Corporate book minimum tax proposed as part of budget reconciliation bill

August 2022

In brief

A corporate alternative minimum tax (book minimum tax, or BMT) has been proposed for corporations with book profits over $1 billion as part of a budget reconciliation bill (the Inflation Reduction Act of 2022) that Senate Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-WV) released on July 27. The provision would impose a minimum tax equal to the excess of 15% of an applicable corporation’s adjusted financial statement income (AFSI) over the corporate alternative minimum tax foreign tax credit (AMT FTC) for the tax year.

Observation: The BMT would increase a taxpayer’s tax only to the extent that tentative minimum tax exceeds regular tax plus base erosion and anti-abuse tax (BEAT).

The BMT would be effective for tax years beginning after December 31, 2022.

Observation: The Joint Committee on Taxation (JCT) staff estimates that the provision would raise $313 billion over 10 years. While a JCT staff analysis projects that approximately 150 taxpayers annually would be subject to the proposed BMT annually, other large companies would need to perform calculations to determine if the provision applies.

Majority Leader Schumer has stated that he expects the Senate to begin debate on the Inflation Reduction Act by the end of this week. The BMT proposed by in that bill is substantially similar to a provision that was included in the Build Back Better reconciliation bill (H.R. 5376) that the House passed in November 2021. However, the Inflation Reduction Act version of this provision includes certain changes relating to defined benefit pension plans that were proposed in December 2021 by Senate Finance Committee Chairman Ron Wyden (D-OR) along with certain amendments and clarifications on the treatment of dividends and losses with respect to corporate stock.

Note: Substantive changes may be made to the BMT provision discussed below during legislative action by Congress on the proposed Inflation Reduction Act. The proposed legislation will be considered under the rules of budget reconciliation and may evolve as a result of procedural considerations or technical or clerical amendments, which may include clarifying references to proposed Section 163(n) in the House-passed version of H.R. 5376. Stakeholders should watch for further developments on the BMT that may occur after the publication of this Insight.

For your consideration:  Potentially affected taxpayers should communicate with policy makers on the potential effects of the proposed BMT on their employees, job creation, and investments in the United States. If the BMT is enacted as currently drafted, calendar year-end companies should start preparing as soon as possible for the January 1, 2023, effective date.

In detail

Applicable corporation

An “applicable corporation” subject to the BMT is a corporation, other than an S corporation, regulated investment company, or real estate investment trust, that meets an AFSI test for a tax year. A corporation meets this test if, for tax years ending after December 31, 2021, its average AFSI over three tax years ending with the current year exceeds $1 billion. A corporation that is a member of an international financial reporting group with a foreign parent must include the AFSI of all foreign members of the group in applying the $1 billion test, but is an applicable corporation only if its three-year average AFSI, taking into account the AFSI of only US members and foreign subsidiaries of US members, exceeds $100 million.

A corporation’s AFSI is aggregated with the AFSI of all persons treated as a single employer under Section 52(a) or (b) to determine if the corporation is an applicable corporation. The AFSI test applies to a corporation that has been in existence for less than three years based on the number of years the corporation has been in existence. AFSI is annualized for a short tax year.

An applicable corporation does not include a corporation that (1) has a change in ownership or (2) does not meet the AFSI test for the most recent tax year and a number (to be determined by Treasury) of consecutive tax years. In either case, Treasury also must determine that it no longer would be appropriate to treat the corporation as an applicable corporation.

Determination of AFSI

“Adjusted financial statement income” is defined as the net income or loss on the taxpayer’s applicable financial statement (AFS) for a tax year, adjusted to take into account:

(1) Financial reporting years that do not coincide with the tax year;

(2) Properly allocated items for a corporation in an affiliated group that reports on a consolidated return;

(3) For any corporation not included on a consolidated return, only the dividends received from the corporation and other amounts includible in gross income (other than subpart F and global intangible low-taxed income inclusions) or deductible as a loss with respect to the corporation;

(4) A taxpayer’s pro rata shares (determined under rules similar to Section 951(a)(2)) of items taken into account on the AFS (as adjusted to determine AFSI) of each controlled foreign corporation (CFC) of which the taxpayer is a US shareholder, but not below zero (negative adjustments would be carried forward to the succeeding year);

(5) AFSI of any disregarded entities owned by the taxpayer that are not included on its AFS; and

(6) Certain amounts related to Alaska native corporations.

The following items reported on a taxpayer’s AFS are disregarded in determining AFSI:

(1) Federal income taxes, or income, war profits, or excess profits taxes relating to a foreign country or US possession, taken into account on the taxpayer’s AFS;

(2) Certain amounts related to cooperatives;

(3) Amounts treated as a payment of certain credits;

(4) Certain income related to mortgage servicing contracts; and

(5) Income of a tax-exempt entity, except unrelated trade or business income is not disregarded.

A partner’s AFSI is limited to a distributive share of a partnership’s AFSI, which is the net income or loss reported on the partnership’s AFS, with the required adjustments to determine AFSI.

AFSI is adjusted to disregard book income, cost, or expense related to a covered benefit plan (e.g., mark-to-market adjustments related to a defined benefit plan). However, in connection with a covered benefit plan, AFSI is increased by the amount included in the corporation’s gross income under other tax provisions and reduced by deductions allowed under other tax provisions.

AFSI is decreased by the lesser of (1) the aggregate amount of financial statement net operating loss (NOL) carryovers to the tax year or (2) 80% of AFSI computed without regard to financial statement NOLs. A financial statement NOL for any tax year may be carried over to each tax year following the tax year of loss. “Financial statement NOL” is defined as the amount of net loss on the corporation’s AFS, after applying the AFSI adjustments, for tax years ending after December 31, 2019.

“Applicable financial statement” has the same meaning as under Section 451(b)(3) and Reg. 1.451-3(a)(5) (or as specified by Treasury in regulations or other guidance), and generally is a financial statement prepared in accordance with GAAP or IFRS, reported to the SEC, or otherwise used for reporting to shareholders or credit purposes.

Observation: The Senate Finance Committee December 2021 draft legislation contained complicated dividend rules, which could have resulted in double counting of income with respect to dividends from CFCs. The Inflation Reduction Act proposal does not prevent double counting by its terms, but instead clarifies that dividends of prior-year earnings may be included in AFSI, authorizes regulations to prevent double counting, and seeks to ensure that deductible stock losses are not ignored in determining AFSI.

Observation: The Inflation Reduction Act does not include proposals amending global intangible low-taxed income, foreign-derived intangible income, the BEAT, or a number of other US international tax provisions. Nevertheless, by applying a minimum tax rate higher than the effective tax rate of these provisions, the BMT proposal could affect US tax imposed on income subject to these provisions.

Observation:  Absent transitional relief, certain timing differences between tax and financial reporting that exist prior to the effective date of the BMT may result in unfavorable outcomes when those timing differences reverse in subsequent years.


The legislation adds a new corporate AMT FTC, which would be available to an applicable corporation that claims an FTC for the tax year. The AMT FTC is the sum of:

(1) The lesser of:

(a) The aggregate of an applicable corporation’s pro rata share (as determined under Section 56A(c)(3)) of the amount of income, war profits, and excess profits taxes imposed by a foreign country or US possession that are taken into account in the AFS of, and paid or accrued for federal income tax purposes by, each CFC in which the corporation is a US shareholder; or

(b) The aggregate of the applicable corporation’s pro rata share of the adjusted AFSI (as determined under Section 56A(c)(3)) of CFCs in which the corporation is a US shareholder, multiplied by 15%; and

(2) For a domestic corporation, the amount of income, war profits, and excess profits taxes imposed by a foreign country or US possession to the extent that taxes are taken into account on the corporation’s AFS and paid or accrued for federal income tax purposes.

A taxpayer may carry over the excess of the amount in (1)(a) over (1)(b), above, for five succeeding tax years. The carryover increases the amount in (1)(a), above, in a tax year in which the taxpayer claims the AMT FTC to the extent not previously taken into account.

Observation: The BMT would preserve the value of general business credits (e.g., the research tax credit) and would allow applicable corporations an indefinite carryforward of financial statement losses (that were incurred in tax years ending after December 31, 2019) and an indefinite carryforward for an AMT credit to be claimed against regular tax in future years (to the extent regular tax exceeds BMT plus BEAT).

Observation: It appears that the AMT FTC would apply (without an FTC limitation) to direct foreign income taxes and the taxpayer’s pro rata share of creditable foreign taxes from a foreign partnership. Foreign income taxes paid by CFCs would be creditable as well, but subject to an FTC limitation equal to 15% of the taxpayer’s pro rata share of the net income or loss of its CFCs (grossed up for foreign income taxes).

Tax accounting implications

The ability to generate a credit against future year regular tax liabilities may indicate that this worldwide “book” minimum tax has certain features that may be similar to the corporate AMT regime prior to the pre-2017 tax reform legislation. Subject to certain valuation allowance considerations, pre-2017 corporate AMT obligations generally resulted in timing differences for tax accounting purposes (i.e., not impacting the effective tax rate), as corporations generally received an indefinite-lived AMT credit carryover equal to their prior AMT obligations.

Further, under the pre-2017 AMT guidance, when assessing the rate at which to calculate deferred taxes, ASC 740 required the use of the regular rate to measure deferred taxes. The regular rate was used even if a company anticipated they would be subject to AMT for the foreseeable future. However, the final design of this BMT provision will be necessary to determine the accounting treatment and the effect of the law change that is to be recognized in the period of enactment.

Treasury guidance

The legislation authorizes Treasury to issue regulations or other guidance on a number of issues, including:

  • Creation of a simplified method for determining whether a corporation satisfies the $1 billion and $100 million tests;
  • Determining when a corporation otherwise subject to the BMT should be exempted;
  • Modifications to the determination of AFSI, including treatment of current and deferred taxes;
  • How the BMT applies when a corporation changes ownership; and
  • Whether guidance is needed on the AMT FTC.

Observation: The BMT is not expected to be considered a Qualified Domestic Minimum Top-up Tax (e.g., a domestic minimum tax that is computed using the same rules as the OECD’s IIR and UTPR Pillar Two rules). It is not yet clear how the corporate BMT proposal might interact with the OECD’s Pillar Two rules.

Contact us

Pat Brown

Washington National Tax Services Co-Leader, PwC US

Rohit Kumar

Washington National Tax Services Co-Leader, PwC US

Christine Turgeon

Partner, Federal Tax Services Leader, PwC US

George Manousos

Partner, Federal Tax Services, PwC US

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