New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations

The Internal Revenue Service threw a late curveball at tax professionals scrambling to meet the April 15 deadline when, on April 9, it released a post-release change updating the 2023 Partner’s Instructions for Schedule K-1. This seemingly minor update packs a big punch, adding new compliance burdens for partnerships and their corporate partners.

To start, while the Corporate Alternative Minimum Tax might seem like a concern solely for corporations, the updated instructions demonstrate that its reach extends to partnerships and their partners as well. A partnership’s net income or loss can impact a corporate partner’s adjusted financial statement income for CAMT purposes.

The crux of the update lies in the requirement for certain partners to request CAMT information from partnerships. This applies to corporations and upper-tier partnerships with indirect or direct corporate partners if they can’t determine their share of the partnership’s AFSI without additional information. This information request must be made in writing, and both the request and the received information need to be retained in the partner’s records.

A glimpse into the future of CAMT?

The instructions suggest a potential “bottom-up approach” for determining a partner’s share of partnership AFSI in future guidance. This would involve a tiered calculation, working its way up the chain of partnerships to the corporate partner. While the exact details remain unclear, it hints at a more complex CAMT landscape for partnerships.

Here’s what you need to know for the current tax year:

• Partnerships: Be prepared to furnish CAMT information to partners upon request. Failure to do so by the deadline could trigger penalties under Section 6227.
• Corporate partners: If you file Form 4626 and are a partner in a partnership with a corporate partner (direct or indirect), you need to request specific information from the partnership to determine your share of the partnership’s AFSI. Keep a copy of both the request and the information received.
• Schedule K-1 updates: The instructions for Box 20, Code ZZ on Schedule K-1 now reflect the new requirement for partners to request CAMT information.

The updated instructions raise more questions than they answer. The timing and format for requesting CAMT information remain unclear. Additionally, the “bottom-up approach” for determining partnership AFSI needs further clarification.

While these updates primarily impact 2023 tax returns, they foreshadow a potentially more complex CAMT landscape for partnerships and their corporate partners in the years to come. Tax professionals should stay tuned for further guidance from the IRS on the ever-evolving CAMT regulations.