ABA seeks clarity in corporate alternative minimum tax implementation

In a recent letter to the IRS, the American Bankers Association urged the agency to consider clarifications to its proposed regulations on the application of the new corporate alternative minimum tax, or CAMT, which was created last year through the passage of the Inflation Reduction Act. “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,” the association said.

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. In its letter, ABA said the AFSI should exclude items in other comprehensive income unless they are also included in taxable income.

ABA also cited the need for simplicity in partnership AFSI calculations. Many banking organizations are major investors in low-income housing and other partnerships to fulfill regulatory requirements under the Community Reinvestment Act and 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,” ABA said.

ABA also said clarity is needed regarding the proportional amortization method within generally accepted accounting principles, and that recognition of income from financial instruments hedging mortgage servicing contracts should be consistent with the servicing income.