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 § 56A(c)(5) .

(1) Timing of appropriate adjust- ment . 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 taxable year or years in which such taxes increase or decrease the Taxpayer’s FSI or are included 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.