entities. Transactions between the owner and the disregarded entity are completely eliminated for CAMT purposes. (§ 56A(c)(6) / Proposed § 1.56A-9)
• Partnership investments are accounted for through distributive share, and CFC income is included through a pro rata share adjustment. § 56A(c)(2)(D)(i) provides that a partner's AFSI includes only the partner's distributive share of the partnership's AFSI. § 56A(c)(2)(D)(ii) provides that a partnership's AFSI is its net income or loss on its AFS adjusted under rules similar to § 56A. See Step 12 for detailed partnership rules. § 56A(c)(3) requires a U.S. shareholder to include its pro rata share (determined under rules similar to § 951(a)(2)) of items taken into account in computing the net income or loss on each CFC's AFS, adjusted under rules similar to AFSI adjustments. Unlike GILTI, there is no QBAI carve-out and no E&P limitation. The CAMT captures the full worldwide income of each CFC. § 56A(c)(3)(B) provides that if the aggregate CFC adjustment (across all CFCs) would be negative, no adjustment is made for the current year and the negative amount carries forward indefinitely on an aggregate basis to reduce the next year's CFC adjustment. (§ 56A(c)(2)(D) / § 56A(c)(3) / Proposed § 1.56A-5 / Proposed § 1.56A-6)
  • § 56A(c)(4) provides that in determining AFSI for a foreign corporation, the principles of § 882 apply, limiting AFSI to effectively connected income. Treaty benefits under § 894(a) apply. A foreign corporation that is a member of an FPMG may have both ECI and non-ECI items on its AFS. Only the ECI portion is included in the foreign corporation's AFSI for CAMT purposes. (§ 56A(c)(4) / Proposed § 1.56A-7)
  • TRAP. Dividends eligible for the § 245A dividends received deduction and distributions of previously taxed E&P are generally excluded from AFSI because the financial statement amount is disregarded and the regular tax amount is offset by the deduction or exclusion. However, the initial CFC adjustment under § 56A(c)(3) captures the earnings before distribution, so the dividend exclusion prevents double counting. (Grant Thornton, September 12, 2024)
  • CAUTION. The CFC pro rata share adjustment includes ALL CFC earnings, not just tested income subject to GILTI. A U.S. parent with a CFC that holds substantial tangible assets (which reduce GILTI through QBAI) may find that CAMT captures far more income than regular tax.
  • CAUTION. The negative CFC adjustment carryforward is computed on an aggregate basis across all CFCs. A U.S. parent with five profitable CFCs and three loss CFCs computes a single net CFC adjustment. If the aggregate is negative, the negative amount carries forward to offset next year's aggregate CFC adjustment. There is no per-CFC tracking.

Step 6. Tax Disregard and Special Item Adjustments

"Adjusted financial statement income shall be appropriately adjusted to disregard any Federal income taxes, or income, war profits, or excess profits taxes (within the meaning of section 901) with respect to a foreign country or possession of the United States, which are taken into account on the taxpayer's applicable financial statement." (§ 56A(c)(5))

• Federal and foreign income taxes are fully disregarded, and several special item adjustments apply. § 56A(c)(5) requires AFSI to disregard all federal income taxes and all foreign income taxes within the meaning of § 901 that are taken into account on the AFS. This includes current federal income tax expense, deferred federal income tax expense or benefit, changes in uncertain tax positions, and changes in valuation allowances. The disregard is comprehensive and applies regardless of whether the tax is actually paid in the taxable year. Proposed § 1.56A-8 provides detailed rules. Under Proposed § 1.56A-8(c), if a corporation does not choose to claim foreign tax credits, it may reduce AFSI by the amount of foreign income taxes deducted under § 164. This election is disregarded for applicable corporation status determination. (§ 56A(c)(5) / Proposed § 1.56A-8)
  • § 56A(c)(9) requires AFSI to disregard any amount treated as a payment against tax pursuant to an election under § 48D(d) (CHIPS Act direct pay for semiconductor manufacturers) or § 6417 (applicable entity elective payment for clean energy credits). Proposed § 1.56A-12(b)(2) provides a regulatory adjustment under § 56A(c)(15) authority to disregard amounts received from the transfer of eligible credits under § 6418. Proposed § 1.56A-12(b)(3) disregards amounts received pursuant to direct pay elections treated as tax exempt income. Taxpayers relying on §§ 1.56A-4 (CFC adjustment) or 1.56A-6 (partnership adjustment) must also consistently follow §§ 1.56A-8 (tax disregard) and 1.59-4 (CAMT FTC). (§ 56A(c)(9) / Proposed § 1.56A-12 / Notice 2025-49, § 3.02)
  • § 56A(c)(10) provides that AFSI cannot include any item of income in connection with a mortgage servicing contract earlier than when such income is included in gross income under any other provision of the Code. This prevents mortgage servicers from accelerating income recognition for book purposes before the tax recognition event. (§ 56A(c)(10))
  • § 56A(c)(12) provides that for organizations subject to tax under § 511, AFSI includes only income from unrelated trades or businesses (as defined in § 513) and unrelated debt-financed income under § 514. Income from related activities and passive investment income that is excluded from UBTI is also excluded from AFSI. (§ 56A(c)(12) / Proposed § 1.56A-14)
• Defined benefit pension accounting is replaced with tax treatment, and other targeted adjustments apply. § 56A(c)(11) provides a three-part adjustment for covered benefit plans. First, disregard any income, cost, or expense on the AFS with respect to the plan. Second, increase AFSI by plan income included in gross income. Third, reduce AFSI by deductions allowed for regular tax. A covered benefit plan includes qualified defined benefit plans, qualified foreign plans, and other post-employment benefit plans. The pension adjustment is disregarded for applicable corporation status determination under § 59(k)(1)(D). § 56A(c)(7) allows cooperatives to reduce AFSI by patronage dividends and per-unit retain allocations under § 1382(b). § 56A(c)(8) allows Alaska Native Corporations special cost recovery and depletion adjustments for property with basis determined under ANCSA § 21(c). (§ 56A(c)(11) / § 56A(c)(7) / § 56A(c)(8) / Proposed § 1.56A-13)
  • TRAP. Changes in valuation allowances for deferred tax assets directly affect AFSI. When a corporation releases a valuation allowance because it determines deferred tax assets are more likely than not realizable, the credit reduces income tax expense on the income statement. Because § 56A(c)(5) disregards federal income taxes, the valuation allowance release may paradoxically increase AFSI without any corresponding taxable income.
  • TRAP. The pension adjustment under § 56A(c)(11) is disregarded for applicable corporation status determination under § 59(k)(1)(D). A corporation with large pension-related FSI items may have a different applicable corporation status than its liability would suggest.

Step 7. Depreciation and Amortization Adjustments

"Adjusted financial statement income shall be (A) reduced by depreciation deductions allowed under section 167 with respect to property to which section 168 applies to the extent of the amount allowed as deductions in computing taxable income for the taxable year, and (B) appropriately adjusted (i) to disregard any amount of depreciation expense that is taken into account on the taxpayer's applicable financial statement with respect to such property." (§ 56A(c)(13))

• Tax depreciation replaces book depreciation for § 168 property on an asset-by-asset basis. § 56A(c)(13) reduces AFSI by depreciation deductions allowed under § 167 with respect to § 168 property to the extent allowed in computing taxable income. AFSI is adjusted to disregard book depreciation expense on the same property. The result is that AFSI reflects tax depreciation timing rather than book depreciation. This applies to § 168 property placed in service in any taxable year, including property placed in service before January 1, 2023. For purposes of § 56A(c)(13), property to which § 168 applies includes MACRS tangible personal property, MACRS real property, computer software that is qualified property under § 168, and other property depreciated under § 168. Depreciation capitalized to inventory is also adjusted. AFSI is reduced by tax depreciation capitalized to inventory (Tax COGS Depreciation) and deductible tax depreciation, and adjusted to disregard covered book COGS depreciation and covered book depreciation expense. (§ 56A(c)(13) / Notice 2023-7 / Proposed § 1.56A-15)
  • Bonus depreciation creates the largest book-tax depreciation gap. When 100% bonus depreciation applies, the entire cost of qualified property is deducted in the year placed in service for tax purposes while the same property is depreciated over its useful life for book purposes. In the year of placement, AFSI is reduced by the full cost. In subsequent years, book depreciation continues but tax depreciation is zero, so AFSI is increased by the book depreciation that is disregarded. (Notice 2023-7 / CRS R47328)
  • The OBBBA added IDC deductions to the depreciation adjustment. Pub.L. 119-21 amended § 56A(c)(13) to add deductions for intangible drilling and development costs allowed under § 263(c) (including under §§ 59(e) and 291(b)(2)). AFSI must also disregard depletion expense on the AFS with respect to IDC property. This amendment is effective for taxable years beginning after December 31, 2025. (Pub.L. 119-21, § 70523)
  • Eligible repair assets now qualify for all CAMT entities. Notice 2026-7, § 3, expanded the repair adjustment from regulated utilities to all CAMT entities. An eligible repair asset is any cost attributable to repair or maintenance of § 168 property that is capitalized and depreciated for AFS purposes but not capitalized as § 168 property for regular tax purposes. AFSI is reduced by the repair deduction allowed for regular tax and adjusted to disregard the book depreciation on the capitalized repair cost. (Notice 2026-7, § 3)
  • CAUTION. The § 56A(c)(13) adjustment applies on an asset-by-asset basis. The computation must be made separately for each asset. Depreciation capitalized to inventory is tracked through the inventory account and deducted when the inventory is sold. This requires detailed depreciation schedules for CAMT purposes. (Notice 2023-7, § 4)
• Disposition rules, qualified wireless spectrum, and accounting changes require additional adjustments. When § 168 property is disposed of, AFSI must be adjusted to redetermine gain or loss by adjusting the AFS basis to reflect all cumulative § 56A(c)(13) adjustments from the date the property was placed in service. The CAMT basis starts from AFS basis and is adjusted for all prior § 56A(c)(13) adjustments. Nonrecognition treatment does not apply unless specifically provided. A like-kind exchange under § 1031 that defers gain for regular tax purposes does not defer gain for AFSI purposes unless the transaction qualifies as a covered nonrecognition transaction under Proposed §§ 1.56A-18 and 1.56A-19. See Step 8 for covered nonrecognition rules. § 56A(c)(14) provides parallel treatment for qualified wireless spectrum amortized under § 197. Wireless spectrum used in a wireless telecommunications carrier trade or business acquired after December 31, 2007, and before August 16, 2022, qualifies. When a taxpayer changes its method of accounting for depreciation, AFSI must reflect the § 481(a) adjustment over the same period as for regular tax purposes. (§ 56A(c)(13) / § 56A(c)(14) / Notice 2023-7 / Notice 2023-64 / Proposed § 1.56A-15 / Proposed § 1.56A-16)
  • CAUTION. The disposition adjustment requires taxpayers to maintain CAMT basis records for all § 168 property from the date placed in service. For property placed in service before 2023, this requires reconstructing hypothetical CAMT basis. The CAMT basis equals the AFS basis at placement plus all cumulative § 56A(c)(13) adjustments that would have been made had CAMT applied in prior years. (Notice 2023-7, § 4.07)
  • TRAP. Property that is not depreciable under § 168 for regular tax purposes does not give rise to § 56A(c)(13) adjustments. If a taxpayer deducts an expenditure as a repair for tax purposes but capitalizes it for book purposes, § 56A(c)(13) does not apply. Notice 2026-7 created a separate repair adjustment that applies to all CAMT entities, but this is distinct from § 56A(c)(13). (Notice 2023-64, § 9.02(5) / Notice 2026-7, § 3)
  • EXAMPLE. Taxpayer purchases Property A for $1,000x. For AFS purposes, taxpayer recognizes $25x of book depreciation annually for 10 years, resulting in AFS basis of $750x. For tax purposes, 100% bonus depreciation is claimed, resulting in tax basis of $0. When Property A is sold for $900x, the AFS shows $150x gain ($900x proceeds minus $750x AFS basis). For AFSI purposes, the CAMT adjusted basis is $0 (AFS basis of $750x plus $250x accumulated book depreciation minus $1,000x tax depreciation), resulting in redetermined gain of $900x. The AFSI increase is $750x ($900x CAMT gain minus $150x AFS gain). (Notice 2023-7, § 4.07)

Step 8. Secretary's Authority and Additional Regulatory Adjustments

"The Secretary shall issue regulations or other guidance to provide for such adjustments to adjusted financial statement income as the Secretary determines necessary to carry out the purposes of this section, including adjustments (A) to prevent the omission or duplication of any item, and (B) to carry out the principles of part II of subchapter C of this chapter (relating to corporate liquidations), part III of subchapter C of this chapter (relating to corporate organizations and reorganizations), and part II of subchapter K of this chapter (relating to partnership contributions and distributions)." (§ 56A(c)(15))

• Covered nonrecognition transactions, goodwill, and repair adjustments are the most significant regulatory developments. Under Proposed §§ 1.56A-18 and 1.56A-19, if a transaction qualifies as a covered nonrecognition transaction, the CAMT entity determines AFSI using regular tax nonrecognition principles with CAMT inputs. Notice 2025-46 replaced the original cliff effect rules with regular tax principles using CAMT basis. This addresses the problem that without the nonrecognition adjustment, a tax-deferred reorganization would trigger immediate AFSI gain because FSI recognizes the full gain. Goodwill amortization is adjusted for eligible intangibles. Notice 2025-49 originally allowed AFSI adjustment for § 197 amortization attributable to eligible goodwill from transactions announced on or before October 28, 2021. Notice 2026-7 expanded this to all goodwill and certain other § 197 intangibles whose AFS basis is recoverable only through impairment or disposition. AFSI is reduced by deductible tax amortization and adjusted to disregard book goodwill amortization. This addresses the disparity where tax amortizes goodwill over 15 years but book only recognizes goodwill impairment. (Notice 2025-46 / Notice 2025-49, § 9 / Notice 2026-7, § 4)
  • Eligible repair assets now qualify for all CAMT entities. Notice 2026-7, § 3, expanded the repair adjustment from regulated utilities to all CAMT entities. An eligible repair asset is any cost attributable to repair or maintenance of § 168 property that is capitalized and depreciated for AFS purposes but not capitalized as § 168 property for regular tax purposes. This captures the common fact pattern where taxpayers deduct repair costs for tax purposes but capitalize them for book purposes. (Notice 2026-7, § 3)
• Industry-specific and transitional adjustments address targeted book-tax disparities. Notice 2025-49, § 6, provides comprehensive AFSI adjustments to coordinate CAMT with the tonnage tax regime under subchapter R. AFSI is adjusted to disregard tonnage-tax-excluded income and increased by notional shipping income under § 1353. Notice 2025-49, § 7, allows a CAMT entity to reduce AFSI for the portion of an eligible NOL deduction attributable to historical tax depreciation taken in pre-CAMT NOL years ending on or before December 31, 2019. Notice 2025-49, § 8, allows eligible nonlife insurance companies to reduce AFSI for NOL deductions taken on amended returns or tentative carryback adjustments under § 172(b)(1)(C)(i), with a corresponding increase to AFSI in subsequent years. Notice 2025-49, § 4, allows CAMT entities subject to ASC 980 (regulated operations accounting) to adjust AFSI for eligible regulatory assets. Costs capitalized as regulatory assets under ASC 980-340-25-1 that are not required to be capitalized under § 263(a) can reduce AFSI, with corresponding disregard of regulatory asset book depreciation. (Notice 2025-49 / Notice 2026-7)
• Accounting changes, restatements, and reliance rules govern how taxpayers may apply interim guidance. Under Proposed § 1.56A-17 and Notice 2025-49, § 10, adjustments are made to prevent duplications or omissions arising from changes in accounting principles and restatements of prior-year AFS. The adjustment period is generally four taxable years for accounting principle changes. Restatements due to error correction are treated as adjustments in the year of restatement and do not change prior-year AFSI. Notice 2025-49, § 3.02, significantly liberalized the reliance rules. Taxpayers may rely on any section of the CAMT Proposed Regulations for taxable years beginning before the date corresponding final regulations are published, provided they consistently follow that section in its entirety. Taxpayers may also take positions under interim guidance notices or on a reasonable interpretation of the statute. The IRS has announced that forthcoming proposed regulations will provide that no section of the current proposed regulations will be applicable for pre-publication taxable years once corresponding final regulations are published. (Proposed § 1.56A-17 / Notice 2025-49)
  • Mark-to-market accounting under § 475 receives coordination under Notice 2023-64, § 9.02(6). AFSI is adjusted to reflect the tax treatment of mark-to-market gains and losses rather than the book treatment. (Notice 2023-64, § 9.02(6))
  • TRAP. The covered nonrecognition transaction rules under Proposed §§ 1.56A-18 and 1.56A-19 do not apply to all transactions that qualify for nonrecognition under subchapter C. Only transactions that meet the specific criteria in the proposed regulations receive the benefit. Practitioners must carefully analyze whether a corporate reorganization or liquidation qualifies.

Step 9. Financial Statement Net Operating Loss

"The amount of the adjusted financial statement income of any corporation for any taxable year shall be reduced by the lesser of (A) the aggregate amount of financial statement net operating loss carryovers to the taxable year, or (B) 80 percent of adjusted financial statement income determined without regard to this paragraph." (§ 56A(d)(1))

• FSNOL reduces AFSI subject to an 80% limitation, and only post-2019 losses generate FSNOLs. § 56A(d)(1) provides that AFSI is reduced by the lesser of (1) the aggregate amount of FSNOL carryovers to the taxable year, or (2) 80% of AFSI computed without regard to the FSNOL reduction. This 80% limitation mirrors the regular tax NOL limitation under § 172(a). FSNOL is defined in § 56A(d)(2) as the net loss on the taxpayer's AFS for the taxable year, adjusted under subsection (c) and determined without regard to subsection (d). § 56A(d)(3) limits FSNOL carryovers to losses arising in taxable years ending after December 31, 2019. Losses from earlier years do not create FSNOLs, even if they generate regular tax NOLs. FSNOLs carry forward indefinitely with no expiration and no carryback. FSNOLs from different taxable years are consumed in chronological order (FIFO) regardless of whether the corporation was an applicable corporation in the year the loss was generated. The 80% limitation is applied in every taxable year to absorb FSNOLs, even when the corporation is not an applicable corporation. This means FSNOLs can be used up in years when no CAMT is owed, potentially leaving no FSNOL carryover when the corporation later becomes applicable. (§ 56A(d) / Proposed § 1.56A-23 / Instructions for Form 4626 (2025))
  • FSNOL and regular tax NOL are entirely separate attributes. FSNOL is computed from financial statement income with § 56A(c) adjustments. Regular tax NOL is computed from taxable income under § 172. They have different carryover periods, different absorption rules, and different ordering. Corporations must maintain separate tracking schedules for each. A profitable corporation for book purposes may have regular tax NOLs from accelerated depreciation, while a loss corporation for book purposes may have no regular tax NOLs. (EY Global Tax Alert, December 6, 2023)
  • FSNOLs cannot be waived or elected out. Unlike the regular tax charitable contribution limitation, there is no election to forgo the FSNOL deduction. The 80% limitation applies automatically in every taxable year. A corporation cannot choose to preserve FSNOLs for future years. (§ 56A(d)(1))
  • CAUTION. A corporation that generates an FSNOL in 2020 (not an applicable corporation) and becomes an applicable corporation in 2023 may find its FSNOL substantially consumed by the 80% absorption in 2021 and 2022, even though it owed no CAMT in those years. This is by statutory design. The FSNOL limitation applies in every year regardless of applicable corporation status. (Instructions for Form 4626 (2025))
  • TRAP. Do not assume regular tax NOLs automatically become FSNOLs. The two attributes are computed from completely different starting points and may bear no relationship to each other. A corporation with large regular tax NOLs may have zero FSNOLs, and vice versa. This is one of the most common misconceptions among practitioners new to CAMT.
• § 382 does not apply to FSNOLs, and the proposed regulations address acquired FSNOLs. Unlike regular tax NOLs, FSNOLs are not subject to § 382 limitation. The proposed regulations originally created a separate SRLY-like tracking limitation for acquired FSNOLs. Under the original proposal, acquired FSNOLs could only be used against separately tracked income of the predecessor business. Notice 2025-46 removed the separate tracking requirement for certain domestic transactions, providing significant simplification. For tax consolidated groups, FSNOLs are computed at the group level based on the group's consolidated AFSI. Group members do not have separate FSNOLs while consolidated. When a member departs, FSNOL allocation rules apply under the consolidated return regulations with FSNOL substituted for NOL. Proposed § 1.56A-23 also addresses FSNOL utilization ordering, acquired FSNOL limitations, built-in loss treatment, and attribute reduction ordering for troubled companies. (Proposed § 1.56A-23(e) / Notice 2025-46)
  • EXAMPLE. Corporation Y generates an FSNOL of $50 million in 2020 (not an applicable corporation). Y becomes an applicable corporation in 2023. In 2021, Y has AFSI of $30M and 80% of $30M ($24M) of the FSNOL is consumed. In 2022, Y has AFSI of $40M and 80% of $40M ($32M) exceeds the remaining $26M FSNOL, so the remaining $26M is fully consumed. Y enters 2023 with zero FSNOL carryover despite never having owed CAMT in 2021 or 2022. (Instructions for Form 4626 (2025))

Step 10. CAMT Foreign Tax Credit

"The amount of the corporate alternative minimum tax foreign tax credit for the taxable year shall be equal to the sum of (i) the lesser of (I) the aggregate of the applicable corporation's pro rata share of foreign income taxes taken into account on each CFC's AFS and paid or accrued by each CFC, or (II) 15 percent of the adjustment under section 56A(c)(3)(A), and (ii) foreign income taxes taken into account on the applicable corporation's AFS and paid or accrued by the corporation." (§ 59(l)(1))

• The CAMT FTC requires a regular FTC election and has unique limitation rules. § 59(l)(1) provides that the CAMT FTC is available only if the applicable corporation chooses to claim the regular foreign tax credit under § 901 for the taxable year. If a corporation instead deducts foreign taxes under § 164, it cannot claim the CAMT FTC (though it may reduce AFSI by the deducted foreign taxes under Proposed § 1.56A-8(c)). The indirect credit for CFC taxes equals the lesser of (1) the aggregate pro rata share of foreign income taxes taken into account on each CFC's AFS and paid or accrued by each CFC, or (2) 15% of the § 56A(c)(3) CFC adjustment. This 15% limitation is unique to CAMT and has no analogue in the regular FTC system. The direct credit for foreign income taxes paid by the corporation itself has no percentage limitation. A U.S. corporation with substantial branch operations may claim the full amount as a CAMT FTC. Certain regular tax disallowances are imported under Proposed § 1.59-4(b)(1) including §§ 245A(d), 901(m), 907, 908, 909, 965(g), 999, and 6038(c). However, Notice 2025-49 provides that taxpayers may treat taxes disallowed solely due to § 245A(d) as eligible taxes for CAMT FTC purposes. (§ 59(l)(1) / Proposed § 1.59-4(b)(1) / REG-112129-23)
  • No § 904 foreign source income limitation applies. Unlike the regular FTC, the CAMT FTC does not include any foreign source income limitation. There are no separate limitation categories. Direct CAMT foreign tax credits can be used against AFSI without regard to whether that income would be considered U.S. source or foreign source. The only limitation against cross-crediting is the 15% cap on indirect CFC credits. This means a corporation with excess FTCs in the general basket and a shortfall in the passive basket for regular tax purposes may find those same credits fully usable for CAMT purposes. (Miller & Chevalier, "What Limitations Apply to the CAMT Foreign Tax Credit?" / KPMG Analysis, October 4, 2024)
  • The § 960(d) GILTI haircut does not apply. The CAMT FTC does not apply the § 960(d) inclusion percentage limitation or the 20% haircut on deemed-paid taxes for GILTI. All CFC earnings are included in AFSI through § 56A(c)(3), so foreign taxes on all CFC income are potentially creditable regardless of character for regular tax purposes. No § 78 gross-up is included in AFSI because CFC adjusted net income is computed without regard to foreign income taxes. (Miller & Chevalier Publication, October 7, 2024 / Proposed § 1.56A-4(c)(1)(ii))
  • TRAP. The CAMT FTC election requires claiming the regular FTC. A corporation that optimizes for regular tax by deducting foreign taxes under § 164 foregoes the CAMT FTC entirely. This may be disadvantageous if the corporation has significant CFC income that would trigger CAMT without the FTC offset. The interaction between § 164 deductions and CAMT liability requires multi-year modeling.
• Unused CFC taxes carry forward for 5 years, and the CAMT FTC is reported on Form 4626 Part IV. § 59(l)(2) provides that excess CFC taxes (the amount above the 15% limitation) can be carried forward to each of the five succeeding taxable years. The carryover uses FIFO ordering from the fifth preceding year first. Unused direct credits do NOT carry forward. If direct credits exceed the TMT in the current year, the excess is lost permanently. Form 4626 Part IV collects the information needed to compute the CAMT FTC. Line 18 reports direct foreign taxes. Line 19 reports the aggregate pro rata share of CFC foreign taxes. Line 20 applies the 15% limitation. Line 21 reports CFC taxes carried forward from prior years. The total CAMT FTC reduces tentative minimum tax on Part II line 9. (§ 59(l)(2) / Proposed § 1.59-4(e) / Instructions for Form 4626 (2025))
  • CAUTION. A corporation that claims the regular FTC but has excess foreign taxes disallowed under § 904 may find that those same taxes are creditable for CAMT purposes because the § 904 limitation does not apply. This creates a potential asymmetry between regular tax and CAMT FTC positions. Practitioners should model both regular tax and CAMT positions when making the FTC election decision. (Miller & Chevalier, May-June 2024)
  • TRAP. The 5-year carryforward for unused CFC taxes operates differently from the 10-year carryforward for regular FTCs. Unused CFC taxes from the fifth preceding year are absorbed first, followed sequentially by the fourth, third, second, and first preceding years. Direct credits that exceed the TMT cannot be carried forward at all. Older excess credits expire before newer ones if not absorbed. (Proposed § 1.59-4(e)(3))
  • EXAMPLE. US Parent Co. has a $70M aggregate CFC adjustment under § 56A(c)(3) and $17M of aggregate CFC foreign taxes. The 15% limitation is 15% times $70M equals $10.5M. The allowable indirect CAMT FTC is the lesser of $17M or $10.5M equals $10.5M. Unused CFC taxes of $6.5M carry forward for 5 years. If US Parent also has $7M of direct foreign taxes (e.g., from a foreign branch), total CAMT FTC is $10.5M plus $7M equals $17.5M. If TMT before FTC is $20M, net TMT is $2.5M. (Miller & Chevalier Publication)

Step 11. Consolidated Groups and Tax Consolidated Returns

"In the case of a tax consolidated group, the AFSI of such group takes into account the items on the group's applicable financial statement properly allocable to the members of such group." (§ 56A(c)(2)(B))

• Tax consolidated groups file a single Form 4626 and apply regular consolidated return regulations with CAMT-specific substitutions. Members of an affiliated group filing a consolidated return under § 1501 compute CAMT on a consolidated basis. The group files one Form 4626 attaching Schedule A for CFC determinations. CAMT is calculated as a single liability for the group. All members are jointly and severally liable for the group's CAMT under § 1503. Notice 2025-46 fundamentally revised the consolidated approach by replacing the simplified proposed regulations with a comprehensive incorporation of the regular tax consolidated return regulations using three substitutions. First, AFSI is substituted for taxable income throughout the consolidated return regulations. Second, CAMT basis is substituted for adjusted basis. Third, FSNOLs are substituted for NOLs. This means the full machinery of §§ 1.1502-1 through 1.1502-80 applies with CAMT-specific inputs. (Instructions for Form 4626 (2025) / § 1503 / Notice 2025-46, § 5)
  • Certain regular tax provisions do NOT apply. The SRLY rules in §§ 1.1502-15 and 1.1502-21(c) do not apply. The § 382 rules in §§ 1.1502-90 through 1.1502-99 do not apply. Any rule inapplicable under § 56A (such as capital gain and loss rules in § 1.1502-22) does not apply. The non-application of SRLY and § 382 rules means FSNOLs are not subject to the same limitations as regular tax NOLs in consolidated settings. (Notice 2025-46, § 5.03(3))
  • Life-nonlife consolidation receives special flexibility. Notice 2025-46 allows certain groups not permitted to file a life-nonlife consolidated return for regular tax to elect to do so for CAMT purposes, without regard to the five-taxable-year limitation in § 1504(c)(2)(A). The election is irrevocable without IRS consent and must be made on a timely filed Form 4626. This addresses the situation where a group has both life insurance company members and nonlife members that cannot consolidate for regular tax. (Notice 2025-46, § 5.02(2))
  • Intercompany transactions are governed by full consolidated return rules. Under Notice 2025-46, the regular tax intercompany transaction rules in § 1.1502-13 apply with AFSI substituted for taxable income. When one member sells property to another, gain or loss is deferred until the property leaves the group or the selling member leaves. CAMT excludible COD income is determined under § 108 principles with CAMT-specific modifications. Attribute reduction for excluded COD income applies to CAMT attributes including CAMT basis, FSNOLs, and CAMT credits. (Notice 2025-46, § 5.03)
  • TRAP. A departing member of a tax consolidated group may create a duplication issue when both the departing member and the remaining group continue to include the same AFSI in their respective testing calculations. Practitioners should carefully track AFSI allocation upon member departures to prevent the same income from being counted twice.
  • TRAP. The transition from the original Proposed § 1.1502-56A to the Notice 2025-46 regime may require taxpayers to change their compliance systems. Taxpayers who built systems around the simplified proposed regulations must now implement the full consolidated return regulations with CAMT substitutions.
• CAMT basis of member stock and FSNOL attributes require separate tracking. Under Notice 2025-46, CAMT basis of member stock generally starts from regular tax basis as of the first day of the first taxable year after December 31, 2019, and is adjusted thereafter by CAMT-specific investment adjustments. The basis rules apply for determining gain or loss on disposition of member stock, intercompany transactions, and § 332 liquidations. When a member departs a tax consolidated group, FSNOL carryovers and other CAMT attributes must be allocated between the departing member and the remaining group. The allocation rules ensure that FSNOLs generated by the departing member follow that member while group FSNOLs remain with the consolidated group. When a new member joins, its CAMT attributes must be integrated into the group's computations. (Proposed § 1.1502-56A / Notice 2025-46)
  • EXAMPLE. Consolidated Group ABC has three members. Member A generates $40M of AFSI. Member B generates $30M of AFSI. Member C has a ($10M) AFSI loss. The group's consolidated AFSI is $60M. TMT before FTC is 15% times $60M equals $9M. If the group has regular tax of $7M and BEAT of $1M, CAMT liability is $9M minus ($7M plus $1M) equals $1M. The group files one Form 4626 reporting the $1M CAMT.

Step 12. Partnerships and Distributive Share

"Except as provided by the Secretary, if the taxpayer is a partner in a partnership, the taxpayer's adjusted financial statement income with respect to such partnership is adjusted to take into account only the taxpayer's distributive share of such partnership's adjusted financial statement income." (§ 56A(c)(2)(D)(i))

• The default bottom-up method and two elections provide alternative computation approaches. Proposed § 1.56A-5 implements a four-step bottom-up method. Step 1 is determining the distributive share percentage based on the partnership agreement or § 704(b) principles. Step 2 is the partnership determining its modified FSI by applying all relevant AFSI adjustments. Step 3 is multiplying the distributive share percentage by modified FSI. Step 4 is adjusting for separately stated § 56A adjustments. Modified FSI equals the partnership's FSI adjusted for all relevant AFSI adjustments provided in the § 56A regulations. Certain separately stated items (foreign corporation stock items and creditable foreign tax expenditures) are not included in modified FSI but are taken into account directly by the partner. The top-down election under Notice 2025-28, § 3, allows a CAMT entity partner to use 80% of the FSI amount reflected in its own financial statements as its AFSI from the partnership, plus specific gains/losses from sales and certain adjustments. Once made, the election continues for all subsequent taxable years. The taxable-income election under Notice 2025-28, § 4, provides that a CAMT entity partner owning 20% or less of a partnership (with $200 million or less fair market value of the investment) may use its regular tax distributive share as its AFSI distributive share amount. This largely eliminates CAMT-specific tracking for qualifying small interests. Both elections require titled statements attached to the return. (Proposed § 1.56A-5 / Notice 2025-28)
  • Partnerships may use any reasonable allocation method under Notice 2025-28, § 5. Reasonable methods include allocations based on net § 704(b) income or loss, allocations based on the partnership agreement's economic arrangement, or allocations that approximate each partner's economic interest. The method must be consistent with the purposes of § 56A and used consistently for all CAMT entity partners. (Notice 2025-28, § 5)
  • TRAP. The 80% rate in the top-down election is not grounded in any specific statutory or economic principle. It may result in over-inclusion or under-inclusion of partnership income depending on the specific facts. The election should be modeled before adoption.
  • TRAP. A partnership with no CAMT entity partners is not required to compute modified FSI or provide CAMT information to its partners. However, if a non-CAMT partner later becomes an applicable corporation, the partnership may need to reconstruct historical CAMT information. Partnerships should consider proactively computing modified FSI even when not currently required.
• Tiered partnerships and basis tracking create significant complexity. In tiered partnership structures, each partnership starting with the lowest-tier partnership must compute its modified FSI and report distributive shares up the chain. An upper-tier partnership includes its distributive share of lower-tier modified FSI in its own modified FSI computation. The computation flows up the chain until the top-tier partnership or ultimate corporate partner. Each tier requires the partnership to apply AFSI adjustments similar to those in § 56A(c). This cascading computation creates significant complexity for multi-tier private equity and investment fund structures. A CAMT entity partner's CAMT basis in its partnership investment is increased or decreased by its distributive share amount and other relevant AFSI adjustments, but not below zero. Negative distributive share amounts are included in AFSI only to the extent they do not exceed CAMT basis. Gain or loss on sale of the partnership interest is computed using CAMT basis, which may differ significantly from regular tax basis. (Notice 2025-28 / Proposed § 1.56A-5)
  • The modified subchapter K method governs contributions and distributions. Notice 2025-28, § 6.02, provides a modified approach using standardized 15-year recovery periods for depreciable property and eliminating recovery for non-depreciable property. Deferred gain from contributions is not accelerated on partner ownership reduction except for full exit. The full subchapter K method is available with written consent of all relevant CAMT entity partners under Notice 2025-28, § 6.03, but requires detailed recordkeeping. (Notice 2025-28, § 6)
  • Domestic partnerships are NOT treated as U.S. shareholders for CAMT CFC purposes. Because a domestic partnership is not treated as owning stock of a foreign corporation for purposes of §§ 951 and 951A, the partnership has no pro rata share of CFC adjusted net income. Instead, each partner that is itself a U.S. shareholder must determine its own CFC adjustment directly. This is a significant structural difference from the regular tax CFC rules. (REG-112129-23, IRB 2024-42)
  • CAUTION. Treasury has announced intent to withdraw and repropose the partnership regulations. Taxpayers relying on the current proposed regulations for partnership matters should monitor for forthcoming revised proposals. (EY Tax Alert 2025-1753)

Step 13. Common CAMT Triggers and Book-Tax Differences

"Depreciation deductions normally are taken earlier for tax than for book purposes, especially in the case of equipment. Through 2022, firms can expense (deduct immediately) investments in equipment." (Congressional Research Service R47328, August 7, 2022)

• Accelerated depreciation, stock-based compensation, and valuation allowances are the most common CAMT triggers. The combination of MACRS, bonus depreciation (100% through 2022, phasing down through 2026, restored to 100% by OBBBA for property acquired after January 19, 2025), and shorter tax recovery periods versus straight-line book depreciation creates substantial differences between regular taxable income and AFSI. Stock-based compensation timing differences affect technology companies disproportionately. Book expense for equity awards is recorded over the vesting period (under ASC 718) while the tax deduction equals the intrinsic value at exercise or vesting. When stock prices rise substantially between grant and exercise, the tax deduction far exceeds cumulative book expense. Valuation allowance releases increase AFSI without corresponding taxable income. When a corporation releases a valuation allowance on deferred tax assets, the credit reduces income tax expense on the income statement. Because § 56A(c)(5) disregards federal income taxes, the valuation allowance release may paradoxically increase AFSI. (CRS R47328 / Alvarez & Marsal, January 9, 2023 / EY Financial Reporting Developments)
  • R&E expenditure amortization creates timing differences. Under pre-OBBBA law, § 174 required R&E expenditures to be capitalized and amortized over 5 years (15 years for foreign research) beginning in 2022. While the OBBBA restored R&E expensing, unused amortization deductions from pre-2025 R&E expenditures continue to reduce taxable income but not AFSI. Companies with substantial R&E activities that were required to capitalize expenses in 2022-2024 may have large regular tax deductions that do not reduce AFSI. (Thomson Reuters, February 26, 2026 / AEI, October 29, 2025)
  • Warranty reserve differences and inventory valuation differences create timing gaps. Book accounting for warranty expenses typically records the estimated liability when the product is sold while tax deductions are allowed only when the warranty work is performed. LIFO inventory valuation for tax purposes versus FIFO or average cost for book purposes can create substantial COGS differences during periods of rising prices. Neither difference has a specific CAMT adjustment. (CRS R47328 / Deloitte CAMT Guide 2025)
• Foreign tax, NOL, and interest limitations also drive CAMT liability. Corporations with significant foreign operations may claim foreign tax credits that reduce regular tax liability below 15% of AFSI. Unlike the regular FTC system, the CAMT FTC operates without § 904 separate category limitations and without the § 960(d) GILTI haircut, which may partially mitigate this trigger for CFC income. However, the 15% cap on indirect CFC credits may still leave substantial residual AFSI subject to CAMT. Regular tax NOL carryforwards reduce regular taxable income but not AFSI. Because FSNOLs are a separate system with only post-2019 losses, a corporation with large pre-2020 regular tax NOLs may have no corresponding FSNOLs. The § 250 GILTI and FDII deductions reduce regular tax to effective rates of 10.5% and 13.125% respectively but do not reduce AFSI. OBBBA changed the § 163(j) ATI computation from EBIT to EBITDA for taxable years beginning after December 31, 2025, increasing interest deductions for regular tax without affecting AFSI. (Miller & Chevalier, May-June 2024 / Tax Foundation / Deloitte CAMT Guide 2025)
  • ASC 740 interacts with CAMT in complex ways. If a corporation expects to be in a CAMT-paying position in future years, ASC 740 requires measuring deferred taxes at the CAMT rate (15%) rather than the regular tax rate (21%). This lower rate reduces the value of deferred tax assets and deferred tax liabilities. A change from regular tax to CAMT as the marginal rate can create a significant adjustment to the deferred tax balance. Valuation allowance assessments must consider whether CAMT limits the utilization of deferred tax assets. If a corporation expects to owe CAMT rather than regular tax, deferred tax assets may not be realizable. This can trigger valuation allowance increases that further reduce book income and create a feedback loop with CAMT. (EY Financial Reporting Developments - Income Taxes)
  • TRAP. A corporation with large regular tax NOLs that reduce taxable income to near zero may still have substantial positive AFSI because NOLs do not affect the financial statement starting point. If the corporation is an applicable corporation, the CAMT tentative minimum tax (15% of AFSI) may far exceed regular tax, resulting in significant CAMT liability even for a loss corporation for regular tax purposes. This is one of the most counterintuitive aspects of CAMT.
  • TRAP. Private companies are generally not subject to CAMT because they typically lack audited financial statements and fall below the $1 billion threshold. However, a private company that becomes public or is acquired by a public company may suddenly become subject to CAMT if its financial results are reported on an acquiror's consolidated AFS. The acquisition itself may trigger applicable corporation status under the § 52(a) aggregation rules.

Step 14. Filing, Reporting, and Compliance Obligations

"Form 4626 is used to determine whether a corporation is an applicable corporation under section 59(k) and to calculate CAMT under section 55 for applicable corporations." (Instructions for Form 4626 (2025))

• Form 4626 determines applicable corporation status and computes CAMT, and several filing exclusions and waivers apply. Form 4626 has six parts. Part I determines applicable corporation status. Part II computes CAMT liability. Part III adjusts for taxes disregarded under § 56A(c)(5). Part IV computes the CAMT foreign tax credit. Part V reports controlled group and FPMG members. Part VI reports the aggregate pro rata share of CFC adjusted net income or loss. Schedule A reports per-CFC information. A corporation is not required to file Form 4626 if it is an S corporation, a RIC, a REIT, a tax-exempt entity not required to file an exempt organization business income tax return, or a corporation that qualifies under the interim simplified method and was not an applicable corporation in a prior year. The filing exclusion does not apply if the corporation was an applicable corporation in a prior year. (Instructions for Form 4626 (2025) / IRS Form 4626 (March 2025))
  • Estimated tax waivers have been granted through 2025. Notice 2023-42 waived § 6655 additions to tax for taxable years beginning after December 31, 2022, and before January 1, 2024. Notice 2024-66 waived additions for taxable years beginning after December 31, 2023, and before January 1, 2025. Notice 2025-27 waived additions for taxable years beginning after December 31, 2024, and before January 1, 2026. Taxpayers seeking the waiver must file Form 2220 with their federal income tax return even if they owe no estimated tax penalty. The Form 2220 must be completed without including the CAMT liability. The waiver applies only to additions to tax, not to the underlying CAMT liability. Future waivers are uncertain. Corporations should prepare to estimate and pay CAMT through quarterly estimated tax payments for 2026 and beyond. (Notice 2023-42 / Notice 2024-66 / Notice 2025-27)
  • Various elections require titled statements attached to the return. The top-down election, taxable-income election, FVI exclusion option, goodwill adjustment election, repair asset adjustment election, and other elective adjustments each require a specifically titled statement attached to the federal income tax return with the corporation's name, address, and taxpayer identification number. Failure to properly title and attach the statement may invalidate the election. (Notices 2025-28, 2025-49, 2026-7)
  • The statement of rules applied is mandatory. Corporations must include with Form 4626 a statement describing the approach taken and the guidance relied upon. If the corporation applied provisions of the proposed regulations, it must list the sections applied. If line items are not based on proposed regulations, the corporation must provide an explanation of the legal basis. Vague statements are insufficient. (Instructions for Form 4626 (2025) / Notice 2025-49, § 3.02(3))
  • TRAP. A corporation that was an applicable corporation in any prior year must continue to file Form 4626 every year, even if it would not currently meet the applicable corporation test. The once-applicable-always-applicable rule requires annual filing. Failure to file can result in penalties.
• Penalties, state conformity, and compliance costs require attention. A corporation that fails to file Form 4626 when required may be subject to the failure to file penalty under § 6651(a)(1) of 5% of the unpaid tax per month (up to 25%). A corporation that files but fails to pay CAMT liability by the due date may be subject to the failure to pay penalty under § 6651(a)(2) of 0.5% of the unpaid tax per month (up to 25%). These penalties are not waived by the § 6655 estimated tax waiver. CAMT liability must be paid by the return due date. Additions to tax under § 6651 may apply if payment is not timely. (§ 6651 / Notice 2025-27)
  • State tax conformity varies widely. States that conform to federal taxable income may or may not conform to CAMT. Rolling conformity states (such as California, New York, Illinois, and New Jersey) generally adopt CAMT automatically. Fixed-date conformity states (such as Texas and Florida) may not adopt CAMT unless they update their conformity date. Some states have specifically decoupled from CAMT. State CAMT conformity can create additional compliance obligations beyond the federal filing. State CAMT filing obligations may exist even when federal CAMT is zero due to state-specific modifications. For a multistate corporation, state CAMT compliance can add 20-50% to the total CAMT compliance cost. (Thomson Reuters State Tax Considerations / Deloitte CAMT Guide 2025)
  • The TEI survey reveals substantial compliance costs. The Bloomberg Tax/TEI survey of tax executives found that 73% of respondents reported CAMT compliance costs exceeding $500,000 annually. Common challenges include obtaining partnership CAMT information, tracking CAMT basis for historical assets, computing CFC adjustments, and coordinating between financial reporting and tax departments. CAMT compliance requires dedicated staff, specialized software, and significant external advisor fees. The compliance burden extends even to companies that rarely owe actual CAMT. (Bloomberg Tax/TEI Survey, February 18, 2026)
  • The IRS has issued an extensive series of guidance notices. The timeline includes Notice 2023-7 (December 2022, depreciation adjustments), Notice 2023-64 (September 2023, supplemental adjustments), Notice 2024-10 (December 2023, CFC distributions), REG-112129-23 (September 2024, comprehensive proposed regulations), Notice 2025-27 (June 2025, simplified method and estimated tax waiver), Notice 2025-28 (August 2025, partnership guidance), Notice 2025-46 (September 2025, consolidated groups and FSNOL simplification), Notice 2025-49 (September 2025, additional adjustments and reliance rules), and Notice 2026-7 (February 2026, expanded goodwill and repair adjustments). Final regulations are expected but the timeline is uncertain. (IRS.gov CAMT page)
  • CAUTION. The IRS has announced that forthcoming proposed regulations will provide that no section of the CAMT Proposed Regulations will be applicable for any taxable year beginning before the date corresponding final regulations are published. All CAMT positions for pre-final-regulation years are taken under interim guidance or on a reasonable interpretation of the statute. Practitioners should document their legal basis for all positions. (Notice 2025-49, § 3.01)

Step 15. Prior Year Minimum Tax Credit and Post-CAMT Considerations

"In the case of a corporation, subsection (b)(1) shall be applied by substituting 'the net minimum tax for all prior taxable years beginning after 2022' for 'the adjusted net minimum tax imposed for all prior taxable years beginning after 1986'." (§ 53(e)(1))

• CAMT paid generates a minimum tax credit under § 53(e) that carries forward indefinitely. § 53(e)(1) provides that for applicable corporations, the minimum tax credit is computed by substituting "the net minimum tax for all prior taxable years beginning after 2022" for the pre-TCJA reference. Any CAMT paid creates a credit that can be carried forward to offset future regular tax liability. The credit represents the excess of CAMT over the sum of regular tax plus BEAT in the year paid. § 53(c) limits the credit to the excess of (1) regular tax liability reduced by certain nonrefundable credits, over (2) the tentative minimum tax for the taxable year. For applicable corporations, the § 53(c)(1) limitation amount is increased by the BEAT amount, meaning BEAT liability creates additional room to absorb prior-year minimum tax credits. Form 8827 (revised December 2024) includes specific lines for CAMT. Line 1 reports prior year AMT from Form 4626 Part II line 13. Line 4 reports regular income tax. Line 5 reports BEAT. Line 9 reports current year tentative minimum tax from Form 4626. (§ 53(e) / § 53(c) / Form 8827, Rev. December 2024)
  • CAMT has dramatically underperformed revenue expectations. Based on public company financial disclosures, CAMT collected approximately $572 million in 2024 versus original JCT projections of nearly $35 billion for that year. This 98% revenue shortfall is attributed to guidance narrowing the scope of applicable corporations, special industry relief, and the interaction of CAMT with existing tax provisions. (Tax Foundation, May 29, 2025 / Tax Notes)
  • Republican proposals to repeal CAMT remain active but unsuccessful. A leaked Republican document from January 2025 proposed repealing CAMT at a cost of $222 billion over 10 years. The OBBBA did not repeal CAMT but made targeted modifications. A Senate effort to overturn Notice 2025-28 under the Congressional Review Act failed 47-51 in February 2026. (Proskauer Tax Talks, February 12, 2025 / Nation of Change, February 11, 2026)
  • The CAMT regime remains in a state of regulatory evolution. Treasury and IRS have issued extensive interim guidance but final regulations have not been published. The IRS has indicated it will withdraw and repropose significant portions of REG-112129-23, particularly for partnerships. Additional notices providing further relief and clarification are expected. (IRS.gov CAMT page / Notice 2025-49, § 3.01)
• Credit utilization requires multi-year planning, and international coordination may affect CAMT in the future. The credit cannot reduce regular tax below the tentative minimum tax in any year. A corporation that is consistently subject to CAMT (where TMT exceeds regular tax plus BEAT every year) may never be able to utilize its CAMT credits because there is no year in which regular tax exceeds TMT. Planning for credit utilization requires multi-year projections of both regular tax and CAMT positions. This is a particular concern for companies with large capital investments that generate regular tax deductions through bonus depreciation but positive AFSI. (PwC Viewpoint, March 31, 2026)
  • The OECD Pillar Two global minimum tax imposes a 15% effective tax rate on large multinational enterprises. While Pillar Two and CAMT are separate regimes, they share the same rate and similar objectives. Some commentators have suggested that CAMT could be modified to serve as a qualified domestic minimum top-up tax (QDMTT) under Pillar Two, which would prevent other jurisdictions from taxing U.S. profits. Treasury has indicated it is studying whether to modify CAMT to serve as a QDMTT. The interaction between CAMT and Pillar Two is an evolving area. (OECD Pillar Two Model Rules / EY Global Tax Alert)
  • TRAP. The minimum tax credit cannot reduce regular tax below the tentative minimum tax in any year. A corporation that is consistently subject to CAMT may never be able to utilize its CAMT credits. Planning for credit utilization requires multi-year projections of both regular tax and CAMT positions.
  • EXAMPLE. Corporation Z pays $20M of CAMT in 2024. In 2025, Z has regular tax of $80M, BEAT of $5M, and TMT of $70M. The § 53(c) limitation is ($80M plus $5M) minus $70M equals $15M. Z can use $15M of its 2024 CAMT credit to offset 2025 regular tax. The remaining $5M carries forward to 2026. If in 2026 Z has regular tax of $60M, BEAT of $3M, and TMT of $65M, the limitation is ($60M plus $3M) minus $65M equals negative $2M, so no credit can be used. The $5M carries forward to 2027 and beyond indefinitely. (Form 8827 Instructions / § 53(c))