Page 10 - TaxAdviser_Jan_Apr23_Neat

TAX CLINIC

financial statement income in excess of taxpayer’s applicable financial statement. ■ Adjusted financial statement income
$1 billion and is subject to the corporate Special rules apply for cooperatives, for a foreign corporation is deter-
alternative minimum tax, the three-tax- Alaska Native corporations, and mort- mined under the principles of Sec.
year period means any three consecutive gage servicing companies. 882 (regarding effectively connected
tax years preceding the tax year in which Although the act requires Treasury income).
the tax applies (beginning with three- to issue regulations and/or other guid- ■ For a taxpayer with a disregarded
tax-year periods in which the third year ance as necessary on adjustments to entity, adjusted financial statement
of the period ends after Dec. 31, 2021). adjusted financial statement income, income includes the disregarded
For example, to determine whether a Sec. 56A(c) requires the following gen- entity’s adjusted financial statement
calendar-year corporation is subject eral adjustments: income to the extent it is not
to the corporate alternative minimum ■ Taxpayers must make unspecified otherwise included on the taxpayer’s
tax for 2023, the three-tax-year period adjustments when the applicable applicable financial statement.
includes calendar years ending Dec. financial statement covers a period ■ The taxpayer must adjust adjusted
31, 2020; Dec. 31, 2021; and Dec. 31, other than the tax year. financial statement income to disre-
2022. For corporations (or a predeces- ■ For a consolidated group, adjusted gard federal income taxes or income,
sor) existing less than three tax years, financial statement income includes war profits, or excess profits taxes
the act substitutes the number of years items from the group’s applicable (within the meaning of Sec. 901)
the corporation has existed for three. financial statement that are properly imposed by a foreign country or
Any tax year less than 12 months must allocable to members of the group. possession of the United States. No
be annualized. ■ For a corporation not included adjustment is required for income,
on a consolidated return with the war profits, or excess profits taxes
Exceptions taxpayer (e.g., an unconsolidated imposed by a foreign country or
The corporate alternative minimum subsidiary), the taxpayer includes in possession of the United States if the
tax does not apply to corporations that adjusted financial statement income taxpayer chooses not to claim foreign
have either changed ownership or fallen only dividends received from the tax credits for the tax year.
below the adjusted financial statement corporation and other amounts ■ Adjusted financial statement income
income threshold for a specified number required to be included in gross is adjusted to disregard tax refunds
of consecutive years (to be determined income or deductible as a loss (other attributable to elections made under
by Treasury), conditioned upon Trea- than amounts included under Secs. Sec. 48D(d) and Sec. 6417.
sury’s also determining that it would be 951 and 951A). ■ For taxpayers with “covered benefit
inappropriate to continue subjecting the ■ For a taxpayer that is a partner in plans”:
corporation to the tax. The exception no a partnership, adjusted financial ● Adjusted financial statement
longer applies if the corporation meets statement income includes only income is adjusted for:
the three-year average adjusted financial the taxpayer’s distributive share of  Single-employer qualified de-
statement income test for any tax year adjusted financial statement income fined benefit pension plans;
beginning after the year for which the of the partnership.  Qualified foreign plans under
determination applies. ■ For a U.S. shareholder of a controlled Sec. 404A; and
foreign corporation (CFC), adjusted  Other defined benefit plans
Adjusted financial statement financial statement income includes providing post-employ-
income the shareholder’s pro rata share of ment benefits.
The act adds new Sec. 56A, which items taken into account in comput- ● Adjusted financial statement
defines “adjusted financial statement in- ing the net income or loss on the income is determined by:
come” of a corporation (taxpayer) as the CFC’s applicable financial statement,  Disregarding any income, cost,
taxpayer’s net income or loss reported in with adjustments similar to those ap- or expense that is connected
the taxpayer’s applicable financial state- plicable in computing the taxpayer’s with the covered benefit plan
ment — as defined in Sec. 451(b)(3) adjusted financial statement income. and otherwise included in the
— with adjustments for certain items. If Any negative adjustment for a CFC taxpayer’s applicable finan-
a taxpayer’s financial results are reported (or aggregate negative adjustment cial statement;
on the applicable financial statement for multiple CFCs) must be carried  Increasing adjusted financial
for a group of entities, the act treats that forward to the next succeeding tax statement income for any
consolidated financial statement as the year. income that is connected with

8 January 2023 The Tax Adviser