SECTION 4. TROUBLED — Internal Revenue Bulletin 2025-43

COMPANIES

.01 Purpose . To provide additional relief to troubled companies and increase taxpayer certainty regarding the application of proposed § 1.56A-21, the Treasury

October 20, 2025 536 Bulletin No. 2025–43

Department and the IRS anticipate that the forthcoming proposed regulations will revise proposed § 1.56A-21 consistent with the interim guidance provided in this section 4. Taken together, these revisions are intended: (i) to provide greater clarity regarding the circumstances in which regular tax rules, as opposed to financial accounting standards, apply in determining the CAMT consequences for a troubled company; (ii) to further align proposed § 1.56A-21 with the rules that apply for regular tax purposes, including the rules of §§ 108(e)(6) and (8); and (iii) to specify the manner in which the attribute reduction rules apply with regard to the basis of foreign corporation stock. Additionally, the interim guidance contained in this section 4 clarifies (i) cases in which financial accounting standards or regular tax rules may be applied to minimize the burden of CAMT on troubled companies, (ii) the attribute reduction rules in connection with discharges of indebtedness, and (iii) the application of the proposed rules to tax consolidated groups.

.02 Definitions . For purposes of this section 4:

(1) CAMT attribute . The term “CAMT attribute” means—

(a) CAMT basis (excluding basis for regular tax purposes (regular tax basis) in stock in a foreign corporation);

(b) CAMT foreign tax credits; (c) “CFC adjustment carryovers” (as defined in proposed § 1.56A-6(b)(6)); and

(d) FSNOLs. (2) Covered property . The term “covered property” means “section 168 property” (as defined in proposed § 1.56A-15(b) (6)), “qualified wireless spectrum” (as defined in proposed § 1.56A-16(b)(4)), and “ANCSA property” (as defined in proposed §1.56A-11(b)(2)).

(3) Discharge of indebtedness . (a) In general . With respect to a CAMT entity, the term “discharge of indebtedness” means any discharge of indebtedness (or any similar term) of the CAMT entity reflected in its AFS.

(b) Adjustments to AFS basis . For purposes of this section 4.02(3), the term “discharge of indebtedness” includes reductions to the AFS basis of the indebtedness (other than as a result of payment) during the pendency of a title 11 case, regardless

of whether a discharge of indebtedness is granted by the court or pursuant to a plan approved by the court.

(c) Nonrecourse indebtedness . With respect to a CAMT entity, the term “discharge of indebtedness” does not include the discharge of any indebtedness of the CAMT entity that results from the satisfaction of nonrecourse debt of the CAMT entity with property that secures that debt.

(d) Recourse indebtedness . With respect to a CAMT entity, the term “discharge of indebtedness”—

(i) Includes the amount by which the discharge of any recourse indebtedness of the CAMT entity exceeds the aggregate fair market value of the property used to satisfy the indebtedness; and

(ii) Does not include the amount by which the aggregate fair market value of the property used to satisfy the indebtedness exceeds the aggregate CAMT basis of that property.

(e) Federal financial assistance . The term “Federal financial assistance” (FFA) has the meaning provided in § 597(c) and § 1.597-1(b).

(f) Indebtedness . With respect to a CAMT entity, the term “indebtedness” means any indebtedness reflected on the AFS of the CAMT entity—

(i) For which the CAMT entity is liable; or

(ii) Subject to which the CAMT entity holds property ( see § 108(d)(1)).

(g) Insolvent . (i) In general . A CAMT entity is insolvent if and to the extent that the CAMT entity is insolvent for regular tax purposes. See § 108(d)(3).

(ii) Timing of determination . With respect to any discharge of indebtedness, the insolvency of a CAMT entity is determined by taking into account the amount of a CAMT entity’s assets and liabilities for regular tax purposes immediately before the discharge of indebtedness. See § 108(d)(3).

(iii) Member-by-member determina- tion . In determining whether a CAMT entity that is a member of a tax consolidated group is insolvent, the CAMT entity is treated as a separate taxpayer from all other members of its tax consolidated group. For purposes of this section 4.02(3) (g), a CAMT entity does not cease to be a member of a tax consolidated group

unless the CAMT entity deconsolidates for regular tax purposes.

(4) Title 11 case . The term “title 11 case” has the meaning given the term in § 108(d)(2), but without regard to whether the discharge of indebtedness is granted by, or is pursuant to a plan approved by, the court. With respect to a CAMT entity (including a CAMT entity that is a member of a tax consolidated group), a title 11 case would qualify the CAMT entity for the exclusion in section 4.03(1) of this notice only if the CAMT entity itself is under the jurisdiction of the court as the debtor in such case.

.03 Treatment of Discharge of indebt- edness income .

(1) AFSI in title 11 cases . If a CAMT entity that is under the jurisdiction of a court in a title 11 case realizes any discharge of indebtedness income, then—

(a) For purposes of determining the AFSI of the CAMT entity, the CAMT entity disregards the total amount of income that is reflected in the FSI of the CAMT entity resulting solely from the discharge of indebtedness of the CAMT entity; and

(b) The CAMT entity applies the attribute reduction interim guidance described in sections 4.03(4) and (5) of this notice to the CAMT entity’s CAMT attributes.

(2) AFSI in cases of insolvency . If a CAMT entity is insolvent and realizes any discharge of indebtedness income, and if section 4.03(1) of this notice does not apply to the CAMT entity—

(a) For purposes of determining the AFSI of the CAMT entity, the CAMT entity disregards the income reflected in the FSI of the CAMT entity resulting solely from the discharge of indebtedness by an amount equal to the lesser of the amount of the discharge of indebtedness and the amount by which the CAMT entity is insolvent; and

(b) The CAMT entity applies the attribute reduction interim guidance described in sections 4.03(4) and (5) of this notice to the CAMT entity’s CAMT attributes.

(3) Disregarded entities . (a) In general . For purposes of applying sections 4.03(1) and (2) of this notice to discharge of indebtedness of a disregarded entity, the disregarded entity is not considered to be the “taxpayer” as that term is used in § 108. Instead, for purposes

Bulletin No. 2025–43 537 October 20, 2025

of sections 4.03(1) and (2) of this notice, the CAMT entity owner of the disregarded entity is the “taxpayer.” See § 1.108-9.

(b) Title 11 cases . If indebtedness of a disregarded entity is discharged in a title 11 case, section 4.03(1) of this notice applies to that discharged indebtedness only if the CAMT entity owner of the disregarded entity is under the jurisdiction of the court in a title 11 case as the title 11 debtor.

(c) Insolvency . If indebtedness of a disregarded entity is discharged, section 4.03(2) of this notice applies to that discharged indebtedness only to the extent the CAMT entity owner of the disregarded entity is insolvent.

(4) Attribute reduction . (a) Overview . If income reflected in the FSI of a CAMT entity is disregarded for AFSI purposes under section 4.03(1) (a) or 4.03(2)(a) of this notice (that is, with regard to a discharge of indebtedness during the pendency of a title 11 case or when the CAMT entity is insolvent), the CAMT entity reduces the CAMT attributes of the CAMT entity described in, and in the manner required by, this section 4.03(4) and section 4.03(5) of this notice. (b) Required attribute reduction amount .

(i) In general . Subject to section 4.03(4)(b)(ii) of this notice, a CAMT entity described in section 4.03(4)(a) of this notice reduces its CAMT attributes by an amount that equals (i) the amount of discharge of indebtedness of the CAMT entity excluded from AFSI under section 4.03(1) or 4.03(2) of this notice, minus (ii) the total amount by which the CAMT entity reduces the regular tax basis in any stock it holds in foreign corporations under § 1017. For interim guidance that provides the amount of CAMT attributes that is reduced for each dollar of discharge of indebtedness excluded from AFSI, see section 4.03(5) of this notice.

(ii) Maximum amount of attribute reduction . The amount of CAMT attributes required to be reduced by a CAMT entity under section 4.03(4)(b)(iii) of this notice cannot exceed the aggregate amount of the CAMT entity’s CAMT attributes, determined as of the time of the reduction under sections 4.03(4)(b)(iv) and (v) of this notice.

(iii) Attribute reduction . A CAMT entity described in section 4.03(4)(a) of this notice reduces (but not below zero) the following CAMT attributes of the CAMT entity in the following order:

(A) CAMT basis of covered property, but only if the regular tax basis of any covered property is reduced under § 1017, and then only to the extent the CAMT basis of the covered property exceeds the aggregate basis of the same property after the regular tax basis is reduced under § 1017.

(B) FSNOLs. (C) CFC adjustment carryovers. (D) CAMT basis of real property used in a trade or business or held for investment, other than real property described in § 1221(a), that secured the discharged indebtedness immediately before the discharge.

(E) CAMT basis of personal property used in a trade or business or held for investment, other than inventory, accounts receivable, and notes receivable, that secured the discharged indebtedness immediately before the discharge.

(F) CAMT foreign tax credits. (G) Any remaining CAMT basis of property used in a trade or business or held for investment, other than stock in a foreign corporation, and inventory, accounts receivable, notes receivable, and real property described in § 1221(a).

(H) CAMT basis of inventory, accounts receivable, notes receivable, and real property used in a trade or business and described in § 1221(a).

(I) CAMT basis of property not used in a trade or business or not held for investment.

(iv) Timing and allocation of reduc- tions .

(A) Reductions generally made after determination of CAMT liability for tax- able year . The reductions described in section 4.03(4)(b)(iii) of this notice are made after the determination of the tentative minimum tax under § 55(b)(2)(A) for the taxable year of the discharge of indebtedness of the CAMT entity. For taxable years beginning after December 31, 2019, and before January 1, 2023, the reductions described in section 4.03(4) (b)(iii) of this notice are made after the determination of AFSI for the taxable year of the discharge of indebtedness of the CAMT entity. For any discharge

of indebtedness of a CAMT entity that occurs in a taxable year beginning on or before December 31, 2019, the reductions described in section 4.03(4)(b)(iii) of this notice do not apply.

(B) CAMT basis of property . The reductions of basis described in sections 4.03(4)(b)(iii)(A), (D), (E), (G), (H), and (I) of this notice apply solely to property of the CAMT entity that the CAMT entity holds on the first day of the taxable year following the taxable year in which the CAMT entity excludes discharge of indebtedness income from its AFSI. For additional interim guidance that addresses domestic covered asset transactions, see section 3 of this notice.

(C) Allocation of basis reductions . Allocations of basis reductions to property described in section 4.03(4)(b)(iii) (A), (D), (E), (G), (H), or (I) of this notice are in proportion to the CAMT basis of all property described in each such paragraph. A CAMT entity that properly makes an election under § 108(b)(5) for regular tax purposes must apply the modifications of § 1.1017-1(c) to determine the allocation of CAMT basis reductions to individual items of property.

(v) Order of reductions . (A) FSNOL carryovers . The reductions described in section 4.03(4)(b)(iii) (B) or (C) of this notice, respectively, are made first to any FSNOL or CFC adjustment carryover arising for the taxable year of the discharge of indebtedness of the CAMT entity, and then to the FSNOL carryovers or CFC adjustment carryovers to that taxable year, in the order of the taxable years from which each FSNOL or CFC adjustment carryover arose, beginning with the earliest such taxable year.

(B) CAMT foreign tax credits . The reduction described in section 4.03(4)(b) (iii)(F) of this notice is made in the order in which the CAMT foreign tax credits are taken into account for the taxable year of the discharge of indebtedness of the CAMT entity.

(5) Amount of attribute reduction . (a) CAMT basis, FSNOLs, and CFC adjustment carryovers . For each dollar of AFSI that a CAMT entity excludes under sections 4.03(1) and (2) of this notice, the CAMT entity reduces, as appropriate—

(i) A dollar of CAMT basis; (ii) A dollar of FSNOL; or

October 20, 2025 538 Bulletin No. 2025–43

(iii) A dollar of CFC adjustment carryover.

(b) CAMT basis reduction limitation . Except as otherwise provided in section 4.03(5)(c) of this notice, the reduction in CAMT basis may not exceed (i) the combined CAMT basis of property (including the regular tax basis in stock of a foreign corporation) and money immediately after the discharge, over

(ii) The aggregate amount of liabilities reflected on the AFS of the CAMT entity immediately after the discharge of indebtedness of the CAMT entity.

(c) Election under § 108(b)(5) . The limitation in section 4.03(5)(b) of this notice does not apply if the CAMT entity has made an election under § 108(b)(5).

(d) CAMT foreign tax credits . For each dollar of AFSI that a CAMT entity excludes under this section 4.03, the CAMT entity reduces each dollar of the CAMT entity’s CAMT foreign tax credits by an amount equal to—

(i) One dollar of the CAMT foreign tax credit; multiplied by

(ii) The percentage specified in § 55(b) (2)(A)(i).

(6) Exclusion from AFSI . For purposes of determining the AFSI of a CAMT entity, the CAMT entity disregards the total amount of income reflected in its FSI resulting solely from the discharge of indebtedness of the CAMT entity to the extent that payment of the liability would have given rise to a direct reduction in AFSI.

(7) Indebtedness contributed to capital . For purposes of determining the AFSI of a debtor CAMT entity from the discharge of indebtedness, if the CAMT entity acquires its indebtedness from a shareholder as a contribution to capital that results in an increase in the CAMT entity’s FSI, then—

(a) The CAMT entity is treated as having satisfied the indebtedness with an amount of money equal to the shareholder’s CAMT basis in the indebtedness;

(b) Any income from the transaction included in FSI is disregarded in computing AFSI; and

(c) Any excess of the amount of the indebtedness over the shareholder’s CAMT basis increases the CAMT’s entity’s AFSI by the amount of that excess.

(8) Indebtedness satisfied by corporate stock or partnership interest .

(a) In general . For purposes of determining the AFSI of a debtor CAMT entity from the discharge of indebtedness, this section 4.03(8) applies if a debtor corporation transfers stock, or if a debtor partnership transfers a capital or profits interest in such partnership, to a creditor in satisfaction of its recourse or nonrecourse indebtedness.

(b) Application . If this section 4.03(8) applies, then—

(i) The corporation or partnership is treated as having satisfied the indebtedness with an amount of money equal to the fair market value of the stock or partnership interest;

(ii) Any FSI from the transaction is disregarded in computing AFSI; and

(iii) Any excess of the amount of the indebtedness over the fair market value of the stock or partnership interest increases the debtor CAMT’s entity’s AFSI by the amount of that excess.

(c) Taking into account partnership’s discharge of indebtedness . For rules regarding how CAMT entity partners take into account a partnership’s AFSI from the discharge of indebtedness, see section 4.05 of this notice. (9) Coordination with proposed §§ 1.56A-15 and 1.56A-16. Proposed §1.56A-15(e) and 1.56A-16(e) (as applicable) are applied by taking into account any adjustments made by a CAMT entity to the AFS basis of section 168 property or qualified wireless spectrum under this section 4.

(10) Examples . The following examples illustrate the application of the interim guidance in this section 4.03. For purposes of these examples, except as otherwise provided: each entity is a domestic corporation that uses the calendar year as its taxable year and is not a member of a tax consolidated group; the exclusion in section 4.03(6) of this notice does not apply; and each entity does not own stock in a foreign corporation.

(a) Example 1: Debt reduction during pendency of title 11 case .

(i) Facts . During Year 1, X enters bankruptcy in a title 11 case. At the time X enters bankruptcy, X’s only debts are $100x of prepetition liabilities subject to compromise, of which X expects $85x to be allowed as a claim. On its AFS for Year 1, X reduces its prepetition liabilities to $85x and reports $15x of income ($100x - $85x) from the discharge of indebtedness. In Year 2, the court approves the discharge of $30x of X’s $100x of prepetition lia

bilities, with the remaining $55x paid by transfers to X’s creditors. On its AFS for Year 2, X reports $30x of income ($85x - $55x) from the discharge of indebtedness.

(ii) Analysis . X’s reduction of its $100x of liabilities to $85x on X’s Year 1 AFS produces a $15x discharge of indebtedness within the meaning of that term in section 4.02(3)(b) of this notice. Accordingly, this amount is eligible for the exclusion under section 4.03(1)(a) of this notice for Year 1. The court’s approval of the discharge of $30x of X’s $100x prepetition liabilities in Year 2 also produces a $30x discharge of indebtedness within the meaning of that term in section 4.02(3)(b) of this notice. Accordingly, this amount is eligible for the exclusion under section 4.03(1) of this notice for Year 2.

(b) Example 2: Disregarded entity in bankruptcy . (i) Facts . Y, an LLC that is treated as a disregarded entity for Federal income tax purposes, is wholly owned by X. In Year 1, Y enters bankruptcy in a title 11 case. Y’s prepetition liabilities total $125x, all of which are owed to unrelated third parties, and Y has $10x of cash as its only asset. Once Y files for bankruptcy in Year 1, Y no longer reports on the same AFS as X, but Y remains a disregarded entity for Federal income tax purposes. During Year 1, the court discharges $40x of Y’s liabilities to third parties, and Y reports $40x of income on its Year 1 AFS from the discharge of indebtedness. X, which is not under the jurisdiction of the court as a debtor in Year 1, enters bankruptcy in a title 11 case in Year 2.

(ii) Analysis . Because X (Y’s regarded owner) is not under the jurisdiction of the court in a title 11 case as a debtor when Y’s debts are discharged in Year 1, Y’s $40x of income from the discharge of indebtedness for Year 1 is not eligible for the bankruptcy exclusion under section 4.03(1) of this notice. See section 4.03(3)(b) of this notice.

(i) Facts . The facts are the same as in section 4.03(9)(b)(i) of this notice ( Example 2 ), except that, in Year 2, all of Y’s remaining $85x of liabilities ($125x - $40x) are discharged by the court in exchange $10x of Y’s cash, resulting in $75x of discharge-of-indebtedness income reported on Y’s AFS.

(ii) Analysis . Because X (Y’s regarded owner) is under the jurisdiction of the court in a title 11 case when Y’s debts are discharged, the $75x of income from the discharge of indebtedness on Y’s AFS is eligible for the exclusion under section 4.03(1) of this notice. See section 4.03(3)(b) of this notice.

(d) Example 4: Insolvent disregarded entity . (i) Facts . The facts are the same as in section 4.03(9)(b)(i) of this notice ( Example 2 ), except that Y enters bankruptcy in a title 11 case in Year 2 rather than in Year 1. Immediately before the discharge of Y’s indebtedness in Year 2, X is insolvent (within the meaning of § 108(d)(3)) by $15x. At that time, Y has $10x of assets; thus, Y would be insolvent (within the meaning of § 108(d)(3)) by $115x if Y were a regarded entity.

(ii) Analysis . Y may exclude $15x of its $40x of discharge-of-indebtedness income under section 4.03(2) of this notice. See section 4.02(3)(h)(i) of this notice. The remaining $25x of income from the discharge of indebtedness is included in Y’s AFSI even though Y would be insolvent within the mean

Bulletin No. 2025–43 539 October 20, 2025

ing of § 108(d)(3) by $125x if Y were a regarded entity.

(e) Example 5: Attribute reduction . (i) Facts . During its 2024 taxable year, X emerges from bankruptcy in a title 11 case. As a result of the bankruptcy reorganization, some of X’s indebtedness is discharged. X has $850x of discharge of indebtedness income for regular tax purposes prior to the application of § 108(b). On X’s AFS, X reports $1,000x of FSI from the discharge of indebtedness. At the time of the discharge, X has $300x of net operating losses (NOLs), $700x of FSNOLs, and $800x of basis in its assets (including $600x of basis in covered property and $200x of basis in inventory) both for regular tax purposes and for CAMT purposes. X does not make an election under § 108(b)(5).

(ii) Application of § 108 . For purposes of determining its income for regular tax purposes for the 2024 taxable year, X excludes $850x of income from the discharge of indebtedness under § 108(a)(1)(A). Under § 108(b), X reduces its NOLs by $300x and the basis of its assets by $550x, of which $350x is basis in covered property.

(iii) AFSI analysis . For purposes of determining X’s AFSI for the 2024 taxable year, X disregards any FSI that otherwise would result from the discharge of X’s indebtedness. See section 4.03(1)(a) of this notice. X’s CAMT attributes are reduced by an amount equal to the amount of the exclusion of FSI from X’s AFSI (that is, $1,000x). See section 4.03(4) (b)(i) of this notice. X first reduces its CAMT basis of covered property to the extent its basis is reduced under § 108(b) for regular tax purposes, or $350x. See sections 4.03(4)(b)(iii)(A). X then reduces X’s FSNOLs by $650x. See sections 4.03(4)(b)(iii)(B). X does not further reduce its basis in covered property because X already has reduced $1,000x of attributes for the $1,000x of income from the discharge of indebtedness it has excluded. See section 4.03(4) (b)(ii) of this notice.

(f) Example 6: Excluded income from the dis- charge of indebtedness of insolvent taxpayer .

(i) Facts . The facts are the same as in section 4.03(9)(g)(i) of this notice ( Example 6 ), except that X does not emerge from bankruptcy in a title 11 case; instead, some of X’s indebtedness is discharged during the 2024 taxable year. Immediately before the discharge, X is insolvent by $850x. X has no other items of gain or loss during the 2024 taxable year.

(ii) Application of § 108 . For purposes of determining its income for regular tax purposes for the 2024 taxable year, X excludes $850x of income from the discharge of indebtedness under § 108(a)(1)(B). Under § 108(b), X reduces its NOLs by $300x and the basis of its assets by $550x, of which $350x is basis in covered property.

(iii) AFSI analysis . For purposes of determining its AFSI for the 2024 taxable year, X disregards $850x of its $1,000x of FSI from the discharge of its indebtedness. See section 4.03(2)(a) of this notice. X takes the remaining $150x of FSI from the discharge of its indebtedness into account for purposes of computing its AFSI. See id . X then uses its FSNOL to reduce its AFSI by $120x (i.e., 80 percent of $150x). See § 56A(d). X’s CAMT attributes are reduced by an amount equal to the amount

of the exclusion of financial accounting gain from X’s AFSI (that is, $850x). See sections 4.03(4)(b) (i) of this notice. X first reduces its CAMT basis of covered property to the extent its basis is reduced under § 108(b) for regular tax purposes, or $350x. See section 4.03(4)(b)(iii)(A) of this notice. X then reduces its FSNOLs by $500x. See section 4.03(4) (b)(iii)(B) of this notice.

.04 Fresh start accounting for emer- gence from bankruptcy .

(1) Scope . This section 4.04 provides interim guidance for determining the CAMT consequences to a CAMT entity resulting from an emergence from bankruptcy of the CAMT entity.

(2) AFSI consequences resulting from emergence from bankruptcy .

(a) In general . Solely with regard to the emergence from bankruptcy of a CAMT entity, the CAMT entity determines its CAMT consequences resulting from that emergence (and not from a discharge of indebtedness or a domestic covered asset transaction, as provided in sections 4.03 and 4.04(3)(a) of this notice, respectively) by—

(i) Recomputing any resulting gain or loss that is reflected in the FSI of the CAMT entity using CAMT basis in its assets instead of AFS basis; and

(ii) Determining the CAMT basis of any assets (other than the regular tax basis in the stock of a foreign corporation) of the CAMT entity to be its AFS basis.

(b) Discharge of indebtedness . A CAMT entity determines the CAMT consequences of any discharge of indebtedness of the CAMT entity resulting from the CAMT entity’s emergence from bankruptcy in accordance with section 4.03 of this notice.

(c) Domestic covered asset transac- tions . A CAMT entity determines the CAMT consequences of any domestic covered asset transaction in connection with the CAMT entity’s emergence from bankruptcy in accordance with section 4.04(3) of this notice. (d) Covered asset transactions . A CAMT entity determines the CAMT consequences of any covered asset transaction (as defined in proposed § 1.56A-4(b) (1)) in connection with the CAMT entity’s emergence from bankruptcy in accordance with proposed § 1.56A-4.

(3) AFSI consequences of title 11 cases . (a) Domestic covered asset transac- tions . If a CAMT entity disposes of assets

in a domestic covered asset transaction as part of its title 11 case, the CAMT entity determines the CAMT consequences of the domestic covered asset transaction with regard to the CAMT entity by applying section 3 of this notice.

(b) CAMT attribute adjustments . If a CAMT entity is a target corporation in a domestic covered asset transaction described in section 3.02(1)(c) of this notice, the CAMT entity is treated as reducing all CAMT attributes required by sections 4.03(4) and (5) of this notice before the acquiror corporation would be treated as receiving those CAMT attributes in the domestic covered asset transaction.

(4) Discharge of indebtedness . A CAMT entity described in section 4.04(3) of this notice determines the CAMT consequences of any discharge of indebtedness of the CAMT entity resulting from the CAMT entity’s emergence from bankruptcy in accordance with section 4.03 of this notice.

(5) Disregarded entities . For purposes of applying this section 4.04 to a disregarded entity, the disregarded entity is not considered to be the “taxpayer” as that term is used in § 108. Instead, for purposes of this section 4.04, the CAMT entity owner of the disregarded entity is the “taxpayer.” See section 4.03(3) of this notice and § 1.108-9.

(6) Examples . The following examples illustrate the application of the interim guidance in this section 4.04.

(a) Example 1: Bankruptcy emergence in a domestic covered asset transaction .

(i) Facts . X is a domestic corporation that uses the calendar year as its taxable year and is not a member of a tax consolidated group. During its 2024 taxable year, X emerges from bankruptcy in a domestic covered asset transaction. In connection with the transaction in which X emerges from bankruptcy, X reports $90x of gain on its AFS when it increases the AFS basis of its assets from $40x to their fair value of $130x at the time it emerges from bankruptcy.

(ii) Analysis . For purposes of determining its AFSI for the 2024 taxable year, X does not take into account the $90x of FSI resulting from the increase in the AFS basis of its assets. See section 3.03(2) of this notice. X does not make any adjustments to the CAMT basis of its assets resulting from X’s emergence from bankruptcy. Accordingly, X’s CAMT basis in its assets remains at $40x. See section 3.04(1)(c)(i) of this notice. (b) Example 2: Bankruptcy emergence in a trans- action that is not a domestic covered asset transac- tion .

October 20, 2025 540 Bulletin No. 2025–43

guidance applicable to members of a tax consolidated group.