SECTION 6. AFSI ADJUSTMENTS

FOR CAMT ENTITIES SUBJECT TO THE TONNAGE TAX REGIME

.01 Purpose . In response to comments, the Treasury Department and the IRS anticipate that forthcoming proposed regulations will include proposed regulations issued under § 56A(c)(15) and (e) consistent with the guidance in this section 6, which provides adjustments to AFSI for CAMT entities subject to subchapter R of chapter 1 of the Code (tonnage tax regime). In addition, the Treasury Department and the IRS anticipate that the forthcoming proposed regulations will propose modifications to proposed § 1.59-2 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 adjustments provided in this section 6.

.02 Coordination of the CAMT rules with the tonnage tax regime .

(1) CAMT entities to which this sec- tion applies . The guidance in this section applies only to a CAMT entity that is an electing corporation as defined in § 1355(a)(1) or a corporation that is a member of an electing group as defined in § 1355(a)(2).

(2) Gross income excluded under the tonnage tax regime . The AFSI of a CAMT entity is adjusted to disregard all or a portion of any item of income on the CAMT entity’s AFS that corresponds to all or a portion of any item of income that is excluded from the CAMT entity’s gross income under § 1357(a) or (b) for regular tax purposes.

(3) Deductions, credits, and losses dis- allowed under the tonnage tax regime . The AFSI of a CAMT entity is adjusted to disregard all or a portion of any item of expense, loss, or other reduction or increase on the CAMT entity’s AFS that corresponds to all or a portion of any item of deduction, credit, or loss (including an NOL deduction) that is disallowed under

§ 1357(c)(1) or 1358(b) for regular tax purposes.

(4) Interest expense disallowed under the tonnage tax regime . The AFSI of a CAMT entity is adjusted to disregard the portion of any item on the CAMT entity’s AFS that corresponds to an item of interest expense that is disallowed under § 1357(c)(3) for regular tax purposes.

(5) Determination of gain or loss on the disposition of a qualifying vessel . The AFSI of a CAMT entity is adjusted to disregard any gain or loss on the CAMT entity’s AFS from the disposition of a qualifying vessel (as defined by § 1355(a)(4)). The AFSI of a CAMT entity is further adjusted to include any gain or loss, for regular tax purposes, resulting from the CAMT entity’s disposition of such qualifying vessel, taking into account the rules of § 1357(c)(2).

(6) Increase to AFSI for notional ship- ping income . The AFSI of a CAMT entity is increased by an amount equal to the CAMT entity’s notional shipping income for the taxable year as determined under § 1353.

.03 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 adjustments provided in section 6.02 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 6 of this notice will apply for taxable years beginning on or after the date the final regulations addressing AFSI adjustments for CAMT entities subject to the tonnage tax regime are published in the Federal Reg- ister . A CAMT entity that is subject to the tonnage tax regime may rely on the guidance described in this section 6 for taxable years ending before the date the final regulations addressing the coordination of the CAMT rules with the tonnage tax regime are published in the Federal Register . A CAMT entity that relies on the guidance described in this section 6 must apply section 6 in its entirety. A CAMT entity’s reliance on any of the guidance in this section 6 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.