SECTION 2. BACKGROUND

.01 Overview of the CAMT . Section 10101 of Public Law 117-169, 136 Stat. 1818, 1818-1828 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022, amended § 55 to impose the CAMT based on the AFSI of an applicable corporation for taxable years beginning after December 31, 2022. Section 59(k)(1)(A) provides that, for purposes of §§ 55 through 59, the term “applicable corporation” means, with respect to any taxable year, any corporation (other than an S corporation, a regulated investment company, or a real estate investment trust) that meets the average annual AFSI test provided in § 59(k)(1)(B) for one or more taxable years that (1) are prior to that taxable year, and (2) end after December 31, 2021.

.02 AFSI under § 56A . (1) General definition of AFSI . For purposes of §§ 55 through 59, § 56A(a) provides that the term “AFSI” means, with respect to any corporation for any taxable year, the net income or loss of the taxpayer set forth on the taxpayer’s applicable financial statement (AFS) for that taxable year, adjusted as provided in § 56A. Section 56A(c) provides general adjustments to be made to AFSI.

(2) Provisions of § 56A relevant to the interim guidance provided in this notice .

(a) Authority of the Secretary to pro- vide necessary adjustments to AFSI . In addition to the separate delegations of authority provided to the Secretary of the Treasury or the Secretary’s delegate (Secretary) relating to the adjustments to AFSI specified in paragraphs (2)(B) through (D), (5), (10), (11), (13), and (14) of § 56A(c), § 56A(c)(15) authorizes the Secretary to issue regulations or other guidance to provide for such adjustments to AFSI as the Secretary determines necessary to carry out the purposes of § 56A, including adjustments to prevent the omission or duplication of any item.

(b) General authority of the Secretary . Section 56A(e) authorizes the Secretary to provide such regulations and other guidance as necessary to carry out the purposes of § 56A.

.03 CAMT Proposed Regulations . (1) In general . On September 13, 2024, the Treasury Department and the IRS published a notice of proposed rulemaking (REG-112129-23) in the Federal Reg- ister (89 F.R. 75062) that addressed the application of the CAMT and permitted taxpayers to rely on the proposed regulations contained therein subject to certain conditions and limitations. On December 26, 2024, the Treasury Department and the IRS published in the Federal Register (89 F.R. 104909) technical corrections to the proposed regulations set forth in REG112129-23, which together with such proposed regulations are referred to as the “CAMT Proposed Regulations” in this notice. Numerous comments were submitted in response to the proposed rules in §§ 1.56A-1 through 1.56A-27, 1.59-2 through 1.59-4, 1.1502‑2, 1.1502-53, and 1.1502-56A of the CAMT Proposed Regulations (proposed §§ 1.56A-1 through 1.56A-27, 1.59-2 through 1.59-4, 1.15022, 1.1502-53, and 1.1502‑56A), which comments the Treasury Department and the IRS continue to consider and study.

(2) Provisions in proposed § 1.56A-4 relevant to the interim guidance provided

1 Unless otherwise provided, all "section" or "§" references are to sections of the Code or the Income Tax Regulations (26 CFR part 1).

2 Unless otherwise specified, terms used in this notice have the same meaning as in the CAMT Proposed Regulations described in section 2.03 of this notice.

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other than stock of a foreign corporation in a covered asset transaction. Specifically, proposed § 1.56A-4(c)(2)(i) would require a CAMT entity, in calculating AFSI, to disregard any items of income, expense, gain, and loss with respect to the transferred asset resulting from the covered asset transaction reflected in the CAMT entity’s FSI. Proposed § 1.56A-4(c)(2)(ii) would require the CAMT entity to include any items of income, deduction, gain, and loss for regular tax purposes with respect to the transferred asset resulting from the covered asset transaction; however, for this purpose, the amount of each such item would be computed by substituting the CAMT entity’s CAMT basis in the transferred asset for the CAMT entity’s basis in the transferred asset for regular tax purposes.

(3) Provisions in proposed § 1.56A-6 relevant to the interim guidance provided in this notice . Proposed § 1.56A-6 would provide rules under § 56A(c)(3) regarding an adjustment to the AFSI of a CAMT entity for any taxable year in which the CAMT entity is a U.S. shareholder of one or more controlled foreign corporations (CFC). The amount of the adjustment generally would be determined by reference to the CAMT entity’s pro rata share of adjusted net income or loss of each such CFC. Proposed § 1.56A-6(c)(1) generally would define the term “adjusted net income or loss” with respect to any CFC, for any taxable year of the CFC, as the FSI of the CFC, adjusted for all AFSI adjustments provided under the CAMT Proposed Regulations, except as provided in proposed § 1.56A-6(c)(2) through (5). For this purpose, references to AFSI in other sections of the CAMT Proposed Regulations, except for references to AFSI in proposed § 1.56A-1(b)(1) and (e) (which would provide the general definition of AFSI and general rules for translating AFSI to U.S. dollars, respectively), would be treated as references to adjusted net income or loss.

.04 Prior interim guidance issued sub- sequent to CAMT Proposed Regulations .

(1) Notice 2025-27 provides interim guidance regarding an optional simplified method for determining applicable corporation status and provides a limited waiver of certain additions to tax under § 6655 with respect to a corporation’s CAMT lia

in this notice . Proposed § 1.56A-4 would provide rules concerning foreign corporations. Specifically, proposed § 1.56A-4 would provide rules under § 56A(c)(2) (C) for determining the amount of AFSI of a CAMT entity that results solely from the CAMT entity’s ownership of stock of a foreign corporation. As relevant for purposes of this notice, proposed § 1.56A-4 would also provide rules under § 56A(c) (15)(B) for determining the AFSI and CAMT basis consequences of certain transactions involving foreign corporations referred to as “covered asset transactions” and rules for adjusting AFSI in certain circumstances in which basis in foreign stock received is determined under § 358. Proposed § 1.56A-4 would define covered asset transactions generally as including two categories of transactions: (i) those involving a transfer of an asset to, or by, a foreign corporation, and (ii) those involving a transfer of foreign stock to, or by, a domestic corporation. See proposed § 1.56A-4(b)(1)(i) and (ii).

Proposed § 1.56A-4(f) would provide rules that apply to certain cases in which a CAMT entity receives stock of a foreign corporation in a covered asset transaction and the CAMT entity’s basis in the stock of the foreign corporation for regular tax purposes is determined under § 358. These proposed rules would compare the CAMT basis in the stock of the foreign corporation (which equals its basis for regular tax purposes under proposed § 1.56A-4(d) (5)) with a hypothetical CAMT basis. The hypothetical CAMT basis is computed by substituting the CAMT basis in the relevant property for the regular tax basis (see proposed § 1.56A-4(f)(2)). The relevant property is the property whose basis is used to determine (in whole or in part) the basis of the foreign stock for regular tax purposes. To the extent a CAMT entity’s basis in the stock of the foreign corporation received for regular tax purposes exceeds its hypothetical CAMT basis in that stock, the CAMT entity would increase its AFSI for the taxable year in which the foreign stock is received by the amount of such excess if either of two requirements is satisfied. See proposed § 1.56A-4(f)(1).

The first requirement would be satisfied if a principal purpose of the covered asset transaction is to avoid treatment of the CAMT entity or another CAMT

entity as an applicable corporation or to reduce or otherwise avoid a liability under § 55(a) (proposed principal purpose rule). The second requirement would be satisfied if within two years of the date the stock of the foreign corporation is received, the basis in such stock of the foreign corporation is taken into account, in whole or in part, in determining the AFSI of the recipient CAMT entity or another CAMT entity (proposed two-year rule). The principles of the proposed two-year rule apply with respect to any asset whose basis for regular tax purposes is determined in whole or in part by reference to the basis of the foreign stock received. For example, if stock of the foreign corporation received is subsequently transferred in a transaction described in § 351(a) to another foreign corporation in exchange for stock of such other foreign corporation (or if the foreign stock received is exchanged under § 354 for stock in another foreign corporation), then the proposed two-year rule applies to both the stock of the foreign corporation received in the initial transfer as well as the stock of the other foreign corporation received in the subsequent transfer.

With respect to the ownership of foreign stock generally, proposed § 1.56A4(c)(1) would provide for adjustments to a CAMT entity’s AFSI as a result of direct ownership of stock of a foreign corporation. Specifically, proposed § 1.56A-4(c) (1)(i) would require a CAMT entity, in calculating AFSI, to disregard any items of income, expense, gain, and loss resulting from ownership of stock of the foreign corporation, including any such items that result from acquiring or transferring such stock, reflected in the CAMT entity’s financial statement income (FSI). Proposed § 1.56A-4(c)(1)(ii) generally would require the CAMT entity to include in AFSI any items of income, deduction, gain, and loss for regular tax purposes resulting from ownership of stock of the foreign corporation, including any items that result from acquiring or transferring such stock, other than any items of income, deduction, gain, and loss resulting from the application of §§ 78, 250, 951, or 951A. Proposed § 1.56A-4(c)(2) would provide for adjustments to a CAMT entity’s AFSI as a result of a transfer of an asset

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bility for taxable years beginning during 2025. (2) Notice 2025-28 provides interim guidance on determining a CAMT entity’s AFSI with respect to an investment in a partnership, reporting by partnerships of information needed to compute AFSI, and the treatment of partnership contributions and distributions.

(3) Notice 2025-46 provides interim guidance on the application of the CAMT to domestic corporate transactions, financially troubled companies, tax consolidated groups, acquired financial statement net operating losses, and certain built-in items. Section 4.03 of Notice 2025-46 provides interim guidance on the treatment of discharge of indebtedness income, including interim guidance addressing rules related to attribute reduction.

(4) Notice 2025-49 provides interim guidance on the application of the CAMT, including adjustments to AFSI for (a) eligible regulatory assets, (b) certain items measured at fair value, (c) CAMT entities subject to the tonnage tax regime, (d) certain embedded depreciation deductions, (e) nonlife insurance company net operating loss carrybacks, (f) eligible goodwill amortization, and (g) accounting principle changes and restatements of a prior year AFS. In addition, Notice 2025-49 provides that, for taxable years beginning before the date the corresponding final regulation is published in the Federal Register, a taxpayer may rely on a section of the CAMT Proposed Regulations without also being required to rely on any other sections of the CAMT Proposed Regulations, provided the taxpayer consistently follows that section in its entirety for all taxable years beginning with the first taxable year with respect to which the taxpayer relies on that section.

Further, Notice 2025-49 provided that, for taxable years beginning before the date the forthcoming proposed regulations are published in the Federal Register, a taxpayer may rely on any section of the CAMT Proposed Regulations, as modified by any guidance subsequently published in the Internal Revenue Bulletin, provided the taxpayer consistently follows that section (as so modified) in its entirety for all taxable years beginning with the first taxable year with respect to which the taxpayer relies on that section. However, a

taxpayer may rely on proposed § 1.56A-4 (AFSI adjustments and basis determinations with respect to foreign corporations) or proposed § 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 only if the taxpayer also follows certain other sections of the CAMT Proposed Regulations. Finally, Notice 2025-49 reiterated that, for a taxable year described in section 3.05 of Notice 2025-27, section 9 of Notice 2025-28, or section 9 of Notice 202546, 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).

.05 Comments received on the CAMT Proposed Regulations or prior interim guidance relevant to interim guidance provided in this notice .

(1) Tax repair and maintenance costs attributable to section 168 property . Neither § 56A(c) nor the CAMT Proposed Regulations provide an adjustment to AFSI for repair and maintenance costs with respect to section 168 property. However, section 4 of Notice 2025-49 provides a limited adjustment to AFSI for repair and maintenance costs that are capitalized and depreciated for AFS purposes under certain GAAP rules applicable to CAMT entities with regulated operations. Comments submitted in response to the CAMT Proposed Regulations and Notice 2025-49 recommended that an adjustment to AFSI be provided for all CAMT entities for repair or maintenance costs with respect to section 168 property that are deducted for regular tax purposes but capitalized and depreciated for AFS purposes. Such an adjustment to AFSI would include the repair and maintenance costs for which an adjustment to AFSI is permitted under section 4 of Notice 2025-49 for CAMT entities with regulated operations.

In addition to the comments described in section 2.05(2) of Notice 2025-49, commenters noted that the AFSI adjustments provided for covered book COGS

depreciation and covered book depreciation expense in proposed § 1.56A-15(d) (1)(iii) require only that a CAMT entity adjust AFSI to disregard such amounts with respect to section 168 property. Accordingly, if an item of section 168 property and its related repair and maintenance costs are treated as a single item of property for AFS purposes, commenters noted that determining the amount of these adjustments would require the CAMT entity to determine the portion of book depreciation expense in FSI that is attributable to repair and maintenance costs (incurred during the current taxable year, as well as prior taxable years) with respect to the section 168 property and to remove such amount from book depreciation expense before making the adjustments to AFSI for covered book COGS depreciation and covered book depreciation expense. Commenters noted that this additional step would add undue complexity to the calculation of AFSI by requiring that impacted CAMT entities create separate CAMT records for each item of AFS property to track the portion of AFS basis that corresponds to section 168 property and the portion that corresponds to repair and maintenance costs that are deducted for regular tax purposes. Commenters noted that one option to reduce compliance burden would be to allow CAMT entities to disregard the entire amount of covered book COGS depreciation and covered book depreciation expense, including amounts attributable to tax repair and maintenance costs deducted for regular tax purposes; however, the commenters also noted that such an approach would overstate AFSI.

Accordingly, commenters suggested that providing an adjustment to AFSI for repair and maintenance costs with respect to section 168 property that are deducted for regular tax purposes, including a corresponding adjustment to disregard the book depreciation expense attributable to the repair or maintenance cost for AFS purposes (if applicable), would reduce compliance burdens as it would allow a CAMT entity to disregard the entire amount of covered book COGS depreciation or covered book depreciation expense in those situations in which a single item of AFS property corresponds to capitalized section 168 property and deducted

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repair and maintenance costs for regular tax purposes. Commenters noted that providing such an adjustment to AFSI would eliminate the burden and expense of separately tracking and bifurcating book depreciation expense for an item of AFS property, solely for CAMT purposes, between the portion disregarded in determining AFSI (with respect to section 168 property) and the remaining portion (with respect to repair and maintenance costs deducted for regular tax purposes).

(2) Intangible amortization. Section 9 of Notice 2025-49 provides an adjustment to AFSI for amortization under § 197 attributable to goodwill acquired in certain transactions announced or completed on or before October 28, 2021. As discussed in section 2.05(7) of Notice 202549, for regular tax purposes, amounts paid to another party to acquire goodwill are generally capitalized in the taxable year paid or incurred and amortized ratably over a 15-year period beginning with the month in which the goodwill is acquired. See § 197(a), (c), and (d)(1)(A). For AFS purposes, such amounts are capitalized in the year incurred but, in general, are not recoverable through amortization but rather are recoverable to the extent the goodwill is impaired (in which case an impairment loss would be recognized) or upon disposition of the goodwill. Accordingly, prior to the issuance of Notice 202549, commenters had requested an adjustment to AFSI for amortization deductions under § 197 attributable to goodwill as, to the extent the goodwill is not amortizable for AFS purposes, a CAMT liability under § 55 could arise in the taxable year such amortization is deducted for regular tax purposes under § 197. Commenters observed that CAMT entities could not have considered the consequences of the CAMT, including the treatment of goodwill under the CAMT, in their financial modeling for business acquisitions or in the allocation of the purchase price among acquired assets for acquisitions that occurred before the CAMT was in effect and, therefore, should be allowed an adjustment to AFSI for the amortization

of goodwill acquired prior to that time. In addition, commenters indicated that, absent an AFSI adjustment, the CAMT consequences of transactions that result in the acquisition of goodwill could discourage further domestic investment.

In response to Notice 2025-49, commenters noted that there are other intangibles subject to amortization under § 197, the costs of which, for AFS purposes, are (i) required to be capitalized in the year incurred, and (ii) not permitted to be recovered through amortization but instead are recoverable only to the extent the intangible asset is impaired or upon disposition of the asset. Accordingly, commenters have requested an adjustment to AFSI for amortization deductions under § 197 with respect to these other intangibles. Neither § 56A(c) nor the CAMT Proposed Regulations provide an adjustment to AFSI for amortization under § 197 with respect to these other intangibles. Commenters requesting this adjustment for these other intangibles explained that, as in the case of goodwill, because these other intangibles are not amortizable for AFS purposes, a CAMT liability under § 55 could arise in taxable years in which amortization of these other intangibles is deducted for regular tax purposes under § 197. In addition, commenters argued that CAMT entities could not have considered the consequences of the treatment of other intangibles subject to amortization under § 197 under the CAMT and, therefore, should be allowed an adjustment to AFSI for the amortization of other intangibles acquired prior to that time. Finally, commenters noted that the CAMT consequences of transactions that result in the acquisition of these other intangibles could deter further domestic investment.

(3) Domestic research and experimen- tal expenditures . Under GAAP, research and experimental costs generally are expensed in the year in which they are incurred. See, e.g., Accounting Standards Codification (ASC) 730-10-25. For software developed to be sold, leased, or otherwise externally marketed, generally costs incurred to establish technological feasi

bility of the software are expensed in the year in which they are incurred. However, costs incurred after establishing technological feasibility and before the product is available for general release are capitalized and amortized. Following general release, costs of enhancements to extend the life or significantly improve the marketability of the software product are capitalized and amortized and maintenance costs are expensed in the year in which they are incurred. See, e.g., ASC 98520. For software developed for internal use, under current GAAP guidance, costs incurred during the application development stage generally are capitalized and amortized. All other costs incurred to develop internal-use software generally are expensed in the year in which they are incurred. See, e.g., ASC 350-40. ³

Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly known as the One, Big, Beautiful Bill Act (OBBBA), added to the Code § 174A, which provides that a deduction is allowed for any domestic research or experimental expenditures, including domestic software development expenditures, that are paid or incurred by the taxpayer in a taxable year beginning after December 31, 2024. In addition, § 174A(c) allows a taxpayer to make an election to instead charge such expenditures to capital account and amortize the expenditures ratably over a period of not less than 60 months, beginning with the month in which the taxpayer first realizes benefits from such expenditures. Prior to amendment by the OBBBA, under § 174, as amended by Public Law 115-97, 131 Stat. 2054 (Dec. 22, 2017), commonly known as the Tax Cuts and Jobs Act (TCJA), specified research or experimental expenditures, including both foreign and domestic expenditures, were required to be charged to capital account and amortized ratably over a defined period (5 years for domestic research and 15 years for foreign research) for amounts paid or incurred in taxable years beginning after December 31, 2021. Accordingly, for taxable years beginning after December 31, 2024, the enactment of § 174A as part of

3 The FASB issued updated guidance for internal-use software in September 2025. See Accounting Standards Update No. 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software . This update to ASC 350-40 modifies the accounting for internal-use software to instead apply a principles-based threshold. The update is effective for annual reporting periods beginning after December 15, 2027; however, early adoption is permitted as of the beginning of an annual reporting period.

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the OBBBA created a transition period during which both §§ 174 and 174A determine the treatment and timing of domestic research or experimental expenditures. During this transition period, regular taxable income for a taxable year will take into account two layers of recovery for domestic research or experimental expenditures: the deduction of current year expenditures under § 174A and the continued amortization of prior year expenditures under § 174.

Neither § 56A(c) nor the CAMT Proposed Regulations provide an adjustment to AFSI for research or experimental expenditures, including software development expenditures. Accordingly, such amounts would be reflected in AFSI at the same time, and in the same amount, as when such amounts are reflected in FSI. In addition, neither § 56A(c) nor the CAMT Proposed Regulations provide an adjustment to AFSI to account for the transition to the § 174A regime. Commenters requested that an adjustment to AFSI be allowed for taxable years beginning after December 31, 2024, equal to the amount of amortization under § 174 attributable to domestic expenditures taken in computing regular taxable income for such taxable years. Commenters noted that while AFSI would otherwise remain unchanged during the transition period, regular taxable income is decreased for the transition period taxable years (compared to what regular taxable income would have been if only § 174, or only § 174A, was applicable) due to the dual layers of recovery for domestic research and experimental expenditures resulting from the simultaneous application of §§ 174 and 174A.

(4) Qualified production costs under § 181 . Commenters requested that an adjustment to AFSI be allowed for certain production costs paid or incurred by a CAMT entity for qualified film or television productions, qualified live theatrical productions, or qualified sound recordings (collectively, eligible production property) allowed as a deduction under § 181. Under § 181, taxpayers may elect to treat production costs of eligible production property as an expense deductible for the taxable year in which the production costs are paid or incurred, subject to dollar limitations that vary based on the type of production (defined in section 6 as quali-

fied production costs ). See § 181(a)(1) and (2). Production costs of eligible production property that exceed the dollar limitation are charged to capital account and depreciated for regular tax purposes once the eligible production property is placed in service (excess production costs). The portion of basis eligible for first year additional depreciation under § 168(k) is depreciated under § 168 and any remaining basis is depreciated under § 167. See §§ 167, 168(k), and 168(k)(2)(A)(i)(IV), (V), and (VI). In general, for GAAP and IFRS purposes, both the qualified production costs and excess production costs attributable to an eligible production property generally are capitalized in the year incurred and depreciated as a single asset over its useful life once the asset is placed in service.

Neither § 56A(c) nor the CAMT Proposed Regulations provide an adjustment to AFSI for qualified production costs. Accordingly, CAMT entities that elect to deduct qualified production costs under § 181(a) would need to determine AFSI by (i) including the amount of such costs included in FSI for such taxable year (generally, the corresponding amount of book depreciation for such year), and (ii) making adjustments under proposed § 1.56A15 for any excess production costs (as excess production costs are charged to capital account and depreciable under § 168, thus constituting section 168 property for CAMT purposes). Commenters indicated that this bifurcated treatment for CAMT purposes with respect to a single eligible production property leads to compliance burdens as impacted CAMT entities must bifurcate the single AFS asset attributable to the eligible production property and (i) continue to track the portion of AFS basis that corresponds to the qualified production costs in order to determine the appropriate amount of book depreciation or other basis recovery in FSI to include in AFSI, and (ii) track the portion of AFS basis that corresponds to excess production costs in order to properly determine the amount of book depreciation in FSI to disregard in making the adjustments under § 56A(c)(13). Commenters indicated that an adjustment to AFSI that (i) reduces AFSI by the qualified production costs deducted under § 181, and (ii) disregards the correspond

ing depreciation or other basis recovery included in FSI would reduce compliance burden, resulting in consistent treatment of the single AFS asset for CAMT purposes.

(5) Materials and supplies costs . Amounts paid or incurred to acquire or produce materials and supplies, as defined in § 1.162-3(c)(1), are deductible only under § 162 in accordance with the applicable timing rules provided in § 1.162-3. See generally § 1.162-3(a). The definition of “materials and supplies” includes amounts paid or incurred to acquire certain tangible property that has an acquisition or production cost of $200 or less. See § 1.162-3(c) (1) and (c)(1)(iv). Thus, amounts paid or incurred for such low acquisition cost tangible property are deductible only under § 162, notwithstanding that such property is used in the taxpayer’s business and, absent the requirement to be treated as materials and supplies under § 1.1623, would otherwise be tangible property depreciable under § 168. For AFS purposes, amounts incurred for such tangible property may be capitalized and depreciated depending on the useful life of the property.

Neither § 56A(c) nor the CAMT Proposed Regulations provide an adjustment to AFSI for deductions under § 162 with respect to amounts paid or incurred for materials and supplies. Accordingly, a CAMT entity would include in its AFSI for a taxable year the amounts attributable to materials and supplies that are included in the CAMT entity’s FSI for such taxable year. Commenters noted that CAMT entities in certain industries for which a majority of the core business assets consist of low acquisition cost materials are required to capitalize and depreciate the costs of such materials and supplies for AFS and FSI purposes. Commenters noted that these CAMT entities may experience elevated AFSI compared to other taxpayers for which the majority of core business assets comprise section 168 property, because those other taxpayers can adjust AFSI for the section 168 property under § 56A(c)(13). Accordingly, commenters requested that an adjustment to AFSI be provided for amounts deducted under § 162 with respect to materials and supplies described in § 1.162-3(c)(1)(iv) that are, for AFS purposes, capitalized in

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the year incurred and depreciated once the corresponding asset is placed in service.

(6) Attribute reduction for, and income from non-transactional bankruptcy emer- gences of, financially troubled compa- nies . Commenters have asked whether the rules in § 1.1502-28 (concerning the application of § 108 to tax consolidated groups) would apply for purposes of the attribute reduction interim guidance provided in sections 4.03(4) and (5) of Notice 2025-46. Commenters also have inquired about the intended application of fresh start accounting upon the emergence from bankruptcy of a financially troubled company as provided in section 4.04(2)(a) of Notice 2025-46, noting that the approach under that section appears to differ from the approach under proposed § 1.56A-21(d)(2).

(7) AFSI adjustments required under proposed § 1.56A-4 in certain cases in which basis in foreign stock is deter- mined under § 358 . The Treasury Department and the IRS received a comment with respect to the per se application of the proposed two-year rule described in section 2.03(2) of this notice. The commenter noted that the proposed rule would require a full inclusion in AFSI of the excess of regular basis over hypothetical CAMT basis if a single dollar of basis in the stock received is “taken into account” within two years. To address this potential concern, the commenter recommended converting the per se aspect of the proposed rule into a rebuttable presumption.

The Treasury Department and the IRS also received a comment with respect to the application of the proposed two-year rule to taxable years before publication of the CAMT Proposed Regulations. Specifically, the commenter noted that taxpayers could not have anticipated the proposed rules for determining basis in assets, including stock of foreign corporations and, absent knowledge of the CAMT Proposed Regulations, would not have had the necessary tools to evaluate the impact of certain transactions for purposes of determining applicable corporation status or CAMT liability.

(8) AFSI adjustments with respect to transactions involving intangible property subject to § 367(d) . One commenter noted that proposed § 1.56A-4 effectively would

incorporate the rules of § 367(d) in the case of a transaction involving intangible property such that there would be adjustments to a U.S. transferor’s AFSI but would be no corresponding adjustments with respect to the adjusted net income or loss of a transferee foreign corporation. Accordingly, the commenter requested that the transferee foreign corporation in a § 367(d) transaction be permitted to reduce its adjusted net income or loss by the amount of the deemed royalty for regular tax purposes to eliminate the double taxation result.