Entity Setup
Entity Setup & CAMT: What Corporations Should Know About New Requirements Under Tax Law
The Corporate Alternative Minimum Tax (CAMT) brings new obligations for large entities—especially around Adjusted Financial Statement Income (AFSI), accounting methods and transactions involving intangible property. Here's how corporations should prepare.
By NomadicTax Research Team • 5-8 min read • March 28, 2026
## Understanding CAMT and Recent Guidance
The **Corporate Alternative Minimum Tax (CAMT)**, introduced via the Inflation Reduction Act of 2022, applies to corporations beginning after **2022**. Recent interim guidance has clarified how **AFSI adjustments**, treatment of intangible property transactions under Section 367(d), and anti-abuse rules will operate. ([irs.gov](https://www.irs.gov/irb/2026-11_IRB?utm_source=openai))
Notice 2026-7, issued in **Internal Revenue Bulletin 2026-11**, addresses several areas: what adjustments apply to AFSI; rules for financially troubled companies; and how corporate structure changes (especially involving intangible property under §367(d)) are handled. ([irs.gov](https://www.irs.gov/irb/2026-11_IRB?utm_source=openai))
## Entity Setup & Accounting Choices That Matter
1. **AFSI Accounting Alignment** – Corporations subject to CAMT must align certain income and expense items in AFSI (financial statement income) with tax treatment. Be sure your accounting practices (for wages, cost of goods sales, depreciation, etc.) work with CAMT rules. Notice 2026-7 gives guidance around this. ([irs.gov](https://www.irs.gov/irb/2026-11_IRB?utm_source=openai))
2. **Transactions Involving Intangible Property (§367(d))** – If your entity transfers intangible property to a foreign person or sets up related structures, the new guidance restricts abuse and ensures proper treatment of royalty-equivalent amounts. These rules affect cross-border planning and must be considered in your entity structure. ([irs.gov](https://www.irs.gov/irb/2026-11_IRB?utm_source=openai))
3. **CAMT Implications for Structuring Costs** – The law has created rules for special cost capitalization and depreciation (for example, under §168(n)). The IRS has issued **Notice 2026-16** updating definition of “qualified production property” and how depreciation recapture applies. Corporations making large capital investments must understand eligibility. ([irs.gov](https://www.irs.gov/irb/2026-11_IRB?utm_source=openai))
## Practical Setup Tips
- Review your financial statements and identify items included in AFSI that may be **non-deductible** or adjusted differently under CAMT (stock compensation, over-large executive pay, etc.).
- For foreign-intellectual property or licensing arrangements, determine whether intangible assets are treated under §367(d), and whether you need to adjust your licensing or profit-allocation model.
- Ensure your depreciation system (including MACRS, bonus depreciation) matches what the corporation claims under tax and financial reporting to avoid recapture or penalties. If you elect special treatment (like under §168(n)), document basis and use.
- Maintain robust documentation for cost of goods sold, especially if you claim “qualified production costs” — errors here attract scrutiny under CAMT rules.
## Entity Considerations: Formation & Restructuring
- When setting up a new entity, especially multinational or with significant intangible property, consider where profits will be booked, how transfers will be taxed, and whether foreign jurisdictions will treat royalties differently.
- If you structure external sales or licensing via foreign‐owned entities, ensure that corporate governance and transfer pricing reflect obligations under CAMT and Section 367(d). Consult tax treaty provisions, where applicable.
## Example Scenario
> _TechCo Inc._ develops patented software and licenses it internationally through subsidiary entities. Under §367(d), royalty equivalent payments to the U.S. parent must be calculated properly. Under CAMT, royalties derived from these transactions may cause adjustments to AFSI and expose non-compliance if structuring is overly aggressive without documentation.
> TechCo must ensure that costs capitalized versus expensed line up across financial statements and tax returns, especially if electing special depreciation treatment under §168(n) for qualified production property. Misalignments could generate large CAMT liability or recapture.
## Bottom Line
CAMT imposes stricter alignment of financial and tax accounting, especially for large corporations. For those involved in international IP, licensing, or capital investments, the new guidance—particularly Notices 2026-7 and 2026-16—demands careful planning, solid documentation, and proactive structure‐review. Don’t wait until filing season to discover errors.