January 9, 2023

Notice 2023-7: First Peek at Corporate AMT Guidance

Holland & Knight Alert
Roger David Aksamit | Alan Winston Granwell | Joshua David Odintz | Brad M. Seltzer


  • The U.S. Department of the Treasury and IRS on Dec. 27, 2022, issued guidance regarding the new corporate alternative minimum tax (CAMT). Notice 2023-7 (the Notice) is the first pass at the CAMT.
  • While the Notice provides answers to some important questions, it recognizes that subsequent guidance will be required for more nuanced issues.
  • This Holland & Knight tax alert provides an overview of the Notice and identifies certain issues that the Treasury Department will need to address in future guidance.

As promised, the U.S. Department of the Treasury (Treasury Department) and IRS on Dec. 27, 2022, issued guidance regarding the new corporate alternative minimum tax (CAMT) enacted as part of the Inflation Reduction Act (IRA). Notice 2023-7 (the Notice) is the first pass at the CAMT. While the Notice answers some important questions, it defers guidance on many issues that the Treasury Department will need to address in future Notices and/or proposed regulations later this year. Further, the Notice is silent on many significant issues. This Holland & Knight tax alert provides an overview of Notice 2023-7 and identifies certain issues that the Treasury Department will need to address in future guidance.

Overview of the CAMT

The CAMT applies to an applicable corporation. An applicable corporation is a corporation with average annual adjusted financial statement income (AFSI) of greater than $1 billion over a three-taxable-year period. For a foreign-parented corporation, the U.S. average annual AFSI must also exceed $100 million over a three-taxable-year period. An applicable corporation does not include an S corporation, a real estate investment trust or a regulated investment company.

For the $100 million test, a U.S. subsidiary of a foreign-parented group computes its U.S. book income without its share of: foreign branch income, controlled foreign corporation (CFC) income, AFSI from a partnership interest and adjustments related to defined benefit pensions. Also, if a foreign corporation has a U.S. trade or business, then that trade or business is treated as a separate domestic corporation for purposes of the applicable corporation test.

The Treasury Department has broad authority to prescribe guidance that addresses when it can include entities as part of a foreign-parented group, and when it can treat a foreign corporation as the common parent of a foreign-parented group.

The CAMT uses the single employer rule in Section 521 to determine whether a corporation is an applicable corporation. All AFSI of persons treated as a single employer are treated as AFSI of the corporation or partnership. Solely for purposes of testing for an applicable corporation, AFSI is modified to not include partnership distributive shares, and the adjustments for covered benefit plans are not applied.

The starting point for determining applicable corporation status and the potential amount of CAMT is an applicable financial statement (AFS), as defined under Section 451(b)(3), or as specified by the Treasury Secretary in regulations or other guidance.

The CAMT requires an applicable corporation to make several adjustments to the AFS to compute its AFSI, such as depreciation, direct pay tax credits, taxes and covered benefit plans.

The Treasury Department has broad authority to issue guidance to create categories of adjustments to AFSI to "carry out the purposes of this section …" The statute specifies a few areas for the Treasury to address, including to prevent the omission or duplication of any item, to carry out the purposes of Subchapter C pertaining to liquidations and corporate organizations and reorganizations, and to carry out the purposes of Subchapter K pertaining to partnership contributions and distributions.

An applicable corporation can offset its CAMT with general business credits and is limited to 75 percent of AFSI.

An applicable corporation can use financial statement net operating loss carry-forwards to offset up to 80 percent of book income. Congress limited such carry-forwards to losses arising from taxable years ending after Dec. 31, 2019.

Covered Nonrecognition and Recognition Transactions

Covered Nonrecognition Transactions

Almost immediately after President Joe Biden signed the IRA, the Treasury Department received comments from stakeholders requesting a broad exception for corporate reorganizations and similar transactions, and it exercised its broad authority to largely insulate specified nonrecognition transaction from the CAMT. A Covered Nonrecognition Transaction is defined as one that qualifies for nonrecognition under Sections 332, 337, 351, 354, 355, 357, 361, 368, 721, 731 or 1032, or a combination thereof. Each component of a larger transaction is examined separately for purposes of determining if the transaction meets the definition of a Covered Nonrecognition Transaction.

AFSI income of the party subject to a Covered Nonrecognition Transaction is adjusted to remove financial accounting gain or loss resulting from the application of the accounting standards used by the party. Also, any increase or decrease in the financial accounting basis is ignored for purposes of the AFSI of the party receiving the transferred property.

Covered Recognition Transactions

The Covered Recognition Transaction rules are for most purposes a mirror image of the Covered Nonrecognition Transaction rules. A Covered Recognition Transaction is defined as any transfer, sale, contribution, distribution or other disposition of property treated for federal income tax purposes as resulting in gain or loss – essentially, anything that does not qualify as a Covered Nonrecognition Transaction. Likewise, for purposes of this rule, each component transaction of an otherwise more comprehensive transaction must be examined separately for purposes of determining if the transaction meets the definition of Covered Recognition Transaction.

Various questions that arise as a result of the definition of Covered Recognition Transaction, include the following:

  1. Certain forms of recognition transactions for federal tax purposes, apply a fictional or deemed treatment despite the economic consequences. So, query what happens if the taxpayer's financial statement method does not also deem the same transaction to occur? For example, under Section 1259 (constructive sales of appreciated financial positions), gain may apply to a taxpayer if the transaction attributable to a deemed sale even when for financial accounting purposes there has not been a sale (instead, in the case of Section 1259, the transaction may be accounted for a hedge or forward sale). If there has been inclusion for federal income tax purposes, query whether there also be inclusion for purposes of computing AFSI even if the AFS without the inclusion of the Covered Recognition Transaction already reflects some portion of the gain from the transaction? It appears that this issue will need clarification by the Treasury Department.
  2. Under the component transaction rule in which each component must be determined separately, the Notice implies/provides that if one component of the transaction is taxable and another component is non-taxable, and, if the two components together would be part of a larger transaction that meets the definition of the Covered Nonrecognition Transaction, then the separate components of the transaction would become Covered Recognition Transactions. Accordingly, under the partnership contribution/distribution and disguised sale example provided in the Notice, because the transaction overall is taxable, each component would be taxable in computing AFSI. Further thought is required in the instant case; this rule also raises the question of whether in a case in which there is overall recognition, should not the component parts be respected notwithstanding a different treatment if viewed independently?

Cancellation of Debt Income and Bankruptcy

For federal income tax purposes, under Section 61(a)(11), any debt that is discharged or satisfied at a discount gives rise to cancellation of indebtedness income (CODI) that, but for certain exclusions, is included in income. Section 108(a), however, contains various exclusions that apply to this general rule of inclusion, including if the CODI arises in most federal bankruptcy cases, to the extent of a debtor's insolvency and with respect to certain types of debt provided other qualifications are met. The price for this exclusion under Section 108(a) is the debtor,who has escaped CODI inclusion under Section 108(a), must reduce certain of its tax attributes to the extent CODI income has been excluded. These include net operating losses (NOLs), depreciable tax basis and tax credits. An ordering rule under Section 108(b) is provided as to attribute reduction, with NOLs being the tax attribute first reduced – however, an election is available to first reduce depreciable basis. If attributes are completely reduced in an amount less than the CODI, the excess CODI in nonetheless excluded.

The general accepted accounting principles (GAAP) financial statements do not follow this same treatment. Accordingly, an applicable corporation, although otherwise exempt from income inclusion under Section 108(a), could have an AFSI inclusion to the extent of its CODI and therefore become subject to the CAMT, with the CODI inclusion causing the corporation to become an applicable corporation.

Notice 2023-7 addresses this inconsistency pursuant to the general rule – if CODI is excluded under Section 108(a), the CODI is not taken into account in determining AFSI in the taxable year of the discharge. For CAMT, the basis reduction rules of Section 108(a) are likewise followed, with a reduction of the tax attributes of the debtor in the same order and amount as provided in Section 108(b). If the CODI exceeds the basis reduction, the excess CODI is likewise excluded for purposes of AFSI. A separate rule applies for purposes of financial gain or loss that may result from the emergence of a debtor corporation from bankruptcy. Under this rule, the financial gain or loss is not taken into account for purposes of calculating the AFSI for the taxable year in which the emergence from bankruptcy occurs. Similar to the attribute reduction rules of Section 108(b), to the extent there would be any increases or decreases in financial accounting basis as a result of the financial gains or losses from the emergence from bankruptcy, these rules will not apply. As a result, for purposes of computing AFSI in future years, the financial accounting basis of the debtor corporation would equal the corporation's basis just prior to it emerging from bankruptcy.

The application of these rules, and the need for additional clarification, are illustrated by Example 8 of Section 3.06. In this example, the debtor corporate group, which is an applicable corporation, has cancellation of indebtedness for financial accounting purposes equal to $1,000X, but pursuant to Section 108(a), only $850X of the CODI is excluded for federal income tax purposes. Under the rules of Section 3.06, the amount excluded from CODI under Section 108(a), or $850X, is excluded from AFSI, while the balance of $150X is included in AFSI. Likewise, the debtor corporate group also must reduce its tax attributes for future AFSI purposes in the same amount and order as provided in Section 108 and 1017. Therefore, similar to attribute reduction under Section 108(b), this attribute reduction provides the potential for inclusion of future income in AFSI due to the elimination of future deductions.

Based on the comments solicited by the Treasury Department with respect to Section 3.06, it appears that the Treasury Department understands that further clarification is necessary with respect to Section 3.06 and the treatment of CODI for AFSI purposes. The comments solicited along with Example 8, raise several questions, including:

  1. Should the CODI rules in the Notice be revised, for purposes of computing CAMT, to exclude all AFS gain arising from CODI when there is exclusion (but not necessarily a total exclusion) up to the AFS gain? From a policy viewpoint, it would seem appropriate to make this approach consistent with the emergence from bankruptcy exclusion that applies, particularly if attribute reduction applies to the full extent there is an AFSI exclusion.
  2. Likewise, the Notice requests a comment as to whether these rules should apply to a bankruptcy reorganization that is not a recognition event for federal income tax purposes, thereby not requiring the tax relief provided in Section 108(a)? Based on this request, it appears that the Treasury Department may be contemplating a rule similar to the emergence from bankruptcy rule. In other words, if Section 108(a) were not to apply or provide relief, the resulting CODI would not be included in AFSI.
  3. A similar issue arises if the financial statement gain from CODI were to arise in a taxable year other than the year of the discharge (such that Section 108(a) may not apply). Under the Notice as currently written, it would not be exempt from its inclusion in AFSI, As to this issue, it is somewhat harder to argue for consistency with the emergence from bankruptcy rule. In this instance, the creation of CODI in a post-bankruptcy tax year when Section 108(a) may not otherwise apply (presumably because the debtor corporation is now solvent), seems consistent with Section 61(a)(11). Nonetheless, a byproduct of this approach is that there could be a double inclusion of CODI income and gains.
  4. There clearly is need for more specificity on attribute reduction. The Treasury Department recognizes this and has requested comments on the CAMT attributes that should be adjusted and the methodology and ordering as to attribute reduction or adjustment if CODI were excluded in computing AFSI.

Depreciation Adjustments

New Section 56(A)(3) provides that in computing AFSI for tangible personal property, tax depreciation deductions are substituted for book depreciation for financial statement purposes.

The Notice provides that the foregoing rule only applies to tangible personal property actually depreciated under Section 168, thus excluding property that the taxpayer elects to exclude from that section under Section 168(f)(1).

The Notice also clarifies that depreciation capitalized into inventory costs under Section 263A is taken into account in computing AFSI when recognized as cost of goods sold. Items included in financial statement cost of goods sold, such as depreciation expense and impairment losses, are eliminated in the computation of AFSI.

In calculating gain or loss upon the sale of Section 168 property for financial statement purposes, basis is recalculated using tax depreciation deductions rather than book depreciation expense.

While helpful, the guidance provided by the Notice with respect to depreciation is limited. For example, for regulated public utilities, the Notice does not provided guidance on the treatment of the CAMT for purposes of the normalization rules under Section 168. The normalization rules are designed to ensure that the benefits of accelerated depreciation are spread and shared with customers over the book life of the property. In traditional ratemaking, the utility would be allowed to recover a "tax expense" at the full statutory tax rate, not the utility's effective tax rate. If the utility were now to be subject to the CAMT, must the CAMT be normalized, or would ratemaking jurisdictions that allow for flow-through of non-168 depreciation deductions (e.g., repairs) have the flexibility to allow flow-through of the CAMT?  Further, how would the utility in a consolidated group with nonregulated affiliates determine its share of the consolidated CAMT (e.g., would there be a mandatory method or flexibility for ratemaking bodies)?

Safe Harbor Method

Recognizing that the CAMT's first year may be a bit difficult to navigate, the Notice provides for a soft landing for the first taxable year beginning after Dec. 31, 2022, for purposes of determining whether a corporation is an applicable corporation. First, the applicable corporation thresholds are reduced from $1 billion to $500 million, and from $100 million to $50 million for foreign-parented groups' U.S. AFSI. The test is applied with a one-year measuring period, as opposed to a three-year measuring period. Under the simplified method, AFSI adjustments are not made, other than for consolidated financial statements, consolidated returns and certain taxes. Also, AFSI does not include AFS consolidation entries that otherwise are taken into account, except those transactions between persons that are not treated as a single employer under Section 52.

The safe harbor method should reduce the complexity for determining whether a corporation is an applicable corporation subject to the CAMT. It would also give corporations another year (and the Treasury Department more time) before they need to compute applicable corporation status under the strict statutory rules.

AFSI Adjustments for Certain Credits

The Inflation Reduction Act created two paths for taxpayers to monetize energy credits – through direct pay from the IRS or by transfer to another party for cash. The Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (CHIPS Act) added the Advanced Manufacturing Credit, which also has a direct pay feature. Amounts received through direct pay or a transfer to a third party for cash do not give rise to AFSI and are generally disregarded.

Questions, Questions – So Many Questions

The Notice poses more than 30 questions regarding the topics contained in the Notice, as well as issues that could be addressed in future guidance. For example, the Notice requests comments on how to interpret the term distributive share of a partnership's AFSI, and whether additional adjustments to AFSI are required to carry out the principles of Subchapter K.

For foreign-parented groups, the Notice requests comments on what rules would be appropriate regarding the definition of applicable corporation. A related issue is whether the rules under Section 451(b)(5) should be modified for the purposes of determining the AFSI of a corporation in an AFSI group? A foreign-parented group may have more than one applicable corporation, and using the parent's AFS may be challenging.

The Notice requests comments on change of ownership and successor issues, such as which facts and circumstances should be considered relevant for determining whether a corporation is a an applicable corporation after a change in ownership.

International Tax

The Notice does not address international tax issues (other than the foreign-parented issue). Below,  a number of the issues, concerns and discontinuities of minimum taxes that may apply to U.S. corporate taxpayers are identified

With the enactment of the CAMT, U.S. multinational corporations (MNCs) may become subject to three U.S. minimum taxes,2 in addition to the regular corporate tax the global intangible low-taxed income (GILTI), the base erosion and anti-abuse tax (BEAT) and, most recently, the CAMT. Further, with the European Union's (EU) recent decision, as well the decision of some non-EU countries, to implement the global anti-base erosion rules (GLoBE), a fourth minimum tax may apply to U.S. MNC groups.

Unfortunately, each of these minimum tax operates differently. Numerous questions arise as to how these rules will impact U.S. MNCs, particularly if those countries adopting GLoBE do not view the three U.S. minimum tax regimes as conforming to GLoBE.3 In that regard, there would not appear to be much likelihood that the U.S. Congress would adopt GLoBE within the next two years.4

When examining the four minimum taxes, what becomes apparent are the disparate rules.; viz., the thresholds for their respective applications, the tax base, the tax rates and the mechanism for avoiding double taxation, among other attributes. These differing rules make coordination difficult. On a high level, this can be seen in the chart below.5







When Applied

U.S. MNCs w/ >$1B average profit for three prior years and foreign-parented firms with >$100M of profits

Inclusion by U.S. Shareholders of CFCs GILTI

$500M average gross receipts for past three years plus 3 percent outbound base erosion payments

Firms w/ >750M euros revenues (approximately $806M as of Jan. 9, 2023)

Tax Base

Financial income worldwide

Foreign source taxable income

Taxable income

Financial income in each country

Tax Rate

15 percent

10.5 percent/ increased rate after 20256

10 percent / 12.5 percent after 2025

15 percent

Avoid Double Taxation

FTC, based on financial statement taxes, limited to 15 percent of CFC adjustment for the taxable year (blended)

FTC limited to 80 percent of foreign income taxes (blended)


Add-on or top-up tax (per country)

Taking the foregoing into account, some selected high-level observations can be made:

  • Only the largest U.S. corporations would be affected by the CAMT, since the threshold for applying this provision is more than $1 billion.7
  • The CAMT applies only if it exceeds the regular tax plus tax due under BEAT.
  • The CAMT applies after GILTI. Thus, CAMT may increase the U.S. tax if GILTI were subject to a low level of foreign tax; a similar result could apply to Foreign Derived Intangible Income (FDII).
  • The discontinuity of inclusion and subsequent distribution rules between financial and tax raises double tax concerns.. In illustration, the income of a CFC may be taxed twice, once when earned and again when distributed. The Treasury Department is aware of these concerns and hopefully will utilize its regulatory authority to prevent double taxation.8
  • Numerous concerns and observations have been raised with respect to the interaction between the CAMT/GILTI and GLoBE. For example, a concern raised is that if the CAMT were not to be viewed as conforming to GLoBE, double taxation could arise – the Treasury Department is aware of that concern.9 In terms of conformance, there are differing views. One commentator has argued that the U.S. tax law (GILTI and CAMT) is compatible with GLoBE, notwithstanding that the GILTI tax rate is lower and that neither GILTI nor CAMT are applied on a country-by-country basis.10 Hopefully, that these issues will be addressed in the forthcoming Organization for Economic Cooperation and Development (OECD) GloBE implementation package.

As can be gleaned from even this brief discussion, the existence and lack of coordination of these minimum tax provisions will lead to significant additional compliance burdens for impacted taxpayers. Time will tell whether or how these issues can be reconciled.


Notice 2023-7 is an initial positive first step in filling in some of the gaps in CAMT. It is anticipated that the Treasury Department will issue robust proposed regulations in 2023, with the goal of finalizing regulations in 2024.

Comments to the Notice are due within 60 days after the date on which the Notice is published in the Internal Revenue Bulletin (IRB). Stakeholders should use this opportunity to comment before the Treasury Department issues proposed regulations.

For any additional information or assistance and guidance with preparing comments, contact the authors.


1 All section references are to the Internal Revenue Code of 1986, as amended.

2 GILTI was designed to add a new 10.5 percent minimum tax to prevent U.S. MNC's from eroding the U.S. tax base by shifting profits on easily moved assets, such as intellectual property, to low-taxed jurisdictions abroad. BEAT was designed to target profit shifting through deductible, such as interest and royalties, to foreign-related entities. The CAMT was designed to prevent very large companies with significant accounting earnings from paying little or no U.S. tax.

3 In that instance, an undertaxed profits rule (UTPR) top-up tax could apply, for example to EU subsidiaries of U.S. MNCs.

4 See letter to Treasury Secretary Jane Yellen, Dec. 14, 2022, from Republican members of the Congressional tax writing committees opposing GLoBE.

5 The format for the chart was taken, in part, from the Congressional Research Service article "The 15% Corporate Alternative Minimum Tax," authored by Jane. G. Gravelle, Senior Specialist in Economic Policy, Dec. 7, 2022 (CRS Article).

6 A proposal was included in an earlier version of the Build Back Better Act, H.R. 5376, to impose GILTI on a per country basis (and at a higher rate) to make it acceptable as a substitute for GLoBE, but that proposal was not included in the version of H.R. 5376, enacted into law as the Inflation Reduction Act of 2022 (P.L. 117-169).

7 See CRS Article at pp. 8 and 9.

8 See Andrew Velarde, "Treasury Strongly Hints at Corporate AMT CFC Double-Counting Relief," Tax Notes, posted Oct. 21, 2022 (Velarde Article).

9 See Velarde.

10 See Reuven Avi-Yonah, "Is the United States Already Compliant with Pillar 2?," Tax Notes, posted Nov. 14, 2022.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.

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