24 January 2025

CAMT technical corrections address AFSI adjustments for tax-exempt entities using the applicable corporation safe harbor

The IRS and Treasury Department released technical corrections (REG-112129-23) to the proposed corporate alternative minimum tax (CAMT) regulations to clarify tax-exempt entities should take into account adjusted financial statement income (AFSI) adjustments provided in IRC Section 56A(c)(12) and Prop. Reg. Sections 1.56A-14 when using the applicable corporation safe harbor under Prop. Reg. Section 1.59-2(g) (simplified method). If the safe harbor is met, the organization will not be considered an "applicable corporation" for CAMT purposes, and therefore will not be subject to the CAMT and will be exempt from filing Form 4626, Alternative Minimum Tax - Corporations.

The corrections package, released on December 23, 2024, addresses several errors brought to the attention of Treasury following the release of over 600-pages of proposed regulations in September 2024 (the September 2024 proposed regulations) (see Tax Alert 2024-1798).

For a detailed discussion of the entire technical corrections package, see Tax Alert 2025-0306.

Background

The IRS announced in October 2024 that tax-exempt organizations would be exempted from the requirement to file Form 4626 for the 2023 tax year while it reviews comments on the application of simplified method to exempt organizations (see Tax Alert 2024-2060). Even though they are exempt from the Form 4626 filing requirement for tax year 2023, exempt organizations that are applicable corporations could still be liable for the CAMT. Any exempt organization that is liable for CAMT is required to report it on Form 990-T and pay the tax. It remains unclear if the filing exemption will be extended to subsequent tax years.

A version of the simplified method was first introduced in Notice 2023-7 (see Tax Alert 2023-0091) and later proposed to be made permanent in the September 2024 proposed regulations. Neither Notice 2023-7, nor the September 2024 proposed regulations, took into account the specific AFSI adjustments provided by the statute for tax-exempt organizations, for purposes of determining tax-exempt organizations' qualification for the safe harbor.

In the technical corrections package, Treasury and the IRS said they intended the adjustments provided to tax-exempt entities in IRC Section 56A(c)(12) and Prop. Reg. Section 1.56A-14 to be taken into account when using the simplified method.

Implications

The clarification in the technical corrections modifies the simplified method and incorporates AFSI adjustments for tax-exempt entities. Specifically, the unrelated business taxable income AFSI adjustments under IRC Section 56A(c)(12) and Prop. Reg. Section 1.56A-14 must now be taken into account in determining AFSI under the simplified method.

Tax-exempt organizations should revise their CAMT applicable corporation calculations to account for these AFSI adjustments, as clarified in the technical corrections. Organizations within an IRC Section 52 controlled group should consider collaborating with their related for-profit entities, so that all required AFSI adjustments are included in the annual CAMT analysis (which includes all members of the group). Although it is uncertain whether the 2023 Form 4626 filing exemption for tax-exempt organizations will be extended, these adjustments must still be considered for purposes of determining whether a corporation is an applicable corporation. Tax-exempt organizations should continue evaluating their annual AFSI and overall tax position with their tax advisors, as final regulations on CAMT remain outstanding.

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Contact Information

For additional information concerning this Alert, please contact:

Exempt Organization Tax Services:

Published by NTD’s Tax Technical Knowledge Services group; Chris DeZinno, legal editor

Document ID: 2025-0305