SECTION 10. AFSI ADJUSTMENTS

FOR QUALIFIED WIRELESS SPECTRUM

.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 10, which provides interim guidance to facilitate the application of the qualified wireless spectrum adjustment rules in § 56A(c)(14) prior to forthcoming proposed regulations.

.02 Defined Terms . For purposes of this section 10:

(1) Covered Book Amortization Expense . The term Covered Book Amortization Expense means amortization expense, disposition loss (including from an abandonment) that occurs prior to the taxable year in which the disposition occurs for Regular Tax purposes,

impairment loss, or impairment loss reversal that is taken into account in the Taxpayer’s FSI with respect to Qualified Wireless Spectrum (as defined in section 10.02(4) of this notice). (2) Covered Book Wireless Spectrum Expense . The term Covered Book Wireless Spectrum Expense means an amount, other than Covered Book Amortization Expense, that is- (a) recognized as an expense or loss in the Taxpayer’s FSI, and

(b) reflected in the basis for depreciation, as defined in §§ 1.167(g)-1 and 1.197-2(f)(1)(ii) (without regard to any adjustments described in § 1016(a)(2) and (3)), of Qualified Wireless Spectrum for Regular Tax purposes.

(3) Deductible Tax Amortization . The term Deductible Tax Amortization means Tax Amortization (as defined in section 10.02(6) of this notice) that is allowed as a deduction in computing taxable income.

(4) Qualified Wireless Spectrum . The term Qualified Wireless Spectrum means wireless spectrum which is used in the trade or business of a wireless telecommunications carrier, is an amortizable section 197 intangible under § 197(c)(1) and (d) (1)(D), and was acquired after December 31, 2007, and before August 16, 2022. (5) Section 481(a) Adjustment for Amortization . The term Section 481(a) Adjustment for Amortization means those adjustments that are required under § 481(a) for a change in method of accounting for amortization of any item of Qualified Wireless Spectrum.

(6) Tax Amortization . The term Tax Amortization means amortization deductions allowed under § 197, with respect to Qualified Wireless Spectrum.

.03 Adjustments for Qualified Wireless Spectrum . For purposes of § 56A(c)(14), AFSI is- (1) reduced by Deductible Tax Amortization, but only to the extent of the amount allowed as a deduction in computing taxable income for the taxable year,

(2) adjusted to disregard Covered Book Amortization Expense and Covered Book Wireless Spectrum Expense,

(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

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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.

.04 Section 56A(c)(14) does not apply to property not depreciated under § 197 . If a Taxpayer has wireless spectrum property that is not subject to amortization under § 197 for Regular Tax purposes (for example, because the Taxpayer is not subject to U.S. taxation), then AFSI of that Taxpayer is not adjusted under § 56A(c)(14) with respect to such property. Further, the special rules for determining Applicable Corporation status of members of a FPMG in § 59(k)(2)(A), including the rule that disregards the AFSI adjustment described in § 56A(c)(4), do not change this result.

.05 AFSI adjustments for disposi- tions . If a Taxpayer disposes of Qualified Wireless Spectrum for Regular Tax purposes, the Taxpayer must adjust AFSI for the taxable year in which such disposition occurs to redetermine any gain or loss taken into account in the Taxpayer’s FSI with respect to such disposition for such year (including a gain or loss of zero) by adjusting the remaining AFS basis of such property by the amounts described in section 10.05(1) through (4) of this notice with respect to such property, including those amounts attributable to taxable years prior to the effective date of the CAMT. Pursuant to this section 10.05, the remaining AFS basis of such property is- (1) decreased by the cumulative adjustments described in section 10.03(1) of this notice with respect to such property,

(2) increased by the cumulative adjustments described in section 10.03(2) of this notice with respect to such property,

(3) increased by the full amount of any Section 481(a) Adjustment for Amortization with respect to such property that is positive and decreased by the full amount of any Section 481(a) Adjustment for Amortization with respect to such property that is negative (regardless of whether any portion of such Section 481(a) Adjustment for Amortization

has yet to be taken into account in AFSI through an adjustment described in section 10.03(3) or (4) of this notice), and

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

(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 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.