The U.S. Department of the Treasury and Internal Revenue Service (IRS) proposed a rule designed to address significant tax avoidance by some of the largest U.S. corporations.
The proposed rule would implement the Inflation Reduction Act’s Corporate Alternative Minimum Tax (CAMT). Treasury estimates that around 100 of the largest and most profitable companies will pay the CAMT annually.
Otherwise, these corporations would have paid an average effective federal tax rate of 2.6 percent. Further, an estimated 60 percent of CAMT payers would otherwise have paid an effective tax rate of less than 1 percent, while 25 percent of payers would have paid an effective tax rate of zero.
Treasury and IRS officials said the largest and most profitable corporations in the country have been paying lower rates because they use tax preferences and aggressive planning strategies. Their ability to use complex strategies to avoid tax also gives them an unfair competitive advantage over small businesses, which don’t have access to the same tax planning techniques and high-paid lawyers and accountants.
Thus, the CAMT helps level the playing field for small businesses by imposing a minimum tax on the profits that the largest corporations report to their shareholders.
This new proposed rule would implement a requirement that the biggest corporations pay a 15 percent tax, at minimum, on profits reported to shareholders, with certain adjustments. This would generate an estimated $250 billion over the next 10 years, including $20 billion in 2025. This would only apply to large corporations that average more than $1 billion in profit per year, not $1 billion in sales.
Further, if these corporations pay regular taxes that equal or exceed 15 percent of their adjusted profits, they would not be required to pay an additional tax. In other words, CAMT is designed as a backstop to ensure there are not years where the most profitable corporations in the world are paying minimal taxes.
“The proposed rules released by Treasury today are an important step toward realizing Congress’ efforts to address the most egregious U.S. corporate tax avoidance and ensure the largest and most profitable corporations in the country cannot pay little to no taxes,” U.S. Secretary of the Treasury Janet Yellen said. “The Corporate Alternative Minimum Tax will also help level the playing field for small businesses while generating hundreds of billions of dollars in revenue.”
Crafting the rules to implement this tax has been one of the most significant projects the Treasury Department has undertaken in decades, officials said.
All stakeholders will have the opportunity to comment on the proposed regulations by Dec. 12 and may request to speak at the public hearing on the proposed regulations on Jan. 16, 2025. Treasury and the IRS will consider all comments on the proposed regulations and make changes based on those comments as appropriate.