Special Rules — 2025 Inst 4626 (PDF)

AFSI Test

General AFSI Test

For purposes of determining whether a corporation satisfies the general AFSI test, the following apply. See section 59(k)(1). Also, see Proposed Regulations section 1.59-2(c)(1).

A corporation meets the general AFSI test when the corporation’s average annual AFSI for the prior 3-tax-year period exceeds $1 billion.
Solely for purposes of determining whether a corporation is an applicable corporation, all AFSI of members of a controlled group treated as a single employer with the corporation under section 52(a) or (b) (“controlled group”) is included in the corporation’s AFSI.
For purposes of determining the AFSI of the corporation and all members of the controlled group under the general AFSI test, the AFSI adjustments for financial statement net operating losses under section 56A(d), partnership distributive share under section 56A(c)(2)(D)(i), and covered benefit plans under section 56A(c)(11) do not apply.

AFSI Test Applicable to Foreign-Parented Multinational Group (FPMG) (FPMG AFSI Test)

If a corporation is an FPMG member for any tax year, it meets the FPMG AFSI test if the FPMG $1 billion AFSI test and the FPMG $100 million AFSI test described below are satisfied. See section 59(k)(1). Also, see Proposed Regulations section 1.59-2(c)(2)(i).

FPMG $1 billion AFSI test. A corporation meets the FPMG $1 billion AFSI test for the tax year prior to the current tax year if the corporation’s average annual AFSI for the 3-tax-year period ending with the tax year exceeds $1 billion.

For purposes of this determination, the AFSI of the corporation includes the AFSI of all other members of the FPMG and the AFSI of all members of the controlled group other than persons that are members of the FPMG. See section 59(k). Also, see Proposed Regulations section 1.59-2(c)(2)(ii).

For purposes of calculating the AFSI of a corporation that is an FPMG member (including the AFSI of other members of the FPMG and the controlled group for aggregation purposes) under the FPMG $1 billion AFSI test, the AFSI adjustments for financial statement net operating losses under section 56A(d), partnership distributive share under section 56A(c)(2)(D)(i), pro rata CFC adjusted net income or loss under section 56A(c)(3), effectively connected income of foreign corporations under section 56A(c)(4), and covered benefits plans under section 56A(c)(11) do not apply.

FPMG $100 million test. A corporation meets the FPMG $100 million test for the tax year prior to the current tax

year if the corporation’s average annual AFSI for the 3-tax-year period ending with the tax year is $100 million or more. For purposes of this determination, the AFSI of the corporation includes the AFSI of all members of the controlled group. See section 59(k)(1). Also, see Proposed Regulations section 1.59-2(c)(2)(iii).

For purposes of calculating the AFSI of a corporation that is an FPMG member (including the AFSI of other members of the controlled group for aggregation purposes) under the FPMG $100 million test, the AFSI adjustments for financial statement net operating losses under section 56A(d), partnership distributive share under section 56A(c)(2)(D)(i), and covered benefit plans under section 56A(c)(11) do not apply.

Additional Rules Applicable to the General AFSI Test and the FPMG AFSI Test

If a corporation has been in existence for less than 3 tax years of the 3-tax-year period, the AFSI test is applied by averaging the tax years of the 3-tax-year period during which the corporation existed. AFSI for any tax year of fewer than 12 months shall be annualized by multiplying the AFSI for the short period by 12 and dividing the result by the number of months in the short period. See section 59(k)(1)(E). Also, see Proposed Regulations section 1.59-2(d).

Simplified Methods for Determining Applicable Corporation Status

Section 3.03 of Notice 2025-27 and Proposed Regulations section 1.59-2(g)(2) provide optional simplified methods to determine applicable corporation status in lieu of the AFSI test.

Simplified method for determining applicable corpo- ration status using Notice 2025-27. Generally, if the corporation’s average annual AFSI for the three preceding tax years is less than $800 million and it was not an applicable corporation in a prior year, then it is not an applicable corporation in the current year and is not required to file Form 4626.

Corporations can use the Interim Simplified Method (Safe Harbor) Calculation Worksheet to determine whether the corporation meets the safe harbor or is required to file Form 4626.

Under the interim simplified method, a corporation determines whether it is an applicable corporation by applying the AFSI test with the following modifications.

The general AFSI test and the FPMG $1 billion AFSI test are applied by substituting “$800 million” for “$1 billion.”
The FPMG $100 million AFSI test is applied by substituting “$80 million” for “$100 million.”

AFSI is determined by considering only the following adjustments.

If the financial results of a CAMT entity are reported on the same consolidated financial statement for a group of CAMT entities (AFS Group), the members of the group that are part of a test group are treated as a single CAMT entity.

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Disregard federal income taxes, or income, war profits, and excess profits taxes (within the meaning of section 901), with respect to a foreign country or U.S. territory which are taken into account on the corporation’s AFS. See section 56A(c)(5).

The FPMG, $100 million AFSI test is applied by substituting “$50 million” for “$100 million.”

AFSI is determined by considering only the following adjustments.

For an organization subject to tax under section 511, AFSI only takes into account the AFSI (if any) of an unrelated trade or business (as defined in section 513) of such organization, subject to the modifications to unrelated business taxable income described in section 512(b). This adjustment includes any unrelated debt-financed income determined under section 514. See section 56A(c)(12).
Disregard amounts received from the transfer of an eligible credit (as defined in section 6418(f)(1)(A)) that is not includible in gross income or treated as tax exempt, provided the amount is not otherwise disregarded under section 56A(c)(5). See Notice 2025-27, section 3.03(2)(b) (i).
Disregard amounts received due to an election under section 48D(d)(2) or 6417(c) that is treated as tax exempt income under section 48D(d)(2)(A)(i)(III) or 6417(c)(1)(C), provided the amount is not otherwise disregarded under section 56A(c)(5). See Notice 2025-27, section 3.03(2)(b) (ii).

If the financial results of a CAMT entity are reported on the same consolidated financial statement for a group of CAMT entities (AFS Group), the members of the group that are part of a test group are treated as a single CAMT entity.

Disregard federal income taxes, or income, war profits, and excess profits taxes (within the meaning of section 901), with respect to a foreign country or U.S. territory which are taken into account on the corporation’s AFS. See Proposed Regulations section 1.59-2(g)(2)(iii)(B).

For an organization subject to tax under section 511, AFSI only takes into account the AFSI (if any) of an unrelated trade or business (as defined in section 513) of such organization, subject to the modifications to unrelated business taxable income described in section 512(b). This adjustment includes any unrelated debt-financed income determined under section 514. See Proposed Regulations section 1.59-2(g)(2)(iii)(B).

In applying the FPMG $100 million test, a foreign corporation’s AFSI is calculated by considering only the income items that are effectively connected with the conduct of a U.S. trade or business. See Proposed Regulations section 1.59-2(g)(2)(iii)(B).
Disregard amounts paid by the transferee taxpayer (as defined in section 6418(a)) as consideration for the transfer of the eligible tax credit, provided the amount is not otherwise disregarded under section 56A(c)(5). See Notice 2025-27, section 3.03(2)(b)(iii).
Disregard any increase in the transferee taxpayer’s net income or loss on the AFS resulting from the use of the tax credit, provided the increase is not otherwise disregarded under section 56A(c)(5). See Notice 2025-27, section 3.03(2)(b)(iv).
In applying the FPMG $100 million test, a foreign corporation’s AFSI is calculated by considering only the income items that are effectively connected with the conduct of a U.S. trade or business. See section 56A(c) (4).
If a corporation has an AFS covering a period (AFS year) different from its tax year, the general AFSI test and the FPMG AFSI test are applied using the 3-AFS-year period ending during such tax year rather than the 3-tax-year period ending with such tax year. See Notice 2025-27, section 3.03(3). The rules for new corporations and short years are applied using AFS years rather than tax years. See Notice 2025-27, section 3.03(3)(b).

Simplified method for determining applicable corpo- ration status using the proposed regulations. Proposed Regulations section 1.59-2(g)(2) provides that a corporation may choose to apply the safe harbor method (simplified method) in lieu of the AFSI Test for purposes of determining whether it is an applicable corporation. Under the simplified method, a corporation determines whether it is an applicable corporation by applying the AFSI test with the following modifications.

The general AFSI test and the FPMG $1 billion AFSI test are applied by substituting “$500 million” for “$1 billion.”

If a corporation has an AFS covering a period (AFS year) different from its tax year, the general AFSI test and the FPMG AFSI test are applied using the 3-AFS-year period ending during such tax year rather than the 3-tax-year period ending with such tax year. See Proposed Regulations section 1.59-2(g)(2)(iv)(A).

The rules for new corporations and short years are applied using AFS years rather than tax years. See Proposed Regulations section 1.59-2(g)(2)(iv)(B).

Calculating CAMT For the tax year of an applicable corporation, a CAMT liability arises to the extent the tentative minimum tax for the year exceeds the sum of the regular income tax imposed for the tax year plus the base erosion minimum tax (imposed under section 59A). The tentative minimum tax is the excess of 15% of AFSI over the corporate alternative minimum tax foreign tax credit (CAMT FTC). For any corporation that is not an applicable corporation, the tentative minimum tax for the tax year is zero.

Reduction for financial statement net operating loss (FSNOL). In calculating CAMT, AFSI is reduced by the lesser of:

The aggregate amount of FSNOL carryovers to the tax year, or
80% of AFSI computed without regard to the FSNOL reduction allowed.

An FSNOL for any tax year is the amount of the net loss (if any) on the corporation’s AFS determined with regard to AFSI general adjustments under section 56A(c), but without regard to an FSNOL reduction under section 56A(d), for tax years ending after 2019. An FSNOL for any tax year is an FSNOL carryover to the tax year following

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the tax year of the loss. The portion of such loss that is carried to subsequent years is determined by subtracting from the loss, for each preceding tax year, the lesser of the amount of the loss or 80% of AFSI for the tax year (determined without regard to the FSNOL adjustment), regardless of whether the corporation was an applicable corporation in any tax year. See Proposed Regulations section 1.56A-23 for more details.

Note: For purposes of determining the average annual AFSI of the corporation and all members of the test group under the General AFSI Test, the reduction for financial statement net operating losses does not apply.

Corporate alternative minimum tax foreign tax credit (CAMT FTC). If an applicable corporation elects to take a section 901 foreign tax credit for regular tax for a tax year, the CAMT FTC is an amount equal to the sum of:

The lesser of: a. The aggregate of the applicable corporation’s pro-rata share (as determined under section 56A(c)(3)) of income, war profits, and excess profits taxes (within the meaning of section 901) imposed by any foreign country or U.S. territory that are taken into account on the AFS of each CFC with respect to which the applicable corporation is a U.S. shareholder and are paid or accrued (for federal income tax purposes) by each CFC, or

b. The applicable corporation’s pro-rata share (determined under rules similar to the rules under section 951(a)(2)) of the adjusted net income or loss of CFCs, multiplied by 15%; plus

For an applicable corporation that is a domestic corporation, the income, war profits, and excess profits taxes (within the meaning of section 901) imposed by any foreign country or U.S. territory to the extent that such taxes are taken into account on the applicable corporation’s AFS and are paid or accrued (for federal income tax purposes) by the applicable corporation.

Proposed Regulations section 1.56A-8(d)(1) describes when a foreign tax is treated as taken into account. Proposed Regulations section 1.59-4(d) provides rules for determining an applicable corporation’s pro-rata share of CFC taxes. Proposed Regulations section 1.59-4(g) describes the treatment of partnership taxes.

Credit for Prior Year Minimum Tax A corporation may take a credit against the regular tax and the base erosion minimum tax for alternative minimum tax incurred in prior years. See Form 8827, Credit for Prior Year Minimum Tax—Corporations, for details.