ABA Letter to IRS on CAMT Guidance

Internal Revenue Service
Attn: CC:PA:LPD:PR (Notice 2023-7) Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044

Via electronic submission

To Whom It May Concern:

The American Bankers Association is pleased at the opportunity to comment on Notice 2023-7: Initial Guidance Regarding the Application of the Corporate Alternative Minimum Tax under Sections 55, 56A, and 59 of the Internal Revenue Code (Notice). The Notice announces the intent of the Department of the Treasury and the Internal Revenue Service (IRS) to issue proposed regulations addressing the application of the new corporate alternative minimum tax (CAMT), which was enacted through the Inflation Reduction Act of 2022 (IRA). Generally applying to C corporations that, for three taxable years, have an average annual adjusted financial statement income (AFSI) greater than $1 billion, the IRA imposes the CAMT equal to the excess of 15% of a corporation’s AFSI over its CAMT foreign tax credit.

Notwithstanding guidance that our members will need for many different aspects of the final regulations of the CAMT, the following comments represent clarifications that our members believe will likely have the most significant impacts specific to the banking industry. These clarifications will be crucial to banking institutions in determining the degree and appropriateness of calculating any annual CAMT for compliance purposes and the expectations related to documentation requirements.

1. AFSI Should Exclude Items in Other Comprehensive Income (OCI), Unless They are also Included in Taxable Income.

The definition of AFSI in Section 56A(a) explicitly refers to net income (and not net comprehensive income) within applicable financial statements and OCI was specifically noted as excluded within an August 6, 2022 colloquy. Net income is also widely-acknowledged to be the key metric of performance by corporations in virtually all industries. Responding to the request for comments as “[t]o what extent (if any) should items included in OCI (other comprehensive income) in a taxpayer’s applicable financial statement (AFS) be included in AFSI,” ABA recommends that items in OCI be excluded from AFSI unless they are also included in taxable income.

2. Simplicity is Needed in Partnership AFSI Calculations.

AFSI is the net income or loss reported on the taxpayer’s financial statements (e.g. SEC Form 10-K or other annual report) with certain adjustments. One key adjustment in arriving at AFSI is to take into account only the taxpayer's distributive share of a partnership’s AFSI.

Section 2.01, Paragraph (3)(c)(iii) of the Notice indicates that if a taxpayer is a partner in a partnership, the taxpayer’s AFSI is adjusted to reflect only the taxpayer’s distributive share of such partnership’s AFSI. Currently, partnerships are not required to calculate or report AFSI and each partnership interest may be accounted for by the taxpayer for book purposes differently under various accounting methods (e.g., consolidation and equity methods). Information reported by the partnership to its partners can take the form of accrual-based, tax-based, or cash-based financial statements (audited and unaudited). This process can be further complicated within multi-tiered partnership ownership structures. As a result, a partner’s distributive share of AFSI is generally not readily calculable based on the information currently received by the investing partner.

Additionally, many banking organizations are major investors in low income housing and other partnerships to fulfill regulatory requirements under the Community Reinvestment Act and/or to achieve desired environmental or social objectives. The significant number of partnerships and the requirement to track a separate CAMT basis amount for each partnership would require significant investment in infrastructure solely to support the required CAMT calculations. Practically speaking, this would effectively require a “third set of books” to be maintained for partnership accounting, with the burden of preparing and tracking this information falling on the partners and the partnerships, even though the partnership’s only connection with CAMT is potentially having a partner that is subject to the CAMT.

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