Dive Brief:
- Ernst & Young (EY) is talking with officials at the Internal Revenue Service (IRS) after urgently requesting guidance for the new 15% minimum tax on large, profitable corporations known as the Corporate Alternative Minimum Tax (CAMT) contained in the Inflation Reduction Act, an EY spokesperson said in an emailed response to questions.
- Within days of President Biden signing the IRA package into law in August, the Big Four accounting firm fired off a letter to the U.S. Treasury Department requesting immediate guidance on how to treat so-called split-off divestitures under the new law. It asserts the issue is time-sensitive because it affects deals in progress. EY sent another letter Sept. 15, according to a copy provided to CFO Dive.
- EY didn’t get a written response to its letters but has been working with the IRS to “help educate on the accounting rules,” EY Global Transaction Advisory Leader Karen Gilbreath Sowell wrote in an emailed response. “It is an ongoing dialogue and they are working really hard to figure out how to resolve [it]. EY is working with the government to try to help with the transactional issues raised by the CAMT.”
Dive Insight:
An IRS spokesperson wrote in an email that he could not confirm any discussions with specific stakeholders. “But in general, we have regular contact with a variety of stakeholders, including many in the tax professional community, and we welcome, value and take seriously their input,” he wrote.
While the IRS has issued some guidance related to electric vehicle tax issue included in the IRA, the spokesperson said no formal guidance has been issued on the 15% corporate minimum tax. Guidance on new tax legislation like the IRA can take months or longer, he said. Separately, the IRS issued six notices on Wednesday, asking for public comment on energy tax benefits in the IRA.
As financial report preparers and accountants are grappling with the ramifications of the new corporate tax, the split-off issue is emerging as a flashpoint. It is a form of divestiture where the parent company’s shareholders can keep current shares or exchange them on a non-pro rata basis as compared to a spin-off in which the subsidiary’s stock is distributed on a pro-rata basis. Both are tax free transactions under Internal Revenue Code Section 355, but in financial statements under GAAP rules only the split-off is shown as a gain.
In its first letter to the IRS, EY in essence asked that relief in the form of an exception be given so that, for the purposes of new corporate tax, so-called split-off transactions would not result in a financial reporting gain, meaning that they would not have the potential to boost a company’s book income above the threshold that would make it subject to the new tax. The tax will effectively apply to companies with book income of $1 billion or more.
On Sept. 15 the firm sent another letter to the Department of Treasury’s Office of Tax Policy and the IRS, acknowledging that the new corporate minimum tax raises many issues for the Treasury Department and IRS and asking for the agency to only address the issue of transactions, according to a copy shared with CFO Dive.
“We request that the Treasury Department and the Internal Revenue Service issue immediate guidance that excludes book income from Section 355 Separations (as well as other acquisitive and restructuring transactions that Congress intended to treat as tax-free) from [adjusted financial statement income] AFSI, while the broader issues raised by the CAMT continue to be studied and addressed over time,” the letter stated.
