Notice 2025-27 provides interim guidance on corporate AMT

Editor: Michael J. Mondelli, J.D.

Notice 2025–27, issued on June 2, 2025, provides important interim guidance and penalty relief for corporations subject to the corporate alternative minimum tax (corporate AMT). The corporate AMT was enacted by the Inflation Reduction Act of 2022, P.L. 117–169, to ensure that large, profitable corporations pay at least a minimum level of tax.

The notice provides an optional interim simplified method for determining applicable corporation status (interim simplified method), which will reduce the compliance costs and burdens of the corporate AMT for certain corporations. The notice also waives penalties under Sec. 6655 for the underpayment of estimated tax with respect to a corporation’s Sec. 55 corporate AMT liability. This waiver of penalties in the notice’s interim guidance will offer a reprieve for large corporations subject to the corporate AMT that are experiencing difficulties with calculating the corporate AMT due to the lack of final regulations and the complexity of the proposed regulations.

The corporate AMT

The Inflation Reduction Act amended Sec. 55(a) to impose a corporate AMT based on the adjusted financial statement income (AFSI) of an applicable corporation for tax years beginning after Dec. 31, 2022.

Sec. 55(a) provides that, for the tax year of an applicable corporation, the corporation’s Sec. 55 corporate AMT amount equals the excess (if any) of (1) the tentative minimum tax for the tax year over (2) the sum of the regular tax (as defined in Sec. 55(c)) for the tax year plus the tax imposed under Sec. 59A. In the case of an applicable corporation, the tentative minimum tax for the tax year is the excess of 15% of AFSI for the tax year (as determined under Sec. 56A), over the Sec. 59(l) corporate AMT foreign tax credit. The tentative minimum tax for the tax year is zero for a corporation that is not an applicable corporation.

An “applicable corporation” means, for purposes of Secs. 55 through 59, with respect to any tax year, any corporation (other than an S corporation, a regulated investment company, or a real estate investment trust) that meets either of the two average AFSI tests in Sec. 59(k)(1)(B), the general AFSI test (Sec. 59(k)(1)(B)(i)) or the foreign–parented multinational group (FPMG) AFSI test (Sec. 59(k)(1)(B)(ii)), for one or more tax years that are prior to that tax year and end after Dec. 31, 2021.

Under the general AFSI test, a corporation that is not a member of an FMPG, as defined in Sec. 59(k)(2)(B), for any tax year meets the average annual AFSI test for a tax year if its average annual AFSI (determined without regard to the adjustment under Sec. 56A(d) for financial statement net operating losses (FSNOLs)) for the three–tax–year period ending with that tax year exceeds $1 billion.

Under the FPMG AFSI test, a corporation that is a member of an FPMG for any tax year meets the average annual AFSI test if the corporation meets the general AFSI test for the tax year (determined after applying the FPMG rule in Sec. 59(k)(2)) and the average annual AFSI of the corporation (determined without regard to the FPMG rule in Sec. 59(k)(2) and without regard to the adjustment under Sec. 56(d) for FSNOLs) for the three–tax–year period ending with that tax year is $100 million or more.

Simplified method for determining applicable corporate status

Sec. 59(k)(3)(A) authorizes the IRS to issue regulations or other guidance providing a simplified method for determining whether a corporation is an applicable corporation subject to the corporate AMT. Under that authority, in September 2024, the IRS provided, in Prop. Regs. Sec. 1.59–2(g), a simplified method for determining applicable corporation status, generally consistent with the simplified method provided in earlier interim guidance in Notice 2023–7. Under the simplified method, the thresholds used for the average annual AFSI tests were reduced from $1 billion to $500 million and from $100 million to $50 million, respectively.

Interim simplified method to determine applicable corporate status

In Notice 2025–27, to reduce compliance burdens and costs for certain corporations, the IRS provided an interim simplified method to determine applicable corporation status using thresholds of $800 million and $80 million for the average annual AFSI tests. Under the interim simplified method, AFSI is calculated by using the AFSI adjustments described in Prop. Regs. Sec. 1.56A–12 as well as other AFSI adjustments.

Notably, Notice 2025–27 allows modifications that were not allowed under prior guidance. These include adjustments under Sec. 56A(c)(9) for treatment of certain credits as payments against the corporation’s federal income tax and Sec. 56A(c)(12) for unrelated business taxable income of tax–exempt entities. These adjustments will likely help to exclude many corporations from being classified as an applicable corporation.

If a corporation is not an applicable corporation under the simplified method, it is not required to file Form 4626, Alternative Minimum Tax — Corporations. The interim simplified method threshold changes were made due to comments submitted on the proposed regulations recommending an increase in the thresholds, as many corporations’ AFSI exceeded the thresholds, but they were in fact not applicable corporations. It is important to note that if a corporation applies the interim simplified method for a tax year and determines that its AFSI exceeds the relevant thresholds of the method, the corporation will be an applicable corporation for that tax year only if it is determined to be an applicable corporation under Sec. 59(k)(1)or, if the corporation follows the corporate AMT proposed regulations, Prop. Regs. Sec. 1.59–2(c). Making this determination is a complex task and a heavy compliance burden.

A corporation may use the interim simplified method provided in Notice 2025–27 for determining applicable corporation status for any tax year ending on or before the date that a Treasury decision adopting a simplified method pursuant to Sec. 59(k)(3)(A) is published in the Federal Register and for which the original federal income tax return has not been filed as of June 23, 2025 (the date Notice 2025–27 was published in the Internal Revenue Bulletin). A corporation’s use of the interim simplified method to determine that it is not an applicable corporation for a tax year will not cause the corporation to become subject to, or to violate, the reliance rules for that tax year, including the consistency requirements, provided in the preamble of the corporate AMT proposed regulations.

Underpayment of estimated tax penalty relief

Notice 2025–27 also provides a waiver of the Sec. 6655 underpayment penalty with respect to a corporation’s Sec. 55 corporate AMT liability for tax years beginning after Dec. 31, 2024, and before Jan. 1, 2026 (covered corporate AMT year).

Accordingly, for a covered corporate AMT year, a corporation’s required installments of estimated tax do not need to include amounts attributable to its Sec. 55 corporate AMT liability to prevent the imposition of the Sec. 6655 penalty. The IRS stated in the notice that it is offering this waiver “in light of the continued uncertainty with respect to tax positions determined by applicable corporations following the publication of the [corporate AMT] Proposed Regulations, and in the interest of sound tax administration.”

This is a temporary waiver and is not expected to be extended. The penalty relief applies only to the corporation’s corporate AMT underpayment and does not include regular income tax shortfalls. This grace period will allow corporations to become more familiar with the technically challenging corporate AMT and perfect their calculations for an additional year, potentially avoiding significant underpayment penalties.

Corporations seeking the penalty relief provided (affected taxpayers) must file Form 2220, Underpayment of Estimated Tax by Corporations, to claim it, even if they do not owe an estimated penalty. The Form 2220 must be completed without including the corporate AMT liability from Schedule J of Form 1120, U.S. Corporation Income Tax Return (or other appropriate line of the corporation’s income tax return in the Form 1120 series). Affected taxpayers must also include an estimated tax penalty amount on line 34 of their Form 1120 (or other appropriate line of the corporation’s income tax return in the Form 1120 series), even if that amount is zero. Affected taxpayers that fail to follow these instructions could receive a penalty notice that will require an abatement request to apply the penalty waiver.

There is a caveat to this penalty relief: The failure–to–file and failure–to–pay penalties under Sec. 6651 remain unchanged. Therefore, if a corporation fails to pay its Sec. 55 corporate AMT liability by the due date (without regard to any extension), the IRS could impose failure–to–pay penalties on the corporation.

Additional interim guidance

Notice 2025–27 also provides a preview of additional forthcoming interim guidance expected from the IRS and Treasury in response to other comments submitted in response to the corporate AMT proposed regulations. Topics the additional interim guidance will cover include:

• The interaction of the corporate AMT and the tonnage tax regime enacted by the American Jobs Creation Act of 2004, P.L. 108-357;
• How unrealized gains and losses on certain investment assets reported for financial statement purposes will be treated for purposes of determining AFSI;
• Alternative rules for determining a partner’s distributive share of AFSI;
• Adjustments to AFSI for certain transactions between a partnership and a partner;
• Adjustments to AFSI for certain corporate transactions; and
• Alternative rules for early reliance on the corporate AMT proposed regulations.

Overall, Notice 2025–27 reduces some of the difficulties that large corporations are facing with the corporate AMT. The waiver of the estimated tax penalty on a corporation’s Sec. 55 corporate AMT liability provides some breathing room through the 2025 tax year for those corporations that may be subject to the corporate AMT to become more familiar with the calculations necessary for determining AFSI. The new interim simplified method will reduce the compliance burdens for corporations that exceed the thresholds in the prior simplified method but are not applicable corporations.

Editor

Michael J. Mondelli, J.D., is a director in the Tax Advisory Group, with SingerLewak LLP in Irvine, Calif.

For additional information about these items, contact Mondelli at mmondelli@singerlewak.com.

Contributors are members of or associated with SingerLewak LLP.