Interpreting CAMT's International Provisions In The Absence Of Regulations

• Published date: 08 August 2023
• Subject Matter: Tax, Income Tax, Corporate Tax
• Law Firm: Mayer Brown
• Author: Mr Gary Wilcox

I. Introduction

The corporate alternative minimum tax ("CAMT") enacted in the Inflation Reduction Act ("IRA") is remarkable not only for what it says but for what it does not say. Normally, significant tax legislation would undergo significant hearings in the House and Senate tax-writing committees, followed by one or more reports explaining the committees' recommendations. Then the legislation would move to the Conference Committee, where a conference report would be written. Due partly to the reconciliation process in which CAMT was enacted, there is no committee report or conference report, that is, there is no official legislative history. Treasury and IRS will attempt to divine Congressional intent and eventually fill in many of the gaps with regulations, but will face significant challenges in developing fair and workable rules. For tax legislation as revolutionary as CAMT, that is truly remarkable.

Meanwhile, companies subject to CAMT ("applicable corporations") are scrambling to apply a complex new tax regime that is effective for tax years beginning after December 31, 2022. Following CAMT's enactment on August 16, 2022, practitioners and commentators quickly focused on a number of provisions that were ambiguous or could lead to unintended results.¹ Treasury and IRS issued interim guidance on December 27, 2022, in Notice 2023-7 (the "Notice"), addressing recognition and nonrecognition transactions, cancellation of debt income and bankruptcy, depreciation adjustments, and certain credits, among other things. This Notice, however, also included a long list of other issues'but by no means all the outstanding issues'in need of guidance.

In all likelihood, taxpayers will be forced to apply CAMT in the calendar year 2023 without the benefit of final regulations. Taxpayers are permitted to rely on the Notice until proposed regulations are issued. Conceivably, proposed regulations could be issued in 2023 and could permit taxpayers to rely on them until final regulations are issued. For any final regulations to be effective retroactively for the calendar year 2023, they must be issued within 18 months of August 16, 2022,² which is around February 16, 2024. It is also conceivable that final regulations, when issued, will permit taxpayers to elect to apply them retroactively. But the final regulations will likely be too late to be helpful for calendar year 2023 return positions (necessitating an amended return if the taxpayer's position is changed).

This article seeks to determine how some of CAMT's international "outbound" provisions should be interpreted based solely on the statutory language as well as any extrinsic evidence from other sources of Congress's possible intent, in the absence of any official legislative history. Statutory interpretation has always been a special province of the courts. Therefore, taxpayers seeking to interpret a provision or defend their interpretation should focus on how courts would apply statutory construction principles to resolve the interpretive issues.

II. Overview of Statutory Construction Principles

Because statutory construction involves a vast body of Supreme Court case law, the basic principles are generally uniform between federal circuits. Each circuit begins with the "plain language" of the statute, applies rules called the "canons of construction" to interpret the statute's text, and looks to extrinsic aids, such as legislative history and committee reports, to resolve...