SECTION 4. AFSI — Internal Revenue Bulletin 2025-44

ELIGIBLE REGULATORY ASSETS

.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 proposed regulations under § 56A(c)(15) and (e) consistent with the guidance provided in this section 4 to allow a CAMT entity subject to ASC 980 to adjust AFSI for eligible regulatory assets. In addition, the Treasury Department and the IRS anticipate that the forthcoming proposed regulations will propose a modification to proposed § 1.59-2(c) to provide that, for purposes of applying the average annual AFSI test in § 59(k)(1)(B) or proposed § 1.59-2(c), AFSI is determined without regard to the AFSI adjustment provided in this section 4. .02 Definitions . For purposes of this section 4:

(1) CAMT entity subject to ASC 980 . The term CAMT entity subject to ASC 980 means a CAMT entity that has regulated operations that meet the criteria of ASC 980-10-15-2 and has an AFS prepared in accordance with GAAP, including ASC 980. (2) Eligible regulatory asset . The term eligible regulatory asset means any cost attributable to tangible property repairs or maintenance that is capitalized under ASC 980-340-25-1 and subject to depreciation for AFS purposes. An eligible regulatory asset does not include any other costs capitalized for AFS purposes under ASC 980 or any other provision of GAAP, as defined in proposed § 1.56A-1(b)(27). The term eligible regulatory asset includes costs attributable to tangible property repairs or maintenance that are capitalized under ASC 980-340-25-01 and placed in service by a CAMT entity subject to ASC 980 in any taxable year, including taxable

(a) In general . Except as provided in section 3.02(1)(b) of this notice, a taxpayer may rely on any section of the CAMT Proposed Regulations for a taxable year beginning before the date the corresponding final regulation is published in the Federal Register, provided the taxpayer consistently follows that section in its entirety for all such taxable years beginning with the first taxable year with respect to which the taxpayer relies on that section. In addition, a taxpayer may rely on any section of the CAMT Proposed Regulations, as modified by any guidance (including the interim guidance in this notice) subsequently published in the Internal Revenue Bulletin, for a taxable year beginning before the date the forthcoming proposed regulations are published in the Federal Register, provided the taxpayer consistently follows such section (as so modified) in its entirety for all such taxable years beginning with the first taxable year with respect to which the taxpayer relies on such section.

(b) Certain related sections . (i) In general . A taxpayer may rely on proposed § 1.56A-4 (AFSI adjustments and basis determinations with respect to foreign corporations) or 1.56A-6 (AFSI adjustments with respect to CFCs) of the CAMT Proposed Regulations, as applicable, for taxable years beginning before the date a corresponding final regulation section is published in the Federal Register, provided the taxpayer (A) consistently follows proposed §§ 1.56A-8 (AFSI adjustments for certain Federal and foreign income taxes) and 1.59-4 (CAMT foreign tax credit) of the CAMT Proposed Regulations for such taxable years, and

(B) consistently follows each of proposed § 1.56A-4 or 1.56A-6 (as applicable), proposed § 1.56A-8, and proposed § 1.59-4 in their entirety for all such taxable years beginning with the taxable year with respect to which the taxpayer relies on proposed § 1.56A-4 or 1.56A-6 (as applicable).

(ii) Special rule in determining eligi- ble taxes . A taxpayer that relies on proposed § 1.59-4 may treat a tax that would otherwise not qualify as an eligible tax solely due to the applicability of section

245A(d) as an eligible tax for purposes of proposed § 1.59-4 if the tax is a foreign income tax paid or accrued by the taxpayer with respect to a dividend received (or treated as received for purposes of section 245A) from a CFC in which the taxpayer is a United States shareholder. This is the case notwithstanding that a section 245A deduction is allowed with respect to the dividend for regular tax purposes and therefore for CAMT purposes.

(c) Coordination with proposed § 1.56A-6(c)(1) . If a taxpayer relies on proposed § 1.56A-6 of the CAMT Proposed Regulations pursuant to section 3.02(1)(b) of this notice, for purposes of relying on proposed § 1.56A-6(c)(1), the term “section 56A regulations” means the CAMT Proposed Regulations, as modified by any guidance (including the interim guidance in this notice) published in the Internal Revenue Bulletin subsequent to the CAMT Proposed Regulations that the taxpayer has relied on for purposes of making AFSI adjustments.

(2) Reliance on interim guidance pro- vided in Notice 2025-27, Notice 2025-28, and Notice 2025-46 . For a taxable year described in section 3.05 of Notice 202527, section 9 of Notice 2025-28, or section 9 of Notice 2025-46, as applicable, a taxpayer may rely on the guidance described in section 3.03 of Notice 2025-27, sections 3 through 7 of Notice 2025-28, or sections 3 through 6 of Notice 2025-46, without being required to follow any section, or part thereof, of the CAMT Proposed Regulations (except to the extent required by, or incorporated into, these Notices). Consequently, a taxpayer’s reliance on any of the guidance provided in section 3.03 of Notice 2025-7, sections 3 through 7 of Notice 2025-28, or sections 3 through 6 of Notice 2025-46 for a taxable year described in this section 3.02(2) will not cause the taxpayer to become subject to, or to violate, the reliance rules, including the consistency requirements, provided in section 3.02(1) of this notice for such taxable year and any other relevant taxable years.

(3) Statement of guidance applied on Form 4626 . In addition to any reporting required by a form, publication, or other guidance, a corporation must include

3 https://www.irs.gov/forms-pubs/about-form-4626

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years ending on or before December 31, 2019. (3) Regulatory asset book COGS depreciation . The term regulatory asset book COGS depreciation means any of the following items that are taken into account as part of cost of goods sold (or as part of the computation of gain or loss from the sale or exchange of property held for sale) in FSI with respect to an eligible regulatory asset- (a) Depreciation expense; (b) Other recovery of AFS basis (including from an impairment loss) that occurs either:

(i) Prior to the taxable year in which the complete disposition of the eligible regulatory asset occurs for AFS purposes, or

(ii) In the taxable year in which the complete disposition of the eligible regulatory asset occurs for AFS purposes to determine any FSI gain or loss from the disposition of the eligible regulatory asset; or

(c) Impairment loss reversal. (4) Regulatory asset book deprecia- tion expense . The term regulatory asset book depreciation expense means any of the following items other than regulatory asset book COGS depreciation that are taken into account in FSI with respect to an eligible regulatory asset- (a) Depreciation expense; (b) Other recovery of AFS basis (including from an impairment loss) that occurs either:

(i) Prior to the taxable year in which the complete disposition of the eligible regulatory asset occurs for AFS purposes, or

(c) Impairment loss reversal. (5) Regulatory asset book inventori- able depreciation . The term regulatory asset book inventoriable depreciation means any of the following items that are included in inventoriable cost (or capitalized as part of the cost of non-inventory property held for sale) in the AFS of a CAMT entity subject to ASC 980 with respect to an eligible regulatory asset- (a) Depreciation expense; (b) Other recovery of AFS basis (including from an impairment loss) that occurs either:

(i) Prior to the taxable year in which the complete disposition of the eligible regulatory asset occurs for AFS purposes, or

(c) Impairment loss reversal. .03 AFSI adjustment for eligible regu- latory assets . The AFSI of a CAMT entity subject to ASC 980 for a taxable year may be adjusted as follows:

(1) Reduced by the amount of costs incurred under GAAP and capitalized under ASC 980-340-25-1 as eligible regulatory assets during such taxable year, but only to the extent that such amounts are- (a) Not otherwise required to be capitalized for AFS purposes under any other GAAP rule, standard, or procedure, and

(b) Not required to be capitalized under § 263(a) for regular tax purposes; and

(2) Adjusted to disregard any regulatory asset book COGS depreciation and regulatory asset book depreciation expense with respect to any eligible regulatory asset.

.04 Determining regulatory asset book COGS depreciation adjustment .

(1) Except as provided in section 4.04(2) of this notice, a CAMT entity subject to ASC 980 is required to apply the method(s) of accounting the CAMT entity uses for AFS purposes to determine regulatory asset book inventoriable depreciation for purposes of determining the regulatory asset book COGS depreciation adjustment under section 4.03(2) of this notice.

(2) A CAMT entity subject to ASC 980 is permitted to use any reasonable method to determine regulatory asset book inventoriable depreciation for purposes of determining the regulatory asset book COGS depreciation adjustment under section 4.03(2) of this notice, provided that such reasonable method is consistent with and reflects the method(s) of accounting the CAMT entity uses for AFS purposes. In the case of a CAMT entity subject to ASC 980 that uses the Last-In-First-Out (LIFO) method to identify inventories for AFS purposes, a reasonable method includes a method similar to the method provided in proposed § 1.56A-15(d)(3)(ii)(C).

(3) Reporting requirement . If a CAMT entity makes the AFSI adjustment provided in section 4 of this notice for a taxable year and is using a reasonable method to determine regulatory asset book inventoriable depreciation under section 4.04(2) of this notice, it must attach a statement to its Federal income tax return for such taxable year. The statement must be titled “AFSI adjustment for eligible regulatory assets” and include the CAMT entity’s name, address, and taxpayer identification number, and a statement that the CAMT entity is using a reasonable method to determine regulatory asset book inventoriable depreciation for purposes of determining the regulatory asset book COGS depreciation adjustment under section 4.03(2) of Notice 2025-49 for the taxable year. In addition, the statement must describe the method used to determine regulatory asset book inventoriable depreciation and include a declaration that the method used is consistent with and reflects the method(s) of accounting the CAMT entity uses for AFS purposes.

.05 Consistency requirement . If a CAMT entity subject to ASC 980 makes the AFSI adjustment provided in section 4.03 of this notice for a taxable year, it must continue to make the adjustment provided in section 4.03 of this notice for all subsequent taxable years until all eligible regulatory assets are disposed of for regular tax purposes or such time as prescribed by the Treasury Department and IRS in regulations or other guidance.

.06 Determining applicable corpo- ration status . For purposes of applying the average annual AFSI test in § 59(k) (1)(B) or proposed § 1.59-2(c), AFSI is determined without regard to the AFSI adjustment provided in section 4.03 of this notice.

.07 Coordination with CAMT Proposed Regulations . For purposes of coordinating with relevant provisions of the CAMT Proposed Regulations (for example, proposed § 1.56A-15), the reduction to AFSI described in section 4.03(1) of this notice is treated as if it were an expense for FSI purposes. For example, the amount described in section 4.03(1) may be considered a covered book expense, as defined in proposed § 1.56A-15(b)(4), if applicable.

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in a CAMT entity’s FSI, regardless of whether the determinations are required due to the type of asset or liability or due to an election by the CAMT entity. The term fair value measurement adjustment includes changes in value resulting from the application of the lower of cost or market accounting method under GAAP or the lower of cost and net realizable value accounting method under IFRS. The term fair value measurement adjustment does not include an impairment loss or impairment loss reversal.

(3) Subsequent adjustment date . The term subsequent adjustment date means the earliest day the fair value item matures or is sold, exchanged, terminated, or otherwise disposed of for regular tax purposes. For purposes of the hedge coordination option, a subsequent adjustment date also includes the earliest day on which the AFSI hedge or the hedged item (as applicable) that corresponds to the hedged item or the AFSI hedge with the fair value measurement adjustment that was disregarded under section 5.04 of this notice matures or is sold, exchanged, terminated, or otherwise disposed of for regular tax purposes. In addition, a subsequent adjustment date includes the first day of the taxable year in which the FVI exclusion option or hedge coordination option, as applicable, is no longer applied by a CAMT entity that previously applied the FVI exclusion option or hedge coordination option, as applicable.

.03 FVI exclusion option . Provided the requirements described in section 5.03(1) through (4) and section 5.05 of this notice are satisfied, a CAMT entity may adjust AFSI for a taxable year to disregard a fair value measurement adjustment for a fair value item for that taxable year if the CAMT entity does not mark to market the fair value item for regular tax purposes. For purposes of the FVI exclusion option, a CAMT entity marks to market the fair value item for regular tax purposes to the extent that the CAMT entity recognizes unrealized gain or loss in a taxable year for the fair value item and takes such gain or loss into account in the taxable year. For example, a CAMT entity may mark a fair value item to market for tax purposes due to the application of § 475, § 1256, or a similar provision. The determination regarding whether a CAMT entity rec

.08 Applicability date and reliance . It is anticipated that the forthcoming proposed regulations will provide that rules consistent with the guidance described in this section 4 will apply for taxable years beginning on or after the date the final regulations addressing the AFSI adjustment for eligible regulatory assets are published in the Federal Register . For taxable years beginning before the date such forthcoming proposed regulations are published in the Federal Register, CAMT entities may rely on the guidance in this section 4. A CAMT entity’s reliance on any of the guidance in this section 4 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.