CAMT Safe Harbor and Estimated Tax Penalty Relief

The U.S. Department of the Treasury and the IRS issued Notice 2025-27 providing CAMT relief by increasing the safe harbor amounts under an interim simplified method for determining whether a taxpayer is an applicable corporation subject to the CAMT. The increased safe harbor amounts apply to tax years ending on or before the date that simplified method final regulations are published and for which an original return has not been filed as of the date Notice 2025-27 is published in the Internal Revenue Bulletin. The effective date of the notice generally allows taxpayers to use the more generous safe harbor to determine applicable corporation status for 2024 tax year returns that have not already been filed.

The notice also provides estimated tax penalty relief to taxpayers subject to the CAMT. The estimated tax penalty relief is available for tax years beginning after Dec. 31, 2024, and before Jan. 1, 2026.

Additionally, the notice announces that proposed regulations will be issued to address partnership and other issues that have been raised in comments from practitioners and taxpayers.

Overview

The Inflation Reduction Act of 2022 imposes a 15% CAMT on applicable corporations for taxable years beginning after Dec. 31, 2022. Generally, an applicable corporation is a U.S. multinational (other than an S corporation, regulated investment company, or real estate investment company) with average adjusted financial statement income (AFSI) of more than $1 billion for the three taxable years ending prior to the current taxable year. The U.S. members of a foreign-parented multinational must meet an additional test to fall within the purview of the CAMT. AFSI for the U.S. members of the group, including their foreign subsidiaries, must average more than $100 million over the testing period.

In September 2024, Treasury and the IRS published proposed CAMT regulations. The proposed regulations provide details regarding the application of the CAMT rules, including rules for computing AFSI. The proposed regulations also provide a safe harbor methodology to determine whether a taxpayer is an applicable corporation subject to the CAMT.

When determining if it is an applicable corporation subject to the CAMT, a corporation first must compute AFSI for the testing period. The starting point for this computation is the income reported on the corporation’s applicable financial statements adjusted for various items such as federal income taxes, depreciation, credits treated as direct payments, or refundable credits under IRC Section 48D(b), among others.

The proposed regulations also provide a simplified methodology for determining if a taxpayer is an applicable corporation for the testing period. Under the simplified method, AFSI for the testing period is computed by substituting $500 million for the $1 billion threshold for a U.S. multinational and $50 million for the $100 million threshold for a U.S. member of a foreign-parented multinational. A taxpayer below the safe harbor thresholds is not considered to be an applicable corporation subject to the CAMT.

Unless an exception applies, a corporation must file Form 4626, “Alternative Minimum Tax – Corporations,” with its federal income tax return to determine whether it is an applicable corporation and, if so, to calculate its CAMT liability. A corporation is not required to file a Form 4626 if it is an S corporation, a regulated investment company, a real estate investment trust, a tax-exempt entity that does not have unrelated business taxable income, or a corporation that uses the simplified method to determine it is not an applicable corporation (except if the corporation is an applicable corporation in the current tax year because it was an applicable corporation in a prior tax year).

Notice 2025-27 revised safe harbor

The notice provides a revised safe harbor for a corporation to determine if it is an applicable corporation subject to the CAMT. Generally, the revised safe harbor provides that in computing AFSI for the testing period, a taxpayer can substitute $800 million for the $1 billion threshold for a U.S. multinational or $80 million for the $100 million threshold for a U.S. member of a foreign-parented multinational. These safe harbor amounts are significantly higher than the safe harbor amounts provided in the proposed regulations. Use of the safe harbor simplifies the process of determining if a corporation is an applicable corporation, but it does not simplify the CAMT computation.

Crowe observation

The notice provides much-needed relief to corporations that were not subject to the CAMT but that did not meet the prior safe harbor thresholds or any of the other exceptions to filing Form 4626. Prior to the notice, those taxpayers were required to complete the Form 4626 to show they were not subject to CAMT.

Relief from the estimated tax penalty

IRC Section 6655 generally provides that a corporation’s estimated income tax is required to be paid in four installments and that the amount of any required installment is 25% of the required annual payment. Section 6655(a) imposes a penalty for failure to make a sufficient and timely payment of estimated income tax. Under the notice, a corporation’s required installments of estimated tax for the covered CAMT year are not required to include amounts attributable to its CAMT liability. Taxpayers seeking relief must file Form 2220, “Underpayment of Estimated Tax by Corporations,” with their federal income tax return even if no estimated tax penalty is owed.

Looking ahead

Given the significant questions that remain about the CAMT, Notice 2025-27 provides welcome relief for entities struggling with the challenge of determining whether they are subject to the CAMT and, if so, the amount of their CAMT liability. While Notice 2025-27 provides a higher threshold for determining applicable corporation status and estimated tax penalty relief, it does not provide relief from penalties for failure to pay the CAMT liability when due. Additional and more robust guidance from the IRS is needed to answer the many questions that remain. Taxpayers should continue to monitor the guidance in this area and consult their tax advisers to determine the most appropriate course of action relating to the CAMT.