The IRS recently issued a critical update for corporations regarding the Corporate Alternative Minimum Tax (CAMT), a change introduced in the Inflation Reduction Act. This new legislation introduced a CAMT based on a corporation’s adjusted financial statement income effective after December 31, 2022.
Under normal circumstances, corporations are required to make quarterly estimated income tax payments, with penalties for underpayment. However, acknowledging the challenges and complexities introduced with the new CAMT, the IRS has decided to offer relief from these penalties for certain tax installments due in 2024. Specifically, the relief applies to the installments due on or before April 15, 2024. It also applies to those with a taxable year beginning in February 2024 with an installment due on or before May 15, 2024. This means that these payments need not include amounts attributed to the CAMT liability, thus avoiding additional penalties for underpayment.
It’s important for corporate taxpayers to note that while the waiver relieves the penalty for underpayment of estimated tax related to the CAMT, it does not eliminate the obligation to pay the CAMT itself.
Furthermore, the IRS will update the instructions for Form 2220, which is used by corporations to calculate underpayments of estimated tax. The revised instructions will clarify that no penalty will be imposed for failing to include CAMT liabilities in estimated tax payments for the specified periods.
Corporate taxpayers must still complete and file Form 2220 with their income tax returns, even if no estimated tax penalty is due to document your are adhering to these tax regulations.
This waiver is a significant temporary adjustment by the IRS, aimed at helping corporations transition smoothly to the new tax framework imposed by the CAMT regulations. If you have questions about how these changes affect your tax strategies and compliance obligations, reach out to us for guidance and advice.