Notice 2026-7 – IRS Issues Additional Interim Guidance on Corporate Alternative Minimum Tax

Summary

On February 18, Treasury and the IRS released Notice 2026-7 (the “Notice”), providing additional interim guidance regarding the application of the corporate alternative minimum tax (“CAMT”). The Notice provides generally taxpayer-friendly guidance by generally conforming the CAMT consequences more to regular tax consequences (rather than regular accounting treatment) for certain assets and expenditures, including repair costs for depreciable assets, amortization of goodwill and other intangibles, and domestic research and experimental expenditures. In addition, the Notice clarifies and updates prior guidance on other specific issues, including certain issues regarding financially troubled companies and transfers of assets to foreign corporations.

Background

In 2022, Congress passed the Inflation Reduction Act, which included a 15% CAMT on certain large corporations based on the net income or loss on their financial statements, adjusted by special tax rules (“AFSI” or “adjusted financial statement income”). 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”).

On June 2, 2025, 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.

On September 30, 2025, the IRS released Notice 2025-46 and Notice 2025-49. Notice 2025-46 focuses on domestic corporate transactions, troubled companies, tax consolidated groups and financial statement net operating losses. Notice 2025-49 lays out the rules for reliance and applicable dates, and contains guidance on a number of specific AFSI adjustments. For more information on Notices 2025-46 and 2025-49, see prior S&C memo here.

Notice 2026-7

The discussion of Notice 2026-7 below comprises three parts: (1) AFSI adjustment rules for certain assets or expenditures; (2) clarification or modification of prior guidance on specific issues; and (3) applicability date and reliance rules.

AFSI Adjustments for Certain Assets or Expenditures

Notice 2026-7 provides additional guidance regarding AFSI adjustments (some of which had been addressed by Notice 2025-49) for five categories of assets or expenditures, which generally are deductible for regular tax purposes but capitalized for book purposes. All of these rules are intended to conform the CAMT consequences more closely with the regular tax consequences.

If a CAMT entity relies on this Notice and makes an AFSI adjustment accordingly, the entity must consistently apply such adjustments for future years. However, note that for purposes of determining whether a corporation is subject to CAMT, which applies to corporations whose average annual AFSI over a three-year period exceeds certain thresholds, AFSI is determined without regard to the AFSI adjustments described below.

Tax-Deductible Repairs to Depreciable Property[1]

Section 56A(c)(13) provides that AFSI will be reduced by depreciation deductions under regular tax rules for section 168 property, but neither Section 56A(c) nor the CAMT Proposed Regulations provide an adjustment to AFSI for repair and maintenance costs with respect to section 168 property. Notice 2025-49 provides limited relief for repair and maintenance costs that are capitalized and depreciated for AFS purposes under certain GAAP rules applicable to CAMT entities with regulated operations such as public utilities. In response to comments noting continued significant compliance burdens for other taxpayers,[2] Notice 2026-7 provides relief for repair and maintenance costs to all CAMT entities.

More specifically, Notice 2026-7 defines “eligible repair assets”[3] as any cost that is (i) attributable to repair or maintenance of section 168 property, (ii) capitalized and subject to depreciation for book purposes and (iii) not capitalized as section 168 property for regular tax purposes. With respect to such eligible repair assets, AFSI is reduced by the “tax COGS repair deduction”[4] (repair expenses that are capitalized and recovered as COGS or in the sale of non-inventory property primarily held for sale to customers) and by other “deductible tax repairs” (generally, repair expenses that are deductible under section 162), in each case to the extent taken into account in computing gross income, gain or loss, or taxable income for the taxable year. Corresponding book items, defined as “book COGS repair depreciation”[5] and “book repair depreciation expense”[6] attributable to eligible repair assets, are disregarded for AFSI purposes. AFSI adjustments are also made to reflect adjustments as a result of accounting method changes.

Amortization of Certain Intangibles Including Goodwill[7]

Goodwill that is acquired (e.g., not self-created) is generally amortizable over a 15-year period for regular tax purposes, while, for book purposes, goodwill is generally not recoverable until the goodwill is impaired or disposed of. A transition rule in Notice 2025-49 had allowed AFSI adjustments for amortizable goodwill acquired in certain transactions announced or completed on or before October 28, 2021. In response to comments, Notice 2026-7 transforms the transition rule into a more general rule and that is applicable to goodwill or other similar intangible assets that are amortizable for regular tax purposes under section 197 but not for book purposes until impaired or sold (such intangible assets, “eligible intangibles”).

More specifically, Notice 2026-7 provides that, with respect to eligible intangibles, AFSI is reduced by the amount of amortization deductions taken into account in computing taxable income (“eligible intangible tax COGS amortization” and “deductible intangible tax amortization”). Corresponding book items are disregarded from AFSI. The Notice also provides for rules for AFSI adjustments resulting from accounting method changes.[8]

For eligible intangibles held by partnerships, rules similar to Proposed Treasury Regulation section 1.56A-16(d)(2) apply unless the partnership applies proposed modifications in Notice 2025-28, in which case any applicable modifications must be applied.[9] 

CAMT entities making the eligible intangible adjustment must also adjust AFSI upon the disposition of eligible intangibles,[10] including through intercompany transactions by a member of a consolidated group.[11] 

Amortization of Domestic Research & Experimental Expense[12]

For tax years beginning after December 31, 2024, the OBBBA generally allows the full deduction of qualifying R&E expenditures (“section 174A deductions”).[13] Such domestic R&E expenditures incurred in taxable years beginning after December 31, 2021 and before January 1, 2025 had been required by the TCJA to be amortized over five years (“section 174 amortizations”).[14] As a result, both section 174A deductions and section 174 amortizations apply to domestic R&E expenditures during a transition period, potentially overstating book income compared to regular taxable income during such transition period, especially for taxpayers electing to deduct in 2025 (or 2025 and 2026) any outstanding section 174 amortization balances. To address such concern raised by the comments, Notice 2026-7 provides that CAMT entities may reduce AFSI by the amount of section 174 amortizations taken into account in computing taxable income for the taxable year (“TCJA domestic section 174 amortization”). Corresponding book items, defined as “book research or software development amortization,” are disregarded for AFSI purposes. The Notice also provides for adjustments to AFSI from accounting method changes.[15] 

Production Costs for Film, Television, Theater and Music[16]

Specified production costs refer to costs of any qualified film or television production, any qualified live theatrical production and any qualified sound recording production.[17] With respect to such specified production costs, Notice 2026-7 more closely aligns CAMT consequences with regular tax consequences by (i) allowing an AFSI reduction by the amount of “deductible qualified production costs” (production expenses eligible under section 181 that are immediately deductible for regular tax purposes) and “qualified production tax COGS” (production costs that are capitalized for tax and recovered through cost of goods sold when the production generates income) and (ii) disregarding corresponding book items, defined as “qualified production book COGS depreciation” and “qualified production book expense.” The Notice also provides coordination rules for accounting method changes.[18] 

Low-Cost Tangible Property Treated as Materials and Supplies[19]

Under Treasury regulation section 1.162-3(c)(1)(iv), low-cost tangible property treated as materials and supplies generally includes items costing $200 or less (or a higher amount if consistent with the taxpayer’s accounting procedures). Examples include inexpensive tools, small equipment parts or handheld devices. For regular tax purposes, these items are treated as materials and supplies, meaning they are deducted when used or consumed rather than capitalized and depreciated. However, for book purposes, the same items may be capitalized and depreciated over their useful lives.

Notice 2026-7 more closely aligns CAMT consequences with regular tax consequences by allowing an AFSI reduction by the amount of “eligible materials and supplies tax COGS depreciation” (costs capitalized into inventory for tax and recovered through cost of goods sold) and “deductible eligible materials and supplies”[20] (amounts allowed as current deductions for tax). Corresponding book items, defined as “eligible materials and supplies book COGS depreciation”[21] and “eligible materials and supplies book expense,”[22] are disregarded for AFSI purposes. The rules further incorporate corresponding increases or decreases for accounting method changes.

Other Guidance Provided by the Notice

Clarifications for Financially Troubled Companies[23]

Notice 2025-46 provides interim guidance on, among other things, rules relating to attribute reduction in connection with exclusion of cancellation of debt income (“CODI”) for companies that are in bankruptcy or insolvent. Notice 2026-7 clarifies that, for purposes of applying such attribute reduction rules, the rules under Treasury regulation section 1.1502-28 apply. Treasury regulation section 1.1502-28 provides rules for applying the attribute reduction rules to a consolidated tax group, and generally determines CODI and attribute reductions on an entity-by-entity basis before requiring attribute reductions with respect to other members of the group.

Further, Notice 2026-7 clarifies and modifies the interim guidance under Notice 2025-46 regarding fresh-start accounting gain and loss on non-transactional bankruptcy emergences (i.e., excluding discharge of indebtedness or asset sales as part of the bankruptcy case). A CAMT entity determines its CAMT consequences resulting from such emergences (and not from a discharge of indebtedness or a domestic covered asset transaction) by (1) disregarding any gain or loss reflected in FSI of the CAMT entity; and (2) determining the CAMT basis of any assets (other than the regular tax basis in the stock of a foreign corporation) of the CAMT entity by disregarding any adjustment to the AFS basis of those assets resulting from the emergence from bankruptcy.

Revisions to Proposed Anti-Abuse Rule for Certain Asset Transfers to Foreign Corporations[24]

The 2024 Proposed Regulations provided for an anti-abuse rule to prevent the perceived avoidance of CAMT, whereby a taxpayer would exchange an asset with a CAMT basis that is lower than its regular tax basis for foreign stock with a CAMT basis equal to the regular tax basis (which would be based on the regular tax basis in the asset).[25] Under the proposed regulations, such an exchange would be subject to the anti-abuse rule, and the relevant CAMT entity would recognize an increase in AFSI for the step-up in CAMT basis, 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” (the “Proposed Two-Year Rule”). A commenter noted that the per se nature of the Proposed Two-Year Rule would require full inclusion in AFSI if just a single dollar of basis is “taken into account” within two years. Another commenter observed that for tax years before the publication of the 2024 Proposed Regulations, taxpayers could not have anticipated the basis rules provided in such proposed regulations, implying that taxpayers could not have entered into transactions with the intent to avoid CAMT. Notice 2026-7 addresses these comments by modifying the per se nature of the two-year rule into a rebuttable presumption standard. Under the modified two-year rule, the taxpayer can avoid the application of the anti-abuse rule by providing facts and circumstances establishing that the transaction was undertaken without a principal purpose to avoid CAMT.

CAMT Consequences for Certain Outbound Transfers of Intangible Assets[26]

Under the 2024 Proposed Regulations, the CAMT consequences of an outbound transfer of intangible property in exchange for foreign corporate stock qualifying as a section 351 exchange would be determined under regular tax principles,[27] and accordingly appears to incorporate section 367(d) which generally imposes a deemed royalty paid to the transferor over the useful life of the intangible. Notice 2026-7 affirms this reading by providing that a CAMT entity required to include an amount in gross income under section 367(d) for regular tax purposes for a taxable year would increase its AFSI for such year by the same amount. Moreover, Notice 2026-7 addresses a commenter’s concern that this could result in double taxation, by permitting the foreign corporation to reduce its book net income for CAMT purposes for the deemed royalty payments that increase the AFSI of a CAMT entity.

Applicability Dates and Reliance[28]

Forthcoming proposed regulations will propose rules consistent with the Notice and will apply for taxable years beginning on or after the date of the publication of the final regulations. In addition, the Notice provides that taxpayers may rely on the guidance in the Notice for all tax years beginning prior to the issuance of such proposed regulations, subject to satisfying certain consistency requirements and the following modifications:

• For repair costs and amortization of intangibles, taxpayers may rely on the rules under Notice 2025-49 as originally published for tax years beginning before February 18, 2026.

For the provisions of the Notice modifying the Proposed Two-Year Rule and outbound transfers of intangible assets discussed above, because they rely upon certain provisions of the 2024 Proposed Regulations, taxpayers may rely on the Notice only if they rely on such relevant provisions of the 2024 Proposed Regulations, subject to satisfying certain reliance rules set forth in Notice 2025-49.