Corporate AMT and ASC 740: ETR Impact in 2026

Corporate AMT and ASC 740: How CAMT Affects Your Effective Tax Rate in 2026

If your company clears $1 billion in average annual adjusted financial statement income (AFSI), the Corporate Alternative Minimum Tax is no longer a planning footnote. It is a live accounting problem that touches your deferred tax asset, your valuation allowance assessment, your ETR reconciliation, and now, for the first time in 2026, your ASU 2023-09 rate reconciliation disclosures. This walkthrough covers every step a tax director or CFO needs to take, in order, with the pitfalls flagged where they actually occur.

Key takeaway: Under the FASB staff Q&A issued October 2022, CAMT is an alternative minimum tax for ASC 740 purposes. That single conclusion drives every accounting decision that follows.

What Is CAMT and Who Owes It in 2026?

The Corporate Alternative Minimum Tax imposes a 15% minimum tax on AFSI for any corporation whose average annual AFSI exceeds $1 billion over the prior three tax years. It was enacted by the Inflation Reduction Act of 2022 and applies to tax years beginning after December 31, 2022. Calendar-year companies have now completed two full CAMT cycles (2023 and 2024) and are mid-way through a third (2025, filed in 2026).

CAMT liability equals the excess of 15% of AFSI over the company's regular tax liability. AFSI starts with GAAP consolidated net income and then applies a series of adjustments under IRC §56A, including:

• Depreciation: AFSI uses ADS depreciation; regular tax uses MACRS (often accelerated)
• Partnership interests: include the partner's distributive share of partnership AFSI
• CFC adjustments: a complex inclusion mechanism for controlled foreign corporations
• Certain financial instrument adjustments

The proposed CAMT regulations (REG-112129-23), issued September 2023 and running over 150 pages, cover these adjustments in detail. As of October 2026, final regulations have not been issued. That matters for your uncertain tax position analysis, which we cover below.

Which Industries Are Most Exposed?

CAMT exposure is driven by the gap between book income (AFSI) and regular taxable income. The wider that gap, the higher the CAMT risk.

A note on technology and pharma: mandatory R&D capitalization under IRC §174 (effective 2022) requires capitalizing and amortizing R&D for regular tax, which increases regular taxable income over time. Because AFSI reflects the book treatment of immediate expensing, companies with large R&D spend may actually have AFSI lower than regular taxable income, reducing CAMT exposure. The opposite dynamic applies in capital-intensive sectors where bonus depreciation drives taxable income well below book income.

Bonus depreciation is also phasing out under the TCJA schedule: 100% in 2022, 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026, before expiring entirely after 2026 absent legislative action. As the deduction shrinks, the book-tax gap narrows for capital-intensive companies, potentially reducing CAMT liability in 2025-2026. Whether Congress restores 100% bonus depreciation remains a live legislative question, and any change enacted during 2026 would require remeasurement of CAMT credit deferred tax assets in the quarter of enactment under ASC 740-270-30.

Step 1: Determine Whether CAMT Is an AMT or a Separate Tax System

CAMT is an alternative minimum tax under ASC 740, not a separate parallel tax system. The FASB staff Q&A published in October 2022 settled this question. The practical consequence is significant: companies apply the incremental approach under ASC 740-10-30-12 through 30-20, not a full deferred tax calculation on all AFSI-vs.-regular-tax differences.

What the incremental approach means in practice:

• Compute deferred taxes under the regular tax system as normal
• Do NOT record separate deferred taxes for temporary differences between AFSI and regular taxable income
• Record a deferred tax asset only for the CAMT credit carryforward itself

As BDO flagged in its 2023 CAMT accounting guide, a common early error was treating CAMT as a separate tax system and attempting to record deferred taxes for all AFSI-vs.-regular-tax differences. That approach is wrong. Companies that applied it in 2023 needed to correct their accounting. If your team is still uncertain about the original accounting policy applied, this is the first thing to verify before the 2026 annual close.

Step 2: Record the CAMT Liability and the CAMT Credit DTA

When CAMT exceeds regular tax for the year, the accounting entries are straightforward in concept:

1. Record current tax expense for the CAMT liability (the 15% of AFSI in excess of regular tax)
2. Record a deferred tax asset for the CAMT credit carryforward, equal to the CAMT paid that has not yet been credited against regular tax

The CAMT credit carryforward under IRC §53 (as modified by the IRA) is indefinite. It does not expire. That is relevant to the valuation allowance assessment: unlike NOL carryforwards with expiration windows, the CAMT credit can be carried forward without limit, which generally supports realizability.

The CAMT credit DTA is a noncurrent asset (under ASU 2015-17, all deferred taxes are classified as noncurrent) and should be presented separately from regular deferred tax assets if material.

Worked Example: CAMT Liability and DTA Recording

Assume Company X, a calendar-year energy company:

• AFSI: $1.5 billion
• Regular taxable income: $800 million
• Regular tax at 21%: $168 million
• Tentative CAMT (15% x $1.5B): $225 million
• CAMT owed (excess of tentative CAMT over regular tax): $57 million

Journal entries:

If no valuation allowance is required, the current expense and the DTA benefit offset each other on the income statement. Net income statement impact: zero beyond timing. If a valuation allowance is required, the DTA benefit is partially or fully reversed, and the CAMT liability flows through as a permanent ETR increase.

Step 3: Assess the Valuation Allowance for the CAMT Credit DTA

This is where most of the judgment, and most of the ETR impact, lives.

Under ASC 740-10-30-5, a valuation allowance is required if it is more likely than not (greater than 50% probability) that some or all of the CAMT credit DTA will not be realized. Realization depends on whether the company will generate sufficient regular tax liability in future years to absorb the credit.

PwC's Income Taxes guide (Chapter 15, 2024 update) notes that the assessment requires projecting future regular tax liability, which itself depends on future profitability, future book-tax differences, and available tax planning strategies.

Key factors that support realizability (no valuation allowance):

• Large existing deferred tax liabilities (e.g., from accelerated depreciation) that will reverse and generate regular tax
• Consistent history of regular taxable income
• Indefinite carryforward period for the CAMT credit
• Tax planning strategies available to accelerate regular tax

Key factors that support a valuation allowance:

• Cumulative CAMT credit balance growing faster than regular tax liability
• History of regular tax losses or minimal regular tax
• Uncertainty about future profitability
• Large NOL carryforwards that will shelter future regular taxable income

As KPMG's CAMT accounting analysis (2023) notes, capital-intensive companies with large accelerated depreciation deductions face a compounding problem: the same book-tax difference that creates CAMT liability (book income higher than taxable income) also means the company has large deferred tax liabilities that will eventually reverse and generate regular tax. That reversal supports realizability of the CAMT credit DTA. The valuation allowance question is therefore most acute for companies with both CAMT exposure and limited future regular tax liability, such as those with large NOL carryforwards.

Three Valuation Allowance Scenarios and Their ETR Impact

Extending the Company X example: if the $57M CAMT credit DTA requires a full valuation allowance, the income statement reflects $57M of additional tax expense. At $1.5B AFSI and, say, $1.2B pretax book income, that is a 4.75 percentage point ETR increase before any other adjustments.

Step 4: Present CAMT in the ETR Reconciliation

CAMT typically appears as a separate line item in the ASC 740-10-50-12 rate reconciliation, particularly when the valuation allowance creates a material reconciling item.

The presentation depends on the valuation allowance conclusion:

• No valuation allowance: CAMT may net to zero and require minimal separate disclosure, though the gross current expense and DTA benefit should still be visible in the deferred tax rollforward
• Partial or full valuation allowance: the net CAMT impact (CAMT expense minus DTA benefit, plus valuation allowance) is a reconciling item between the statutory rate and the effective rate

For 2026 annual reports, this presentation is no longer optional for large accelerated filers. ASU 2023-09 (effective for annual periods beginning after December 15, 2024, meaning calendar year 2025 reports filed in early 2026) requires a disaggregated rate reconciliation with a separate line item for any reconciling item that equals or exceeds 5% of pretax income multiplied by the statutory rate. For many companies subject to CAMT, the impact will cross that threshold.

As EY's Tax Accounting and Risk Advisory Services group observed in its 2024 CAMT commentary, ASU 2023-09 will make CAMT far more visible to investors and analysts. Companies that buried CAMT in an "other" bucket in prior years will need to break it out explicitly.

For a broader look at how ASU 2023-09 restructures the entire tax provision disclosure, see Finrep's AI Tax Provision ASC 740 Reporting: A 2026 Practitioner Walkthrough.

Step 5: Handle CAMT in Interim Period Tax Calculations

Interim period CAMT accounting under ASC 740-270 is one of the least-discussed but most practically challenging aspects of CAMT.

The general rule: include CAMT in the estimated annual effective tax rate (AETR) if CAMT is expected for the full year. The CAMT component of the AETR should reflect the expected net impact, including the valuation allowance assessment.

Where this gets complicated:

• CAMT liability may not be evenly distributed across quarters. If CAMT exposure depends on year-to-date AFSI versus regular tax, the liability can shift significantly between Q1 and Q4 as the full-year picture clarifies.
• Valuation allowance changes are discrete items. If new information in Q3 changes the valuation allowance conclusion on the CAMT credit DTA, that change is recognized as a discrete item in Q3, not spread across the year.
• Uncertain positions on AFSI adjustments may be discrete items if they relate to specific transactions rather than ongoing operations.

Big-4 firms have consistently flagged this as an area requiring significant judgment. The practical recommendation: build a quarterly CAMT model that projects full-year AFSI and regular tax at each interim period, and document the assumptions driving the AETR component. If the CAMT position is genuinely uncertain, consider whether the discrete item approach is more appropriate than inclusion in the AETR.

Step 6: Assess Uncertain Tax Positions Under ASC 740-10-25

Because final CAMT regulations have not been issued as of October 2026, many AFSI positions rest on proposed regulations or IRS notices rather than final authority. That creates uncertain tax position (UTP) questions.

Grant Thornton's 2023 CAMT accounting guide identifies three compounding sources of UTP risk:

1. AFSI adjustments based on proposed (not final) regulations
2. No comprehensive IRS audit guidance on CAMT yet
3. Interactions with §174, bonus depreciation, and Pillar Two creating layered uncertainty

The recognition threshold under ASC 740-10-25 is "more likely than not" that the position will be sustained on its technical merits. For positions taken under proposed regulations, the analysis should consider whether the proposed rules are consistent with the statutory text and whether there is meaningful risk of change in the final regulations.

Document your AFSI calculation methodology carefully. If any adjustment is based on a position that could reasonably be challenged, quantify the exposure and assess whether a reserve is required. For guidance on the broader UTP framework in the current legislative environment, see Finrep's OBBBA 2026: How to Account for Uncertain Tax Positions.

Step 7: Coordinate CAMT with Pillar Two Accounting

For large multinationals subject to both CAMT and the OECD Pillar Two global minimum tax, the interaction between the two regimes is one of the most complex open questions in corporate tax accounting.

Both CAMT and Pillar Two impose a 15% minimum tax, but they use different bases (AFSI vs. GloBE income) and apply to different entity scopes. The OECD has analyzed whether CAMT qualifies as a Qualified Domestic Minimum Top-up Tax (QDMTT). A QDMTT designation would allow CAMT to reduce Pillar Two top-up tax exposure for U.S. entities. As of late 2026, the OECD has not formally designated CAMT as a QDMTT, leaving this question open.

As Deloitte's Heads Up newsletter on CAMT (2023) notes, companies subject to both regimes must carefully coordinate their accounting to avoid double-counting and to properly reflect the ordering of credits and top-up taxes. FASB addressed Pillar Two separately through ASU 2023-09 and related guidance, and the two frameworks must be applied in coordination.

For the full Pillar Two ASC 740 accounting framework, see Finrep's OECD Pillar Two: What CFOs Must Do for ASC 740 in 2026.

Step 8: Prepare SEC Disclosures

The SEC staff has issued comment letters to registrants asking specifically about CAMT, requesting:

1. Whether the company is subject to CAMT and, if so, the amount of CAMT liability
2. The accounting policy for CAMT credit carryforwards
3. The valuation allowance assessment methodology for CAMT credit DTAs
4. How CAMT is presented in the ETR reconciliation

Those comment letters, available through EDGAR full-text search, signal that the SEC views CAMT as a material disclosure item for affected companies. The volume and specificity of CAMT disclosures in 10-K filings increased from 2023 to 2024, and the ASU 2023-09 requirements will push that further in 2026.

A complete CAMT disclosure package for the 2025 annual report (filed in 2026) should include:

• Accounting policy note: confirm CAMT is treated as an AMT under ASC 740; describe the incremental approach and the CAMT credit DTA policy
• Deferred tax table: CAMT credit DTA shown as a separate line item, gross and net of valuation allowance
• Rate reconciliation: CAMT as a separate line if it meets the 5% ASU 2023-09 threshold
• MD&A: if CAMT is material, discuss the drivers, the valuation allowance conclusion, and the legislative risk (potential modification of CAMT in ongoing tax legislation)
• Uncertain tax positions: if AFSI positions are uncertain, disclose the nature and amount of unrecognized tax benefits

What Remains Open in 2026

Five issues remain unresolved and require active monitoring:

1. Final CAMT regulations: IRS has not finalized REG-112129-23 as of October 2026. Positions taken under proposed rules carry UTP risk.
2. QDMTT status: OECD has not formally designated CAMT as a QDMTT, leaving Pillar Two coordination uncertain.
3. Legislative risk: Proposals to modify CAMT (raise the threshold, change the rate, adjust AFSI) remain active in Congress. Any enacted change requires immediate remeasurement of CAMT credit DTAs.
4. Bonus depreciation restoration: If Congress restores 100% bonus depreciation, CAMT exposure for capital-intensive companies increases sharply and immediately.
5. IRS audit activity: The IRS has not yet issued comprehensive CAMT audit guidance, so the audit risk profile of AFSI positions is still developing.

The Joint Committee on Taxation estimated CAMT would raise approximately $222 billion over 10 years at enactment. That scale means the IRS has strong incentive to finalize regulations and begin enforcement. Companies that have not yet stress-tested their AFSI calculations against the proposed regulations are taking on avoidable risk.

FAQ

What is the CAMT tax rate in 2026? CAMT imposes a 15% tax on adjusted financial statement income (AFSI) for applicable corporations. The rate has not changed since enactment under the Inflation Reduction Act of 2022.

What is the CAMT threshold for 2026? A corporation is an "applicable corporation" subject to CAMT if its average annual AFSI exceeds $1 billion over the prior three tax years. This is tested annually, so CAMT status can change year-to-year.

Is CAMT still in effect in 2026? Yes. CAMT has been in effect since tax years beginning after December 31, 2022. No legislation has repealed or suspended it as of October 2026, though modifications remain under Congressional discussion.

How does CAMT affect the effective tax rate under ASC 740? If the CAMT credit DTA is fully realizable, CAMT has no net ETR impact beyond timing. If a valuation allowance is required against the CAMT credit DTA, the CAMT liability flows through the income statement as additional tax expense, increasing the reported ETR. Partial valuation allowances create partial ETR increases.

When does CAMT create a permanent vs. temporary difference? CAMT itself is not a permanent difference. The CAMT credit carryforward is a deferred tax asset that reverses when the credit is used against future regular tax. However, if a valuation allowance is recorded against the DTA and later released, the timing of those events creates ETR volatility that can look like a permanent item in any given year.

What is the CAMT credit carryforward period? The CAMT credit carryforward is indefinite. It does not expire under IRC §53 as modified by the IRA. This supports realizability in the valuation allowance assessment, though it does not eliminate the need for the assessment.

How does CAMT interact with IRA energy credits? IRA energy credits (such as the §45 production tax credit and §48 investment tax credit) can offset CAMT liability dollar-for-dollar, but only to the extent of CAMT owed. This creates complex credit ordering and planning issues for energy companies, which are also among the most CAMT-exposed due to accelerated depreciation.