Initial 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

Initial Guidance Regarding the Application of the Corporate Alternative Minimum Tax

under Sections 55, 56A, and 59 of the Internal Revenue Code

Notice 2023-7

SECTION 1. OVERVIEW

This notice announces 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 new

corporate alternative minimum tax (CAMT), as 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). Sections 3 through 7 of this notice provide interim guidance regarding certain

time-sensitive issues intended to be addressed by the forthcoming proposed

regulations. Taxpayers may rely on the guidance provided in sections 3 through 7 of

this notice until the issuance of the forthcoming proposed regulations.

In addition, the Treasury Department and the IRS intend to issue additional

interim guidance to address other CAMT issues prior to the issuance of the

forthcoming proposed regulations. Such additional interim guidance is expected to

address, among other issues, certain issues related to the treatment under the

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

Regulations (26 CFR part 1).

2

CAMT of items that are marked-to-market for financial statement purposes (such as

life insurance company separate account assets and certain financial products), the

treatment of certain items reported in other comprehensive income (OCI), and the

treatment of embedded derivatives arising from certain reinsurance contracts. This

additional interim guidance would be intended to help avoid substantial unintended

adverse consequences to the insurance industry and certain other industries

nce company separate account assets and certain financial products), the

treatment of certain items reported in other comprehensive income (OCI), and the

treatment of embedded derivatives arising from certain reinsurance contracts. This

additional interim guidance would be intended to help avoid substantial unintended

adverse consequences to the insurance industry and certain other industries. See

section 9.02 of this notice, which requests comments on these as well as other

issues under the CAMT not addressed by this notice but that will be addressed in

forthcoming proposed regulations.

Section 2 of this notice provides a summary of relevant law underlying the rules

described in sections 3 through 7 of this notice. Section 3 of this notice describes

rules that address certain issues under the CAMT regarding (i) subchapter C of

chapter 1 of the Code (subchapter C) and subchapter K of chapter 1 of the Code

(subchapter K), (ii) troubled corporations, and (iii) affiliated groups of corporations

that join in filing (or that are required to join in filing) a consolidated return for Federal

income tax purposes (tax consolidated groups). Section 4 of this notice describes

rules that address certain CAMT issues with respect to the depreciation of property

to which § 168 applies. Section 5 of this notice describes a safe harbor method for

determining whether a corporation is an “applicable corporation” subject to the

CAMT. Section 6 of this notice describes rules that address issues regarding the

treatment of certain Federal income tax credits under the CAMT. Section 7 of this

notice describes rules that address the determination of applicable corporation status

in circumstances involving certain partnerships.

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Section 8 of this notice describes the anticipated applicability dates of the

forthcoming proposed regulations. Section 9 of this notice requests comments on

the issues addressed in this notice as well as specific issues not so addressed

of this

notice describes rules that address the determination of applicable corporation status

in circumstances involving certain partnerships.

3

Section 8 of this notice describes the anticipated applicability dates of the

forthcoming proposed regulations. Section 9 of this notice requests comments on

the issues addressed in this notice as well as specific issues not so addressed.

Section 10 of this notice provides drafting and contact information.

SECTION 2. BACKGROUND

.01 CAMT Under the Inflation Reduction Act

(1) Overview. Section 10101 of the IRA amended § 55 to impose the new

CAMT based on the “adjusted financial statement income” (AFSI) of an applicable

corporation for taxable years beginning after December 31, 2022. In general, a

corporation is an applicable corporation subject to the CAMT for a taxable year if it

meets an average annual AFSI test for one or more taxable years that (i) are before

that taxable year and (ii) end after December 31, 2021. See section 2.01(4) of this

notice.

(2) Imposition of CAMT. Section 55(a) provides that, for the taxable year of an

applicable corporation, the amount of CAMT imposed by § 55 equals the excess (if

any) of (i) the tentative minimum tax for the taxable year, over (ii) the sum of the

regular income tax imposed for the taxable year plus the tax imposed under § 59A

(commonly referred to as the base erosion and anti-abuse tax, or BEAT).

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

for the taxable year. See § 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

4

taxable year is zero.

(3) AFSI under § 56A.

ntative 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

for the taxable year. See § 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

4

taxable year is zero.

(3) AFSI under § 56A.

(a) General definition of AFSI. 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 § 56A(a).

(b) 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).

(c) General adjustments to AFSI.

(i) Special rule regarding consolidated financial statements. Section

56A(c)(2)(A) provides that, if the financial results of a taxpayer are reported on the

AFS for a group of entities (AFS Group), rules similar to the rules of § 451(b)(5)

apply. Section 451(b)(5) provides that in such a situation the AFS of the AFS Group

is the AFS of the taxpayer. Section 1.451-3(h)(1) through (3) provide rules under

§ 451(b)(5), including rules for determining the extent to which amounts reflected on

the AFS of the AFS Group and the underlying source documents are allocable to the

taxpayer for purposes of applying the rules under § 451(b). For purposes of this

notice, the term AFS Group also includes a single entity with an AFS that does not

consolidate the financial results of such entity with the financial results of any other

entity.

termining the extent to which amounts reflected on

the AFS of the AFS Group and the underlying source documents are allocable to the

taxpayer for purposes of applying the rules under § 451(b). For purposes of this

notice, the term AFS Group also includes a single entity with an AFS that does not

consolidate the financial results of such entity with the financial results of any other

entity.

(ii) Special rule regarding consolidated returns. Section 56A(c)(2)(B)

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provides a general rule that, if the taxpayer is part of a tax consolidated group for any

taxable year, AFSI for that group for that taxable year must take into account items

on the group’s AFS that are properly allocable to members of that group. However,

§ 56A(c)(2)(B) provides the Secretary with authority to prescribe by regulation

exceptions to that general rule.

(iii) 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).

(iv) Adjustments with respect to certain Federal income tax credits. Section

56A(c)(9) requires AFSI to be appropriately adjusted to disregard any amount

treated as a payment against the tax imposed by subtitle A of the Code pursuant to

an election under §§ 48D(d) or 6417 and included in the net income or loss set forth

on the taxpayer’s AFS. However, if such amount is otherwise disregarded under the

adjustment rule in § 56A(c)(5) (regarding AFSI adjustments for certain taxes), the

adjustment in § 56A(c)(9) does not apply. See § 56A(c)(9).

treated as a payment against the tax imposed by subtitle A of the Code pursuant to

an election under §§ 48D(d) or 6417 and included in the net income or loss set forth

on the taxpayer’s AFS. However, if such amount is otherwise disregarded under the

adjustment rule in § 56A(c)(5) (regarding AFSI adjustments for certain taxes), the

adjustment in § 56A(c)(9) does not apply. See § 56A(c)(9).

(v) Adjustments with regard to Federal income tax 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,

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§ 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 of the

Code.

(d) Authority of the Secretary to provide necessary adjustments. Section

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 (i) to prevent the omission or

duplication of any item, and (ii) to carry out the principles of part II of subchapter C

(relating to corporate liquidations), part III of subchapter C (relating to corporate

organizations and reorganizations), and part II of subchapter K (relating to

partnership contributions and distributions).

to carry out the

purposes of § 56A, including adjustments to AFSI (i) to prevent the omission or

duplication of any item, and (ii) to carry out the principles of part II of subchapter C

(relating to corporate liquidations), part III of subchapter C (relating to corporate

organizations and reorganizations), and part II of subchapter K (relating to

partnership contributions and distributions).

(e) General authority of the Secretary. Section 56A(e) authorizes the

Secretary to provide such regulations and other guidance as necessary to carry out

the purposes of § 56A, including regulations and other guidance relating to the effect

of the rules of § 56A on partnerships with income taken into account by an applicable

corporation.

(4) Qualification as an applicable corporation under § 59(k).

(a) Overview. Section 59(k)(1)(A) provides that, for purposes of §§ 55

through 59, the term applicable corporation means, with respect to any taxable year,

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any corporation (other than an S corporation (as defined in § 1361(a)(1)), a regulated

investment company (as defined in § 851), or a real estate investment trust (as

defined in § 856)) that meets one of the average annual AFSI tests under

§ 59(k)(1)(B) (each, an AFSI test) for one or more taxable years that (i) are prior to

that taxable year and (ii) end after December 31, 2021.

(b) AFSI tests.

(i) Overview. Section 59(k)(1)(B) provides two sets of rules for determining

whether a corporation meets an AFSI test. First, under § 59(k)(1)(B)(i), a corporation

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 financial statement

net operating losses) for the three-taxable-year period ending with that taxable year

(Three-Taxable-Year Period) exceeds $1,000,000,000 (general AFSI test)

ion meets an AFSI test. First, under § 59(k)(1)(B)(i), a corporation

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 financial statement

net operating losses) for the three-taxable-year period ending with that taxable year

(Three-Taxable-Year Period) exceeds $1,000,000,000 (general AFSI test). Second,

in the case of a corporation that is a member of a foreign-parented multinational

group (as defined in § 59(k)(2)(B)) for any taxable year, that corporation meets the

AFSI test for that taxable year under § 59(k)(1)(B)(ii) if (i) that corporation meets the

general AFSI test (determined after applying the special foreign-parented

multinational group rule in § 59(k)(2)), and (ii) the average annual AFSI of that

corporation (determined without regard to the special foreign-parented multinational

group rule in § 59(k)(2) and without regard to the adjustment described in § 56A(d)

for financial statement net operating losses) for the Three-Taxable-Year Period is at

least $100,000,000 (foreign-parented multinational group AFSI test).

(ii) Special aggregation rules and AFSI rules for determining applicable

corporation status. Solely for purposes of determining whether a corporation is an

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applicable corporation under § 59(k)(1), § 59(k)(1)(D) requires that all AFSI of

persons treated as a single employer with that corporation under § 52(a) or (b) is

treated as AFSI of that corporation. Section 59(k)(1)(D) also provides that, solely for

purposes of determining whether a corporation is an applicable corporation, the AFSI

of such corporation must be determined without regard to the distributive share

adjustment under § 56A(c)(2)(D)(i) (see section 2.01(3)(c)(iii) of this notice) and the

adjustments under § 56A(c)(11) pertaining to covered benefit plans (as defined in

§ 56A(c)(11)(B))

59(k)(1)(D) also provides that, solely for

purposes of determining whether a corporation is an applicable corporation, the AFSI

of such corporation must be determined without regard to the distributive share

adjustment under § 56A(c)(2)(D)(i) (see section 2.01(3)(c)(iii) of this notice) and the

adjustments under § 56A(c)(11) pertaining to covered benefit plans (as defined in

§ 56A(c)(11)(B)). In addition, § 59(k)(2)(A) provides a special foreign-parented

multinational group rule pursuant to which, solely for purposes of determining

whether a corporation that is a member of a foreign-parented multinational group

meets the general AFSI test, (i) the AFSI of such corporation must include the AFSI

of all members of such group, and (ii) AFSI is determined without regard to the

partnership distributive share adjustment under § 56A(c)(2)(D)(i) (see section

2.01(3)(c)(iii) of this notice), 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 (as defined in

§ 56A(c)(11)(B)).

(c) Special rules regarding AFSI and the AFSI tests. Section 59(k)(1)(E)

provides additional special rules for purposes of determining whether a corporation is

an applicable corporation.

(i) AFSI calculation for short taxable years. With regard to a corporation

with AFSI for any taxable year of less than 12 months, the AFSI of that corporation

(including any predecessor) is annualized by multiplying the AFSI for the short period

9

by 12 and dividing the result by the number of months composing the short period.

See §§ 59(k)(1)(E)(ii) and (iii).

orporation.

(i) AFSI calculation for short taxable years. With regard to a corporation

with AFSI for any taxable year of less than 12 months, the AFSI of that corporation

(including any predecessor) is annualized by multiplying the AFSI for the short period

9

by 12 and dividing the result by the number of months composing the short period.

See §§ 59(k)(1)(E)(ii) and (iii).

(ii) AFSI tests for corporations in existence for less than three taxable years.

If a corporation has been in existence for less than three taxable years, the AFSI

tests are applied to that corporation on the basis of the period during which that

corporation was in existence. See § 59(k)(1)(E)(i). Section 59(k)(1)(E)(iii) provides

that a reference in § 59(k)(1)(E) to a corporation includes a reference to any

predecessor of such corporation. Accordingly, for purposes of this section

2.01(4)(c)(ii), whether a corporation was in existence for less than three taxable

years and, if so, the period on the basis of which the AFSI tests are applied to that

corporation include the period(s) of existence of any predecessor(s) of such

corporation. See § 59(k)(1)(E)(i) and (iii).

(d) Corporations excluded from applicable corporation status. Section

59(k)(1)(C) excludes corporations from the definition of applicable corporation if the

following requirements are satisfied. First, the corporation must have either (i) a

change in ownership, or (ii) a specified number of consecutive taxable years (as

determined by the Secretary, taking into account the taxpayer’s facts and

circumstances), including the most recent taxable year, in which the corporation

does not meet an AFSI test. See § 59(k)(1)(C)(i). Second, the Secretary must

determine that it would not be appropriate to continue to treat that corporation as an

applicable corporation (appropriateness determination). See § 59(k)(1)(C)(ii)

ermined by the Secretary, taking into account the taxpayer’s facts and

circumstances), including the most recent taxable year, in which the corporation

does not meet an AFSI test. See § 59(k)(1)(C)(i). Second, the Secretary must

determine that it would not be appropriate to continue to treat that corporation as an

applicable corporation (appropriateness determination). See § 59(k)(1)(C)(ii).

However, as provided in the last sentence of § 59(k)(1)(C), a corporation that

satisfies these two requirements for exclusion from applicable corporation status

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nonetheless will be treated as an applicable corporation if that corporation

subsequently meets an AFSI test for any taxable year beginning after the first

taxable year for which an appropriateness determination applies.

(e) Regulations and other guidance to carry out statutory applicable

corporation rules. Section 59(k)(3) authorizes the Secretary to provide regulations or

other guidance for the purposes of carrying out § 59(k), including regulations or other

guidance (i) to provide a simplified method for determining whether a corporation

meets the requirements to qualify as an applicable corporation, and (ii) to address

the application of § 59(k) to a corporation that experiences a change in ownership.

.02 Cancellation of Indebtedness (COD) Income.

(1) Overview. Section 61(a)(11) provides that, except as otherwise provided in

subtitle A of the Code, gross income includes income from the discharge of

indebtedness. Section 108(a)(1) provides that gross income does not include any

amount that otherwise would be includible in gross income by reason of the

discharge (in whole or in part) of indebtedness of the taxpayer, if the discharge

occurs under circumstances specified in § 108(a)(1)(A) through (E), including: (i) in a

title 11 case, (ii) when the taxpayer is insolvent, or (iii) with respect to qualified farm

indebtedness (excluded COD income). See § 108(a)(1)(A), (B), and (C),

respectively

ld be includible in gross income by reason of the

discharge (in whole or in part) of indebtedness of the taxpayer, if the discharge

occurs under circumstances specified in § 108(a)(1)(A) through (E), including: (i) in a

title 11 case, (ii) when the taxpayer is insolvent, or (iii) with respect to qualified farm

indebtedness (excluded COD income). See § 108(a)(1)(A), (B), and (C),

respectively. In the case of a discharge to which the insolvency exclusion of

§ 108(a)(1)(B) applies, the amount of excluded COD income is limited under

§ 108(a)(3) to the amount by which the taxpayer is insolvent.

(2) Reduction of tax attributes.

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(a) In general. Section 108(b)(1) provides that the amount of excluded COD

income is applied to reduce the tax attributes of the taxpayer as provided in § 108(b)(2),

subject to the special rules of § 108(g) for discharges of qualified farm indebtedness.

(b) Order in which attributes are reduced. Section 108(b)(2) provides that,

except as provided in § 108(b)(5), the following tax attributes are reduced in the

following order: (i) any net operating loss (NOL) for the taxable year of the discharge,

and any NOL carryover to that taxable year; (ii) any amounts carried to or from the

taxable year of the discharge for purposes of determining the amount allowable as a

general business credit under § 38; (iii) the amount of the minimum tax credit available

under § 53(b) as of the beginning of the taxable year immediately following the taxable

year of the discharge; (iv) any net capital loss for the taxable year of the discharge, and

any capital loss carryover to that taxable year under § 1212; (v) the basis of the property

of the taxpayer (see § 1017 for provisions for making this reduction); (vi) any passive

activity loss or credit carryover of the taxpayer under § 469(b) from the taxable year of

the discharge; and (vii) any carryover to or from the taxable year of the discharge for

purposes of determining the amount of the foreign tax cre

rryover to that taxable year under § 1212; (v) the basis of the property

of the taxpayer (see § 1017 for provisions for making this reduction); (vi) any passive

activity loss or credit carryover of the taxpayer under § 469(b) from the taxable year of

the discharge; and (vii) any carryover to or from the taxable year of the discharge for

purposes of determining the amount of the foreign tax credit allowable under § 27.

(c) Election to reduce basis before other attributes. In lieu of applying the rules

of § 108(b)(2) to reduce a taxpayer’s attributes by the amount referred to in § 108(b)(1),

a taxpayer may elect under § 108(b)(5) to reduce under § 1017 the basis of the

taxpayer’s depreciable property by that amount, to the extent of the aggregate adjusted

bases of the depreciable property held by the taxpayer as of the beginning of the

taxable year following the taxable year in which the discharge occurs. Section 108(b)(2)

does not apply to any amount to which an election under § 108(b)(5) applies.

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(3) Exclusion of remaining amounts. Any amount of debt discharge that remains

after attribute reduction is not includible in income. See H.R. Rep. 96-833 at 11 (1980);

S. Rep. No. 96-1035 at 12 (1980). This type of excluded COD income is commonly

referred to as “black hole excluded COD income.”

.03 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 also permits the Secretary to

prescribe rules that may be different from the provisions of chapter 1 of the Code

that would apply if the corporations composing the tax consolidated group filed

separate returns.

.04 Treatment of Certain Credits in Computing Taxable Income.

e term consolidated group for Federal income tax purposes). For

purposes of carrying out those objectives, § 1502 also permits the Secretary to

prescribe rules that may be different from the provisions of chapter 1 of the Code

that would apply if the corporations composing the tax consolidated group filed

separate returns.

.04 Treatment of Certain Credits in Computing Taxable Income.

(1) Elective payments under § 6417. Section 6417(a) applies to an applicable

entity (as defined in § 6417(d)(1)) that makes an election under § 6417 with regard

to any applicable credit (as defined in § 6417(b)) determined with regard to that

applicable entity. If § 6417(a) applies, that entity is treated as making a payment

against the tax imposed by subtitle A of the Code (for the taxable year with respect

to which that applicable credit was determined) equal to the amount of that

applicable credit. See § 6417(a). Section 6417(c) provides, in part, that, in the case

of any facility or property held directly by a partnership, any election under § 6417(a)

must be made by such partnership. If such partnership makes the election under

§ 6417(a), the Secretary is authorized to make a payment to such partnership equal

13

to the amount of such credit, and the payment is treated as tax exempt income for

purposes of § 705. See § 6417(c)(1). The Treasury Department and the IRS intend

to provide guidance regarding how and when an election under § 6417 may be

made.

h partnership. If such partnership makes the election under

§ 6417(a), the Secretary is authorized to make a payment to such partnership equal

13

to the amount of such credit, and the payment is treated as tax exempt income for

purposes of § 705. See § 6417(c)(1). The Treasury Department and the IRS intend

to provide guidance regarding how and when an election under § 6417 may be

made.

(2) Elective transfers under § 6418. Section 6418(a) Code applies to an

eligible taxpayer (as defined in § 6418(f)(2)) that elects to transfer all (or any portion

specified in the election) of an eligible credit (as defined in § 6418(f)(1)) determined

with regard to that taxpayer for any taxable year to another taxpayer (transferee

taxpayer) that is not related (within the meaning of §§ 267(b) or 707(b)(1)) to the

eligible taxpayer. The transferee taxpayer specified in that election is treated as the

taxpayer for purposes of the Code with regard to that credit (or such portion thereof).

See § 6418(a). Pursuant to § 6418(b)(2), any amount received from the transfer of

an eligible credit is excluded from gross income of the eligible taxpayer. Section

6418(c)(1) provides, in part, that, in the case of any eligible credit determined with

respect to any facility or property held directly by a partnership, if such partnership

makes an election under § 6418(a) with respect to such credit, any amount received

from the transfer of the credit is treated as tax exempt income for purposes of § 705.

The Treasury Department and the IRS intend to provide guidance regarding how and

when an election under § 6418 may be made.

rmined with

respect to any facility or property held directly by a partnership, if such partnership

makes an election under § 6418(a) with respect to such credit, any amount received

from the transfer of the credit is treated as tax exempt income for purposes of § 705.

The Treasury Department and the IRS intend to provide guidance regarding how and

when an election under § 6418 may be made.

(3) Advanced Manufacturing Investment Credit under § 48D. Section 48D(a)

provides that, for purposes of § 46 (which provides rules for determining the amount

of the investment tax credit for purposes of the general business tax credit under

§ 38), the advanced manufacturing investment credit under § 48D (§ 48D credit) for

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any taxable year is an amount equal to 25 percent of the qualified investment (as

defined in § 48D(b)) for such taxable year with respect to any advanced

manufacturing facility (as defined in § 48D(b)(3)) of an eligible taxpayer (as defined

in § 48D(c)). Section 48D(d)(1) provides that, in the case of a taxpayer (other than a

partnership or S corporation) making an election with respect to the § 48D credit

determined with respect to such taxpayer, such taxpayer is treated as making a

payment against the tax imposed by subtitle A (for the taxable year with respect to

which such credit was determined) equal to the amount of such credit. Section

48D(d)(2)(A)(i) provides, in part, that, in the case of the § 48D credit determined with

respect to any property held directly by a partnership, any election under § 48D(d)(1)

must be made by such partnership. If such partnership makes the election under

§ 48D(d)(1), the Secretary is authorized to make a payment to such partnership

equal to the amount of such credit, and the payment is treated as tax exempt income

for purposes of § 705. See § 48D(d)(2)(A)(i). The Treasury Department and the IRS

intend to provide guidance regarding how and when an election under § 48D(d) may

be made.

SECTION 3

. If such partnership makes the election under

§ 48D(d)(1), the Secretary is authorized to make a payment to such partnership

equal to the amount of such credit, and the payment is treated as tax exempt income

for purposes of § 705. See § 48D(d)(2)(A)(i). The Treasury Department and the IRS

intend to provide guidance regarding how and when an election under § 48D(d) may

be made.

SECTION 3. AFSI AND APPLICABLE CORPORATION STATUS RESULTING

FROM CERTAIN TRANSACTIONS; TAX CONSOLIDATED GROUPS

.01 Purpose. The Treasury Department and the IRS anticipate that the

forthcoming proposed regulations will be consistent with the guidance provided in

this section 3. The Treasury Department and the IRS are providing this interim

guidance to facilitate the ability for taxpayers to apply the CAMT to certain corporate

transactions and other situations occurring prior to the issuance of the forthcoming

proposed regulations.

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.02 Defined Terms. For purposes of this section 3:

(1) Accounting Standards Codification. The term Accounting Standards

Codification means the single source of authoritative nongovernmental U.S.

generally accepted accounting principles (that is, U.S. GAAP).

(2) Common Parent Corporation. The term Common Parent Corporation

means the parent corporation of a group of entities whose activities are consolidated

for financial accounting purposes.

(3) Acquirer AFS Group. The term Acquirer AFS Group means a corporation or

one or more chains of entities connected through ownership with a Common Parent

Corporation that--

(a) composes or compose an AFS Group,

(b) is or are a Party to a Covered Transaction, and

(c) is or are treated on its AFS as acquiring a Target or Target AFS Group (or

the assets thereof).

(4) Controlled. The term Controlled means one corporation, or one or more

chains of entities connected through ownership with a Common Parent Corporation,

that--

(a) composes or compose an AFS Group,

(b) is or are a Party to a Covered Transaction, and

(c) is or are treated on its AFS as acquiring a Target or Target AFS Group (or

the assets thereof).

(4) Controlled. The term Controlled means one corporation, or one or more

chains of entities connected through ownership with a Common Parent Corporation,

that--

(a) composes or compose a portion of a Distributing AFS Group (as defined in

section 3.02(8) of this notice),

(b) is or are a Party to a Covered Transaction, and

(c) is or are treated as the corporation the stock of which is distributed by a

Distributing AFS Group on the AFS of the Distributing AFS Group (for example, a

spinnee under the Accounting Standards Codification).

16

(5) Covered Nonrecognition Transaction.

(a) In general. The term Covered Nonrecognition Transaction means a

transaction that, solely with regard to a corporation or a partnership (as appropriate),

qualifies for nonrecognition treatment for Federal income tax purposes, respectively,

under §§ 332, 337, 351, 354, 355, 357, 361, 368, 721, 731, or 1032, or a

combination thereof, and is not treated as resulting in any amount of gain or loss for

Federal income tax purposes (that is, solely with regard to the corporation or

partnership, as appropriate).

(b) Qualification of each component transaction determined separately

or Federal income tax purposes, respectively,

under §§ 332, 337, 351, 354, 355, 357, 361, 368, 721, 731, or 1032, or a

combination thereof, and is not treated as resulting in any amount of gain or loss for

Federal income tax purposes (that is, solely with regard to the corporation or

partnership, as appropriate).

(b) Qualification of each component transaction determined separately. For

purposes of section 3.02(5)(a) of this notice, each component transaction of a larger

transaction is examined separately for qualification as a Covered Nonrecognition

Transaction (for example, nonrecognition treatment of a liability assumption

component under § 357 and a transfer component under § 361(c)(3) are evaluated

separately for determining qualification of each component as a Covered

Nonrecognition Transaction, notwithstanding that each component could be a

component transaction of a larger transaction that includes Covered Nonrecognition

Transactions under §§ 368(a)(1)(D) and 355). Because Covered Nonrecognition

Transaction status requires nonrecognition treatment for Federal income tax

purposes, the treatment of a component transaction as a Covered Nonrecognition

Transaction may be affected by the Federal income tax consequences of any other

component transaction of the larger transaction as well as all other component

transactions of the larger transaction (for example, taking into account all relevant

provisions of the Code and general principles of tax law, including the step

17

transaction doctrine).

(6) Covered Recognition Transaction.

(a) In general. The term Covered Recognition Transaction means a transfer,

sale, contribution, distribution, or other disposition of property treated as resulting in

gain or loss for Federal income tax purposes (that is, a transfer, sale, contribution,

distribution, or other disposition of property that does not qualify as a Covered

Nonrecognition Transaction).

ition Transaction.

(a) In general. The term Covered Recognition Transaction means a transfer,

sale, contribution, distribution, or other disposition of property treated as resulting in

gain or loss for Federal income tax purposes (that is, a transfer, sale, contribution,

distribution, or other disposition of property that does not qualify as a Covered

Nonrecognition Transaction).

(b) Qualification of each component transaction determined separately. For

purposes of section 3.02(6)(a) of this notice, each component transaction of a larger

transaction is examined separately for qualification as a Covered Recognition

Transaction (for example, recognition treatment of a liability assumption component

under § 357 and a transfer component under § 361(c)(3) are evaluated separately

for determining qualification of each component as a Covered Recognition

Transaction, notwithstanding that each component could be a component

transaction of a larger transaction that includes Covered Nonrecognition

Transactions under §§ 368(a)(1)(D) and 355). Because Covered Recognition

Transaction status requires recognition treatment for Federal income tax purposes,

the treatment of a component transaction as a Covered Recognition Transaction

may be affected by the Federal income tax consequences of any other component

transaction of the larger transaction as well as all other component transactions of

the larger transaction (for example, taking into account all relevant provisions of the

Code and general principles of tax law, including the step transaction doctrine). See

section 3.03(3)(e) of this notice (Example 5).

18

(7) Covered Transaction. The term Covered Transaction means a Covered

Recognition Transaction or a Covered Nonrecognition Transaction (as appropriate).

(8) Distributing AFS Group. The term Distributing AFS Group means one or

more chains of entities connected through ownership with a Common Parent

Corporation that--

See

section 3.03(3)(e) of this notice (Example 5).

18

(7) Covered Transaction. The term Covered Transaction means a Covered

Recognition Transaction or a Covered Nonrecognition Transaction (as appropriate).

(8) Distributing AFS Group. The term Distributing AFS Group means one or

more chains of entities connected through ownership with a Common Parent

Corporation that--

(a) composes or compose an AFS Group,

(b) is or are a Party to a Covered Transaction, and

(c) is or are treated on its AFS as the distributor of the stock of Controlled (for

example, a spinnor under the Accounting Standards Codification).

(9) Party. The term Party means, with regard to a Covered Transaction--

(a) a Controlled,

(b) a Distributing AFS Group,

(c) a partnership,

(d) a corporate partner transferring to, or receiving property from, a

partnership in a Covered Transaction,

(e) a Target,

(f) a Target AFS Group, or

(g) an Acquirer AFS Group.

(10) Section 108(b) Reduction Amount. The term Section 108(b) Reduction

Amount means the amount of excluded COD income that results in a reduction of tax

attributes under § 108(b) or § 1.1502-28 (that is, the total amount of excluded COD

income, minus the “black hole excluded COD income” described in section 2.02(3) of

this notice).

19

(11) Target. The term Target means one corporation, or one or more chains of

entities connected through ownership with a Common Parent Corporation, that--

(a) composes or compose a portion of a Target AFS Group (as defined in

section 3.02(12) of this notice), and

ed COD

income, minus the “black hole excluded COD income” described in section 2.02(3) of

this notice).

19

(11) Target. The term Target means one corporation, or one or more chains of

entities connected through ownership with a Common Parent Corporation, that--

(a) composes or compose a portion of a Target AFS Group (as defined in

section 3.02(12) of this notice), and

(b) is or are treated as the Party that is acquired on the AFS of the Target

AFS Group (for example, an acquiree under the Accounting Standards Codification).

(12) Target AFS Group. The term Target AFS Group means a corporation, or

one or more chains of entities connected through ownership with a Common Parent

Corporation, that--

(a) composes or compose an AFS Group, and

(b) is or are treated as--

(i) the Party that is acquired on the AFS of the Target AFS Group (for

example, an acquiree under the Accounting Standards Codification), or

(ii) the AFS Group from which a Target is acquired on the AFS of the Target

AFS Group.

(13) Test Group. The term Test Group means, as appropriate--

(a) all persons treated as a single employer under § 52(a) (as defined, with

certain modifications, by § 1563(a)) or § 52(b) or the Treasury regulations under

§ 52(b), or

(b) all entities included in a foreign-parented multinational group, as defined in

§ 59(k)(2)(B).

(14) Three-Taxable-Year Period. The term Three-Taxable-Year Period has the

meaning given the term in section 2.01(4)(b)(i) of this notice.

20

.03 AFSI Consequences of Covered Nonrecognition Transactions. For purposes

of calculating AFSI, if there is a Covered Nonrecognition Transaction:

(1) Adjustment of financial accounting gain or loss.

defined in

§ 59(k)(2)(B).

(14) Three-Taxable-Year Period. The term Three-Taxable-Year Period has the

meaning given the term in section 2.01(4)(b)(i) of this notice.

20

.03 AFSI Consequences of Covered Nonrecognition Transactions. For purposes

of calculating AFSI, if there is a Covered Nonrecognition Transaction:

(1) Adjustment of financial accounting gain or loss.

(a) Financial accounting treatment conforms to Federal income tax treatment.

Any financial accounting gain or loss resulting from the application of the accounting

standards used to prepare the AFS of a Party to the Covered Nonrecognition

Transaction is not taken into account solely for purposes of calculating the AFSI of

the Party for the one or more taxable years in which the AFS of the Party takes into

account the Covered Nonrecognition Transaction.

(b) Scope of rule. The rule set forth in section 3.03(1)(a) of this notice applies

solely to the AFSI consequences that result directly from the Covered

Nonrecognition Transaction for the Party’s taxable year in which the AFS of the Party

takes into account that transaction. For general rules regarding the AFSI

consequences of Covered Transactions (including Covered Nonrecognition

Transactions and Covered Recognition Transactions) with regard to each Party’s

Three-Taxable-Year Period, see section 3.04 of this notice.

(2) Corresponding adjustments to basis of transferred property on an AFS.

With regard to any property transferred to a Party as part of a Covered

Nonrecognition Transaction described in section 3.03(1)(a) of this notice, any

increase or decrease in the financial accounting basis of that property on the AFS of

the Party resulting from that Covered Nonrecognition Transaction is not taken into

account solely for purposes of computing the AFSI of the Party receiving the

transferred property with regard to any taxable year of that Party.

21

onrecognition Transaction described in section 3.03(1)(a) of this notice, any

increase or decrease in the financial accounting basis of that property on the AFS of

the Party resulting from that Covered Nonrecognition Transaction is not taken into

account solely for purposes of computing the AFSI of the Party receiving the

transferred property with regard to any taxable year of that Party.

21

(3) Examples. The following examples illustrate the rules set forth in sections

3.03(1) and (2) of this notice. Each Party to a Covered Transaction described in

these examples uses the Accounting Standards Codification (that is, U.S. GAAP) for

purposes of preparing the Party’s AFS. In addition, the AFS of each Party takes into

account each Covered Transaction described in these examples in the taxable year

in which the transaction occurs. Lastly, each Party’s taxable year and accounting

period is based on the calendar year.

(a) Example 1 – Covered Nonrecognition Transaction Involving Acquirer AFS

Group, Target AFS Group, and Target--(i) Facts. Acquirer AFS Group and Target

AFS Group, of which Target is a member, are unrelated. In the 2022 taxable year of

Acquirer AFS Group and Target AFS Group, Acquirer AFS Group acquires Target

solely in exchange for stock through a merger of Target into a member of Acquirer

AFS Group that qualifies as a reorganization described in § 368(a)(1)(A) (Target

Merger). On the AFS of Target AFS Group and the AFS of Acquirer AFS Group for

the 2022 taxable year, the Target Merger results in financial accounting gain and

corresponding increases in the financial accounting basis of the assets received by

each Party (that is, Acquirer AFS Group and Target AFS Group) in the transaction.

at qualifies as a reorganization described in § 368(a)(1)(A) (Target

Merger). On the AFS of Target AFS Group and the AFS of Acquirer AFS Group for

the 2022 taxable year, the Target Merger results in financial accounting gain and

corresponding increases in the financial accounting basis of the assets received by

each Party (that is, Acquirer AFS Group and Target AFS Group) in the transaction.

(ii) Analysis. To determine AFSI, neither Target AFS Group nor Acquirer

AFS Group take into account the financial accounting gain (that otherwise would

have resulted from the application of the accounting standards used to prepare each

AFS Group’s AFS) to the Target Merger for the 2022 taxable year. See section

3.03(1)(a) and (b) of this notice. This adjustment to financial accounting gain results

from the Target Merger’s qualification as a Covered Nonrecognition Transaction.

22

See section 3.03(1)(a) of this notice. Each increase in financial accounting basis of

the assets received by Target AFS Group and Acquirer AFS Group in the Target

Merger (that otherwise would have resulted from the application of the accounting

standards used to prepare each AFS Group’s AFS) is not taken into account for

AFSI purposes. See section 3.03(2) of this notice.

(b) Example 2 – Disposition of Assets Acquired in Covered Nonrecognition

Transaction--(i) Facts. The facts are the same as in section 3.03(3)(a) of this notice

(Example 1), except for the following. During Acquirer AFS Group’s 2023 taxable

year, a portion of the assets that Acquirer AFS Group received from Target AFS

Group (Target Assets) in the Target Merger is sold by Acquirer AFS Group (Target

Asset Sale). In the absence of the application of section 3.03(2) of this notice, the

basis of those Target Assets would have been increased to fair market value on the

AFS of Acquirer AFS Group as a result of the Target Merger.

able

year, a portion of the assets that Acquirer AFS Group received from Target AFS

Group (Target Assets) in the Target Merger is sold by Acquirer AFS Group (Target

Asset Sale). In the absence of the application of section 3.03(2) of this notice, the

basis of those Target Assets would have been increased to fair market value on the

AFS of Acquirer AFS Group as a result of the Target Merger.

(ii) Analysis. To determine the AFSI of Acquirer AFS Group for the 2023

taxable year, Acquirer AFS Group must treat its financial accounting basis in the

Target Assets as equal to the financial accounting basis of those assets held by the

transferor member of Target AFS Group immediately prior to the Target Merger (that

is, a transferred financial accounting basis). See section 3.03(2) of this notice; cf.

§ 362(b). Therefore, solely for purposes of determining the AFSI of Acquirer AFS

Group for the 2023 taxable year, Acquirer AFS Group must treat the Target Asset

Sale as resulting in financial accounting gain equal to the difference between the

financial accounting value of the Target Assets on the date of the sale and the

transferred financial accounting basis of those assets (as adjusted for events

23

subsequent to the Target Merger and any other relevant AFSI adjustments, such as

those described in section 4.07 of this notice).

(c) Example 3 – Covered Nonrecognition Transaction Involving Distributing

AFS Group and Controlled--(i) Facts. On January 1, 2022, the parent corporation of

Distributing AFS Group (Distributing) contributes property to a newly formed

Controlled in exchange for Controlled stock, Controlled’s assumption of certain

Distributing liabilities (Controlled Liability Assumption), Controlled cash, and

Controlled securities (collectively, the Contribution)

lving Distributing

AFS Group and Controlled--(i) Facts. On January 1, 2022, the parent corporation of

Distributing AFS Group (Distributing) contributes property to a newly formed

Controlled in exchange for Controlled stock, Controlled’s assumption of certain

Distributing liabilities (Controlled Liability Assumption), Controlled cash, and

Controlled securities (collectively, the Contribution). Pursuant to a plan of

reorganization that includes the Contribution, Distributing distributes Controlled stock

to certain shareholders of Distributing throughout the year in exchange for

Distributing stock (collectively, the Staggered Split-Off Distribution). The

Contribution and Staggered Split-Off Distribution, together, qualify for nonrecognition

treatment (i) for Distributing under §§ 368(a)(1)(D) and 355, 357, and 361, and (ii) for

Controlled under § 1032(a). Pursuant to that plan of reorganization, Distributing

transfers the Controlled cash and Controlled securities to Distributing’s creditors

(Cash for Debt Exchange and Debt for Debt Exchange, respectively) in transactions

that qualify Distributing for nonrecognition treatment under §§ 361(b)(3) and (c)(3),

respectively (collectively, the Deleveraging Transactions). On the AFS of

Distributing AFS Group and Controlled, each of the transactions described in this

section 3.03(3)(c)(i) results in financial accounting gain and corresponding increases

in the financial accounting basis of the assets received by Controlled, respectively.

uting for nonrecognition treatment under §§ 361(b)(3) and (c)(3),

respectively (collectively, the Deleveraging Transactions). On the AFS of

Distributing AFS Group and Controlled, each of the transactions described in this

section 3.03(3)(c)(i) results in financial accounting gain and corresponding increases

in the financial accounting basis of the assets received by Controlled, respectively.

(ii) Analysis. In determining AFSI, Distributing does not take into account

any financial accounting gain that otherwise would result from the application of the

24

accounting standards used to prepare the Distributing AFS Group’s AFS to any of

the Contribution, Controlled Liability Assumption, Staggered Split-Off Distribution,2 or

Deleveraging Transactions (together, the Controlled Split-Off) for the 2022 taxable

year. See section 3.03(1)(a) and (b) of this notice. This adjustment to financial

accounting gain results from the qualification of each of those transactions as a

Covered Nonrecognition Transaction. See section 3.03(1)(a) of this notice. The

analysis in this section 3.03(3)(c) would not be affected if a creditor of Distributing

were to recognize any gain for Federal income tax purposes in the Controlled Split-

Off.

(d) Example 4 – Covered Recognition Transaction Involving Distributing AFS

Group--(i) Facts. The facts are the same as in section 3.03(3)(c) of this notice

(Example 3), except for the following. During Distributing AFS Group’s 2022 taxable

year, Distributing fails to transfer the Controlled securities to Distributing’s creditors

in a transaction that qualifies Distributing for nonrecognition treatment under §§

361(c)(3). Accordingly, the Debt for Debt Exchange is a Covered Recognition

Transaction for the 2022 taxable year.

)(c) of this notice

(Example 3), except for the following. During Distributing AFS Group’s 2022 taxable

year, Distributing fails to transfer the Controlled securities to Distributing’s creditors

in a transaction that qualifies Distributing for nonrecognition treatment under §§

361(c)(3). Accordingly, the Debt for Debt Exchange is a Covered Recognition

Transaction for the 2022 taxable year.

(ii) Analysis. In determining AFSI, Distributing does not take into account

any financial accounting gain that otherwise would result from the application of the

accounting standards used to prepare the Distributing AFS Group’s AFS to any of

the Contribution, Controlled Liability Assumption, Cash for Debt Exchange, or

Staggered Split-Off Distribution for the 2022 taxable year. See section 3.03(1)(a)

2 A “split-off” generally consists of a non-pro rata distribution by Distributing of stock of a Controlled in

which Distributing shareholders surrender some or all of their stock in Distributing in exchange for that

Controlled stock. In contrast, a “spin-off” generally consists of a pro rata distribution of Controlled stock

by Distributing to its shareholders with respect to their stock in Distributing.

25

and (b) of this notice. This adjustment to financial accounting gain results from the

qualification of each of those transactions as a Covered Nonrecognition Transaction

(which are component transactions of the Controlled Split-Off). See section

3.03(1)(a) of this notice. However, Distributing AFS Group must take into account,

for the 2022 taxable year, any financial accounting gain that would result from

applying the accounting standards used to prepare the Distributing AFS Group’s

AFS to the Debt for Debt Exchange because that transaction is a Covered

Recognition Transaction. See section 3.03(1)(a) and (b) of this notice

section

3.03(1)(a) of this notice. However, Distributing AFS Group must take into account,

for the 2022 taxable year, any financial accounting gain that would result from

applying the accounting standards used to prepare the Distributing AFS Group’s

AFS to the Debt for Debt Exchange because that transaction is a Covered

Recognition Transaction. See section 3.03(1)(a) and (b) of this notice. Accordingly,

for purposes of determining AFSI, the financial accounting basis of the assets of

Controlled are increased (on the AFS of Controlled) by an amount corresponding to

the financial accounting gain that resulted from the Debt for Debt Exchange (in other

words, section 3.03(2) does not apply to the Debt for Debt Exchange). See section

3.03(1)(a) of this notice.

(e) Example 5 – Covered Recognition Transaction under Subchapter K--

(i) Facts. Partner A contributes property to existing Partnership in a transaction

purporting to qualify for nonrecognition treatment under § 721 (Contribution).

Following the Contribution, Partnership distributes cash to Partner A in a transaction

purporting to qualify for nonrecognition treatment under § 731 (Distribution). Section

707(a)(2)(B) and § 1.707-3 apply to the Contribution and Distribution to treat those

transactions together as a part sale, part contribution of the property by Partner A to

Partnership.

(ii) Analysis. The Contribution by Partner A and the Distribution by

Partnership result in the recognition of gain or loss for Federal income tax purposes

26

due to the application of § 707(a)(2)(B) and § 1.707-3. Qualification of the

Contribution and the Distribution (each, a component transaction of a larger

transaction) as a Covered Nonrecognition Transaction is determined based on the

Federal income tax consequences of all other component transactions of the larger

transaction. See section 3.02(5)(b) of this notice

income tax purposes

26

due to the application of § 707(a)(2)(B) and § 1.707-3. Qualification of the

Contribution and the Distribution (each, a component transaction of a larger

transaction) as a Covered Nonrecognition Transaction is determined based on the

Federal income tax consequences of all other component transactions of the larger

transaction. See section 3.02(5)(b) of this notice. In other words, the application of

§ 707(a)(2)(B) and § 1.707-3 to both component transactions of the larger

transaction, which treats them together as a part taxable exchange under § 1001

and a part nontaxable contribution, results in the Contribution and Distribution being

treated as a Covered Recognition Transaction. See section 9.01(1)(b) of this notice

for a request for comments regarding Covered Transactions in which, for Federal

income tax purposes, gain or loss is recognized in part.

.04 Consequences of All Covered Transactions. For purposes of determining the

AFSI of a Party for the Three-Taxable-Year Period:

(1) Covered Transactions Involving Solely an Acquirer AFS Group and a Target

AFS Group. If an Acquirer AFS Group acquires a Target AFS Group through a

Covered Transaction that creates a Test Group comprised of the Target AFS Group

(or the assets thereof) and the Acquirer AFS Group--

(a) the applicable corporation status (if that status existed immediately prior to

the Covered Transaction) of the Target AFS Group terminates, and

(b) the AFSI of the Target AFS Group for each year of the Target AFS

Group’s Three-Taxable-Year Period is combined with the AFSI of the Acquirer AFS

Group for each year of the Acquirer AFS Group’s Three-Taxable-Year Period.

(2) Covered Transactions Involving Solely an Acquirer AFS Group and a

27

Target. If an Acquirer AFS Group acquires a Target in a Covered Transaction that

creates a Test Group comprised of the Target (or the assets thereof) and the

Acquirer AFS Group--

ar Period is combined with the AFSI of the Acquirer AFS

Group for each year of the Acquirer AFS Group’s Three-Taxable-Year Period.

(2) Covered Transactions Involving Solely an Acquirer AFS Group and a

27

Target. If an Acquirer AFS Group acquires a Target in a Covered Transaction that

creates a Test Group comprised of the Target (or the assets thereof) and the

Acquirer AFS Group--

(a) the applicable corporation status (if that status existed immediately prior to

the Covered Transaction) of the Target terminates,

(b) the AFSI of the Target for the Three-Taxable-Year Period of the Target is

determined based on the Target’s allocated portion of the Target AFS Group’s total

AFSI, determined based on any reasonable allocation method of the Target AFS

Group until the issuance of the forthcoming proposed regulations, which will provide

a required allocation method (see section 9.01(1)(e) of this notice),

(c) the AFSI of the Target for each year of the Target’s Three-Taxable-Year

Period is combined with the AFSI of the Acquirer AFS Group for each year of the

Acquirer AFS Group’s Three-Taxable-Year Period, and

(d) the AFSI of the Target AFS Group for each year of the Target AFS

Group’s Three-Taxable-Year Period is not reduced by the allocation of AFSI to the

Target (as required by section 3.04(2)(b) of this notice), or otherwise affected by the

Acquirer AFS Group’s acquisition of Target through the Covered Transaction.

(3) Covered Transactions Involving Distributing AFS Group and Controlled. If a

Distributing AFS Group distributes the stock of Controlled to the shareholders of the

Distributing AFS Group’s parent corporation in a Covered Transaction--

(a) the applicable corporation status (if that status existed immediately prior to

the Covered Transaction) of Controlled terminates,

ion.

(3) Covered Transactions Involving Distributing AFS Group and Controlled. If a

Distributing AFS Group distributes the stock of Controlled to the shareholders of the

Distributing AFS Group’s parent corporation in a Covered Transaction--

(a) the applicable corporation status (if that status existed immediately prior to

the Covered Transaction) of Controlled terminates,

(b) the AFSI of Controlled for the Three-Taxable-Year Period of Controlled is

28

determined based on Controlled’s allocated portion of the Distributing AFS Group’s

total AFSI, determined based on any reasonable allocation method of the

Distributing AFS Group until the issuance of the forthcoming proposed regulations,

which will provide a required allocation method (see section 9.01(1)(f) of this notice),

and

(c) the AFSI of the Distributing AFS Group for each year of the Distributing

AFS Group’s Three-Taxable-Year Period is not reduced by the allocation of AFSI to

Controlled (as required by section 3.04(3)(b) of this notice), or otherwise affected by

the Distributing AFS Group’s distribution of the stock of Controlled through the

Covered Transaction.

(4) Examples. The following examples illustrate the rules set forth in sections

3.04(1) through (3) of this notice. Each Party to a Covered Transaction described in

these examples uses the Accounting Standards Codification (that is, U.S. GAAP) for

purposes of preparing the Party’s AFS. In addition, the AFS of each Party takes into

account each Covered Transaction described in these examples in the taxable year

in which such transaction occurs. Lastly, each Party’s taxable year and accounting

period is based on the calendar year.

ansaction described in

these examples uses the Accounting Standards Codification (that is, U.S. GAAP) for

purposes of preparing the Party’s AFS. In addition, the AFS of each Party takes into

account each Covered Transaction described in these examples in the taxable year

in which such transaction occurs. Lastly, each Party’s taxable year and accounting

period is based on the calendar year.

(a) Example 6 – Covered Nonrecognition Transaction Involving Acquirer AFS

Group and Target--(i) Facts. The facts are the same as in section 3.03(3)(a) of this

notice (Example 1), except for the following. For taxable years 2020, 2021, and

2022, Target AFS Group has AFSI of $1.3 billion, $1.2 billion, and $1.1 billion,

respectively. For those taxable years, Acquirer AFS Group has AFSI of $800 million,

$900 million, and $1 billion, respectively. Pursuant to a reasonable allocation

29

method, Target AFS Group allocates to Target $50 million, $100 million, and $200

million of AFSI for taxable years 2020, 2021, and 2022, respectively. See section

3.04(2)(b) of this notice. As a result of the Target Merger, Acquirer AFS Group and

Target compose a Test Group.

(ii) Analysis. As a result of the Target Merger, Acquirer AFS Group (which,

as a result, includes Target) is an applicable corporation for Acquirer AFS Group’s

2023 taxable year. Specifically, for purposes of applying the general AFSI test to

Acquirer AFS Group for Acquirer AFS Group’s 2022 taxable year, Target’s allocated

AFSI is combined with Acquirer AFS Group’s AFSI. As a result, Acquirer AFS Group

has an average AFSI in excess of $1 billion. Specifically, the Acquirer AFS Group

has an average AFSI of $1.017 billion, which equals $3.05 billion (that is, $850

million ($800 million + $50 million) for taxable year 2020, $1 billion ($900 million +

$100 million) for taxable year 2021, and $1.2 billion ($1 billion + $200 million) for

taxable year 2022) ÷ 3 years. See section 3.04(2)(c) of this notice

erage AFSI in excess of $1 billion. Specifically, the Acquirer AFS Group

has an average AFSI of $1.017 billion, which equals $3.05 billion (that is, $850

million ($800 million + $50 million) for taxable year 2020, $1 billion ($900 million +

$100 million) for taxable year 2021, and $1.2 billion ($1 billion + $200 million) for

taxable year 2022) ÷ 3 years. See section 3.04(2)(c) of this notice. Target AFS

Group also is an applicable corporation for its 2023 taxable year because its

allocation of AFSI to Target, and any other aspect of the Target Merger, does not

affect the AFSI of Target AFS Group prior to its 2023 taxable year. See section

3.04(2)(d) of this notice.

(b) Example 7 – Covered Transactions Involving Distributing AFS Group and

Controlled--(i) Facts. The facts are the same as in section 3.03(3)(c) of this notice

(Example 3), except for the following. For taxable years 2020, 2021, and 2022,

Distributing AFS Group has AFSI of $2.1 billion, $2.0 billion, and $1.9 billion,

respectively. Pursuant to a reasonable allocation method, Distributing AFS Group

30

allocates to Controlled $950 million, $1.2 billion, and $1 billion of AFSI for taxable

years 2020, 2021, and 2022, respectively. See section 3.04(3)(b) of this notice. In

addition to the amount of AFSI allocated to Controlled for 2022, Controlled has

standalone AFSI of $300 million in 2022.

(ii) Analysis. As a result of the Controlled Split-Off, Controlled is an

applicable corporation for Controlled’s 2023 taxable year. Specifically, for purposes

of applying the general AFSI test to Controlled for Controlled’s 2022 taxable year,

Controlled’s allocated AFSI results in Controlled having an average AFSI in excess

of $1 billion. Specifically, the Controlled AFS Group has an average AFSI of $1.15

billion, which equals $3.45 billion (that is, $950 million for taxable year 2020, $1.2

billion for taxable year 2021, and $1.3 billion ($1 billion + $300 million) for taxable

year 2022) ÷ 3 years

Controlled’s 2022 taxable year,

Controlled’s allocated AFSI results in Controlled having an average AFSI in excess

of $1 billion. Specifically, the Controlled AFS Group has an average AFSI of $1.15

billion, which equals $3.45 billion (that is, $950 million for taxable year 2020, $1.2

billion for taxable year 2021, and $1.3 billion ($1 billion + $300 million) for taxable

year 2022) ÷ 3 years. See section 3.04(3)(b) of this notice. Distributing AFS Group

also is an applicable corporation for its 2023 taxable year because its allocation of

AFSI to Controlled, and any other aspect of the Controlled Split-Off, does not affect

the AFSI of Distributing AFS Group prior to its 2023 taxable year. See section

3.04(3)(c) of this notice.

.05 Treatment of Tax Consolidated Groups for Purposes of the CAMT. A tax

consolidated group is treated as a single entity for purposes of calculating AFSI for

determining applicable corporation status and for purposes of calculating AFSI for

CAMT liability.

.06 AFSI Consequences of Excluded COD Income. To the extent that a

discharge of indebtedness results in excluded COD income to an AFS Group for

Federal income tax purposes, but results in gain to the AFS Group on the AFS of the

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AFS Group:

(1) Adjustment of financial accounting gain. The financial accounting gain

resulting from application of the accounting standards used to prepare the AFS of

the AFS Group to the discharge of indebtedness that is equal to the amount of

excluded COD income (for Federal income tax purposes) of the AFS Group is not

taken into account for purposes of calculating the AFSI of that AFS Group for the

taxable year in which the discharge of indebtedness occurs.

ccounting gain

resulting from application of the accounting standards used to prepare the AFS of

the AFS Group to the discharge of indebtedness that is equal to the amount of

excluded COD income (for Federal income tax purposes) of the AFS Group is not

taken into account for purposes of calculating the AFSI of that AFS Group for the

taxable year in which the discharge of indebtedness occurs.

(2) Corresponding adjustments to CAMT attributes of AFS Group. If financial

accounting gain resulting from a discharge of indebtedness is not taken into account

under section 3.06(1) of this notice for purposes of calculating the AFSI of an AFS

Group, the AFS Group’s CAMT attributes must be reduced to the extent of the

Section 108(b) Reduction Amount under the principles of, including taking account

the ordering provided by, § 108(b) and § 1017.

(3) Example 8 – Excluded COD of tax consolidated group--(a) Facts. Parent is

the common parent of a tax consolidated group (Parent Tax Consolidated Group),

which also is an AFS Group (Parent AFS Group). There is no member of Parent

AFS Group other than members of Parent Tax Consolidated Group. During its 2022

taxable year, Parent AFS Group emerges from bankruptcy. All members of Parent

AFS Group were under the jurisdiction of the bankruptcy court. As a result of the

bankruptcy reorganization, $1,000x of Parent AFS Group debt is discharged, the

entire amount of which results in excluded COD. However, the Section 108(b)

Reduction Amount of Parent AFS Group is $850x. A group of former creditors of

Parent AFS Group owns 100 percent of the outstanding stock of Parent. None of the

32

shareholders of Parent controls Parent for purposes of preparing the shareholders’

respective AFS. Therefore, Parent AFS Group is not consolidated into any other

AFS Group following Parent AFS Group’s emergence from bankruptcy. On Parent

AFS Group’s AFS, all $1,000x of the excluded COD is taken into account as financial

accounting gain.

f the outstanding stock of Parent. None of the

32

shareholders of Parent controls Parent for purposes of preparing the shareholders’

respective AFS. Therefore, Parent AFS Group is not consolidated into any other

AFS Group following Parent AFS Group’s emergence from bankruptcy. On Parent

AFS Group’s AFS, all $1,000x of the excluded COD is taken into account as financial

accounting gain.

(b) Analysis. For purposes of determining AFSI for the 2022 taxable year,

Parent AFS Group does not take into account any financial accounting gain that

otherwise would result from the application of the accounting standards used to

prepare the Parent AFS Group’s AFS to any of the $1,000x of excluded COD. See

section 3.06(1) of this notice. The CAMT attributes of Parent AFS Group must be

reduced by an amount equal to the amount of Parent AFS Group’s Section 108(b)

Reduction Amount (that is, $850x). See section 3.06(2) of this notice. Parent AFS

Group must reduce those CAMT attributes under the principles of, including taking

into account the ordering provided by, § 108(b) and § 1017. See id.

.07 AFSI Consequences of Emergence from Bankruptcy. To the extent that the

emergence from bankruptcy of an AFS Group results in gain or loss to the AFS

Group on its AFS:

(1) Adjustment of financial accounting gain or loss. The financial accounting

gain or loss resulting from application of the accounting standards used to prepare

the AFS of the AFS Group to the emergence from bankruptcy by the AFS Group is

not taken into account for purposes of calculating the AFSI of that AFS Group for the

taxable year in which the emergence from bankruptcy occurs.

(1) Adjustment of financial accounting gain or loss. The financial accounting

gain or loss resulting from application of the accounting standards used to prepare

the AFS of the AFS Group to the emergence from bankruptcy by the AFS Group is

not taken into account for purposes of calculating the AFSI of that AFS Group for the

taxable year in which the emergence from bankruptcy occurs.

(2) Corresponding adjustments to basis of transferred property on an AFS.

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With regard to any property of a Party emerging from bankruptcy in a transaction

described in section 3.07(1) of this notice, any increase or decrease in the financial

accounting basis of that property on the AFS of the Party resulting from that

emergence from bankruptcy (other than as a result of the excluded COD income

reduction under the principles of, including taking into account the ordering provided

by, § 108(b) and § 1017) is not taken into account for purposes of computing AFSI

with regard to any taxable year of that Party (that is, to determine the AFSI of an

AFS Group described in this section 3.07(2), financial accounting basis of a Party

(that is a member of that AFS Group) emerging from a bankruptcy equals the

financial accounting basis of those assets of the Party immediately prior to the

Party’s emergence from bankruptcy, as adjusted under section 3.06(2) of this

notice).

SECTION 4. DEPRECIATION ADJUSTMENTS

.01 Purpose. The Treasury Department and the IRS anticipate that the

forthcoming proposed regulations will be consistent with the guidance provided in

this section 4. The Treasury Department and the IRS are providing this interim

guidance to facilitate the application of the depreciation adjustment rules in

§ 56A(c)(13) prior to the issuance of the forthcoming proposed regulations.

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

anticipate that the

forthcoming proposed regulations will be consistent with the guidance provided in

this section 4. The Treasury Department and the IRS are providing this interim

guidance to facilitate the application of the depreciation adjustment rules in

§ 56A(c)(13) prior to the issuance of the forthcoming proposed regulations.

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

(1) Covered Book COGS Depreciation. The term Covered Book COGS

Depreciation means depreciation expense, impairment loss, or impairment loss

reversal that is taken into account as cost of goods sold in the net income or loss set

forth on the taxpayer’s AFS with respect to Section 168 Property (as defined in

34

section 4.02(5) of this notice).

(2) Covered Book Depreciation Expense. The term Covered Book Depreciation

Expense means depreciation expense, 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

(as defined in section 4.02(5) of this notice).

(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 (as defined in section 4.02(5) of this notice) for

Federal income tax purposes.

(4) Deductible Tax Depreciation. The term Deductible Tax Depreciation means

Tax Depreciation (as defined in section 4.02(7) of this notice) that is allowed as a

deduction in computing taxable income.

(5) Section 168 Property. The term Section 168 Property means property to

which § 168 applies, as described in section 4.04 of this notice.

e) for

Federal income tax purposes.

(4) Deductible Tax Depreciation. The term Deductible Tax Depreciation means

Tax Depreciation (as defined in section 4.02(7) of this notice) that is allowed as a

deduction in computing taxable income.

(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 (as defined in section 4.02(7) of this notice) that is capitalized to

inventory under § 263A and recovered as part of cost of goods sold in computing

gross income under § 61.

35

(7) Tax Depreciation. The term Tax Depreciation means depreciation

deductions allowed under § 167, with respect to Section 168 Property.

.03 Adjustments for Depreciation (Including Depreciation Capitalized to

Inventory). For purposes of § 56A(c)(13), AFSI is--

(1) reduced by Tax COGS Depreciation, but only to the extent of the amount

recovered as part of cost of goods sold in computing taxable income for the taxable

year,

(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, and

(4) adjusted for other items as provided in guidance published in the Internal

Revenue Bulletin (see § 601.601(d) of the Statement of Procedural Rules (26 CFR

part 601)).

.04 Property to Which § 168 Applies (Section 168 Property).

(1) In general. For purposes of § 56A(c)(13), property to which § 168 applies

consists of the following:

(a) MACRS property, as defined in § 1.168(b)-1(a)(2), that is depreciated under

§ 168;

lished in the Internal

Revenue Bulletin (see § 601.601(d) of the Statement of Procedural Rules (26 CFR

part 601)).

.04 Property to Which § 168 Applies (Section 168 Property).

(1) In general. For purposes of § 56A(c)(13), property to which § 168 applies

consists of the following:

(a) MACRS property, as defined in § 1.168(b)-1(a)(2), that is depreciated under

§ 168;

(b) Computer software that is qualified property as defined in §§ 1.168(k)-1(b)(1)

or 1.168(k)-2(b)(1), as applicable, and depreciated under § 168; and

(c) Other property depreciated under § 168 that is (i) qualified property as

defined in § 1.168(k)-2(b)(1) and that is (ii) described in § 1.168(k)-2(b)(2)(i)(E), (F), or

36

(G).

(2) Section 56A(c)(13) applies only to portion depreciated under §§ 167 and 168.

For purposes of § 56A(c)(13), property to which § 168 applies includes only the portion

of the cost of property described in section 4.04(1) of this notice that is depreciated

under §§ 167 and 168. For example, if a portion of the cost of a property described in

section 4.04(1)(c) of this notice is deducted under § 181, and the remainder of the cost

of the property is depreciated under §§ 167 and 168, only the portion of the cost of

property depreciated under §§ 167 and 168 is considered property to which § 168

applies for purposes of § 56A(c)(13). Further, if a taxpayer does not depreciate any

portion of a property under § 168, the property is not property to which § 168 applies for

purposes of § 56A(c)(13), and thus, not subject to adjustment under § 56A(c)(13). For

example, if the taxpayer elects out of the additional first year depreciation deduction

under § 168(k) for property described in section 4.04(1)(b) or (c) of this notice, then

AFSI is not adjusted under § 56A(c)(13) with respect to such property because § 168

does not apply to such property.

.05 Repair deductions. Section 56A(c)(13) applies only to Section 168 Property

56A(c)(13). For

example, if the taxpayer elects out of the additional first year depreciation deduction

under § 168(k) for property described in section 4.04(1)(b) or (c) of this notice, then

AFSI is not adjusted under § 56A(c)(13) with respect to such property because § 168

does not apply to such property.

.05 Repair deductions. Section 56A(c)(13) applies only to Section 168 Property.

For example, if a taxpayer deducts an expenditure as a repair for Federal income tax

purposes but capitalizes the expenditure as an improvement for AFS purposes,

§ 56A(c)(13) does not apply because the expenditure does not give rise to Section

168 Property. For purposes of determining the appropriate asset in order to

ascertain if there is Section 168 Property, the unit of property determination under

§ 1.263(a)-3(e) does not apply. Instead, taxpayers should follow § 168 and the

regulations under § 168. See § 1.168(i)-8(c)(4).

37

.06 Property placed in service in taxable years beginning before January 1, 2023.

Section 56A(c)(13) applies to Section 168 Property placed in service in any taxable

year, including taxable years beginning before January 1, 2023.

.07 AFSI adjustments for dispositions. If a taxpayer disposes of Section 168

Property, the taxpayer must adjust AFSI 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 (including a gain or loss of zero) by adjusting the AFS basis of such

property to take into account all current and prior § 56A(c)(13) adjustments, including

those that would have been made in taxable years prior to the effective date of the

CAMT had the CAMT applied in those years.

.08 Example. The following example illustrates the rules set forth in sections 4.06

and 4.07 of this notice.

uding a gain or loss of zero) by adjusting the AFS basis of such

property to take into account all current and prior § 56A(c)(13) adjustments, including

those that would have been made in taxable years prior to the effective date of the

CAMT had the CAMT applied in those years.

.08 Example. The following example illustrates the rules set forth in sections 4.06

and 4.07 of this notice.

(1) 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, a 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 recognized $25x ($1,000x cost / 40 years) of Covered Book

Depreciation Expense in 2018 and each year thereafter until it sold Property A 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

38

Depreciation Expense as of January 1, 2024)).

(2) 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 adjustment under section 4.03(1) and (2) of this notice

would be zero. In addition, Taxpayer would adjust AFSI under section 4.03(3) of this

notice to disregard the $25x of Covered Book Depreciation Expense with respect to

Property A.

1, 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 adjustment under section 4.03(1) and (2) of this notice

would be zero. In addition, Taxpayer would adjust AFSI under section 4.03(3) of this

notice to disregard the $25x of Covered Book Depreciation Expense with respect to

Property A.

(3) 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 AFS basis to take into account the cumulative § 56A(c)(13)

adjustments, starting from the date Property A was placed-in-service. Accordingly,

the adjusted basis of Property A for AFSI purposes is zero ($850x 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 adjusted AFSI basis).

SECTION 5. SAFE HARBOR METHOD FOR DETERMINING APPLICABLE

CORPORATION STATUS

.01 Purpose. The Treasury Department and the IRS anticipate that the forthcoming

proposed regulations will be consistent with the guidance provided in this section 5.

The Treasury Department and the IRS are providing this interim guidance to provide

corporations with a safe harbor method for determining whether they are an applicable

corporation for the first taxable year beginning after December 31, 2022.

.02 Definition of AFS Consolidation Entries. For purposes of this section 5, the

39

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 defined in section 2.01(3)(c)(i) of this notice) as though all members of the AFS

Group were a single company, including journal entries to eliminate transactions

between members of such group

es of this section 5, the

39

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 defined in section 2.01(3)(c)(i) of this notice) as though all members of the AFS

Group were a single company, including journal entries to eliminate transactions

between members of such group.

.03 Simplified method for determining applicable corporation status.

(1) In general. For the first taxable year beginning after December 31, 2022, a

corporation may choose to apply the safe harbor method described in section 5.03(2) of

this notice (simplified method) in lieu of the rules in §§ 59(k)(1) and (2) for purposes of

determining whether it is an applicable corporation under § 59(k)(1).

(2) Simplified method. Under the simplified method, a corporation determines

whether it is an applicable corporation by applying the rules in § 59(k)(1) and (2) with

the following modifications:

(a) The AFSI test in § 59(k)(1)(B)(i) (including for purposes of § 59(k)(1)(B)(ii)(I))

is applied by substituting “$500,000,000” for “$1,000,000,000.”

(b) The AFSI test in § 59(k)(1)(B)(ii)(II) is applied by substituting “$50,000,000”

for “$100,000,000.”

(c) AFSI is determined –

(i) except as provided in section 5.03(2)(c)(ii) of this notice, without regard to

the adjustments set forth in § 56A(c) and (d) other than those set forth in § 56A(c)(2)(A),

(c)(2)(B), and (c)(5), except that in applying § 59(k)(1)(B)(ii)(II), the adjustment in

§ 56A(c)(4) also applies, and

(ii) after taking into account AFS Consolidation Entries except those that

40

eliminate transactions between persons not treated as a single employer under § 52(a)

or (b).

(d) For a corporation that has an AFS that covers a period (AFS year) that differs

from its taxable year—

that in applying § 59(k)(1)(B)(ii)(II), the adjustment in

§ 56A(c)(4) also applies, and

(ii) after taking into account AFS Consolidation Entries except those that

40

eliminate transactions between persons not treated as a single employer under § 52(a)

or (b).

(d) For a corporation that has an AFS that covers a period (AFS year) that differs

from its taxable year—

(i) Section 59(k)(1)(B)(i) and (ii)(I) are applied by substituting “3-AFS-year

period ending during such taxable year” for “3-taxable-year period ending with such

taxable year” in each place those phrases appear, and

(ii) Section 59(k)(1)(E) is applied by substituting “AFS year” for “taxable year”

and “3-AFS years” for “3-taxable years” in each place those phrases appear.

(3) Examples. The following examples illustrate the rules set forth in section

5.03(2)(c) and (d) of this notice.

(a) Example 1 – AFS Consolidation Entries example. The following example

illustrates the rule set forth in section 5.03(2)(c) of this notice.

(i) Facts. Corporations A, B, and C are U.S. Corporations that are members of

an AFS Group (ABC group). A and B (but not C) are treated as a single employer

under § 52(a). A, B, and C choose to apply the simplified method described in section

5.03(2) of this notice. During the 2022 taxable year, A provides services to B and C.

For purposes of the 2022 AFS for the ABC group, AFS Consolidation Entries are made

to eliminate income and expense from the provision of service transactions between A

and B, and between A and C.

d as a single employer

under § 52(a). A, B, and C choose to apply the simplified method described in section

5.03(2) of this notice. During the 2022 taxable year, A provides services to B and C.

For purposes of the 2022 AFS for the ABC group, AFS Consolidation Entries are made

to eliminate income and expense from the provision of service transactions between A

and B, and between A and C.

(ii) Analysis. Pursuant to section 5.03(2)(c) of this notice and for purposes of

applying the simplified method described in section 5.03(2) of this notice, the AFSI of A

and B for the 2022 taxable year is determined by taking into account the AFS

41

Consolidation Entries that eliminate the income and expense from the transactions

between A and B. However, the AFS Consolidation Entries that eliminate income and

expense from the provision of service transactions between A and C are not taken into

account for purposes of determining the AFSI of A, B, and C because A and C are not

treated as a single employer under § 52(a).

(b) Example 2 – Mismatched tax and AFS year example. The following example

illustrates the rule set forth in section 5.03(2)(d) of this notice.

(i) Facts. Corporation uses the calendar year as its taxable year and has a

fiscal AFS year that ends on September 30. Corporation has been in existence since

before calendar year 2020 and has never had a short taxable year or short AFS year.

Corporation chooses to use the simplified method described in section 5.03(2) of this

notice.

n section 5.03(2)(d) of this notice.

(i) Facts. Corporation uses the calendar year as its taxable year and has a

fiscal AFS year that ends on September 30. Corporation has been in existence since

before calendar year 2020 and has never had a short taxable year or short AFS year.

Corporation chooses to use the simplified method described in section 5.03(2) of this

notice.

(ii) Analysis. In determining whether Corporation is an applicable corporation

for its taxable year ending December 31, 2023, Corporation applies § 59(k)(1)(B) (as

modified by section 5.03(2) of this notice) by using the AFSI (as determined under

section 5.03(2)(c) of this notice) for the 3-AFS-year period ending during its taxable year

ending December 31, 2022. That is, Corporation uses AFSI from the AFS years that

ended September 30, 2020, September 30, 2021, and September 30, 2022.

(4) Effect of not meeting the safe harbor. If a corporation applies the simplified

method described in section 5.03(2) of this notice for its first taxable year beginning

after December 31, 2022, and determines that its AFSI (as determined under section

5.03(2) of this notice) exceeds the relevant simplified method thresholds set forth in

section 5.03(2)(a) and (b) of this notice, for example, because it has AFSI in excess of

42

$500 million and is not described in § 59(k)(2), then the corporation will be an applicable

corporation for such year only if it is determined to be an applicable corporation under

§ 59(k)(1) (determined without regard to the modifications described in section 5.03(2)

of this notice).

SECTION 6. AFSI ADJUSTMENTS WITH RESPECT TO CERTAIN CREDITS

.01 Purpose. The Treasury Department and the IRS anticipate that the forthcoming

proposed regulations will be consistent with the guidance provided in this section 6

if it is determined to be an applicable corporation under

§ 59(k)(1) (determined without regard to the modifications described in section 5.03(2)

of this notice).

SECTION 6. AFSI ADJUSTMENTS WITH RESPECT TO CERTAIN CREDITS

.01 Purpose. The Treasury Department and the IRS anticipate that the forthcoming

proposed regulations will be consistent with the guidance provided in this section 6.

The Treasury Department and the IRS are providing this interim guidance to facilitate

the ability of taxpayers to determine AFSI with respect to certain credits described in

§§ 48D, 6417, and 6418.

.02 Proceeds from certain credits excluded from AFSI. AFSI is appropriately

adjusted to disregard--

(1) any amount treated as a payment against the tax imposed by subtitle A

pursuant to an election under §§ 48D(d) or 6417, provided that such amount (or portion

thereof) is not otherwise disregarded under § 56A(c)(5),

(2) any amount received from the transfer of an eligible credit, as defined in

§ 6418(f)(1)(A), that is not includible in the gross income of the taxpayer by application

of § 6418(b) or is treated as tax exempt income under § 6418(c)(1)(A), provided that

such amount (or portion thereof) is not otherwise disregarded under § 56A(c)(5), and

(3) any amount received pursuant to an election under §§ 48D(d)(2) or 6417(c) that

is treated as tax exempt income under §§ 48D(d)(2)(A)(i)(III) or 6417(c)(1)(C), provided

that such amount is not otherwise disregarded under § 56A(c)(5).

SECTION 7. APPLICATION OF § 56A(c)(2)(D)(i) FOR PURPOSES OF DETERMINING

APPLICABLE CORPORATION STATUS

43

.01 Purpose. The Treasury Department and the IRS anticipate that the forthcoming

proposed regulations will be consistent with the guidance provided in this section 7.

The Treasury Department and the IRS are providing this interim guidance to facilitate

the ability of taxpayers to determine whether they are an applicable corporation under

§ 59(k)(1)

APPLICABLE CORPORATION STATUS

43

.01 Purpose. The Treasury Department and the IRS anticipate that the forthcoming

proposed regulations will be consistent with the guidance provided in this section 7.

The Treasury Department and the IRS are providing this interim guidance to facilitate

the ability of taxpayers to determine whether they are an applicable corporation under

§ 59(k)(1).

.02 Adjustment to AFSI in § 56A(c)(2)(D)(i) is inapplicable in all circumstances for

purposes of calculating AFSI in determining applicable corporation status. The

Treasury Department and the IRS understand there may be uncertainty among

taxpayers as to whether the adjustment to AFSI in § 56A(c)(2)(D)(i) applies for purposes

of determining whether a corporation that is a partner in a partnership (whether directly

or indirectly) is an applicable corporation if such corporation and such partnership are

not treated as a single employer under § 52(a) or (b). Section 59(k)(1)(D) provides that

solely for purposes of determining whether a corporation is an applicable corporation,

the AFSI of such corporation is determined without regard to § 56A(c)(2)(D)(i).

Accordingly, the adjustment to AFSI under § 56A(c)(2)(D)(i) is inapplicable in all

circumstances in determining applicable corporation status.

SECTION 8. APPLICABILITY DATES

It is anticipated that the forthcoming proposed regulations will provide that rules

consistent with the rules described in sections 3 through 7 of this notice apply for

taxable years beginning after December 31, 2022. Prior to the issuance of the

proposed regulations, taxpayers may rely on the guidance provided in sections 3

through 7 of this notice.

SECTION 9. REQUEST FOR COMMENTS

44

.01 Comments Regarding Guidance Provided in this Notice. The Treasury

Department and the IRS request comments on any questions arising from the interim

guidance set forth in this notice

ing after December 31, 2022. Prior to the issuance of the

proposed regulations, taxpayers may rely on the guidance provided in sections 3

through 7 of this notice.

SECTION 9. REQUEST FOR COMMENTS

44

.01 Comments Regarding Guidance Provided in this Notice. The Treasury

Department and the IRS request comments on any questions arising from the interim

guidance set forth in this notice. Commenters are encouraged to specify the issues on

which additional guidance (including additional interim guidance) is needed most

quickly, as well as the most important issues on which guidance is needed. In addition

to general comments regarding the provisions of this notice, the Treasury Department

and the IRS request comments to address the following specific questions:

(1) AFSI and applicable corporation status resulting from certain transactions; tax

consolidated groups (section 3 of this notice).

(a) Should the definition of Covered Nonrecognition Transaction be expanded to

include additional transactions? If so, to what extent should the AFSI consequences of

each additional transaction be consistent with the rules addressing AFSI consequences

of Covered Nonrecognition Transactions set forth in section 3.03 of this notice?

(b) How should Covered Transactions in which, for Federal income tax purposes,

gain or loss is recognized in part be treated? Also, are there any AFSI consequences of

Covered Transactions (in addition to the AFSI consequences addressed under section

3.03 of this notice) that also should be addressed by the forthcoming proposed

regulations or additional interim guidance (for example, the receipt of cash or other

property in acquisitive reorganizations)? For example, are there any circumstances in

which attributes, in addition to basis, should be adjusted under these rules? See

section 3.03(2) of this notice.

ces addressed under section

3.03 of this notice) that also should be addressed by the forthcoming proposed

regulations or additional interim guidance (for example, the receipt of cash or other

property in acquisitive reorganizations)? For example, are there any circumstances in

which attributes, in addition to basis, should be adjusted under these rules? See

section 3.03(2) of this notice.

(c) Should any adjustments to AFS gain or loss be made to Covered Recognition

Transactions carried out solely between or among members of a single AFS Group?

45

(d) In the case of an acquisitive Covered Recognition Transaction between two

or more separate AFS Groups, what resulting adjustments to AFS gain or loss should

be made to each AFS Group?

(e) How should a Target’s allocated portion of the Target AFS Group’s total AFSI

be calculated for purposes of determining the AFSI of an Acquirer AFS Group that

acquires the Target in a Covered Transaction? See section 3.04(2)(b) of this notice.

(f) Is there any reason why a Controlled’s allocated portion of the Distributing

AFS Group’s total AFSI should be calculated differently for purposes of determining the

AFSI of the Controlled? See section 3.04(3)(b) of this notice.

(g) With regard to the rules provided in sections 3.06 and 3.07 of this notice that

address the AFSI consequences of excluded COD income and an emergence from

bankruptcy:

(i) What are the CAMT attributes that should be adjusted?

(ii) What methodology should be used to adjust the CAMT attributes (including

the order in which those attributes should be adjusted)?

(iii) Are any transition rules necessary?

(h) Should the treatment of bankruptcy reorganizations for purposes of

calculating AFSI depend on whether the bankruptcy reorganization is a recognition

event for Federal income tax purposes? If so, what should be the methodology for

calculating such AFSI?

(including

the order in which those attributes should be adjusted)?

(iii) Are any transition rules necessary?

(h) Should the treatment of bankruptcy reorganizations for purposes of

calculating AFSI depend on whether the bankruptcy reorganization is a recognition

event for Federal income tax purposes? If so, what should be the methodology for

calculating such AFSI?

(i) Should the rules addressing AFSI consequences of excluded COD income in

section 3.06 of this notice be revised (1) to exclude all AFS gain associated with a

cancellation of indebtedness when there is excluded COD income for the cancellation of

46

indebtedness, and (2) to reduce CAMT attributes to the extent of such gain exclusion?

(j) Are there AFS consequences to bankruptcy reorganizations that should be

addressed by the forthcoming proposed regulations or additional interim guidance that

are not addressed by section 3.06 or 3.07 of this notice?

(2) Depreciation adjustments (section 4 of this notice).

(a) How should a taxpayer with Tax COGS Depreciation make the

adjustments described in section 4.03 of this notice to ensure that--

(i) AFSI is reduced by only the amount of Tax COGS Depreciation that is

recovered as part of cost of goods sold in computing taxable income for the taxable

year, and

(ii) Covered Book COGS Depreciation is appropriately disregarded in

determining AFSI for the year in which it is recovered as part of cost of goods sold?

n section 4.03 of this notice to ensure that--

(i) AFSI is reduced by only the amount of Tax COGS Depreciation that is

recovered as part of cost of goods sold in computing taxable income for the taxable

year, and

(ii) Covered Book COGS Depreciation is appropriately disregarded in

determining AFSI for the year in which it is recovered as part of cost of goods sold?

(b) With respect to the issue described in section 9.01(2)(a) of this notice,

should the taxpayer be permitted to make appropriate adjustments by applying the

method(s) of accounting under § 263A that it uses for regular tax purposes?

.02 Comments Regarding Rules Not Included in this Notice. The Treasury

Department and the IRS request comments on the CAMT generally and the issues

that should be addressed in future guidance with respect to the CAMT. The Treasury

Department and the IRS additionally request comments on the following specific

CAMT issues not addressed by this notice:

(1) What, if any, additional guidance is needed regarding the scope of the

exception in § 59(k)(1)(D) to the distributive share rule in § 56A(c)(2)(D)(i) applicable

for purposes of determining applicable corporation status?

47

(2) How should the term “distributive share” of a partnership’s AFSI in

§ 56A(c)(2)(D)(i) be interpreted? Should the term be based on financial accounting

principles or tax principles or both? How should a corporate partner’s distributive

share be calculated for purposes of the CAMT?

(3) What, if any, other adjustments to AFSI should be made to carry out the

principles of part II of subchapter K of chapter 1 of the Code? Should any exceptions

apply to the Covered Nonrecognition Transaction rule for partnership transactions? If

so, what are those exceptions?

(4) What transactions should be treated as a “change in ownership” (within the

meaning of § 59(k)(1)(C)(i)(I))?

t, if any, other adjustments to AFSI should be made to carry out the

principles of part II of subchapter K of chapter 1 of the Code? Should any exceptions

apply to the Covered Nonrecognition Transaction rule for partnership transactions? If

so, what are those exceptions?

(4) What transactions should be treated as a “change in ownership” (within the

meaning of § 59(k)(1)(C)(i)(I))?

(5) What facts and circumstances should be considered relevant for determining

whether a taxpayer remains an applicable corporation after a change in ownership?

(6) What duration (if any) should be required under § 59(k)(1)(C)(i)(II) before an

applicable corporation should be treated as no longer an applicable corporation?

(7) In addition to a potential duration described in section 9.02(6) of this notice,

what additional facts and circumstances should be considered relevant in

determining whether an applicable corporation should continue to be treated as an

applicable corporation?

(8) Are there situations in which AFSI is duplicated or omitted as a result of the

application of § 52(a) and (b) under § 59(k)(1)(D)? If so, what are those situations

and what guidance is needed to prevent the duplication or omission of AFSI in

determining whether a corporation is an applicable corporation under § 59(k)(1)?

(9) What entities should be treated as predecessors of a taxpayer for purposes

48

of § 59(k)(1)(E)?

(10) To what extent (if any) are predecessor concepts applicable to other areas

of the CAMT (in addition to § 59(k)(1)(E)(iii))?

(11) What rules would be appropriate under new § 59(k)(2)(D)(i) regarding

foreign-parented multinational groups?

(12) In the case of a financial deconsolidation of a member of an AFS Group,

what adjustments to AFSI would be appropriate?

)?

(10) To what extent (if any) are predecessor concepts applicable to other areas

of the CAMT (in addition to § 59(k)(1)(E)(iii))?

(11) What rules would be appropriate under new § 59(k)(2)(D)(i) regarding

foreign-parented multinational groups?

(12) In the case of a financial deconsolidation of a member of an AFS Group,

what adjustments to AFSI would be appropriate?

(13) Should principles provided in §1.1502-21(c), or §§ 382 and 383 and

§1.1502-15, apply to limit the availability of CAMT attributes for purposes of

calculating the tentative minimum tax? If so, to what extent?

(14) How should CAMT liability, financial statement net operating losses (as

defined in § 56A(d)), and CAMT credits (under § 53) be allocated and used among

members of a tax consolidated group?

(15) How should the CAMT attributes described in section 9.02(13) of this notice

be allocated to departing members of a tax consolidated group?

(16) To what extent (if any) should items included in OCI in a taxpayer’s AFS be

included in AFSI?

(17) The Treasury Department and the IRS understand that, for certain types of

reinsurance contracts (those with embedded derivatives), there may be a mismatch

between the treatment of investment assets and related liabilities for AFSI purposes.

How and to what extent should adjustments be made to AFSI to address any such

mismatch?

(18) To what extent should guidance provide adjustments to AFSI to disregard

49

mark to market unrealized gains and losses that are otherwise included in AFSI?

Should this depend on the extent to which the taxpayer marks to market the item for

regular tax purposes?

(19) To what extent should guidance provide adjustments to include in AFSI mark

to market unrealized gains and losses that are not otherwise included in AFSI? Should

this depend on the extent to which the taxpayer marks to market the item for regular tax

purposes?

ed in AFSI?

Should this depend on the extent to which the taxpayer marks to market the item for

regular tax purposes?

(19) To what extent should guidance provide adjustments to include in AFSI mark

to market unrealized gains and losses that are not otherwise included in AFSI? Should

this depend on the extent to which the taxpayer marks to market the item for regular tax

purposes?

(20) Should the rules under § 451(b)(5) be modified for purposes of determining

the AFSI of a corporation included in an AFS Group? See § 56A(c)(2)(A).

.03 Procedures for Submitting Comments.

(1) Deadline. Written comments should be submitted by [INSERT DATE 60

DAYS AFTER DATE OF PUBLICATION]. Consideration will also be given to any

written comment submitted after [INSERT DATE 60 DAYS AFTER DATE OF

PUBLICATION], though such comments may not be considered in the development

of the forthcoming proposed regulations if such consideration would delay the

issuance of the forthcoming proposed regulations.

(2) Form and manner. The subject line for the comments should include a

reference to Notice 2023-7. All commenters are strongly encouraged to submit

comments electronically. However, comments may be submitted in one of two ways:

(a) Electronically via the Federal eRulemaking Portal at www.regulations.gov

(type IRS-2022-0046 in the search field on the regulations.gov homepage to find this

notice and submit comments); or

the comments should include a

reference to Notice 2023-7. All commenters are strongly encouraged to submit

comments electronically. However, comments may be submitted in one of two ways:

(a) Electronically via the Federal eRulemaking Portal at www.regulations.gov

(type IRS-2022-0046 in the search field on the regulations.gov homepage to find this

notice and submit comments); or

(b) By mail to: Internal Revenue Service, CC:PA:LPD:PR (Notice

50

2022-46), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C.,

20044.

(3) Publication of comments. The Treasury Department and the IRS will publish

for public availability any comment submitted electronically and on paper to its public

docket on regulations.gov.

SECTION 10. DRAFTING AND CONTACT INFORMATION

The principal authors of this notice are John M. Aramburu and James Yu of the

Office of the Associate Chief Counsel (Income Tax & Accounting); William W.

Burhop, Jeremy Aron-Dine, and John B. Lovelace of the Office of the Associate

Chief Counsel (Corporate); and Yosef M. Koppel of the Office of the Associate Chief

Counsel (Passthroughs and Special Industries). Other personnel from the Treasury

Department and the IRS participated in its development. For further information

regarding section 3 of this notice, please contact Mr. Aron-Dine or Mr. Lovelace at

(202) 317-6848, or Mr. Burhop at (202) 317-5363; or Mr. Koppel at (202) 317-6850

(not toll-free numbers). For further information regarding new § 59(k)(2) (regarding

foreign-parented multinational groups), please contact Taylor M. Kiessig of the Office

of Associate Chief Counsel (International) at (202) 317-3800 (not a toll-free number).

For further information regarding the remaining sections of this notice, please contact

Mr. Aramburu at (202) 317-7006 or Mr. Yu at (202) 317-4718 (not toll-free numbers).