The U.S. Department of the Treasury and Internal Revenue Service (IRS) issued a Notice of Proposed Rulemaking they said will increase tax fairness and address significant corporate tax avoidance by some of the largest and most profitable U.S. corporations by implementing the Inflation Reduction Act’s Corporate Alternative Minimum Tax.
CAMT is a key plank of President Biden and Vice President Harris’s agenda to make the biggest corporations and wealthiest pay their fair share, while cutting taxes for working Americans and middle-class families and supporting small businesses and entrepreneurs.
Treasury estimates that around 100 of the largest and most profitable companies will pay the CAMT annually. These corporations would have otherwise paid an average effective federal tax rate of 2.6%.
An estimated 60% of CAMT payers would otherwise have paid an effective tax rate of less than 1%, including 25% of payers that would have paid an effective tax rate of zero.
That’s because some of the largest and most profitable corporations in the country use tax preferences and aggressive planning strategies to pay little to no taxes, Treasury officials said in a release posted to the department’s website.
These corporations report record profits to shareholders while often paying lower tax rates than nurses, firefighters, police officers, and teachers. 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, officials said.
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.
The CAMT only applies to large corporations that average more than $1 billion in profit per year, not $1 billion in sales. In addition, if these corporations pay regular taxes that equal or exceed 15% of their adjusted profits, they would pay no additional tax. 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,” said U.S. Secretary of the Treasury Janet L. Yellen. “The Corporate Alternative Minimum Tax will also help level the playing field for small businesses while generating hundreds of billions of dollars in revenue.”
The guidance is a proposed rule. 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 scheduled for Jan. 16.
