The Internal Revenue Service and the Treasury Department issued proposed regulations last month offering guidance on the corporate alternative minimum tax on companies with over $1 billion in income, but those rules could impact much smaller companies as well.
The CAMT was part of the Inflation Reduction Act of 2022 with the goal of ensuring billion-dollar corporations pay more in taxes. However, the draft rules have provoked pushback, not least because of their complexities.
“The regulations are really complex in all the various aspects,” said David Strong, a partner in the tax services group at Crowe in Grand Rapids, Michigan. Among the complicating factors is depreciation.
The U.S. Treasury building in Washington, D.C.
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“Probably the one that impacts a lot of companies are going to be depreciation adjustments, where it’s viewed as a favorable type of approach,” said Strong. “You generally would add back your book depreciation to your financial statement income and take a deduction for your tax depreciation. In years where companies are taking the benefit of bonus depreciation, it certainly goes to reduce your adjusted financial statement income in determining, number one, if you’re subject to the corporate alternative minimum tax, or secondarily in computing the tax itself. But if you take a look at just those rules, they’re fairly complex in how you go about computing that adjustment. Generally you have to track through [whether] you are taking impairment losses for financial statement purposes that effectively get added back for computing your corporate AMT, and then tracking the basis difference, both from a financial statement perspective and a tax perspective.”
He expects the IRS and the Treasury to be inundated with comments from tax practitioners, corporations, and other groups ahead of a scheduled public hearing in January.
“The mindset is that it’s a lot of larger companies that are going to have sophisticated tax departments [with] people that can address some of these complex issues,” said Strong. “But I think the fallout is that we take a look at one of the aspects of the adjustment to your financial statement income deals with partnerships. Generally, if I’m a partner in a partnership, and I include that partnership income in my financial statement income, I need to make an adjustment for whatever my distributive share of the partnership’s adjusted financial statement income needs to be adjusted in, let’s say, the corporate entity’s financial statement income. That calculation generally is pushed to the partnership. That’s probably one of the areas from my client base that’s been impacted the most. If I have an investment partnership where I have a corporate entity that could be subject to the alternative minimum tax, they’re requesting that the partnership provide them with their distributed share of financial statement income. What that does is it effectively takes all the rules that apply to these larger companies and applies those to the partnership, because the partnership has to go through, as if it were that corporate entity, and give its adjusted financial statement income in order to provide that information to its partner that would be subject to the tax.”
Some of the partnerships are investment funds that have invested in the billion-dollar companies, he noted.
“The rub is those complex rules now need to be applied by smaller entities in order to provide the corporate entity that’s a partner in this partnership the requisite information they need in order to compute their corporate AMT,” said Strong.
It can get even more complicated with a tiered partnership. “The lower-tier company could be a corporation, or it could be another partnership,” said Strong. “If it’s another partnership, you have a second layer of having to do this computation. So the lower-tier partnership would have to go through and compute its AFSI, the adjusted financial statement income, and report that to the upper tier partnership, and then the upper tier partnership provides that information to the corporate entity. It can get fairly complex for companies that generally are much smaller than those that are paying the tax.”
The outcome may depend on the November election contest between Vice President Kamala Harris and former President Donald Trump. “If Harris wins the presidency, I think the shift there is to keep the corporate alternative minimum tax in place, but increase the rate from its current 15% to 21%,” said Strong. “If that’s the case, then the rules will be in place for a longer period of time.”
If Trump wins, he has expressed interest in eliminating the Inflation Reduction Act and lowering the corporate tax rate further. “The main focus of what the corporate alternative minimum tax was funding were a lot of those energy incentives that were part of the Inflation Reduction Act,” Strong noted.
The CAMT rules for a 15% minimum tax aren’t the same as the ones from the Organization for Economic Cooperation and Development, which haven’t been ratified in the U.S., despite the backing of the Biden administration. “Different rules, different tax,” said Strong. “They may operate in a simpler manner, but they are certainly different taxes that would apply.”
Corporate taxpayers will also need to be aware of a safe harbor that the Treasury and the IRS provided in Notice 2023-7 prior to releasing the draft rules.
“One of the things in an earlier notice that the government provided for was called a safe harbor method for determining if you’re an applicable corporation and subject to these rules or not,” said Strong. “It didn’t necessarily mean that you wouldn’t have to pay the tax if you went through this safe harbor. But generally what it did is it simplified the process of saying if these rules would apply.”
The safe harbor reduces the $1 billion in adjusted financial statement income down to $500 million for wholly domestic entities, and $50 million for foreign-parented multinational entities. But that doesn’t mean they’re off the hook completely.
“If I’m above those thresholds, even though I might not be subject to the tax itself, I still have a filing requirement,” said Strong.
Companies will still have to go through the process of completing the forms to effectively show the IRS that they’re not subject to the tax.
The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.
The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.
In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.
President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.
The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings.
Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.
Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.
Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed.
The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.
Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition.
Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time.
“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said.
One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load.
“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai.
Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies.
“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.
However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area.
“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai.
As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales.
“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai.
While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves.
“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”