For decades, the same story made headlines every spring: a Fortune 500 company reports billions in profit to shareholders, then pays little or nothing in federal income tax. The arithmetic was almost always legal. Accelerated depreciation, tax credits, foreign-derived intangible income deductions, stock-based compensation deductions, and net operating losses combined to produce taxable income far below the income reported on audited financial statements. By one Treasury estimate, the roughly 100 most profitable U.S. companies paid an average effective federal tax rate of just 2.6% in the years leading up to 2022.
The Corporate Alternative Minimum Tax (CAMT) — enacted by the Inflation Reduction Act of 2022 and effective for tax years beginning after December 31, 2022 — was designed to close that gap. It applies a 15% minimum tax to a new measure of corporate income called Adjusted Financial Statement Income (AFSI), which starts from book income rather than taxable income. The result is one of the most operationally complex provisions added to the Code in a generation, with thousands of pages of interim guidance still being issued in 2026 and a projected $250 billion in additional revenue over the next decade.
If your company is anywhere near the threshold — or owned by a fund or multinational parent that might be — here is what CAMT actually requires, how AFSI is computed, and where the planning opportunities (and traps) live.
Who Is Actually Subject to CAMT
CAMT does not apply to every large corporation. It applies only to an "applicable corporation," a status defined by section 59(k) of the Internal Revenue Code.
The general $1 billion test
A C corporation is an applicable corporation for the tax year if its average annual AFSI over the three taxable years ending with the tax year exceeds $1 billion. Once a corporation crosses the threshold, it remains an applicable corporation in future years even if AFSI later dips below $1 billion, unless the IRS determines that ongoing status would no longer be appropriate.
The three-year averaging window is important. A company with $700 million, $900 million, and $1.5 billion of AFSI over three consecutive years would have an average of roughly $1.03 billion — enough to trigger applicable corporation status, even though only one year of the three crossed the headline number.
The foreign-parented multinational group test
A separate, more aggressive test applies to U.S. subsidiaries of foreign multinationals. If a corporation is a member of a foreign-parented multinational group (FPMG), it becomes an applicable corporation when:
- The entire FPMG's average annual AFSI exceeds $1 billion, and
- The U.S. portion of the group's average annual AFSI is $100 million or more.
The $100 million U.S. threshold is dramatically lower than the standalone $1 billion test, and it sweeps in many U.S. subsidiaries that would otherwise fly under the radar.
Partnerships, funds, and the "deemed foreign corporation" rule
Proposed regulations also treat certain partnerships as deemed foreign corporations for purposes of the FPMG rules. If a non-corporate entity (such as a private equity, venture capital, or hedge fund partnership) owns a controlling interest in a foreign corporation or foreign trade or business, the partnership itself can be recharacterized as a foreign corporation. A widely-held domestic fund that owns 100% of both a foreign portfolio company and a U.S. portfolio company could find its entire structure pulled into the FPMG analysis. Fund sponsors and portfolio company CFOs should not assume they are out of scope simply because no corporation in the chain individually crosses $1 billion.
What "Adjusted Financial Statement Income" Actually Is
AFSI is the heart of CAMT, and it is unlike anything else in the tax code. The starting point is net income or loss as reported on an "applicable financial statement" — typically the audited GAAP financials filed with the SEC, prepared for credit purposes, or filed with another government agency.
From that book number, the corporation applies a series of statutory adjustments under section 56A. The intent is not to produce taxable income, but to produce a "fairer" measure of book profit that still preserves a handful of tax policy preferences. Here are the adjustments that move the largest dollars.
Tax depreciation, not book depreciation
This is the single most impactful adjustment for capital-intensive businesses. AFSI starts with book net income, which uses straight-line depreciation over long useful lives. AFSI then subtracts book depreciation and adds back depreciation calculated under section 168 — the same accelerated and bonus depreciation regime used for regular taxable income.
For a manufacturer placing a $500 million piece of equipment into service, the difference is enormous. GAAP might depreciate the asset over 20 years at $25 million annually. Section 168 might allow 100% bonus depreciation in year one. AFSI in year one is reduced by the gap, then partially "paid back" in later years when book depreciation continues but tax depreciation has already run out.
Net operating losses
AFSI permits a deduction for "financial statement NOLs" — losses generated post-2019 under the AFSI rules — but limits the deduction to 80% of pre-NOL AFSI. Older book losses do not qualify, and there are special transition rules for depreciation deductions that were embedded in pre-2020 NOLs.
Defined benefit pensions and deferred compensation
AFSI disregards the book treatment of covered benefit plans and substitutes the amounts deductible under the regular tax rules. This eliminates much of the volatility that mark-to-market pension accounting introduces into book income but does not reflect economic cash deductions.
Foreign income, controlled foreign corporations, and partnership distributive shares
AFSI of a U.S. corporation is increased by its pro rata share of CFC AFSI (with adjustments for foreign exchange, intercompany items, and dividends) and by its distributive share of partnership AFSI. The partnership rules in particular have been a moving target — the IRS issued additional interim guidance in early 2026 to clarify how partnership AFSI flows up to corporate partners.
Recent interim relief
Notice 2026-7, effective February 18, 2026, expanded relief for repair and maintenance costs, certain intangible asset capitalizations, domestic research and experimentation costs, qualified production costs, materials and supplies, financially troubled companies, and several international provisions. The Treasury Department has been steadily narrowing the AFSI base in response to industry feedback, and additional guidance is expected through 2026 and 2027.
How the Tax Is Actually Calculated
For an applicable corporation, the CAMT for the year equals:
Tentative Minimum Tax (15% × AFSI) − CAMT Foreign Tax Credit − Regular Tax + BEAT
If that number is positive, the corporation owes it in addition to regular tax. If regular tax already exceeds 15% of AFSI, the company owes nothing under CAMT. The CAMT also generates a credit against future regular tax in years when regular tax exceeds CAMT — preserving the timing nature of the levy.
General business credits — including the section 38 credits for research, low-income housing, and increasingly the energy credits introduced by the Inflation Reduction Act itself — generally can offset CAMT liability, subject to the 75% limitation that applies to all alternative minimum tax regimes. The transferable energy credit market that took off in 2024 and 2025 has been driven in large part by CAMT-paying corporations seeking to convert credit purchases into AFSI offsets.
The Simplified Method: A Real Off-Ramp
Compliance with full CAMT, including Form 4626 with its multi-part schedules and controlled group disclosures, is expensive even when the answer is "no liability." Recognizing this, the IRS introduced an optional interim simplified method that lets near-the-line corporations skip Form 4626 entirely if they pass a higher safe harbor threshold.
Under the simplified method, the AFSI thresholds are reduced:
- General test: $800 million instead of $1 billion.
- FPMG U.S. test: $80 million instead of $100 million.
- FPMG group test: $800 million instead of $1 billion.
The trade-off is that the AFSI computation under the simplified method is intentionally trimmed — most of the section 56A adjustments are skipped. A corporation that passes the simplified test (i.e., its simplified AFSI does not exceed the lower threshold) can certify that result, document the math on the Interim Simplified Method Calculation Worksheet, and skip filing Form 4626 altogether for the year.
For a company hovering around $500–$900 million in book income, this method is essentially a free option. Start there. Only if you fail the simplified test do you need to drop into the full AFSI computation.
Form 4626 in Practice
If you cannot rely on the simplified method, Form 4626 is the operational tax return. The form has several parts:
- Part I — Applicable corporation determination using the full AFSI test.
- Part II — AFSI computation, including the section 56A adjustments.
- Part III — Calculation of tentative minimum tax and final CAMT liability.
- Part IV — CAMT foreign tax credit.
- Part V — Members of a section 52 controlled group or FPMG group taken into account in the applicable corporation determination, with disclosure of group members.
Filers who are members of a section 52 single-employer group or an FPMG must complete Part V, listing the other members, their EINs (or foreign equivalents), and certain identifying information about the group. Failure to attach Part V correctly is one of the most common compliance defects raised in IRS reviews of the 2023 filings.
Where the Real Planning Opportunities Live
CAMT is not a tax that disappears with last-minute planning, but several recurring structural levers move the needle for real-world taxpayers.
Cleaning up the consolidated AFSI computation
Many large groups discovered in 2023 that their consolidated financial statements include items — minority interest, intercompany eliminations, certain mark-to-market positions — that do not match the CAMT-required computation. A clean, documented AFSI workpaper is the foundation. Auditors and the IRS will both ask for it.
Tax credit strategy
Because general business credits can offset up to 75% of CAMT, large groups have rebalanced their internal hurdle rates for energy investments, low-income housing partnerships, and R&D credit studies. A credit that previously had to compete with a 21% rate now also helps offset a 15% floor that cannot be erased by depreciation alone.
Transferable energy credit purchases
The market for transferable section 45 and 48 credits has matured substantially since 2024. A CAMT-paying buyer can purchase credits at a discount to face value and apply them against CAMT, generating an economic return that depreciation cannot replicate.
Timing of deductions and income recognition
Because AFSI tends to smooth out the early-year tax depreciation benefits of bonus depreciation, the CAMT-effective deduction profile of a capital project looks different from the regular-tax profile. Capital budgeting models that compare projects on after-tax basis need a CAMT layer.
Partnership and CFC reporting
Corporate partners are entitled to a distributive share of partnership AFSI, but only if the partnership provides the right information. Many partnerships have been slow to update K-1 reporting to include AFSI. Expect this to be a continuing point of friction — and to require explicit contractual language in new partnership and joint venture agreements.
Why Clean Books Matter More Than Ever
CAMT does not just tax book income — it puts book income on the IRS examination agenda for the first time in a generation. The AFSI computation requires reconciling between audited financial statements, internal management reports, consolidated workpapers, and a series of statutory adjustments that often have no direct accounting analog. Companies that historically maintained their tax records and their financial records in disconnected systems are discovering that CAMT compliance requires far tighter integration between the two.
This matters whether your company is currently subject to CAMT, near the threshold, or simply growing. The underlying principle — that book income should be auditable, defensible, and clearly tied to the underlying transactions — is no longer just an accounting matter. It is a tax compliance matter, and one with seven- and eight-figure consequences.
Plain-text accounting offers a different starting point. When every transaction is stored as a readable text record with explicit account postings, the chain of evidence from the original entry to the reported figure on the income statement is fully transparent. There is no opaque "general ledger" to wrestle with at audit time, no proprietary database to export from, and no version-control gap between what the controller saw and what the auditor sees. Reconciling book income to AFSI starts with knowing exactly what book income is — and that begins with the source documents.
Common Mistakes to Avoid
A few patterns recur across the CAMT filings the IRS has reviewed so far.
- Assuming you are out of scope because of FPMG. U.S. subsidiaries of foreign multinationals often miss the $100 million U.S.-only threshold because they focus only on the standalone tests.
- Forgetting the three-year averaging. A single bad year can pull a corporation across the threshold; a single good year can keep it there.
- Using book depreciation in AFSI. This is the largest computational error, and it pushes AFSI up by hundreds of millions for capital-intensive groups.
- Skipping the simplified method. Companies routinely file Form 4626 when the simplified method would have let them skip it entirely.
- Missing partnership AFSI reporting. Corporate partners that fail to obtain AFSI information from partnerships are often forced into conservative estimates that overstate AFSI.
- Treating CAMT as a permanent cost. It is structurally a timing tax — the CAMT credit can be carried forward indefinitely and used against future regular tax — which means the present-value cost is much lower than the headline number suggests.
Keep Your Books CAMT-Ready
Whether you are inside, outside, or hovering near the CAMT threshold, the underlying lesson is the same: the IRS now cares about book income, not just taxable income, and the gap between the two is the new tax base. Beancount.io provides plain-text accounting that gives you complete transparency and version control over your financial data — every transaction is auditable, every reconciliation is reproducible, and there is no proprietary system between you and your numbers. Get started for free and see why developers and finance teams are switching to plain-text accounting that holds up to scrutiny.