The U.S. Treasury launched new proposed regulations for a corporate alternative minimum tax, projected to yield $250 billion in revenue over the next decade from approximately 100 large corporations that currently pay an average tax rate of just 2.6 percent.
Targeting high-income corporations
According to the Treasury’s statement, this tax would be applicable to companies with an annual average adjusted financial statement income of $1 billion or more. These corporations frequently utilize various income deductions and strategies to significantly reduce their taxable income, in some instances to zero.
While Treasury officials did not disclose the identities of the 100 companies likely to be affected, they noted that these firms currently report an average effective tax rate of 2.6 percent after accounting for deductions and credits, with around 60 of them paying less than 1 percent.
This new tax was included in the 2022 Inflation Reduction Act, aimed at offsetting the expenditures associated with new clean energy tax incentives.
Addressing corporate tax avoidance
U.S. Treasury Secretary Janet Yellen emphasized in a statement that the proposed rules are a crucial advancement in Congress’s efforts to combat severe corporate tax avoidance in the U.S. and to ensure that the largest and most profitable companies contribute fairly in taxes. She further highlighted that this tax would create a more equitable environment for small businesses, which often lack access to costly tax lawyers and advisors who develop complex tax reduction schemes.
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Clarifications on tax rules
Moreover, the regulations published in the Federal Register on Thursday clarify the limitations on deductions that can be used to calculate adjusted financial statement income and tax liability. Although there is a general mandate for companies exceeding the $1 billion profit threshold to pay a 15 percent alternative minimum tax, the specific clarifications introduced in the proposed rules will pertain to the 2024 tax year, according to Treasury officials.
The Treasury will accept public comments on the proposed rules until December 12, with opportunities for individuals to request to speak at a hearing scheduled for January 16, 2025.
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