When the Treasury Department last month released more than 600 pages of proposed regulations detailing how the Alternative minimum corporate tax of 15% will be implemented, businesses were eager to get the clarity they had received clamoring For Since President Biden signed CAMT with the Inflation Reduction Act of 2022 into law.

But the details businesses got from Treasury may not have been all they hoped for, as parts of the proposed rules indicate the new tax is poised to pose a greater compliance burden than expected, according to Tim Powell. , tax partner of the Big Four firm Ernst & Young.

“From a cost of compliance standpoint, it leans toward the negative,” Powell said of the proposed regulations, adding that he believed the number of businesses that would be subject to the tax was a much larger subset. smaller than the number of businesses that would be subject to the tax. a compliance burden he estimated in the thousands.

While some early projections put the companies that would be subject to this new tax at around 150 large companies earning more than $1 billion a year, the proposed new regulations heighten expectations. that the complexity of the tax it will take financial leaders to many more companies to prepare for this, as previously reported by CFO Dive.

The regulations are not yet final. Businesses and taxpayers can file public comments until Dec. 12, and a public hearing on them is scheduled for January. Given that this is a new tax regime, Powell expects the reactions to be considerable.

“I would be surprised if the final regulations end up being identical to these proposed regulations,” Powell said. “This is very new to a lot of people, including the government, so it’s subject to change for that reason.”

For now, Powell outlined several elements of the recently issued regulations that CFOs and businesses should be aware of. — and they are not all expensive for businesses. They include:

1. A permanent refuge: One proposal in the new regulations would make permanent the “safe harbor” or simpler approach to determining whether a business is subject to the tax. Under this structure, companies can generally look at their financial statements to obtain what is essentially a three-year average income to determine tax applicability, and that’s all a company needs to do to prove she is not subject to CAMT, Powell said. “They’ve done a really good job of trying to make this as simple as possible for taxpayers, to provide an easy way out,” he said. However, the process is more complicated for multinational corporations owned by entities located outside the United States. In this case, they must review their organization’s worldwide revenues to see if they exceed $500 million under the safe harbor provision, and must also review their companies’ revenues. the company’s U.S. group, which must bring in less than $50 million to be protected by Safe Harbor.
2. Partnership contributions will be recognized: Before the new regulations, previous guidance allowed companies that had investments in partnerships to not have to reflect gains or losses in their calculation to determine whether their business needed to comply with CAMT, Powell said. “One of the big changes is that the proposed regulations were deflected and said, ‘actually, we’re not going to treat these as non-recognition, we’re going to require recognition for these,'” he said. -he added.“But rather than taking the gain or loss all at once, we’re going to allow you to spread it out over a period of time,” he said, calling the change a “less favorable” outcome for taxpayers who have heavy investments in partnerships.
3. Accounting for partnership operations upstream and downstream of the chain: Until the regulations were issued, there was no guidance on how a company that invested in a partnership should reflect its share of revenue in the company’s adjusted financial statements, Powell said. Some companies hoped that there would be an alternative, simpler approach to partnerships, in which a company would not need to provide information about a partnership in which it had invested, if it was only a minority investor . “The regulations have provided some guidance on this, but perhaps not what most people were hoping for,” Powell said. “They require that you ask all partnerships throughout the chain to pass this information down the chain to the partner company.”