# Notice 2023-7: Initial Guidance Regarding the Application of the Corporate Alternative Minimum Tax under Sections 55, 56A, and 59 of the Internal Revenue Code

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URL: https://www.frixlaw.com/law-library/statutes/IRS_NOTICE_2023_7

## Section

- **Citation:** Notice 2023-7
- **Heading:** Initial Guidance Regarding the Application of the Corporate Alternative Minimum Tax under Sections 55, 56A, and 59 of the Internal Revenue Code
- **Jurisdiction:** Federal
- **Kind:** IRS notices
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** Internal Revenue Bulletin / IRB 2023 / Notice / Notice 2023-7

## Text

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.
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
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,
6

§ 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
10

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.
11

(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.
12

(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.
15

.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).

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Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/IRS_NOTICE_2023_7. Check the current official text before relying on it. Not legal advice.