IRS, Treasury offer guidance on corporate AMT for insurers

The Internal Revenue Service and the Treasury released a notice Friday containing interim guidance for insurance companies ahead of issuing upcoming proposed regulations on the corporate alternative minimum tax of 15% under the Inflation Reduction Act.

Notice 2023-20 includes information for insurance companies and certain other taxpayers related to their determination of adjusted financial statement income for purposes of the corporate alternative minimum tax, which was added last year to the Tax Code by the Inflation Reduction Act. This notice provides interim guidance for determining a company's adjusted financial statement income pertaining to variable and similar contracts, funds withheld reinsurance and modified coinsurance agreements, along with the basis of certain assets held by some previously tax-exempt entities that received a so-called "fresh start" basis adjustment. The notice also includes a request for comments and the procedure for submitting such comments.

The Inflation Reduction Act of 2022 created the CAMT, which imposes a 15% minimum tax on the adjusted financial statement income of large corporations for tax years starting in 2023. Big corporations, including insurance companies, whose average annual adjusted financial statement income exceeds $1 billion are the taxpayers generally affected by the CAMT. The Treasury and the IRS issued Notice 2023-20 to give more certainty to insurance companies and certain other taxpayers.

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"Treasury is working to provide clarity to taxpayers, so they can calculate their tax responsibilities under the Corporate Alternative Minimum Tax," said Treasury assistant secretary for tax policy Lily Batchelder in a statement Friday. "There are many complex accounting issues to consider as Treasury writes these rules, and today's guidance clarifies key technical issues."  

The guidance covers significant distortions that could occur as corporations determine their tax owed under the CAMT because of the interaction of financial accounting rules for certain life insurance assets and the CAMT. To prevent unintended inclusion of non-economic gains or losses that appear on financial statements when determining tax owed under the CAMT, the notice enables taxpayers to use accounting practices that are in line with the existing financial statement and tax treatment of those transactions. The guidance also clarifies that certain statutory "fresh start" basis rules for corporations following bankruptcies apply to determine gains or losses under the CAMT.   

The Treasury and the IRS said they are continuing to develop guidance on how corporations determine their tax owed under CAMT and expect to provide additional guidance in the coming months. 

The notice asks for comments on the proposed rules and certain other issues under consideration to be submitted by April 3, 2023.