IRS provides penalty relief for estimated corporate alternative minimum tax payments

Corporate alternative minimum tax (CAMT) applies only to some large, profitable corporations and corporate groups. CAMT is relatively new, enacted in 2022. Estimating or computing CAMT liability often involves uncertainty. Recognizing the uncertainty, the IRS has provided estimated CAMT tax payment penalty relief for taxable years beginning before Jan. 1, 2024.

Key takeaways

• Penalty exposure for underpayment of estimated CAMT payments has been waived by the IRS for years beginning prior to Jan. 1, 2024. This waiver, provided in Notice 2023-42, covers one 12-month tax year for most affected companies.  
• The IRS provided this penalty relief due to the challenges companies face in (1) figuring out whether they are subject to CAMT and (2) estimating their CAMT liability.
• No penalty relief was supplied for failure to pay the CAMT liability due with a corporation’s federal income tax return.

CAMT

The 15% CAMT was enacted in 2022. Before any CAMT liability can arise, the corporate group financial statement income generally must exceed $1 billion. CAMT is effective for tax years beginning after Dec. 31, 2022.

The IRS’ CAMT guidance to date is not comprehensive. For more information about CAMT, see our Tax Alert, Corporate alternative minimum tax: IRS issues initial guidance.

Estimated corporate tax payments

Corporations are required to make estimated tax payments in four installments. For a taxable year that is the same as the calendar year, the payments are due on or before April 15, June 15, Sept. 15 and Dec. 15. For a fiscal year differing from the calendar year, the payments are due on the 15th day of the fourth, sixth, ninth and 12th months of the fiscal year.

Corporations are sometimes permitted to make payments based on their tax liability for the prior year. However, in certain situations, the payments must be based on estimated liability for the current year. As a result, corporations generally must consider their estimated current-year tax when figuring out the proper amounts of their current-year estimated tax payments.

Different rules apply to S corporations. S corporations generally are not required to make estimated tax liability payments; their owners may be required to make estimated tax payments based in part on income of the S corporation. Also, S corporations are not subject to the CAMT.

Penalty relief

Given the challenges corporations face in determining CAMT liability, the IRS has waived penalties for estimated CAMT payments for any taxable year that begins after Dec. 31, 2022, and before Jan. 1, 2024. For a corporation using the calendar year as its taxable year, this relief would apply to the year ending Dec. 31, 2023.

Notice 2023-42’s penalty waiver does not apply to estimated tax payments based on any tax other than the federal CAMT. Additionally, penalties may still be imposed on a corporation that does not make a payment of its CAMT liability by the time its tax return is due.

To avoid an IRS penalty notice, corporations benefitting from this waiver would still need to file a Form 2220, Underpayment of Estimated Tax by Corporations. If the corporation’s entire penalty amount is covered by the Notice 2023-42 waiver, the corporation would file a Form 2220 with its federal income tax return showing a penalty amount of zero. If the corporation does not file the Form 2220, it would expect to receive a penalty notice. The corporation would then need to file a penalty abatement request to show eligibility for the Notice 2023-42 penalty waiver.  

Questions?

Please reach out to your Baker Tilly advisor if you have questions or would like to discuss how CAMT or estimated corporate tax payments may affect you.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.