Dive Brief:

• The IRS during the current tax year will waive penalties for companies that fail to pay estimated tax for the 15% corporate alternative minimum tax passed by Congress in August.
• The CAMT applies to companies whose average annual income exceeds $1 billion for three straight years. The Biden administration and Democratic lawmakers won approval for the levy after noting that for several years many large companies reported high levels of income but paid little or no federal income tax.
• “Considering the challenges associated with determining the amount of a corporation's CAMT liability and whether a corporation is an applicable corporation subject to the CAMT, the IRS will waive the penalty for a corporation's failure to pay estimated income tax with respect to its CAMT,” the IRS announced on Wednesday.

Dive Insight:

The CAMT, while only applying to about 150 companies, will generate $222 billion in revenue over a 10-year period, according to estimates by the Joint Committee on Taxation.

Manufacturing companies will pay about half of the amount, with 16% coming from chemical manufacturers, and about 11% each from information and holding companies, the Congressional Research Service said soon after approval of the tax.

Real estate investment trusts, regulated investment companies and S corporations are not subject to the CAMT.

The $1 billion threshold “may appear unfair to firms near the $1 billion measure and could also produce incentives to reduce reported profits by firms just above that level,” the CRS said. “This effect is moderated somewhat by the averaging position.”

The Treasury Secretary wields “a substantial amount of regulatory authority for implementing the tax,” the CRS said in a follow-up report.

As of January, several points in implementing the tax needed clarification, including the treatment of inter-corporate dividends, whether income will be recognized under the CAMT for tax-exempt corporate reorganizations such as mergers and divisions, and under what circumstances the tax will not apply to companies because of a change in ownership or profitability, the CRS said.

The U.S. Chamber of Commerce, National Association of Manufacturers and other industry groups opposed passage of the CAMT, predicting it will erode worker wages, reduce job opportunities and undermine U.S. competitiveness. 

President Joe Biden has pushed back, saying the minimum corporate tax helps make U.S. taxation more equitable.

“The idea that in 2020, 55 of the biggest companies in America made $40 billion in profits and paid zero in federal income taxes — that’s simply not fair,” Biden said in his State of the Union address in February.

“But now, because of the law I signed, billion-dollar companies have to pay a minimum of 15%,” he said. “That’s less than a nurse pays.”