The new corporate alternative minimum tax (CAMT) creates incentives for large companies to allocate more value to amortizing intangible assets and less value to assets like goodwill that do not amortize for book purposes. 


The threshold question in assessing the impact of CAMT is, does a company qualify as an “applicable corporation?” Generally, a company qualifies if it is a C corporation with an average annual "applicable financial statement income" (AFSI) exceeding $1 billion over the preceding three tax years. A company's AFSI is generally equal to its net income or loss for financial reporting purposes prepared under generally accepted accounting principles (GAAP) (subject to a variety of adjustments).1 Typically, a 10-K or other audited financial statement serves as the basis for the determination of AFSI. 

If a company is determined to be an applicable corporation, the CAMT is generally determined by multiplying the corporation's AFSI by 15%. This CAMT is then compared to the regular corporate tax for the tax year, with any surplus constituting an additional tax.

Implications for Acquisitions

Under GAAP accounting (FASB ASC 805) corporations allocate the purchase price in a business combination to the various tangible and intangible assets acquired. This process is largely the same whether the transaction is considered an asset or stock transaction for tax purposes. The process is similar to the tax allocation that occurs for asset purchases under Section 1060 and will generally result in the same allocation of the purchase price among tangible and intangible assets for book and tax. 

While goodwill is non-amortizable for book purposes, it follows a 15-year amortization period for tax purposes. Notwithstanding impairment of goodwill for book purposes, this results in a permanent difference between book and tax, and all else equal will result in CAMT equal to 15% of the difference. In many ways, this could bring us back to the pre-197 days when goodwill was not deductible for tax purposes. During this era, companies devoted considerable resources to reducing goodwill balances through the identification of amortizable assets. More broadly, even in stock transactions that do not give rise to favorable tax benefits through the amortization of intangible assets, it will generally be beneficial for CAMT purposes to allocate more value to amortizable assets like customer relationships, technology, and tradenames versus unamortizable assets like goodwill as doing so will reduce AFSI. 

These disparities may lead to intensified efforts to allocate purchase prices to "identifiable assets," which include intellectual property like customer relationships, technology, trademarks, etc., so that amortization may be taken for both book and tax purposes. Whether this benefit will offset companies' general preference for allocation to unamortizable assets which increase earnings per share is uncertain.


1. Section 56A establishes rules for further adjustments concerning specific income, deduction, and loss items on the applicable financial statement. AFSI is adjusted to reflect tax depreciation as opposed to book depreciation and reduced by a portion of financial statement net operating losses (NOLs) carried over to the current year (the NOL adjustment is not applicable to the three-year average AFSI calculation).

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