Treasury Releases Guidance on 15% Corporate Minimum Tax, 1% Tax on Stock Buybacks
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Key Takeaways:
- On December 27, 2022, Treasury released Notices 2023-7 and 2023-2 that provide interim guidance on the 15% corporate alternative minimum tax on the book income of large corporations (the “CAMT”) and the non-deductible 1% excise tax on certain corporate stock buybacks by publicly traded companies (the “Buyback Tax”), both of which were included in the Inflation Reduction Act of 2022 and became effective on January 1, 2023.
- The CAMT Notice provides immediate guidance on time-sensitive areas of uncertainty, such as tax-free transactions that may give rise to financial statement income, and requests comments on numerous interpretative issues that may be the subject of future guidance.
- The CAMT Notice requests comments on items that are marked-to-market for financial statement purposes that could create significant book/tax disparities, and notes that future guidance on this topic would be intended “to help avoid substantial unintended adverse consequences” from the interaction of mark-to-market accounting and the CAMT.
- The Buyback Tax Notice provides helpful guidance in several areas but subjects a wider range of transactions to the Buyback Tax than many had hoped.
- The tax can apply to redemptions of preferred stock and M&A transactions involving debt pushdowns.
- The tax generally may apply to other corporate reorganizations involving cash.
- While the Notices provide certain helpful interim guidance, the CAMT and Buyback Tax regimes remain extremely complex, and a number of interpretative issues still exist. We look forward to helping you navigate these issues.