The Treasury Department on Thursday released a draft of new rules detailing the corporate alternative minimum tax that was signed into law as part of the 2022 Inflation Reduction Act. Intended to make it more difficult for large, profitable companies to pay little or nothing to the IRS, the 15% minimum tax will apply to roughly 100 large firms that report more than $1 billion in profits.
The proposed rules, which The Washington Post’s Tony Romm and Julie Zauzmer Weil described as an “extraordinarily technical, roughly 600-page blueprint,” have been in the works for nearly two years, highlighting just how difficult the corporate alternative minimum tax, or CAMT, could be to define and enforce.
Under current rules, corporations are supposed to pay a top rate of 21% on their profits, but the aggressive use of deductions and credits can whittle that payment down to far less, or even zero. The CAMT aims to correct that problem by requiring companies to pay at least 15% of the profits they report to shareholders, which are typically larger than the post-deduction numbers reported to the IRS.
The Treasury Department said Thursday that the CAMT will significantly increase the tax burden on large, profitable businesses, raising an estimated $250 billion over 10 years. “These corporations would have otherwise paid an average effective federal tax rate of 2.6%,” Treasury said in a statement. “An estimated 60% of CAMT payers would otherwise have paid an effective tax rate of less than 1%, including 25% of payers that would have paid an effective tax rate of zero.”
Deputy Treasury Secretary Wally Adeyemo told The Wall Street Journal that the tax was a matter of fairness. “The ability to use accountants and lawyers to reduce tax bills down to zero gives billion-dollar corporations a competitive advantage over smaller businesses,” he said.
News rules, same old problem? Some experts worry that the new rules will fail to achieve the goal of a true minimum tax because so many tax breaks remain in place.
“The bill was predicated on what our legislators call loopholes in our tax laws and solving this problem, and then we add in all these adjustments that are essentially the same thing we already had,” Jeff Hoopes, an accounting and public policy professor at the University of North Carolina, told The New York Times. “A lot of companies will still pay less than 15 percent.”
The proposed rules won’t fully take effect until next year, although some companies have started to apply their own interpretations of them. A hearing on the final rules is scheduled for January, meaning that a new administration will be in charge no matter how the rules are received. Republicans in Congress have introduced legislation to eliminate the minimum tax, raising the possibility that, depending on the election results, the rules may never take effect.
