Financial Company Requests Guidance on Corporate AMT

October 11, 2023

The Honorable Lily Batchelder
Assistant Secretary for Tax Policy
Department of Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220

William Paul, Esq.
Principal Deputy Chief Counsel
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224

Mr. Daniel Werfel
Commissioner of Internal Revenue
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224

RE: Comments to Notice 2023-64, 2023-40 I.R.B. 1

Dear Madame Secretary, Commissioner O'Donnell, and Messr. Paul:

Voya Financial, Inc. (“Voya”) respectfully requests guidance on the Corporate Alternative Minimum Tax (“CAMT”), which was added to the Internal Revenue Code¹ by the Inflation Reduction Act of 2022 (the “IRA”) on August 16, 2022. Voya commends the Department of Treasury (“Treasury”) and the Internal Revenue Service (“IRS”) on the issuance of preliminary CAMT guidance published in Notice 2023-7 on December 27, 2022, Notice 2023-20 on February 17, 2023, and Notice 2023-64 on September 12, 2023 (collectively, the “Notices”). While the Notices provide much-needed guidance for taxpayers to comply with the CAMT in 2023, there is an issue that Voya believes must be addressed in forthcoming proposed regulations. Specifically, Voya requests guidance on the treatment of impairment losses on certain held for sale investments recorded for financial accounting purposes in years prior to the year that a sale of the investments closes.

As discussed further herein, without modification, the treatment of impairment losses on held for sale investments under the current CAMT rules will cause significant distortions and unintended consequences. Specifically, the mechanical rules will cause corporations to be classified as applicable corporations even though they are otherwise consistently below $1 billion in adjusted financial statement income (“AFSI”). On the other hand, applicable corporations may realize unintended benefits by reducing AFSI by losses on future transactions.

Additionally, Voya's recommendations will better reflect the legislative intent and purpose in enacting the CAMT. For example, Treasury's General Explanations of the Administration's Fiscal Year 2022 Revenue Proposals notes that:

The proposal would work to reduce the significant disparity between the income reported by large corporations on their federal income tax returns and the profits reported to shareholders in financial statements by requiring them to pay a minimum amount of tax based on their reported financial income. The proposal is a targeted approach to ensure that the most aggressive corporate tax avoiders bear meaningful federal income tax liabilities.²

Voya's recommendations discussed in this letter propose adjustments to AFSI to clearly reflect income as requested by Notice 2023-64 and will better align the CAMT with its stated intent and purpose.

CAMT Background

Section 10101 of the IRA amended Section 55 to impose the new CAMT based on the AFSI of an applicable corporation for taxable years beginning after December 31, 2022. In general, an applicable corporation owes CAMT if 15 percent of its AFSI exceeds the sum of the regular tax imposed for the taxable year plus the tax imposed under Section 59A (commonly referred to as the base erosion and anti-abuse tax, or BEAT).

For purposes of the CAMT, an “applicable corporation” is any corporation, other than an S corporation, a regulated investment company, or a real estate investment trust, that meets the average annual AFSI test under Section 59(k)(1)(B)³ for one or more taxable years that (i) are prior to that taxable year and (ii) end after December 31, 2021.⁴ AFSI is generally the net income or loss of the taxpayer set forth on the taxpayer's applicable financial statement (“AFS”)⁵ for that taxable year, adjusted for certain items as provided in Section 56A.⁶

Two adjustments provided in Section 56A relate to a taxpayer's investment in non-consolidated entities. Section 56A(c)(2)(C) provides that, in the case of any corporation that is not included on a consolidated return with the taxpayer, AFSI of the taxpayer with respect to such other corporation is determined by only taking into account dividends received from such other corporation (reduced to the extent provided by the Secretary in regulations or other guidance) and other amounts that are includible in gross income or deductible as a loss under Chapter 1 of the Code (other than amounts required to be included under Sections 951 and 951A of the Code or such other amounts as provided by the Secretary) with respect to such other corporation. Section 56A(c)(2)(D)(i) generally provides that if the taxpayer is a partner in a partnership, the taxpayer's AFSI with respect to such partnership is adjusted to take into account only the taxpayer's distributive share of such partnership's AFSI. Accordingly, if a taxpayer accounts for investments in corporations subject to Section 56A(c)(2)(C) or partnerships under a mark-to-market method for AFS purposes, the mark-to market gains or losses are disregarded for purposes of computing the taxpayer's AFSI with respect to such investments.⁷

Another adjustment provided under Section 56A(c)(2)(B) provides that, except as provided in regulations prescribed by Treasury, if the taxpayer is part of an affiliated group of corporations filing a consolidated return for any taxable year, AFSI for such group for such taxable year takes into account items on the group's AFS which are properly allocable to members of such group. For purposes of calculating AFSI for determining applicable corporation status and for purposes of calculating AFSI for CAMT liability, a tax consolidated group is treated as a single entity (i.e., a “taxpayer”).⁸ Section 4.02(5)(a) of Notice 2023-64 also generally provides that if a taxpayer's (e.g., the tax consolidated group) financial results are consolidated with the financial results of one or more other taxpayers (e.g., a controlled foreign corporation or partnership) on a Consolidated AFS,⁹ the taxpayer's AFS is the Consolidated AFS.

Consistent with these principles, Section 6.03(2) of Notice 2023-64 provides rules for determining financial statement income (“FSI”) when a Consolidated AFS consists of Tax Consolidated AFS Members¹⁰ and other taxpayers. Specifically, the notice provides that if a Consolidated AFS comprises all of the Tax Consolidated AFS Members of a single tax consolidated group, as well as one or more taxpayers that are not Tax Consolidated AFS Members of the tax consolidated group, the FSI of the tax consolidated group for the taxable year must be determined from the Consolidated AFS under Section 5.02(3)(c) of Notice 2023-64¹¹ by treating the tax consolidated group as the “Taxpayer” described in Section 5.02(3)(c) of Notice 2023-64. For example, the FSI of the tax consolidated group must respect each AFS Consolidation Entry¹² regarding a transaction between Tax Consolidated AFS Members, or a Tax Consolidated AFS Member's investment in another Tax Consolidated AFS Member. In other words, because the tax consolidated group is treated as a single taxpayer, any eliminations of transactions between, and investments in, Tax Consolidated AFS Members for AFS purposes should similarly be eliminated in computing FSI of the tax consolidated group.

Request for Comments in Notice 2023-64

Under Section 16.02 of Notice 2023-64, Treasury and the IRS acknowledge that there are additional CAMT issues that remain unaddressed by the Notices. Specifically, Treasury and the IRS requested comments on whether there are circumstances in which adjustments to AFSI are required to clearly reflect income. Voya is submitting this comment letter to address scenarios where it believes adjustments to AFSI are necessary to clearly reflect income and cure significant distortions.

Voya Background and Held for Sale Accounting

Voya's Loss on Sale of Life Insurance Subsidiaries and Reinsurance Gain

Voya provides workplace savings and benefits products, solutions and technologies, along with investment management services, that enable a better financial future for its clients, their employees, and plan participants. Through its complementary and integrated set of businesses, Voya delivers innovative solutions that improve financial outcomes. Voya offers its products and services through a broad range of financial intermediaries, independent producers, affiliated advisors, and dedicated sales specialists throughout the U.S., and offers investment management services to international clients through a global distribution partnership with a third party. Since its initial public offering (“IPO”) in 2013, Voya's AFSI has not been in excess of $1 billion with the exception of one year, 2021. Absent the distortion caused by the held for sale losses discussed below, Voya's AFSI would be below $1 billion for every year since 2013 through today.

On December 18, 2019, Voya entered into an agreement with a third-party acquirer (“Buyer”) pursuant to which Buyer would acquire certain life insurance subsidiaries of Voya's tax consolidated group and, on the same closing date, Voya and Buyer would enter into reinsurance agreements to transfer other life insurance risks related to the life insurance businesses from Voya to Buyer (the “Transaction”), which Transaction resulted in the disposition of substantially all of Voya's life insurance and legacy non-retirement annuity businesses and related assets and reduced Voya's overall size. In its 2019 and 2020 AFS, Voya recorded estimated held for sale impairment losses of $1.2 billion and $300 million, respectively, due to a write down of the carrying value of the subsidiaries designated as held for sale to estimated fair market value (net of expected selling costs). Those write downs were required by held for sale U.S. generally accepted accounting principles (“U.S. GAAP”) rules. U.S. GAAP rules require the recognition of held for sale impairment losses prior to the closing of a sale but defer the recognition of any gains until the closing of the sale.¹³ The economic value of the reinsurance agreements could not be included in Voya's net income in its AFS prior to 2021 because the signing of the master transaction agreement in 2019 did not give rise to a financial statement recognition event (related to the reinsurance agreements) prior to the Transaction closing date under U.S. GAAP.

The Transaction was expected to close by September 30, 2020, subject to various conditions, including regulatory approvals. Because regulatory approvals took longer than expected, the Transaction was ultimately consummated on January 4, 2021 (the first business day of 2021). In its 2021 AFS, Voya recorded an $800 million gain on the reinsurance of its life insurance business to Buyer and no further gain or loss was recorded on the sale of the life insurance subsidiaries. Because U.S. GAAP required the economic impact of the sales of the subsidiaries (total $1.5 billion loss) to be recognized in the 2019 and 2020 AFS, and required the economic impact of the reinsurance agreements ($800 million gain) to be recognized in the 2021 AFS, Voya's overall net income related to the Transaction was spread across its AFS in each of 2019, 2020 and 2021. The economic effect of the Transaction was a $700 million loss even though U.S. GAAP required the accounting to occur in multiple annual periods. Recognizing the net $700 million loss in 2021 (the year in which the Transaction closed) for purposes of AFSI would avoid such a distortion. Please see the Appendix for a timeline of the Transaction and a chart demonstrating the effect of the distortions discussed herein and the effects of Voya's proposal.

U.S. GAAP Held for Sale Rules

Under ASC 360-10-45-9, a long-lived asset (or disposal group) to be sold shall be classified as held for sale in the period in which all the following criteria are met:

• Management, having the authority to approve the action, commits to plan to sell the asset (or disposal group);

• The asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal group);

• An active program to locate a buyer and other actions required to complete the plan to sell the asset (or disposal group) have been initiated;

• The sale of the asset (or disposal group) is probable and transfer of the asset (or disposal group) is expected to qualify for recognition as a completed sale within one year, except as permitted by ASC 360-10-45-11 (relating to exceptions to the one-year requirement for events or circumstances beyond a reporting entity's control);

• The asset (or disposal group) is actively being marketed for sale at a price that is reasonable in relation to current fair value; and

• Actions required to complete the plan indicate that it is unlikely significant changes to the plan will be made or that the plan will be withdrawn.

A long-lived asset (or disposal group) classified as held for sale shall be measured at the lower of its carrying amount or fair value less costs to sell.¹⁴ Costs to sell are the incremental direct costs to transact a sale, that is, the costs that result directly from and are essential to a sale transaction and that would not have been incurred by the entity had the decision to sell not been made (e.g., broker commissions, legal and title transfers, and closing costs that must be incurred before legal titled can be transferred).¹⁵ Under ASC 360-10-35-40, a loss shall be recognized for any initial or subsequent write down in fair value less cost to sell, and a gain shall be recognized for any subsequent increase in fair value less cost to sell, but not in excess of the cumulative loss previously recognized (for a write down to fair value less cost to sell). A gain or loss not previously recognized that results from the sale of a long-lived asset (or disposal group) shall be recognized at the date of sale.¹⁶

As disclosed in its 2019 Form 10-K, Voya determined that the life insurance subsidiaries to be sold in the Transaction met the criteria to be classified as held for sale and that the sale represented a strategic shift that would have a major effect on its operations. As such, Voya presented its 2019 AFS in accordance with the U.S. GAAP held for sale rules. Specifically, the results of the operations of the businesses to be sold were presented as discontinued operations, and the assets and liabilities of the related businesses were classified as held for sale and segregated for all periods presented in the AFS.

Voya's Request for Guidance

The split of the held for sale losses recorded in Voya's 2019 and 2020 AFS and the reinsurance gains recorded in Voya's 2021 AFS (all related to the Transaction that closed in 2021) gives rise to a significant distortion in Voya's AFSI for purposes of the 3-year average AFSI test. Said differently, AFSI over any three-year period that doesn't include both the impairment losses and the reinsurance gains is distorted. Specifically, when Voya performs the three-year average AFSI test for the tax years ended December 31, 2020, December 31, 2021, and December 31, 2022, the held for sale loss in Voya's 2019 AFS isn't included (but should be included to avoid a distortion in AFSI).

For the reasons set forth in this letter, Voya respectfully requests that Treasury and the IRS exercise the authority granted to issue guidance clarifying the treatment of certain dispositions of businesses that give rise to unintended consequences for CAMT purposes and to make adjustments to AFSI to clearly reflect income. Specifically, Voya requests guidance clarifying that:

• Losses attributable to investments in Tax Consolidated AFS Members' stock are taken into account in FSI in the taxable year in which the Tax Consolidated AFS Members leave the tax consolidated group; and/or

• Where the FSI attributable to a Covered Transaction¹⁷ is reported in multiple financial reporting years, such FSI should be treated as occurring entirely in the tax year in which the Covered Transaction closes; and/or

• FSI related to a Covered Transaction that involves the sale of stock and reinsurance transactions is only taken into account in the taxable year in which the Covered Transaction closes.

Rationale for Recommendations

For the reasons set forth herein, Voya believes that its recommendations will more clearly reflect a taxpayer's AFSI for purposes of determining applicable corporation status and for purposes of computing its CAMT liability.

Tax Consolidated Group as a Single Taxpayer

As discussed above, Section 3.05 of Notice 2023-7 provides that for purposes of calculating AFSI for determining applicable corporation status and for purposes of calculating AFSI for CAMT liability, a tax consolidated group is treated as a single taxpayer. Additionally, Section 6.03 of Notice 2023-64 provides that the FSI of a tax consolidated group must reflect AFS Consolidation Entries related to transactions between Tax Consolidated AFS Members and a Tax Consolidated AFS Member's investment in another Tax Consolidated AFS Member. Collectively, through these provisions of the Notices, Treasury and the IRS aim to disregard transactions between, and investments in, Tax Consolidated AFS Members.

Voya's held for sale loss recorded in FSI in its 2019 and 2020 AFS relates to one Tax Consolidated AFS Member's investment in another Tax Consolidated AFS Member. Taking this unrealized loss into account in determining Voya's FSI for 2019 and 2020 appears to run afoul of the single taxpayer approach adopted by Treasury and the IRS in the Notices. Under a single taxpayer approach, the tax consolidated group ought to defer the loss on Tax Consolidated AFS Members' stock for FSI purposes until the Tax Consolidated AFS Members leave the tax consolidated group despite the different treatment required under U.S. GAAP. Without the adoption of this rule, the tax consolidated group could be viewed as impairing itself, which does not appear to be intended by Section 56A or any of the guidance provided to date in the Notices.

Mark-to-Market Adjustments for Certain Corporations and Partnerships

For purposes of computing AFSI, a taxpayer is generally required to account for investments in corporations outside of its consolidated return and partnerships in accordance with the rules of Section 56A(c)(2)(C) and (D).¹⁸ Under these rules, if a taxpayer accounts for its investments in corporations outside of its consolidated group and partnerships on a mark-to-market basis for AFS purposes, such mark-to-market gains or losses are not taken into account in computing AFSI. While held for sale accounting is not the same as mark-to-market accounting, the result is substantially similar to mark-to-market losses. That is, both financial accounting methods generally result in writing an asset down to its fair value.

While Section 56A(c)(2)(C) and (D) disregard mark-to-market adjustments, Section 56A(c)(2)(B) (relating to corporations that are members of the same tax consolidated group) does not explicitly provide rules to disregard mark-to-market adjustments with respect to a Tax Consolidated AFS Member's stock. One reason for this may be because all Tax Consolidated AFS Members are treated as a single taxpayer and thus a taxpayer cannot mark itself to market. From a policy perspective, there is no reason for a Tax Consolidated AFS Member's investment in another Tax Consolidated AFS Member to be treated differently from other similar investments.

Based on both the single taxpayer approach to a tax consolidated group and treatment of mark-to-market adjustments on similar investments, Treasury and the IRS should clarify that losses attributable to an investment in Tax Consolidated AFS Members' stock are only taken into account in FSI in the taxable year in which the Tax Consolidated AFS Members leave the tax consolidated group.

Alignment of AFS and Regular Tax Realization for Transactions

The second and third recommendations above would propose to align the timing for recording FSI attributable to a Covered Transaction with the taxable year in which the Covered Transaction closes. This concept has already been adopted by Treasury and the IRS in Notice 2023-64 with respect to Section 168 property. Specifically, Section 9.02(4) of Notice 2023-64 provides that if a taxpayer takes a disposition loss, including an abandonment loss, into account in FSI with respect to Section 168 property for a taxable year that is earlier than the taxable year in which the disposition event occurs for regular tax purposes, the taxpayer must adjust AFSI for such taxable year to disregard the disposition loss included in its FSI for that taxable year. Based on the incorporation of this rule, Treasury and the IRS appear to acknowledge that there may be circumstances where distortions could arise where an unrealized loss on property is recorded for AFS purposes in advance of the actual disposition of such property.

As it relates to Covered Transactions that involve the sale of stock and reinsurance transactions, the held for sale rules may operate to disconnect the FSI impacts of the two components of the integrated transaction across multiple years (especially where regulatory approval may be protracted). That is, if the sale of stock is expected to be at a loss, the held for sale rules may require the recording of an impairment loss. However, held for sale accounting does not apply to reinsurance transactions; instead, the FSI related to the reinsurance transactions would arise in the year in which the transaction closes. Voya's recommendation would operate to more clearly reflect the computation of FSI and AFSI to align with the actual economics of Covered Transactions by collapsing all aspects of such transaction into the year in which it closes. As further discussed below, the recommendation also mitigates potential distortions that may arise as a result of misalignment of AFS and regular tax timing.

Mitigation of Distortions

Both Voya's second and third recommendations would mitigate distortions that could otherwise arise when sellers of businesses are required to account for an estimated loss under the held for sale rules. For example, absent the adoption of the recommendations, if an applicable corporation experienced facts similar to Voya's in post-2022 tax years, it may reduce or eliminate its CAMT liability for an estimated loss associated with an investment held for sale prior to the close of the transaction. These issues are particularly prevalent in regulated industries, such as insurance, where regulatory approvals are required and often take many months (sometimes in excess of 12 months) to obtain after the execution of transaction agreements.

In addition, as outlined above, certain aspects of the U.S. GAAP held for sale rules are subject to subjectivity. That is, there are no bright-line rules for when and how to apply the held for sale rules. In addition, held for sale losses are recorded in a taxpayer's income or loss from discontinued operations, an area of the income statement that investors and other stakeholders are less sensitive to.

Given that the held for sale rules are subjective and such held for sale losses give rise to accelerated losses for CAMT purposes, Voya's recommendations would not only avoid distortions in AFSI, but would also better align with the legislative intent and purpose in enacting CAMT.

Conclusion

In conclusion, Voya requests that IRS clarify certain rules related to held for sale losses on investments in Tax Consolidated AFS Members. For the reasons set forth above, Voya believes that these clarifications to the CAMT rules are required to adjust AFSI to clearly reflect income as requested by Notice 2023-64. Absent these clarifications, significant distortions and unintended consequences will arise.

We appreciate your consideration of our requests and welcome the opportunity to discuss our comments further. If you have any questions, please contact me at Don.Templin@Voya.com or (212) 309-8200.

Sincerely,

Donald C. Templin
Chief Financial Officer
Voya Financial, Inc.
New York, NY

cc:
Thomas West, Esq., Deputy Assistant Secretary (Tax Policy), Department of the Treasury
Krishna Vallabhenini, Esq., Tax Legislative Counsel, Department of the Treasury
Brett York, Esq., Deputy Tax Legislative Counsel, Department of the Treasury
Mr. Timothy Powell, Tax Policy Advisor, Office of Tax Legislative Counsel, Department of the Treasury
Colin Campbell, Esq., Attorney-Advisor, Office of Tax Policy, Department of the Treasury
Scott Vance, Esq., Associate Chief Counsel, Income Tax & Accounting, Internal Revenue Service
Julie Hanlon-Bolton, Esq., Deputy Associate Chief Counsel, Income Tax & Accounting, Internal Revenue Service
Russell Jones, Esq., Special Counsel, Corporate, Internal Revenue Service
William Burhop, Esq., Senior Technician Reviewer, Corporate, Internal Revenue Service

---

Appendix

Transaction Timeline

---

Summary of 2018-2022 Pre-Tax Income (Loss) Attributable to Voya