The Complexity of the CAMT Proposed Regulations and the Impact on Insurers

By Alec Alvino, Peter Sproul, Rob Finnegan, Surjya Mitra, Christine Watson, Mayowa Dauda, and Matthew Lodes

TAXING TIMES, March 2025

Overview

The Inflation Reduction Act, enacted on Aug. 16, 2022, established a U.S. corporate alternative minimum tax (CAMT) aimed at large corporations with substantial financial earnings that pay little or no federal income tax. The CAMT applies to tax years beginning after Dec. 31, 2022. It is designed to apply to U.S. corporations with average net adjusted financial statement income (AFSI) of over $1 billion and raise approximately $200 billion of revenue over 10 years by ensuring these corporations pay federal income taxes of at least 15% of their financial statement earnings each year. The CAMT requires various adjustments to financial statement earnings before applying the 15% tax rate, and the U.S. Treasury has significant authority in drafting the detailed rules and regulations.

The CAMT adopts the fundamental operational rules of the former corporate AMT, which was repealed as part of the Tax Cuts and Jobs Act of 2017. If the tentative minimum tax liability exceeds the regular tax liability, the taxpayer must pay the higher amount. The difference creates a minimum tax credit (MTC) that can be carried forward indefinitely to offset future regular tax liabilities. Consequently, any CAMT liability is expected to be temporary.

In general, an entity’s AFSI is its net income or loss reflected in the applicable financial statement (AFS) for the tax year, before the elimination of inter-company transactions and adjusted for certain prescribed items. The AFS, in many instances, will be the ultimate parent company’s consolidated financial statement, prepared in accordance with US GAAP or IFRS, and reported to the SEC or foreign equivalents.

To determine if a taxpayer qualifies as an “applicable corporation” subject to CAMT, it must aggregate the AFSI of related entities within the same controlled tax group to apply the $1 billion threshold test. This includes aggregating the AFSI for all members of a foreign-parented multinational group (FPMG).

The impact of the CAMT could be substantial for the life insurance industry. Domestic insurance companies adjust their statutory financial statement income to determine taxable income. For CAMT purposes, taxpayers must calculate a minimum tax based on their AFS income, which is often US GAAP or IFRS. Statutory accounting, as opposed to US GAAP or IFRS, typically requires higher reserves in the earlier years of policies and the expensing of acquisition costs, among other differences. Regular tax rules account for conservatism in statutory accounting through the discounting of life insurance reserves and the capitalization of policy acquisition expenses. However, regular taxable income may still differ significantly from AFS earnings in any given year. The differences in earnings patterns are generally temporary but can be considerable and may take several years to reverse.

As a result, there is a higher likelihood that life insurers will face a CAMT liability, particularly those with substantial new business or specific product types that may lead to lower taxable income in the initial years due to acquisition costs or statutory reserving requirements. Since the CAMT liability is often affected by changes in financial statement net income (FSI), it is important for the tax department to coordinate with finance and actuarial teams to comprehend changes in FSI that could result in additional tax liability. Additionally, although CAMT represents a timing difference—where taxpayers recognize a deferred tax asset (DTA) for the MTC carryforward—there may still be an adverse impact on the statutory income statement and surplus if the MTC DTA is reduced by a valuation allowance or the DTA is non-admitted under statutory accounting principles.

On Sept. 13, 2024, Treasury and the IRS published proposed regulations on the application of the CAMT,[1] replacing the interim guidance provided through a series of notices. The proposed regulations provide detailed rules and examples regarding AFSI adjustment computations, identification of applicable corporations subject to the CAMT, and a variety of other important topics that will impact insurance companies. Technical corrections to the proposed regulations were published on Dec. 26, 2024.[2]

The proposed regulations introduce various applicability dates that taxpayers must carefully review. They may need to consider early adoption of specific regulations, as the interim guidance will no longer be available for tax years ending after the publication of the proposed regulations (i.e., calendar years 2024 onwards).

Taxpayers can rely on the "specified" regulations for earlier tax years (such as 2023) if they follow all specified regulations for that year and each subsequent year until final regulations are issued. They may also rely on non-specified regulations (those generally not effective until after the regulations are finalized) for any tax year ending before the final regulations, provided these are consistently followed by the taxpayer and any other applicable corporations in the same controlled tax group (a section 52 group) and they follow all of the specified regulations. It is unclear whether taxpayers must rely on all specified regulations for tax years ending after Sept. 13, 2024, if the final regulations do not retain the tax years ending after the Sept. 13, 2024 applicability date.

It is worth noting that Prop. Reg. §1.56A-22 containing the insurance-specific reliefs is one of the non-specified regulations that are not effective until the proposed regulations are finalized. As such, to the extent taxpayers intend to rely on those adjustments for purposes of calculating AFSI, they must also consider first adopting all the specified regulations that are effective for earlier years.

Comments on the proposed regulations were required by Jan. 16, 2025 (extended from the original due date of Dec. 12, 2024).

AFS and AFSI

The CAMT introduces several new terms and concepts that integrate financial reporting and tax rules. Most notably, it includes rules for identifying the AFS and necessary adjustments to determine AFSI. Companies must calculate AFSI for two purposes: (1) to determine if they qualify as an applicable corporation through threshold testing, and (2) to calculate the current year tentative CAMT liability.

The tentative CAMT liability is calculated as 15% of AFSI. AFSI refers to the taxpayer’s FSI shown on its AFS, adjusted for taxes and other items specified within the CAMT rules. FSI specifically excludes other comprehensive income (OCI), and other gains or losses recorded directly to equity in the financial accounts, with certain exceptions. The general approach is to build up AFSI at the individual CAMT entity level before any consolidating eliminations and aggregate it with rules to prevent amounts being duplicated or omitted. Entities that file as members of the same tax return are viewed as a single entity for CAMT purposes, consistent with general tax principles. The CAMT liability is calculated at the tax return level, which means that any insurers filing separate tax returns, such as a life insurer in a five-year waiting period to join a life-nonlife consolidated tax return, may face a CAMT liability on their own.

The CAMT provisions provide a priority listing of the different financial statements for a taxpayer determining its AFS. The AFS priority (highest to lowest) described in the proposed regulations[3] is (1) audited US GAAP financials, (2) audited IFRS financials, (3) audited financial statements prepared in accordance with other generally accepted accounting standards, (4) other government and regulatory statements, (5) unaudited external statements, and (6) the tax return. To the extent a taxpayer’s AFS is restated prior to the filing of its federal tax return, the restated AFS would take priority over the original.[4]

In many instances, an insurance company’s AFS will be its parent’s consolidated US GAAP or IFRS financial statements. However, there may be cases where the parent company is an insurance company that does not issue consolidated US GAAP or IFRS financial statements, such that its AFS would be its statutory financial statements. Situations may also arise where entities in the same consolidated U.S. tax return need to use a combination of different financial statements because higher priority US GAAP or IFRS financial statements are issued only at the subsidiary level.

A full discussion of the adjustments needed to transition from FSI to AFSI is beyond the scope of this article. These adjustments are intended to align AFSI with broader tax principles, where necessary, and ensure that outcomes are consistent with legislative intent. For instance, unrealized gains and losses for equities held at fair value are excluded from AFSI. Accordingly, gains or losses on equities are typically not taxed until they are realized. Changes in accounting principle and prior year adjustments that restate beginning retained earnings must be included in AFSI to prevent duplications or omissions. Additionally, depreciation, including bonus depreciation, which is designed to stimulate business investment by allowing immediate tax expensing for eligible assets, is incorporated into AFSI to ensure alignment with regular tax rules.

Applicable Corporations

A corporation (other than an S corporation, regulated investment company, or real estate investment trust) is only subject to the CAMT if it is an applicable corporation. A corporation qualifies as an applicable corporation to the extent it meets the following criteria[5]:

• General AFSI test—average AFSI over the previous three tax years exceeds $1 billion.
• Member of a FPMG—average AFSI of the FPMG over the previous three tax years exceeds $1 billion and average AFSI of the member over the previous three tax years exceeds $100 million.

For purposes of threshold testing, the calculated AFSI excludes any financial statement net operating loss (FSNOL) carryovers and does not include adjustments related to the distributable share of a partnership’s AFSI, certain items of foreign income, effectively connected income, and defined benefit pension plans. Once a corporation meets the definition of an applicable corporation, it is always an applicable corporation unless it experiences a change in ownership, or it meets the termination test.[6] The termination test is satisfied for a tax year if the corporation does not meet the average annual AFSI test for five consecutive years ending with the tax year.

The CAMT rules helpfully outline a simplified method for applicable corporation status that provides relief from having to calculate full AFSI for the previous three tax years. The proposed regulations make this safe harbor permanent, beginning with 2024 tax years. A corporation falls within the safe harbor if it meets the following criteria[7]:

• General AFSI test—average pre-tax FSI over the previous three tax years is below $500 million.
• Member of a FPMG—average pre-tax worldwide FSI of the FPMG over the previous three tax years is below $500 million and average pre-tax FSI of the U.S. members (including a U.S. trade or business of a foreign entity) over the previous three tax years is below $50 million.

The safe harbor may be beneficial to taxpayers that are not close to applicable corporation status because they are relieved of the CAMT reporting requirements, including Form 4626, Alternative Minimum Tax – Corporations, which may require taxpayers to disclose an extensive amount of information. It is unclear if taxpayers must comply with all specified regulations to rely on the safe harbor, until final regulations are published. If so, the impact of doing so may not be substantial, but may add complexity to the extent a taxpayer is not able to meet the safe harbor approach in a subsequent tax year and the final regulations have not yet been published.

Insurance-Specific AFSI Adjustments

Although this article is primarily focused on other areas of the CAMT regulations, there is a section in the regulations for AFSI adjustments related to certain insurance companies that is summarized below.[8] The regulations are largely consistent with previously released guidance[9] on these topics, but there were some changes made.

AFSI adjustments for covered variable contracts

The proposed regulations address the treatment of certain insurance contracts, including covered variable contracts, in which the insurance company's obligations to the contract holders and corresponding reserves depend on the value of designated investment assets. The proposed regulations are designed to prevent mismatches in AFSI by ensuring that both the mark-to-market gains or losses on the assets and the corresponding changes in liabilities are considered, consistent with the insurance company’s FSI.

Under previous guidance, the approach was to exclude from AFSI the changes in obligations to contract holders to the extent that related gains or losses with respect to supporting assets were excluded from AFSI under the adjustments required by the CAMT rules for investments in equities and partnerships. The proposed regulations simplify this approach by “turning off” certain AFSI adjustments for these contracts so that the net FSI and AFSI amounts are effectively zero. This change is designed to streamline administration by eliminating the need for multiple adjustments to avoid a mismatch issue. The proposed regulations also broaden the application of these rules by defining covered variable contracts more generally.

AFSI adjustments for covered reinsurance agreements

The proposed regulations also address FSI mismatches for covered reinsurance agreements, which include funds withheld reinsurance and modified coinsurance agreements. In these agreements, the ceding company retains the investment assets supporting the reinsured obligations, creating a payable to the reinsurer. An FSI mismatch can arise where the funds withheld assets are accounted for at fair value through the income statement, but the offsetting amount is in OCI or the related insurance reserves are maintained on a different basis.

The proposed regulations are designed to prevent mismatches in AFSI by excluding from AFSI changes in the payable or receivable that correspond to unrealized gains or losses in the withheld assets. This is a common issue under US GAAP where the funds withheld assets give rise to an embedded derivative that is marked to market through the income statement (known as DIG B36 accounting).

Previous guidance addressed this mismatch by excluding from AFSI any changes in the funds withheld payable or receivable (i.e., the embedded derivative) that corresponded to unrealized gains or losses in withheld assets that are recorded within OCI. To solve the geography mismatch, the ceding company excludes changes in FSI corresponding to the unrealized gains or losses in OCI for the withheld assets.

Additionally, a reinsuring company excludes its changes in FSI for unrealized gains and losses in the withheld assets provided the exclusion is reduced to the extent the reinsuring company’s funds withheld receivable is offset in FSI because of the accounting for a retrocession of reinsured risk. The proposed regulations maintain this approach but add clarity and detail. Consistent with the interim guidance, the proposed regulations specify that if a covered insurance company elects to account for its reinsurance agreement at fair value for AFS purposes (i.e., electing the fair value option under US GAAP), or if it accounts for both the payable/receivable and the reinsurance agreement at fair value, then the general exclusion does not apply.

Other Relevant AFSI Adjustments for the Insurance Industry

AFSI adjustments for changes in accounting principle (LDTI and IFRS 17)

Consistent with previous guidance, the proposed regulations provide for an adjustment to AFSI to prevent the duplication or omission of certain items, especially those resulting from changes in accounting principle.[10]

In general, if a taxpayer implements a change in accounting principle within its AFS, the AFSI of the taxpayer is adjusted to include the amount of the change that was recorded through retained earnings. The amount associated with a change in accounting principle would be further adjusted if any portion of the amount relates to any FSI items where other AFSI adjustments would apply. The most significant change introduced within the proposed regulations, related to a change in accounting principle amount, is that any portion of the cumulative retained earnings adjustment attributable to tax years beginning on or before Dec. 31, 2019 (pre-2020) would be disregarded.[11] The “pre-2020” carveout was an area where Treasury received a significant number of comments.

ASU 2018-12, known as Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI), significantly altered US GAAP accounting measurements for specific long-duration insurance liabilities and deferred acquisition costs (DAC). The objective of LDTI was to improve, simplify, and enhance the accounting for long-duration insurance and investment contracts. It was one of the most significant changes in US GAAP reporting for life insurers in the past 40 years. Calendar year-end SEC filers were required to adopt LDTI by Jan. 1, 2023, including retrospectively revising 2021 and 2022 comparative periods, which means the cumulative retained earnings adjustment was calculated as of Jan. 1, 2021. Other entities were required to adopt the changes by Jan. 1, 2025.

IFRS 17, Insurance Contracts, replaced IFRS 4, Insurance Contracts, requiring affected companies to adopt the standard for annual reporting periods beginning on or after Jan. 1, 2023, including retrospectively revising the 2022 period. IFRS 17 established principles for the recognition, measurement, presentation, and disclosure of insurance contracts within its scope. Its objective was to ensure that an entity provides relevant information that faithfully represents those contracts.

As mentioned, both LDTI and IFRS 17 changed how profits and losses were recognized for life insurance companies. The adjustments to retained earnings were meant to eliminate previously recognized profits and losses, so that future profits and losses were not duplicated in future earnings. However, by excluding the “pre-2020” portion of the retained earnings adjustment, there could be profits and losses recognized for FSI purposes that are duplicative.

The overall financial impact of LDTI and IFRS 17 varied by company, but the overall cost and effort to implement those new standards was significant. There would need to be a similar effort to comply with the proposed regulations. Bifurcating the cumulative retained earnings adjustment between “pre-2020” and “post-2020” would mainly require assistance from finance and actuarial teams to remeasure assets and liabilities as of Dec. 31, 2019. This new set of books would be unaudited and would only be needed for the purposes of the AFSI calculation.

Technical corrections to the proposed regulations were published on Dec. 26, 2024, including clarification that the proposed regulations, with respect to changes in accounting principle, are applicable to changes in accounting principle that are implemented in tax years ending after Sept. 13, 2024. While the technical correction serves as short-term relief to taxpayers who implemented LDTI and IFRS in 2023, it does not fully solve all the underlying issues.

For insurance companies expected to implement LDTI or IFRS 17 after Sept. 13, 2024 (i.e., non-SEC filers adopting LDTI as of Jan. 1, 2025), excluding the impact of retained earnings adjustments from “pre-2020” tax years could be an even larger challenge because it would require recalculating assets and liabilities even further into the past. The information needed may not be readily available and would require significant effort by finance and actuarial teams to reconstruct.

Another potential challenge could arise if one taxpayer on an LDTI basis of accounting was to acquire another taxpayer on IFRS 17 during a tax year where the carveout of the “pre-2020” portion is in effect. It is not clear in this scenario whether the acquirer would not only need to calculate the LDTI balance sheet in order to integrate the acquiree into the consolidated financial statements, but also go back and calculate the balance sheet as of Dec. 31, 2019 to comply with the proposed regulations. Additionally, all future changes in accounting principle would ultimately be subject to this “pre-2020” carveout, and would be burdensome to taxpayers, especially given that Dec. 31, 2019 is further in the past.

After the amount associated with the change in accounting principle is determined, it is subject to different spread periods. For items deemed duplications, the amount associated with the change in accounting principle is included in AFSI ratably over four tax years, starting with the tax year in which the change in accounting principle is incorporated into the AFS.[12] However, if the taxpayer can demonstrate that the net duplication is reasonably anticipated to occur over a different period (not exceeding 15 tax years), then the amount may be included ratably over that period.[13]

For items identified as omissions, the amount associated with the change in accounting principle is included in AFSI ratably over four years for amounts that increase AFSI, or is included in full during the year of change for amounts that decrease AFSI.[14] These rules are designed to mirror the regular tax rules for changes in accounting method.

Given that LDTI and IFRS 17 did not affect statutory financial statements, there generally was no impact on regular taxes for U.S. insurance taxpayers. Therefore, the CAMT considerations could be significant for the life insurance industry. In cases where retained earnings increased, the AFSI adjustment might push a taxpayer above the AFSI threshold, making it an applicable corporation, while also increasing its CAMT liability. A decrease in retained earnings would have the opposite effect.

AFSI adjustments for hedging mismatches

The proposed regulations include an adjustment to AFSI with respect to an AFSI hedge.[15] The adjustment is intended to assist taxpayers by eliminating FSI mismatches for scenarios where the hedging transaction is required to be measured at fair value through FSI but the hedged item is not, or, in contrast, where the hedged item is required to be measured at fair value through FSI but the hedging transaction is not. This is also intended to address mismatches for hedges designed to manage foreign currency exposure for a foreign operation where the mark-to-market adjustment is included in regular taxable income, but the related financial amount is reflected in OCI.

An AFSI adjustment does not apply to hedging used by a covered insurance company to manage value fluctuations of assets or indices that determine its obligations to life insurance or annuity contract holders, or to another insurance company with respect to obligations to life insurance or annuity contract holders.[16] Furthermore, it does not apply where the hedging transaction or the hedged item is taxed on a mark-to-market basis for regular tax. As such, mismatches in FSI resulting from hedging transactions related to policyholder obligations (or other hedges taxed on a mark-to-market basis) would not be remediated by this proposed AFSI adjustment. This may not be helpful to life insurers that would otherwise benefit from such an adjustment to address FSI volatility and other mismatches due to derivatives that hedge indexed benefits and other policyholder obligations.

AFSI adjustments for distributive share of a partnership’s AFSI

The proposed regulations provide significant guidance on partnership-related CAMT issues.[17] This guidance, while not isolated to the insurance industry, is particularly impactful to insurance companies because they often have investments in hundreds, if not thousands, of partnerships. Below is a brief overview of the proposed rules and the operational challenges that insurance companies face.

Prior to the proposed regulations, it was not clear how a corporation should determine its distributive share of a partnership’s AFSI using its own AFS. The proposed regulations clarify that a partnership must calculate its own AFSI, and then the partners must pick up their distributive share, based on certain prescribed methodologies.

The regulations introduce a “bottom-up” rather than a “top-down" approach to determining a partner’s distributive share of a partnership’s AFSI, including the distributive share percentage which may not be the same as that used for regular tax purposes. In the case of tiered partnerships, the rules make it clear that the lowest partnership in the ownership chain must determine its AFSI before the partnership above it in the chain determines its own AFSI. Partners must track their CAMT basis in the partnership interest to determine AFSI amounts for sales or exchanges, and the partner must request the needed AFSI information from the partnership, otherwise the partnership is not required to provide it.

If a partnership's AFS is a tax return where no AFS exists (a potentially common situation in certain fund structures), then the partners’ share of AFSI generally equals the amount of their FSI.[18] This could result in a distortion between AFSI and regular taxable income to the extent the partnership income is marked to market for FSI purposes.

The proposed regulations may create additional challenges related to data compilation and tracking processes considering the extensive partnership investments among insurance taxpayers (that are generally minority investors with little ability to control information flow from those partnerships). Aggregating partnership information for regular tax purposes is already a substantial task, so the additional requirements under the proposed regulations would make this task even more challenging.

This section of the proposed regulations received a significant number of comments from various industries, highlighting the additional administrative burden and complexity that would be associated with related compliance efforts.

AFSI adjustments for dividends from life insurance companies filing separate return

Under the existing tax rules, there are limitations on newly acquired life insurance companies being able to join a consolidated return with non-life insurance companies. The life insurance company or life insurance group is required to wait five tax years before it can join the consolidated return. During the five-year waiting period, it must file its own separate tax return or consolidated life return.

This requirement can provide some unique challenges, from a CAMT perspective, for the life insurance company or group. If the ultimate parent meets the definition of an applicable corporation, the life insurance company would be required to calculate a stand-alone tentative CAMT liability for its separate return. As a result, there could be scenarios where the parent’s consolidated tax return does not have a CAMT liability, but the life insurance group does.

Dividends from a life insurance group, during the five-year waiting period, may be an issue if included in the group's FSI. The proposed regulations address AFSI, CAMT basis, and earnings impacts from transactions, including dividends between domestic corporate CAMT entities.[19] These rules state that recipients should disregard the FSI of such dividends in their AFS and apply general tax principles, which would include a dividends-received deduction to remove the life dividends from the AFSI of a non-life holding company. However, it should be noted that this is a non-specified regulation that would require consistently applying Prop. Reg. §1.56A-18, as well as §1.56A-19 and §1.56A-21 in their entirety, and all of the specified regulations.

AFSI adjustments for M&A activity

As part of accounting for business combinations under US GAAP or IFRS, the assets and liabilities of the acquired entity are recorded at fair value, and the difference between the amount paid and the fair value of the net assets acquired is considered goodwill. For general tax purposes, when the stock of a corporation is acquired, the acquiring corporation obtains basis in the stock equal to the amount paid, and the historical basis in the net assets carries over. In a taxable asset acquisition, the net assets of the target are stepped up to fair value for tax purposes, and the difference between the amount paid and the fair value of the net assets acquired may result in amortizable intangibles and possibly goodwill for tax purposes. There are elections available to treat stock acquisitions as asset acquisitions for tax purposes.            

The proposed regulations provide different rules, depending on the structure of an acquisition of another corporation.[20] For purposes of a taxable asset acquisition, the acquiring corporation will be able to consider the fair value AFS basis for purposes of determining AFSI and CAMT basis. For purposes of a stock acquisition, where a section 336(e), 338(g), or 338(h)(10) election is made, the CAMT basis is equal to the tax basis.[21] However, under a taxable stock acquisition, the impacts of the purchase or push-down accounting are disregarded for AFSI, CAMT basis, and CAMT earnings.

Reserves, investment assets, DAC, and value of business acquired are all impacted as part of purchase accounting for insurance companies. Under the proposed regulations, historical accounting will need to be maintained to appropriately calculate AFSI, CAMT basis, and CAMT earnings for “post-2019” transactions where the purchase and pushdown accounting adjustments are disregarded. In a scenario where the historical balances were never maintained post-acquisition, this could be especially burdensome and result in another set of books having to be maintained that are not used for any other purpose. Similar to changes in accounting principle, the additional effort needed to disregard the impact of purchase or pushdown accounting would not just impact a company’s tax department but would require the assistance from finance and actuarial teams to help provide restated balances.

It is unclear how the adjustments needed to disregard purchase or pushdown accounting would ultimately interact with changes in accounting principle. In the example mentioned above, the proposed regulations do not contemplate a fact pattern where a taxpayer on an LDTI basis of accounting acquires another taxpayer that is on an IFRS 17 basis of accounting, and whether the change in the balance sheet of the acquiree is considered a purchase accounting adjustment or should be bifurcated between the amount related to the change in accounting principle and the amount related to purchase accounting. This also would potentially require additional effort by finance and actuarial teams, due to the information needed by the tax department to comply with the proposed regulations.

To make matters more complex, the rules for adjusting for purchase and pushdown accounting for foreign and domestic transactions are addressed in different sections of the proposed regulations. Foreign corporation transactions are included within Prop. Reg. §1.56A-4, which is a specified regulation, while domestic transactions are included within Prop. Reg. §1.56A-18, which is a non-specified regulation. As result, while taxpayers may not need to rely on Prop. Reg. §1.56A-18, they still may need to consider disregarding purchase or pushdown accounting resulting from the acquisition of stock in a foreign corporation if they are adopting the proposed regulations.

For illustrative purposes, assume a taxpayer wants to adopt the specified regulations to rely on the safe harbor for purposes of the applicable corporation test during 2024. If during 2025 the taxpayer no longer meets the safe harbor, the taxpayer may need to comply with Prop. Reg. §1.56A-4 and disregard all purchase accounting adjustments related to the acquisition of the stock of foreign corporations for purposes of calculating current year AFSI and apply this regulation consistently throughout the section 52 group.

This is an area that received numerous comments in support of removing the provisions. To the extent the IRS or Treasury was to disagree, an alternative recommendation was provided to account for the net step-up or step-down in all the acquiree’s assets and liabilities over a period of up to 15 years, which would be analogous to other areas of the proposed regulations, including the section on changes in accounting principle.

Other consolidated return considerations

The CAMT rules created a new concept for FSNOLs arising in tax years ending after Dec. 31, 2019, like the regular tax rules, which provide that a taxpayer can carry forward tax NOLs indefinitely and offset up to 80% of taxable income in future tax years. Accordingly, taxpayers can carry forward the FSNOLs to offset up to 80% of AFSI in future years.[22]

While this concept aligns with regular tax principles, there is a unique distinction for insurance companies. Under general tax rules, a non-life insurance company may carry back NOLs two years or carry forward NOLs up to 20 years, without the taxable income limitation. This could give rise to a CAMT liability to the extent the NOL reduces regular tax but not the tentative minimum tax for a carryback year in which the CAMT applied.

Additionally, in the case of a consolidated tax group that includes both life insurance and non-life insurance companies, unique tax rules exist that limit the amount of non-life insurance losses that can offset life insurance income in any year. To the extent there are NOLs that were created before tax years ending Dec. 31, 2019 that are carried forward and reduce regular tax, a taxpayer could also find itself being subject to a CAMT liability. This is a general issue for all industries, but may be more common for the insurance industry, due to the consolidated return rules mentioned, which may cause a mismatch between when NOLs are used for regular tax and the CAMT. This was another area where the IRS and Treasury received a significant number of comments.

The proposed regulations also introduced a separate return limitation year (SRLY) limitation for FSNOLs and MTC carryforwards, similar to regular tax principles.[23] For regular tax purposes, to the extent NOLs (or other applicable tax attributes) are generated during tax years where a taxpayer filed a separate tax return, there is a limitation on the taxpayer’s ability to utilize the NOLs upon joining a related party’s consolidated return. The SRLY limitation would require taxpayers to track the AFSI and CAMT calculations on a separate entity (or subgroup) basis to determine whether the FSNOL and MTC could be utilized. Applying a different limitation to FSNOLs compared to regular NOLs may also result in mismatches and other potential issues.

As previously mentioned, a life insurance company must wait five years before being able to join the consolidated group. While the consolidated return rules for life-nonlife groups provide an exception to applying the SRLY rules to life NOLs generated during the five-year waiting period, they do not specifically mention whether the exception applies to all attributes, including MTCs, and the proposed regulations do not address whether the SRLY rules would apply to a life insurance company during the five-year waiting period. The IRS previously issued guidance suggesting that the SRLY rules would not apply to the old alternative minimum tax rules in this scenario,[24] that it is appropriate to apply a single set of SRLY rules to all attributes, and that applying different principles would result in unnecessary complexity.[25] It remains to be seen whether similar guidance will be issued with respect to the CAMT.

Transition Rules

Section XXXIII of the preamble of the proposed regulations outlines three different transition rules that could apply to a CAMT entity to the extent an AFSI adjustment or CAMT attribute was accounted for or reported in a manner inconsistent with the final regulations in prior tax years. The preamble mentions that different approaches may be applied based on the particular AFSI adjustment or CAMT attribute and would apply to the CAMT entity’s first tax year for which a particular final rule is applicable. The three approaches are as follows:

• Transition-year adjustment approach—a CAMT entity would be required to redetermine the cumulative amount of AFSI as of the beginning of the transition year, and redetermine any relevant CAMT attribute, as if the entity had applied the rules in the final regulations in its first tax year beginning after Dec. 31, 2019.
• Cut-off transition approach—the transition to the final regulations for certain AFSI adjustments and CAMT attributes would be implemented on a cut-off basis.
• Fresh-start transition approach—the transition to the final regulations for certain rules would be implemented using a fresh-start transition approach, with the relevant CAMT attribute redetermined as of the beginning of the transition year, as if the entity had applied the rules in the final regulations in its first tax year beginning after Dec. 31, 2019 (i.e., no transition year adjustment to AFSI as of the beginning of the transition year).

The preamble welcomed comments on these three approaches, as well as other approaches for handling changes in the treatment of an item to comply with the final regulations.

Especially where taxpayers have not been following the proposed regulations, the transition method used will be of critical importance when the regulations are finalized to determine how far back a taxpayer must go to establish its transition effects.

Statutory Accounting Considerations

In response to the CAMT, the NAIC issued INT 23-03 (the interpretation), focused on addressing the statutory accounting and reporting aspects of the CAMT, including the DTA related to the CAMT MTC.

In general, under SSAP 101, paragraph 11, gross DTAs are admitted in an amount equal to the sum of  

1. Federal income taxes paid in prior years that can be recovered through loss carrybacks 
2. The lesser of
1. The amount of adjusted gross DTAs, after the application of paragraph 11.a., expected to be realized within the applicable period (realization test).
2. An amount that is no greater than the applicable percentage of adjusted statutory capital and surplus.
3. The amount of adjusted gross DTAs, after application of paragraphs 11.a. and 11.b., that can be offset against existing gross deferred tax liabilities (DTLs) (DTL offset test).

The interpretation separates reporting entities into three categories:

1. Nonapplicable reporting entity—reporting entities that are not expected to be applicable corporations, either individually or as part of a tax-controlled group. Nonapplicable reporting entities are not required to calculate or recognize any CAMT liability and no further assessment of the CAMT is required.
2. Applicable reporting entities—reporting entities that reasonably expect to be applicable corporations for the tax year, either individually or as a member of a tax-controlled group. Applicable reporting entities are required to consider the CAMT in current and deferred tax computations.
3. Applicable reporting entities with tax allocation agreement exclusions—reporting entities that qualify as an applicable corporation as a member of a tax-controlled group and are a party to a tax allocation agreement that excludes the reporting entity from charges for any portion of the group’s CAMT liability and allocation of any portion of the group’s CAMT MTC carryforward. Reporting entities with tax allocation agreement exclusions are not required to calculate or recognize the CAMT in their current or deferred tax computations.

Reporting entities that meet the descriptions in 1 or 3, above, do not recognize any current or deferred tax impacts related to the CAMT. Reporting entities that meet the description in 2, above, applicable reporting entities, must consider the implications of the CAMT on both current and deferred tax balances.

Applicable reporting entities are required to take the CAMT rules into account in calculating current income tax expense and must accrue the tax reasonably expected to be paid, or the amount of the CAMT liability reasonably expected to be allocated, if a member of a tax-controlled group. A DTA is recognized for the MTC carryforward, which is available to reduce regular tax in future years. The MTC DTA needs to be assessed for a valuation allowance, like other gross DTAs. If the MTC DTA results from an allocation of the CAMT liability, the valuation allowance assessment relies on the conclusion of the tax-controlled group.

The MTC DTA is also subject to DTA admissibility. Because the MTC DTA is a tax attribute carryforward, it may only be admitted under the realization and DTL offset admissibility tests. A reporting entity that is not a member of a tax-controlled group must determine the portion of the MTC DTA that will reverse within the applicable realization period. This assessment must consider projections of AFSI and resulting tentative CAMT liabilities in comparison to projected regular tax liabilities within the applicable realization period.

If the reporting entity is part of a tax-controlled group, then the ability to utilize the CAMT credit within the applicable realization period is contingent on the results and actions of the consolidated tax return group. The interpretation permits the MTC DTA to be admitted if the tax projections of the tax-controlled group support realization within the applicable realization period. Projections during the applicable realization period should be conducted in a reasonable and consistent manner, and the reporting entity should retain internal documentation to support the projections.

Tax planning strategies may be considered for the purpose of admitting the MTC DTA. For life insurance companies that are not permitted to join the parent’s consolidated tax return within the five-year waiting period, the election to join in the filing of a life-nonlife consolidated tax return may present a tax planning strategy that supports realization of the reporting entity's MTC DTA within the applicable realization period.

Conclusion

As proposed, the CAMT is a parallel tax regime that introduces significant compliance requirements that extend beyond the set of taxpayers potentially subject to the tax. For life insurers, the risk of a CAMT liability may be elevated due to the long duration of insurance contracts and pronounced differences between the timing of earnings under regular tax rules and financial accounting rules. Accounting mismatches between assets and liabilities that cause volatility in earnings under financial accounting rules also increase the likelihood of an unexpected CAMT liability for life insurers. It is imperative that taxpayers model out their regular tax and CAMT liability to understand the potential impacts down the road. Even if a taxpayer is not an applicable corporation today, it may become one tomorrow.

The industry has benefitted from receiving certain critical guidance early on, including guidance on variable contracts and embedded derivatives related to funds withheld assets in reinsurance transactions. That said, there were numerous comments on the proposed regulations submitted as part of the comments process.

The impact of the regulations on life insurers also extends beyond the tax function to the finance, investment, and actuarial functions. These functions may need to help create and maintain additional financial accounts that may never be used for any purpose other than the CAMT. This could burden taxpayers already dealing with the OECD’s Pillar Two rules. The availability of simplified approaches and safe harbors will be critical to those affected. 

The CAMT also requires tracking of CAMT basis and earnings (like tracking regular tax basis and E&P), potentially back to 2020, which could stretch further the resources of tax functions that are already tracking tax attributes under regular tax rules. 

When deciding how to continue implementing the CAMT, taxpayers may want to strike a balance between waiting to see how the rules get finalized and committing resources to ensure compliance. This is where paying attention to the applicability dates of the different provisions will be particularly important. 

Statements of fact, opinions and the views expressed herein are solely those of the individual authors and are not necessarily those of the Society of Actuaries, the editors, or PwC. All errors and views are those of the authors and should not be ascribed to PwC or any other person.

© 2025 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only and should not be used as a substitute for consultation with professional advisors.

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Matthew Lodes is PwC’s US Insurance Tax Leader. He may be reached at matthew.j.lodes@pwc.com.

Peter Sproul is an insurance tax principal with PwC. He may be reached at peter.j.sproul@pwc.com.

Mayowa Dauda is an insurance tax principal with PwC. He may be reached at dauda.mayowa@pwc.com.

Christine Watson is an insurance tax partner with PwC. She may be reached at christine.watson@pwc.com.

Surjya Mitra is an insurance tax managing director with PwC. He may be reached at surjya.mitra@pwc.com.

Rob Finnegan is an insurance tax managing director with PwC. He may be reached at rob.finnegan@pwc.com.

Alec Alvino is an insurance tax senior manager with PwC. He may be reached at alec.m.alvino@pwc.com.

Endnotes

[1] 89 Fed. Reg. 75062

[2] 89 Fed. Reg. 104909

[3] Prop. Reg. §1.56A-2(c)

[4] Prop. Reg. §1.56A-2(e)

[5] Prop. Reg. §1.59-2(c)

[6] Prop. Reg. §1.59-2(h)(2)

[7] §1.59-2(g)

[8] Prop. Reg. §1.56A-22

[9] IRS Notice 2023-20

[10] Prop. Reg. §1.56A-17

[11] Prop Reg. §1.56A-17(c)(2)(A)

[12] Prop. Reg. §1.56A-17(c)(i)(A)

[13] Prop. Reg. §1.56A-17(c)(i)(B)

[14] Prop. Reg. §1.56A-17(c)(ii)

[15] Prop. Reg. §1.56A-24

[16] Prop. Reg. §1.56A-24(b)(1)(ii)

[17] Prop. Reg. §1.56A-5

[18] Prop. Reg. §1.56A-5(e)(6)

[19] Prop. Reg. §1.56A-18

[20] Prop. Reg. §1.56A-18

[21] Prop. Reg. §1.56A-18(g)(4)

[22] §1.1502-56A(f)

[23] §1.1502-53

[24] FSA 1994-39

[25] T.D. 8884, 65 Fed. Reg. 33753