CAMT Developments

As part of the Inflation Reduction Act of 2022, Congress amended Section 55 to impose a new corporate alternative minimum tax (“CAMT”) based on the “adjusted financial statement income” (“AFSI”) of an “applicable corporation” for taxable years beginning after December 31, 2022.

Cooperatives generally will not be subject to the CAMT for two reasons.  First, the CAMT applies only to corporations with relatively high levels of AFSI – generally, for domestic corporations, “applicable corporations” are those with average AFSI for a 3-year measuring period in excess of $1 billion.  This is well beyond the earnings of most cooperatives.  Second, cooperatives are permitted to reduce AFSI by patronage distributions so even very profitable cooperatives will not be subject to the CAMT (provided they make patronage distributions). 

Section 56A(c)(7) provides:

“(7) Special Rule for Cooperatives. – In the case of a cooperative to which section 1381 applies, the adjusted financial statement income (determined without regard to this paragraph) shall be reduced by the amounts referred to in section 1382(b) (relating to patronage dividends and per-unit retain allocations) to the extent such amounts were not otherwise taken into account in determining adjusted financial statement income.”

Proposed regulations released in September repeat this language almost verbatim.  Prop. Treas. Reg. § 1.56A-10(b) (September 13, 2024).  The 2024 Form 4626 (Alternative Minimum Tax – Corporations) contains appropriate lines for the required adjustments (Part I, line 2(f) and Part II, line 2(h)).

Recognizing that a lot of time and effort may be required to do the computations to establish that a corporation is not an applicable corporation, Congress gave Treasury the authority to promulgate regulations “providing a simplified method for determining whether a corporation [is an applicable corporation].”  Section 59(k)(3).  Pursuant to that authority, the proposed regulations contain a simplified method for determining applicable corporation status.  Prop. Treas. Reg. § 1.59-2(g). 

The 2024 instructions to Form 4626 provide an exclusion from filing the form for:

“A corporation that is not required to file Form 4626 because it is not an applicable corporation under the simplified method and chooses to apply that method.  This filing exception does not apply if the corporation is an applicable corporation in the current tax year because the corporation was an applicable corporation in a prior tax year.”

Since releasing the proposed regulations, Treasury has had second thoughts regarding the simplified method.  It recently issued Notice 2025-27, 2025-26 IRB 1 (June 2, 2025), with an interim simplified method which it announced would be incorporated into the final regulations.

Under the interim safe harbor rule, the corporation must determine whether its average AFSI for the 3-year period exceeds $800 million.  If the average does not, then the corporation is spared the “compliance burdens and costs” of full-scale CAMT reporting.  This should relieve many taxpayers, including most cooperatives, from the burden of completing Part I of the form to prove it is not an applicable corporation.

For purposes of the safe harbor, the average AFSI is determined on a simplified basis.  Notably, financial statement income is not adjusted by patronage distributions.  See, Notice 2025-27, Section 3.03(2)(a)(ii).  This does not mean that cooperatives lose the benefit of Section 56A(c)(7), but very profitable cooperatives may not qualify for the interim safe harbor and thus be required to complete Part I of the Form 4626.

Prop. Treas. Reg. § 1.59-2(j) provides:

(j) Reporting Requirement.  A corporation … that does not satisfy the simplified method under paragraph (g) of this section must provide information to demonstrate whether it is an applicable corporation, in such form and manner as Form 4626, Alternative Minimum Tax-Corporation (or any successor form), the Federal income tax return required to be filed by such corporation, or their respective instructions prescribe. …”

This could require quite a bit of extra work.

To read more of this article, please visit The Cooperative Accountant on Connect