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TAX CLINIC

regular U.S. federal income tax liability,
Rev. Proc. 2011-29 was published over a plus its liability for the base-erosion
and anti-abuse tax. The corporation’s
decade ago with the goal of reducing the tentative minimum tax is a 15% tax on
controversy between taxpayers and the its AFSI for the tax year (computed
IRS over the allocation of success-based taking into account financial statement
net operating losses (NOLs)), to the
fees between facilitative and nonfacilitative extent it exceeds the corporate AMT
activities. FTC for the tax year.
As under the rules applicable to the
regular corporate income tax, AFSI
banker’s letter was insufficient because may be reduced by financial statement
it was “merely an allocation between Foreign Income & Taxpayers NOLs, not to exceed 80% of AFSI,
activities that facilitated and did not determined before taking into account
facilitate the transaction.” The IRS also Corporate AMT: Unanswered such NOLs. Financial statement NOLs
noted that the PowerPoint presentation questions about its foreign are determined by taking into account
was insufficient documentation because tax credit adjusted financial statement losses for
it did not identify the amount of the This item provides a brief overview of tax years ending after Dec. 31, 2019.
fee or the percentage of time that was the key components of the corporate In addition to the corporate AMT
allocable to each activity. alternative minimum tax (corporate FTC, corporations are eligible to claim
On Sept. 18, 2020, LB&I an- AMT), including what it is, who is sub- a tax credit for corporate AMT paid
nounced a campaign on “Allocation ject to it, and the base on which liability in prior years against regular income
of Success-Based Fees Without Rev. for it is computed. The discussion then tax, to the extent regular tax exceeds
Proc. 2011-29.” (Campaigns are spe- turns to the corporate AMT’s foreign the tentative minimum tax for such tax
cific issues that LB&I has selected for tax credit (corporate AMT FTC), year. Further, general business credits
scrutiny, based on the goals of improv- focusing on unanswered questions as of a corporation (such as research and
ing return selection, identifying issues of December 2022 (when this item was development, clean energy, and hous-
representing a risk of noncompliance, written). ing tax credits) may generally offset up
and making the greatest use of limited The Inflation Reduction Act, P.L. to approximately 75% of the sum of a
resources.) The announcement did not 117-169, was signed into law on Aug. corporation’s normal income tax and
include a detailed description of any 16, 2022. The act imposes a 15% cor- corporate AMT.
changes to LB&I’s approaches to exam- porate AMT based on the adjusted fi-
ining success-based fees, merely a state- nancial statement income (AFSI) of an Definition of an
ment that the “goal of this campaign applicable corporation. The corporate ‘applicable corporation’
is to ensure taxpayer compliance with AMT is primarily a revenue raiser and An applicable corporation is generally
current law.” will apply to tax years beginning after any corporation (other than an S corpo-
Taxpayers that spurn the Rev. Proc. Dec. 31, 2022. ration, regulated investment company,
2011-29 safe harbor should look to the On Dec. 27, 2022, Treasury and the or a real estate investment trust) the
list of potentially supporting items in IRS released Notice 2023-7, which average annual AFSI of which exceeds
TAM 201002036 and develop a beefier provides taxpayers with interim guid- $1 billion for any three consecutive tax
documentation file than the taxpayer ance on the corporate AMT. Taxpayers years preceding the tax year (the AFSI
had in CCA 201830011. However, any may rely on the guidance provided test). Under the act, a corporation can
taxpayer attempting a traditional allo- in Sections 3 through 7 of the notice first qualify as an applicable corporation
cation of a success-based fee should be until the issuance of forthcoming pro- in a tax year ending after Dec. 31, 2021.
aware that this is an area of heightened posed regulations. Section 5 of Notice 2023-7 provides
scrutiny from IRS examiners and that a safe-harbor method for determining
the failure to meet the documentation The basics of the corporate AMT whether a corporation is an applicable
requirement could result in 100% of a Under the act, an applicable corpora- corporation for the first tax year begin-
fee being capitalized. tion’s AMT is equal to the amount ning after Dec. 31, 2022.
From Evan Adams, J.D., LL.M., by which the tentative minimum tax Once a corporation is determined to
Grant Thornton LLP, Washington, D.C. exceeds the sum of the corporation’s be an applicable corporation, it remains

18 March 2023 The Tax Adviser