Proposed CAMT guidance may have significant impact on asset management and real estate reporting

In brief

Tax reporting season has kicked off and proposed guidance related to the corporate alternative minimum tax (CAMT) may create incremental reporting burdens for asset management and real estate funds. 

What happened?

Treasury and the IRS on September 12, 2024, issued proposed regulations implementing the CAMT. Enacted in 2022 as part of the Inflation Reduction Act, the CAMT imposes a 15% minimum tax on the adjusted financial statement income (AFSI) of an ‘applicable corporation.’ The CAMT is effective for tax years beginning after December 31, 2022.  

Proposed regulations are not law until they are finalized. However, once finalized, some provisions, including certain partnership reporting requirements, will be applied retroactively to tax years ending after September 13, 2024. Other provisions, including the partnership distributive share calculation provisions, will not be effective until publication of final regulations, which could occur in 2025. Treasury and IRS are requesting comments on several specific topics by January 16, 2025. 

How are the proposed regulations relevant to asset management and real estate?  

In general, while only approximately 150 very large corporations are expected to be CAMT taxpayers, asset management (AM) and real estate funds are significantly impacted by the statute and proposed regulations in two ways. First, funds whose direct or indirect investors include insurance companies, sovereign wealth funds, banks, and other large corporations that are or may be applicable corporations will have expanded partnership reporting obligations, which are necessary to allow their direct and indirect investors who are applicable corporations to calculate the amount of their CAMT liability. Second, corporate entities in a fund structure may be applicable corporations subject to CAMT if they meet one of the applicable corporation tests described below, and regardless, may have additional reporting requirements related to CAMT.  

What actions should funds consider taking now? 

First, partnerships should examine the type, availability, and timing of information that they will need to provide to partners that are likely to request CAMT information and create a plan for requesting information from lower-tier partnerships and controlled foreign corporations (CFCs).  

Second, funds should analyze their structures to determine if any constituent corporations, e.g., blockers, could be applicable corporations due to the aggregation rules and expanded foreign-parented multinational group (FPMG) rules, which can cause corporations that on a stand-alone basis have income far below the relevant threshold to be applicable corporations. Similarly, REITs, although not subject to the CAMT, should assess whether their taxable REIT subsidiaries (TRSs), which are C-corporations, are applicable corporations potentially subject to the CAMT under the expanded language of the proposed regulations.  

Finally, fund managers should consider calculating CAMT basis for assets, including stock and partnership interests, that the fund disposed of in 2024, if not for the whole portfolio.