The Corporate Alternative Minimum Tax (CAMT), introduced under the Inflation Reduction Act of 2022, represents a significant shift in the U.S. corporate tax landscape. Beginning in 2023, the CAMT imposes a minimum 15% tax on the adjusted financial statement income (AFSI) of certain large corporations. Since its implementation, the IRS has issued transitional guidance, including relief provisions for underpayment of estimated CAMT liabilities. For tax year 2025, the IRS has updated its approach to CAMT underpayment relief, offering clarity and support for affected corporations.
Understanding the Corporate Alternative Minimum Tax (CAMT)
The CAMT is a parallel tax system aimed at ensuring that large corporations with significant book profits pay a minimum level of tax. Under CAMT rules, corporations with average annual financial statement income exceeding $1 billion over a three-year period are subject to a 15% tax on AFSI, rather than taxable income as defined under traditional IRC provisions.
This reform was designed to target companies that use deductions, credits, and other tax planning strategies to significantly reduce their effective tax rate despite reporting high profits in their financial statements.
Initial Challenges with CAMT Compliance
When the CAMT provisions were enacted, many corporations and their tax advisors raised concerns about the lack of detailed guidance on calculating AFSI, determining applicable adjustments, and making accurate estimated tax payments. The complexities of reconciling book income with taxable income presented compliance hurdles that affected companies’ ability to confidently compute and pay their CAMT liability.
Recognizing these challenges, the IRS initially provided underpayment relief for CAMT liabilities in 2023 and 2024. These temporary relief measures exempted certain corporations from estimated tax penalties if they failed to accurately project CAMT liability due to the evolving regulatory environment.
IRS Updates CAMT Underpayment Relief for 2025
For tax year 2025, the IRS has updated and extended its underpayment relief provisions to account for ongoing implementation challenges. While the relief is more limited than in prior years, it still offers important protection for corporations navigating the new CAMT regime. Here are the key updates:
1. Limited Relief for Certain Corporations
Under the updated guidance, corporations that reasonably attempt to comply with CAMT estimated tax rules but underpay due to calculation errors may be eligible for partial penalty relief. This includes companies that:
- Are newly subject to CAMT in 2025
- Made a good faith effort to estimate CAMT liability based on available guidance
- Maintain proper documentation and financial records to support their methodology
This relief is intended to support businesses that are actively trying to comply but are still adapting to the novel framework of the CAMT.
2. No Blanket Waiver of Penalties
Unlike the blanket relief granted for 2023, the 2025 update does not waive penalties automatically for all taxpayers. Relief is only available on a case-by-case basis and must be requested via formal procedures. Corporations must demonstrate they acted in good faith and that their underpayment was due to reasonable cause, not willful neglect.
3. Form 2220 Adjustments
Corporations required to compute penalties for underpayment of estimated taxes must continue to file Form 2220. However, new instructions clarify how CAMT-related adjustments should be reported when calculating estimated tax shortfalls. Taxpayers seeking relief must:
- Attach a written statement to Form 2220 outlining their CAMT estimate methodology
- Explain how limitations in regulatory guidance contributed to underpayment
- Provide financial data supporting their AFSI calculations
The IRS has also updated its internal procedures to handle Form 2220 filings involving CAMT with greater discretion and review by technical staff.
4. Coordination with Other Relief Provisions
The IRS has confirmed that corporations applying for CAMT penalty relief may also qualify for other forms of relief, such as first-time penalty abatement (FTA) or reasonable cause relief. However, overlapping relief provisions must be coordinated carefully to avoid duplication or errors.
Best Practices for Corporations Facing CAMT in 2025
Corporations subject to CAMT should take proactive steps to manage compliance and minimize risk. The following practices can improve the chances of qualifying for underpayment relief or avoiding penalties altogether:
- Conduct internal CAMT readiness assessments to identify exposure and refine AFSI calculations
- Engage with qualified tax advisors who are experienced in book-to-tax reconciliation
- Model estimated payments quarterly using available guidance, including IRS Notice 2023-64 and any new regulatory releases
- Document methodologies in real-time to substantiate good-faith compliance efforts
- Monitor IRS announcements for further CAMT developments or procedural changes
IRS Resources and Guidance Documents
The IRS has issued and will continue to issue CAMT-related guidance, including notices, FAQs, and proposed regulations. Key references include:
- IRS Notice 2023-64: Interim guidance on CAMT calculations and definitions
- Form 2220 Instructions (2025): Clarified reporting for CAMT underpayments
- IRS CAMT FAQs: Regularly updated to reflect practical filing scenarios
Corporations should consult these resources regularly and consider subscribing to IRS e-News for updates on CAMT guidance.
Conclusion
As the CAMT continues to evolve, the IRS has taken important steps to recognize the complexity of compliance, especially around estimating liabilities in real-time. The 2025 underpayment relief updates strike a balance between encouraging accurate tax payments and offering grace to corporations acting in good faith during a transitional period.
While the relief is no longer automatic, corporations can still avoid penalties by following best practices, documenting their efforts, and applying for relief through Form 2220. With thoughtful preparation and adherence to the latest guidance, affected businesses can navigate CAMT compliance with greater confidence and lower financial risk.
