Alternative Minimum Tax (AMT)

A component of the Inflation Reduction Act passed in August created a new corporate alternative minimum tax (AMT). Before 2018, AMT was imposed on taxable income as adjusted. Beginning in tax year 2023, the new AMT will be imposed on adjusted financial statement income.

The new AMT applies only to corporations whose average annual adjusted financial statement income for the 3 prior tax years exceeds $1 billion. Adjusted financial statement income is the amount of net income or loss the corporation reports on its applicable financial statement, which may be GAAP, IFRS, or regulatory reporting.

The new AMT applies if 15% of the corporation’s adjusted financial statement income (minus any AMT foreign tax credits) exceed its regular tax. Of course, it is more complicated – rules for foreign groups, aggregation rules, and adjustments to financial statement income to name a few – but for SB clients, because of the $1 billion average annual net income requirement, this new AMT is not an area that will impact financial reporting.

Rules regarding which corporations satisfy the income test and are subject to the tax and the rules regarding the various adjustments to financial statement income are complex and we expect that IRS will be issuing guidance regarding many outstanding issues.

Group Capital Calculation

The NAIC adopted the Group Capital Calculation (GCC) template, instructions, and proposed revisions to the Insurance Holding Company System Act and Regulation to implement the filing of the GCC with the lead state commissioner. This milestone completes a project begun in 2015. The GCC will leverage NAIC RBC requirements at the legal entity level, as well as existing requirements from banks and other jurisdictions. The purpose of the GCC is to help regulators evaluate solvency at the group level, since current insurance capital requirements are focused exclusively at the insurance entity level. State legislatures and insurance departments can now begin to adopt the Holding Company System Act revisions. The goal of the NAIC is to have the GCC fully in place by year end 2022. The Holding Company Amendments are currently before the NAIC’s accreditation committee, with an exposure period that ends December 31, 2022, and an accreditation deadline that would result in an effective date of January 1, 2026. However, regulators encouraged states to adopt the GCC portions by November 7, 2022. See the September 2022 Insurance Insights for more details.

Giving Thanks!

We are thankful for many things this year – playing volleyball together, having a great send off for partner Russ, a great time throwing axes at our year end primetime party! We are also thankful we were able to gather for our fundraising work for Little John’s, a non-profit with a mission to be the community’s kitchen for transforming food excess into accessible, chef-quality meals for everyone, regardless of their means. We raised funds with a car wash and cookout, and were also able to have a work day on one of the farms supplying Little John’s. Finally, we are thankful for you, our clients and business contacts. With warm thoughts of Thanksgiving for our valued relationships. We wish you all the best at this special time of the year!