n-23-64.pdf

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Part III – Administrative, Procedural, and Miscellaneous
Additional Interim Guidance Regarding the Application of the Corporate Alternative
Minimum Tax under Sections 55, 56A, and 59 of the Internal Revenue Code
Notice 2023-64
SECTION 1. OVERVIEW
This notice provides additional interim guidance to further clarify the application of
the new corporate alternative minimum tax (CAMT). The CAMT was added to the
Internal Revenue Code (Code)
1
by the enactment of § 10101 of Public Law 117-169,
136 Stat. 1818, 1818-1828 (August 16, 2022), commonly referred to as the Inflation
Reduction Act of 2022 (IRA), effective for taxable years beginning after December
31, 2022. Notice 2023-7, 2023-3 I.R.B. 390, announced that the Department of the
Treasury (Treasury Department) and the Internal Revenue Service (IRS) intend to
issue proposed regulations (forthcoming proposed regulations) addressing the
application of the CAMT, and sections 3 through 7 of that notice provided interim
guidance regarding time-sensitive CAMT issues that taxpayers may rely on until the
issuance of forthcoming proposed regulations. Sections 3 through 5 of Notice 2023-
20, 2023-10 I.R.B. 523, provided additional interim guidance that taxpayers may rely
on until the issuance of forthcoming proposed regulations, including interim guidance

1
Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax
Regulations (26 CFR part 1).

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intended to help avoid substantial unintended adverse consequences to the
ins
urance industry arising from the application of the CAMT. Notice 2023-42, 2023-
26 I.R.B. 1085, provided relief from the addition to tax under § 6655 in connection
with the application of the CAMT.
Section 2 of this notice provides a summary of relevant law and other information
underlying the interim guidance described in sections 3 through 14 of this notice,
which the Treasury Department and the IRS intend to include in forthcoming
proposed regulations. Section 15 of this notice describes the intended applicability
dates of forthcoming proposed regulations and requirements for relying on the
interim guidance set forth in sections 3 through 14 of this notice until the issuance of
forthcoming proposed regulations. Section 16 of this notice requests comments on
the issues addressed in this notice and on certain additional issues. Section 17 of
this notice describes the effect this notice has on other documents. Section 18 of
this notice provides drafting and contact information.
SECTION 2. BACKGROUND
.01 Overview of the CAMT. Section 10101 of the IRA amended § 55
to impose
the CAMT based on the “adjusted financial statement income” (AFSI) of an
applicable corporation for taxable years beginning after December 31, 2022. As
described in greater detail in section 2.01 of Notice 2023-7, a corporation is an
applicable corporation subject to the CAMT for a taxable year if it meets the average
annual AFSI test described in section 2.04 of this notice for one or more taxable
years that (i) are before that taxable year, and (ii) end after December 31, 2021.
Section 55(a) provides that, for the taxable year of an applicable corporation, the

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amount of CAMT imposed by § 55 equal
s the excess (if any) of (i) the tentative
minimum tax for the taxable year, over (ii) the sum of the regular tax imposed by
chapter 1 of the Code (chapter 1), within the meaning of § 55(c), for the taxable year
plus the tax imposed under § 59A. Section 55(b)(2)(A) provides that, in the case of
an applicable corporation, the tentative minimum tax for the taxable year is the
excess of (i) 15 percent of AFSI for the taxable year (as determined under § 56A),
over (ii) the CAMT foreign tax credit (CAMT FTC) for the taxable year (as determined
under § 59(l)). In the case of any corporation that is not an applicable corporation,
§ 55(b)(2)(B) provides that the tentative minimum tax for the taxable year is zero.
.02 AFSI under § 56A.
(1) General definition of AFSI. Section 56A(a) provides that, for purposes of
§§ 55 through 59, the term AFSI means, with respect to any corporation for any
taxable year, the net income or loss of the taxpayer set forth on the taxpayer’s
applicable financial statement (AFS) for that taxable year, adjusted as provided in
§ 56A. See section 3 of this notice for a definition of the term Taxpayer as used in
sections 4 through 16 of this notice and section 5 of this notice for rules addressing
the determination of AFSI generally.
(2) General definition of AFS. For purposes of § 56A, the term AFS means,
with respect to any taxable year, an AFS, as defined in § 451(b)(3) or as specified by
the Secretary of the Treasury or her delegate (Secretary) in regulations or other
guidance, that covers that taxable year. See § 56A(b). See section 4 of this notice
for rules addressing the determination of a taxpayer’s AFS.
(3) General authority of the Secretary. S
ection 56A(e) authorizes the Secretary

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to provide such regulations and other guidance as necessary to carry out the
pur
poses of § 56A, including regulations and other guidance relating to the effect of
the rules of § 56A on partnerships with income taken into account by an applicable
corporation.
.03 A
djustments to AFSI. Section 56A(c)(1) through (14) provide general
adjustments to be made to AFSI, several of which are described in section 2.01 of
Notice 2023-7 and in section 2.03(1) through (11) of this notice.
2
In addition,
§ 56A(c)(15) authorizes the Secretary to issue regulations or other guidance to
provide for such adjustments to AFSI as the Secretary determines necessary to
carry out the purposes of § 56A, including adjustments to AFSI to prevent the
omission or duplication of any item and adjustments to carry out the principles of part
II of subchapter C of chapter 1 (relating to corporate liquidations), part III of
subchapter C of chapter 1 (relating to corporate organizations and reorganizations),
and part II of subchapter K of chapter 1 (relating to partnership contributions and
distributions). See section 11 of this notice for rules addressing AFSI adjustments to
prevent certain duplications and omissions.
(1) S
pecial rule regarding consolidated financial statements. Section
56A(c)(2)(A) provides that, if the financial results of a taxpayer are reported on the
AFS for a group of entities (AFS Group), rules similar to the rules of § 451(b)(5)

2
These include adjustments that take into account the relationship between entities (§ 56A(c)(2)) and
certain items of foreign income (§ 56A(c)(3)); effectively connected income (§ 56A(c)(4)); certain taxes
(§ 56A(c)(5)); AFSI of disregarded entities (§ 56A(c)(6)); cooperatives (§ 56A(c)(7)); certain amounts with
respect to Alaska native corporations (§ 56A(c)(8)); payments against tax under §§ 48D(d) or 6417
(§ 56A(c)(9)); and certain amounts with respect to certain mortgage servicing contracts (§ 56A(c)(10)),
defined benefit pensions (§ 56A(c)(11)), tax-exempt entities (§ 56A(c)(12)), certain depreciation
(§ 56A(c)(13)) and qualified wireless spectrum (§ 56A(c)(14)).

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apply. Section 451(b)(5) provides that in such a situation, the AFS for the AFS
Group (Consolidated AFS) is treated as the AFS of the taxpayer. However, for
purposes of § 451(b)(5), if the taxpayer’s financial results also are reported on a
separate AFS that is of equal or higher priority to the Consolidated AFS, then the
taxpayer’s AFS is the separate AFS. See § 1.451-3(h)(1)(i). Section 1.451-3(h)(2)
and (3) provide rules under § 451(b)(5) for determining the extent to which income
reflected on the Consolidated AFS and the underlying source documents is allocable
to the taxpayer for purposes of applying the rules under § 451(b).
(2) Special rule regarding Tax Consolidated Groups. Section 56A(c)(2)(B)
provides a general rule applicable to a taxpayer that is part of an affiliated group of
corporations that join in filing (or that are required to join in filing) a consolidated
return for Federal income tax purposes (Tax Consolidated Group). Under
§ 56A(c)(2)(B), if a taxpayer is part of a Tax Consolidated Group for any taxable
year, AFSI for that Tax Consolidated Group for that taxable year must take into
account items on the Tax Consolidated Group’s AFS that are properly allocable to
members of that Tax Consolidated Group. However, § 56A(c)(2)(B) provides the
Secretary with authority to prescribe by regulation exceptions to that general rule.
See section 6 of this notice for rules applicable to a Tax Consolidated Group.
(3) Special rule regarding corporations not included on a consolidated return.
Section 56A(c)(2)(C) provides that, in the case of any corporation that is not included
on a consolidated return with the taxpayer, AFSI of the taxpayer with respect to that
other corporation is determined by only taking into account dividends received from
that other corporation (reduced to the extent provided by the Secretary in regulations

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or other guidance) and other amounts that are includible in gross income or
deductible as a loss under chapter 1 (other than amounts required to be included
under §§ 951 and 951A of the Code or such other amounts as provided by the
Secretary) with respect to that other corporation.
(4) AFSI of partners and partnerships. Section 56A(c)(2)(D)(i) provides that,
except as provided by the Secretary, if the taxpayer is a partner in a partnership, the
taxpayer’s AFSI with respect to such partnership is adjusted to take into account only
the taxpayer's distributive share of such partnership’s AFSI. Section 56A(c)(2)(D)(ii)
provides that, for purposes of §§ 55 through 59, the AFSI of a partnership is the
partnership’s net income or loss set forth on that partnership’s AFS (adjusted under
rules similar to the rules set forth in § 56A).
(5) AFSI of United States shareholder of a controlled foreign corporation.
Section 56A(c)(3)(A) provides an adjustment to the AFSI of a taxpayer for any
taxable year in which the taxpayer is a United States shareholder (within the
meaning of § 951(b) or, if applicable, § 953(c)(1)(A)) (each shareholder, a U.S.
Shareholder) of one or more controlled foreign corporations (each within the
meaning of § 957 or, if applicable, § 953(c)(1)(B)) (CFC). Under this rule, the AFSI
of the taxpayer with respect to the CFC (as determined under § 56A(c)(2)(C)) is
adjusted to also take into account the taxpayer’s pro rata share (determined under
rules similar to the rules under § 951(a)(2)) of items taken into account in computing
the net income or loss set forth on the AFS (as adjusted under rules similar to those
that apply in determining AFSI) of each CFC with respect to which the taxpayer is a
U.S. Shareholder. The net income or loss of a CFC set forth on its AFS (as adjusted

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under rules similar to those that apply in determining AFSI) is referred to in this
notic
e as Adjusted Net Income or Loss. Section 56A(c)(3)(B) provides that, if the
adjustment determined under § 56A(c)(3)(A) would result in a negative adjustment
for such year, (i) no adjustment is made to the taxpayer’s AFSI for the taxable year,
and (ii) the amount of the adjustment determined under § 56A(c)(3)(A) for the
succeeding taxable year is reduced by an amount equal to the negative adjustment
for the taxable year. See section 7 of this notice for rules addressing the application
of § 56A(c) to certain foreign corporations.
(6) Effectively connected income. Section 56A(c)(4) provides that, in
determining the AFSI of a foreign corporation, the principles of § 882 (which subjects
a foreign corporation to Federal income tax on its taxable income that is effectively
connected with the conduct of a trade or business within the United States) apply.
(7) Adjustments for certain taxes. Section 56A(c)(5) provides the general rule
that AFSI is appropriately adjusted to disregard any Federal income taxes, or
income, war profits, or excess profits taxes (within the meaning of § 901) with
respect to a foreign country or possession of the United States (Foreign Income
Taxes), which are taken into account on the taxpayer’s AFS. To the extent provided
by the Secretary, the general rule does not apply to Foreign Income Taxes taken into
account on the taxpayer’s AFS if the taxpayer does not choose to claim a foreign tax
credit under § 27 (Regular FTC). Authority is also provided to prescribe regulations
or other guidance on the proper treatment of current and deferred taxes for purposes
of § 56A(c)(5), including the time at which such taxes are properly taken into
account. See section 8 of this notice for rules addressing the AFSI adjustment for

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certain income taxes.
(8) A
djustments with respect to disregarded entities. Section 56A(c)(6) requires
AFSI to be adjusted to take into account any AFSI of a disregarded entity owned by
the taxpayer.
(9) Adjustments with regard to depreciation. Section 56A(c)(13)(A) require
s
AFSI to be reduced by depreciation deductions allowed under § 167 with respect to
property to which § 168 applies, to the extent of the amount allowed as deductions in
computing taxable income for the taxable year. In addition, § 56A(c)(13)(B)(i)
requires appropriate adjustments to AFSI to disregard any amount of depreciation
expense that is taken into account on the taxpayer’s AFS with respect to property to
which § 168 applies. Lastly, § 56A(c)(13)(B)(ii) provides that AFSI is appropriately
adjusted to take into account any other item specified by the Secretary in order to
provide that the property to which § 168 applies is accounted for in the same manner
as that property is accounted for under chapter 1. See section 9 of this notice for
rules addressing certain AFSI adjustments with respect to property to which § 168
applies.
(10) Adjustments with regard to qualified wireless spectrum. Section
56A(c)(14)(A)(i) requires AFSI to be reduced by amortization deductions allowed under
§ 197 with respect to qualified wireless spectrum, to the extent of the amount allowed as
deductions in computing taxable income for the taxable year. In addition,
§ 56A(c)(14)(A)(ii)(I) requires appropriate adjustments to AFSI to disregard any amount
of amortization expense that is taken into account on the taxpayer’s AFS with respect to
such qualified wireless spectrum. Further, § 56A(c)(14)(A)(ii)(II) provides that AFSI is

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appropriately adjusted to take into account any other item specified by the Secretary in
order t
o provide that such qualified wireless spectrum is accounted for in the same
manner as that property is accounted for under chapter 1. Lastly, § 56A(c)(14)(B)
defines qualified wireless spectrum as wireless spectrum that is used in the trade or
business of a wireless telecommunications carrier, and was acquired after December
31, 2007, and before August 16, 2022. See section 10 of this notice for rules
addressing AFSI adjustments with respect to qualified wireless spectrum.
(11) Adjustment for financial statement net operating losses. Section 56A(d)(1)
provides that AFSI (determined after the application of § 56A(c), but without regard
to § 56A(d)) is reduced by an amount equal to the lesser of the aggregate amount of
financial statement net operating loss (FSNOL) carryovers to the taxable year or 80
percent of AFSI (determined after the application of § 56A(c), but without regard to
§ 56A(d)). Section 56A(d)(2) provides that the amount of an FSNOL that can be
carried forward to a taxable year is the FSNOL remaining (if any) after reducing AFSI
in prior taxable years under § 56A(d)(1). An FSNOL is the net loss set forth on a
taxpayer’s AFS, adjusted as provided by § 56A(c), but without regard to § 56A(d), for
taxable years ending after December 31, 2019. See section 12 of this notice for
rules addressing FSNOL carryovers.
.04 Qualification as an Applicable Corporation under § 59(
k) . Section 59(k)(1)(A)
provides that, for purposes of §§ 55 through 59, the term Applicable Corporation
means, with respect to any taxable year, any corporation (other than an
S corporation, as defined in § 1361(a)(1), a regulated investment company, as
defined in § 851 (RIC), or a real estate investment trust, as defined in § 856 (REIT)),

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that meets the average ann
ual AFSI test under § 59(k)(1)(B) (AFSI Test) for one or
more taxable years that (i) are prior to that taxable year and (ii) end after December
31, 2021.
(1) AFSI Test. There are two versions of the AFSI Test under § 59(k)(1)(B):
one version that applies to corporations that are members of a foreign-parented
multinational group, as defined in § 59(k)(2)(B) (FPMG), and one version that applies
to all other corporations. Under § 59(k)(1)(B)(i), a corporation that is not a member
of a FPMG meets the AFSI Test for a taxable year if the average annual AFSI of that
corporation (determined without regard to the adjustment under § 56A(d) for
FSNOLs) for the three-taxable-year period ending with that taxable year (Three-
Taxable-Year Period) exceeds $1,000,000,000 (General AFSI Test). Under
§ 59(k)(1)(B)(ii), a corporation that is a member of a FPMG for any taxable year
meets the AFSI Test for that taxable year if (i) that corporation meets the General
AFSI Test (determined after applying the rule in § 59(k)(2)) (FPMG $1 Billion Test),
and (ii) the average annual AFSI of that corporation (determined without regard to
the rule in § 59(k)(2) and without regard to the adjustment described in § 56A(d) for
FSNOLs) for the Three-Taxable-Year Period is at least $100,000,000.
(2) Special aggregation rules and AFSI rules for determining Applicable
Corporation status. Solely for purposes of determining whether a corporation is an
Applicable Corporation under § 59(k)(1), § 59(k)(1)(D) requires that all AFSI of
persons treated as a single employer with that corporation under § 52(a) or (b) is
treated as AFSI of that corporation. Section 59(k)(1)(D) also provides that, solely for
purposes of determining whether a corporation is an Applicable Corporation, the

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AFSI of such corporation must be determined without regard to the partnership
distributive share adjustment under § 56A(c)(2)(D)(i) and the adjustments pertaining
to covered benefit plans (as defined in § 56A(c)(11)(B)) under § 56A(c)(11). In
addition, § 59(k)(2)(A) provides that, solely for purposes of determining whether a
corporation that is a member of a FPMG meets the FPMG $1 Billion Test, (i) the
AFSI of such corporation must include the AFSI of all members of the FPMG, and
(ii) AFSI is determined without regard to the partnership distributive share adjustment
under § 56A(c)(2)(D)(i), the foreign income pro rata share adjustment under
§ 56A(c)(3), the effectively connected income adjustment under § 56A(c)(4), and the
adjustments under § 56A(c)(11) pertaining to covered benefit plans.
(3) Determination of a FPMG. For purposes of applying § 59(k)(2)(A),
§ 59(k)(2)(B) defines a FPMG, with respect to a taxable year, as two or more entities
if (i) at least one entity is a domestic corporation and another entity is a foreign
corporation, (ii) the entities are included in the same AFS for the year, and (iii) either
the common parent of the entities is a foreign corporation or, if there is no common
parent, the entities are treated as having a common parent that is a foreign
corporation under rules provided by the Secretary under the authority granted by
§ 59(k)(2)(D) (the common parent or the entity treated as the common parent, the
FPMG Common Parent). For purposes of applying § 59(k)(2), if a foreign
corporation is engaged in a trade or business in the United States, that trade or
business is treated as a separate domestic corporation that is wholly owned by the
foreign corporation. See § 59(k)(2)(C).
(4) Authority of the Secretary to provide regulations or other guidance. Section

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59(k)(2)(D) authorizes the Secretary to provide regulations or other guidance
applying the principles of § 59(k)(2), including rules to determine the entities treated
as having a FPMG Common Parent, the entities included in a FPMG, and the FPMG
Common Parent. In addition, § 59(k)(3) authorizes the Secretary to provide
regulations or other guidance for the purposes of applying § 59(k), including
providing a simplified method for determining whether a corporation meets the
requirements of § 59(k)(1), and addressing the application of § 59(k) to a corporation
that experiences an ownership change. See section 13 of this notice for rules
addressing the determination of whether a corporation is an applicable corporation
subject to the CAMT, including rules that address aggregation under § 52, FPMGs,
and the treatment of investments in partnerships.
.05 CAMT FTC.
(1) Determining the CAMT FTC. Section 59(l)(1) provides the rules for
determining the amount of the CAMT FTC for a taxable year if an Applicable
Corporation chooses to claim the Regular FTC for the taxable year. The CAMT FTC
of the Applicable Corporation for a taxable year is the sum of two amounts. The first
amount (CFC Taxes) is equal to the lesser of: (i) the aggregate of the Applicable
Corporation’s pro rata share (as determined under § 56A(c)(3)) of the amount of
Foreign Income Taxes that are (1) taken into account on the AFS of each CFC with
respect to which the Applicable Corporation is a U.S. Shareholder, and (2) paid or
accrued (for Federal income tax purposes) by each such CFC, or (ii) 15 percent of
the Applicable Corporation’s adjustment under § 56A(c)(3)(A) (CFC FTC Limitation).
See § 59(l)(1)(A). The second amount is equal to the amount of Foreign Income

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Taxes that are (1) taken into account on the AFS of the Applicable Corporation, and
(2) pai
d or accrued (for Federal income tax purposes) by the Applicable Corporation.
See § 59(l)(1)(B).
(2) Carryover of excess CFC Taxes. Section 59(l)(2) provides that, for any
taxable year for which an Applicable Corporation chooses to claim the Regular FTC,
the amount of CFC Taxes for the taxable year in excess of the CFC FTC Limitation
for the taxable year is carried forward for up to the 5 succeeding taxable years and
increases the amount of CFC Taxes in any of those succeeding taxable years to the
extent not taken into account in a prior taxable year.
(3) Grant
of authority for regulations or other guidance. Section 59(l)(3)
provides the Secretary authority to provide regulations or other guidance as is
necessary to carry out the purposes of the CAMT FTC rules in § 59(l). See section
14 of this notice for rules addressing the CAMT FTC.
.06 Consolidated return regulations. Sect
ion 1502 authorizes the Secretary to
prescribe regulations to clearly reflect the Federal income tax liability of a Tax
Consolidated Group and to prevent avoidance of such tax liability. See § 1.1502-
1(h) (defining the term consolidated group for Federal income tax purposes). For
purposes of carrying out those objectives, § 1502 explicitly permits the Secretary to
prescribe rules that may be different from the provisions of chapter 1 that would
apply if the corporations composing the Tax Consolidated Group filed separate
returns.
SECTION 3. DEFINITION OF TAXPAYER
Unl
ess otherwise provided in this notice, for purposes of sections 4 through 16 of

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this notice, the term Taxpayer means any entity identified in § 7701 and the
regulations thereunder (including an entity that is disregarded as an entity separate
from its owner under § 301.7701-3 of the Procedure and Administration Regulations
(that is, a disregarded entity)), regardless of whether the entity meets the definition of
a taxpayer under § 7701(a)(14).
SECTION 4. DETERMINING A TAXPAYER’S AFS
.01 Purpose. The Treasury Department and the IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided in this
section 4, which provides Taxpayers with additional clarity in determining their AFS prior
to forthcoming proposed regulations.
.02 Definition of Applicable Financ
ial Statement (AFS). Subject to the additional
rules in section 4.02(2) through (5) of this notice, for purposes of §§ 56A and 59, the
terms Applicable Financial Statement and AFS mean the Taxpayer’s financial statement
listed in section 4.02(1) of this notice that has the highest priority, including priority
within sections 4.02(1)(a), (a)(ii), (b), (b)(ii), and (d) of this notice.
(1) General financial statement priority. The financial statements are, in order of
descending priority:
(a) GAAP statements. A financial statement that is certified, within the meaning
of section 4.02(2) of this notice, as being prepared in accordance with United States
generally accepted accounting principles (GAAP) and is:
(i) A Form 10-K (or successor form), or annual statement to shareholders, filed
with the United States Securities and Exchange Commission (SEC);
(ii) An audited financial statement of the Taxpayer that is used for:

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(A) Credit purposes;

(B) Reporting to shareholders, partners, or other proprietors, or to
beneficiaries; or
(C) Any other substantial non-tax purpose; or
(iii) A financial statement, other than a tax return, filed with the Federal
Government or any Federal agency, other than the SEC or the IRS;
(b) IF
RS statements. A financial statement that is certified, within the meaning of
section 4.02(2) of this notice, as being prepared in accordance with international
financial reporting standards (IFRS) and is:
(i) Filed by the Taxpayer with an agency of a foreign government that is
equi
valent to the SEC, and has financial reporting standards not less stringent than the
standards required by the SEC;
(ii) An audited financial statement of the Taxpayer that is used for:
(A) Credit purposes;
(B) Reporting to shareholders, partners, or other proprietors, or to
beneficiaries; or
(C) Any other substantial non-tax purpose; or
(iii) A financial statement, other than a tax return, filed with the Federal
Government, a Federal agency, a foreign government, or an agency of a foreign
government, other than the SEC, the IRS, or an agency that is equivalent to the SEC or
the IRS; or
(c) O
ther government and regulatory statements. A financial statement, other
than a tax return, filed with the Federal Government or any Federal agency, a state

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government
or state agency, a foreign government or foreign agency, or a self-
regulatory organization including, for example, a financial statement filed with a state
agency that regulates insurance companies, or the Financial Industry Regulatory
Authority, or a comparable foreign self-regulatory organization.
(d) U
naudited external statements. A financial statement, other than a tax return
or a financial statement described in section 4.02(1)(a)-(c) of this notice, that is
unaudited (or audited but not certified, within the meaning of section 4.02(2) of this
notice), prepared for an external non-tax purpose, and prepared using:
(i) GAAP;

(ii) IFRS; or
(iii) any other accepted accounting standards that are issued by an accounting
standards board charged with developing accounting standards for one or more
jurisdictions;
or
(e) The Taxpayer’s Federal income tax return or information return filed with the
IRS.

(2) Certified financial statement. A financial statement is a certified financial
statement for purposes of section 4.02(1) of this notice if it is:
(a) Certified by an independent financial statement auditor to present fairly the
financial position and results of operations of a Taxpayer (or group of Taxpayers) in
conformity with the relevant financial accounting standards (an unqualified or
unmodified “clean” opinion);
(b) Subject to a qualified or modified opinion by an independent financial

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statement auditor that such financial statement presents fairly the financial position and
r
esults of operations of a Taxpayer (or group of Taxpayers) in conformity with the
relevant financial accounting standards, except for the effects of the matter to which the
qualification or modification relates (a qualified or modified “except for” opinion); or
(c) Subject to an adverse opinion by an independent financial statement auditor,
but only if the auditor discloses the amount of the disagreement with the statement.
(3) R
estatements. If a Taxpayer restates its FSI (as defined in section 5.02(2) of
this notice) for a taxable year prior to the date that the Taxpayer files its original Federal
income tax return for such taxable year, the AFS that reflects the restated FSI (Restated
AFS) must be prioritized over the first AFS that is issued for that specific accounting
period (Original AFS). If a Taxpayer restates its FSI for a taxable year after the date
that the Taxpayer files its original Federal income tax return for such taxable year, see
section 11.02(3) of this notice. For purposes of this notice, a Restated AFS is a revised
AFS for a specific accounting period that is reissued to correct the Original AFS for that
accounting period. Adjustments to the financial results of a prior accounting period that
are disclosed in the notes to an Original AFS for comparison purposes (for example, in
the case of a change in accounting principle) do not constitute a Restated AFS for that
prior accounting period for purposes of this notice.
(4) Annual and periodic financial statements. If a Taxpayer with different financial
accounting and taxable years is required to file both annual financial statements and
periodic financial statements covering less than a 12-month period with a government or
government agency, the Taxpayer must prioritize the annual financial statements over
the periodic financial statements in accordance with section 4.02 of this notice.

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(5) AFS covering group of entities.

(a) In general. If a Taxpayer’s financial results are consolidated with the financial
results of one or more other Taxpayers on a Consolidated AFS (as defined in section
2.03(1) of this notice), the Taxpayer’s AFS is the Consolidated AFS. However, except
as provided in section 4.02(5)(b) of this notice, if the Taxpayer’s financial results are
also separately reported on an AFS that is of equal or higher priority to the Consolidated
AFS under section 4.02(1) of this notice (Separate AFS), then the Taxpayer’s AFS is
the Separate AFS.
(b) Exc
eptions to use of Separate AFS.
(i) Corporation that is a member of a Tax Consolidated Group. A corporation
that is a member of a Tax Consolidated Group must use the Consolidated AFS that
contains the financial results of the Tax Consolidated Group, regardless of whether the
corporation’s financial results also are reported on a Separate AFS that is of equal or
higher priority to the Consolidated AFS.
(ii) Member
s of a FPMG. If a Taxpayer is a member of a FPMG and if the
FPMG Common Parent (as defined in section 2.04(3) of this notice) prepares a
Consolidated AFS (FPMG Consolidated AFS) that includes the Taxpayer, the Taxpayer
must use the FPMG Consolidated AFS, regardless of whether the Taxpayer’s financial
results also are reported on a Separate AFS that is of equal or higher priority to the
FPMG Consolidated AFS.
SECTION 5. GENERAL RULES FOR DETERMINING AFSI
.01 Purpose. The Treasury Department and the
IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided in this

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section 5, which provides Taxpayers with additional clarity in determining AFSI prior to
f
orthcoming proposed regulations.
.02 Definition of AFSI and FSI.
(1) Definition of AFSI.
(a) General definition of AFSI. Except as provided in section 5.02(1)(b) of this
notice, AFSI means, with respect to any Taxpayer for any taxable year, the Taxpayer’s
financial statement income (FSI) (as defined in section 5.02(2) of this notice) for such
taxable year, adjusted as provided in § 56A or regulations or other guidance issued
under § 56A. A Taxpayer otherwise may not make any adjustments to FSI in
determining AFSI. For purposes of § 59(k), certain modifications to AFSI, including
aggregation modifications, apply as provided in § 59(k) or regulations or other guidance
issued under § 59(k), including in section 13 of this notice.
(b) AF
SI exception for certain Taxpayers. If, pursuant to section 4.02(1)(e) of
this notice, a Taxpayer determines that its AFS for a taxable year is a Federal income
tax return or information return filed with the IRS, the AFSI of such Taxpayer for such
taxable year is the Taxpayer’s taxable income for such taxable year.
(2) Def
inition of FSI. FSI means, with respect to any Taxpayer for any taxable
year, the net income or loss of the Taxpayer set forth on the income statement
(sometimes referred to as the statement of earnings, the statement of operations, or the
statement of profit and loss) included in the Taxpayer’s AFS (as defined in section 4.02
of this notice) for such taxable year. FSI includes all of the Taxpayer’s items of income,
expense, gain, and loss reflected in the net income or loss set forth on such income
statement for the taxable year, including nonrecurring items and net income or loss from

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discontinued operations. FSI does not include amounts reflected elsewhere in the
T
axpayer’s AFS, including in equity accounts such as retained earnings and other
comprehensive income.
(3) General rules for determining FSI and AFSI.
(a) Federal income tax treatment not relevant for FSI. FSI includes all items of
income, expense, gain, and loss reflected in the net income or loss of the Taxpayer set
forth on the income statement included in a Taxpayer’s AFS regardless of whether such
amounts are realized, recognized, or otherwise taken into account for purposes of
determining the Taxpayer’s regular tax liability, as defined in § 26(b) (Regular Tax). For
example, FSI includes income reported on the income statement included in a
Taxpayer’s AFS for a taxable year even if such income would not be taken into account
as AFS revenue for that taxable year under § 1.451-3(b)(2). Similarly, FSI includes gain
or loss reported on the income statement included in a Taxpayer’s AFS for a taxable
year even if such gain or loss is deferred or not recognized for Regular Tax purposes
(for example, gain on a like-kind exchange that qualifies for nonrecognition treatment
under § 1031).
(b) Feder
al income tax treatment not relevant for AFSI except as otherwise
provided in the statute or other guidance. Except as otherwise provided in § 56A or
§ 59(k) (as applicable), regulations, or other guidance, AFSI includes all items of
income, expense, gain, and loss reflected in the Taxpayer’s FSI regardless of whether
such amounts are realized, recognized, or otherwise taken into account for Regular Tax
purposes. Accordingly, if FSI reflects gain or loss from a transaction that qualifies for
nonrecognition treatment for Regular Tax purposes, and no provision of § 56A or

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§ 59(
k) (as applicable), regulations, or other guidance provides for an adjustment to
apply nonrecognition treatment for AFSI purposes, then such gain or loss is recognized
in AFSI.
(c) Determining FSI from a Consolidated AFS. If a Taxpayer’s AFS is a
Consolidated AFS (as determined under section 4.02(5) of this notice), the Taxpayer
must determine the amount of the portion of the net income or loss of the AFS Group
(as defined in section 2.03(1) of this notice) set forth on the income statement included
in the Consolidated AFS (Consolidated FSI) that is the Taxpayer’s FSI. Except as
provided in section 6 of this notice, the Taxpayer’s FSI is determined in accordance with
this section 5.02(3)(c).
(i) In gen
eral. The portion of Consolidated FSI that is the Taxpayer’s FSI must
be supported by the Taxpayer’s separate books and records (including trial balances)
used to create the Consolidated AFS and generally would equal the FSI that the
Taxpayer would have reported had the Taxpayer prepared a Separate AFS.
(ii) No ne
tting losses against income within the Consolidated AFS. The portion
of Consolidated FSI that is the Taxpayer’s FSI is determined without regard to the
financial results of other Taxpayers that are members of the same AFS Group.
Accordingly, if two or more Taxpayers are members of the same AFS Group, the loss of
one such Taxpayer may not be netted against the income of another such Taxpayer for
purposes of determining the FSI of either Taxpayer, notwithstanding that such amounts
are reflected in Consolidated FSI on a net basis.
(iii) Elim
ination journal entries. The portion of Consolidated FSI that is the
Taxpayer’s FSI is determined without regard to any AFS Consolidation Entries (as

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defined in section 5.02(3)(c)(vi) of this notice) that--

(A) eliminate the effect of transactions between the Taxpayer and another
Taxpayer that is a member of the same AFS Group unless such transactions are
between a disregarded entity and its owner or between disregarded entities that have
the same owner; or
(B) eliminate FSI of the Taxpayer with respect to its investment in another
Taxpayer that is a member of the AFS Group unless the investment is in a disregarded
entity.
I
n the case of a Taxpayer that has an investment in a partnership, the FSI of the
Taxpayer with respect to such investment must be determined as though the Taxpayer
prepared a Separate AFS in which such investment was properly accounted for under
the relevant accounting standards for investments in other entities (for example, under
the equity method described in Accounting Standards Codification (ASC) 323), when
the Taxpayer does not so account for the investment in its separate books and records
used to prepare the Consolidated AFS.
(iv) Consolidation entries other than elimination entries. AFS Consolidation
Entries, other than elimination entries described in section 5.02(3)(c)(iii)(A) and (B) of
this notice, that relate to one or more Taxpayers that are members of the AFS Group
and that are not reflected in the separate books and records of such Taxpayers, such as
for shared expenses, must be allocated to each Taxpayer to which the AFS
Consolidation Entries relate and taken into account in each Taxpayer’s FSI.
(v) Reco
nciliation requirement. The Taxpayer must maintain books and
records sufficient to demonstrate how its FSI (as determined under this section

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5.02(3)(c)) reconciles to Consolidated FSI.
(vi) D
efinition of AFS Consolidation Entries. For purposes of this section
5.02(3)(c), the term AFS Consolidation Entries means the financial accounting journal
entries that are made for AFS purposes in order to present the financial results of an
AFS Group as though all members of the AFS Group were a single company, including
journal entries to eliminate the effect of transactions between members of the AFS
Group, to report amounts that are not recorded in the separate books and records of
one or more members of the AFS Group, and to correct or otherwise adjust amounts
that are reported in the separate books and records of one or more members of the
AFS Group.
(vii) Ex
ample.
(A) Facts. The financial results of Taxpayer X are consolidated with the
financial results of Taxpayer Y on a Consolidated AFS (XY Consolidated AFS) for the
financial reporting period beginning January 1, 2023, and ending December 31, 2023.
X and Y are the only Taxpayers whose financial results are reflected in the XY
Consolidated AFS. X and Y are both calendar year Taxpayers. Under section 4.02(5)
of this notice, X’s AFS and Y’s AFS is the XY Consolidated AFS. X is a domestic
corporation. Y is a domestic partnership, and X has a 40 percent interest in Y. The XY
Consolidated AFS reflects Consolidated FSI of $1.65 billion. The books and records
used to prepare the XY Consolidated AFS disclose that X had separate net income of
$2 billion and that Y had a separate net loss of $500 million. Further, the $2 billion net
income of X includes $1 million of income for services rendered to Y and a loss of $200
million reflecting X’s share of Y’s net loss, determined under the equity method of

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accounting. These two amounts were eliminated from Consolidated FSI through AFS
C
onsolidation Entries made in preparing the XY Consolidated AFS. Y’s loss of $500
million includes $1 million of expense that Y incurred for services provided by X. The $1
million expense was also eliminated from Consolidated FSI through AFS Consolidation
Entries made in preparing the Consolidated AFS. An AFS Consolidation Entry was also
made to take into account in Consolidated FSI $50 million of expenses incurred by X to
a third party and not reflected in its separate books and records. Accordingly, the
information from X’s and Y’s source documents, the AFS Consolidation Entries, and
Consolidated FSI for the XY Consolidated AFS are summarized as follows (all amounts
are stated in U.S. dollars):

X Y AFS
Consolidation
Entries
Consolidated
FSI
Net income or loss from
transactions outside
AFS Group
2,199,000,000 (499,000,000) 1,700,000,000
Income from
transactions between X
and Y (services)
1,000,000 - (1,000,000) -
Expenses from
transactions between X
and Y (services)
- (1,000,000) 1,000,000 -
Investment in Y (X’s
40% share of Y’s
500,000,000 loss)
(200,000,000) - 200,000,000 -
Expense of X recorded
in consolidation
- - (50,000,000) (50,000,000)
Net Income or Loss 2,000,000,000 (500,000,000) 150,000,000 1,650,000,000
(B) Analysis. X and Y must determine their portion of the Consolidated FSI
set forth on the XY Consolidated AFS by applying the principles set forth in section
5.02(3)(c) of this notice. Accordingly, the portion of Consolidated FSI that is X’s FSI is
based upon X’s separate books and records used in preparing the XY Consolidated

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AFS. These disclose net income of $2 billion. In determining X’s FSI, this amount is
not r
educed by the net loss reflected in Y’s separate books and records (even though
Consolidated FSI is reduced by such net loss). Further, pursuant to section
5.02(3)(c)(iii) of this notice, the AFS Consolidation Entries eliminating the $1 million of
income from services rendered to Y and the $200 million loss from X’s investment in Y
determined under the equity method are both disregarded. That is, X’s FSI includes
these two amounts. Finally, pursuant to section 5.02(3)(c)(iv) of this notice, X must
reduce its FSI by $50 million, the AFS Consolidation Entry for administrative costs of X
that were not reflected in its separate books and records. Accordingly, the portion of
Consolidated FSI that is X’s FSI is $1.950 billion ($2 billion - $50 million).
The portion of Consolidated FSI that is Y’s FSI is similarly determined. Y’s
separate books and records disclose a net loss of $500 million. In determining Y’s FSI,
this amount is not offset by any portion of X’s separate net income of $2 billion (even
though the amounts are netted in Consolidated FSI). Further, pursuant to section
5.02(3)(c)(iii) of this notice, the AFS Consolidation Entry eliminating $1 million of
expense for services provided by X is disregarded. That is, such expense is included in
Y’s FSI. Accordingly, the portion of Consolidated FSI that is Y’s FSI is a net loss of
$500 million.
Pursuant to section 5.02(3)(c) of this notice, the portions of Consolidated FSI
that are X’s FSI and Y’s FSI are determined as follows:
FSI of X FSI of Y
Separate net income or Loss 2,000,000,000 (500,000,000)
Expenses of X recorded in consolidation (50,000,000) -

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FSI
3
1,950,000,000 (500,000,000)

SECTION 6. DETERMINING FSI, AFSI, AND TAX IMPOSED FOR TAX
CONSOLIDATED GROUPS
.01 Purpose. The Treasury Department and the IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided in this
section 6, which provides Taxpayers with additional clarity in determining, prior to
forthcoming proposed regulations—
(1) the FSI and AFSI of a Tax Consolidated Group (see sec
tion 6.03 of this notice),
and
(2) the amount of tax imposed by § 55 on a Tax Consolidated Group (see section
6.04 of this notice).
.02 Priority of Consolidated AFS. For rules regarding the priority of the Consolidated
AFS of a Tax Consolidated Group, see section 4.02(5)(b)(i) of this notice.
.03 Calculation of FSI of a Tax Consolidated Group. The FSI of a Tax Consolidated
Group for a taxable year is determined based on the Consolidated AFS of the Tax
Consolidated Group as follows:
(1) Consolidated AFS comprising solely Tax Consolidated Group members. If the
Consolidated AFS of the Tax Consolidated Group comprises solely the members (as
defined in § 1.1502-1(b)) of the Tax Consolidated Group and any disregarded entities
owned by such members (each, a Tax Consolidated AFS Member), the FSI of the Tax

3
G iven the application of section 5.02(3)(c)(iii)(B) to disregard the AFS Consolidation Entry eliminating
the $200,000,000 loss from X’s investment in Y, the sum of the separate portions of Consolidated FSI
that are X’s FSI and Y’s FSI [$1,950,000,000 + (500,000,000) = $1,450,000,000] is $200,000,000 less
than the Consolidated FSI for the XY Consolidated AFS [$1,650,000,000].

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Consolidated Group for the taxable year equals the Consolidated FSI set forth in the
Consolidated AFS of the Tax Consolidated Group (that is, the FSI of all Tax
Consolidated AFS Members) for the taxable year under section 5.02 of this notice.
(2) Consolidated AFS comprising Tax Consolidated AFS Members and other
Taxpayers. If a Consolidated AFS comprises all of the Tax Consolidated AFS Members
of a single Tax Consolidated Group, as well as one or more Taxpayers that are not Tax
Consolidated AFS Members of the Tax Consolidated Group, the FSI of the Tax
Consolidated Group for the taxable year must be determined from the Consolidated
AFS under section 5.02(3)(c) of this notice by treating the Tax Consolidated Group as
the Taxpayer. Treating a Tax Consolidated Group as a Taxpayer does not change the
Federal tax classification of an entity classified as a partnership owned only by Tax
Consolidated AFS Members of the Tax Consolidated Group. Accordingly, for example,
the FSI of the Tax Consolidated Group must--
(a) disregard each AFS Consolidation Entry regarding--

(i) a transaction between a Tax Consolidated AFS Member and another
Taxpayer,
(ii) a Tax Consolidated AFS Member’s investment in another Taxpayer, or
(iii) another Taxpayer’s investment in a Tax Consolidated AFS Member, and
(b) take into account each AFS Consolidation Entry regarding--
(i) a transaction between Tax Consolidated AFS Members, or
(ii) a Tax Consolidated AFS Member’s investment in another Tax Consolidated
AFS Member.
.04 Calculation of Tax Imposed by § 55
. The tax imposed by § 55(a) on a Tax

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Consolidated Group is calculated based on the Tax Consolidated Group’s--
(1) tentative minimum tax,
(2) regular consolidated tax liability, and
(3) tax imposed by § 59A (under § 1.1502-59A).
.05 Example. The following example illustrates the rules set forth in section 6.03 of
this section.
(1) Facts. X, Y, and Z are domestic corporations that each have only one class of
stock outstanding. X owns 90 percent of the stock of Y and 60 percent of the stock of Z.
The remaining Y and Z stock is held by unrelated persons. X and Y form an affiliated
group (XY Tax Consolidated Group) and file a consolidated tax return (XY Consolidated
Return), with X as the common parent. The financial results of domestic corporations X,
Y, and Z are consolidated on a Consolidated AFS (XYZ Consolidated AFS) for all
relevant financial reporting periods. X, Y, and Z are the only taxpayers the financial
results of which are reflected in the XYZ Consolidated AFS. X, Y, and Z are all calendar
year taxpayers. Under section 4.02(5) of this notice, the XYZ Consolidated AFS is the
AFS of X, Y, and Z. In 2023, X sold Asset N to Y for $10 million. Books and records
used to prepare the XYZ Consolidated AFS, including trial balances, show that X had
gain of $2 million on the sale of Asset N. The gain was eliminated from Consolidated
FSI through AFS Consolidation Entries made in preparing the XYZ Consolidated AFS.
In 2024, Y sold Asset N to Z for $13 million. Books and records used to prepare the
XYZ Consolidated AFS, including trial balances, show that Y had gain of $3 million on
the sale of Asset N. As in 2023, the gain was eliminated from Consolidated FSI through
AFS Consolidation Entries made in preparing the XYZ Consolidated AFS.

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(2) Analysis--(a) In general. The FSI of the XY Tax Consolidated Group is
determined under section 6.03 of this notice. The XYZ Consolidated Group includes an
entity (Z) that is not a Member of the XY Tax Consolidated Group. Therefore, section
6.03(2) of this notice applies. As a result, the XY Consolidated Group’s FSI is
determined from the XYZ Consolidated AFS by applying section 5.02(3)(c) of this
notice, treating the XY Tax Consolidated Group as a single taxpayer. Accordingly, the
XY Tax Consolidated Group’s FSI is based upon X’s and Y’s books and records used in
preparing the XYZ Consolidated AFS. AFS Consolidation Entries eliminating
transactions between Z and a Member of the XY Tax Consolidated Group are
disregarded in determining the FSI of the XY Tax Consolidated Group, but AFS
Consolidation Entries eliminating transactions between X and Y are taken into account.
(b) Analysis for 2023. In 2023, because the AFS Consolidation Entries eliminate
a transaction between X and Y, the AFS Consolidation Entries are taken into account.
Therefore, X’s $2 million gain on the sale of Asset N is not included in the XY Tax
Consolidated Group’s FSI in 2023.
(c) Analys
is for 2024. In 2024, because the AFS Consolidation Entries eliminate
a transaction between Y (a Member of the XY Tax Consolidated Group) and Z (a Non-
member), these AFS Consolidation Entries are disregarded. However, the effect of the
2023 AFS Consolidation Entries on the basis of Asset N is taken into account.
Therefore, the XY Tax Consolidated Group’s FSI in 2024 includes $5 million of gain on
the sale of Asset N.
SECTION 7. DETERMINING AFSI WITH RESPECT TO CERTAIN FOREIGN
CORPO
RATIONS

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.01 Purpose. The Treasury Department and the IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided in this
section 7, which provides Taxpayers with additional clarity in determining AFSI with
respect to certain foreign corporations prior to forthcoming proposed regulations.
.02 Application of § 56A
(c) in respect of certain foreign corporations.
(1) Interaction of section 56A(c)(2)(C) and (c)(3). A Taxpayer that is a U.S.
Shareholder (as defined in section 2.03(5) of this notice) of a CFC (as defined in section
2.03(5) of this notice) must apply both § 56A(c)(2)(C) and (c)(3) to determine its AFSI
with respect to such CFC.
(2) Section 56A(c)(3) adjustment determined on aggregate basis. A Taxpayer that
is a U.S. Shareholder of multiple CFCs makes a single adjustment under § 56A(c)(3)(A)
that is equal to the sum of its pro rata share of the Adjusted Net Income or Loss (as
defined in section 2.03(5) of this notice) of each CFC of which the Taxpayer is a U.S.
Shareholder. If the amount of such single adjustment would be negative, no amount is
taken into account under § 56A(c)(3) for such taxable year. See § 56A(c)(3)(B)(i).
(3) Financial statement income or loss of a CFC that is a partner in any partnership
or the owner of any disregarded entity. If a CFC is a partner in any partnership or the
owner of any disregarded entity, the items taken into account in computing the CFC’s
Adjusted Net Income or Loss must include the CFC’s distributive share of AFSI of any
such partnership (as determined under § 56A(c)(2)(D), regulations, or other guidance)
and the FSI of any such disregarded entity, as adjusted under rules similar to those that
apply in determining AFSI.
(4) Application of income tax treaties. For purposes of applying § 5
6A(c)(4), in the

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case of a foreign corporation that qualifies for and claims the benefits of the business
prof
its provisions of an applicable income tax treaty, the principles of those provisions
apply in determining the foreign corporation’s AFSI.
(5) Interaction of §§ 56A(c)(3) and (c)(4). A CFC’s Adjusted Net Income or Loss is
not limited to the amount of AFSI of the CFC that would be determined if only
§ 56A(c)(4) and application of section 7.02(4) of this notice were taken into account.
Additionally, if a CFC is an Applicable Corporation, the CFC’s Adjusted Net Income or
Loss is reduced by the amount of AFSI of the CFC (determined by taking into account
§ 56A(c)(4) as applied by taking into account section 7.02(4) of this notice).
SECTION 8. AFSI ADJUSTMENT FOR CERTAIN TAXES
.01 Purpose. The Treasury Department and the IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided in this
section 8, which provides Taxpayers with additional clarity in determining the AFSI
adjustment for certain taxes under § 56A(c)(5) prior to forthcoming proposed
regulations.
.02 Adjustments for certain taxes under § 56
A(c)(5).
(1) Timing of appropriate adjustment. An appropriate adjustment to AFSI
described in § 56A(c)(5) with respect to any Federal income taxes or Foreign Income
Taxes (as defined in section 2.03(7) of this notice) that are taken into account on the
Taxpayer’s AFS, including Federal income taxes or Foreign Income Taxes accounted
for as deferred tax expense (benefit), as current tax expense (benefit), or through
increases or decreases to other AFS accounts (such as those that are used to account
for FSI from investments in other entities under the equity method), is made in the

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taxable year or years in which such taxes increase or decrease the Taxpayer’s FSI or
are i
ncluded as a component of an adjustment to AFSI described in section 11.02 of this
notice.
(2) Taxes treated as taken into account on an AFS. For purposes of sections 8.02
and 14.02 of this notice, a Federal income tax or Foreign Income Tax is considered
taken into account on an AFS of a Taxpayer if any journal entry has been recorded in
the journal used to determine the amounts on the AFS of the Taxpayer for any year, or
another AFS that includes the Taxpayer, to reflect the income tax, even if the income
tax does not increase or decrease the Taxpayer’s FSI at the time of the journal entry.
An income tax that is taken into account on a partnership’s AFS is also considered
taken into account on any AFS of its partners.
SECTION 9. AFSI ADJUSTMENTS FOR SE
CTION 168 PROPERTY
.01 Purpose. The Treasury Department and the IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided in this
section 9, which provides Taxpayers with additional clarity in determining AFSI
adjustments for Section 168 Property (as defined in section 4.02(5) of Notice 2023-7)
prior to forthcoming proposed regulations.
.02 Modifications and clarifications to Notice 2023-7. T
his section 9.02 modifies and
clarifies certain provisions in section 4 of Notice 2023-7. Taxpayers that choose to rely
on the interim guidance in section 4 of Notice 2023-7 on or after September 12, must
apply the guidance in section 4 of Notice 2023-7, as modified and clarified by this
notice.
(1) Adjustments for accounting method changes. If a Taxpayer changes its

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method of accounting for depreciation for any item of Section 168 Property for Regular
T
ax purposes, the Taxpayer must adjust AFSI to reflect the adjustment required under
§ 481(a) for such change to prevent depreciation from being duplicated or omitted under
§ 56A(c)(13). Section 9.02(5) and (6) of this notice modifies and clarifies sections 4.02
and 4.03 of Notice 2023-7 to take into account this § 481(a) adjustment. Section
9.02(8) of this notice modifies and clarifies section 4.08 of Notice 2023-7 to provide an
example of this rule.
(2) A
djustments for Tax Depreciation capitalized and subsequently deducted. If
a Taxpayer capitalizes Tax Depreciation, as defined in section 4.02(7) of Notice
2023-7, and recovers the amount capitalized through one or more deductions
allowed in computing taxable income, AFSI is reduced by such deductions, even if
such deductions are allowed under a provision of the Code other than § 167. For
example, if a Taxpayer capitalizes and amortizes Tax Depreciation under
§ 174(a)(2), AFSI is reduced by the amortization deductions allowed under § 174 in
computing taxable income. Section 9.02(5) and (6) of this notice modifies and
clarifies sections 4.02 and 4.03 of Notice 2023-7 to take into account the deductions
described in this section 9.02(2).
(3) Adjustments for Tax Depreciation capitalized to non-i
nventory property held
for sale. If a Taxpayer capitalizes Tax Depreciation to property described in
§ 1221(a)(1) that is not inventory and recovers the amount capitalized as part of the
computation of gain or loss from the sale or exchange of such property in computing
taxable income, AFSI is reduced by such amount. Section 9.02(5) and (6) of this
notice modifies and clarifies sections 4.02 and 4.03 of Notice 2023-7 to take into

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account the amounts described in this section 9.02(3).
(4) A
djustments related to dispositions of Section 168 Property that occur for AFS
purposes before they occur for Regular Tax purposes. If a Taxpayer takes a disposition
loss, including an abandonment loss, into account in its FSI with respect to Section 168
Property for a taxable year that is earlier than the taxable year in which the disposition
event occurs for Regular Tax purposes, the Taxpayer must adjust AFSI for such earlier
taxable year to disregard the disposition loss included in its FSI for that taxable year.
The Taxpayer must wait until the taxable year in which the disposition event occurs for
Regular Tax purposes to take the disposition loss (as redetermined under section 4.07
of Notice 2023-7, as modified by this notice) into account for AFSI purposes. Section
9.02(5) and (6) of this notice modifies and clarifies sections 4.02 and 4.03 of Notice
2023-7 to reflect this adjustment. Additionally, section 9.02(7) of this notice modifies
section 4.07 of Notice 2023-7 to clarify that the rules in such section apply in the taxable
year in which Section 168 Property is disposed of for Regular Tax purposes. Section
9.02(7) of this notice also modifies and clarifies section 4.07 of Notice 2023-7 to provide
additional rules regarding adjustments to the AFS basis of Section 168 Property for
purposes of redetermining the FSI gain or loss from the disposition of such property.
Finally, section 9.02(8) of this notice modifies and clarifies the example in section 4.08
of Notice 2023-7 to illustrate these rules.
(5) Modifications to section 4.02 of Notice 2023-7.
In accordance with sections
9.02(1) through (4) of this notice, section 4.02 of Notice 2023-7 is modified and clarified
to read as follows:
.02 Defined Terms. For purposes of this section 4:

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(1) C
overed Book COGS Depreciation. The term Covered Book
COGS Depreciation means depreciation expense, disposition loss (including from an
abandonment) that occurs prior to the taxable year in which the disposition occurs
for regular tax purposes, impairment loss, or impairment loss reversal that is taken
into account as cost of goods sold (or as part of the computation of gain or loss from
the sale or exchange of other property held for sale) in the net income or loss set
forth on the taxpayer’s AFS with respect to Section 168 Property (as defined in
section 4.02(5) of this notice).
(2) Covered Book Depreciation Expense. The term Covered Book
Depreciation Expense means depreciation expense, disposition loss (including from an
abandonment) that occurs prior to the taxable year in which the disposition occurs for
regular tax purposes, impairment loss, or impairment loss reversal other than Covered
Book COGS Depreciation that is taken into account in the net income or loss set forth
on the taxpayer’s AFS with respect to Section 168 Property.
(3) Covered Book Expense. The term Cover
ed Book Expense
means an amount, other than Covered Book COGS Depreciation and Covered Book
Depreciation Expense, that is--
(a) recognized as an expense or loss in the net income or loss
set forth on the taxpayer’s AFS, and
(b) reflected in the unadjusted depreciable basis, as defined in
§ 1.168(b)-1(a)(3), of Section 168 Property for purposes of the regular tax liability, as
defined in § 26(b) (Regular Tax).
(4) D
eductible Tax Depreciation. The term Deductible Tax

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Depreciation m
eans Tax Depreciation (as defined in section 4.02(7) of this notice)
that is allowed as a deduction in computing taxable income, including Tax
Depreciation that is capitalized and subsequently allowed as a deduction in
computing taxable income (even if such deduction is allowed under a provision of the
Code other than § 167).
(5) Section 168 Property. T
he term Section 168 Property means
property to which § 168 applies, as described in section 4.04 of this notice.
(6) Tax COGS Depreciation. The term Tax COGS Depreciation means
Tax Depreciation that is capitalized to inventory under § 263A and recovered as part of
cost of goods sold in computing gross income, and Tax Depreciation that is capitalized
to property described in § 1221(a)(1) that is not inventory and recovered as part of the
computation of gain or loss from the sale or exchange of such property in computing
taxable income.
(7) Tax Depreciation. The term T
ax Depreciation means depreciation
deductions allowed under § 167, with respect to Section 168 Property.
(8) Tax Depreciation S
ection 481(a) Adjustment. The term Tax
Depreciation Section 481(a) Adjustment means those adjustments that are required
under § 481(a) for a change in method of accounting for depreciation for any item of
Section 168 Property.
(6) Modifications to section 4.03 of
Notice 2023-7. In accordance with section
9.02(1) through (4) of this notice, section 4.03 of Notice 2023-7 is modified and clarified
to read as follows:
.03 Adjustments for Depreciation (Including Depreciation Capitalized to

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Inventory). For purposes of § 56A(c)(13), AFSI is--
(1) reduced by Tax COGS Depreciation, but only to the extent of
the amount recovered: (a) as part of cost of goods sold in computing taxable income
for the taxable year, or (b) as part of the computation of gain or loss from the sale or
exchange of non-inventory property described in § 1221(a)(1) that is included in
taxable income, or deducted in computing taxable income, respectively, for the
taxable year, as applicable,
(2) reduced by Deductible Tax Depreciation, but only to the extent
of the amount allowed as a deduction in computing taxable income for the taxable
year,
(3) adjusted to disregard Covered Book COGS Depreciation,
Covered Book Depreciation Expense, and Covered Book Expense,
(4) reduced by any Tax Depreciation Section 481(a) Adjustment
that is negative, but only to the extent of the amount of such Tax Depreciation
Section 481(a) Adjustment that is taken into account in computing taxable
income for the taxable year,
(5) increased by any Tax Depreciation Section 481(a)
Adjustment that is positive, but only to the extent of the amount of such Tax
Depreciation Section 481(a) Adjustment that is taken into account in computing
taxable income for the taxable year, and
(6) adjusted for other items as provided in regulations or other
guidance.

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(7) Modifications to section 4.07 of Notice 2023-7. In accordance with section
9.02(1) and (4) through (6) of this notice, section 4.07 of Notice 2023-7 is modified and
clarified to read as follows:
.07 AFSI adjustments for dispositions. If a taxpayer disposes of Section
168 Property for Regular Tax purposes, the taxpayer must adjust AFSI for the taxable
year in which such disposition occurs to redetermine any gain or loss taken into account
in the net income or loss set forth on the taxpayer’s AFS with respect to such disposition
for such year (including a gain or loss of zero) by adjusting the remaining AFS basis of
such property by the amounts described in sections 4.07(1) through (4) of this notice
with respect to such property, including those amounts attributable to taxable years prior
to the effective date of the CAMT. Pursuant to this section 4.07, the remaining AFS
basis of such property is--
(1) decreased by the full amount of Tax Depreciation with respect to
such property (regardless of whether any amount of such Tax Depreciation was
capitalized and not yet taken into account as a reduction to AFSI through an adjustment
described in sections 4.03(1) or (2) of this notice),
(2) increased by the cumulative adjustments described in section
4.03(3) of this notice with respect to such property,
(3) increased by the full amount of any Tax Depreciation Section
481(a) Adjustment with respect to such property that is positive and decreased by the
full amount of any Tax Depreciation Section 481(a) Adjustment with respect to such
property that is negative (regardless of whether any portion of such Tax Depreciation
Section 481(a) Adjustment has yet to be taken into account in AFSI through an

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adjustment described in sections 4.03(4) or (5) of this notice), and
(
4) increased or decreased, as appropriate, by any other adjustments
to AFS basis required under § 56A, regulations, or other guidance with respect to such
property (for example, AFS basis adjustments required under section 3.03(2) of this
notice).
(8) M
odifications to section 4.08 of Notice 2023-7. In accordance with section
9.02(1) and (4) through (6) of this notice, section 4.08 of Notice 2023-7 is modified and
clarified to read as follows:
.08 Examples.
The following examples illustrate certain rules set forth
in section 4 of this notice.
(1) Example 1 – S
ection 481(a) adjustment.
(a) Facts. X is an Applicable Corporation for the calendar year
ending December 31, 2023. X timely files a Form 3115, Application for Change in
Accounting Method, under Rev. Proc. 2015-13, 2015-5 I.R.B. 419, for the calendar year
ending December 31, 2023, to change its method of accounting for depreciation for an
item of Section 168 Property, and the Secretary consents to the change. The
adjustment required under § 481(a) to implement such change is positive because the
total amount of depreciation taken by X with respect to the Section 168 Property under
its present method was $1,000x greater than the total amount of depreciation allowable
under the new method of accounting. X takes the $1,000x net positive § 481(a)
adjustment into account in computing taxable income ratably over the § 481(a)
adjustment period of 4 taxable years, beginning with the year of change (2023 through
2026).

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(b) A
nalysis for taxable years 2023 through 2026. Pursuant to
section 9.02(1) of this notice, X must take the $1,000x net positive Tax Depreciation
Section 481(a) Adjustment into account in determining AFSI under § 56A(c)(13) for
taxable years 2023 through 2026. Because the adjustment is positive, X would
increase AFSI by $250x each year.
(2) E
xample 2 – Property place in service prior to 2023 and disposition
adjustments.
(a) Facts. Taxpayer is an Applicable Corporation for the calendar
year ending December 31, 2023. On January 1, 2018, Taxpayer purchased and placed
in service Property A, which is Section 168 Property, at a cost of $1,000x. Property A
qualified for, and Taxpayer claimed, the 100-percent additional first year depreciation
deduction allowable under § 168(k) for its taxable year ending December 31, 2018. For
AFS purposes, Taxpayer depreciates Property A over 40 years on a straight-line
method and recognizes $25x ($1,000x cost / 40 years) of Covered Book Depreciation
Expense in 2018 and each year thereafter until it sells Property A (a disposition for
Regular Tax and AFS purposes) on January 1, 2024, for $900x. For 2024, Taxpayer
takes into account $50x of net gain for the sale of Property A in the net income or loss
set forth on its AFS ($900x proceeds - $850x of AFS basis ($1,000x cost - $150x
accumulated Covered Book Depreciation Expense as of January 1, 2024)).
(b) Analysis for taxable year 2023. In determining AFSI for t
he
taxable year ending December 31, 2023, Taxpayer does not have any Deductible Tax
Depreciation or Tax COGS Depreciation in computing taxable income with respect to
Property A, and thus, the adjustments under section 4.03(1) and (2) of this notice would

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be zero. In addition, Taxpayer would adjust AFSI under section 4.03(3) of this notice to
di
sregard the $25x of Covered Book Depreciation Expense with respect to Property A.
(c) Analysis for taxable year 2024. To determine the AFSI
adjustment for the gain or loss from the sale of Property A under section 4.07 of this
notice, Taxpayer must adjust the remaining AFS basis of such property by the amounts
described in section 4.07(1) through (4) of this notice with respect to such property,
including those amounts attributable to taxable years prior to the effective date of the
CAMT. Accordingly, the redetermined basis of Property A for AFSI purposes is zero
($850x remaining AFS basis + $150x accumulated Covered Book Depreciation
Expense - $1,000x of accumulated Tax Depreciation). Thus, the redetermined gain on
the sale of Property A for AFSI purposes is $900x ($900x proceeds - $0 redetermined
AFSI basis), and a positive adjustment to AFSI of $850x ($900x redetermined gain -
$50x net gain set forth on the AFS) is made to reflect the redetermined gain.
.03 Other AFSI rules for Section 168 Property.

(1) Section 56A(c)(13) does not apply to property not depreciated under §§ 167
and 168. If a Taxpayer owns property that is not subject to depreciation under §§ 167
and 168 for Regular Tax purposes (for example, because the Taxpayer is not subject to
U.S. taxation), then AFSI of that Taxpayer is not adjusted under § 56A(c)(13) with
respect to such property. Further, the rules for determining Applicable Corporation
status of members of a FPMG in § 59(k)(2)(A), including the rule that disregards the
AFSI adjustment described in § 56A(c)(4), do not change this result.
(2) Amounts recognized in FSI for the disposition of Section 168 Property.
Section
5.02(3)(b) of this notice provides that except as otherwise provided in § 56A or § 59(k)

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(as applicable), regulations, or other guidance, AFSI includes all items of income,
ex
pense, gain, and loss reflected in the Taxpayer’s FSI regardless of whether such
amounts are realized, recognized, or otherwise taken into account for Regular Tax
purposes. Section 56A(c)(13) does not provide for an adjustment to AFSI to apply
nonrecognition or gain deferral provisions that apply to certain dispositions of Section
168 Property for Regular Tax purposes (for example, like-kind exchanges under § 1031
or installment sales under § 453). However, other provisions under § 56A or guidance
issued by the Treasury Department and the IRS may provide for such an adjustment in
certain situations (for example, see section 3 of Notice 2023-7, which provides an
adjustment to AFSI if Section 168 Property was disposed of in a Covered
Nonrecognition Transaction). Accordingly, except as otherwise provided in other
provisions under § 56A, regulations, or other guidance, if a Taxpayer disposes of
Section 168 Property for Regular Tax purposes and recognizes gain or loss from the
disposition in its FSI, such gain or loss (as redetermined under section 4.07 of Notice
2023-7, as modified and clarified by this notice) is recognized for AFSI purposes,
regardless of whether any gain or loss with respect to such disposition is realized,
recognized, or otherwise taken into account for Regular Tax purposes.
(3) Examples.
The following examples illustrate the rules set forth in sections
5.02(3)(b) and 9.03(2) of this notice and the application of § 56A(c)(13) in taxable years
following a transaction described in section 9.03(2) of this notice.
(a) Example of installment sale under § 453.
(i) Facts. X is a calendar year Taxpayer and also issues its AFS on a calendar
year basis. On January 1, 2018, X purchased for $550x and placed in service

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residential rental property (Real Property A), which is Section 168 Property. For
R
egular Tax purposes, X depreciates Real Property A under the general depreciation
system by using the straight-line method and a 27.5-year recovery period. X becomes
an Applicable Corporation for the calendar year ending December 31, 2024. On
January 1, 2024, X sells Real Property A to Y, an unrelated Taxpayer, for $1,000x with
the following payment structure: $100x payable at closing and the remainder payable in
equal annual installments over the next 9 years, together with adequate stated interest.
As of the date of the installment sale, X’s adjusted basis for Regular Tax purposes,
remaining AFS basis, and redetermined basis for AFSI purposes (as determined under
section 4.07 of Notice 2023-7, as modified and clarified by this notice) for Real Property
A is $430x. X does not elect out of the installment method under § 453. The gross
profit to be realized on the sale is $570x ($1,000x selling price - $430x basis). The
gross profit percentage is 57% (gross profit of $570x / $1,000x contract price). No
provision in § 56A, regulations, or other guidance provides for an adjustment to AFSI to
apply the gain deferral rules under § 453.
(i
i) Analysis. For taxable year 2024, X realizes $570x ($1,000x selling price -
$430x basis) of gain for both Regular Tax and FSI purposes from the disposition of Real
Property A in the installment sale. X recognizes $570x of the gain in FSI, but for
Regular Tax purposes, X recognizes only $57x (57% of $100x) of the gain and the
remaining $513x of gain will be recognized as payments are received under the
installment method. Pursuant to section 9.03(2) of this notice, the gain deferral
provisions in § 453 do not apply for purposes of determining the AFSI gain or loss on
the disposition of Real Property A. Accordingly, X must recognize the entire $570x gain

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in AFSI, notwithstanding that $513x was deferred under § 453 for Regular Tax
purpos
es.
(b) Example of like-kind exchange under § 1031.
(i) Facts. The facts are the same as section 9.03(3)(a)(i) of this notice, except
that on January 1, 2024, X transfers Real Property A to Y in exchange for Real Property
B with a fair market value of $440x and $20x in cash. The exchange qualifies as an
exchange of real property held for productive use or investment under § 1031. As of the
date of the exchange, X’s adjusted basis for Regular Tax purposes, remaining AFS
basis, and redetermined basis for AFSI purposes (as determined under section 4.07 of
Notice 2023-7, as modified and clarified by this notice) for Real Property A is $430x. No
provision in § 56A, regulations, or other guidance provides for an adjustment to AFSI to
apply the nonrecognition rules under § 1031.
(ii) An
alysis. For taxable year 2024, X realizes $30x of gain under § 1001(a)
(amount realized of $460x [$440x fair market value of replacement Real Property B plus
$20x cash], less $430x adjusted Regular Tax basis of relinquished property). Of the
realized gain, only $20x is recognized by X under § 1031(b) for Regular Tax purposes,
as this is the amount of non-like-kind consideration (cash of $20x). For AFS purposes,
X recognizes $30x of gain in its FSI (amount realized of $460x [$440x fair market value
of Real Property B plus $20x cash], less $430x remaining AFS basis of Real Property
A). Pursuant to section 9.03(2) of this notice, the nonrecognition rules in § 1031 do not
apply for purposes of determining the AFSI gain or loss on the disposition of Real
Property A. Accordingly, for AFSI purposes, X must recognize the entire redetermined
gain of $30x ($460x amount realized less $430x of redetermined AFSI basis under

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section 4.07 of Notice 2023-7,
as modified and clarified by this notice) for purposes of
computing AFSI, notwithstanding that X recognized only $20x of the $30x gain realized
for Regular Tax purposes.
(c) Example illustrating the treatment of replacement property received in a like-
kind exchange.
(i) Facts. The facts are the same as section 9.03(3)(b)(i) of this notice. In
addition, X’s Regular Tax exchanged basis in the replacement Real Property B as of the
date of the exchange is $430x ($430x adjusted Regular Tax basis of relinquished Real
Property A, less $20x cash, plus $20x gain realized). X’s AFS basis of Real Property B
as of the date of the exchange is $440x, which is the fair market value of Real Property
B as of the date of the exchange. The recovery period, depreciation method, and
convention prescribed under § 168 for Real Property B are the same as Real Property
A. Under § 1.168(i)-6(c)(3)(ii) and (c)(4)(v)(A), X depreciates Real Property B over the
remaining recovery period of, and using the same depreciation method and convention
as that of, Real Property A for Regular Tax purposes. Except for taxable year 2024 and
the taxable year in which Real Property B is disposed of, Tax Depreciation with respect
to Real Property B is $20x ($430x / 21.5) for each year, which X deducts in computing
taxable income. Under the mid-month convention, Real Property B is deemed placed in
service on January 15, 2024. Therefore, in 2024, Tax Depreciation for Real Property B
is $19x ($20x multiplied by [11.5 / 12]), which X deducts in computing taxable income.
For AFS purposes, X depreciates Real Property B using the straight-line method and a
27.5-year recovery period and recognizes $16x ($440x / 27.5) of Covered Book
Depreciation Expense each year. On January 1, 2032, X sold Real Property B with a

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Regular Tax adjusted exchanged basis of $270x ($430x exchange basis - $1
60x
accumulated Tax Depreciation [8 years multiplied by ($430x cost / 21.5 recovery
period), which includes $20x multiplied by (11.5 / 12) of depreciation for 2024 or $19x
and (0.5 / 12) of depreciation for 2032 or $1x]) and a remaining AFS basis of $312x
($440x cost - $128x accumulated book depreciation [8 years multiplied by ($440x cost /
27.5 recovery period)]) to Z for $500x in cash.
(ii) Anal
ysis for taxable year 2032. For Regular Tax purposes, X recognizes
a gain on the sale of Real Property B of $230x (amount realized of $500x - $270x
Regular Tax adjusted exchanged basis). For AFS purposes, X recognizes a gain of
$188x in its FSI (amount realized of $500x - $312x remaining AFS basis). Pursuant
to section 4.07 of Notice 2023-7 (as modified and clarified by this notice), X must
adjust AFSI for taxable year 2032 to redetermine the AFS gain or loss of $188x from
the disposition of Real Property B by adjusting the remaining AFS basis of Real
Property B to take into account the amounts described in section 4.07(1) through (4)
of Notice 2023-7 (as modified and clarified by this notice) with respect to such
property, including those amounts attributable to taxable years prior to the effective
date of the CAMT. Accordingly, the redetermined basis of Real Property B for AFSI
purposes is $280x ($312x AFS basis + $128x accumulated Covered Book
Depreciation Expense - $160x of accumulated Tax Depreciation). Thus, the
redetermined gain on the sale of Real Property B for AFSI purposes is $220x ($500x
proceeds - $280x redetermined AFSI basis).
SECTION 10. AFSI ADJUSTMENTS FOR QUALIFIED WIRELESS SPECTRUM
.01 Purpose. The Treasury Department and the IRS intend to propose rules in

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forthcoming proposed regulations consistent with the interim guidance provided in
this section 10, which provides interim guidance to facilitate the application of the
qualified wireless spectrum adjustment rules in § 56A(c)(14) prior to forthcoming
proposed regulations.
.02 D
efined Terms. For purposes of this section 10:
(1) Covered Book Amortization Expense. The term Covered Book Amortization
Expense means amortization expense, disposition loss (including from an
abandonment) that occurs prior to the taxable year in which the disposition occurs
for Regular Tax purposes, impairment loss, or impairment loss reversal that is taken
into account in the Taxpayer’s FSI with respect to Qualified Wireless Spectrum (as
defined in section 10.02(4) of this notice).
(2) Covered Book Wireless Spectrum Expense. The term Covered Book
Wireless Spectrum Expense means an amount, other than Covered Book
Amortization Expense, that is--
(a) recognized as an expense or loss in the Taxpayer’s FSI, and
(b) reflected in the basis for depreciation, as defined in §§ 1.167(g)-1 and
1.197-2(f)(1)(ii) (without regard to any adjustments described in § 1016(a)(2) and
(3)), of Qualified Wireless Spectrum for Regular Tax purposes.
(3) D
eductible Tax Amortization. The term Deductible Tax Amortization means
Tax Amortization (as defined in section 10.02(6) of this notice) that is allowed as a
deduction in computing taxable income.
(4) Qualified Wireless Spectrum. The term Qualified Wireless Spectrum means
wireless spectrum which is used in the trade or business of a wireless

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telecommunications carrier, is an amortizable section 197 i
ntangible under § 197(c)(1)
and (d)(1)(D), and was acquired after December 31, 2007, and before August 16, 2022.
(5) Section 481(a) Adjustment for Amortization. The term Section 481(a)
Adjustment for Amortization means those adjustments that are required under § 481(a)
for a change in method of accounting for amortization of any item of Qualified Wireless
Spectrum.
(6) Tax Amortization. The term Tax Amortization means amortization deductions
allowed under § 197, with respect to Qualified Wireless Spectrum.
.03 Adjustments for Qualified Wireless Spectrum. For purposes of § 56
A(c)(14),
AFSI is--
(1) reduced by Deductible Tax Amortization, but only to the extent of the
amo
unt allowed as a deduction in computing taxable income for the taxable year,
(2) adjusted to disregard Covered Book Amortization Expense and Covered
Book Wireless Spectrum Expense,
(3) reduced by any Section 481(a) Adjustment for Amortization that is negative,
but only to the extent of the amount of such Section 481(a) Adjustment for
Amortization that is taken into account in computing taxable income for the taxable
year,
(4) increased by any Section 481(a) Adjustment for Amortization that is positive,
but only to the extent of the amount of such Section 481(a) Adjustment for
Amortization that is taken into account in computing taxable income for the taxable
year, and
(5) adjusted for other items as provided in regulations or in other guidance.

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.04 S
ection 56A(c)(14) does not apply to property not depreciated under § 197. If
a Taxpayer has wireless spectrum property that is not subject to amortization under
§ 197 for Regular Tax purposes (for example, because the Taxpayer is not subject to
U.S. taxation), then AFSI of that Taxpayer is not adjusted under § 56A(c)(14) with
respect to such property. Further, the special rules for determining Applicable
Corporation status of members of a FPMG in § 59(k)(2)(A), including the rule that
disregards the AFSI adjustment described in § 56A(c)(4), do not change this result.
.05 AFSI adjustments for dispositions. If a Taxpayer disposes of Qualified
Wireless Spectrum for Regular Tax purposes, the Taxpayer must adjust AFSI for the
taxable year in which such disposition occurs to redetermine any gain or loss taken
into account in the Taxpayer’s FSI with respect to such disposition for such year
(including a gain or loss of zero) by adjusting the remaining AFS basis of such
property by the amounts described in section 10.05(1) through (4) of this notice with
respect to such property, including those amounts attributable to taxable years prior
to the effective date of the CAMT. Pursuant to this section 10.05, the remaining AFS
basis of such property is--
(1) decreased by the cumulative adjustments described in section 10.03(1) of this
not
ice with respect to such property,
(2) increased by the cumulative adjustments described in section 10.03(2) of this
notice with respect to such property,
(3) increased by the full amount of any Section 481(a) Adjustment for
Amortization with respect to such property that is positive and decreased by the full
amount of any Section 481(a) Adjustment for Amortization with respect to such

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property that is negative (regardless of whether any portion of such Section 481(a)
A
djustment for Amortization has yet to be taken into account in AFSI through an
adjustment described in section 10.03(3) or (4) of this notice), and
(4) increased or decreased, as appropriate, by any other adjustments to AFS
basis required under § 56A, regulations, or other guidance (for example, basis
adjustments required under section 3.03(2) of Notice 2023-7) with respect to such
property.
.
06 Example. The following example illustrates the rules set forth in sections
10.03 and 10.05 of this notice.
(1) Facts. X is an Applicable Corporation for the calendar year ending
December 31, 2023. On January 1, 2018, X acquired Wireless Spectrum A, which is
Qualified Wireless Spectrum, at a cost of $1,000x. For AFS purposes, X does not
amortize Wireless Spectrum A. For Regular Tax purposes, X amortizes Wireless
Spectrum A ratably over 15 years and recognizes $67x ($1,000x cost / 15 years) of
Deductible Tax Amortization in 2018 and each year thereafter until it sells Wireless
Spectrum A (a disposition for Regular Tax and AFS purposes) on January 1, 2024,
for $900x. For 2024, X takes into account $100x of net loss from the sale of
Wireless Spectrum A in its FSI ($900x proceeds - $1,000x of AFS basis ($1,000x
cost - $0 accumulated Covered Book Amortization Expense as of January 1, 2024)).
(2) Analysis for taxable year 2023. In determining AFSI for the taxable year
ending December 31, 2023, X does not have any Covered Book Amortization
Expense or Covered Book Wireless Spectrum Expense in computing the Taxpayer’s
FSI with respect to Wireless Spectrum A, and thus, the adjustment to disregard such

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amounts under section 10.03(2) of this notice would be zero. In addition, X would
reduce AFSI under section 10.03(1) of this notice for the $67x of Deductible Tax
Amortization with respect to Wireless Spectrum A.
(3) Analysis for taxable year 2024. To redetermine the FSI gain or loss from the
sale of Wireless Spectrum A for AFSI purposes under section 10.05 of this notice, X
must adjust the remaining AFS basis of such property by the amounts described in
section 10.05(1) through (4) of this notice with respect to such property, including
those amounts attributable to taxable years prior to the effective date of the CAMT.
Accordingly, the redetermined basis of Wireless Spectrum A for AFSI purposes is
$598x ($1,000x remaining AFS basis + $0 accumulated Covered Book Amortization
Expense - $402x of accumulated Deductible Tax Amortization). Thus, the
redetermined gain on the sale of Wireless Spectrum A for AFSI purposes is $302x
($900x proceeds - $598x redetermined AFSI basis) and a positive adjustment to
AFSI of $402x ($100x net loss in FSI + $302x redetermined gain) is made to reflect
the redetermined gain.
SECTION 11. AFSI ADJUSTMENTS TO PREVENT CERTAIN DUPLICATIONS AND
OMIS
SIONS.
.01 Purpose. The Treasury Department and the IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided in this
section 11, which provides Taxpayers with additional clarity in determining adjustments
to prevent certain duplications and omissions of AFSI prior to forthcoming proposed
regulations.
.02 Adjustments to prevent certain duplications and omissions.

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(1) In general. In order to prevent duplications or omissions, AFSI must be
adjusted for the items described in this section 11.02 and for such other items as
required or permitted in regulations or in other guidance. See section 13.04(2) of this
notice for modifications to AFSI to prevent duplications that apply solely for purposes of
§ 59(k).
(2) C
hange in financial accounting principle.
(a) In general. AFSI must be adjusted to take into account any cumulative
adjustment to the retained earnings of the Taxpayer on its AFS if such adjustment
results from a change in financial accounting principle (Accounting Principle Change
Adjustment). Except as otherwise provided in regulations or in other guidance, such
adjustment must be taken into account in the Taxpayer’s AFSI during the period
provided in section 11.02(2)(b) of this notice (Adjustment Spread Period Rule). An
Accounting Principle Change Adjustment may be subject to further adjustment if it
relates to FSI items for which other AFSI adjustments under § 56A, regulations, or other
guidance apply (Net Accounting Principle Change Adjustment). For example, to the
extent the Accounting Principle Change Adjustment includes a Federal income tax
component, § 56A(c)(5) may apply. In such case, the Adjustment Spread Period Rule
applies to the Net Accounting Principle Change Adjustment.
(b) A
djustment Spread Period Rule.
(i) Duplications. In the case of an Accounting Principle Change Adjustment or
Net Accounting Principle Change Adjustment, as applicable, that is necessary to
prevent the duplication of an item of income, expense, gain, or loss for AFSI purposes,
such adjustment must be taken into account in AFSI ratably over the four-taxable-year

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period beginning with the taxable year for which the change in financial accounting
principle is implemented in the Taxpayer’s AFS. However, if the Taxpayer is able to
demonstrate that the duplication is reasonably anticipated to occur over a different
period, then the corresponding Accounting Principle Change Adjustment or Net
Accounting Principle Change Adjustment, as applicable, may be taken into account in
AFSI ratably over such period (not to exceed fifteen years) beginning with the taxable
year for which the change in financial accounting principle is implemented in the
Taxpayer’s AFS.
(ii) Omissions. In the case of an Accounting Principle Change Adjustment or
Net Accounting Principle Change Adjustment, as applicable, that is (A) necessary to
prevent the omission of an item of income, expense, gain or loss for AFSI purposes,
and (B) results in an increase to AFSI, such adjustment must be taken into account in
AFSI ratably over the four-taxable-year period beginning with the taxable year for which
the change in financial accounting principle is implemented in the Taxpayer’s AFS. In
the case of an Accounting Principle Change Adjustment or Net Accounting Principle
Change Adjustment, as applicable, that is (A) necessary to prevent the omission of an
item of income, expense, gain, or loss for AFSI purposes, and (B) results in a decrease
to AFSI, such adjustment must be taken into account in AFSI in full in the taxable year
for which the change in financial accounting principle is implemented in the Taxpayer’s
AFS.
(c) A
cceleration of financial accounting principle adjustment. If, in any taxable
year, a Taxpayer ceases to engage in the trade or business that is the subject of an
Accounting Principle Change Adjustment or Net Accounting Principle Change

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Adjustment, as applicable, the Taxpayer must take into account in AFSI for such taxable
year any portion of the adjustment not taken into account in AFSI for a previous taxable
year.
(d) Use of different priority AFSs in consecutive taxable years. If the priority of a
Taxpayer’s AFS (as determined under the rules of section 4.02 of this notice) for the
current taxable year is different than the priority of the Taxpayer’s AFS for the preceding
taxable year, the Taxpayer will be treated as having implemented a change in financial
accounting principle and must adjust AFSI to the extent required under the rules of
section 11.02(2) of this notice.
(3) R
estatement of a prior year’s AFS.
(a) In general. Except as provided in section 11.02(3)(b) of this notice, if a
Taxpayer restates an AFS and, as a result, the Taxpayer’s FSI for a taxable year is
restated after the Taxpayer filed its original Federal income tax return for such taxable
year, the Taxpayer must account for the restatement by adjusting its AFSI for the first
taxable year after such taxable year for which the Taxpayer has not filed an original
return as of the restatement date. The restatement adjustment must take into account
the cumulative effect of the restatement on FSI, including any restatement of the
beginning balance of retained earnings for the period being restated. The restatement
adjustment described in the preceding sentence may be subject to further adjustment if
an FSI item being restated is subject to adjustment under § 56A, regulations, or other
guidance. For example, to the extent such restatement adjustment includes a Federal
tax component, § 56A(c)(5) may apply. See section 4.02(3) of this notice for what
constitutes a restatement and for rules relating to the restatement of an AFS prior to the

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date the Taxpayer’s return for the taxable year is filed.
(b) Exception for amended return. If, after restating an AFS for a taxable year, a
Taxpayer files an amended return or an administrative adjustment request under § 6227
(AAR), as applicable, for such taxable year to adjust regular taxable income as a result
of the restatement, the Taxpayer must use the Restated AFS for purposes of
determining AFSI on the amended return or AAR, as applicable, rather than make the
adjustment set forth in section 11.02(3)(a) of this notice.
(c) R
econciliation of retained earnings in AFS. The Taxpayer will be deemed to
have restated its AFS for the preceding taxable year described in section 11.02(3)(c)(i)
of this notice and section 11.02(3)(a) or (b) of this notice, as applicable, will apply, if—
(i) The beginning balance of retained earnings on the Taxpayer’s AFS for the
current taxable year is adjusted to be different than the ending balance of retained
earnings on the Taxpayer’s AFS for the preceding taxable year (for example, as a result
of a prior period adjustment),
(ii) Such difference is attributable to items that would otherwise be reflected in
the Taxpayer’s FSI under the relevant accounting standards, and
(iii) The Taxpayer is not otherwise subject to the adjustment rules in sections
11.02(2) or (3)(a) or (b) of this notice.
(d) Example. The following example illustrates the rule set forth in section
11.02(3)(a) of this notice.
(i) Facts. X is a calendar year Taxpayer and issues its AFS on a calendar year
basis. On September 15, 2024, X files its Federal income tax return for taxable year
2023 and reports FSI of $1.580 billion, which is the FSI set forth on the X’s Original AFS

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for 2023, and AFSI of $2 billion (FSI of $1.580 billion adjusted to add back $420 million
of Federal income tax expense under § 56A(c)(5)). On November 1, 2024, X issues a
Restated AFS for 2023 that reflects an FSI of $2.370 billion (which includes a reduction
for Federal income tax expense of $630 million). The Restated AFS also includes an
adjustment to increase the 2023 beginning balance of retained earnings by $70 million
($100 million of income less $30 million of Federal income tax expense) related to
income from a prior period that was underreported. X is not amending its taxable year
2023 Federal income tax return. X is not subject to any AFSI adjustments other than
the AFSI adjustment under § 56A(c)(5).
(ii) Analysis. X has restated its AFS and FSI for 2023 after having filed its
original 2023 Federal income tax return. Pursuant to section 11.02(3)(a) of this notice,
X must account for the restatement by adjusting its AFSI for taxable year 2024. On X’s
2024 Federal income tax return, X will increase AFSI by $1.1 billion for taxable year
2024, which is the first taxable year for which X has not filed an original return as of the
November 1, 2024, restatement date. The $1.1 billion adjustment represents the
cumulative effect of the restatement on FSI, including any restatement of the beginning
balance of retained earnings for the period being restated (2023). The $1.1 billion is
comprised of $790 million (the difference between FSI reported on the Restated AFS of
$2.370 billion and the FSI reported on the Original AFS of $1.580 billion), plus $210
million (the difference between Federal income tax expense reported on the Restated
AFS of $630 million and the Federal income tax expense reported on the Original AFS
of $420 million, which is required to be added back under § 56A(c)(5) in determining
AFSI), plus $100 million (the adjustment to the 2023 beginning balance of retained

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earnings reported on the Restated AFS for 2023 of $70 million increased under
§ 56A(c)(5) by the $30 million of related Federal income tax expense).
(4) Adjustment for amounts disclosed in an auditor’s opinion. AFSI must be
adjusted to take into account amounts disclosed in an auditor’s opinion described in
section 4.02(2)(b) or (c) of this notice to the extent such amounts would have increased
FSI had they been reported in the Taxpayer’s AFS. No AFSI adjustment is required to
the extent the disclosed amounts were included in FSI for a prior year. Moreover, if FSI
for a subsequent year includes amounts included in AFSI pursuant to an adjustment
made under this paragraph, AFSI for the subsequent year must be adjusted to prevent
any duplication of income.
(5) No adjustment for timing differences. Differences between when an item is
taken into account in FSI and when that item is taken into account for Regular Tax
purposes do not give rise to duplications or omissions within the meaning of
§ 56A(c)(15)(A) or section 11.02 of this notice, even if the timing difference originated
before the effective date of the CAMT and reversed after such effective date. Thus, for
example, the inclusion of an item in FSI prior to the effective date of the CAMT and the
inclusion of the item in regular taxable income after the effective date of the CAMT does
not result in a duplication or omission.
SECTION 12. FINANCIAL STATEMENT NET OPERATING LOSSES.
.01 Purpose. The Treasury Department and the IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided in this
section 12, which provides corporations with additional clarity in determining use of
FSNOL carryovers prior to forthcoming proposed regulations.

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.02 FSNOL carryover. The amount of an FSNOL described in § 56A(d)(3) carried
forward to the first taxable year a corporation is an Applicable Corporation (and
subsequent taxable years) is determined under § 56A(d)(2) without regard to whether
the Taxpayer was an Applicable Corporation for any prior taxable year.
.03 Example.
The following example illustrates the rule set forth in section 12.02 of
this notice.
(1) Facts. X is a calendar year Taxpayer. For taxable year 2020, X generated an
FSNOL of $3 billion. For taxable years 2021, 2022, and 2023, X’s AFSI (without taking
into account the adjustment under § 56A(d)(1)) was $900 million, $1.1 billion, and $1.2
billion, respectively. X first becomes an Applicable Corporation in taxable year 2024.
(2) Analysis.
X will calculate its FSNOL carryover to taxable year 2024 by first
determining how much of the 2020 FSNOL is absorbed in taxable years 2021 through
2023. In taxable year 2021, $720 million (80% of $900 million) of the FSNOL carryover
is absorbed, resulting in an FSNOL carryover to taxable year 2022 of $2.280 billion ($3
billion - $720 million). In taxable year 2022, $880 million (80% of $1.1 billion) of the
FSNOL carryover is absorbed, resulting in an FSNOL carryover to taxable year 2023 of
$1.4 billion ($2.280 billion - $880 million). In taxable year 2023, $960 million (80% of
$1.2 billion) of the FSNOL carryover is absorbed resulting in an FSNOL carryover to
taxable year 2024 of $440 million ($1.4 billion - $960 million).
SECTIO
N 13. DETERMINING APPLICABLE CORPORATION STATUS
.01 Purpose. The Treasury Department and the IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided in this
section 13, which provides corporations with additional clarity in determining whether

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they are an Applicable Corporation under § 59(k) prior to forthcoming proposed
regulations.
.02 Aggregation rules under § 59(k)(1)(D).
(1) In general. Section 59(k)(1)(D) provides that, solely for purposes of
determining whether a corporation is an Applicable Corporation, all AFSI of persons
treated as a single employer with the corporation under § 52(a) or (b) is treated as AFSI
of that corporation (Section 52 Aggregation).
(2) Application of § 52(a) to aggregation of corporations.
(a) In general. Section 52(a) generally provides that corporations that are
members of a controlled group of corporations are treated as a single employer.
Section 52(a) provides that a controlled group of corporations is defined with reference
to § 1563(a), with certain modifications.
4
Section 1563(a)(1), (2), and (3) provide that a
controlled group of corporations may be a parent-subsidiary controlled group, a brother-
sister controlled group, or a combined group of corporations.
(b) Section 1563(d) sets forth the rules for determining stock ownership under
§ 1563(a) and provides that stock owned directly or indirectly by application of the
constructive ownership rules under § 1563(e) is taken into account in determining
whether an organization is a member of a controlled group. Section 1563(d)(1)
provides that in the case of a parent-subsidiary group, the constructive ownership rules
under § 1563(e)(1), (2), and (3), relating to options, partnerships, and estates or trusts,

4
The clause “more than 50 percent” is substituted for the clause “at least 80 percent” each place “at least
80 percent” appears in § 1 563(a)(1). In addition, § 1563(a)(4) (relating to certain insurance companies)
and (e)(3)(C) (relating to certain estate or trust attribution rules) are disregarded.

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respectively, are taken into account.
5
Under § 1563(e)(2), stock owned, directly or
indirectly, by or for a partnership is considered to be owned by any partner having an
interest of five percent or more in either the capital or profits of the partnership in
proportion to the partner’s interest in capital or profits, whichever such proportion is the
greater. Thus, under § 52(a), a corporate partner with an interest of five percent or
more in the capital or profits of a partnership is considered to own stock owned by the
partnership based on the application of the constructive ownership rules under
§ 1563(d)(1) and (e)(2). For example, if Corporation A owns an interest o
f five percent
or more in the profits of a partnership and the partnership owns stock in Corporation B,
then Corporation A would be deemed to own the stock of Corporation B, in proportion to
Corporation A’s
profits interest in t he partnership, in determining whether Corporation A
and Corporation B are treated as a single employer for purposes of applying
§ 59(k)(1)(D).
(c) Section 52(a) applies to the members of a controlled group, and not to the
component members of a controlled group defined in § 1563(b). In particular,
§ 1563(b)(1)(A) and (b)(2) do not apply to exclude certain corporate members from the
controlled group, including foreign corporations subject to Federal income tax under
§ 881. See § 1563(b)(2)(C). Under § 1.1563-1(a)(1)(ii), in determining whether a
corporation is included in a controlled group of corporations, § 1563(b) and § 1.1563-
1(b), relating to component members of a controlled group of corporations, are not
taken into account. Thus, under § 52(a), a foreign corporation may be a member of a
5
Section 1563(d)(2)(B) and (e) provide that, for brother-sister groups, in addition to attribution from
options, partnerships, estates, or trusts, attribution from corporations, spouses, and children,
grandchildren, parents, and grandparents also applies.

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controlled group that is treated as a single employer for purposes of applying
§ 59(k)(1)(D).
(3)Application of § 52(b) to partnerships and other noncorporate organizations.
(a) Section 52(b) generally provides that trades or businesses that are
partnerships, trusts, estates, corporations, or sole proprietorships under common
control are members of a controlled group and are treated as a single employer. See
§ 1.52-1(b). Section 52(b) also requires the regulations under § 52(b) to be based on
principles similar to the principles that apply for purposes of § 52(a). Section 52(b) and
§ 1.52-1 provide rules similar to those under § 52(a), but with certain modifications to
account for different types of ownership interests.
(b) The constructive ownership rules under § 1563(d) and (e) described in
s
ection 13.02(2) of this notice also apply for purposes of § 52(b) in determining
members of the controlled group. In addition, just as § 52(a) does not exclude foreign
corporations, an organization that is a foreign entity (such as a foreign partnership or
foreign trust) may be aggregated under § 52(b) in determining whether it is a member of
a controlled group that is treated as single employer under § 52(b) for purposes of
applying § 59(k)(1)(D).
(4)A
pplication of § 52 to S corporations, RICs, and REITs. As described in
section 2.01(4)(a) of Notice 2023-7, S corporations, RICs, and REITs are excluded from
the definition of an Applicable Corporation for purposes of §§ 55 through 59. However,
§ 52(a), the regulations under § 1563, and the regulations under § 52(b) do not exclude

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S corporations, RICs, or REITs from being members of a controlled group.
6
Because §
52 and the regulations thereunder do not exclude S corporations, RICs, or REITs, these
organizations are taken into account in determining whether members of a controlled
group are treated as a single employer under § 52 for purposes of applying
§ 59(k)(1)(D).
.03 Determining Applicable Corporation status of members of a FPMG.
(1)Aggregation rule for corporations that are members of a FPMG. For purposes
of applying the FPMG $1 Billion Test (as defined in section 2.04(1) of this notice), the
AFSI of a Taxpayer being evaluated for Applicable Corporation status (Tested
Corporation) that is a member of a FPMG includes both (i) the AFSI of all other
members of the FPMG (FPMG Aggregation), and (ii) the AFSI of all persons treated as
a single employer with the Tested Corporation by reason of Section 52 Aggregation to
the extent such AFSI is not AFSI of a member of the FPMG.
(2)C
alculation of AFSI for purposes of applying the FPMG $1 Billion Test. U
nder
§ 59(k)(2)(A), for purposes of applying the FPMG $1 Billion Test, the AFSI of a
Taxpayer that is a member of a FPMG is calculated without regard to § 56A(c)(2)(D)(i),
(c)(3), (c)(4), and (c)(11). As a result, in applying both Section 52 Aggregation and
FPMG Aggregation for purposes of determining whether a Tested Corporation meets
the FPMG $1 Billion Test, AFSI of all relevant persons, including persons that are not
members of the Tested Corporation’s FPMG but that are treated as a single employer
6
Section 1.1563-1(b)(2)(ii)(C) provides that S corporations are not component members of a controlled
group in certain limited circumstances (regarding the accumulated earnings credit under § 1561).
However, as noted in section 13.02(2)(c) of this notice, § 1.1563-1(b) is not taken into account in
determining whether an S corporation is included in a controlled group of corporations.

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with the Tested Corporation under § 52(a) or (b), is determined without regard to
§ 56A(c)(2)(D)(i), (c)(3), (c)(4), and (c)(11).
.04 Disregarding the distributive share adjustment.
(1) In general. Section 7 of Notice 2023-7 provides that the adjustment to AFSI in
§ 56A(c)(2)(D)(i) is inapplicable in all circumstances in determining whether a
corporation that is a partner in a partnership (whether directly or indirectly) is an
Applicable Corporation. Accordingly, solely for purposes of § 59(k), a Taxpayer that is a
partner in a partnership includes in its AFSI the FSI amount it reports with respect to its
partnership investment (for example, under the fair value method or equity method),
rather than its “distributive share” of the AFSI of the partnership under § 56A(c)(2)(D)(i).
See sections 5.02(3)(c)(iii)(B) and (vii) of this notice for the determination of a partner’s
FSI with respect to its partnership investment when the partner and the partnership are
members of the same AFS Group and the partner’s AFS is the Consolidated AFS of
that AFS Group.
(2) Duplication of income or loss. I
f a Taxpayer is a partner in a partnership and all
the AFSI of the partnership is treated as the AFSI of the Taxpayer under § 59(k)(1)(D)
or § 59(k)(2)(A), as applicable, then solely for purposes of § 59(k), and in order to
prevent duplication of income or loss from the partnership investment, the Taxpayer
does not include in its AFSI the FSI amount it reports with respect to the partnership
investment.
SECTION 14. CAMT FTC
.01 Purpose. The Treasury Department and the IRS intend to propose rules in
forthcoming proposed regulations consistent with the interim guidance provided in this

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section 14, which provides corporations with additional clarity in determining their CAMT
FTC.
.02 CAMT FTC.
(1) Definition of Eligible Tax. A Foreign Income Tax is eligible to be claimed as a
CAMT FTC (Eligible Tax) in the taxable year in which it is paid or accrued for Federal
income tax purposes by either an Applicable Corporation or a CFC with respect to
which the Applicable Corporation is a U.S. Shareholder, provided the Foreign Income
Tax has been taken into account on the AFS of such Applicable Corporation or CFC.
(2) W
hen a tax is treated as taken into account on an AFS. For purposes of the
CAMT FTC, a Foreign Income Tax is considered taken into account on an AFS of an
Applicable Corporation or CFC as provided in section 8.02(2) of this notice.
(3) F
oreign tax redetermination. A Foreign Income Tax paid or accrued as a result
of a foreign tax redetermination (as defined in § 1.905-3(a)) is an Eligible Tax only if the
Taxpayer is an Applicable Corporation in the taxable year to which the foreign tax
redetermination relates (Relation-Back Year). An Eligible Tax in this instance may be
claimed as a CAMT FTC only in the Relation-Back Year, even if the tax is reflected in a
journal entry on an AFS within a taxable year that is later than the Relation-Back Year.
(4) C
FC Taxes and CFC FTC Limitation determined on an aggregate basis. For
purposes of the CAMT FTC, a Taxpayer determines the amount of CFC Taxes (as
defined in section 2.05(a) of this notice) and the CFC FTC Limitation (as defined in
section 2.05(a) of this notice) for a taxable year on an aggregate basis with respect to
all CFCs in which it is a U.S. Shareholder.
(5) T
reatment of partnership taxes. For purposes of the CAMT FTC, if an

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Applicable Corporation or a CFC is a partner in a partnership (or an indirect partner in
the partnership through another partnership or pass-through entity), Foreign Income
Taxes paid or accrued by such partner include its share of any Foreign Income Taxes
paid or accrued by the partnership.
SECTION 15. APPLICABILITY DATES
.01 The Treasury Department and the IRS intend to publish forthcoming
proposed regulations in the Federal Register regarding the application of the CAMT
that would include proposed rules consistent with the interim guidance provided in—
(a) Sections 3 through 7 of Notice 2023-7, as modified and clarified by this
notice,
(b) Sections 3 through 5 of Notice 2023-20, and
(c) Sections 3 through 14 of this notice.
It is anticipated that forthcoming proposed regulations would apply for taxable years
beginning on or after January 1, 2024.
.02 A Taxpayer may rely on the interim guidance described in section 15.01 of
this notice for taxable years ending on or before the date forthcoming proposed
regulations are published in the Federal Register. However, in any event, a
Taxpayer may rely on the interim guidance described in section 15.01 of this notice
for any taxable year that begins before January 1, 2024.
SECTION 16. REQUEST FOR COMMENTS
.01 C
omments Regarding Interim Guidance Provided in this Notice. The Treasury
Department and the IRS request comments on any questions arising from the interim
guidance provided in this notice. Commenters are encouraged to specify the issues on

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which additional guidance (including additional interim guidance) is needed most
quickly, as well as the most important issues on which guidance is needed. In addition
to general comments regarding the provisions of this notice, the Treasury Department
and the IRS request comments to address the following specific questions.
(1) Depr
eciation Adjustments (section 9 of this notice). The Treasury Department
and the IRS have received helpful comments and continue to study whether simplified
methods or safe harbors should be provided for applying the depreciation adjustment
rules under § 56A(c)(13). The Treasury Department and the IRS continue to welcome
comments on such simplified methods and safe harbors for consideration in forthcoming
proposed regulations. In addition to comments regarding the use of simplified methods
or safe harbors, the Treasury Department and the IRS request comments on the
following issues:
(a) How should a change in the treatment of an item that involves the
proper time for taking such item into account for AFSI purposes be treated for AFSI
pur
poses when such change is not otherwise treated as a change in method of
accounting for Regular Tax purposes because it does not affect taxable income
(AFSI only change)? For example, what if a Taxpayer consistently does not make a
required AFSI adjustment under § 56A(c)(13) or makes a change in financial
accounting principle? Should rules similar to those in §§ 446 and 481, and the
method change procedures in Rev. Proc. 2015-13, 2015-5 I.R.B. 419, apply?
Should the result depend on whether the AFSI only change was discretionary or
mandated by financial accounting standards? Should Taxpayers be required to file a
Form 3115, Application for Change in Accounting Method, to obtain consent for AFSI

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only changes?
(b) If a Taxpayer changes its method of accounting for Regular Tax purposes
from deducting amounts paid or incurred to capitalizing and depreciating such amounts
under §§ 167 or 168, or vice versa, how should such change be taken into account for
AFSI purposes? For example, what if a Taxpayer deducted an amount paid or incurred
as a repair under its present method of accounting but later changed its accounting
method to capitalize the amount paid or incurred as an improvement that is Section 168
Property? How, if at all, should the Taxpayer account for the adjustments that would
have been made under § 56A(c)(13) in prior years had the proposed method been used
instead? Or what if a Taxpayer capitalized an amount paid or incurred as an
improvement that is Section 168 Property under its present method of accounting but
later changed its method to deduct the amount paid or incurred as a repair? How
should the Taxpayer take into account the adjustments that were made under section
56A(c)(13) in prior years, but that would not have been made had the proposed method
been used instead?
(2) Q
ualified Wireless Spectrum Adjustments (section 10 of this notice).
Should the term “wireless telecommunication carrier” in § 56(c)(14)(B)(i) be
defined? If so, should the classification in the North American Industry Classification
System (NAICS) for Wireless Telecommunication Carriers (except Satellite) 517112
be used? (That NAICS classification describes a wireless telecommunications
carrier as an establishment primarily engaged in operating and maintaining switching
and transmission facilities to provide communications via the airwaves that has
spectrum licenses and provides services using that spectrum, such as cellular phone

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services, paging services, wireless Internet access, and wireless video services.)
(3) AFSI Adjustments to Prevent Duplications and Omissions (section 11 of this
notice).
(a) Can Accounting Principle Change Adjustments or Net Accounting
Principle Change Adjustments be traced to a separate trade or business (within the
meaning of § 1.446-1(d))?
(b) What events should be considered a cessation of a trade or business for
purposes of accelerating inclusion of an Accounting Principle Change Adjustment or
Net Accounting Principle Change Adjustment? Should rules similar to those in
section 7.03(4) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, apply?
.02 Comments Regarding Rules Not Included in this Notice. The Treasury
Department and the IRS continue to study CAMT issues that are not addressed in
this notice, including, but not limited to, the scope of § 56A(c)(2)(C), the extent to
which any unrealized marked-to-market gains and losses that are recognized in the
Taxpayer’s FSI should be adjusted in determining the Taxpayer’s AFSI, and the
manner in which a partner in a partnership determines its distributive share of
partnership AFSI. The Treasury Department and the IRS intend to address these
issues in forthcoming proposed regulations. In addition to comments on these
issues, the Treasury Department and the IRS request comments on the following
specific CAMT issues not addressed by this notice:
(1) Whether there are circumstances in which adjustments to AFSI are required to
clearly reflect income; for example, in a situation in which under the relevant
accounting standard, a transaction between related entities is accounted for at the

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selling entity’s cost instead of at an arm’s-length value, such that no income, gain,
loss, or deduction is recognized in the financial accounts of the seller, and the buying
entity records the transaction in its financial accounts at the seller’s cost.
(2) Section 56A(c)(11) provides that AFSI may be adjusted in connection with a
defined benefit plan that is a covered benefit plan, as defined in § 56A(c)(11)(B).
The Treasury Department and the IRS are considering the scope of the portion of
the definition of Covered Benefit Plan set forth in § 56A(c)(11)(B)(iii) (any other
defined benefit plan which provides post-employment benefits other than pension
benefits). Comments are requested regarding § 56A(c)(11)(B)(iii), including (i)
whether an account-based group health plan, as defined in § 54.9815-2711(d)(6) of
the Pension Excise Tax Regulations (such as a health reimbursement arrangement)
that is treated as a retiree-only plan under § 9831(a)(2) that makes payments for
retirees from an aggregated account, rather than from assets that have been
allocated to individual retirees’ accounts, meets the definition of a defined benefit
plan, as required for the plan to be a Covered Benefit Plan under § 56A(c)(11)(B)(iii);
and (ii) whether a plan that provides post-employment benefits in a lump sum or over
a short period of time (for example, 24 months) is a plan that provides benefits other
than pension benefits, as required for the plan to be a Covered Benefit Plan under
§ 56A(c)(11)(B)(iii).
(3) The Treasury Department and the IRS are considering the treatment of
dividends received from, and gains or losses from dispositions of stock of, foreign
corporations for purposes of computing a Taxpayer’s AFSI. The Treasury Department
and the IRS request comments on the treatment of those items, including comments

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that address the following questions: What approach(es) should be considered to
address the potential duplication of income with respect to a CFC by reason of the
application of § 56A(c)(2)(C) and (c)(3)? How would each approach address the
potential duplication or omission of items from a Taxpayer’s AFSI? What would be the
relative administrative and compliance burden of each approach, and how could those
burdens be minimized?
(4) Section 5.02(3)(c)(iii)(A) provides that the portion of Consolidated FSI that is
the Taxpayer’s FSI is determined without regard to any AFS Consolidation Entries that
eliminate the effect of transactions between the Taxpayer and another Taxpayer that is
a member of the same AFS Group unless such transactions are between a disregarded
entity and its owner or between disregarded entities that have the same owner. Further,
section 5.02(3)(c)(iii)(B) provides that the portion of Consolidated FSI that is the
Taxpayer’s FSI is determined without regard to any AFS Consolidation Entries that
eliminate FSI of the Taxpayer with respect to its investment in another Taxpayer that is
a member of the AFS Group unless the investment is in a disregarded entity.
(a) Comments are requested on whether a branch that is not a disregarded entity
should be treated the same as a disregarded entity when applying the rules in section
5.02(3)(c)(iii). Specific comments are requested on whether a branch can be treated as
a member of the AFS Group separate from its owner for financial accounting purposes
and, if so, the ways in which a financial accounting branch differs from, or compares to,
a branch for U.S. tax purposes.
(b) Comments are requested on whether the rule in section 5.02(3)(c)(iii) to
eliminate transactions with a disregarded entity and investments in a disregarded entity

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is appropriate in the cross-border context. For example, if the disregarded entity is
organized or incorporated in a foreign country and its owner is organized or
incorporated in a different country, to what extent should transactions between such
disregarded entity and its owner be taken into account for purposes of determining the
owner’s or the disregarded entity’s FSI or AFSI?
.03 Procedures for Submitting Comments.

(1) Deadline. Written comments should be submitted by October 12, 2023.
Consideration will be given, however, to any written comment submitted after
October 12, if such consideration will not delay the issuance of forthcoming proposed
regulations.
(2) Form and manner. Th
e subject line for the comments should include a
reference to Notice 2023-64. All commenters are strongly encouraged to submit
comments electronically. However, comments may be submitted in one of two ways:
(a) Electronically via the Federal eRulemaking Portal at www.regulations.gov
(ty
pe IRS-2023-0043 in the search field on the regulations.gov homepage to find this
notice and submit comments); or
(b) By mail to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2023-64),
Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C., 20044.
(3) Publication of comments.
The Treasury Department and the IRS will publish
for public availability any comment submitted electronically and on paper to its public
docket on regulations.gov.
SECTION 17. EFFECT ON OTHER DOCUMENTS
Sections 3, 4, and 7 of Notice 2023-7 are modified and clarified.

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SECTION 18. DRAFTING AND CONTACT INFORMATION
The principal author of this notice is James Yu of the Office of the Associate Chief
Counsel (Income Tax and Accounting). Other personnel from the Treasury
Department and the IRS participated in its development. For further information
regarding section 7 of this notice, please contact Alfred H. Bae at (202) 317-6934
(not a toll-free number). For further information regarding section 13.03 of this
notice, please contact Karen Walny at (202) 317-6938 (not a toll-free number). For
further information regarding section 14 of this notice, please contact John J. Lee at
(202) 317-6936 (not a toll-free number). For further information regarding all other
aspects of this notice, please contact Mr. Yu at (202) 317-4718 (not a toll-free
number).