Additional Interim Guidance Regarding the Application of the Corporate Alternative Minimum Tax under Sections 55, 56A, and 59 of the Internal Revenue Code

Part III – Administrative, Procedural, and Miscellaneous

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 117-169,

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 2023-7, 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

1 Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax

Regulations (26 CFR part 1).

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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

3-42, 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

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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

ter December 31, 2021.

Section 55(a) provides that, for the taxable year of an applicable corporation, the

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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.

(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

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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 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.

les 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)

2 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)).

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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).

te 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.

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

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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.

nds received from

that other corporation (reduced to the extent provided by the Secretary in regulations

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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

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 a CFC set forth on its AFS (as adjusted

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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.

essing 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

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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.

s 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

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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 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

ctions 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

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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 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)

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)),

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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)

plies

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

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

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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

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).

tary 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

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59(k)(2)(D) authorizes the Secretary to 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

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

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Taxes that are (1) taken into account on the AFS of the Applicable Corporation, and

(2) 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 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 § 1.1502-

1(h) (defining the term consolidated group for Federal income tax purposes)

9(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 § 1.1502-

1(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

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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

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.

Financial Statement (AFS). Subject to the additional

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:

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(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:

ax 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, or an agency that is equivalent to the SEC or

the IRS; or

(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

-16-

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 non-tax purpose, and prepared using:

ty, 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 non-tax 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 a certified financial

statement 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

-17-

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

inion by an independent financial

-17-

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,

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.

ific 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.

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(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.

he 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 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

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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.

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

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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.

(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

axable year.

(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

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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 the Taxpayer set

forth on the income statement included in a 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).

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 qualifies for

nonrecognition treatment for Regular Tax purposes, and no provision of § 56A or

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§ 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).

s 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

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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

Taxpayer that is a member of the AFS Group unless the investment is in a disregarded

entity

een 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

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.

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

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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 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

.

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

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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

. 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

-

Expense of X recorded

in consolidation

-

-

(50,000,000)

(50,000,000)

Net Income or Loss

2,000,000,000

(500,000,000)

150,000,000

1,650,000,000

(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

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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

eparate 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)

-

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FSI3

1,950,000,000

(500,000,000)

SECTION 6. DETERMINING FSI, AFSI, AND TAX IMPOSED FOR TAX

CONSOLIDATED GROUPS

.01 Purpose

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)

-

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FSI3

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

3 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]

FSI of the Tax

3 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].

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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 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--

(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

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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 section.

(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 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

ancial

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.

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(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.

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

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.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 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 section 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.

ing proposed regulations.

.02 Application of § 56A(c) in respect of certain foreign corporations.

(1) Interaction of section 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

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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.

nder rules similar to those that

apply in determining AFSI.

(4) Application of income tax treaties. For purposes of applying § 56A(c)(4), in the

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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 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

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taxable year or years in which such taxes increase or decrease the Taxpayer’

ing 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

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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.

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, must

apply the guidance in section 4 of Notice 2023-7, as modified and clarified by this

notice.

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, 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

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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).

ion 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).

(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

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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

axable 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:

.02 Defined Terms. For purposes of this section 4:

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(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).

h 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

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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.

llowed 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.

(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

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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,

ation, 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,

(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.

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(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

ccount in computing

taxable income for the taxable year, and

(6) adjusted for other items as provided in regulations or other

guidance.

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(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. Pursuant to this section 4.07, 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

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adjustment described in sections 4.03(4) or (5) of this notice), and

nt 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

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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, 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. 2015-13, 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).

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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).

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(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 place 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)).

018 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 A, and thus, the adjustments under section 4.03(1) and (2) of this notice would

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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.

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)

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(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)

ardless 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 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.

tion 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

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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.

perty

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. Accordingly, X must recognize the entire $570x gain

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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.

he

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

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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.

of $30x ($460x amount realized less $430x of redetermined AFSI basis under

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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 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

perty B is deemed placed in

service on January 15, 2024. Therefore, in 2024, Tax Depreciation for 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

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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)

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

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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, 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

t 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

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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,

ied 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 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.

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.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

ayer 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

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property that is negative (regardless of whether any portion of such Section 481(a)

Adjustment for Amortization has yet to be taken into account in AFSI through an

adjustment described in section 10.03(3) or (4) of this notice), and

ion 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

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property that is negative (regardless of whether any portion of such Section 481(a)

Adjustment for Amortization 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)).

le 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

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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

ble 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

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.

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(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)

h

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-taxable-year

-53-

period beginning with the taxable year for which the change in financial 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.

asonably 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

-54-

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.

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

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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 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

ement 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

-55-

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 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.

er’s AFS for the 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 the X’s Original AFS

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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).

so 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 is

comprised of $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

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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).

lion 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

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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 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

ce 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.

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.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.

et 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

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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.

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,

4 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

s

under § 1563(e)(1), (2), and (3), relating to options, partnerships, and estates or trusts,

4 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.

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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).

ion 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 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

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.

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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.

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.

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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).

2(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 2023-7, 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

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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),

d 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

6 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.

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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)

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

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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.

e 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 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.

ation-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

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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.

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

ever, 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.

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

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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

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

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only changes?

(b) If a Taxpayer changes its method of accounting for Regular Tax purposes

from 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 section

56A(c)(13) in prior years, but that would not have been made had the proposed method

been used instead?

pitalized 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 section

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 § 56(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

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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))?

lular phone

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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 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

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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.

ple, in a situation in which under the relevant

accounting standard, a transaction between related entities is accounted for at the

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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 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).

inition of a defined benefit

plan, as required for the plan to be a 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

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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.

ween 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 F

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