On February 18, the IRS and Treasury issued new guidance on a grab bag of subjects relating to the corporate alternative minimum tax ("CAMT"), the most notable of which was a provision allowing companies to preserve the benefits of new R&D tax breaks granted as part of tax legislation enacted by Congress last year (the "2025 Tax Act").
Prior to July 2025, companies incurring domestic R&D expenditures were generally required to capitalize and amortize those expenses over a 5-year period. Under the 2025 Tax Act, domestic R&D expenditures beginning in 2025 could instead be immediately deducted in full. Additionally, subsequently released guidance gave taxpayers the option to take "catch-up deductions" with respect to unamortized R&D costs capitalized in previous years, deducting the unamortized costs entirely in 2025 or half in 2025 and half in 2026.
While the ability to accelerate these amortization deductions was generally welcome news to taxpayers who had incurred significant R&D expenditures in recent years, it raised CAMT concerns for large taxpayers. A taxpayer who elected to deduct all unamortized R&D costs in 2025, for example, would be claiming on its 2025 tax return not only deductions for all R&D expenditures incurred in that year, but also for expenses incurred in multiple prior years, resulting in a one-time reduction in its regular 2025 effective income tax rate that could knock the taxpayer into CAMT (thereby denying it at least some of the benefits of the catch-up deductions).
To address this concern, the new guidance permits taxpayers to reduce their applicable financial statement income ("AFSI," the income otherwise subject to CAMT) by unamortized R&D costs to the extent taken into taxable income for the taxable year, effectively ensuring that the taxpayer will get the benefit of the catch-up deductions under both regular income tax and CAMT (and eliminating the possibility that the catch-up deductions might themselves subject the taxpayer to CAMT).
In addition to the adjustment for R&D catch-up deductions, the new guidance includes:
- amortization in calculating AFSI of "Section 197 intangibles" that are amortizable for regular income tax purposes but not amortizable for financial statement purposes (expanding on prior guidance that had only permitted amortization of goodwill);
- deductions to AFSI for certain film, television, theatrical and sound production expenses that are deductible under Section 181;
- AFSI adjustments for amounts paid to acquire or produce materials and supplies and for certain repair and maintenance costs; and
- favorable clarifying rules for financially troubled companies (which often recognize significant book income as a result of "fresh start" accounting that CAMT generally disregards).
More broadly, this guidance follows the trend in several other notices previously covered in Brass Tax (see here and here) of causing the CAMT AFSI calculation to adhere more closely to regular income tax rules. This trend appears motivated by a conceptualization of CAMT by the current administration not as a true parallel tax system to the regular federal corporate income tax, but instead as a kind of stopgap targeting only the most abusive kinds of tax avoidance transactions.
This view was recently articulated by Kevin Salinger, Deputy Assistant Secretary for Tax Policy, in remarks at a January meeting of the New York State Bar Association, when he stated that "CAMT was aimed at aggressive tax avoidance—at sophisticated tax-planning strategies that create large divergences between taxable income and book income—not at routine business activity." Salinger specifically cited statutory rules on cost recovery as among the policy choices made by Congress that, on this view, CAMT was not meant to disturb.
This view is not universally shared. Some of CAMT's original Democratic Party supporters in Congress late last year sent a letter to the Treasury characterizing the purpose of CAMT as "to ensure that no billionaire corporation pays a lower tax rate than 15% on the income it reports to shareholders," and arguing specifically against some of the changes adopted in the recent guidance.
Assuming that the Treasury continues to adhere to a limited view of the purpose of CAMT, we should expect future guidance to further narrow the gap between AFSI and taxable income—and by extension, between CAMT and the regular corporate income tax.
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