IRS won’t penalize big corporations that didn’t pay estimated AMT

The Internal Revenue Service and the Treasury Department are providing penalty relief to billion-dollar corporations that haven’t paid estimated taxes related to the new 15% corporate alternative tax included in last year’s Inflation Reduction Act.

The Treasury and the IRS issued Notice 2023-42 on Wednesday, giving some extra leeway to big companies. The Inflation Reduction Act created the CAMT last year, levying a 15% minimum tax on the adjusted financial statement income of large corporations for tax years starting after Dec. 31, 2022. The new tax mostly applies to large corporations with average annual adjusted financial statement income over $1 billion.

The IRS and the Treasury have been rolling out a number of regulations for the Inflation Reduction Act ever since Congress passed it last summer. Considering the challenges associated with determining the amount of a corporation’s CAMT liability and whether a corporation is an applicable corporation subject to the new tax, the IRS said it would waive the penalty for a corporation’s failure to pay estimated income tax with respect to the tax for a taxable year that begins after Dec. 31, 2022, and before Jan. 1, 2024.

However, the guidance notes that if a corporation fails to timely pay its CAMT liability when due, other sections of the Tax Code may apply. For example, additions to tax could be imposed under Section 6651 if payment of the CAMT liability is not made by the due date (without regard to any extension) of the corporation’s return. 

The instructions to Form 2220, Underpayment of Estimated Tax by Corporations, will be modified by the IRS to clarify that no addition to tax will be imposed under Section 6655 based on a corporation’s failure to make estimated tax payments of its CAMT liability under Section 55 for any covered CAMT year, and that a taxpayer can exclude those amounts when calculating the amount of its required annual payment on Form 2220. 

Corporate taxpayers will still need to file Form 2220 with their federal income tax return, even if they don’t owe an estimated tax penalty. “Form 2220 must be completed without including the CAMT liability from Schedule J of Form 1120, U.S. Corporation Income Tax Return (or other appropriate line of the corporation’s income tax return in the Form 1120 series), said the IRS. “Affected taxpayers must also include an amount of estimated tax penalty on Line 34 of their Form 1120 (or other appropriate line of the corporation’s income tax return in the Form 1120 series), even if that amount is zero. Failure to follow these instructions could result in affected taxpayers receiving a penalty notice that will require an abatement request to apply the relief provided by this notice.”