Accounting
IRS and Treasury offer guidance on corporate minimum tax
The Internal Revenue Service and the Treasury Department issued
The Inflation Reduction Act created the CAMT, which imposes a 15% minimum tax on the adjusted financial statement income (AFSI) of large corporations for taxable years beginning after Dec. 31, 2022. The CAMT generally applies to large corporations with an average annual AFSI exceeding $1 billion.
The proposed regulations that came out Thursday include definitions and general rules for determining and identifying AFSI. They also include rules regarding various statutory and regulatory adjustments in determining AFSI; determining if a corporation is subject to the CAMT, including rules for members of a foreign parented multinational group (FPMG) and the determination of the CAMT foreign tax credit.
The proposed regulations also deal with the application of the CAMT to affiliated corporations filing a consolidated income tax return.
Samuel Corum/Bloomberg
The IRS had previously issued
The IRS also issued
The Treasury estimates that approximately 100 of the largest and most profitable companies will pay the CAMT annually. These corporations would have otherwise paid an average effective federal tax rate of 2.6%. An estimated 60% of CAMT payers would otherwise have paid an effective tax rate of less than 1%, including 25% of payers that would have paid an effective tax rate of zero.
It said that’s because some of the largest and most profitable corporations in the country use tax preferences and aggressive planning strategies to pay little to no taxes. The corporations report record profits to shareholders while often paying lower tax rates than nurses, firefighters, police officers and teachers. Their ability to use complex strategies to avoid tax also gives them an unfair competitive advantage over small businesses, which don’t have access to the same tax planning techniques and high-paid lawyers and accountants. The Treasury contends the CAMT helps level the playing field for small businesses by imposing a minimum tax on the profits that the largest corporations report to their shareholders.
The Treasury’s NPRM would implement the statutory requirement that the biggest corporations pay a minimum 15% tax on profits reported to shareholders, with certain adjustments, to increase tax fairness and generate an estimated $250 billion over the next 10 years (2025-2034), including $20 billion in 2025.
The CAMT only applies to large corporations that average more than $1 billion in profit per year, not $1 billion in sales. In addition, if these corporations pay regular taxes that equal or exceed 15% of their adjusted profits, they would pay no additional tax. CAMT is designed as a backstop to ensure there are not years where the most profitable corporations in the world are paying minimal taxes.
“The proposed rules released by Treasury today are an important step toward realizing Congress’ efforts to address the most egregious U.S. corporate tax avoidance and ensure the largest and most profitable corporations in the country cannot pay little to no taxes,” said Treasury Secretary Janet Yellen in a statement. “The Corporate Alternative Minimum Tax will also help level the playing field for small businesses while generating hundreds of billions of dollars in revenue.”
Crafting the rules to implement this tax has been one of the most significant projects the Treasury Department has undertaken in decades, the Treasury noted. Congress delegated a significant amount of authority to Treasury to implement the CAMT, and the Treasury and the IRS are implementing the law via these proposed regulations consistent with Congress’s statutory direction and intent.
In particular, as part of the legislative process, Congress chose to retain only a small number of regular tax preferences for the purpose of the minimum tax. The proposed rules follow suit and generally do not create adjustments to the tax base other than those directed by Congress. Consistent with the four notices Treasury previously issued to give taxpayers early clarity, the NPRM addresses limited and targeted cases where adjustments are clearly needed to accomplish congressional intent. For example, it addresses situations involving bankrupt and other troubled companies so that these companies can emerge from bankruptcy and continue to operate and employ their workers.
The Treasury noted that the guidance is a proposed rule. All stakeholders will have the opportunity to comment on the proposed regulations by Dec. 12, 2024 and may request to speak at the public hearing on the proposed regulations scheduled for Jan. 16, 2025. The Treasury and the IRS plan to carefully consider all comments they receive on the proposed regulations and make changes based on those comments as appropriate.
The Treasury and the IRS are being cautious about the regulations and guidance in light of a Supreme Court decision in June in the case of
“On the tax side, I think it’s just going to lead to taxpayers being more willing to challenge the regulations that aren’t helpful to them,” said Brian Harvel, a tax lawyer at the firm Alston & Bird, during an interview last month. “I’m already seeing that in my practice where companies want to take positions and want to engage in transactions. There may be a relatively new reg, or in some cases an older reg. reg that is essentially inconsistent with the statute, or at least, there may not be authority under the statute, or provisions of the reg, and taxpayers are now more open to taking the position they want to take. There’s less of a concern with filing the form with a tax return that says the taxpayer is going to take a position inconsistent with the reg.”
The Financial Accounting Standards Board issued a
U.S. GAAP currently doesn’t provide specific authoritative guidance about the recognition, measurement, and presentation of a grant received by a business entity from a government. Instead, many businesses currently apply the International Financial Reporting Standards Foundation’s International Accounting Standard 20, Accounting for Government Grants and Disclosure of Government Assistance, by analogy, at least in part, to account for government grants.
In 2022 FASB issued an Invitation to Comment, Accounting for Government Grants by Business Entities—Potential Incorporation of IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, into GAAP. In response, most of FASB’s stakeholders supported leveraging the guidance in IAS 20 to develop accounting guidance for government grants in GAAP, believing it would reduce diversity in practice because entities would apply the guidance instead of analogizing to it or other guidance, thus narrowing the variability in accounting for government grants.
Patrick Dorsman/Financial Accounting Foundation
The proposed ASU would leverage the guidance in IAS 20 with targeted improvements to establish guidance on how to recognize, measure, and present a government grant including (1) a grant related to an asset and (2) a grant related to income. It also would require, consistent with current disclosure requirements, disclosure about the nature of the government grant received, the accounting policies used to account for the grant, and significant terms and conditions of the grant, among others.
FASB is asking for comments on the
“It will not be a cut and paste of IAS 20,” said FASB technical director Jackson Day during a session at Financial Executives International’s Current Financial Reporting Insights conference last week. “First of all, the scope is going to be a little bit different, probably a little bit more narrow. Second of all, the threshold of recognizing a government grant will be based on ‘probable,’ and ‘probable’ as we think of it in U.S. GAAP terms. We’re also going to do some work to make clarifications, etc. There is a little bit different thinking around the government grants for assets. There will be a deferred income approach or a cost accumulation approach that you can pick. And finally, there will be different disclosures because the disclosures will be based on what the board had previously issued, but it does leverage IAS 20. A few other things it does as far as reducing diversity. Most people analogized IAS 20. That was our anecdotal findings. But what does that mean? How exactly do they do that? This will set forth the specifics. It will also eliminate from the population those that were analogizing to ASC 450 or 958, because there were a few of those too. So it will go a long way in reducing diversity. It will also head down a model that will be generally internationally converged, which we still think about. We still collaborate with the staff [of the International Accounting Standards Board]. We don’t have any joint projects, but we still do our best when it makes sense to align on projects.”
PwC made a $1.5 million investment to Bryant University, in Smithfield, Rhode Island, to fund the launch of the PwC AI in Accounting Fellowship.
The experiential learning program allows undergraduate students to explore AI’s impact in accounting by way of engaging in research with faculty, corporate-sponsored projects and professional development that blends traditional accounting principles with AI-driven tools and platforms.
The first cohort of PwC AI in Accounting Fellows will be awarded to members of the Bryant Honors Program planning to study accounting. The fellowship funds can be applied to various educational resources, including conference fees, specialized data sheets, software and travel.
Krisztian Bocsi/Bloomberg
“Aligned with our Vision 2030 strategic plan and our commitment to experiential learning and academic excellence, the fellowship also builds upon PwC’s longstanding relationship with Bryant University,” Bryant University president Ross Gittell said in a statement. “This strong partnership supports institutional objectives and includes the annual PwC Accounting Careers Leadership Institute for rising high school seniors, the PwC Endowed Scholarship Fund, the PwC Book Fund, and the PwC Center for Diversity and Inclusion.”
Bob Calabro, a PwC US partner and 1988 Bryant University alumnus and trustee, helped lead the development of the program.
“We are excited to introduce students to the many opportunities available to them in the accounting field and to prepare them to make the most of those opportunities, This program further illustrates the strong relationship between PwC and Bryant University, where so many of our partners and staff began their career journey in accounting” Calabro said in a statement.
“Bryant’s Accounting faculty are excited to work with our PwC AI in Accounting Fellows to help them develop impactful research projects and create important experiential learning opportunities,” professor Daniel Ames, chair of Bryant’s accounting department, said in a statement. “This program provides an invaluable opportunity for students to apply AI concepts to real-world accounting, shaping their educational journey in significant ways.”
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