Key Takeaways:
- The IRS announced in Notice 2025-28 its intent to withdraw parts of the 2024 proposed regulations on the Corporate Alternative Minimum Tax (CAMT) related to partnerships and CAMT entity partners.
- New revised proposed regulations will follow; interim guidance is provided in the meantime.
- The guidance aims to reduce compliance burdens and costs for applicable corporations with financial statement income (FSI) from partnership investments.
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The Corporate Alternative Minimum Tax (CAMT), effective for tax years after December 31, 2022, imposes a 15% minimum tax on the Adjusted Financial Statement Income (AFSI) of applicable corporations. These are generally corporations with average annual AFSI over $1 billion. AFSI is determined using the corporation’s applicable financial statement, with adjustments defined in Section 56A of the Internal Revenue Code.
For partnerships, Section 56A(c)(2)(D) generally requires a corporation’s AFSI to reflect only its distributive share of the partnership’s AFSI, calculated under rules similar to those in Section 56A.
Previous IRS Guidance on Partnerships and CAMT
In January 2023, Notice 2023-7 outlined interim guidance for CAMT, including partnership-related issues. Proposed regulations issued in September 2024 expanded on this, introducing detailed rules for calculating AFSI through a “bottom-up” approach: the partnership calculates its AFSI and provides it to partners, who then determine their distributive share.
Additionally, Prop. Reg. §1.56A-20 proposed rules on partnership contributions, distributions, and interest transfers, using a deferred sale method.
New Interim Guidance in Notice 2025-28
The IRS received feedback indicating the 2024 proposed rules were too complex. Notice 2025-28 addresses this by:
- Introducing simplified methods (top-down election and limited taxable-income election);
- Allowing use of reasonable methods for determining distributive share;
- Offering two new methods for contributions/distributions: the “modified -20 method” and the “full subchapter K method.”
Top-Down Election This election allows a CAMT entity partner to use 80% of the FSI reported on its own financials as its distributive share of AFSI, plus specific gains and limited adjustments. It simplifies compliance and reporting obligations.
Flexible Approaches Within Partnerships Partners may adopt different approaches (electing vs. non-electing). Electing partners relieve the partnership from modified FSI reporting; non-electing partners must notify the partnership if they require this data.
Limited Taxable-Income Election Allows certain partners to use taxable income as a proxy for AFSI, following a defined formula in the Notice.
Revised Bottom-Up Rules Permits reasonable methods to calculate distributive share using existing Subchapter K principles like Section 704(b) income or loss.
Information Requests Extends time for CAMT entities to request data from partnerships. If a partnership fails to comply, the partner may use internal books and records.
Partnership Contributions and Distributions Two new alternatives are available:
- Modified -20 Method: Applies Prop. Reg. §1.56A-20 with modifications.
- Full Subchapter K Method: Applies full Subchapter K principles including Sections 704(c), 732, 734, and 737.
Insights for Credit Unions and Lending Institutions
Although CAMT targets corporations, credit union service organizations (CUSOs) or credit union-owned investment vehicles taxed as corporations could be subject to CAMT if they meet income thresholds. Understanding and planning around partnership reporting obligations and distributive share methods is critical for CAMT compliance.
Stakeholders should evaluate which calculation method best aligns with their structure and resources and remain alert for final regulations. As the IRS develops simplified alternatives, strategic elections now can ease future compliance burdens.
How MGO Helps Corporations Navigate CAMT Changes with Confidence
We work with corporations across financial services, manufacturing and distribution, real estate, and nonprofit sectors to evaluate the Corporate Alternative Minimum Tax (CAMT) exposure, model the impact of top-down or limited taxable-income elections, and streamline reporting under interim IRS guidance. Whether you need help mapping partnership AFSI data into your accounting systems, choosing the most efficient calculation method, or preparing for forthcoming regulations, MGO’s tax team provides practical strategies, compliance support, and forward-looking insights to reduce burdens and uncover opportunities in a rapidly evolving tax landscape. Contact us to learn more.