SECTION 10. AFSI ADJUSTMENTS

FOR ACCOUNTING PRINCIPLE CHANGES AND RESTATEMENTS OF A PRIOR YEAR AFS

.01 Purpose . In response to comments received on the CAMT Proposed Regulations, the Treasury Department and the IRS anticipate that the forthcoming proposed regulations will include modifications to proposed § 1.56A-17(c)(2) and (d) (1) consistent with the guidance provided in this section 10, which provides a simplified approach to determine the accounting principle change amount and the AFSI restatement adjustment.

.02 Accounting principle change amount .

(1) In general . (a) Except as provided in section 10.02(2) of this notice, if a CAMT entity implements a change in accounting principle in its AFS for a taxable year, the accounting principle change amount is equal to the amount of the net cumulative adjustment to the CAMT entity’s beginning retained earnings for the taxable year that results from the change in accounting principle, adjusted to- (i) Disregard any portion of the cumulative retained earnings adjustment attributable to taxable years ending on or before December 31, 2019; and

(ii) Reflect the AFSI adjustments provided in § 56A, the CAMT Proposed Regulations, or other guidance to the extent the cumulative retained earnings adjustment is attributable to FSI items to which those AFSI adjustments apply.

(b) Except as provided in section 10.02(2) of this notice, if a CAMT entity is treated as implementing a change in accounting principle under proposed § 1.56A-17(c)(5) for a taxable year, the accounting principle change amount is equal to the difference between the CAMT entity’s beginning retained earnings reflected in the CAMT entity’s current AFS as of the beginning of the taxable year and the CAMT entity’s ending

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retained earnings reflected in the CAMT entity’s former AFS as of the end of the immediately preceding taxable year (retained earnings difference), adjusted to- (i) Disregard any portion of the cumulative retained earnings adjustment attributable to taxable years ending on or before December 31, 2019; and

(ii) Reflect the AFSI adjustments provided in § 56A, the CAMT Proposed Regulations, or other guidance to the extent the cumulative retained earnings adjustment is attributable to FSI items to which those AFSI adjustments apply.

(2) Simplified accounting principle change amount . A CAMT entity that implements a change in accounting principle, or is treated as implementing a change in accounting principle under proposed § 1.56A-17(c)(5), for a taxable year may use the simplified accounting principle change amount described in this section 10.02(2) in place of the accounting principle change amount. The simplified accounting principle change amount is the accounting principle change amount described in section 10.02(1)(a) or (b) of this notice, as applicable, determined without regard to section 10.02(1)(a)(i) or 10.02(1)(b)(i) of this notice, respectively.

.03 AFSI restatement adjustment . (1) In general . Except as provided in section 10.03(2) of this notice, if a CAMT entity issues a restated AFS and, as a result, the CAMT entity’s FSI for a taxable year ending after December 31, 2019, is restated on or after the date the CAMT entity filed its original Federal income tax return for such taxable year (restatement year), the CAMT entity accounts for the restatement by adjusting its AFSI for the taxable year in which the restated AFS is issued (AFSI restatement adjustment). The AFSI restatement adjustment equals the cumulative effect of the restatement on the CAMT entity’s FSI for the restatement year, including any restatement of the CAMT entity’s beginning retained earnings for the restatement year, adjusted to- (a) Disregard any portion of the retained earnings restatement attributable to taxable years ending on or before December 31, 2019; and

(b) Reflect the AFSI adjustments provided in § 56A, the CAMT Proposed Reg

ulations, or other guidance to the extent the AFSI restatement adjustment relates to one or more FSI items to which AFSI adjustments provided in § 56A, the CAMT Proposed Regulations, or other guidance apply. For example, to the extent the AFSI restatement adjustment includes a Federal income tax component, § 56A(c)(5) and proposed § 1.56A-8 apply to disregard that component.

(2) Simplified AFSI restatement adjust- ment . A CAMT entity required to make an AFSI restatement adjustment for a taxable year, pursuant to section 10.03(1) of this notice, may use the simplified restatement adjustment described in this section 10.03(2) in place of the AFSI restatement adjustment. The simplified AFSI restatement adjustment is the AFSI restatement adjustment described in section 10.03(1) of this notice, determined without regard to section 10.03(1)(a) of this notice.

.04 Applicability date and reliance . It is anticipated that the forthcoming proposed regulations will provide that rules consistent with the guidance described in section 10 of this notice will apply to changes in accounting principle implemented in, and restated AFS issued in, taxable years beginning on or after the date the final regulations addressing AFSI adjustments for accounting principle change amounts and AFSI restatement adjustments are published in the Fed- eral Register . For changes in accounting principle implemented in, and restated AFS issued in, taxable years beginning before the date such forthcoming proposed regulations are published in the Federal Register, taxpayers may rely on the guidance in this section 10. However, regardless of when such forthcoming proposed regulations are published in the Federal Register, a taxpayer may rely on the guidance provided in this section 10, for accounting principle changes implemented in, and restated AFS issued in, any taxable year beginning before January 1, 2026. A CAMT entity’s reliance on any of the guidance in this section 10 for a taxable year will not cause the CAMT entity to become subject to, or to violate, the proposed reliance rules, including the consistency requirements, provided in section 3.02(1) of this notice for such taxable year.