Hurricane Helene Rescuer Was Deluged by Non-Cash CAMT Income

Following Hurricane Helene in September 2024, Southern Company had over 20,000 personnel work to restore the damage caused by nearly 12,000 broken transmission poles, 1,500 miles of downed wire, and 5,800 damaged transformers. But after the company restored power to its Georgia Power customers, executives were probably disappointed to learn that the restoration costs were a primary driving factor in triggering to Southern Company a multi-million-dollar corporate alternative minimum tax (CAMT) liability. Southern Company 2024 Annual Report.

Southern Company 2024 Annual Report

Southern Company’s current financial accounting expense from the Hurricane Helene restoration costs were far smaller than the corresponding very large regular corporate income tax deduction. This difference created net non-cash CAMT income for Southern Company.

The Annual Report’s Notes to Financial Statements explain that Southern Company, for financial accounting purposes, capitalized about $800 million of its Hurricane Helene restoration costs to a regulatory asset account. This capitalization to a regulatory asset account, rather than deducting such restoration costs, for financial accounting purposes, was intended to reflect Georgia’s regulatory rules, which provide that such restoration costs are to be recovered through future allowable charges to electricity customers. That is, such $800 million of capitalized Hurricane Helene restoration costs were not deducted for financial accounting purposes, even to the extent such costs were deducted for regular corporate income tax purposes. See Southern Company 2024 Annual Report, Notes to Financial Statements, Note 2 Regulatory Matters, Storm Damage Recovery, p. 87.

By contrast, for regular corporate income tax purposes, a utility is allowed a deduction, with certain limitations, for electric transmission system storm restoration costs. See, e.g., Treas. Reg.§1.263(a)-3(k)). And CCA 201145011 indicates that the fact that a state public service commission allows a utility to increase its future rates to permit it to recover storm restoration costs will not accelerate into current income that anticipated future rate income; nor will that preclude an otherwise allowable current federal corporate income tax deduction for the recovery costs.

That is, the practical effect of the favorable, in terms of current financial accounting earnings-per-share, financial accounting rules, under which Southern Company did not expense in 2024 about $800 million of Hurricane Helene restoration costs because such costs are anticipated to be recovered by Southern Company from future rate income, as compared to the favorable regular corporate income tax position set forth in CCA 201145011, which did not require Southern Company to include as 2024 taxable income or reduce its 2024 Hurricane Helene restoration expenses by such $800 million of anticipated future rate increase income, apparently created for Southern Company hundreds of millions of dollars of 2024 non-cash financial accounting income in excess of taxable income. The Annual Report notes that this excess of financial accounting income over taxable income relating to Hurricane Helene restoration costs was a primary cause of Southern Company’s 2024 CAMT liability. Southern Company 2024 Annual Report, Management’s Discussion and Analysis of Financial Condition and Results of Operations, p. 40.

However, because Southern Company coincidentally had large energy-related and other tax credits described in §38(c), most of Southern Company’s pre-credit 2024 CAMT was offset. The effect of absorbing these credits reduced Southern Company’s 2024 current post-credit CAMT liability to about $40 million. Southern Company 2024 Annual Report, Management’s Discussion and Analysis of Financial Condition and Results of Operations, pp. 39, 40, 132.

Recovery of 2024 CAMT

Southern Company’s Annual Report states that it anticipates that it will return to a sufficiently large regular corporate income tax position by 2031, such that the 2024 CAMT will then be recovered through a §53(e) credit carryforward against that regular tax. Southern Company 2024 Annual Report, Notes to Financial Statements, p. 134. To reflect this, Southern Company recorded a deferred tax asset account for the amount of the 2024 CAMT on Southern Company’s closing 2024 balance sheet. Southern Company 2024 Annual Report, Consolidated Balance Sheets, p. 61.

There has also been speculation that Congress may repeal the CAMT in 2025 if any budgetary restrictions imposed by the reconciliation process can be accommodated. (However, the House Ways and Means Committee’s May 2025 “One, Big, Beautiful Bill” does not contain a CAMT repeal.) In the CARES Act of 2020, Congress amended §53(e) to provide that carryforwards of the pre-2018 version of the corporate alternative minimum tax, which version was repealed by the TCJA in 2018, would generally be refunded retroactively for 2018, even if the corporation lacked sufficient 2018 regular corporate tax liability. See IRS Notice 2020-26. However, even assuming that Southern Company’s 2024 CAMT is eventually recovered under §53(e), the CAMT rules will create adverse interim tax liability and correspondingly adverse economic results. The extent to which ratepayers will eventually absorb these adverse results will depend on the Georgia regulators, as informed by interpretations of the federal income tax public utility normalization rules. Cf. PLR 201438003.

Hormel Foods

Southern Company is not the only large corporation whose federal income tax increased due to 2024 Hurricane Helene relief expenses and CAMT (although by a far smaller dollar magnitude amount than Southern Company’s). Hormel Foods donated 1,500 Jennie-O © Thanksgiving turkeys it produced to a charity for distribution to families displaced by Hurricane Helene. Hormel Foods was subject to some small CAMT in 2024. Hormel Food’s 2024 Annual Report, p. 68.

For GAAP purposes, and thus for CAMT purposes, no net deduction is generated by the unrealized appreciation in food inventory donated to charities providing hurricane relief, even though, for regular corporate income tax purposes, a current deduction for up to 50% of the appreciation can be available under §170(e)(3)(C). Hormel Foods’ marginal 2024 CAMT tax position partially eliminated Hormel Foods’ marginal tax benefits from its Hurricane Helene food donation. This occurred because any appreciation element was eliminated from Hormel Foods’ net CAMT-deductible donation.

It also apparently occurred because although the cost basis element could be deductible for CAMT purposes at a 15% rate, as well as for regular corporate tax at apparently a 21% marginal rate, the regular corporate tax rate savings equally reduced the favorable offset allowed by §55(a)(2) against CAMT for regular tax. Thus, a significant portion of Hormel Foods’ marginal savings in regular tax for the cost element of the donated turkeys apparently were lost because of the CAMT.

Airbnb

In 2024, Airbnb.org, a §501(c)(3) organization supported by Airbnb, Inc., worked with unrelated charitable disaster relief organizations to provide temporary housing to individuals displaced by Hurricane Helene. Stays were completely free for Hurricane Helene victims and were funded by Airbnb.org, as well as by Airbnb hosts, many of whom offered their house for free or at a discount through Airbnb.org.

Airbnb, Inc.’s 2024 Annual Report financial statements (Note 14. Income Taxes) provide a 2024 current provision for a federal income tax liability of $103 million, of which $95 million was CAMT. Airbnb.org, reported on its most recent 2023 Form 990 that it has no employees of its own and that its essential duties and activities are performed by Airbnb, Inc. employees, free of charge, under an operating agreement between Airbnb, Inc. and Airbnb.org. Airbnb.org’s Form 990 values Airbnb, Inc.’s direct and indirect donations of staff salaries, access to intellectual property, and direct gifts to Airbnb.org at millions of dollars.

Airbnb, Inc.’s 2024 Annual Report lists several items that could affect Airbnb, Inc.’s marginal regular corporate tax rate benefit and CAMT tax rate benefit relating to any deductions Airbnb, Inc. claimed for expenses relating to funding Airbnb.org’s Hurricane Helene relief effort. These Airbnb, Inc. items included a very large regular corporate tax net operating loss carryforward to 2024 available to offset most of 2024 regular taxable income, and a very large research and development tax credit carryforward to 2024 available to offset most of the regular corporate tax and CAMT. It is unclear whether the CAMT materially affected Airbnb, Inc.’s 2024 tax benefits from deducting any Hurricane Helene relief costs.

Conclusion

As if to reinforce the adage that “no good deed goes unpunished,” the CAMT lurks behind dark clouds that can create CAMT for some large corporations, such as Southern Corporation’s hurricane disaster response expenditures otherwise deductible for regular corporate tax purposes. Such harsh result may encourage congressional opponents of the CAMT.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Alan S. Lederman is a shareholder at Gunster, with a focus on income tax planning and controversies.