Bulletin No. 2023–40
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HIGHLIGHTS
OF THIS ISSUE
Bulletin No. 2023–40
October 2, 2023
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
ADMINISTRATIVE
Rev. Proc. 2023-30, page 995.
This procedure provides specifications for the private printing
of red-ink substitutes for the 2023 revisions of certain information returns. This procedure will be reproduced as the next
revision of Publication 1179. Revenue Procedure 2022-25 is
superseded.
EMPLOYEE PLANS
Notice 2023-66, page 992.
This notice sets forth updates on the corporate bond monthly
yield curve, the corresponding spot segment rates for
September 2023 used under § 417(e)(3)(D), the 24-month
average segment rates applicable for September 2023, and
the 30-year Treasury rates, as reflected by the application of
§ 430(h)(2)(C)(iv).
Rev. Proc. 2023-31, page 1057.
This revenue procedure supersedes Rev. Proc. 2015-47,
2015-39 IRB 419 (which sets forth procedures for filers of
Forms 8955-SSA and 5500-EZ to request a hardship waiver
of the requirement to file those forms electronically). Rather
than set forth specific procedures, this revenue procedure
refers filers to applicable publications, forms, instructions, or
other guidance, including postings on the IRS.gov website,
for the procedures for seeking a hardship waiver or administrative exemption from the requirements to file Forms 8955SSA and 5500-EZ electronically. This revenue procedure
Finding Lists begin on page ii.
is effective, and Rev. Proc. 2015-47 is superseded, with
respect to Forms 8955-SSA and 5500-EZ required to be filed
for plan years beginning on or after January 1, 2024.
INCOME TAX
Notice 2023-64, page 974.
This notice provides additional interim guidance that is
intended to further clarify the application of the new corporate
alternative minimum tax (CAMT), as added to the Code by the
Inflation Reduction Act of 2022. The Treasury Department
and the IRS anticipate that forthcoming proposed regulations
will provide rules that are consistent with the interim guidance.
Specifically, the notice describes rules for determining a taxpayer’s applicable financial statement and adjusted financial
statement income (AFSI), including rules applicable to tax consolidated groups and certain foreign corporations. The notice
also provides rules for AFSI adjustments for the depreciation
of section 168 property, the amortization of qualified wireless
spectrum, the treatment of certain taxes, and to prevent certain duplications and omissions. The notice also describes
rules regarding the determination of applicable corporation
status, the CAMT foreign tax credit, and financial statement
net operating losses. Finally, the notice provides a request for
comments and the procedure for submitting such comments.
Rev. Rul. 2023-18, page 972.
Federal rates; adjusted federal rates; adjusted federal longterm rate, and the long-term tax exempt rate. For purposes
of sections 382, 1274, 1288, 7872 and other sections of
the Code, tables set forth the rates for October 2023.
The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and
enforce the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
October 2, 2023
Bulletin No. 2023–40
Part I
Section 1274.—
Determination of Issue
Price in the Case of Certain
Debt Instruments Issued for
Property
Rev. Rul. 2023-18
This revenue ruling provides various
prescribed rates for federal income tax
Annual
AFR
110% AFR
120% AFR
130% AFR
5.22%
5.75%
6.28%
6.81%
AFR
110% AFR
120% AFR
130% AFR
150% AFR
175% AFR
4.43%
4.88%
5.33%
5.77%
6.68%
7.82%
AFR
110% AFR
120% AFR
130% AFR
4.46%
4.91%
5.36%
5.81%
Short-term adjusted AFR
Mid-term adjusted AFR
Long-term adjusted AFR
October 2, 2023
purposes for October 2023 (the current
month). Table 1 contains the short-term,
mid-term, and long-term applicable federal rates (AFR) for the current month for
purposes of section 1274(d) of the Internal
Revenue Code. Table 2 contains the shortterm, mid-term, and long-term adjusted
applicable federal rates (adjusted AFR) for
the current month for purposes of section
1288(b). Table 3 sets forth the adjusted
federal long-term rate and the long-term
tax-exempt rate described in section
382(f). Table 4 contains the appropriate
percentages for determining the low-income housing credit described in section
42(b)(1) for buildings placed in service
during the current month. However, under
section 42(b)(2), the applicable percentage for non-federally subsidized new
buildings placed in service after July 30,
2008, shall not be less than 9%. Finally,
Table 5 contains the federal rate for determining the present value of an annuity, an
interest for life or for a term of years, or
a remainder or a reversionary interest for
purposes of section 7520.
REV. RUL. 2023-18 TABLE 1
Applicable Federal Rates (AFR) for October 2023
Period for Compounding
Semiannual
Quarterly
Short-term
5.15%
5.12%
5.67%
5.63%
6.18%
6.13%
6.70%
6.64%
Mid-term
4.38%
4.36%
4.82%
4.79%
5.26%
5.23%
5.69%
5.65%
6.57%
6.52%
7.67%
7.60%
Long-term
4.41%
4.39%
4.85%
4.82%
5.29%
5.26%
5.73%
5.69%
Annual
3.95%
3.36%
3.38%
REV. RUL. 2023-18 TABLE 2
Adjusted AFR for October 2023
Period for Compounding
Semiannual
3.91%
3.33%
3.35%
972
Monthly
5.10%
5.60%
6.10%
6.61%
4.34%
4.77%
5.20%
5.62%
6.48%
7.55%
4.37%
4.80%
5.23%
5.66%
Quarterly
3.89%
3.32%
3.34%
Monthly
3.88%
3.31%
3.33%
Bulletin No. 2023–40
REV. RUL. 2023-18 TABLE 3
Rates Under Section 382 for October 2023
Adjusted federal long-term rate for the current month
Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal
long-term rates for the current month and the prior two months.)
3.38%
3.38%
REV. RUL. 2023-18 TABLE 4
Appropriate Percentages Under Section 42(b)(1) for October 2023
Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after
July 30, 2008, shall not be less than 9%.
Appropriate percentage for the 70% present value low-income housing credit
8.03%
Appropriate percentage for the 30% present value low-income housing credit
3.44%
REV. RUL. 2023-18 TABLE 5
Rate Under Section 7520 for October 2023
Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years, or a
remainder or reversionary interest
Section 42.—Low-Income
Housing Credit
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
October 2023. See Rev. Rul. 2023-18, page 972.
Section 280G.—Golden
Parachute Payments
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
October 2023. See Rev. Rul. 2023-18, page 972.
Section 382.—Limitation
on Net Operating Loss
Carryforwards and
Certain Built-In Losses
Following Ownership
Change
The adjusted applicable federal long-term rate
is set forth for the month of October 2023. See Rev.
Rul. 2023-18, page 972.
Section 467.—Certain
Payments for the Use of
Property or Services
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
October 2023. See Rev. Rul. 2023-18, page 972.
Section 468.—Special
Rules for Mining and Solid
Waste Reclamation and
Closing Costs
The applicable federal short-term rates are set
forth for the month of October 2023. See Rev. Rul.
2023-18, page 972.
Section 482.—Allocation
of Income and Deductions
Among Taxpayers
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
October 2023. See Rev. Rul. 2023-18, page 972.
5.40%
Section 483.—Interest on
Certain Deferred Payments
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
October 2023. See Rev. Rul. 2023-18, page 972.
Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of October 2023. See Rev. Rul. 2023-18, page 972.
Section 7520.—Valuation
Tables
The applicable federal mid-term rates are set
forth for the month of October 2023. See Rev. Rul.
2023-18, page 972.
Section 7872.—Treatment
of Loans With BelowMarket Interest Rates
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
October 2023. See Rev. Rul. 2023-18, page 972.
Bulletin No. 2023–40
973
October 2, 2023
Part III
Additional Interim Guidance
Regarding the Application
of the Corporate
Alternative Minimum Tax
under Sections 55, 56A,
and 59 of the Internal
Revenue Code
Notice 2023-64
SECTION 1. OVERVIEW
This notice provides additional interim
guidance to further clarify the application
of the new corporate alternative minimum
tax (CAMT). The CAMT was added to
the Internal Revenue Code (Code)1 by the
enactment of § 10101 of Public Law 117169, 136 Stat. 1818, 1818-1828 (August
16, 2022), commonly referred to as the
Inflation Reduction Act of 2022 (IRA),
effective for taxable years beginning
after December 31, 2022. Notice 20237, 2023-3 I.R.B. 390, announced that the
Department of the Treasury (Treasury
Department) and the Internal Revenue
Service (IRS) intend to issue proposed
regulations (forthcoming proposed regulations) addressing the application of the
CAMT, and sections 3 through 7 of that
notice provided interim guidance regarding time-sensitive CAMT issues that
taxpayers may rely on until the issuance
of forthcoming proposed regulations.
Sections 3 through 5 of Notice 2023-20,
2023-10 I.R.B. 523, provided additional
interim guidance that taxpayers may rely
on until the issuance of forthcoming proposed regulations, including interim guidance intended to help avoid substantial
unintended adverse consequences to the
insurance industry arising from the application of the CAMT. Notice 2023-42,
2023-26 I.R.B. 1085, provided relief from
the addition to tax under § 6655 in connection with the application of the CAMT.
Section 2 of this notice provides a
summary of relevant law and other information underlying the interim guidance
described in sections 3 through 14 of this
notice, which the Treasury Department
and the IRS intend to include in forthcoming proposed regulations. Section 15 of
this notice describes the intended applicability dates of forthcoming proposed
regulations and requirements for relying
on the interim guidance set forth in sections 3 through 14 of this notice until the
issuance of forthcoming proposed regulations. Section 16 of this notice requests
comments on the issues addressed in this
notice and on certain additional issues.
Section 17 of this notice describes the
effect this notice has on other documents.
Section 18 of this notice provides drafting
and contact information.
SECTION 2. BACKGROUND
.01 Overview of the CAMT. Section
10101 of the IRA amended § 55 to impose
the CAMT based on the “adjusted financial statement income” (AFSI) of an
applicable corporation for taxable years
beginning after December 31, 2022.
As described in greater detail in section
2.01 of Notice 2023-7, a corporation is
an applicable corporation subject to the
CAMT for a taxable year if it meets the
average annual AFSI test described in
section 2.04 of this notice for one or more
taxable years that (i) are before that taxable year, and (ii) end after December
31, 2021. Section 55(a) provides that,
for the taxable year of an applicable corporation, the amount of CAMT imposed
by § 55 equals the excess (if any) of (i)
the tentative minimum tax for the taxable
year, over (ii) the sum of the regular tax
imposed by chapter 1 of the Code (chapter
1), within the meaning of § 55(c), for the
taxable year plus the tax imposed under
§ 59A. Section 55(b)(2)(A) provides that,
in the case of an applicable corporation,
the tentative minimum tax for the taxable
year is the excess of (i) 15 percent of AFSI
for the taxable year (as determined under
§ 56A), over (ii) the CAMT foreign tax
credit (CAMT FTC) for the taxable year
(as determined under § 59(l)). In the case
of any corporation that is not an applicable
corporation, § 55(b)(2)(B) provides that
the tentative minimum tax for the taxable
year is zero.
.02 AFSI under § 56A.
(1) General definition of AFSI. Section
56A(a) provides that, for purposes of
§§ 55 through 59, the term AFSI means,
with respect to any corporation for any
taxable year, the net income or loss of
the taxpayer set forth on the taxpayer’s
applicable financial statement (AFS) for
that taxable year, adjusted as provided in
§ 56A. See section 3 of this notice for a
definition of the term Taxpayer as used in
sections 4 through 16 of this notice and
section 5 of this notice for rules addressing the determination of AFSI generally.
(2) General definition of AFS. For purposes of § 56A, the term AFS means, with
respect to any taxable year, an AFS, as
defined in § 451(b)(3) or as specified by
the Secretary of the Treasury or her delegate (Secretary) in regulations or other
guidance, that covers that taxable year.
See § 56A(b). See section 4 of this notice
for rules addressing the determination of a
taxpayer’s AFS.
(3) General authority of the Secretary.
Section 56A(e) authorizes the Secretary
to provide such regulations and other
guidance as necessary to carry out the
purposes of § 56A, including regulations
and other guidance relating to the effect
of the rules of § 56A on partnerships with
income taken into account by an applicable corporation.
.03 Adjustments to AFSI. Section
56A(c)(1) through (14) provide general
adjustments to be made to AFSI, several
of which are described in section 2.01
of Notice 2023-7 and in section 2.03(1)
through (11) of this notice.2 In addition,
§ 56A(c)(15) authorizes the Secretary
Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax Regulations (26 CFR part 1).
These include adjustments that take into account the relationship between entities (§ 56A(c)(2)) and certain items of foreign income (§ 56A(c)(3)); effectively connected income (§ 56A(c)
(4)); certain taxes (§ 56A(c)(5)); AFSI of disregarded entities (§ 56A(c)(6)); cooperatives (§ 56A(c)(7)); certain amounts with respect to Alaska native corporations (§ 56A(c)(8)); payments
against tax under §§ 48D(d) or 6417 (§ 56A(c)(9)); and certain amounts with respect to certain mortgage servicing contracts (§ 56A(c)(10)), defined benefit pensions (§ 56A(c)(11)), tax-exempt entities (§ 56A(c)(12)), certain depreciation (§ 56A(c)(13)) and qualified wireless spectrum (§ 56A(c)(14)).
1
2
October 2, 2023
974
Bulletin No. 2023–40
to issue regulations or other guidance to
provide for such adjustments to AFSI as
the Secretary determines necessary to
carry out the purposes of § 56A, including adjustments to AFSI to prevent the
omission or duplication of any item and
adjustments to carry out the principles of
part II of subchapter C of chapter 1 (relating to corporate liquidations), part III of
subchapter C of chapter 1 (relating to corporate organizations and reorganizations),
and part II of subchapter K of chapter 1
(relating to partnership contributions
and distributions). See section 11 of this
notice for rules addressing AFSI adjustments to prevent certain duplications and
omissions.
(1) Special rule regarding consolidated
financial statements. Section 56A(c)(2)
(A) provides that, if the financial results
of a taxpayer are reported on the AFS for
a group of entities (AFS Group), rules
similar to the rules of § 451(b)(5) apply.
Section 451(b)(5) provides that in such
a situation, the AFS for the AFS Group
(Consolidated AFS) is treated as the AFS
of the taxpayer. However, for purposes
of § 451(b)(5), if the taxpayer’s financial
results also are reported on a separate AFS
that is of equal or higher priority to the
Consolidated AFS, then the taxpayer’s
AFS is the separate AFS. See § 1.451-3(h)
(1)(i). Section 1.451-3(h)(2) and (3) provide rules under § 451(b)(5) for determining the extent to which income reflected
on the Consolidated AFS and the underlying source documents is allocable to
the taxpayer for purposes of applying the
rules under § 451(b).
(2) Special rule regarding Tax
Consolidated Groups. Section 56A(c)
(2)(B) provides a general rule applicable
to a taxpayer that is part of an affiliated
group of corporations that join in filing
(or that are required to join in filing) a
consolidated return for Federal income
tax purposes (Tax Consolidated Group).
Under § 56A(c)(2)(B), if a taxpayer is part
of a Tax Consolidated Group for any taxable year, AFSI for that Tax Consolidated
Group for that taxable year must take into
account items on the Tax Consolidated
Group’s AFS that are properly allocable to
members of that Tax Consolidated Group.
However, § 56A(c)(2)(B) provides the
Secretary with authority to prescribe by
regulation exceptions to that general rule.
Bulletin No. 2023–40
See section 6 of this notice for rules applicable to a Tax Consolidated Group.
(3) Special rule regarding corporations not included on a consolidated
return. 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 that other corporation is
determined by only taking into account
dividends received from that 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 (other than amounts
required to be included under §§ 951 and
951A of the Code or such other amounts
as provided by the Secretary) with respect
to that other corporation.
(4) AFSI of partners and partnerships.
Section 56A(c)(2)(D)(i) provides that,
except as provided by the Secretary, 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. Section 56A(c)
(2)(D)(ii) provides that, for purposes of
§§ 55 through 59, the AFSI of a partnership is the partnership’s net income or
loss set forth on that partnership’s AFS
(adjusted under rules similar to the rules
set forth in § 56A).
(5) AFSI of United States shareholder
of a controlled foreign corporation.
Section 56A(c)(3)(A) provides an adjustment to the AFSI of a taxpayer for any taxable year in which the taxpayer is a United
States shareholder (within the meaning of
§ 951(b) or, if applicable, § 953(c)(1)(A))
(each shareholder, a U.S. Shareholder) of
one or more controlled foreign corporations (each within the meaning of § 957
or, if applicable, § 953(c)(1)(B)) (CFC).
Under this rule, the AFSI of the taxpayer
with respect to the CFC (as determined
under § 56A(c)(2)(C)) is adjusted to also
take into account the taxpayer’s pro rata
share (determined under rules similar to
the rules under § 951(a)(2)) of items taken
into account in computing the net income
or loss set forth on the AFS (as adjusted
under rules similar to those that apply
in determining AFSI) of each CFC with
respect to which the taxpayer is a U.S.
Shareholder. The net income or loss of
975
a CFC set forth on its AFS (as adjusted
under rules similar to those that apply in
determining AFSI) is referred to in this
notice as Adjusted Net Income or Loss.
Section 56A(c)(3)(B) provides that, if the
adjustment determined under § 56A(c)(3)
(A) would result in a negative adjustment
for such year, (i) no adjustment is made
to the taxpayer’s AFSI for the taxable
year, and (ii) the amount of the adjustment
determined under § 56A(c)(3)(A) for the
succeeding taxable year is reduced by an
amount equal to the negative adjustment
for the taxable year. See section 7 of this
notice for rules addressing the application
of § 56A(c) to certain foreign corporations.
(6) Effectively connected income.
Section 56A(c)(4) provides that, in determining the AFSI of a foreign corporation,
the principles of § 882 (which subjects a
foreign corporation to Federal income tax
on its taxable income that is effectively
connected with the conduct of a trade or
business within the United States) apply.
(7) Adjustments for certain taxes.
Section 56A(c)(5) provides the general
rule that AFSI is appropriately adjusted
to disregard any Federal income taxes,
or income, war profits, or excess profits
taxes (within the meaning of § 901) with
respect to a foreign country or possession of the United States (Foreign Income
Taxes), which are taken into account on
the taxpayer’s AFS. To the extent provided by the Secretary, the general rule
does not apply to Foreign Income Taxes
taken into account on the taxpayer’s AFS
if the taxpayer does not choose to claim
a foreign tax credit under § 27 (Regular
FTC). Authority is also provided to prescribe regulations or other guidance on the
proper treatment of current and deferred
taxes for purposes of § 56A(c)(5), including the time at which such taxes are properly taken into account. See section 8 of
this notice for rules addressing the AFSI
adjustment for certain income taxes.
(8) Adjustments with respect to disregarded entities. Section 56A(c)(6)
requires AFSI to be adjusted to take into
account any AFSI of a disregarded entity
owned by the taxpayer.
(9) Adjustments with regard to depreciation. Section 56A(c)(13)(A) requires
AFSI to be reduced by depreciation deductions allowed under § 167 with respect to
property to which § 168 applies, to the
October 2, 2023
extent of the amount allowed as deductions in computing taxable income for the
taxable year. In addition, § 56A(c)(13)
(B)(i) requires appropriate adjustments to
AFSI to disregard any amount of depreciation expense that is taken into account
on the taxpayer’s AFS with respect to
property to which § 168 applies. Lastly,
§ 56A(c)(13)(B)(ii) provides that AFSI is
appropriately adjusted to take into account
any other item specified by the Secretary
in order to provide that the property to
which § 168 applies is accounted for in the
same manner as that property is accounted
for under chapter 1. See section 9 of this
notice for rules addressing certain AFSI
adjustments with respect to property to
which § 168 applies.
(10) Adjustments with regard to qualified wireless spectrum. Section 56A(c)
(14)(A)(i) requires AFSI to be reduced by
amortization deductions allowed under
§ 197 with respect to qualified wireless
spectrum, to the extent of the amount
allowed as deductions in computing
taxable income for the taxable year. In
addition, § 56A(c)(14)(A)(ii)(I) requires
appropriate adjustments to AFSI to disregard any amount of amortization expense
that is taken into account on the taxpayer’s
AFS with respect to such qualified wireless spectrum. Further, § 56A(c)(14)(A)
(ii)(II) provides that AFSI is appropriately
adjusted to take into account any other
item specified by the Secretary in order to
provide that such qualified wireless spectrum is accounted for in the same manner
as that property is accounted for under
chapter 1. Lastly, § 56A(c)(14)(B) defines
qualified wireless spectrum as wireless
spectrum that is used in the trade or business of a wireless telecommunications
carrier, and was acquired after December
31, 2007, and before August 16, 2022. See
section 10 of this notice for rules addressing AFSI adjustments with respect to
qualified wireless spectrum.
(11) Adjustment for financial statement
net operating losses. Section 56A(d)(1)
provides that AFSI (determined after the
application of § 56A(c) but without regard
to § 56A(d)) is reduced by an amount
equal to the lesser of the aggregate amount
of financial statement net operating loss
(FSNOL) carryovers to the taxable year or
80 percent of AFSI (determined after the
application of § 56A(c) but without regard
October 2, 2023
to § 56A(d)). Section 56A(d)(2) provides
that the amount of an FSNOL that can be
carried forward to a taxable year is the
FSNOL remaining (if any) after reducing
AFSI in prior taxable years under § 56A(d)
(1). An FSNOL is the net loss set forth on
a taxpayer’s AFS, adjusted as provided by
§ 56A(c), but without regard to § 56A(d),
for taxable years ending after December
31, 2019. See section 12 of this notice for
rules addressing FSNOL carryovers.
.04 Qualification as an Applicable
Corporation under § 59(k). Section 59(k)
(1)(A) provides that, for purposes of
§§ 55 through 59, the term Applicable
Corporation means, with respect to any
taxable year, any corporation (other than
an S corporation, as defined in § 1361(a)
(1); a regulated investment company, as
defined in § 851 (RIC); or a real estate
investment trust, as defined in § 856
(REIT)), that meets the average annual
AFSI test under § 59(k)(1)(B) (AFSI Test)
for one or more taxable years that (i) are
prior to that taxable year and (ii) end after
December 31, 2021.
(1) AFSI Test. There are two versions
of the AFSI Test under § 59(k)(1)(B): one
version that applies to corporations that
are members of a foreign-parented multinational group, as defined in § 59(k)(2)
(B) (FPMG), and one version that applies
to all other corporations. Under § 59(k)
(1)(B)(i), a corporation that is not a
member of a FPMG meets the AFSI Test
for a taxable year if the average annual
AFSI of that corporation (determined
without regard to the adjustment under
§ 56A(d) for FSNOLs) for the three-taxable-year period ending with that taxable year (Three-Taxable-Year Period)
exceeds $1,000,000,000 (General AFSI
Test). Under § 59(k)(1)(B)(ii), a corporation that is a member of a FPMG for
any taxable year meets the AFSI Test
for that taxable year if (i) that corporation meets the General AFSI Test (determined after applying the rule in § 59(k)
(2)) (FPMG $1 Billion Test), and (ii) the
average annual AFSI of that corporation
(determined without regard to the rule
in § 59(k)(2) and without regard to the
adjustment described in § 56A(d) for
FSNOLs) for the Three-Taxable-Year
Period is at least $100,000,000.
(2) Special aggregation rules and
AFSI rules for determining Applicable
976
Corporation status. Solely for purposes
of determining whether a corporation is
an Applicable Corporation under § 59(k)
(1), § 59(k)(1)(D) requires that all AFSI
of persons treated as a single employer
with that corporation under § 52(a) or
(b) is treated as AFSI of that corporation. Section 59(k)(1)(D) also provides
that, solely for purposes of determining
whether a corporation is an Applicable
Corporation, the AFSI of such corporation
must be determined without regard to the
partnership distributive share adjustment
under § 56A(c)(2)(D)(i) and the adjustments pertaining to covered benefit plans
(as defined in § 56A(c)(11)(B)) under
§ 56A(c)(11). In addition, § 59(k)(2)
(A) provides that, solely for purposes of
determining whether a corporation that is
a member of a FPMG meets the FPMG $1
Billion Test, (i) the AFSI of such corporation must include the AFSI of all members
of the FPMG, and (ii) AFSI is determined
without regard to the partnership distributive share adjustment under § 56A(c)(2)
(D)(i), the foreign income pro rata share
adjustment under § 56A(c)(3), the effectively connected income adjustment under
§ 56A(c)(4), and the adjustments under
§ 56A(c)(11) pertaining to covered benefit
plans.
(3) Determination of a FPMG. For purposes of applying § 59(k)(2)(A), § 59(k)
(2)(B) defines a FPMG, with respect to
a taxable year, as two or more entities if
(i) at least one entity is a domestic corporation and another entity is a foreign
corporation, (ii) the entities are included
in the same AFS for the year, and (iii)
either the common parent of the entities
is a foreign corporation or, if there is no
common parent, the entities are treated as
having a common parent that is a foreign
corporation under rules provided by the
Secretary under the authority granted by
§ 59(k)(2)(D) (the common parent or the
entity treated as the common parent, the
FPMG Common Parent). For purposes of
applying § 59(k)(2), if a foreign corporation is engaged in a trade or business in
the United States, that trade or business is
treated as a separate domestic corporation
that is wholly owned by the foreign corporation. See § 59(k)(2)(C).
(4) Authority of the Secretary to provide
regulations or other guidance. Section
59(k)(2)(D) authorizes the Secretary to
Bulletin No. 2023–40
provide regulations or other guidance
applying the principles of § 59(k)(2),
including rules to determine the entities treated as having a FPMG Common
Parent, the entities included in a FPMG,
and the FPMG Common Parent. In addition, § 59(k)(3) authorizes the Secretary
to provide regulations or other guidance
for the purposes of applying § 59(k),
including providing a simplified method
for determining whether a corporation
meets the requirements of § 59(k)(1), and
addressing the application of § 59(k) to
a corporation that experiences an ownership change. See section 13 of this notice
for rules addressing the determination of
whether a corporation is an applicable
corporation subject to the CAMT, including rules that address aggregation under
§ 52, FPMGs, and the treatment of investments in partnerships.
.05 CAMT FTC.
(1) Determining the CAMT FTC.
Section 59(l)(1) provides the rules for
determining the amount of the CAMT
FTC for a taxable year if an Applicable
Corporation chooses to claim the Regular
FTC for the taxable year. The CAMT
FTC of the Applicable Corporation for a
taxable year is the sum of two amounts.
The first amount (CFC Taxes) is equal
to the lesser of: (i) the aggregate of the
Applicable Corporation’s pro rata share
(as determined under § 56A(c)(3)) of the
amount of Foreign Income Taxes that are
(1) taken into account on the AFS of each
CFC with respect to which the Applicable
Corporation is a U.S. Shareholder and (2)
paid or accrued (for Federal income tax
purposes) by each such CFC, or (ii) 15
percent of the Applicable Corporation’s
adjustment under § 56A(c)(3)(A) (CFC
FTC Limitation). See § 59(l)(1)(A). The
second amount is equal to the amount of
Foreign Income Taxes that are (i) taken
into account on the AFS of the Applicable
Corporation, and (ii) paid or accrued
(for Federal income tax purposes) by the
Applicable Corporation. See § 59(l)(1)
(B).
(2) Carryover of excess CFC Taxes.
Section 59(l)(2) provides that, for any
taxable year for which an Applicable
Corporation chooses to claim the Regular
FTC, the amount of CFC Taxes for the
taxable year in excess of the CFC FTC
Limitation for the taxable year is carried
Bulletin No. 2023–40
forward for up to the 5 succeeding taxable
years and increases the amount of CFC
Taxes in any of those succeeding taxable
years to the extent not taken into account
in a prior taxable year.
(3) Grant of authority for regulations
or other guidance. Section 59(l)(3) provides the Secretary authority to provide
regulations or other guidance as is necessary to carry out the purposes of the
CAMT FTC rules in § 59(l). See section
14 of this notice for rules addressing the
CAMT FTC.
.06 Consolidated return regulations.
Section 1502 authorizes the Secretary
to prescribe regulations to clearly reflect
the Federal income tax liability of a Tax
Consolidated Group and to prevent avoidance of such tax liability. See § 1.15021(h) (defining the term consolidated group
for Federal income tax purposes). For
purposes of carrying out those objectives,
§ 1502 explicitly permits the Secretary to
prescribe rules that may be different from
the provisions of chapter 1 that would
apply if the corporations composing the
Tax Consolidated Group filed separate
returns.
SECTION 3. DEFINITION OF
TAXPAYER
Unless otherwise provided in this
notice, for purposes of sections 4 through
16 of this notice, the term Taxpayer means
any entity identified in § 7701 and the regulations thereunder (including an entity
that is disregarded as an entity separate
from its owner under § 301.7701-3 of the
Procedure and Administration Regulations
(that is, a disregarded entity)), regardless
of whether the entity meets the definition
of a taxpayer under § 7701(a)(14).
SECTION 4. DETERMINING A
TAXPAYER’S AFS
.01 Purpose. The Treasury Department
and the IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided in
this section 4, which provides Taxpayers
with additional clarity in determining
their AFS prior to forthcoming proposed
regulations.
.02 Definition of Applicable Financial
Statement (AFS). Subject to the additional
977
rules in section 4.02(2) through (5) of this
notice, for purposes of §§ 56A and 59,
the terms Applicable Financial Statement
and AFS mean the Taxpayer’s financial
statement listed in section 4.02(1) of this
notice that has the highest priority, including priority within sections 4.02(1)(a), (a)
(ii), (b), (b)(ii), and (d) of this notice.
(1) General financial statement priority. The financial statements are, in order
of descending priority:
(a) GAAP statements. A financial statement that is certified, within the meaning
of section 4.02(2) of this notice, as being
prepared in accordance with United States
generally accepted accounting principles
(GAAP) and is:
(i) A Form 10-K (or successor form),
or annual statement to shareholders, filed
with the United States Securities and
Exchange Commission (SEC);
(ii) An audited financial statement of
the Taxpayer that is used for:
(A) Credit purposes;
(B) Reporting to shareholders, partners, or other proprietors, or to beneficiaries; or
(C) Any other substantial non-tax purpose; or
(iii) A financial statement, other
than a tax return, filed with the Federal
Government or any Federal agency, other
than the SEC or the IRS;
(b) IFRS statements. A financial statement that is certified, within the meaning
of section 4.02(2) of this notice, as being
prepared in accordance with international
financial reporting standards (IFRS) and
is:
(i) Filed by the Taxpayer with an
agency of a foreign government that is
equivalent to the SEC, and has financial
reporting standards not less stringent than
the standards required by the SEC;
(ii) An audited financial statement of
the Taxpayer that is used for:
(A) Credit purposes;
(B) Reporting to shareholders, partners, or other proprietors, or to beneficiaries; or
(C) Any other substantial non-tax purpose; or
(iii) A financial statement, other
than a tax return, filed with the Federal
Government, a Federal agency, a foreign
government, or an agency of a foreign
government, other than the SEC, the IRS,
October 2, 2023
or an agency that is equivalent to the SEC
or the IRS;
(c) Other government and regulatory
statements. A financial statement, other
than a tax return, filed with the Federal
Government or any Federal agency, a
state government or state agency, a foreign government or foreign agency, or
a self-regulatory organization including, for example, a financial statement
filed with a state agency that regulates
insurance companies, or the Financial
Industry Regulatory Authority, or a
comparable foreign self-regulatory
organization;
(d) Unaudited external statements. A
financial statement, other than a tax return
or a financial statement described in section 4.02(1)(a)-(c) of this notice, that is
unaudited (or audited but not certified,
within the meaning of section 4.02(2) of
this notice), prepared for an external nontax purpose, and prepared using:
(i) GAAP;
(ii) IFRS; or
(iii) any other accepted accounting
standards that are issued by an accounting
standards board charged with developing accounting standards for one or more
jurisdictions; or
(e) The Taxpayer’s Federal income tax
return or information return filed with the
IRS.
(2) Certified financial statement. A
financial statement is certified for purposes of section 4.02(1) of this notice if
it is:
(a) Certified by an independent financial statement auditor to present fairly the
financial position and results of operations
of a Taxpayer (or group of Taxpayers)
in conformity with the relevant financial
accounting standards (an unqualified or
unmodified “clean” opinion);
(b) Subject to a qualified or modified
opinion by an independent financial statement auditor that such financial statement
presents fairly the financial position and
results of operations of a Taxpayer (or
group of Taxpayers) in conformity with
the relevant financial accounting standards, except for the effects of the matter
to which the qualification or modification
relates (a qualified or modified “except
for” opinion); or
(c) Subject to an adverse opinion by an
independent financial statement auditor,
October 2, 2023
but only if the auditor discloses the amount
of the disagreement with the statement.
(3) Restatements. If a Taxpayer restates
its FSI (as defined in section 5.02(2) of
this notice) for a taxable year prior to the
date that the Taxpayer files its original
Federal income tax return for such taxable
year, the AFS that reflects the restated FSI
(Restated AFS) must be prioritized over
the first AFS that is issued for that specific accounting period (Original AFS). If
a Taxpayer restates its FSI for a taxable
year after the date that the Taxpayer files
its original Federal income tax return for
such taxable year, see section 11.02(3) of
this notice. For purposes of this notice, a
Restated AFS is a revised AFS for a specific accounting period that is reissued to
correct the Original AFS for that accounting period. Adjustments to the financial
results of a prior accounting period that
are disclosed in the notes to an Original
AFS for comparison purposes (for example, in the case of a change in accounting
principle) do not constitute a Restated
AFS for that prior accounting period for
purposes of this notice.
(4) Annual and periodic financial
statements. If a Taxpayer with different
financial accounting and taxable years is
required to file both annual financial statements and periodic financial statements
covering less than a 12-month period with
a government or government agency, the
Taxpayer must prioritize the annual financial statements over the periodic financial
statements in accordance with section
4.02 of this notice.
(5) AFS covering group of entities.
(a) In general. If a Taxpayer’s financial
results are consolidated with the financial
results of one or more other Taxpayers on
a Consolidated AFS (as defined in section
2.03(1) of this notice), the Taxpayer’s
AFS is the Consolidated AFS. However,
except as provided in section 4.02(5)(b)
of this notice, if the Taxpayer’s financial
results are also separately reported on an
AFS that is of equal or higher priority
to the Consolidated AFS under section
4.02(1) of this notice (Separate AFS), then
the Taxpayer’s AFS is the Separate AFS.
(b) Exceptions to use of Separate AFS.
(i) Corporation that is a member of a
Tax Consolidated Group. A corporation
that is a member of a Tax Consolidated
Group must use the Consolidated AFS
978
that contains the financial results of the
Tax Consolidated Group, regardless of
whether the corporation’s financial results
also are reported on a Separate AFS
that is of equal or higher priority to the
Consolidated AFS.
(ii) Members of a FPMG. If a
Taxpayer is a member of a FPMG
and if the FPMG Common Parent (as
defined in section 2.04(3) of this notice)
prepares a Consolidated AFS (FPMG
Consolidated AFS) that includes the
Taxpayer, the Taxpayer must use the
FPMG Consolidated AFS, regardless of
whether the Taxpayer’s financial results
also are reported on a Separate AFS that
is of equal or higher priority to the FPMG
Consolidated AFS.
SECTION 5. GENERAL RULES FOR
DETERMINING AFSI
.01 Purpose. The Treasury Department
and the IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided in
this section 5, which provides Taxpayers
with additional clarity in determining
AFSI prior to forthcoming proposed
regulations.
.02 Definition of AFSI and FSI.
(1) Definition of AFSI.
(a) General definition of AFSI. Except
as provided in section 5.02(1)(b) of this
notice, AFSI means, with respect to
any Taxpayer for any taxable year, the
Taxpayer’s financial statement income
(FSI) (as defined in section 5.02(2) of this
notice) for such taxable year, adjusted as
provided in § 56A or regulations or other
guidance issued under § 56A. A Taxpayer
otherwise may not make any adjustments
to FSI in determining AFSI. For purposes
of § 59(k), certain modifications to AFSI,
including aggregation modifications,
apply as provided in § 59(k) or regulations
or other guidance issued under § 59(k),
including in section 13 of this notice.
(b) AFSI exception for certain
Taxpayers. If, pursuant to section 4.02(1)
(e) of this notice, a Taxpayer determines
that its AFS for a taxable year is a Federal
income tax return or information return
filed with the IRS, the AFSI of such
Taxpayer for such taxable year is the
Taxpayer’s taxable income for such taxable year.
Bulletin No. 2023–40
(2) Definition of FSI. FSI means, with
respect to any Taxpayer for any taxable
year, the net income or loss of the Taxpayer
set forth on the income statement (sometimes referred to as the statement of earnings, the statement of operations, or the
statement of profit and loss) included in
the Taxpayer’s AFS (as defined in section 4.02 of this notice) for such taxable
year. FSI includes all of the Taxpayer’s
items of income, expense, gain, and loss
reflected in the net income or loss set forth
on such income statement for the taxable
year, including nonrecurring items and
net income or loss from discontinued
operations. FSI does not include amounts
reflected elsewhere in the Taxpayer’s
AFS, including in equity accounts such as
retained earnings and other comprehensive income.
(3) General rules for determining FSI
and AFSI.
(a) Federal income tax treatment not
relevant for FSI. FSI includes all items of
income, expense, gain, and loss reflected
in the net income or loss of a Taxpayer set
forth on the income statement included in
the Taxpayer’s AFS regardless of whether
such amounts are realized, recognized, or
otherwise taken into account for purposes
of determining the Taxpayer’s regular tax
liability, as defined in § 26(b) (Regular
Tax). For example, FSI includes income
reported on the income statement included
in a Taxpayer’s AFS for a taxable year
even if such income would not be taken
into account as AFS revenue for that taxable year under § 1.451-3(b)(2). Similarly,
FSI includes gain or loss reported on the
income statement included in a Taxpayer’s
AFS for a taxable year even if such gain
or loss is deferred or not recognized for
Regular Tax purposes (for example, gain
on a like-kind exchange that qualifies for
nonrecognition treatment under § 1031).
(b) Federal income tax treatment not
relevant for AFSI except as otherwise
provided in the statute or other guidance.
Except as otherwise provided in § 56A
or § 59(k) (as applicable), regulations, or
other guidance, AFSI includes all items of
income, expense, gain, and loss reflected
in the Taxpayer’s FSI regardless of
whether such amounts are realized, recognized, or otherwise taken into account for
Regular Tax purposes. Accordingly, if FSI
reflects gain or loss from a transaction that
Bulletin No. 2023–40
qualifies for nonrecognition treatment for
Regular Tax purposes, and no provision
of § 56A or § 59(k) (as applicable), regulations, or other guidance provides for an
adjustment to apply nonrecognition treatment for AFSI purposes, then such gain or
loss is recognized in AFSI.
(c) Determining FSI from a
Consolidated AFS. If a Taxpayer’s AFS
is a Consolidated AFS (as determined
under section 4.02(5) of this notice), the
Taxpayer must determine the amount of
the portion of the net income or loss of the
AFS Group (as defined in section 2.03(1)
of this notice) set forth on the income statement included in the Consolidated AFS
(Consolidated FSI) that is the Taxpayer’s
FSI. Except as provided in section 6 of this
notice, the Taxpayer’s FSI is determined
in accordance with this section 5.02(3)(c).
(i) In general. The portion of
Consolidated FSI that is the Taxpayer’s
FSI must be supported by the Taxpayer’s
separate books and records (including trial
balances) used to create the Consolidated
AFS and generally would equal the FSI
that the Taxpayer would have reported had
the Taxpayer prepared a Separate AFS.
(ii) No netting losses against income
within the Consolidated AFS. The portion
of Consolidated FSI that is the Taxpayer’s
FSI is determined without regard to the
financial results of other Taxpayers that
are members of the same AFS Group.
Accordingly, if two or more Taxpayers
are members of the same AFS Group,
the loss of one such Taxpayer may not
be netted against the income of another
such Taxpayer for purposes of determining the FSI of either Taxpayer, notwithstanding that such amounts are reflected
in Consolidated FSI on a net basis.
(iii) Elimination journal entries. The
portion of Consolidated FSI that is the
Taxpayer’s FSI is determined without
regard to any AFS Consolidation Entries
(as defined in section 5.02(3)(c)(vi) of this
notice) that-(A) eliminate the effect of transactions between the Taxpayer and another
Taxpayer that is a member of the same
AFS Group unless such transactions are
between a disregarded entity and its owner
or between disregarded entities that have
the same owner; or
(B) eliminate FSI of the Taxpayer
with respect to its investment in another
979
Taxpayer that is a member of the AFS
Group unless the investment is in a disregarded entity.
In the case of a Taxpayer that has an
investment in a partnership, the FSI of the
Taxpayer with respect to such investment
must be determined as though the Taxpayer
prepared a Separate AFS in which such
investment was properly accounted for
under the relevant accounting standards
for investments in other entities (for example, under the equity method described
in Accounting Standards Codification
(ASC) 323), when the Taxpayer does not
so account for the investment in its separate books and records used to prepare the
Consolidated AFS.
(iv) Consolidation entries other than
elimination entries. AFS Consolidation
Entries, other than elimination entries
described in section 5.02(3)(c)(iii)(A)
and (B) of this notice, that relate to one
or more Taxpayers that are members of
the AFS Group and that are not reflected
in the separate books and records of such
Taxpayers, such as for shared expenses,
must be allocated to each Taxpayer to
which the AFS Consolidation Entries
relate and taken into account in each
Taxpayer’s FSI.
(v) Reconciliation requirement. The
Taxpayer must maintain books and records
sufficient to demonstrate how its FSI (as
determined under this section 5.02(3)(c))
reconciles to Consolidated FSI.
(vi) Definition of AFS Consolidation
Entries. For purposes of this section
5.02(3)(c), the term AFS Consolidation
Entries means the financial accounting
journal entries that are made for AFS
purposes in order to present the financial
results of an AFS Group as though all
members of the AFS Group were a single company, including journal entries
to eliminate the effect of transactions
between members of the AFS Group, to
report amounts that are not recorded in
the separate books and records of one or
more members of the AFS Group, and to
correct or otherwise adjust amounts that
are reported in the separate books and
records of one or more members of the
AFS Group.
(vii) Example.
(A) Facts. The financial results of Taxpayer X are
consolidated with the financial results of Taxpayer
Y on a Consolidated AFS (XY Consolidated AFS)
for the financial reporting period beginning January
October 2, 2023
1, 2023, and ending December 31, 2023. X and Y
are the only Taxpayers whose financial results are
reflected in the XY Consolidated AFS. X and Y
are both calendar year Taxpayers. Under section
4.02(5) of this notice, X’s AFS and Y’s AFS is the
XY Consolidated AFS. X is a domestic corporation.
Y is a domestic partnership, and X has a 40 percent
interest in Y. The XY Consolidated AFS reflects
Consolidated FSI of $1.65 billion. The books and
records used to prepare the XY Consolidated AFS
disclose that X had separate net income of $2
billion and that Y had a separate net loss of $500
million. Further, the $2 billion net income of X
includes $1 million of income for services rendered
to Y and a loss of $200 million reflecting X’s share
of Y’s net loss, determined under the equity method
of accounting. These two amounts were eliminated
from Consolidated FSI through AFS Consolidation
Entries made in preparing the XY Consolidated
AFS. Y’s loss of $500 million includes $1 million
of expense that Y incurred for services provided
by X. The $1 million expense was also eliminated
from Consolidated FSI through AFS Consolidation
Entries made in preparing the Consolidated AFS.
An AFS Consolidation Entry was also made to
take into account in Consolidated FSI $50 million of expenses incurred by X to a third party
and not reflected in its separate books and records.
Accordingly, the information from X’s and Y’s
source documents, the AFS Consolidation Entries,
and Consolidated FSI for the XY Consolidated AFS
are summarized as follows (all amounts are stated
in U.S. dollars):
X
Y
AFS Consolidation
Entries
Consolidated FSI
Net income or loss from transactions outside AFS Group
2,199,000,000
(499,000,000)
-
1,700,000,000
Income from transactions between X and Y (services)
1,000,000
-
(1,000,000)
-
Expenses from transactions between X and Y (services)
-
(1,000,000)
1,000,000
-
Investment in Y (X’s 40% share of Y’s 500,000,000 loss)
(200,000,000)
-
200,000,000
-
-
-
(50,000,000)
(50,000,000)
2,000,000,000
(500,000,000)
150,000,000
1,650,000,000
Expense of X recorded in consolidation
Net Income or Loss
(B) Analysis. X and Y must determine their
portion of the Consolidated FSI set forth on the
XY Consolidated AFS by applying the principles set forth in section 5.02(3)(c) of this notice.
Accordingly, the portion of Consolidated FSI that
is X’s FSI is based upon X’s separate books and
records used in preparing the XY Consolidated AFS.
These disclose net income of $2 billion. In determining X’s FSI, this amount is not reduced by the
net loss reflected in Y’s separate books and records
(even though Consolidated FSI is reduced by such
net loss). Further, pursuant to section 5.02(3)(c)
(iii) of this notice, the AFS Consolidation Entries
eliminating the $1 million of income from services
rendered to Y and the $200 million loss from X’s
investment in Y determined under the equity method
are both disregarded. That is, X’s FSI includes these
two amounts. Finally, pursuant to section 5.02(3)
(c)(iv) of this notice, X must reduce its FSI by $50
million, the AFS Consolidation Entry for administrative costs of X that were not reflected in its separate books and records. Accordingly, the portion of
Consolidated FSI that is X’s FSI is $1.950 billion ($2
billion - $50 million).
The portion of Consolidated FSI that is Y’s FSI is
similarly determined. Y’s separate books and records
disclose a net loss of $500 million. In determining
Y’s FSI, this amount is not offset by any portion of
X’s separate net income of $2 billion (even though
the amounts are netted in Consolidated FSI). Further,
pursuant to section 5.02(3)(c)(iii) of this notice, the
AFS Consolidation Entry eliminating $1 million
of expense for services provided by X is disregarded. That is, such expense is included in Y’s FSI.
Accordingly, the portion of Consolidated FSI that is
Y’s FSI is a net loss of $500 million.
Pursuant to section 5.02(3)(c) of this notice, the
portions of Consolidated FSI that are X’s FSI and Y’s
FSI are determined as follows:
FSI of X
FSI of Y
Separate net income or Loss
2,000,000,000
(500,000,000)
Expenses of X recorded in consolidation
(50,000,000)
-
FSI1
1,950,000,000
(500,000,000)
SECTION 6. DETERMINING FSI,
AFSI, AND TAX IMPOSED FOR TAX
CONSOLIDATED GROUPS
.01 Purpose. The Treasury Department
and the IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided in
this section 6, which provides Taxpayers
with additional clarity in determining, prior
to forthcoming proposed regulations-(1) the FSI and AFSI of a Tax
Consolidated Group (see section 6.03 of
this notice), and
(2) the amount of tax imposed by § 55
on a Tax Consolidated Group (see section
6.04 of this notice).
.02 Priority of Consolidated AFS.
For rules regarding the priority of the
Consolidated AFS of a Tax Consolidated
Group, see section 4.02(5)(b)(i) of this
notice.
.03 Calculation of FSI of a Tax
Consolidated Group. The FSI of a Tax
Consolidated Group for a taxable year
is determined based on the Consolidated
AFS of the Tax Consolidated Group as
follows:
(1) Consolidated AFS comprising
solely Tax Consolidated Group members. If the Consolidated AFS of the Tax
Consolidated Group comprises solely the
members (as defined in § 1.1502-1(b)) of
the Tax Consolidated Group and any disregarded entities owned by such members
(each, a Tax Consolidated AFS Member),
the FSI of the Tax Consolidated Group for
the taxable year equals the Consolidated
FSI set forth in the Consolidated AFS
of the Tax Consolidated Group (that is,
the FSI of all Tax Consolidated AFS
Given the application of section 5.02(3)(c)(iii)(B) to disregard the AFS Consolidation Entry eliminating the $200,000,000 loss from X’s investment in Y, the sum of the separate portions of Consolidated FSI that are X’s FSI and Y’s FSI [$1,950,000,000 + (500,000,000) = $1,450,000,000] is $200,000,000 less than the Consolidated FSI for the XY Consolidated AFS
[$1,650,000,000].
3
October 2, 2023
980
Bulletin No. 2023–40
Members) for the taxable year under section 5.02 of this notice.
(2) Consolidated AFS comprising Tax
Consolidated AFS Members and other
Taxpayers. 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 this notice by treating the Tax Consolidated Group as the
Taxpayer. Treating a Tax Consolidated
Group as a Taxpayer does not change
the Federal tax classification of an entity
classified as a partnership owned only by
Tax Consolidated AFS Members of the
Tax Consolidated Group. Accordingly, for
example, the FSI of the Tax Consolidated
Group must-(a) disregard each AFS Consolidation
Entry regarding-(i) a transaction between a Tax
Consolidated AFS Member and another
Taxpayer,
(ii) a Tax Consolidated AFS Member’s
investment in another Taxpayer, or
(iii) another Taxpayer’s investment in a
Tax Consolidated AFS Member, and
(b) take into account each AFS
Consolidation Entry regarding-(i) a transaction between Tax
Consolidated AFS Members, or
(ii) a Tax Consolidated AFS Member’s
investment in another Tax Consolidated
AFS Member.
.04 Calculation of tax imposed by
§ 55. The tax imposed by § 55(a) on a Tax
Consolidated Group is calculated based
on the Tax Consolidated Group’s-(1) tentative minimum tax,
(2) regular consolidated tax liability,
and
(3) tax imposed by § 59A (under
§ 1.1502-59A).
.05 Example. The following example
illustrates the rules set forth in section
6.03 of this notice.
(1) Facts. X, Y, and Z are domestic corporations
that each have only one class of stock outstanding.
X owns 90 percent of the stock of Y and 60 percent
of the stock of Z. The remaining Y and Z stock is
held by unrelated persons. X and Y form an affiliated
group (XY Tax Consolidated Group) and file a consolidated tax return (XY Consolidated Return), with
Bulletin No. 2023–40
X as the common parent. The financial results of
domestic corporations X, Y, and Z are consolidated
on a Consolidated AFS (XYZ Consolidated AFS) for
all relevant financial reporting periods. X, Y, and Z
are the only taxpayers the financial results of which
are reflected in the XYZ Consolidated AFS. X, Y,
and Z are all calendar year taxpayers. Under section
4.02(5) of this notice, the XYZ Consolidated AFS is
the AFS of X, Y, and Z. In 2023, X sold Asset N to Y
for $10 million. Books and records used to prepare
the XYZ Consolidated AFS, including trial balances,
show that X had gain of $2 million on the sale of
Asset N. The gain was eliminated from Consolidated
FSI through AFS Consolidation Entries made in
preparing the XYZ Consolidated AFS. In 2024,
Y sold Asset N to Z for $13 million. Books and
records used to prepare the XYZ Consolidated AFS,
including trial balances, show that Y had gain of $3
million on the sale of Asset N. As in 2023, the gain
was eliminated from Consolidated FSI through AFS
Consolidation Entries made in preparing the XYZ
Consolidated AFS.
(2) Analysis--(a) In general. The FSI of the
XY Tax Consolidated Group is determined under
section 6.03 of this notice. The XYZ Consolidated
Group includes an entity (Z) that is not a member of
the XY Tax Consolidated Group. Therefore, section
6.03(2) of this notice applies. As a result, the XY
Consolidated Group’s FSI is determined from the
XYZ Consolidated AFS by applying section 5.02(3)
(c) of this notice, treating the XY Tax Consolidated
Group as a single taxpayer. Accordingly, the XY
Tax Consolidated Group’s FSI is based upon
X’s and Y’s books and records used in preparing
the XYZ Consolidated AFS. AFS Consolidation
Entries eliminating transactions between Z and
a member of the XY Tax Consolidated Group
are disregarded in determining the FSI of the XY
Tax Consolidated Group, but AFS Consolidation
Entries eliminating transactions between X and Y
are taken into account.
(b) Analysis for 2023. In 2023, because the
AFS Consolidation Entries eliminate a transaction
between X and Y, the AFS Consolidation Entries are
taken into account. Therefore, X’s $2 million gain
on the sale of Asset N is not included in the XY Tax
Consolidated Group’s FSI in 2023.
(c) Analysis for 2024. In 2024, because the
AFS Consolidation Entries eliminate a transaction
between Y (a member of the XY Tax Consolidated
Group) and Z (a non-member), these AFS
Consolidation Entries are disregarded. However,
the effect of the 2023 AFS Consolidation Entries
on the basis of Asset N is taken into account.
Therefore, the XY Tax Consolidated Group’s FSI
in 2024 includes $5 million of gain on the sale of
Asset N.
SECTION 7. DETERMINING AFSI
WITH RESPECT TO CERTAIN
FOREIGN CORPORATIONS
.01 Purpose. The Treasury Department
and the IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided in
981
this section 7, which provides Taxpayers
with additional clarity in determining
AFSI with respect to certain foreign corporations prior to forthcoming proposed
regulations.
.02 Application of § 56A(c) in respect
of certain foreign corporations.
(1) Interaction of § 56A(c)(2)(C)
and (c)(3). A Taxpayer that is a U.S.
Shareholder (as defined in section
2.03(5) of this notice) of a CFC (as
defined in section 2.03(5) of this notice)
must apply both § 56A(c)(2)(C) and (c)
(3) to determine its AFSI with respect to
such CFC.
(2) Section 56A(c)(3) adjustment determined on aggregate basis. A Taxpayer that
is a U.S. Shareholder of multiple CFCs
makes a single adjustment under § 56A(c)
(3)(A) that is equal to the sum of its pro
rata share of the Adjusted Net Income or
Loss (as defined in section 2.03(5) of this
notice) of each CFC of which the Taxpayer
is a U.S. Shareholder. If the amount of
such single adjustment would be negative,
no amount is taken into account under
§ 56A(c)(3) for such taxable year. See
§ 56A(c)(3)(B)(i).
(3) Financial statement income or loss
of a CFC that is a partner in any partnership or the owner of any disregarded
entity. If a CFC is a partner in any partnership or the owner of any disregarded entity,
the items taken into account in computing
the CFC’s Adjusted Net Income or Loss
must include the CFC’s distributive share
of AFSI of any such partnership (as determined under § 56A(c)(2)(D), regulations,
or other guidance) and the FSI of any such
disregarded entity, as adjusted under rules
similar to those that apply in determining
AFSI.
(4) Application of income tax treaties.
For purposes of applying § 56A(c)(4),
in the case of a foreign corporation that
qualifies for and claims the benefits of the
business profits provisions of an applicable income tax treaty, the principles of
those provisions apply in determining the
foreign corporation’s AFSI.
(5) Interaction of § 56A(c)(3) and (c)
(4). A CFC’s Adjusted Net Income or
Loss is not limited to the amount of AFSI
of the CFC that would be determined if
only § 56A(c)(4) and application of section 7.02(4) of this notice were taken
into account. Additionally, if a CFC is
October 2, 2023
an Applicable Corporation, the CFC’s
Adjusted Net Income or Loss is reduced
by the amount of AFSI of the CFC (determined by taking into account § 56A(c)(4)
as applied by taking into account section
7.02(4) of this notice).
SECTION 8. AFSI ADJUSTMENT FOR
CERTAIN TAXES
.01 Purpose. The Treasury Department
and the IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided in
this section 8, which provides Taxpayers
with additional clarity in determining the
AFSI adjustment for certain taxes under
§ 56A(c)(5) prior to forthcoming proposed regulations.
.02 Adjustments for certain taxes under
§ 56A(c)(5).
(1) Timing of appropriate adjustment. An appropriate adjustment to AFSI
described in § 56A(c)(5) with respect
to any Federal income taxes or Foreign
Income Taxes (as defined in section
2.03(7) of this notice) that are taken into
account on the Taxpayer’s AFS, including Federal income taxes or Foreign
Income Taxes accounted for as deferred
tax expense (benefit), as current tax
expense (benefit), or through increases
or decreases to other AFS accounts (such
as those that are used to account for FSI
from investments in other entities under
the equity method), is made in the taxable
year or years in which such taxes increase
or decrease the Taxpayer’s FSI or are
included as a component of an adjustment
to AFSI described in section 11.02 of this
notice.
(2) Taxes treated as taken into account
on an AFS. For purposes of sections
8.02 and 14.02 of this notice, a Federal
income tax or Foreign Income Tax is considered taken into account on an AFS of
a Taxpayer if any journal entry has been
recorded in the journal used to determine
the amounts on the AFS of the Taxpayer
for any year, or another AFS that includes
the Taxpayer, to reflect the income tax,
even if the income tax does not increase
or decrease the Taxpayer’s FSI at the time
of the journal entry. An income tax that is
taken into account on a partnership’s AFS
is also considered taken into account on
any AFS of its partners.
October 2, 2023
SECTION 9. AFSI ADJUSTMENTS
FOR SECTION 168 PROPERTY
.01 Purpose. The Treasury Department
and the IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided in this section 9, which provides
Taxpayers with additional clarity in determining AFSI adjustments for Section 168
Property (as defined in section 4.02(5) of
Notice 2023-7) prior to forthcoming proposed regulations.
.02 Modifications and clarifications to
Notice 2023-7. This section 9.02 modifies
and clarifies certain provisions in section
4 of Notice 2023-7. Taxpayers that choose
to rely on the interim guidance in section
4 of Notice 2023-7 on or after September
12, 2023, must apply the guidance in section 4 of Notice 2023-7, as modified and
clarified by this notice.
(1) Adjustments for accounting method
changes. If a Taxpayer changes its method
of accounting for depreciation for any item
of Section 168 Property for Regular Tax
purposes, the Taxpayer must adjust AFSI
to reflect the adjustment required under
§ 481(a) for such change to prevent depreciation from being duplicated or omitted
under § 56A(c)(13). Section 9.02(5) and
(6) of this notice modifies and clarifies
sections 4.02 and 4.03 of Notice 2023-7 to
take into account this § 481(a) adjustment.
Section 9.02(8) of this notice modifies and
clarifies section 4.08 of Notice 2023-7 to
provide an example of this rule.
(2) Adjustments for Tax Depreciation
capitalized and subsequently deducted. If
a Taxpayer capitalizes Tax Depreciation,
as defined in section 4.02(7) of Notice
2023-7, and recovers the amount capitalized through one or more deductions
allowed in computing taxable income,
AFSI is reduced by such deductions,
even if such deductions are allowed
under a provision of the Code other than
§ 167. For example, if a Taxpayer capitalizes and amortizes Tax Depreciation
under § 174(a)(2), AFSI is reduced by the
amortization deductions allowed under
§ 174 in computing taxable income.
Section 9.02(5) and (6) of this notice
modifies and clarifies sections 4.02
and 4.03 of Notice 2023-7 to take into
account the deductions described in this
section 9.02(2).
982
(3) Adjustments for Tax Depreciation
capitalized to non-inventory property
held for sale. If a Taxpayer capitalizes
Tax Depreciation to property described
in § 1221(a)(1) that is not inventory and
recovers the amount capitalized as part of
the computation of gain or loss from the
sale or exchange of such property in computing taxable income, AFSI is reduced by
such amount. Section 9.02(5) and (6) of
this notice modifies and clarifies sections
4.02 and 4.03 of Notice 2023-7 to take
into account the amounts described in this
section 9.02(3).
(4) Adjustments related to dispositions of Section 168 Property that occur
for AFS purposes before they occur for
Regular Tax purposes. If a Taxpayer takes
a disposition loss, including an abandonment loss, into account in its 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 earlier taxable year to disregard the disposition loss
included in its FSI for that taxable year.
The Taxpayer must wait until the taxable
year in which the disposition event occurs
for Regular Tax purposes to take the disposition loss (as redetermined under section 4.07 of Notice 2023-7, as modified
by this notice) into account for AFSI
purposes. Section 9.02(5) and (6) of this
notice modifies and clarifies sections 4.02
and 4.03 of Notice 2023-7 to reflect this
adjustment. Additionally, section 9.02(7)
of this notice modifies section 4.07 of
Notice 2023-7 to clarify that the rules in
such section apply in the taxable year in
which Section 168 Property is disposed of
for Regular Tax purposes. Section 9.02(7)
of this notice also modifies and clarifies
section 4.07 of Notice 2023-7 to provide
additional rules regarding adjustments to
the AFS basis of Section 168 Property for
purposes of redetermining the FSI gain or
loss from the disposition of such property.
Finally, section 9.02(8) of this notice modifies and clarifies the example in section
4.08 of Notice 2023-7 to illustrate these
rules.
(5) Modifications to section 4.02 of
Notice 2023-7. In accordance with sections 9.02(1) through (4) of this notice,
section 4.02 of Notice 2023-7 is modified
and clarified to read as follows:
Bulletin No. 2023–40
.02 Defined Terms. For purposes of this
section 4:
(1) Covered Book COGS Depreciation.
The term Covered Book COGS
Depreciation means depreciation expense,
disposition loss (including from an abandonment) that occurs prior to the taxable
year in which the disposition occurs for
regular tax purposes, impairment loss, or
impairment loss reversal that is taken into
account as cost of goods sold (or as part of
the computation of gain or loss from the
sale or exchange of other property held for
sale) in the net income or loss set forth on
the taxpayer’s AFS with respect to Section
168 Property (as defined in section 4.02(5)
of this notice).
(2) Covered Book Depreciation
Expense. The term Covered Book
Depreciation Expense means depreciation expense, disposition loss (including
from an abandonment) that occurs prior
to the taxable year in which the disposition occurs for regular tax purposes,
impairment loss, or impairment loss
reversal other than Covered Book COGS
Depreciation that is taken into account in
the net income or loss set forth on the taxpayer’s AFS with respect to Section 168
Property.
(3) Covered Book Expense. The
term Covered Book Expense means
an amount, other than Covered Book
COGS Depreciation and Covered Book
Depreciation Expense, that is-(a) recognized as an expense or loss in
the net income or loss set forth on the taxpayer’s AFS, and
(b) reflected in the unadjusted depreciable basis, as defined in § 1.168(b)-1(a)
(3), of Section 168 Property for purposes
of the regular tax liability, as defined in §
26(b) (Regular Tax).
(4) Deductible Tax Depreciation. The
term Deductible Tax Depreciation means
Tax Depreciation (as defined in section
4.02(7) of this notice) that is allowed as
a deduction in computing taxable income,
including Tax Depreciation that is capitalized and subsequently allowed as a deduction in computing taxable income (even if
such deduction is allowed under a provision of the Code other than § 167).
(5) Section 168 Property. The term
Section 168 Property means property to
which § 168 applies, as described in section 4.04 of this notice.
Bulletin No. 2023–40
(6) Tax COGS Depreciation. The
term Tax COGS Depreciation means Tax
Depreciation that is capitalized to inventory under § 263A and recovered as part
of cost of goods sold in computing gross
income, and Tax Depreciation that is capitalized to property described in § 1221(a)
(1) that is not inventory and recovered as
part of the computation of gain or loss
from the sale or exchange of such property
in computing taxable income.
(7) Tax Depreciation. The term Tax
Depreciation means depreciation deductions allowed under § 167, with respect to
Section 168 Property.
(8) Tax Depreciation Section 481(a)
Adjustment. The term Tax Depreciation
Section 481(a) Adjustment means those
adjustments that are required under
§ 481(a) for a change in method of
accounting for depreciation for any item
of Section 168 Property.
(6) Modifications to section 4.03 of
Notice 2023-7. In accordance with section
9.02(1) through (4) of this notice, section
4.03 of Notice 2023-7 is modified and
clarified to read as follows:
.03 Adjustments for Depreciation
(Including Depreciation Capitalized to
Inventory). For purposes of § 56A(c)(13),
AFSI is-(1) reduced by Tax COGS Depreciation,
but only to the extent of the amount recovered: (a) as part of cost of goods sold in
computing taxable income for the taxable
year, or (b) as part of the computation of
gain or loss from the sale or exchange
of non-inventory property described in
§ 1221(a)(1) that is included in taxable
income, or deducted in computing taxable
income, respectively, for the taxable year,
as applicable,
(2) reduced by Deductible Tax
Depreciation, but only to the extent of the
amount allowed as a deduction in computing taxable income for the taxable year,
(3) adjusted to disregard Covered
Book COGS Depreciation, Covered Book
Depreciation Expense, and Covered Book
Expense,
(4) reduced by any Tax Depreciation
Section 481(a) Adjustment that is negative, but only to the extent of the amount
of such Tax Depreciation Section 481(a)
Adjustment that is taken into account in
computing taxable income for the taxable
year,
983
(5) increased by any Tax Depreciation
Section 481(a) Adjustment that is positive, but only to the extent of the amount
of such Tax Depreciation Section 481(a)
Adjustment that is taken into account in
computing taxable income for the taxable
year, and
(6) adjusted for other items as provided
in regulations or other guidance.
(7) Modifications to section 4.07 of
Notice 2023-7. In accordance with section
9.02(1) and (4) through (6) of this notice,
section 4.07 of Notice 2023-7 is modified
and clarified to read as follows:
.07 AFSI adjustments for dispositions.
If a taxpayer disposes of Section 168
Property for Regular Tax purposes, the
taxpayer must adjust AFSI for the taxable
year in which such disposition occurs to
redetermine any gain or loss taken into
account in the net income or loss set forth
on the taxpayer’s AFS with respect to
such disposition for such year (including
a gain or loss of zero) by adjusting the
remaining AFS basis of such property by
the amounts described in sections 4.07(1)
through (4) of this notice with respect to
such property, including those amounts
attributable to taxable years prior to the
effective date of the CAMT. For purposes
of the preceding sentence, the remaining
AFS basis of such property is-(1) decreased by the full amount of Tax
Depreciation with respect to such property
(regardless of whether any amount of such
Tax Depreciation was capitalized and not
yet taken into account as a reduction to
AFSI through an adjustment described in
sections 4.03(1) or (2) of this notice),
(2) increased by the cumulative adjustments described in section 4.03(3) of this
notice with respect to such property,
(3) increased by the full amount of
any Tax Depreciation Section 481(a)
Adjustment with respect to such property that is positive and decreased by
the full amount of any Tax Depreciation
Section 481(a) Adjustment with respect
to such property that is negative (regardless of whether any portion of such Tax
Depreciation Section 481(a) Adjustment
has yet to be taken into account in AFSI
through an adjustment described in sections 4.03(4) or (5) of this notice), and
(4) increased or decreased, as appropriate, by any other adjustments to AFS
basis required under § 56A, regulations,
October 2, 2023
or other guidance with respect to such
property (for example, AFS basis adjustments required under section 3.03(2) of
this notice).
(8) Modifications to section 4.08 of
Notice 2023-7. In accordance with section
9.02(1) and (4) through (6) of this notice,
section 4.08 of Notice 2023-7 is modified
and clarified to read as follows:
.08 Examples. The following examples
illustrate certain rules set forth in section
4 of this notice.
(1) Example 1 – Section 481(a) adjustment.
(a) Facts. X is an Applicable Corporation for
the calendar year ending December 31, 2023. X
timely files a Form 3115, Application for Change
in Accounting Method, under Rev. Proc. 201513, 2015-5 I.R.B. 419, for the calendar year ending December 31, 2023, to change its method of
accounting for depreciation for an item of Section
168 Property, and the Secretary consents to the
change. The adjustment required under § 481(a) to
implement such change is positive because the total
amount of depreciation taken by X with respect to
the Section 168 Property under its present method
was $1,000x greater than the total amount of depreciation allowable under the new method of accounting.
X takes the $1,000x net positive § 481(a) adjustment
into account in computing taxable income ratably
over the § 481(a) adjustment period of 4 taxable
years, beginning with the year of change (2023
through 2026).
(b) Analysis for taxable years 2023 through
2026. Pursuant to section 9.02(1) of this notice, X
must take the $1,000x net positive Tax Depreciation
Section 481(a) Adjustment into account in determining AFSI under § 56A(c)(13) for taxable years 2023
through 2026. Because the adjustment is positive, X
would increase AFSI by $250x each year.
(2) Example 2 – Property placed in service prior
to 2023 and disposition adjustments.
(a) Facts. Taxpayer is an Applicable Corporation
for the calendar year ending December 31, 2023. On
January 1, 2018, Taxpayer purchased and placed in
service Property A, which is Section 168 Property,
at a cost of $1,000x. Property A qualified for, and
Taxpayer claimed, the 100-percent additional first
year depreciation deduction allowable under §
168(k) for its taxable year ending December 31,
2018. For AFS purposes, Taxpayer depreciates
Property A over 40 years on a straight-line method
and recognizes $25x ($1,000x cost / 40 years) of
Covered Book Depreciation Expense in 2018 and
each year thereafter until it sells Property A (a disposition for Regular Tax and AFS purposes) on January
1, 2024, for $900x. For 2024, Taxpayer takes into
account $50x of net gain for the sale of Property A
in the net income or loss set forth on its AFS ($900x
proceeds - $850x of AFS basis ($1,000x cost - $150x
accumulated Covered Book Depreciation Expense as
of January 1, 2024)).
(b) Analysis for taxable year 2023. In determining AFSI for the taxable year ending December 31,
2023, Taxpayer does not have any Deductible Tax
Depreciation or Tax COGS Depreciation in computing taxable income with respect to Property
October 2, 2023
A, and thus, the adjustments under section 4.03(1)
and (2) of this notice would be zero. In addition,
Taxpayer would adjust AFSI under section 4.03(3)
of this notice to disregard the $25x of Covered Book
Depreciation Expense with respect to Property A.
(c) Analysis for taxable year 2024. To determine
the AFSI adjustment for the gain or loss from the
sale of Property A under section 4.07 of this notice,
Taxpayer must adjust the remaining AFS basis of
such property by the amounts described in section
4.07(1) through (4) of this notice with respect to
such property, including those amounts attributable to taxable years prior to the effective date of
the CAMT. Accordingly, the redetermined basis of
Property A for AFSI purposes is zero ($850x remaining AFS basis + $150x accumulated Covered Book
Depreciation Expense - $1,000x of accumulated
Tax Depreciation). Thus, the redetermined gain on
the sale of Property A for AFSI purposes is $900x
($900x proceeds - $0 redetermined AFSI basis), and
a positive adjustment to AFSI of $850x ($900x redetermined gain - $50x net gain set forth on the AFS) is
made to reflect the redetermined gain.
.03 Other AFSI rules for Section 168
Property.
(1) Section 56A(c)(13) does not apply
to property not depreciated under §§ 167
and 168. If a Taxpayer owns property
that is not subject to depreciation under
§§ 167 and 168 for Regular Tax purposes
(for example, because the Taxpayer is
not subject to U.S. taxation), then AFSI
of that Taxpayer is not adjusted under
§ 56A(c)(13) with respect to such property. Further, the rules for determining
Applicable Corporation status of members
of a FPMG in § 59(k)(2)(A), including the
rule that disregards the AFSI adjustment
described in § 56A(c)(4), do not change
this result.
(2) Amounts recognized in FSI for
the disposition of Section 168 Property.
Section 5.02(3)(b) of this notice provides
that except as otherwise provided in § 56A
or § 59(k) (as applicable), regulations, or
other guidance, AFSI includes all items of
income, expense, gain, and loss reflected in
the Taxpayer’s FSI regardless of whether
such amounts are realized, recognized, or
otherwise taken into account for Regular
Tax purposes. Section 56A(c)(13) does
not provide for an adjustment to AFSI
to apply nonrecognition or gain deferral
provisions that apply to certain dispositions of Section 168 Property for Regular
Tax purposes (for example, like-kind
exchanges under § 1031 or installment
sales under § 453). However, other provisions under § 56A or guidance issued by
the Treasury Department and the IRS may
provide for such an adjustment in certain
984
situations (for example, see section 3 of
Notice 2023-7, which provides an adjustment to AFSI if Section 168 Property was
disposed of in a Covered Nonrecognition
Transaction). Accordingly, except as otherwise provided in other provisions under
§ 56A, regulations, or other guidance, if a
Taxpayer disposes of Section 168 Property
for Regular Tax purposes and recognizes
gain or loss from the disposition in its FSI,
such gain or loss (as redetermined under
section 4.07 of Notice 2023-7, as modified
and clarified by this notice) is recognized
for AFSI purposes, regardless of whether
any gain or loss with respect to such disposition is realized, recognized, or otherwise taken into account for Regular Tax
purposes.
(3) Examples. The following examples
illustrate the rules set forth in sections
5.02(3)(b) and 9.03(2) of this notice and
the application of § 56A(c)(13) in taxable
years following a transaction described in
section 9.03(2) of this notice.
(a) Example of installment sale under § 453.
(i) Facts. X is a calendar year Taxpayer and also
issues its AFS on a calendar year basis. On January
1, 2018, X purchased for $550x and placed in service
residential rental property (Real Property A), which
is Section 168 Property. For Regular Tax purposes, X
depreciates Real Property A under the general depreciation system by using the straight-line method
and a 27.5-year recovery period. X becomes an
Applicable Corporation for the calendar year ending
December 31, 2024. On January 1, 2024, X sells Real
Property A to Y, an unrelated Taxpayer, for $1,000x
with the following payment structure: $100x payable
at closing and the remainder payable in equal annual
installments over the next 9 years, together with adequate stated interest. As of the date of the installment
sale, X’s adjusted basis for Regular Tax purposes,
remaining AFS basis, and redetermined basis for
AFSI purposes (as determined under section 4.07
of Notice 2023-7, as modified and clarified by this
notice) for Real Property A is $430x. X does not elect
out of the installment method under § 453. The gross
profit to be realized on the sale is $570x ($1,000x
selling price - $430x basis). The gross profit percentage is 57% (gross profit of $570x / $1,000x contract
price). No provision in § 56A, regulations, or other
guidance provides for an adjustment to AFSI to
apply the gain deferral rules under § 453.
(ii) Analysis. For taxable year 2024, X realizes
$570x ($1,000x selling price - $430x basis) of gain
for both Regular Tax and FSI purposes from the disposition of Real Property A in the installment sale. X
recognizes $570x of the gain in FSI, but for Regular
Tax purposes, X recognizes only $57x (57% of
$100x) of the gain and the remaining $513x of gain
will be recognized as payments are received under
the installment method. Pursuant to section 9.03(2)
of this notice, the gain deferral provisions in § 453
do not apply for purposes of determining the AFSI
gain or loss on the disposition of Real Property A.
Bulletin No. 2023–40
Accordingly, X must recognize the entire $570x gain
in AFSI, notwithstanding that $513x was deferred
under § 453 for Regular Tax purposes.
(b) Example of like-kind exchange under § 1031.
(i) Facts. The facts are the same as section
9.03(3)(a)(i) of this notice, except that on January 1,
2024, X transfers Real Property A to Y in exchange
for Real Property B with a fair market value of
$440x and $20x in cash. The exchange qualifies as
an exchange of real property held for productive use
or investment under § 1031. As of the date of the
exchange, X’s adjusted basis for Regular Tax purposes, remaining AFS basis, and redetermined basis
for AFSI purposes (as determined under section 4.07
of Notice 2023-7, as modified and clarified by this
notice) for Real Property A is $430x. No provision
in § 56A, regulations, or other guidance provides for
an adjustment to AFSI to apply the nonrecognition
rules under § 1031.
(ii) Analysis. For taxable year 2024, X realizes
$30x of gain under § 1001(a) (amount realized of
$460x [$440x fair market value of replacement Real
Property B plus $20x cash], less $430x adjusted
Regular Tax basis of relinquished property). Of the
realized gain, only $20x is recognized by X under
§ 1031(b) for Regular Tax purposes, as this is the
amount of non-like-kind consideration (cash of
$20x). For AFS purposes, X recognizes $30x of gain
in its FSI (amount realized of $460x [$440x fair market value of Real Property B plus $20x cash], less
$430x remaining AFS basis of Real Property A).
Pursuant to section 9.03(2) of this notice, the nonrecognition rules in § 1031 do not apply for purposes of
determining the AFSI gain or loss on the disposition
of Real Property A. Accordingly, for AFSI purposes,
X must recognize the entire redetermined gain of
$30x ($460x amount realized less $430x of redetermined AFSI basis under section 4.07 of Notice
2023-7, as modified and clarified by this notice) for
purposes of computing AFSI, notwithstanding that X
recognized only $20x of the $30x gain realized for
Regular Tax purposes.
(c) Example illustrating the treatment of replacement property received in a like-kind exchange.
(i) Facts. The facts are the same as section
9.03(3)(b)(i) of this notice. In addition, X’s Regular
Tax exchanged basis in the replacement Real
Property B as of the date of the exchange is $430x
($430x adjusted Regular Tax basis of relinquished
Real Property A, less $20x cash, plus $20x gain
realized). X’s AFS basis of Real Property B as of
the date of the exchange is $440x, which is the fair
market value of Real Property B as of the date of
the exchange. The recovery period, depreciation
method, and convention prescribed under § 168
for Real Property B are the same as Real Property
A. Under § 1.168(i)-6(c)(3)(ii) and (c)(4)(v)(A),
X depreciates Real Property B over the remaining
recovery period of, and using the same depreciation
method and convention as that of, Real Property A
for Regular Tax purposes. Except for taxable year
2024 and the taxable year in which Real Property
B is disposed of, Tax Depreciation with respect
to Real Property B is $20x ($430x / 21.5) for
each year, which X deducts in computing taxable
income. Under the mid-month convention, Real
Property B is deemed placed in service on January
15, 2024. Therefore, in 2024, Tax Depreciation for
Bulletin No. 2023–40
Real Property B is $19x ($20x multiplied by [11.5 /
12]), which X deducts in computing taxable income.
For AFS purposes, X depreciates Real Property
B using the straight-line method and a 27.5-year
recovery period and recognizes $16x ($440x / 27.5)
of Covered Book Depreciation Expense each year.
On January 1, 2032, X sold Real Property B with
a Regular Tax adjusted exchanged basis of $270x
($430x exchange basis - $160x accumulated Tax
Depreciation [8 years multiplied by ($430x cost /
21.5 recovery period), which includes $20x multiplied by (11.5 / 12) of depreciation for 2024 or $19x
and (0.5 / 12) of depreciation for 2032 or $1x])
and a remaining AFS basis of $312x ($440x cost
- $128x accumulated book depreciation [8 years
multiplied by ($440x cost / 27.5 recovery period)])
to Z for $500x in cash.
(ii) Analysis for taxable year 2032. For Regular
Tax purposes, X recognizes a gain on the sale of
Real Property B of $230x (amount realized of $500x
- $270x Regular Tax adjusted exchanged basis).
For AFS purposes, X recognizes a gain of $188x in
its FSI (amount realized of $500x - $312x remaining AFS basis). Pursuant to section 4.07 of Notice
2023-7 (as modified and clarified by this notice), X
must adjust AFSI for taxable year 2032 to redetermine the AFS gain or loss of $188x from the disposition of Real Property B by adjusting the remaining
AFS basis of Real Property B to take into account
the amounts described in section 4.07(1) through
(4) of Notice 2023-7 (as modified and clarified by
this notice) with respect to such property, including
those amounts attributable to taxable years prior to
the effective date of the CAMT. Accordingly, the
redetermined basis of Real Property B for AFSI purposes is $280x ($312x AFS basis + $128x accumulated Covered Book Depreciation Expense - $160x
of accumulated Tax Depreciation). Thus, the redetermined gain on the sale of Real Property B for AFSI
purposes is $220x ($500x proceeds - $280x redetermined AFSI basis).
SECTION 10. AFSI ADJUSTMENTS
FOR QUALIFIED WIRELESS
SPECTRUM
.01 Purpose. The Treasury Department
and the IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided
in this section 10, which provides interim
guidance to facilitate the application of the
qualified wireless spectrum adjustment
rules in § 56A(c)(14) prior to forthcoming
proposed regulations.
.02 Defined Terms. For purposes of this
section 10:
(1) Covered Book Amortization
Expense. The term Covered Book
Amortization Expense means amortization expense, disposition loss (including
from an abandonment) that occurs prior
to the taxable year in which the disposition occurs for Regular Tax purposes,
985
impairment loss, or impairment loss
reversal that is taken into account in the
Taxpayer’s FSI with respect to Qualified
Wireless Spectrum (as defined in section
10.02(4) of this notice).
(2) Covered Book Wireless Spectrum
Expense. The term Covered Book Wireless
Spectrum Expense means an amount,
other than Covered Book Amortization
Expense, that is-(a) recognized as an expense or loss in
the Taxpayer’s FSI, and
(b) reflected in the basis for depreciation, as defined in §§ 1.167(g)-1 and
1.197-2(f)(1)(ii) (without regard to any
adjustments described in § 1016(a)(2) and
(3)), of Qualified Wireless Spectrum for
Regular Tax purposes.
(3) Deductible Tax Amortization. The
term Deductible Tax Amortization means
Tax Amortization (as defined in section
10.02(6) of this notice) that is allowed as
a deduction in computing taxable income.
(4) Qualified Wireless Spectrum. The
term Qualified Wireless Spectrum means
wireless spectrum which is used in the
trade or business of a wireless telecommunications carrier, is an amortizable section
197 intangible under § 197(c)(1) and (d)
(1)(D), and was acquired after December
31, 2007, and before August 16, 2022.
(5) Section 481(a) Adjustment for
Amortization. The term Section 481(a)
Adjustment for Amortization means
those adjustments that are required
under § 481(a) for a change in method of
accounting for amortization of any item of
Qualified Wireless Spectrum.
(6) Tax Amortization. The term Tax
Amortization means amortization deductions allowed under § 197, with respect to
Qualified Wireless Spectrum.
.03 Adjustments for Qualified Wireless
Spectrum. For purposes of § 56A(c)(14),
AFSI is-(1) reduced by Deductible Tax
Amortization, but only to the extent of the
amount allowed as a deduction in computing taxable income for the taxable year,
(2) adjusted to disregard Covered Book
Amortization Expense and Covered Book
Wireless Spectrum Expense,
(3) reduced by any Section 481(a)
Adjustment for Amortization that is negative, but only to the extent of the amount
of such Section 481(a) Adjustment for
Amortization that is taken into account in
October 2, 2023
computing taxable income for the taxable
year,
(4) increased by any Section 481(a)
Adjustment for Amortization that is positive, but only to the extent of the amount
of such Section 481(a) Adjustment for
Amortization that is taken into account in
computing taxable income for the taxable
year, and
(5) adjusted for other items as provided
in regulations or in other guidance.
.04 Section 56A(c)(14) does not apply
to property not depreciated under § 197. If
a Taxpayer has wireless spectrum property
that is not subject to amortization under
§ 197 for Regular Tax purposes (for example, because the Taxpayer is not subject to
U.S. taxation), then AFSI of that Taxpayer
is not adjusted under § 56A(c)(14) with
respect to such property. Further, the
special rules for determining Applicable
Corporation status of members of a FPMG
in § 59(k)(2)(A), including the rule that
disregards the AFSI adjustment described
in § 56A(c)(4), do not change this result.
.05 AFSI adjustments for dispositions. If a Taxpayer disposes of Qualified
Wireless Spectrum for Regular Tax purposes, the Taxpayer must adjust AFSI for
the taxable year in which such disposition
occurs to redetermine any gain or loss
taken into account in the Taxpayer’s FSI
with respect to such disposition for such
year (including a gain or loss of zero) by
adjusting the remaining AFS basis of such
property by the amounts described in section 10.05(1) through (4) of this notice
with respect to such property, including
those amounts attributable to taxable
years prior to the effective date of the
CAMT. Pursuant to this section 10.05, the
remaining AFS basis of such property is-(1) decreased by the cumulative adjustments described in section 10.03(1) of this
notice with respect to such property,
(2) increased by the cumulative adjustments described in section 10.03(2) of this
notice with respect to such property,
(3) increased by the full amount
of any Section 481(a) Adjustment for
Amortization with respect to such property that is positive and decreased by
the full amount of any Section 481(a)
Adjustment for Amortization with respect
to such property that is negative (regardless of whether any portion of such Section
481(a) Adjustment for Amortization
October 2, 2023
has yet to be taken into account in AFSI
through an adjustment described in section 10.03(3) or (4) of this notice), and
(4) increased or decreased, as appropriate, by any other adjustments to AFS basis
required under § 56A, regulations, or other
guidance (for example, basis adjustments
required under section 3.03(2) of Notice
2023-7) with respect to such property.
.06 Example. The following example
illustrates the rules set forth in sections
10.03 and 10.05 of this notice.
(1) Facts. X is an Applicable Corporation for
the calendar year ending December 31, 2023. On
January 1, 2018, X acquired Wireless Spectrum A,
which is Qualified Wireless Spectrum, at a cost of
$1,000x. For AFS purposes, X does not amortize
Wireless Spectrum A. For Regular Tax purposes,
X amortizes Wireless Spectrum A ratably over 15
years and recognizes $67x ($1,000x cost / 15 years)
of Deductible Tax Amortization in 2018 and each
year thereafter until it sells Wireless Spectrum A (a
disposition for Regular Tax and AFS purposes) on
January 1, 2024, for $900x. For 2024, X takes into
account $100x of net loss from the sale of Wireless
Spectrum A in its FSI ($900x proceeds - $1,000x of
AFS basis ($1,000x cost - $0 accumulated Covered
Book Amortization Expense as of January 1, 2024)).
(2) Analysis for taxable year 2023. In determining AFSI for the taxable year ending December
31, 2023, X does not have any Covered Book
Amortization Expense or Covered Book Wireless
Spectrum Expense in computing the Taxpayer’s FSI
with respect to Wireless Spectrum A, and thus, the
adjustment to disregard such amounts under section
10.03(2) of this notice would be zero. In addition,
X would reduce AFSI under section 10.03(1) of this
notice for the $67x of Deductible Tax Amortization
with respect to Wireless Spectrum A.
(3) Analysis for taxable year 2024. To redetermine the FSI gain or loss from the sale of Wireless
Spectrum A for AFSI purposes under section 10.05
of this notice, X must adjust the remaining AFS
basis of such property by the amounts described
in section 10.05(1) through (4) of this notice with
respect to such property, including those amounts
attributable to taxable years prior to the effective
date of the CAMT. Accordingly, the redetermined
basis of Wireless Spectrum A for AFSI purposes is
$598x ($1,000x remaining AFS basis + $0 accumulated Covered Book Amortization Expense - $402x
of accumulated Deductible Tax Amortization).
Thus, the redetermined gain on the sale of Wireless
Spectrum A for AFSI purposes is $302x ($900x proceeds - $598x redetermined AFSI basis) and a positive adjustment to AFSI of $402x ($100x net loss in
FSI + $302x redetermined gain) is made to reflect the
redetermined gain.
SECTION 11. AFSI ADJUSTMENTS
TO PREVENT CERTAIN
DUPLICATIONS AND OMISSIONS.
.01 Purpose. The Treasury Department
and the IRS intend to propose rules in
986
forthcoming proposed regulations consistent with the interim guidance provided in
this section 11, which provides Taxpayers
with additional clarity in determining
adjustments to prevent certain duplications and omissions of AFSI prior to forthcoming proposed regulations.
.02 Adjustments to prevent certain
duplications and omissions.
(1) In general. In order to prevent
duplications or omissions, AFSI must be
adjusted for the items described in this
section 11.02 and for such other items as
required or permitted in regulations or in
other guidance. See section 13.04(2) of
this notice for modifications to AFSI to
prevent duplications that apply solely for
purposes of § 59(k).
(2) Change in financial accounting
principle.
(a) In general. AFSI must be adjusted
to take into account any cumulative
adjustment to the retained earnings of the
Taxpayer on its AFS if such adjustment
results from a change in financial accounting principle (Accounting Principle
Change Adjustment). Except as otherwise
provided in regulations or in other guidance, such adjustment must be taken into
account in the Taxpayer’s AFSI during
the period provided in section 11.02(2)
(b) of this notice (Adjustment Spread
Period Rule). An Accounting Principle
Change Adjustment may be subject to
further adjustment if it relates to FSI
items for which other AFSI adjustments
under § 56A, regulations, or other guidance apply (Net Accounting Principle
Change Adjustment). For example, to the
extent the Accounting Principle Change
Adjustment includes a Federal income
tax component, § 56A(c)(5) may apply.
In such case, the Adjustment Spread
Period Rule applies to the Net Accounting
Principle Change Adjustment.
(b) Adjustment Spread Period Rule.
(i) Duplications. In the case of
an Accounting Principle Change
Adjustment or Net Accounting Principle
Change Adjustment, as applicable,
that is necessary to prevent the duplication of an item of income, expense,
gain, or loss for AFSI purposes, such
adjustment must be taken into account
in AFSI ratably over the four-taxableyear period beginning with the taxable
year for which the change in financial
Bulletin No. 2023–40
accounting principle is implemented
in the Taxpayer’s AFS. However, if the
Taxpayer is able to demonstrate that the
duplication is reasonably anticipated to
occur over a different period, then the
corresponding Accounting Principle
Change Adjustment or Net Accounting
Principle Change Adjustment, as applicable, may be taken into account in AFSI
ratably over such period (not to exceed
fifteen years) beginning with the taxable
year for which the change in financial
accounting principle is implemented in
the Taxpayer’s AFS.
(ii) Omissions. In the case of an
Accounting Principle Change Adjustment
or Net Accounting Principle Change
Adjustment, as applicable, that is (A) necessary to prevent the omission of an item
of income, expense, gain, or loss for AFSI
purposes, and (B) results in an increase
to AFSI, such adjustment must be taken
into account in AFSI ratably over the
four-taxable-year period beginning with
the taxable year for which the change in
financial accounting principle is implemented in the Taxpayer’s AFS. In the
case of an Accounting Principle Change
Adjustment or Net Accounting Principle
Change Adjustment, as applicable, that is
(A) necessary to prevent the omission of
an item of income, expense, gain, or loss
for AFSI purposes, and (B) results in a
decrease to AFSI, such adjustment must
be taken into account in AFSI in full in the
taxable year for which the change in financial accounting principle is implemented
in the Taxpayer’s AFS.
(c) Acceleration of financial accounting principle adjustment. If, in any taxable
year, a Taxpayer ceases to engage in the
trade or business that is the subject of an
Accounting Principle Change Adjustment
or Net Accounting Principle Change
Adjustment, as applicable, the Taxpayer
must take into account in AFSI for such
taxable year any portion of the adjustment
not taken into account in AFSI for a previous taxable year.
(d) Use of different priority AFSs in
consecutive taxable years. If the priority
of a Taxpayer’s AFS (as determined under
the rules of section 4.02 of this notice) for
the current taxable year is different than
the priority of the Taxpayer’s AFS for the
preceding taxable year, the Taxpayer will
be treated as having implemented a change
Bulletin No. 2023–40
in financial accounting principle and must
adjust AFSI to the extent required under
the rules of section 11.02(2) of this notice.
(3) Restatement of a prior year’s AFS.
(a) In general. Except as provided
in section 11.02(3)(b) of this notice, if a
Taxpayer restates an AFS and, as a result,
the Taxpayer’s FSI for a taxable year is
restated after the Taxpayer filed its original
Federal income tax return for such taxable
year, the Taxpayer must account for the
restatement by adjusting its AFSI for the
first taxable year after such taxable year
for which the Taxpayer has not filed an
original return as of the restatement date.
The restatement adjustment must take
into account the cumulative effect of the
restatement on FSI, including any restatement of the beginning balance of retained
earnings for the period being restated.
The restatement adjustment described in
the preceding sentence may be subject to
further adjustment if an FSI item being
restated is subject to adjustment under
§ 56A, regulations, or other guidance. For
example, to the extent such restatement
adjustment includes a Federal tax component, § 56A(c)(5) may apply. See section
4.02(3) of this notice for what constitutes
a restatement and for rules relating to the
restatement of an AFS prior to the date the
Taxpayer’s return for the taxable year is
filed.
(b) Exception for amended return. If,
after restating an AFS for a taxable year,
a Taxpayer files an amended return or an
administrative adjustment request under
§ 6227 (AAR), as applicable, for such taxable year to adjust regular taxable income
as a result of the restatement, the Taxpayer
must use the Restated AFS for purposes
of determining AFSI on the amended
return or AAR, as applicable, rather than
make the adjustment set forth in section
11.02(3)(a) of this notice.
(c) Reconciliation of retained earnings
in AFS. The Taxpayer will be deemed to
have restated its AFS for the preceding
taxable year described in section 11.02(3)
(c)(i) of this notice and section 11.02(3)
(a) or (b) of this notice, as applicable, will
apply, if-(i) The beginning balance of retained
earnings on the Taxpayer’s AFS for the
current taxable year is adjusted to be different than the ending balance of retained
earnings on the Taxpayer’s AFS for the
987
preceding taxable year (for example, as a
result of a prior period adjustment),
(ii) Such difference is attributable to
items that would otherwise be reflected
in the Taxpayer’s FSI under the relevant
accounting standards, and
(iii) The Taxpayer is not otherwise
subject to the adjustment rules in sections
11.02(2) or (3)(a) or (b) of this notice.
(d) Example. The following example
illustrates the rule set forth in section
11.02(3)(a) of this notice.
(i) Facts. X is a calendar year Taxpayer and issues
its AFS on a calendar year basis. On September 15,
2024, X files its Federal income tax return for taxable year 2023 and reports FSI of $1.580 billion,
which is the FSI set forth on X’s Original AFS for
2023, and AFSI of $2 billion (FSI of $1.580 billion
adjusted to add back $420 million of Federal income
tax expense under § 56A(c)(5)). On November 1,
2024, X issues a Restated AFS for 2023 that reflects
an FSI of $2.370 billion (which includes a reduction
for Federal income tax expense of $630 million). The
Restated AFS also includes an adjustment to increase
the 2023 beginning balance of retained earnings by
$70 million ($100 million of income less $30 million
of Federal income tax expense) related to income
from a prior period that was underreported. X is not
amending its taxable year 2023 Federal income tax
return. X is not subject to any AFSI adjustments
other than the AFSI adjustment under § 56A(c)(5).
(ii) Analysis. X has restated its AFS and FSI
for 2023 after having filed its original 2023 Federal
income tax return. Pursuant to section 11.02(3)(a) of
this notice, X must account for the restatement by
adjusting its AFSI for taxable year 2024. On X’s
2024 Federal income tax return, X will increase
AFSI by $1.1 billion for taxable year 2024, which
is the first taxable year for which X has not filed an
original return as of the November 1, 2024, restatement date. The $1.1 billion adjustment represents
the cumulative effect of the restatement on FSI,
including any restatement of the beginning balance
of retained earnings for the period being restated
(2023). The $1.1 billion comprises $790 million
(the difference between FSI reported on the Restated
AFS of $2.370 billion and the FSI reported on the
Original AFS of $1.580 billion), plus $210 million
(the difference between Federal income tax expense
reported on the Restated AFS of $630 million and the
Federal income tax expense reported on the Original
AFS of $420 million, which is required to be added
back under § 56A(c)(5) in determining AFSI), plus
$100 million (the adjustment to the 2023 beginning
balance of retained earnings reported on the Restated
AFS for 2023 of $70 million increased under
§ 56A(c)(5) by the $30 million of related Federal
income tax expense).
(4) Adjustment for amounts disclosed
in an auditor’s opinion. AFSI must be
adjusted to take into account amounts disclosed in an auditor’s opinion described
in section 4.02(2)(b) or (c) of this notice
to the extent such amounts would have
increased FSI had they been reported in
October 2, 2023
the Taxpayer’s AFS. No AFSI adjustment
is required to the extent the disclosed
amounts were included in FSI for a prior
year. Moreover, if FSI for a subsequent
year includes amounts included in AFSI
pursuant to an adjustment made under this
paragraph, AFSI for the subsequent year
must be adjusted to prevent any duplication of income.
(5) No adjustment for timing differences. Differences between when an
item is taken into account in FSI and
when that item is taken into account for
Regular Tax purposes do not give rise
to duplications or omissions within the
meaning of § 56A(c)(15)(A) or section
11.02 of this notice, even if the timing
difference originated before the effective
date of the CAMT and reversed after
such effective date. Thus, for example,
the inclusion of an item in FSI prior to
the effective date of the CAMT and the
inclusion of the item in regular taxable
income after the effective date of the
CAMT does not result in a duplication
or omission.
SECTION 12. FINANCIAL
STATEMENT NET OPERATING
LOSSES.
.01 Purpose. The Treasury Department
and the IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided
in this section 12, which provides corporations with additional clarity in determining use of FSNOL carryovers prior to
forthcoming proposed regulations.
.02 FSNOL carryover. The amount
of an FSNOL described in § 56A(d)(3)
carried forward to the first taxable year a
corporation is an Applicable Corporation
(and subsequent taxable years) is determined under § 56A(d)(2) without regard to
whether the Taxpayer was an Applicable
Corporation for any prior taxable year.
.03 Example. The following example illustrates the rule set forth in section
12.02 of this notice.
(1) Facts. X is a calendar year Taxpayer. For taxable year 2020, X generated an FSNOL of $3 billion.
For taxable years 2021, 2022, and 2023, X’s AFSI
(without taking into account the adjustment under
§ 56A(d)(1)) was $900 million, $1.1 billion, and $1.2
billion, respectively. X first becomes an Applicable
Corporation in taxable year 2024.
(2) Analysis. X will calculate its FSNOL carryover to taxable year 2024 by first determining how
much of the 2020 FSNOL is absorbed in taxable
years 2021 through 2023. In taxable year 2021, $720
million (80% of $900 million) of the FSNOL carryover is absorbed, resulting in an FSNOL carryover to
taxable year 2022 of $2.280 billion ($3 billion - $720
million). In taxable year 2022, $880 million (80% of
$1.1 billion) of the FSNOL carryover is absorbed,
resulting in an FSNOL carryover to taxable year
2023 of $1.4 billion ($2.280 billion - $880 million).
In taxable year 2023, $960 million (80% of $1.2 billion) of the FSNOL carryover is absorbed resulting
in an FSNOL carryover to taxable year 2024 of $440
million ($1.4 billion - $960 million).
SECTION 13. DETERMINING
APPLICABLE CORPORATION
STATUS
.01 Purpose. The Treasury Department
and the IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided
in this section 13, which provides corporations with additional clarity in determining whether they are an Applicable
Corporation under § 59(k) prior to forthcoming proposed regulations.
.02 Aggregation rules under § 59(k)(1)
(D).
(1) In general. Section 59(k)(1)(D)
provides that, solely for purposes of
determining whether a corporation is an
Applicable Corporation, all AFSI of persons treated as a single employer with the
corporation under § 52(a) or (b) is treated
as AFSI of that corporation (Section 52
Aggregation).
(2) Application of § 52(a) to aggregation of corporations.
(a) In general. Section 52(a) generally
provides that corporations that are members of a controlled group of corporations
are treated as a single employer. Section
52(a) provides that a controlled group of
corporations is defined with reference to
§ 1563(a), with certain modifications.4
Section 1563(a)(1), (2), and (3) provide
that a controlled group of corporations
may be a parent-subsidiary controlled
group, a brother-sister controlled group,
or a combined group of corporations.
(b) Section 1563(d) sets forth the rules
for determining stock ownership under
§ 1563(a) and provides that stock owned
directly or indirectly by application of
the constructive ownership rules under §
1563(e) is taken into account in determining whether an organization is a member
of a controlled group. Section 1563(d)(1)
provides that in the case of a parent-subsidiary group, the constructive ownership rules under § 1563(e)(1), (2), and
(3), relating to options, partnerships, and
estates or trusts, respectively, are taken
into account.5 Under § 1563(e)(2), stock
owned, directly or indirectly, by or for a
partnership is considered to be owned by
any partner having an interest of five percent or more in either the capital or profits
of the partnership in proportion to the partner’s interest in capital or profits, whichever such proportion is the greater. Thus,
under § 52(a), a corporate partner with an
interest of five percent or more in the capital or profits of a partnership is considered
to own stock owned by the partnership
based on the application of the constructive ownership rules under § 1563(d)(1)
and (e)(2). For example, if Corporation A
owns an interest of five percent or more
in the profits of a partnership and the
partnership owns stock in Corporation B,
then Corporation A would be deemed to
own the stock of Corporation B, in proportion to Corporation A’s profits interest
in the partnership, in determining whether
Corporation A and Corporation B are
treated as a single employer for purposes
of applying § 59(k)(1)(D).
(c) Section 52(a) applies to the members of a controlled group, and not to
the component members of a controlled
group defined in § 1563(b). In particular,
§ 1563(b)(1)(A) and (b)(2) do not apply to
exclude certain corporate members from
the controlled group, including foreign
corporations subject to Federal income tax
under § 881. See § 1563(b)(2)(C). Under §
1.1563-1(a)(1)(ii), in determining whether
a corporation is included in a controlled
The clause “more than 50 percent” is substituted for the clause “at least 80 percent” each place “at least 80 percent” appears in § 1563(a)(1). In addition, § 1563(a)(4) (relating to certain
insurance companies) and (e)(3)(C) (relating to certain estate or trust attribution rules) are disregarded.
5
Section 1563(d)(2)(B) and (e) provide that, for brother-sister groups, in addition to attribution from options, partnerships, estates, or trusts, attribution from corporations, spouses, and children, grandchildren, parents, and grandparents also applies.
4
October 2, 2023
988
Bulletin No. 2023–40
group of corporations, § 1563(b) and
§ 1.1563-1(b), relating to component
members of a controlled group of corporations, are not taken into account. Thus,
under § 52(a), a foreign corporation may
be a member of a controlled group that is
treated as a single employer for purposes
of applying § 59(k)(1)(D).
(3) Application of § 52(b) to partnerships and other noncorporate
organizations.
(a) Section 52(b) generally provides
that trades or businesses that are partnerships, trusts, estates, corporations, or
sole proprietorships under common control are members of a controlled group
and are treated as a single employer. See
§ 1.52-1(b). Section 52(b) also requires
the regulations under § 52(b) to be
based on principles similar to the principles that apply for purposes of § 52(a).
Section 52(b) and § 1.52-1 provide rules
similar to those under § 52(a) but with certain modifications to account for different
types of ownership interests.
(b) The constructive ownership rules
under § 1563(d) and (e) described in section 13.02(2) of this notice also apply for
purposes of § 52(b) in determining members of the controlled group. In addition,
just as § 52(a) does not exclude foreign
corporations, an organization that is a
foreign entity (such as a foreign partnership or foreign trust) may be aggregated
under § 52(b) in determining whether it
is a member of a controlled group that is
treated as single employer under § 52(b)
for purposes of applying § 59(k)(1)(D).
(4) Application of § 52 to S corporations, RICs, and REITs. As described
in section 2.01(4)(a) of Notice 20237, S corporations, RICs, and REITs
are excluded from the definition of an
Applicable Corporation for purposes of
§§ 55 through 59. However, § 52(a), the
regulations under § 1563, and the regulations under § 52(b) do not exclude S
corporations, RICs, or REITs from being
members of a controlled group.6 Because
§ 52 and the regulations thereunder do
not exclude S corporations, RICs, or
REITs, these organizations are taken into
account in determining whether members
of a controlled group are treated as a single employer under § 52 for purposes of
applying § 59(k)(1)(D).
.03
Determining
Applicable
Corporation status of members of a
FPMG.
(1) Aggregation rule for corporations
that are members of a FPMG. For purposes of applying the FPMG $1 Billion
Test (as defined in section 2.04(1) of this
notice), the AFSI of a Taxpayer being
evaluated for Applicable Corporation status (Tested Corporation) that is a member
of a FPMG includes both (i) the AFSI of
all other members of the FPMG (FPMG
Aggregation), and (ii) the AFSI of all persons treated as a single employer with the
Tested Corporation by reason of Section
52 Aggregation to the extent such AFSI is
not AFSI of a member of the FPMG.
(2) Calculation of AFSI for purposes
of applying the FPMG $1 Billion Test.
Under § 59(k)(2)(A), for purposes of
applying the FPMG $1 Billion Test, the
AFSI of a Taxpayer that is a member of
a FPMG is calculated without regard to
§ 56A(c)(2)(D)(i), (c)(3), (c)(4), and (c)
(11). As a result, in applying both Section
52 Aggregation and FPMG Aggregation
for purposes of determining whether a
Tested Corporation meets the FPMG $1
Billion Test, AFSI of all relevant persons,
including persons that are not members of
the Tested Corporation’s FPMG but that
are treated as a single employer with the
Tested Corporation under § 52(a) or (b), is
determined without regard to § 56A(c)(2)
(D)(i), (c)(3), (c)(4), and (c)(11).
.04 Disregarding the distributive share
adjustment.
(1) In general. Section 7 of Notice
2023-7 provides that the adjustment to
AFSI in § 56A(c)(2)(D)(i) is inapplicable in all circumstances in determining
whether a corporation that is a partner in
a partnership (whether directly or indirectly) is an Applicable Corporation.
Accordingly, solely for purposes of
§ 59(k), a Taxpayer that is a partner in a
partnership includes in its AFSI the FSI
amount it reports with respect to its partnership investment (for example, under
the fair value method or equity method),
rather than its “distributive share” of the
AFSI of the partnership under § 56A(c)(2)
(D)(i). See sections 5.02(3)(c)(iii)(B) and
(vii) of this notice for the determination
of a partner’s FSI with respect to its partnership investment when the partner and
the partnership are members of the same
AFS Group and the partner’s AFS is the
Consolidated AFS of that AFS Group.
(2) Duplication of income or loss. If a
Taxpayer is a partner in a partnership and
all the AFSI of the partnership is treated
as the AFSI of the Taxpayer under § 59(k)
(1)(D) or § 59(k)(2)(A), as applicable,
then solely for purposes of § 59(k), and in
order to prevent duplication of income or
loss from the partnership investment, the
Taxpayer does not include in its AFSI the
FSI amount it reports with respect to the
partnership investment.
SECTION 14. CAMT FTC
.01 Purpose. The Treasury Department
and the IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided in
this section 14, which provides corporations with additional clarity in determining their CAMT FTC.
.02 CAMT FTC.
(1) Definition of Eligible Tax. A
Foreign Income Tax is eligible to be
claimed as a CAMT FTC (Eligible Tax)
in the taxable year in which it is paid or
accrued for Federal income tax purposes
by either an Applicable Corporation or a
CFC with respect to which the Applicable
Corporation is a U.S. Shareholder, provided the Foreign Income Tax has been
taken into account on the AFS of such
Applicable Corporation or CFC.
(2) When a tax is treated as taken into
account on an AFS. For purposes of the
CAMT FTC, a Foreign Income Tax is
considered taken into account on an AFS
of an Applicable Corporation or CFC as
provided in section 8.02(2) of this notice.
(3) Foreign tax redetermination. A
Foreign Income Tax paid or accrued as
a result of a foreign tax redetermination
(as defined in § 1.905-3(a)) is an Eligible
Tax only if the Taxpayer is an Applicable
Section 1.1563-1(b)(2)(ii)(C) provides that S corporations are not component members of a controlled group in certain limited circumstances (regarding the accumulated earnings credit
under § 1561). However, as noted in section 13.02(2)(c) of this notice, § 1.1563-1(b) is not taken into account in determining whether an S corporation is included in a controlled group of
corporations.
6
Bulletin No. 2023–40
989
October 2, 2023
Corporation in the taxable year to which
the foreign tax redetermination relates
(Relation-Back Year). An Eligible Tax in
this instance may be claimed as a CAMT
FTC only in the Relation-Back Year, even
if the tax is reflected in a journal entry on
an AFS within a taxable year that is later
than the Relation-Back Year.
(4) CFC Taxes and CFC FTC
Limitation determined on an aggregate
basis. For purposes of the CAMT FTC, a
Taxpayer determines the amount of CFC
Taxes (as defined in section 2.05(a) of this
notice) and the CFC FTC Limitation (as
defined in section 2.05(a) of this notice)
for a taxable year on an aggregate basis
with respect to all CFCs in which it is a
U.S. Shareholder.
(5) Treatment of partnership taxes.
For purposes of the CAMT FTC, if an
Applicable Corporation or a CFC is a partner in a partnership (or an indirect partner
in the partnership through another partnership or pass-through entity), Foreign
Income Taxes paid or accrued by such
partner include its share of any Foreign
Income Taxes paid or accrued by the
partnership.
SECTION 15. APPLICABILITY DATES
.01 The Treasury Department and the
IRS intend to publish forthcoming proposed regulations in the Federal Register
regarding the application of the CAMT
that would include proposed rules consistent with the interim guidance provided
in-(a) Sections 3 through 7 of Notice
2023-7, as modified and clarified by this
notice,
(b) Sections 3 through 5 of Notice
2023-20, and
(c) Sections 3 through 14 of this notice.
It is anticipated that forthcoming proposed regulations would apply for taxable
years beginning on or after January 1,
2024.
.02 A Taxpayer may rely on the interim
guidance described in section 15.01 of this
notice for taxable years ending on or before
the date forthcoming proposed regulations
are published in the Federal Register.
However, in any event, a Taxpayer may
rely on the interim guidance described in
section 15.01 of this notice for any taxable
year that begins before January 1, 2024.
October 2, 2023
SECTION 16. REQUEST FOR
COMMENTS
.01 Comments regarding interim guidance provided in this notice. The Treasury
Department and the IRS request comments on any questions arising from the
interim guidance provided in this notice.
Commenters are encouraged to specify
the issues on which additional guidance
(including additional interim guidance) is
needed most quickly, as well as the most
important issues on which guidance is
needed. In addition to general comments
regarding the provisions of this notice, the
Treasury Department and the IRS request
comments to address the following specific questions.
(1) Depreciation adjustments (section
9 of this notice). The Treasury Department
and the IRS have received helpful comments and continue to study whether simplified methods or safe harbors should be
provided for applying the depreciation
adjustment rules under § 56A(c)(13). The
Treasury Department and the IRS continue
to welcome comments on such simplified
methods and safe harbors for consideration
in forthcoming proposed regulations. In
addition to comments regarding the use
of simplified methods or safe harbors, the
Treasury Department and the IRS request
comments on the following issues:
(a) How should a change in the treatment of an item that involves the proper
time for taking such item into account for
AFSI purposes be treated for AFSI purposes when such change is not otherwise
treated as a change in method of accounting for Regular Tax purposes because it
does not affect taxable income (AFSI-Only
Change)? For example, what if a Taxpayer
consistently does not make a required AFSI
adjustment under § 56A(c)(13) or makes a
change in financial accounting principle?
Should rules similar to those in §§ 446 and
481, and the method change procedures
in Rev. Proc. 2015-13, 2015-5 I.R.B. 419,
apply? Should the result depend on whether
the AFSI-Only Change was discretionary
or mandated by financial accounting standards? Should Taxpayers be required to file
a Form 3115, Application for Change in
Accounting Method, to obtain consent for
AFSI-Only Changes?
(b) If a Taxpayer changes its method of
accounting for Regular Tax purposes from
990
deducting amounts paid or incurred to capitalizing and depreciating such amounts
under §§ 167 or 168, or vice versa, how
should such change be taken into account
for AFSI purposes? For example, what
if a Taxpayer deducted an amount paid
or incurred as a repair under its present
method of accounting but later changed its
accounting method to capitalize the amount
paid or incurred as an improvement that
is Section 168 Property? How, if at all,
should the Taxpayer account for the adjustments that would have been made under §
56A(c)(13) in prior years had the proposed
method been used instead? Or what if a
Taxpayer capitalized an amount paid or
incurred as an improvement that is Section
168 Property under its present method of
accounting but later changed its method
to deduct the amount paid or incurred as a
repair? How should the Taxpayer take into
account the adjustments that were made
under § 56A(c)(13) in prior years, but that
would not have been made had the proposed method been used instead?
(2) Qualified Wireless Spectrum adjustments (section 10 of this notice).
Should the term “wireless telecommunication carrier” in § 56A(c)(14)(B)
(i) be defined? If so, should the classification in the North American Industry
Classification System (NAICS) for
Wireless Telecommunication Carriers
(except Satellite) 517112 be used? (That
NAICS classification describes a wireless
telecommunications carrier as an establishment primarily engaged in operating
and maintaining switching and transmission facilities to provide communications
via the airwaves that has spectrum licenses
and provides services using that spectrum,
such as cellular phone services, paging
services, wireless Internet access, and
wireless video services.)
(3) AFSI adjustments to prevent duplications and omissions (section 11 of this
notice).
(a) Can Accounting Principle Change
Adjustments or Net Accounting Principle
Change Adjustments be traced to a separate trade or business (within the meaning
of § 1.446-1(d))?
(b) What events should be considered a cessation of a trade or business for
purposes of accelerating inclusion of an
Accounting Principle Change Adjustment
or Net Accounting Principle Change
Bulletin No. 2023–40
Adjustment? Should rules similar to those
in section 7.03(4) of Rev. Proc. 2015-13,
2015-5 I.R.B. 419, apply?
.02 Comments regarding rules not
included in this notice. The Treasury
Department and the IRS continue to study
CAMT issues that are not addressed in
this notice, including but not limited to,
the scope of § 56A(c)(2)(C), the extent to
which any unrealized marked-to-market
gains and losses that are recognized in
the Taxpayer’s FSI should be adjusted in
determining the Taxpayer’s AFSI, and the
manner in which a partner in a partnership
determines its distributive share of partnership AFSI. The Treasury Department
and the IRS intend to address these issues
in forthcoming proposed regulations. In
addition to comments on these issues, the
Treasury Department and the IRS request
comments on the following specific CAMT
issues not addressed by this notice:
(1) Whether there are circumstances in
which adjustments to AFSI are required
to clearly reflect income; for example,
in a situation in which, under the relevant accounting standard, a transaction
between related entities is accounted for
at the selling entity’s cost instead of at an
arm’s-length value, such that no income,
gain, loss, or deduction is recognized in
the financial accounts of the seller, and the
buying entity records the transaction in its
financial accounts at the seller’s cost.
(2) Section 56A(c)(11) provides that
AFSI may be adjusted in connection with
a defined benefit plan that is a covered
benefit plan, as defined in § 56A(c)(11)
(B). The Treasury Department and the IRS
are considering the scope of the portion
of the definition of Covered Benefit Plan
set forth in § 56A(c)(11)(B)(iii) (“any
other defined benefit plan which provides
post-employment benefits other than pension benefits”). Comments are requested
regarding § 56A(c)(11)(B)(iii), including
(i) whether an account-based group health
plan, as defined in § 54.9815-2711(d)(6)
of the Pension Excise Tax Regulations
(such as a health reimbursement arrangement) that is treated as a retiree-only plan
under § 9831(a)(2) that makes payments
for retirees from an aggregated account,
rather than from assets that have been
allocated to individual retirees’ accounts,
meets the definition of a defined benefit plan, as required for the plan to be a
Bulletin No. 2023–40
Covered Benefit Plan under § 56A(c)(11)
(B)(iii); and (ii) whether a plan that provides post-employment benefits in a lump
sum or over a short period of time (for
example, 24 months) is a plan that provides benefits other than pension benefits,
as required for the plan to be a Covered
Benefit Plan under § 56A(c)(11)(B)(iii).
(3) The Treasury Department and
the IRS are considering the treatment of
dividends received from, and gains or
losses from dispositions of stock of, foreign corporations for purposes of computing a Taxpayer’s AFSI. The Treasury
Department and the IRS request comments
on the treatment of those items, including
comments that address the following questions: What approach(es) should be considered to address the potential duplication of
income with respect to a CFC by reason of
the application of § 56A(c)(2)(C) and (c)
(3)? How would each approach address the
potential duplication or omission of items
from a Taxpayer’s AFSI? What would be
the relative administrative and compliance
burden of each approach, and how could
those burdens be minimized?
(4) Section 5.02(3)(c)(iii)(A) provides
that the portion of Consolidated FSI that
is the Taxpayer’s FSI is determined without regard to any AFS Consolidation
Entries that eliminate the effect of transactions between the Taxpayer and another
Taxpayer that is a member of the same
AFS Group unless such transactions
are between a disregarded entity and its
owner or between disregarded entities
that have the same owner. Further, section
5.02(3)(c)(iii)(B) provides that the portion
of Consolidated FSI that is the Taxpayer’s
FSI is determined without regard to any
AFS Consolidation Entries that eliminate FSI of the Taxpayer with respect to
its investment in another Taxpayer that is
a member of the AFS Group unless the
investment is in a disregarded entity.
(a) Comments are requested on whether
a branch that is not a disregarded entity
should be treated the same as a disregarded entity when applying the rules in
section 5.02(3)(c)(iii). Specific comments
are requested on whether a branch can be
treated as a member of the AFS Group separate from its owner for financial accounting purposes and, if so, the ways in which a
financial accounting branch differs from, or
compares to, a branch for U.S. tax purposes.
991
(b) Comments are requested on whether
the rule in section 5.02(3)(c)(iii) to eliminate transactions with a disregarded
entity and investments in a disregarded
entity is appropriate in the cross-border
context. For example, if the disregarded
entity is organized or incorporated in a
foreign country and its owner is organized
or incorporated in a different country, to
what extent should transactions between
such disregarded entity and its owner be
taken into account for purposes of determining the owner’s or the disregarded
entity’s FSI or AFSI?
.03 Procedures for submitting
comments.
(1) Deadline. Written comments
should be submitted by October 12, 2023.
Consideration will be given, however,
to any written comment submitted after
October 12, if such consideration will not
delay the issuance of forthcoming proposed regulations.
(2) Form and manner. The subject line
for the comments should include a reference to Notice 2023-64. All commenters
are strongly encouraged to submit comments electronically. However, comments
may be submitted in one of two ways:
(a) Electronically via the Federal
eRulemaking Portal at www.regulations.
gov (type IRS-2023-0043 in the search
field on the regulations.gov homepage to
find this notice and submit comments); or
(b) By mail to: Internal Revenue
Service, CC:PA:LPD:PR (Notice 202364), Room 5203, P.O. Box 7604, Ben
Franklin Station, Washington, D.C.,
20044.
(3) Publication of comments. The
Treasury Department and the IRS will
publish for public availability any comment submitted electronically and on
paper to its public docket on regulations.
gov.
SECTION 17. EFFECT ON OTHER
DOCUMENTS
Sections 3, 4, and 7 of Notice 2023-7
are modified and clarified.
SECTION 18. DRAFTING AND
CONTACT INFORMATION
The principal author of this notice is
James Yu of the Office of the Associate
October 2, 2023
Chief Counsel (Income Tax and
Accounting). Other personnel from the
Treasury Department and the IRS participated in its development. For further
information regarding section 7 of this
notice, please contact Alfred H. Bae at
(202) 317-6934 (not a toll-free number).
For further information regarding section
13.03 of this notice, please contact Karen
Walny at (202) 317-6938 (not a toll-free
number). For further information regarding section 14 of this notice, please contact John J. Lee at (202) 317-6936 (not a
toll-free number). For further information
regarding all other aspects of this notice,
please contact Mr. Yu at (202) 317-4718
(not a toll-free number).
Update for Weighted
Average Interest Rates,
Yield Curves, and Segment
Rates
Notice 2023-66
This notice provides guidance on the
corporate bond monthly yield curve, the
corresponding spot segment rates used
under § 417(e)(3), and the 24-month average segment rates under § 430(h)(2) of the
Internal Revenue Code. In addition, this
notice provides guidance as to the interest rate on 30-year Treasury securities
Applicable Month
September 2023
under § 417(e)(3)(A)(ii)(II) as in effect for
plan years beginning before 2008 and the
30-year Treasury weighted average rate
under § 431(c)(6)(E)(ii)(I).
YIELD CURVE AND SEGMENT
RATES
Section 430 specifies the minimum
funding requirements that apply to single-employer plans (except for CSEC plans
under § 414(y)) pursuant to § 412. Section
430(h)(2) specifies the interest rates that
must be used to determine a plan’s target
normal cost and funding target. Under
this provision, present value is generally
determined using three 24-month average
interest rates (“segment rates”), each of
which applies to cash flows during specified periods. To the extent provided under
§ 430(h)(2)(C)(iv), these segment rates
are adjusted by the applicable percentage
of the 25-year average segment rates for
the period ending September 30 of the
year preceding the calendar year in which
the plan year begins.1 However, an election may be made under § 430(h)(2)(D)
(ii) to use the monthly yield curve in place
of the segment rates.
Notice 2007-81, 2007-44 I.R.B. 899,
provides guidelines for determining the
monthly corporate bond yield curve, and
the 24-month average corporate bond segment rates used to compute the target normal cost and the funding target. Consistent
with the methodology specified in Notice
2007-81, the monthly corporate bond yield
curve derived from August 2023 data is in
Table 2023-8 at the end of this notice. The
spot first, second, and third segment rates
for the month of August 2023 are, respectively, 5.45, 5.52, and 5.43.
The 24-month average segment rates
determined under § 430(h)(2)(C)(i)
through (iii) must be adjusted pursuant to §
430(h)(2)(C)(iv) to be within the applicable minimum and maximum percentages
of the corresponding 25-year average segment rates. For this purpose, any 25-year
average segment rate that is less than 5%
is deemed to be 5%. The 25-year average
segment rates for plan years beginning in
2022 and 2023 were published in Notice
2021-54, 2021-41 I.R.B. 457 and Notice
2022-40, 2022-40 I.R.B. 266, respectively. For plan years beginning in 2024,
based on the segment rates applicable
for October 1998 to September 2023, the
25-year averages for the period ending
September 30, 2023, of the first, second,
and third segment rates are 3.33, 5.13, and
5.88 percent, respectively. The applicable
minimum and maximum percentages are
95% and 105% for plan years beginning
in 2022, 2023 and 2024.
24-MONTH AVERAGE CORPORATE
BOND SEGMENT RATES
The three 24-month average corporate bond segment rates applicable for
September 2023 without adjustment for
the 25-year average segment rate limits
are as follows:
24-Month Average Segment Rates Without 25-Year Average Adjustment
First Segment
Second Segment
3.62
4.46
The adjusted 24-month average segment rates set forth in the chart below
reflect § 430(h)(2)(C)(iv) of the Code. The
24-month averages applicable for September
2023, adjusted to be within the applicable
minimum and maximum percentages of
Third Segment
4.52
the corresponding 25-year average segment
rates in accordance with § 430(h)(2)(C)(iv)
of the Code, are as follows:
Adjusted 24-Month Average Segment Rates
For Plan Years
Beginning In
Applicable Month
First Segment
Second Segment
Third Segment
2022
September 2023
4.75
5.18
5.92
2023
September 2023
4.75
5.00
5.74
2024
September 2023
4.75
4.87
5.59
Pursuant to § 433(h)(3)(A), the third segment rate determined under § 430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount
of the full funding limitation under § 433(c)(7)(C)).
1
October 2, 2023
992
Bulletin No. 2023–40
30-YEAR TREASURY SECURITIES
INTEREST RATES
Section 431 specifies the minimum
funding requirements that apply to multiemployer plans pursuant to § 412. Section
431(c)(6)(B) specifies a minimum amount
for the full-funding limitation described
in § 431(c)(6)(A), based on the plan’s
current liability. Section 431(c)(6)(E)(ii)
(I) provides that the interest rate used to
calculate current liability for this purpose
must be no more than 5 percent above
and no more than 10 percent below the
weighted average of the rates of interest
on 30-year Treasury securities during the
four-year period ending on the last day
before the beginning of the plan year.
Notice 88-73, 1988-2 C.B. 383, provides
guidelines for determining the weighted
average interest rate. The rate of interest
on 30-year Treasury securities for August
2023 is 4.28 percent. The Service determined this rate as the average of the daily
For Plan Years Beginning In
Treasury Weighted Average Rates
30-Year Treasury Weighted Average
Permissible Range 90% to 105%
September 2023
2.85
2.56 to 2.99
under § 417(e)(3)(D) are segment rates
computed without regard to a 24-month
average. Notice 2007-81 provides guidelines for determining the minimum
present value segment rates. Pursuant to
that notice, the minimum present value
segment rates determined for August 2023
are as follows:
MINIMUM PRESENT VALUE
SEGMENT RATES
In general, the applicable interest rates
Month
August 2023
Minimum Present Value Segment Rates
First Segment
Second Segment
5.45
5.52
DRAFTING INFORMATION
The principal author of this notice is
Tom Morgan of the Office of Associate
Bulletin No. 2023–40
determinations of yield on the 30-year
Treasury bond maturing in May 2053
determined each day through August 9,
2023 and the yield on the 30-year Treasury
bond maturing in August 2053 determined
each day for the balance of the month. For
plan years beginning in September 2023,
the weighted average of the rates of interest on 30-year Treasury securities and the
permissible range of rates used to calculate current liability are as follows:
Chief Counsel (Employee Benefits,
Exempt Organizations, and Employment
Taxes). However, other personnel from
the IRS participated in the development
993
Third Segment
5.43
of this guidance. For further information
regarding this notice, contact Mr. Morgan
at 202-317-6700 or Tony Montanaro at
626-927-1475 (not toll-free numbers).
October 2, 2023
Table 2023-8
Monthly Yield Curve for August 2023
Derived from August 2023 Data
Maturity
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.0
11.5
12.0
12.5
13.0
13.5
14.0
14.5
15.0
15.5
16.0
16.5
17.0
17.5
18.0
18.5
19.0
19.5
20.0
Yield
5.80
5.71
5.63
5.54
5.45
5.37
5.30
5.25
5.22
5.21
5.21
5.22
5.25
5.28
5.32
5.36
5.39
5.43
5.47
5.50
5.53
5.55
5.58
5.59
5.61
5.62
5.63
5.63
5.63
5.63
5.63
5.63
5.62
5.61
5.61
5.60
5.59
5.59
5.58
5.57
October 2, 2023
Maturity
20.5
21.0
21.5
22.0
22.5
23.0
23.5
24.0
24.5
25.0
25.5
26.0
26.5
27.0
27.5
28.0
28.5
29.0
29.5
30.0
30.5
31.0
31.5
32.0
32.5
33.0
33.5
34.0
34.5
35.0
35.5
36.0
36.5
37.0
37.5
38.0
38.5
39.0
39.5
40.0
Yield
5.56
5.55
5.55
5.54
5.53
5.52
5.52
5.51
5.51
5.50
5.49
5.49
5.49
5.48
5.48
5.47
5.47
5.47
5.46
5.46
5.46
5.46
5.45
5.45
5.45
5.45
5.44
5.44
5.44
5.44
5.44
5.43
5.43
5.43
5.43
5.43
5.42
5.42
5.42
5.42
Maturity
40.5
41.0
41.5
42.0
42.5
43.0
43.5
44.0
44.5
45.0
45.5
46.0
46.5
47.0
47.5
48.0
48.5
49.0
49.5
50.0
50.5
51.0
51.5
52.0
52.5
53.0
53.5
54.0
54.5
55.0
55.5
56.0
56.5
57.0
57.5
58.0
58.5
59.0
59.5
60.0
Yield
5.42
5.42
5.41
5.41
5.41
5.41
5.41
5.41
5.41
5.40
5.40
5.40
5.40
5.40
5.40
5.40
5.40
5.40
5.39
5.39
5.39
5.39
5.39
5.39
5.39
5.39
5.39
5.39
5.39
5.38
5.38
5.38
5.38
5.38
5.38
5.38
5.38
5.38
5.38
5.38
994
Maturity
60.5
61.0
61.5
62.0
62.5
63.0
63.5
64.0
64.5
65.0
65.5
66.0
66.5
67.0
67.5
68.0
68.5
69.0
69.5
70.0
70.5
71.0
71.5
72.0
72.5
73.0
73.5
74.0
74.5
75.0
75.5
76.0
76.5
77.0
77.5
78.0
78.5
79.0
79.5
80.0
Yield
5.38
5.38
5.37
5.37
5.37
5.37
5.37
5.37
5.37
5.37
5.37
5.37
5.37
5.37
5.37
5.37
5.37
5.37
5.36
5.36
5.36
5.36
5.36
5.36
5.36
5.36
5.36
5.36
5.36
5.36
5.36
5.36
5.36
5.36
5.36
5.36
5.36
5.36
5.36
5.36
Maturity
80.5
81.0
81.5
82.0
82.5
83.0
83.5
84.0
84.5
85.0
85.5
86.0
86.5
87.0
87.5
88.0
88.5
89.0
89.5
90.0
90.5
91.0
91.5
92.0
92.5
93.0
93.5
94.0
94.5
95.0
95.5
96.0
96.5
97.0
97.5
98.0
98.5
99.0
99.5
100.0
Yield
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.35
5.34
5.34
5.34
5.34
5.34
5.34
5.34
5.34
5.34
5.34
Bulletin No. 2023–40
NOTE. This revenue procedure will be reproduced as the next revision of IRS Publication 1179, General Rules and Specifications for Substitute Forms 1096, 1098,
1099, 5498, and Certain Other Information Returns.
Forms and instructions. (Also, Part 1, sections 101, 162(f), 170, 199A, 220, 223, 401(a), 403(a), 403(b), 408, 408A, 457(b), 529, 529A, 530, 853A, 892, 1400Z-1,
1400Z-2, 1441, 6041, 6041A, 6042, 6043, 6044, 6045, 6047, 6049, 6050A, 6050B, 6050D, 6050E, 6050H, 6050J, 6050N, 6050P, 6050Q, 6050R, 6050S, 6050U,
6050W, 6050X, 6050Y, 6071, 1.402A-2, 1.408-5, 1.408-7, 1.408-8, 1.408A-7, 1.1441-1 through 1.1441-5, 1.1471-4, 1.6041-1, 1.6042-2, 1.6042-4, 1.6043-4, 1.60442, 1.6044-5, 1.6045-1, 1.6045-2, 1.6045-4, 1.6047-1, 1.6047-2, 1.6049-4, 1.6049-6, 1.6049-7, 1.6050A-1, 1.6050B-1, 1.6050D-1, 1.6050E-1, 1.6050H-1, 1.6050H-2,
1.6050J-1T, 1.6050N-1, 1.6050P-1, 1.6050S-1, 1.6050S-3, 1.6050W-1, 1.6050W-2, 1.6050X-1, 1.6050Y-1, 1.6050Y-2, and 1.6050Y-3.)
Rev. Proc. 2023-30
TABLE OF CONTENTS
Part 1 – GENERAL INFORMATION
Section 1.1 – Overview of Revenue Procedure 2023-30 / What’s New. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 996
Section 1.2 – Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1000
Section 1.3 – General Requirements for Acceptable Substitute Forms 1096, 1097-BTC, 1098, 1099, 3921,
3922, 5498, W-2G, and 1042-S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1001
Part 2 – SPECIFICATIONS FOR SUBSTITUTE FORMS 1096 AND COPIES A OF
FORMS 1098, 1099, 3921, 3922, AND 5498 (ALL FILED WITH THE IRS)
Section 2.1 – Specifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1004
Section 2.2 – Instructions for Preparing Paper Forms That Will Be Filed With the IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1009
Part 3 – SPECIFICATIONS FOR SUBSTITUTE FORM W-2G (FILED WITH THE IRS)
Section 3.1 – General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1011
Section 3.2 – Specifications for Copy A of Form W-2G. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1011
Part 4 – SUBSTITUTE STATEMENTS TO FORM RECIPIENTS AND FORM RECIPIENT COPIES
Section 4.1 – Specifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1012
Section 4.2 – Composite Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1016
Section 4.3 – Additional Information for Substitute and Composite Forms 1099-B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1018
Section 4.4 – Required Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1018
Section 4.5 – Miscellaneous Instructions for Copies B, C, D, E, 1, and 2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1020
Section 4.6 – Electronic Delivery of Recipient Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1022
Part 5 – ADDITIONAL INSTRUCTIONS FOR SUBSTITUTE FORMS 1097- BTC, 1098, 1099, 5498,
W-2G, AND 1042-S
Section 5.1 – Paper Substitutes for Form 1042-S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1023
Section 5.2 – OMB Requirements for All Forms in This Revenue Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1025
Section 5.3 – Ordering Forms and Instructions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1026
Section 5.4 – Effect on Other Revenue Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1026
Part 6 – EXHIBITS
Section 6.1 – Exhibits of Forms in This Revenue Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1027
Bulletin No. 2023–40
995
October 2, 2023
Part 1
General Information
Section 1.1 – Overview of Revenue Procedure 2023-30 / What’s New
1.1.1
Purpose
1.1.2
Which Forms Are Covered?
The purpose of this revenue procedure is to set forth the 2023 requirements for:
•
Using official Internal Revenue Service (IRS) forms to file information returns with the IRS,
•
Preparing acceptable substitutes of the official IRS forms to file information returns with the
IRS, and
•
Using official or acceptable substitute forms to furnish information to recipients.
This revenue procedure contains specifications for the following information returns.
Form
1096
1097-BTC
1098
1098-C
1098-E
1098-F
1098-MA
1098-Q
1098-T
1099-A
1099-B
1099-C
1099-CAP
1099-DIV
1099-G
1099-H
1099-INT
1099-K
1099-LS
1099-LTC
1099-MISC
1099-NEC
1099-OID
1099-PATR
October 2, 2023
Title
Annual Summary and Transmittal of U.S. Information Returns
Bond Tax Credit
Mortgage Interest Statement
Contributions of Motor Vehicles, Boats, and Airplanes
Student Loan Interest Statement
Fines, Penalties, and Other Amounts
Mortgage Assistance Payments
Qualifying Longevity Annuity Contract Information
Tuition Statement
Acquisition or Abandonment of Secured Property
Proceeds From Broker and Barter Exchange Transactions
Cancellation of Debt
Changes in Corporate Control and Capital Structure
Dividends and Distributions
Certain Government Payments
Health Coverage Tax Credit (HCTC) Advance Payments
Interest Income
Payment Card and Third Party Network Transactions
Reportable Life Insurance Sale
Long-Term Care and Accelerated Death Benefits
Miscellaneous Information
Nonemployee Compensation
Original Issue Discount
Taxable Distributions Received From Cooperatives
996
Bulletin No. 2023–40
Form
1099-Q
1099-QA
1099-R
1099-S
1099-SA
1099-SB
3921
3922
5498
5498-ESA
5498-QA
5498-SA
W-2G
1042-S
1.1.3
Scope
Title
Payments From Qualified Education Programs (Under Sections 529 and
530)
Distributions From ABLE Accounts
Distributions From Pensions, Annuities, Retirement or Profit-Sharing
Plans, IRAs, Insurance Contracts, etc.
Proceeds From Real Estate Transactions
Distributions From an HSA, Archer MSA, or Medicare Advantage MSA
Seller's Investment in Life Insurance Contract
Exercise of an Incentive Stock Option Under Section 422(b)
Transfer of Stock Acquired Through an Employee Stock Purchase Plan
Under Section 423(c)
IRA Contribution Information
Coverdell ESA Contribution Information
ABLE Account Contribution Information
HSA, Archer MSA, or Medicare Advantage MSA Information
Certain Gambling Winnings
Foreign Person’s U.S. Source Income Subject to Withholding
For purposes of this revenue procedure, a substitute form or statement is one that is not published
by the IRS. For a substitute form or statement to be acceptable to the IRS, it must conform to the
official form or the specifications outlined in this revenue procedure. Do not submit any substitute
forms or statements listed above to the IRS for approval. Privately published forms may not state,
“This is an IRS approved form.”
Filers making payments to certain recipients during a calendar year are required by the Internal
Revenue Code (the Code) to file information returns with the IRS for these payments. These filers
must also provide this information to their recipients. In some cases, this also applies to payments
received. See Part 4 for specifications that apply to recipient statements (generally Copy B).
In general, section 6011 of the Code authorizes the Secretary of Treasury to publish regulations that
require filers to file information returns according to those regulations and the corresponding forms
and instructions. A filer who is required to file 10 or more information returns during a calendar year
must file those returns electronically. See Electronic filing of returns, later, for more information.
Caution. Financial institutions that are required to report payments made under chapter 3 or 4
must file Forms 1042-S electronically, regardless of the number of returns required to be filed.
Note. If you file electronically, do not file the same returns on paper.
Filers required to file fewer than 10 information returns during a calendar year are encouraged to
file the information returns electronically. See the requirements for filing information returns (and
providing a copy to a payee) in the 2023 General Instructions for Certain Information Returns
and the 2023 Instructions for Form 1042-S. In addition, see the current revision of Pub. 1220,
Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G, for
electronic filing through the IRS Filing Information Returns Electronically (FIRE) system.
Bulletin No. 2023–40
997
October 2, 2023
1.1.4
1.1.4More
1.1.4
For
1.1.4
For More
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For
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This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.