Guide to the corporate alternative minimum tax: What CFOs need to know

For finance leaders, the corporate alternative minimum tax (CAMT) isn't just a compliance issue; it's a financial planning priority that requires strategic coordination across departments. The CAMT has affected thousands of large U.S. and foreign-parented corporations since the 2023 tax year.

While originally framed as a tax on only the wealthiest companies, recent IRS guidance reveals broader implications, including for private equity funds and partnership structures.

The CAMT introduces a 15% minimum tax on adjusted financial statement income (AFSI), which often differs significantly from taxable income. The new regime requires new calculations, expanded reporting, and careful coordination between tax and accounting teams to support proper expense management across all financial processes.

What is the corporate alternative minimum tax?

The corporate alternative minimum tax is a federal income tax that applies to corporations with high book income, as defined by their adjusted financial statement income. It was enacted as part of the Inflation Reduction Act of 2022.

CAMT prevents large corporations from paying little or no federal income tax due to deductions, credits, or deferred income. It applies a flat 15% rate to a corporation's AFSI, then compares the result to the regular tax liability. The corporation pays the greater of the two amounts.

Who must pay CAMT?

CAMT applies to corporations that exceed specific income thresholds, making it important to monitor financial statement income over multiple years.

A corporation becomes subject to CAMT if it qualifies as an applicable corporation based on income thresholds:

• U.S. corporation: $1 billion average AFSI over 3 years
• Foreign-owned U.S. subsidiary: $100 million average AFSI over 3 years, if the overall group exceeds $1 billion

Once a corporation meets the threshold, it remains subject to CAMT until it fails to qualify for 5 consecutive years or undergoes a qualifying ownership change.

CAMT also affects investment funds, partnerships, and their affiliates. Proposed regulations treat certain non-corporate entities as corporations for CAMT purposes, expanding the scope of who may be liable.

What is AFSI?

AFSI, or adjusted financial statement income, starts with book income from the corporation's applicable financial reporting, typically prepared under GAAP or IFRS. Adjustments are then made to align with tax policy goals.

AFSI calculations also account for distributive share rules in partnerships. CAMT entity partners must use a bottoms-up approach to determine their share of AFSI from partnerships.

Common adjustments include:

• Adding back tax-exempt income
• Subtracting federal income tax deductions
• Adjusting depreciation and amortization
• Modifying net operating losses (NOLs) and reconciling operating expenses with book income

How to calculate CAMT

The CAMT liability is the difference between a corporation's tentative minimum tax and its regular tax liability, including any base erosion and anti-abuse tax (BEAT). Here’s the process:

1. Calculate AFSI
2. Multiply AFSI by 15% to determine tentative minimum tax
3. Subtract any CAMT foreign tax credit
4. Compare the result to the regular federal income tax liability (plus BEAT)
5. Pay the greater of the two amounts

A corporation with $1.2 billion in AFSI would owe $180 million under CAMT. If its regular tax liability is $160 million, it would pay an additional $20 million under CAMT.

For example, Riverlane Manufacturing, a U.S. company, prepares its financials under GAAP. Over the last 3 years, it reports an average AFSI of $1.05 billion. After adjusting for tax-exempt income and depreciation differences, its CAMT base remains the same. Riverlane calculates:

• AFSI: $1.05 billion
• Tentative minimum tax: $157.5 million (15%)
• Foreign tax credit available: $5 million
• Regular federal income tax: $140 million

Since $157.5 million – $5 million = $152.5 million, and this exceeds the regular tax of $140 million, Riverlane owes $152.5 million in total, meaning CAMT applies and increases its tax bill by $12.5 million.

CAMT safe harbor rules

The IRS offers a simplified method for determining whether a corporation qualifies as an applicable corporation, which can reduce filing complexity for some filers.

To simplify eligibility checks, the IRS introduced safe harbor thresholds in Notice 2023-64 and confirmed it in proposed regulations:

• U.S. corporation: $500 million average FSI
• Foreign-owned U.S. subsidiary: $50 million average FSI

Corporations qualifying under the simplified method avoid full AFSI computation when determining CAMT applicability. However, they must still perform a streamlined calculation, retain supporting documentation, and indicate safe harbor status on Schedule K, Line 29c of Form 1120.

Form 4626: Corporate AMT reporting

Form 4626 is used to report CAMT liability and must be included in the annual federal tax return if CAMT applies.

Form 4626, Alternative Minimum Tax – Corporations, is used to calculate and report CAMT liability.

• Part I: Determine if the filer is an applicable corporation
• Part II: Adjust financial statement income (AFSI) using IRS rules
• Part III: Calculate tentative minimum tax by applying the 15% rate and subtracting credits
• Part IV: Compare CAMT to regular tax liability and report the larger amount

Special rules for partnerships and contributions

New CAMT regulations impose additional obligations on partnerships and partners, especially when dealing with appreciated property or tiered structures. This requires enhanced documentation and accounts payable automation to manage compliance efficiently.

The proposed CAMT regulations include unique rules for partnerships. These changes create new reporting burdens for funds and may shift compliance costs among general partners, limited partners, and portfolio companies, making finance automation critical for managing increased complexity:

• Partnership AFSI reporting: Partnerships must provide CAMT-relevant AFSI information to partners within 30 days after year-end
• Deferred sale treatment: Transfers of appreciated property to partnerships now generate deferred gain under CAMT, even if no tax is triggered under traditional rules
• Tiered structures: Each partnership in a multi-tiered structure must compute and share AFSI data with upstream partners

CAMT and private equity: A closer look

Private equity firms face unique challenges under CAMT, particularly when managing tiered partnerships and complex ownership arrangements.

Finance leaders at private equity firms should assess whether any part of their structure meets these definitions. Accurate consolidation and reporting across tiered entities are now essential.

CAMT introduces specific challenges for private equity sponsors and funds with flow-through structures:

• Contributions and distributions: The IRS treats property transfers to and from partnerships as deferred sale transactions. CAMT entities must recognize gain or loss over the asset’s recovery period based on its CAMT basis, even when no traditional tax event occurs.
• Tiered ownership: In multi-entity structures, each partnership in the chain must compute and report AFSI for each upstream CAMT entity partner. This increases complexity for sponsor groups with many affiliated entities.
• Scoping rules: The IRS may deem non-corporate entities as corporations for CAMT purposes if they own at least 50% of a foreign corporation and consolidate it under applicable financial accounting rules. This could bring entire fund structures into CAMT scope.

CAMT vs. traditional corporate tax

CAMT differs significantly from the regular corporate tax system, using book income instead of taxable income as the base for calculating liability.

CAMT relies on book income, typically based on GAAP or IFRS, rather than taxable income. This creates new planning and reporting complexities for corporations.

Here’s a comparison of CAMT vs. traditional corporate tax:

Compliance deadlines and penalties

Corporations that fall under CAMT must meet new deadlines and compliance requirements to avoid potential penalties.

Late filings, inaccurate AFSI adjustments, or underpayment can result in penalties under the Internal Revenue Code. This could affect cash flow management and calls for careful financial planning.The IRS has not finalized all penalty guidelines, but safe harbor provisions can limit exposure in certain cases.

Corporations subject to CAMT must:

• File Form 4626 with their 2023 tax return (due in 2025)
• Make quarterly estimated tax payments based on CAMT liability
• Maintain audit-ready records supporting AFSI calculations

Legislative background and IRS guidance

CAMT’s legislative and regulatory evolution helps explain its scope and complexity.

These sources guide how taxpayers calculate CAMT, determine applicability, and fulfill their filing obligations. More guidance is expected as the IRS receives comments. Future tax reforms or adjustments by Congress could also reshape the policy.

CAMT was enacted under the Inflation Reduction Act of 2022. Since then, the IRS and Department of the Treasury have issued:

• IRS Notice 2023-64 (safe harbor rules): This notice introduced a simplified method for determining whether a corporation qualifies as an applicable corporation under CAMT. It provides reduced AFSI thresholds and streamlined calculations, offering relief to taxpayers unlikely to meet full filing requirements.
• Proposed regulations (September 2024): These detailed rules expand on CAMT applicability, AFSI adjustments, partnership reporting, and deferred gain treatment. They clarify compliance obligations for large corporations, private equity funds, and multi-tier partnerships, while leaving room for public comment.

What CFOs and tax leaders should do now

Proactive planning is key. Finance leaders should take the following steps to prepare for CAMT compliance:

• Review your last three years of financial statement income: Analyze AFSI trends from your GAAP or IFRS statements to determine whether your average income approaches or exceeds the CAMT thresholds. Early detection helps guide resource allocation and filing readiness.
• Identify whether you meet applicable corporation thresholds: Confirm whether your organization qualifies as an applicable corporation based on the $1 billion (U.S.) or $100 million (foreign-owned) thresholds. Apply IRS aggregation rules if you're part of a larger group.
• Evaluate eligibility for the safe harbor: If your financial statement income is under the simplified thresholds ($500 million or $50 million), you may be able to reduce filing requirements. Determine eligibility and gather documentation accordingly.
• Align accounting and tax functions to support AFSI tracking: Coordinate your internal teams to reconcile financial reporting with CAMT-specific adjustments. Automate wherever possible to streamline quarterly and annual reporting cycles.
• Review Form 4626 requirements in advance of 2025 filing: Familiarize yourself with each section of the form, including the AFSI adjustment fields, and map them to your internal data sources to simplify preparation later
• Subscribe to IRS updates or consult your tax advisor regularly: CAMT policy is evolving. Stay informed on proposed regulations, guidance changes, and partnership reporting developments to avoid surprises at filing time.

Streamline CAMT compliance with accounting automation

Navigating CAMT requires more than tax expertise—it demands coordination across your finance team, accurate AFSI reporting, and timely adjustments to meet IRS expectations. Relying on manual processes and spreadsheets increases the risk of errors, audit exposure, and missed deadlines.

With Ramp’s accounting automation, you can eliminate manual data entry, align financial reporting with CAMT calculations, and stay ahead of new compliance obligations. Real-time syncing and automated coding rules help your team calculate adjustments faster, reduce risk, and keep quarterly estimates on track.

When compliance and reporting stakes are high, the right systems make all the difference. Try an interactive demo and see how Ramp can help.

The information provided in this article does not constitute accounting, legal, or financial advice and is for general informational purposes only. Please contact an accountant, attorney, or financial advisor to obtain advice with respect to your business.