Proposed Corporate Minimum Tax

One of the measures currently being considered for inclusion within the Build Back Better Act is an enactment of a corporate minimum tax.  The provision has broadly been reported as being expected to apply to approximately 200 companies that report more than $1 billion in annual profits.

As currently proposed, the provision would be applicable for tax years beginning after December 31, 2022 and would effectively reinstate the alternative minimum tax (AMT) for corporations on a go- forward basis.  Corporate AMT will also now be segregated from non-corporate AMT.  Under these revised rules, AMT for corporations classified as “applicable corporations” is equal to 15% of adjusted financial statement income for the tax year over the corporate AMT foreign tax credit for the year.  In the case of corporations who are not “applicable corporations” for the tax year, the AMT for that tax year is specified to be zero.

Corporations would only have an additional tax liability to the extent their AMT exceeds the sum of their regular and base erosion taxes. 

Under the provision, S-corporations, regulated investment companies and real estate investment trusts would not be considered “applicable corporations”.  Classification of non-excluded corporations is made based upon the average annual adjusted financial statement income for the preceding three taxable years but only for tax years beginning after December 31, 2019. 

New IRC section §56A would be added to define adjusted financial statement income, which starts with the net income or loss the taxpayer put forth on their applicable financial statements (AFS)[1] and then layers on specified adjustments to arrive at adjusted financial statement income.  Since corporate AMT is predicated upon having an AFS, corporate taxpayers without any AFS would, from a practical application standpoint, also be excluded from AMT.

Solely for purposes of determining the average annual adjusted financial statement income of a taxpayer for classification purposes, entities that would be a single employer under a modified application of IRC section §52(a) or (b) are to be treated as one person.[2]  Under this modified approach IRC section §52(a) or (b) is applied without respect to the exclusions for foreign corporations and insurance companies provided in IRC section §1563(b)(2) paragraphs C and D, respectively.

If the average annual adjusted financial statement income is greater than $1 billion, the corporation is an applicable corporation.  In the case of a corporation that is a member of an international reporting group with a foreign parent, the $1 billion test is applied by including all foreign members of the foreign reporting group and the corporation’s own average annual adjusted financial statement income would also have to be $100 million or more for it to be classified as an applicable corporation.

Under the proposed guidance, an international foreign reporting group would exist for this purpose when two or more entities are included in the same AFS with respect to the year and either 1) at least one entity is a foreign corporation engaged in a trade or business in the US or 2) at least one entity is a domestic corporation and another entity is a foreign corporation. 

Corporations may want to proactively consider the applicability and impact of the proposed legislation.


[1] Applicable Financial Statements for this purpose has the same meaning as it does for revenue recognition under IRC section §451(b).

[2] Under IRC section §7701(a)(1) the term “person”, where not otherwise distinctly expressed or manifestly incompatible with the intent thereof, is construed to mean and include an individual, trust, estate, partnership, association, company or corporation.



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