IRS Issues Interim Guidance on Corporate Alternative Minimum Tax

On September 30, the IRS released two related notices, Notice 2025-46 and Notice 2025-49, providing interim guidance on the corporate alternative minimum tax (“CAMT”). These notices provide that the IRS intends to partially withdraw the previously proposed regulations and issue revised proposed regulations. Notice 2025-46 provides guidance in accordance with the intent of the revised proposed regulations, focusing on domestic corporate transactions, troubled companies, tax consolidated groups, and financial statement net operating losses (“FSNOLs”). Notice 2025-49 lays out the rules for reliance and applicable dates, and contains guidance on a number of specific adjusted financial statement income (“AFSI”) adjustments.

Background

In 2022, Congress passed the Inflation Reduction Act which, in part, imposed a 15% minimum tax for certain large corporations, based on their AFSI. AFSI is an entity’s net income or loss on such entity’s financial statements (financial statement income, or “FSI”), adjusted by special tax rules. The Treasury Department and the IRS released, in September 2024 (and amended in December 2024), detailed and complex proposed regulations on the CAMT regime (“2024 Proposed Regulations”). The IRS received numerous comments during the notice and comment period, which ran until January 2025.

On June 2, the IRS released Notice 2025-27, which broadened a safe harbor for corporations in determining whether CAMT applies. The IRS followed this release with Notice 2025-28 on July 29, which announced that the IRS intends to partially withdraw and revise the 2024 Proposed Regulations and provided rules simplifying the application of CAMT rules to partnerships. For more information on Notice 2025-28, see prior S&C memo here. The two notices released on September 30 (together with Notice 2025-27 and Notice 2025-28, the “2025 CAMT Notices”) further seek to reduce complexity and administrative burden by providing clarifying rules that depart from the 2024 Proposed Regulations.

Notice 2025-46: Increased Conformity to Regular Tax Rules

Notice 2025-46 provides clarifications for several categories: domestic corporate transactions, troubled companies, tax consolidated groups, and financial statement net operating losses (“FSNOLs”).

Domestic Corporate Transactions (Outside of a Consolidated Group)

Under the 2024 Proposed Regulations, corporate transactions were subject to financial accounting principles in some cases and regular tax principles in other cases, depending on whether a transaction was a fully tax-free transaction or a taxable (including partially taxable) transaction. In some cases, different components of a single transaction could be subject to different rules. Notice 2025-46 intends to reduce compliance burdens and costs of applying the 2024 Proposed Regulations “by more closely following the rules that apply for regular tax purposes and incorporating a more limited set of CAMT inputs.”

• Stock Ownership. The notice provides that if an entity directly owns stock of a domestic corporation that is not tax consolidated, the entity’s AFSI takes into account items with respect to the corporation under regular tax principles using CAMT basis inputs. Notably, the notice states that remeasurement gain or loss reflected in FSI would be disregarded, which is a welcome departure from the proposed regulations. The character and amount of any distribution is determined using earnings and profits under regular tax rules.
• Asset Transactions. The notice provides that if an entity engages in certain tax-free (or partially tax-free) corporate transactions, the entity’s AFSI also follows regular tax principles with CAMT basis inputs. The covered transactions (defined as “domestic covered asset transactions” in the notice) include reorganizations, contributions, distributions, and liquidations under §§ 368, 351, 355, 311, 361, 332 and 337. Basis in the assets acquired in such a transaction is determined under regular tax principles with CAMT inputs. This approach avoids the “cliff effect” under the 2024 Proposed Regulations, under which a transaction had to be entirely tax-free to receive regular tax treatment—even de minimis gain or loss, or in some cases boot, would have forced the entity to use AFS principles (with CAMT inputs) to determine AFSI.
• Deemed Asset Transactions. The notice provides that when a stock sale of a domestic corporation is treated as an asset sale under a §§ 338 or 336(e) election, AFSI follows the regular tax rules by taking into account gains or losses on the assets only, but with CAMT basis inputs. The new CAMT basis of the assets deemed purchased is equal to its regular tax basis in those assets.
• Purchase and Pushdown Accounting. Any purchase accounting and pushdown accounting adjustments after the purchase of a domestic corporation’s stock are disregarded for determining AFSI or CAMT basis.

Troubled Companies

The 2024 Proposed Regulations provided certain rules for the application of CAMT to companies that are in bankruptcy or that are insolvent, generally importing the rules excluding cancellation of indebtedness income (“CODI”) for such companies with a corresponding reduction in attributes. However, the 2024 Proposed Regulations were not completely harmonized with the CODI-related rules under existing tax law (such as the ordering rule for reducing attributes) and left certain questions unanswered (such as whether CODI consequences from capitalization of debt or exchanging debt for equity should also be incorporated for CAMT purposes). The notice provides that the forthcoming regulations will clarify how CAMT applies for troubled companies and align those rules more closely with regular tax rules, such as the following:

• Contributions of Debt. The notice provides new guidance on when a shareholder contributes a company’s debt back into the company as a capital contribution. The company is treated as paying off the debt with cash equal to the shareholder’s CAMT basis in that debt. The AFSI consequences follow regular tax cancellation of debt principles (i.e., CODI to the extent the debt’s face amount exceeds the shareholder’s basis), determined using CAMT inputs.
• Debt-for-Equity Exchanges. Likewise, the notice provides rules for when a corporation or partnership satisfies its debt with its own equity interests (i.e., stock or partnership interests). The entity is treated as if it had paid off the debt with cash equal to the fair market value of such equity interests issued in exchange. The AFSI consequences follow regular tax cancellation of debt principles (i.e., CODI to the extent the debt’s face amount exceeds the value of the stock/interest).
• Miscellaneous. The notice also provides some clarifying changes, such as that the definition of insolvency follows the regular tax definition. It also makes a technical adjustment to the attribute reduction rules to prevent potential double counting.[1]

Consistent with the 2024 Proposed Regulations, the notice provides that when an entity emerges from bankruptcy, it generally determines the CAMT consequences of “fresh start” accounting (other than with respect to discharge of indebtedness or domestic covered asset transactions, discussed above) by recomputing financial statement gain/loss using CAMT basis in assets. The CAMT basis of any assets of a company emerging from bankruptcy is the basis used in the financial statements (referred to as applicable financial statement, or “AFS” basis).[2]

Tax Consolidated Groups

The notice simplifies how CAMT applies to consolidated groups by more closely following the consolidated return regulations. The consolidated return regulations will generally apply to determining the AFSI of a tax consolidated group, but using CAMT inputs (such as AFSI instead of taxable income, CAMT basis instead of adjusted basis and FSNOLs instead of NOLs). Certain consolidated return provisions do not apply, such as the separate return limitation year rules (which limit use of NOLs or other attributes when a company joins or leaves a group) and the 382 loss limitation rules (which restrict losses after an ownership change), as well as any rule inapplicable under § 56A (for example, the rules for capital gains and losses, which CAMT ignores in favor of AFSI and CAMT basis calculations).

FSNOLs

The statute provides for a CAMT deduction for FSNOL carryovers to the taxable year, capped at 80% of AFSI computed without the FSNOLs. The 2024 Proposed Regulations impose limitations on the use of FSNOLs acquired in certain transactions deemed “successor transactions.” Such limitations, similar to the separate return limitation year (“SRLY”) rules under the consolidated return regulations, were intended to address the IRS’s concern for abusive transactions involving the acquisitions of companies with FSNOLs, but would require onerous recordkeeping and potentially apply to non-abusive transactions as well. The notice provides that such limitations in the 2024 Proposed Regulations need not be applied.

Notice 2025-49: Applicability Dates, Reliance and Specific Provisions

The second notice was more narrow in its scope. It provided rules for the applicability dates and reliance on the 2024 Proposed Regulations and the interim guidance. It also provided rules regarding specific provisions which commenters had requested.

Proposed Applicability Dates and Reliance on the CAMT Proposed Regulations and Forthcoming Proposed Regulations

Under the 2024 Proposed Regulations, some of the rules would be applicable starting with the taxable year ending after September 13, 2024, while others would apply to taxable years ending after final regulations are published. Instead, the notice provides that the IRS intends that neither the 2024 Proposed Regulations nor the forthcoming proposed regulations will apply to any taxable year beginning before the final regulations are published.

However, the notices make three reliance options available: (i) rely consistently on the 2024 Proposed Regulations for tax years beginning before final regulations are published (in whole or in part, but certain related provisions must be applied together); (ii) rely consistently on the 2024 Proposed Regulations as modified by subsequent guidance generally for tax years beginning before the forthcoming proposed regulations are published; or (iii) rely solely on the 2025 CAMT Notices generally for tax years beginning before the forthcoming proposed regulations are published (without the consistency requirement).

Specific Provisions

The second notice also includes a number of technical changes addressing specific provisions.[3] These provisions are intended to prevent distortions in AFSI when book-tax differences arise in specialized contexts.

Next Steps

Notice 2025-46 and Notice 2025-49, and the 2025 CAMT Notices more broadly, do not fully address issues raised by commenters to the 2024 Proposed Regulations, including issues relating to international provisions. Nonetheless, the notices provide meaningful relief from administrative burdens and costs associated with complying with the 2024 Proposed Regulations under the CAMT regime. Taxpayers, in deciding whether to rely on the 2025 CAMT Notices, should weigh the benefits and burdens of making such a decision.