SECTION 4. AFSI — Internal Revenue Bulletin 2026-11

ELIGIBLE INTANGIBLES

.01 Purpose . In response to comments received on Notice 2025-49, this section 4 modifies the interim guidance provided in section 9 of Notice 202549 to allow a CAMT entity to adjust AFSI for amortization under § 197 attributable to goodwill and certain other intangibles. 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. 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 sections 4.04 and 4.07 of this notice.

.02 Definitions . For purposes of this section 4:

(1) Covered book intangible amorti- zation expense . The term covered book

intangible amortization expense means any of the following items, other than covered book intangible COGS amortization, that are taken into account in FSI with respect to an eligible intangible—

(a) Amortization expense; (b) Other recovery of AFS basis (including from an impairment loss) that occurs prior to the taxable year in which the disposition of the eligible intangible occurs for regular tax purposes; or

(c) Impairment loss reversal. (2) Covered book intangible COGS amortization . The term covered book intangible COGS amortization 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 intangible—

(c) Impairment loss reversal. (3) Covered book intangible expense . The term covered book intangible expense means an amount (if any), other than covered book intangible COGS amortization and covered book intangible amortization expense, that‑‑

(a) Reduces FSI; and (b) Is reflected in the basis for depreciation, as defined in §§ 1.167(g)-1 and 1.197-2(f)(1)(ii) (determined without regard to any basis adjustments described in § 1016(a)(2) and (3)), of an eligible intangible for regular tax purposes.

(4) Covered book inventoriable intan- gible expense . The term covered book inventoriable intangible expense 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 with respect to an eligible intangible—

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eligible intangible on AFSI for the taxable year.

.05 Consistency requirement . If a CAMT entity relies on section 4 of this notice and makes the adjustment to AFSI provided in section 4.04 of this notice for a taxable year, the CAMT entity must make the adjustment for all eligible intangibles held by the CAMT entity as of the beginning of such taxable year. This is the case regardless of whether the eligible intangibles are attributable to one or multiple transactions. In addition, once a CAMT entity makes the AFSI adjustment provided in this section 4.04 for a taxable year, such CAMT entity must continue making such adjustment for all subsequent taxable years until all such eligible intangibles are disposed of for regular tax purposes or such time as prescribed by the Treasury Department and the IRS in regulations or guidance published in the Internal Revenue Bulletin.

.06 Determining eligible intangible tax COGS amortization adjustment and cov- ered book intangible COGS amortization adjustment .

(1) In general . Except as provided in section 4.06(2) of this notice, a CAMT entity is required to—

(a) Apply the method(s) of accounting the CAMT entity uses for AFS purposes to determine the covered book intangible COGS amortization adjustment under section 4.04(1)(c) of this notice; and

(b) Apply the method(s) of accounting under § 263A that the CAMT entity uses for regular tax purposes (and, in the case of inventory property, the method(s) of accounting that the CAMT entity uses to identify and value inventories under §§ 471 and 472) to determine the eligible intangible tax COGS amortization adjustment under section 4.04(1)(a) of this notice.

(2) Reasonable method . A CAMT entity is permitted to use any reasonable method to determine covered book inventoriable intangible expense in ending inventory for AFS purposes for purposes of determining the covered book intangible COGS amortization adjustment under section 4.04(1)(c) of this notice, or to determine the eligible intangible tax amortization included in ending inventory for regular tax purposes for purposes of determining the eligible intangible tax COGS amorti

(5) Deductible intangible tax amorti- zation . The term deductible intangible tax amortization means eligible intangible tax amortization, as defined in section 4.02(7) of this notice, that is allowed as a deduction in computing taxable income.

(6) Eligible intangible . The term eli- gible intangible means an intangible that meets the requirements of section 4.03 of this notice.

(7) Eligible intangible tax amorti- zation . The term eligible intangible tax amortization means amortization deductions allowed under § 197 with respect to an eligible intangible.

(8) Eligible intangible tax COGS amortization . The term eligible intangible tax COGS amortization means:

(a) The eligible intangible tax amortization capitalized to inventory under § 263A and recovered as part of cost of goods sold in computing gross income; and

(b) The eligible intangible tax amortization capitalized under § 263A to the basis of property described in § 1221(a) (1) that is not inventory and is recovered as part of the computation of gain or loss from the sale or exchange of such property in computing taxable income.

(9) Tax intangible amortization section 481(a) adjustment . The term tax intangi- ble amortization section 481(a) adjustment means an adjustment (or portion thereof) required under § 481(a) for a change in method of accounting that impacts the timing of taking into account eligible intangible tax amortization in computing taxable income (for example, a change in method of accounting involving a change from deducting eligible tax amortization to capitalizing eligible tax amortization under § 263A or another capitalization provision, or vice versa).

.03 Eligible intangible . (1) In general . For purposes of section 4 of this notice, an eligible intangible means an amortizable section 197 intangible under § 197(c) that is either:

(a) Goodwill, or (b) An intangible (other than an intangible described in § 56A(c)(14)(B)), the AFS basis of which is not permitted to be amortized or otherwise recovered for AFS purposes other than by impairment or disposition.

(2) Intangibles that are not depreciable under § 197 for regular tax purposes . Eligible intangibles do not include an intan

gible that is not subject to amortization under § 197 for regular tax purposes.

.04 AFSI adjustment for eligible intan- gibles .

(1) In general . The AFSI of a CAMT entity for a taxable year may be adjusted as follows:

(a) Reduced by eligible intangible tax COGS amortization, but only to the extent of the amount recovered—

(i) As part of cost of goods sold in computing gross income for the taxable year; or

(ii) As part of the computation of gain or loss from the sale or exchange of non-inventory property described in § 1221(a)(1) that is included in taxable income, or deducted in computing taxable income, respectively, for the taxable year;

(b) Reduced by deductible intangible tax amortization with respect to an eligible intangible, but only to the extent of the amount allowed as a deduction in computing taxable income for the taxable year;

(c) Adjusted to disregard covered book intangible amortization expense, covered book intangible COGS amortization, and covered book intangible expense, and amounts described in section 4.07(6) of this notice with respect to an eligible intangible, including an eligible intangible placed in service for regular tax purposes in a taxable year subsequent to the taxable year the eligible intangible is treated as placed in service for AFS purposes;

(d) Reduced by any tax intangible amortization section 481(a) adjustment that is negative, but only to the extent of the amount of the adjustment that is taken into account in computing taxable income for the taxable year; and

(e) Increased by any tax intangible amortization section 481(a) adjustment that is positive, but only to the extent of the amount of the adjustment that is taken into account in computing taxable income for the taxable year.

(2) Eligible intangibles held by a part- nership . If an eligible intangible is held by a partnership, the CAMT entity applies rules similar to proposed § 1.56A-16(d) (2). However, if the CAMT entity otherwise applies any proposed modifications to the CAMT Proposed Regulations in Notice 2025-28, the CAMT entity must apply any applicable modifications in determining the effect of the partnership’s

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zation adjustment under section 4.04(1)(a) of this notice, or both, provided that such reasonable method is consistent with and reflects the method(s) of accounting the CAMT entity uses for AFS purposes or regular tax purposes, as applicable. A reasonable method would include a method similar to the simplifying methods provided in proposed § 1.56A-15(d)(3)(ii)(A) through (C).

(3) Reporting requirement . If a CAMT entity makes the AFSI adjustment provided in section 4.04 of this notice for a taxable year, it must attach a statement to its Federal income tax return for such taxable year. The statement—

(a) Must be titled “AFSI adjustment for eligible intangibles”,

(b) Must include the CAMT entity’s name, address, and taxpayer identification number, and

(c) If a CAMT entity uses a reasonable method under section 4.06(2) of this notice, it must: include a statement whether the CAMT entity is using such reasonable method to determine (i) covered book inventoriable intangible expense in ending inventory for AFS purposes for purposes of determining the covered book intangible COGS amortization adjustment under section 4.04(1)(c) of Notice 2026-7 for the taxable year, or (ii) eligible intangible tax amortization in ending inventory for regular tax purposes for purposes of determining the eligible tax COGS amortization adjustment under section 4.04(1) (a) of Notice 2026-7, as applicable, for the taxable year, or (iii) both.

.07 AFSI adjustment upon disposition of eligible intangibles .

(1) In general . In the case of a CAMT entity that makes the adjustment provided in section 4.04 of this notice to determine AFSI for any taxable year, except as otherwise provided in section 4.07(7) of this notice, if such CAMT entity disposes of an eligible intangible for regular tax purposes, the CAMT entity must adjust AFSI for the taxable year in which the disposition occurs to redetermine any gain or loss taken into account in the CAMT entity’s FSI with respect to the disposition for the taxable year (including a gain or loss of zero) by reference to the CAMT basis (in lieu of the AFS basis) of the eligible intangible as of the date of the disposition (disposition date), as determined under sec

tion 4.07(2) of this notice. To the extent the CAMT basis of the eligible intangible is negative (for example, because of differences between regular tax basis and AFS basis), this negative amount is required to be recognized as AFSI gain upon disposition of the eligible intangible.

(2) Adjustments to the AFS basis of eli- gible intangible . For purposes of applying section 4.07(1) of this notice, the CAMT basis of the eligible intangible as of the disposition date is the AFS basis of the eligible intangible as of that date—

(a) Decreased by the full amount of eligible intangible tax amortization with respect to such eligible intangible as of the disposition date (regardless of whether any amount of eligible intangible tax amortization was capitalized for regular tax purposes and not yet taken into account as a reduction to AFSI through an adjustment described in section 4.04(1)(a) of this notice as of the disposition date);

(b) Increased by the amount of any covered book intangible expense with respect to the eligible intangible;

(c) Increased by the amount of any covered book intangible amortization expense and covered book intangible COGS amortization that reduced the AFS basis of such eligible intangible as of the disposition date;

(d) Decreased by any reduction to the CAMT basis of such eligible intangible under proposed § 1.56A-21, taking into account the proposed modifications to proposed § 1.56A-21 contained in Notice 2025-46 if the CAMT entity otherwise applies such modifications in determining AFSI for the taxable year; and

(e) Increased or decreased, as appropriate, by the amount of any adjustments to AFS basis that are disregarded for AFSI and CAMT basis purposes under the CAMT Proposed Regulations with respect to such eligible intangible, taking into account any proposed modifications to the CAMT Proposed Regulations contained in Notice 2025-46 if the CAMT entity otherwise applies such modifications in determining AFSI for the taxable year.

(3) Adjustments to the AFS basis of eli- gible intangibles . For purposes of determining the CAMT basis of the eligible intangible under section 4.07(2) of this notice, the CAMT entity applies rules similar to proposed § 1.56A-16(e)(2)(ii).

(4) Disposition of eligible intangibles by a partnership . If a partnership disposes of an eligible intangible, the CAMT entity applies rules similar to proposed § 1.56A-16(e)(3). However, if the CAMT entity otherwise applies any proposed modifications to the proposed CAMT regulations in Notice 2025-28, the CAMT entity must apply any applicable modifications in determining the effect of the disposition on AFSI for the taxable year.

(5) Treatment of amounts recognized in FSI upon the disposition of eligible intan- gibles . Except as otherwise provided in the CAMT Proposed Regulations (or as otherwise provided in Notice 2025-28 or Notice 2025-46 if the CAMT entity applies a proposed modification to the CAMT Proposed Regulations contained in such notices), if a CAMT entity disposes of an eligible intangible for regular tax purposes and recognizes gain or loss from the disposition in its FSI, the gain or loss (as redetermined under section 4.07(1) of this notice) is recognized for AFSI purposes in the taxable year of disposition, regardless of whether any gain or loss with respect to the disposition is realized, recognized, deferred, or otherwise taken into account for regular tax purposes.

(6) Subsequent AFS dispositions . If an eligible intangible is disposed of for regular tax purposes before it is treated as disposed of for AFS purposes, any AFS basis recovery with respect to such eligible intangible that is reflected in FSI following the date such eligible intangible is disposed of for regular tax purposes is disregarded in determining AFSI.

(7) Intercompany transactions . If a member of a tax consolidated group disposes of an eligible intangible for regular tax purposes in an intercompany transaction, the member determines its AFSI with respect to such disposition by applying proposed § 1.56A-16(e)(6) or, if the member relies on the guidance provided in section 5 of Notice 2025-46 in determining AFSI for the taxable year, the guidance contained in section 5 of Notice 2025-46.

.08 Determining applicable corpora- tion 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 sections 4.04 and 4.07 of this notice.

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