When the U.S. company different minimal tax (CAMT) grew to become a actuality with the arrival of the Inflation Discount Act this 12 months, it got here with loads of questions and never almost sufficient solutions for the massive companies it can have an effect on probably the most.

An vital, however considerably technical facet of the landmark Inflation Discount Act package deal, is the introduction of a 15% minimal tax on massive companies with internet incomes over $1 billion. That signifies that any company with common annual adjusted monetary assertion earnings in extra of $1 billion for 3 consecutive tax years shall be topic to a flat 15% company tax, even when its common taxable earnings is below that $1 billion threshold. The aim of the regulation, after all, is to cease companies from with the ability to use credit, deductions, carried losses and different accounting instruments to scale back their company tax exposures beneath a flooring of 15%.

Like most company tax legal guidelines, nevertheless, the satan is within the particulars on the subject of how the CAMT shall be carried out and enforced by the IRS. And one element that has company tax execs scratching their head is depreciation.

The IRS issued an interim steerage doc on December 27, trying to make clear the problem. Particularly, it explains how the tax is calculated, how sure transactions could also be handled, and sure changes that could be taken under consideration for functions of the choice minimal tax (comparable to changes for depreciation and sure tax credit). In response to the discover, tax depreciation deductions—versus monetary assertion depreciation expense—are thought of when calculating adjusted monetary assertion earnings for CAMT legal responsibility. It additionally offers smaller companies a straightforward methodology for figuring out that the brand new different minimal tax doesn’t apply to them.

Sadly, the steerage is extraordinarily restricted, and based on one tax professional, needlessly difficult.

Ellen McElroy, a associate at Eversheds Sutherland who previously hung out working within the IRS Workplace of Chief Counsel, advised my colleagues at Thomson Reuters Checkpoint that the IRS’ place at the moment is murky at finest. McElroy mentioned that, whereas the IRS tried to clarify what tax depreciation deductions are thought of when calculating adjusted earnings for CAMT legal responsibility, the steerage then provides confusion by saying that depreciation attributable to stock can be utilized to offset adjusted monetary assertion earnings.

“[The depreciation] is restricted to the quantity of depreciation that’s attributable to the price of items bought in a selected tax 12 months,” McElroy defined. “So, a taxpayer goes to need to first decide, ‘What’s my depreciation deduction for a property?’ Then they’re going to have to find out how a lot of it’s allotted to stock and the way is it allotted to stock—allotted between value of products bought, completed items, and works in course of. After which they’re going to have to return and consider how a lot of that depreciation is attributable to value of products bought in order that [they] can use it as an offset to adjusted monetary assertion earnings.”

All of those nuances, performed out at a scale as massive and sophisticated as most multinational steadiness sheets, introduce a substantial amount of hypothesis and interpretation on the subject of the suitable method to calculate company publicity to the CAMT. And, when these nuances can imply the distinction between triggering a 15% minimal tax or paying considerably much less in company taxes, it’s protected to say all eyes shall be on the company tax staff to sweat the main points and get these numbers proper. Whereas all new legal guidelines carry some extent of uncertainty, the stakes with this modification are fairly excessive for tax execs.

We’ve already reached the halfway level of the primary quarter of 2023, and these questions might have critical implications for firms. It’s a protected guess to imagine there shall be extra steerage forthcoming from the IRS, however company leaders can’t wait round to see what occurs subsequent. That is the place tax groups will want agility and the power to pivot on a dime, and companies should forecast properly and put together for any new steerage that comes. With progress being made on a world minimal tax and sufficient political curiosity to maintain company taxes below a microscope, that is no time to be caught unprepared.