Congress Should Reject Administration Action Further Weakening Corporate Minimum Tax

As early as February 10, the Senate is expected to consider a Congressional Review Act resolution that would overturn recent Treasury Department guidance weakening the corporate minimum tax. The Treasury guidance allows some private equity firms and other large corporate owners of partnerships to lower their tax bills at a cost of more than $10 billion in revenue over ten years, according to the Joint Committee on Taxation. Lawmakers should reject this giveaway and ensure that the corporate minimum tax — which the Administration and Congress have already undermined in other ways over the past year — functions as a robust backstop to the corporate tax, as Congress originally intended.

The corporate minimum tax, enacted under the 2022 Inflation Reduction Act (IRA), requires some profitable corporations that otherwise may pay little or no corporate income tax in a given year to pay a minimum tax rate on the profits they report to shareholders, with certain adjustments. (These are known as “book income” or “book profits.”) The tax applies only to corporations with book profits averaging more than $1 billion per year over three years. These corporations pay the greater of the regular corporate tax (21 percent of their taxable income, which can be much lower than their book income if they benefit from certain large deductions or other tax breaks) or the minimum tax (15 percent of their book income).

In 2024 the Biden Administration Treasury Department issued proposed regulations filling in details of how the corporate minimum tax will apply in complicated scenarios, including how to apply the tax to corporations that have ownership stakes in partnerships (a form of pass-through business, in which the firm’s income is “passed through” to the owners and taxed on their individual tax returns). Large corporations often own partnership interests — for example, in investment funds or joint ventures — and the statute requires corporations to include in their book profits their share (technically called their “distributive share”) of the book income of partnerships they own.

To implement this requirement, the 2024 proposed regulations would generally require the corporate-owned partnerships to calculate their book income and then the corporate owner must reflect its share of that book income in its corporate minimum tax calculation. According to the NYU Tax Law Center, this method “is complex, but it was the approach that the drafters of the statute intended.”

Last summer, however, the Trump Administration Treasury Department issued new guidance effectively rewriting the proposed regulations in ways that will reduce corporate minimum tax liability for large corporate owners of partnerships.

The new guidance offers corporations a “rainbow of choices” in how they calculate their share of partnership book income for minimum tax purposes, several of which deviate significantly from the statutory intent of tying corporate minimum tax liability to book income rather than taxable income. And this array of methods creates new and complex opportunities for corporations — and their tax advisors — to get around the minimum tax by choosing the option that gets them the smallest tax liability.

The weakened rules, combined with the Administration’s hollowing out of IRS enforcement (which make it less likely that corporations, complex partnerships, and their owners will pay what they legally owe) mean corporations are racking up large tax cuts that weren’t enacted by Congress. The corporate minimum tax was initially estimated to raise $222 billion over ten years, but the actual revenue will likely be far lower in part due to special giveaways already granted by the Administration.

By adopting the resolution, lawmakers can reject one of the Administration’s many attempts to give large, profitable corporations yet another windfall of costly tax cuts.