The Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) have issued two significant pieces of interim guidance, Notice 2025-46 and Notice 2025-49, addressing the Corporate Alternative Minimum Tax (CAMT). This guidance responds to numerous comments received on the proposed regulations (REG-112129-23) issued in September 2024 and is intended to reduce compliance burdens and provide clarity on complex areas of the CAMT. The forthcoming proposed regulations are expected to incorporate rules similar to this interim guidance, on which taxpayers may rely immediately.

This article provides a technical overview of the key provisions within these Notices, detailing the purpose of the guidance, the legal analysis, its practical application, and the relevant applicability dates.

Background of the CAMT

Enacted by the Inflation Reduction Act of 2022, the CAMT is a 15% minimum tax imposed on the "adjusted financial statement income" (AFSI) of an "applicable corporation" for tax years beginning after December 31, 2022. An applicable corporation is generally a corporation (other than an S corporation, RIC, or REIT) that meets a $1 billion average annual AFSI test for one or more prior taxable years ending after December 31, 2021.

AFSI starts with the net income or loss from a taxpayer’s applicable financial statement (AFS) and is then modified by a series of adjustments under § 56A. The Secretary of the Treasury is granted broad authority under § 56A(c)(15) and § 56A(e) to issue regulations and guidance necessary to carry out the purposes of the statute, including adjustments to prevent the omission or duplication of any item. The proposed CAMT regulations published in 2024 were the first comprehensive attempt to interpret these provisions, and they generated significant feedback from the professional community.

Notice 2025-46: Corporate Transactions, Troubled Companies, and Consolidated Groups

Notice 2025-46 provides interim guidance focused on three main areas: domestic corporate transactions, financially troubled companies, and tax consolidated groups. The stated purpose is to reduce compliance burdens by aligning CAMT rules more closely with the rules for regular income tax purposes.

Domestic Corporate Transactions

Reason for Guidance The proposed regulations under §§ 1.56A-18 and 1.56A-19 created a "cliff effect" where the receipt of even a de minimis amount of boot in an otherwise nonrecognition transaction could cause the entire transaction to be treated as a recognition event for CAMT purposes, governed by financial accounting rules rather than tax principles. Commenters argued this approach was overly harsh and recommended conforming the CAMT rules more closely to the familiar principles of subchapter C.

IRS Analysis and Application In response, the new guidance largely replaces the proposed "covered nonrecognition transaction" framework with rules that follow the regular tax treatment of subchapter C transactions, but with CAMT inputs (e.g., CAMT basis).

AFSI Adjustments for Stock Ownership: For a CAMT entity owning stock in a domestic corporation not in its consolidated group, AFSI adjustments will now disregard financial statement income/loss from the stock and instead include regular tax items (like dividends and gain/loss on disposition), calculated using the stock’s CAMT basis. The character of distributions is determined using regular tax earnings and profits.
AFSI and Basis in Asset Transactions: For "domestic covered asset transactions" (e.g., transfers under §§ 311, 332/337, 351, 355, 361, or reorganizations under § 368), AFSI adjustments will also follow regular tax principles. Gain or loss is computed using the asset’s CAMT basis. Correspondingly, the transferee’s CAMT basis in the received assets will be determined using the relevant regular tax provisions, such as §§ 301(d), 334(b), 358, and 362, substituting CAMT basis for regular tax basis.
Deemed Asset Sales: For elections under § 338 or § 336(e), the target corporation’s AFSI is adjusted to include the net gain or loss recognized for regular tax purposes on the deemed asset sale, calculated using the CAMT basis of the assets. The new CAMT basis of the assets will equal the regular tax basis determined under the regulations for those sections.
Purchase/Pushdown Accounting: Any purchase or pushdown accounting adjustments made on an AFS following a stock acquisition are disregarded for purposes of determining the target’s AFSI and the CAMT basis of its assets.

Financially Troubled Companies

Reason for Guidance While commenters generally supported the proposed regulations’ approach of incorporating principles from § 108, they sought greater clarity and closer alignment with the regular tax rules, especially regarding attribute reduction and application to consolidated groups.

IRS Analysis and Application The interim guidance in Notice 2025-46 refines the rules for troubled companies to further mirror the regular tax framework of §§ 108 and 1017.

Exclusion of COD Income: AFSI is adjusted to exclude cancellation of debt (COD) income recognized on a company’s AFS if the CAMT entity is in a title 11 bankruptcy case or to the extent it is insolvent. Insolvency for CAMT purposes is determined using the regular tax definition under § 108(d)(3). For consolidated groups, insolvency is determined on a member-by-member basis.
Attribute Reduction: A CAMT entity excluding COD income from AFSI must reduce its "CAMT attributes". The order of attribute reduction is specified and generally follows the logic of § 108(b), starting with the CAMT basis of certain property, then FSNOLs, CFC adjustment carryovers, CAMT foreign tax credits, and finally the CAMT basis of other assets. Reductions are made after determining the tentative minimum tax for the year of discharge.
Shareholder Contributions and Stock-for-Debt: The guidance incorporates principles similar to § 108(e)(6) and § 108(e)(8). When a shareholder contributes a corporation’s own debt to capital, the corporation is treated as satisfying the debt for an amount equal to the shareholder’s CAMT basis in the debt, with AFSI adjusted accordingly. Similarly, if a corporation satisfies debt with its own stock, it is treated as paying an amount of money equal to the stock’s fair market value.

Tax Consolidated Groups

Reason for Guidance The proposed regulations under § 1.1502-56A offered a simplified version of the regular tax consolidated return rules. Commenters found this approach problematic, arguing that it would lead to higher compliance costs and potential inadvertent omissions. They strongly recommended incorporating the existing consolidated return regulations by reference, with appropriate CAMT-specific modifications.

IRS Analysis and Application The IRS agreed with commenters and has replaced the simplified framework with a more comprehensive one. The interim guidance provides that the determination of a tax consolidated group’s AFSI will be governed by the consolidated return regulations under § 1502, with the following key substitutions:

"AFSI" replaces "taxable income".
"CAMT basis" replaces "adjusted basis".
"FSNOLs" replace "NOLs".

Certain regular tax consolidated return rules, such as the separate return limitation year (SRLY) rules and the § 382 rules, will not apply for CAMT purposes.

Acquired FSNOLs and Built-In Items

The proposed regulations (§ 1.56A-23(e) and (f)) contained a burdensome "separate tracking" requirement for the use of financial statement net operating losses (FSNOLs) acquired in a successor transaction. Responding to commenter feedback that this was unworkable, Notice 2025-46 states that a CAMT entity is no longer required to apply these limitations when computing the amount of FSNOLs available to reduce AFSI.

Notice 2025-49: Additional Interim Guidance

Notice 2025-49 provides further interim guidance on a range of topics, including reliance rules, fair value items, and several specific AFSI adjustments aimed at preventing the duplication or omission of items.

Reliance on Proposed Regulations and Interim Guidance

Reason for Guidance A major source of concern for practitioners was the complex and restrictive applicability dates and reliance rules in the proposed regulations. The rules distinguished between "specified" and "non-specified" regulations, generally requiring taxpayers who relied on any part of the rules to adopt all specified sections, imposing significant compliance burdens.

IRS Analysis and Application Notice 2025-49 completely overhauls these rules. The Treasury and IRS now anticipate that no section of the CAMT proposed regulations will be applicable for any taxable year beginning before the date a corresponding final regulation is published. Until then, taxpayers have significant flexibility.

Reliance: A taxpayer may rely on any individual section of the CAMT Proposed Regulations for a tax year beginning before the corresponding final regulation is published, provided that section is followed consistently in its entirety for all such years. Reliance on one section does not trigger a requirement to rely on others, with a limited exception for certain related foreign sections.
Interim Guidance: Taxpayers may also rely on the guidance in Notices 2025-27, 2025-28, 2025-46, and 2025-49 without being required to follow any section of the CAMT Proposed Regulations.

Items Measured at Fair Value

Reason for Guidance Commenters argued that including unrealized gains and losses from fair value accounting in AFSI creates distortions and non-economic results, especially when the items are not marked-to-market for regular tax purposes. They recommended expanding the scope of adjustments that disregard such financial statement gains and losses.

IRS Analysis and Application The notice provides two new elective options for handling fair value items, which are broader than the rules in proposed § 1.56A-24.

FVI Exclusion Option: A CAMT entity may elect to adjust AFSI to disregard a fair value measurement adjustment for a "fair value item" if the item is not marked-to-market for regular tax purposes. This option must be applied consistently to all such fair value items. The cumulative disregarded adjustments are brought back into AFSI upon a "subsequent adjustment date," such as when the item is sold or disposed of for regular tax purposes.
Hedge Coordination Option: This option addresses a specific mismatch. If both a hedged item and its corresponding AFSI hedge are marked-to-market for regular tax, but only one has a fair value measurement adjustment for AFS purposes, a CAMT entity may elect to disregard that fair value measurement adjustment.

Specific AFSI Adjustments

Notice 2025-49 introduces several new targeted AFSI adjustments:

Regulated Operations (ASC 980): To address inequities faced by regulated utilities, which must capitalize certain repair costs as "regulatory assets" under ASC 980, the guidance allows a CAMT entity to deduct these costs in the year incurred for AFSI purposes and disregard the corresponding AFS depreciation. This adjustment is not considered when determining applicable corporation status.
Tonnage Tax Regime: To prevent the CAMT from undermining the national security policy goals of the tonnage tax regime, AFSI is adjusted to align with regular tax treatment under subchapter R. AFSI will be adjusted to exclude income that is excluded from gross income under § 1357, disallow expenses disallowed under § 1357 or § 1358, and include the "notional shipping income" determined under § 1353.
Pre-2020 Embedded Depreciation: In response to comments, the notice provides an adjustment to reduce AFSI for depreciation deductions that were embedded in pre-2020 NOLs (i.e., NOLs from tax years ending on or before December 31, 2019). This allows a portion of an NOL deduction claimed under § 172(a) to reduce AFSI in the year of deduction, even though there is no corresponding FSNOL. The notice provides two deemed reasonable methods for calculating this portion: a "Proportional Approach" and a "Lesser-of Approach".
Nonlife Insurance Company NOL Carrybacks: Section 56A(d) allows for FSNOL carryforwards but not carrybacks, creating a mismatch for nonlife insurance companies, which are permitted to carry back NOLs for regular tax purposes under § 172(b)(1)(C). The new guidance allows such a company to reduce AFSI in an NOL carryback year by the amount of the regular tax NOL deduction. This reduction is then recaptured as an increase to AFSI in years succeeding the loss year, offsetting future FSNOL deductions.
Goodwill Amortization: For regular tax, goodwill acquired in an asset acquisition is generally amortized over 15 years under § 197. For AFS purposes, it is generally not amortized but tested for impairment. To mitigate this book-tax difference for pre-CAMT acquisitions, the guidance allows an AFSI adjustment for "eligible goodwill" acquired in transactions announced or completed on or before October 28, 2021. A CAMT entity may reduce AFSI by its § 197 amortization deduction and disregard any AFS amortization or impairment related to that goodwill.
Accounting Principle Changes and Restatements: The proposed regulations required taxpayers to bifurcate adjustments to retained earnings between pre-2020 and post-2019 periods, which commenters found burdensome. Notice 2025-49 provides a simplified option that allows taxpayers to calculate the AFSI adjustment based on the entire cumulative adjustment to retained earnings without carving out the pre-2020 portion.

Effective Dates and Reliance

Taxpayers may rely on the interim guidance in Notice 2025-46 for taxable years beginning before forthcoming proposed regulations are published. Similarly, taxpayers may rely on the guidance in Notice 2025-49 for tax years beginning before the forthcoming proposed regulations addressing those specific topics are published. Importantly, reliance on any part of this interim guidance does not trigger the restrictive consistency requirements associated with the original 2024 proposed regulations.

Conclusion

Notices 2025-46 and 2025-49 represent a significant and welcome response from Treasury and the IRS to the practical concerns raised by tax professionals. By more closely aligning CAMT principles with established regular tax concepts and providing much-needed flexibility in reliance, this guidance should substantially reduce the compliance burden and uncertainty associated with the new CAMT regime. Tax professionals should carefully review these notices to understand the planning opportunities and new compliance pathways available to their clients.

Prepared with assistance from NotebookLM.