On June 2, 2025, the Department of the Treasury and the IRS released additional interim guidance regarding the corporate alternative minimum tax (CAMT) imposed under Internal Revenue Code Section 55. Notice 2025-27 provides taxpayers an interim optional simplified method for determining whether a corporation is an applicable corporation and, therefore, subject to the CAMT. The notice also extends previous guidance that temporarily waives penalties for underpayments of estimated CAMT.
Background
The Inflation Reduction Act of 2022 amended Code Section 55 to create a CAMT for tax years ending after December 31, 2022. The CAMT applies only to “applicable corporations” and generally exacts a tax equal to 15% of an applicable corporation’s adjusted financial statement income (AFSI). In general, a corporation’s AFSI is the net income shown on its applicable financial statement (AFS), after taking into account various adjustments set out in Section 56A.
A corporation (other than an S corporation, a REIT, or a RIC) is an applicable corporation for a taxable year if it meets an average annual AFSI test during one or more taxable years that are prior to that year and end after December 31, 2021.
- If the corporation is not a member of a foreign-parented multinational group (FPMG), the corporation meets the average annual AFSI test for a taxable year if the average annual AFSI for the three-taxable-year period ending with that taxable year exceeds $1 billion (the general AFSI test).
- A U.S. corporation that is a member of an FPMG satisfies the average annual AFSI test for a taxable year if (i) the FPMG meets the $1 billion average annual AFSI test, and (ii) the average annual U.S. AFSI for the three-taxable-year period ending with such taxable year is $100 million or more.
Proposed regulations published on September 13, 2024, provided an optional simplified safe harbor for determining applicable corporation status, which generally substituted $500 million for $1 billion in the general AFSI test and $50 million for $100 million in the FPMG AFSI test, and simplified the calculation of AFSI for purposes of applying the safe harbor thresholds. To rely on this safe harbor, a taxpayer and each member of its test group must consistently apply certain portions of the proposed regulations.
Notice 2025-27
Interim Simplified Method
In response to public comments received on the proposed regulations, Notice 2025-27 provides an interim optional simplified method for determining applicable corporation status. Under the interim simplified method, “$800 million” is substituted for “$1 billion” when applying the general AFSI test, and “$80 million” is substituted for “$100 million” when applying the second prong of the AFSI test for FPMGs.
As with the safe harbor in the proposed regulations, Notice 2025-27 modifies the calculation of AFSI for purposes of the interim simplified method, requiring AFSI to include:
- Adjustments for financial statement consolidation entries (Section 56A(c)(2)(A))
- Adjustments to disregard certain federal and foreign taxes (Section 56A(c)(5))
- Adjustments related to effectively connected income (Section 56A(c)(4)).
For purposes of applying the interim simplified method, Notice 2025-27 requires additional adjustments that were not authorized under prior iterations of the simplified safe harbor method. In particular, the notice requires adjustments under Section 59A(c)(9) (related to certain credits treated as payment against the corporation’s federal income tax) and Section 59A(c)(12) (related to unrelated business taxable income of tax-exempt entities), as well as specific adjustments related to amounts associated with certain credits to the extent not otherwise captured by the adjustment under Section 59A(c)(9). These adjustments were included in response to public comments and are generally expected to reduce a corporation’s AFSI.
Similar to prior simplified methods, if a corporation’s AFS covers a period that differs from its taxable year, average annual AFSI under the interim simplified method of Notice 2025-27 is calculated using the three-AFS-year period ending during the taxable year.
The notice also clarifies that if a corporation uses the interim simplified method of Notice 2025-27 and exceeds the applicable threshold, the corporation will be an applicable corporation only if it is determined to be an applicable corporation under the statute or, if it chooses to follow them, the proposed regulations.
Effective Date and Reliance
Corporations may use the interim simplified method in Notice 2025-27 for any taxable year ending on or before the date a Treasury Decision adopting a simplified method pursuant to Section 59(k)(3)(A) is published in the Federal Register and for which the original federal income tax return has not been filed as of the date Notice 2025-27 is published in the Internal Revenue Bulletin. Importantly, taxpayers may use the Notice 2025-27 simplified method without becoming subject to, or violating, the reliance rules (including the consistency requirements) provided in the proposed regulations.
BDO Insight
Comments received on the simplified safe harbor contained in the 2024 CAMT proposed regulations suggested increasing the safe harbor’s AFSI thresholds as well as favorably expanding the modifications to AFSI to reduce compliance burdens and costs for corporations that might exceed the safe-harbor thresholds but that are not expected to be applicable corporations under the regular AFSI test. The IRS issued Notice 2025-27 to prescribe the new interim simplified method, which incorporates some taxpayer suggestions. The notice states that Treasury and the IRS intend to issue revised proposed regulations that include a method similar to the interim simplified method of Notice 2025-27 prior to finalizing the CAMT regulations.
Taxpayers should be aware that even though they may take advantage of the interim simplified method of Notice 2025-27 when determining whether a corporation is an applicable corporation, those that exceed the simplified method’s AFSI threshold will still be required to determine if they are an applicable corporation under the regular AFSI test, the rules and calculations for which are onerous and complex.
Extended Waiver of Section 6655 Addition to Tax
Notice 2025-27 extends previous interim guidance that temporarily waives penalties for underpayments of CAMT. The notice provides that the IRS will waive any addition to tax imposed under Section 6655 attributable to a corporation’s CAMT liability for any taxable year that begins after December 31, 2024, and before January 1, 2026. (Previous notices (Notice 2023-42, Notice 2024-33, Notice 2024-66) provide similar relief for tax years beginning before January 1, 2025.) For these taxable years, corporations are not required to make installment payments of CAMT to avoid Section 6655 additions to tax. To benefit from the waiver, corporations must file Form 2220 and complete it as directed in the notice.
As with previous waivers, this waiver only covers taxes imposed under Section 6655 additions to tax for failure to make sufficient and timely estimated income tax payments—and does not waive additional taxes for underpayments under other sections, such as Section 6651, which imposes penalties for payments not made by the due date of the corporation’s return (without extension). Therefore, any CAMT liability due for the 2025 calendar year must be paid by April 15, 2026, to avoid penalty.
Additional Interim Guidance and Regulations
Notice 2025-27 states that the Department of the Treasury and the IRS anticipate issuing additional interim guidance regarding the CAMT to respond to other comments submitted in response to the CAMT proposed regulations, including among others:
- How unrealized gains and losses on certain investment assets reported for financial statement purposes are taken into account for purposes of determining AFSI
- Alternative rules for determining a partner’s distributive share of partnership AFSI
- AFSI adjustments resulting from certain transactions between a partner and a partnership
- AFSI adjustments resulting from certain corporate transactions
- The interaction of the CAMT and the tonnage tax regime
- Alternative rules for early reliance on the CAMT proposed regulations.
How BDO Can Help
BDO professionals can help corporations determine whether they are applicable corporations subject to the CAMT, analyze whether they want to adopt the proposed regulations, and comply with the complex CAMT rules.
Please visit BDO’s Corporate Tax Services page for more information on how BDO can help.