Par. 9. Sections 1.56A-0 through 1.56A-27 are added to read as follows:
This section lists the table of contents for §§ 1.56A-1 through 1.56A-27.
§ 1.56A-1 Definitions and general rules for determining adjusted financial statement income .
(a) Overview.
(1) In general.
(2) Scope of the section 56A regulations.
(b) Definitions.
(1) Adjusted financial statement income.
(2) Adjusted net income or loss.
(3) AFS basis.
(4) AFS consolidation entries.
(5) Applicable corporation.
(6) Applicable financial statement.
(7) CAMT basis.
(8) CAMT entity.
(9) CAMT foreign tax credit.
(10) CFC adjustment carryover.
(11) Change in accounting principle.
(12) Consolidated financial statement.
(13) Controlled foreign corporation.
(14) Disregarded entity.
(15) Equity method.
(16) Equity method base adjustment.
(17) Fair value method.
(18) Federal income taxes.
(19) Financial statement group.
(20) Financial statement income.
(21) Financial statement net operating loss.
(22) For regular tax purposes.
(23) Foreign income tax.
(24) FPMG.
(25) FPMG common parent.
(26) FSNOL carryover.
(27) GAAP.
(28) IFRS.
(29) Impairment loss.
(30) Impairment loss reversal.
(31) IRB guidance.
(32) Modified FSI.
(33) Partnership and tiered partnership.
(34) Pass-through entity.
(35) Purchase accounting.
(36) Push down accounting.
(37) Qualified wireless spectrum.
(38) Restated AFS.
(39) Section 56A regulations.
(40) Section 168 property.
(41) Separate financial statement.
(42) Statutory references.
(i) Chapter 1.
(ii) Code.
(iii) Subchapter K.
(iv) Subtitle A.
(43) Tax consolidated group.
(44) United States shareholder.
(c) General rules for determining FSI.
(1) Federal income tax treatment not relevant for FSI.
(2) Tax consolidated groups; CAMT entities that own disregarded entities.
(i) Tax consolidated groups.
(ii) CAMT entities that own a disregarded entity or branch.
(3) Determining FSI from a consolidated AFS.
(i) In general.
(ii) No netting losses against income within the consolidated AFS.
(iii) Elimination journal entries.
(iv) Consolidation entries other than elimination entries.
(v) Reconciliation requirement.
(4) Determining AFS basis and balance sheet account amounts if the CAMT entity's AFS is a consolidated financial statement.
(i) In general.
(ii) Purchase accounting and push down accounting.
(5) Coordination rule.
(6) Examples.
(i) Example 1: FSI of component members of a financial statement group.
(ii) Example 2: Consolidation entries if an item is converted from one financial accounting standard to another.
(d) General rules for determining AFSI.
(1) Federal income tax treatment not relevant for AFSI except as otherwise provided in guidance.
(2) Limitation on AFSI adjustments.
(3) AFSI adjustments for taxable years beginning before January 1, 2023.
(i) In general.
(ii) Exception for AFSI adjustments that arise from transactions or events that occur in taxable years ending on or before December 31, 2019.
(4) Redetermination of FSI gains and losses.
(5) Tax consolidated groups.
(6) CAMT entities that own disregarded entities.
(e) Rules for translating AFSI to U.S. dollars.
(f) Entity classification and treatment.
(1) Entity classification.
(2) Treatment of an entity as domestic or foreign.
(g) Substantiation requirement.
(1) In general.
(2) Other CAMT entity recordkeeping requirements.
(3) Applicable corporation determination record keeping requirements.
(h) Reporting requirement.
(1) Applicable corporations.
(2) Applicable corporation determination reporting requirements.
(3) Other reporting required for CAMT entities.
(i) Special rules for reporting distributive shares of AFSI and application of subchapter K.
(ii) Other reporting requirements.
(i) Applicability date.
§ 1.56A-2 Definition of applicable financial statement (AFS) and AFS priority rules.
(a) Overview.
(b) Definition of applicable financial statement.
(c) General financial statement priority.
(1) GAAP statements.
(2) IFRS statements.
(3) Financial statements prepared in accordance with other generally accepted accounting standards.
(4) Other government and regulatory statements.
(5) Unaudited external statements.
(6) Return.
(d) Certified financial statement.
(e) Restatements.
(f) Annual and periodic financial statements.
(g) AFS priority rules for consolidated financial statements.
(1) In general.
(2) Exceptions to use of separate AFS.
(i) Tax consolidated group member has only one consolidated financial statement that contains the financial results of all members of the tax consolidated group.
(ii) Tax consolidated group member has more than one consolidated financial statement that contains the financial results of all members of the tax consolidated group.
(iii) Tax consolidated group member has only one consolidated financial statement that contains its financial results and the financial results of some, but not all, members of the tax consolidated group.
(iv) Tax consolidated group member has more than one consolidated financial statement that contains its financial results and the financial results of some, but not all, members of the tax consolidated group.
(v) Members of an FPMG.
(h) Disregarded entities or branches.
(i) Examples.
(1) Example 1: No substantial non-tax purpose.
(2) Example 2: Substantial non-tax purpose.
(j) Applicability date.
§ 1.56A-3 AFSI adjustments for AFS years and taxable year differences.
(a) Overview.
(b) AFSI adjustment for mismatched years.
(1) In general.
(2) Examples.
(i) Example 1: Calendar-year taxpayer with fiscal annual financial accounting period.
(ii) Example 2: Fiscal year taxpayer with calendar-year financial accounting period.
(c) Applicability date.
§ 1.56A-4 AFSI adjustments and basis determinations with respect to foreign corporations.
(a) Overview.
(b) Definitions.
(1) Covered asset transaction.
(2) Section 338(g) transaction.
(3) Transfer.
(c) Adjustments to AFSI.
(1) Adjustments with respect to stock of a foreign corporation.
(2) Adjustments with respect to covered asset transactions.
(3) Adjustments with respect to section 338(g) transactions.
(4) Adjustments with respect to purchase accounting and push down accounting.
(d) Certain rules for determining CAMT basis.
(1) Covered asset transactions.
(2) Section 338(g) transaction.
(3) Transfers of stock of a foreign corporation involving a partnership.
(4) Purchase accounting and push down accounting.
(5) Stock of a foreign corporation.
(e) Stock in a foreign corporation owned by a partnership.
(f) AFSI adjustments when basis in foreign stock is determined under section 358.
(1) In general.
(i) Principal purpose rule.
(ii) Two-year rule.
(2) Hypothetical CAMT basis.
(g) AFSI adjustments when certain foreign stock is distributed by a partnership.
(1) In general.
(2) Related CAMT entity.
(h) Examples.
(1) Example 1: Dividend received from a foreign corporation.
(2) Example 2: Stock of a foreign corporation owned by a partnership.
(3) Example 3: Sale of stock of a foreign corporation.
(4) Example 4: Foreign corporation reported on equity method.
(5) Example 5: Section 351 transfer.
(6) Example 6: Section 351 transfer with boot.
(7) Example 7: Transfer subject to section 367(a).
(8) Example 8: Inbound liquidation subject to section 367(b).
(i) Applicability date.
(1) In general.
(2) Rule for transfers.
§ 1.56A-5 AFSI adjustments to partner's distributive share of partnership AFSI.
(a) Overview.
(b) In general.
(c) Applicable method.
(d) FSI amounts with respect to a partnership investment that are not disregarded under paragraph (c)(1) of this section.
(e) Distributive share amount.
(1) In general.
(2) Computing the distributive share percentage.
(3) Computing the modified FSI of the partnership.
(4) AFSI items that are separately stated.
(i) In general.
(ii) Adjustments to a partner's distributive share amount.
(iii) Adjustments to a partner's AFSI.
(5) Effect of equity method basis adjustments to a CAMT entity's FSI.
(6) Computing a partner's distributive share amount when the partnership's AFS is its Federal income tax return.
(i) In general.
(ii) Separately stated AFSI items.
(f) Computation in the case of tiered partnerships.
(g) Taxable year.
(h) Reporting and filing requirements for a CAMT entity that is a partner in a partnership.
(1) In general.
(2) Failure to obtain information.
(i) In general.
(ii) Required estimate.
(iii) Partnerships subject to subchapter C of chapter 63 of the Code.
(i) Reporting and filing requirements for partnerships in which a CAMT entity is a partner.
(1) Requirement to file information with the IRS and to furnish information to a CAMT entity.
(2) Special rules for tiered structures.
(i) Requirement to request information.
(ii) Requirement to furnish and file information.
(iii) Timing of requesting information.
(3) Timing of furnishing information.
(i) In general.
(ii) Late requests.
(iii) Partnership not required to furnish information to a CAMT entity until it has notice of a request.
(4) Manner of furnishing information.
(5) Recordkeeping requirement.
(6) Penalties.
(j) Limitation on allowance of negative distributive share amount.
(1) In general.
(2) Carryover of suspended negative distributive share amount.
(3) CAMT basis in a partnership investment.
(k) Examples.
(1) Example 1: Adjustment of AFSI with respect to a partnership investment accounted for using the equity method.
(2) Example 2: Adjustment of AFSI with respect to a partnership investment accounted for using the hypothetical liquidation at book value under the equity method.
(3) Example 3: Adjustment of AFSI with respect to a partnership investment accounted for using the hypothetical liquidation at book value under the equity method and involving a loss on the investment.
(4) Example 4: Determining distributive share percentage for AFS non-partner.
(5) Example 5: Determining distributive share percentage for entity that treats itself as owning 100 percent of the equity in the partnership for AFS purposes because the CAMT entity treats all other partners in the partnership as AFS non-partners.
(6) Example 6: Adjustment of AFSI with respect to a partnership investment accounted for using the equity method in a tiered partnership structure.
(7) Example 7: Adjustment of AFSI with respect to a partnership investment accounted for using the equity method with a basis adjustment under section 743(b) related to section 168 property.
(8) Example 8: Adjustment of AFSI with respect to a partnership investment accounted for using the fair value method.
(9) Example 9: Computation of CAMT basis in partnership investment.
(10) Example 10: Limitation of negative distributive share amount in excess of CAMT basis.
(l) Applicability dates.
(1) In general.
(2) Exceptions
(i) Paragraph (d).
(ii) Coordination with certain other provisions during prior years.
(iii) Applicability dates for rules described in paragraph (l)(2)(ii).
§ 1.56A-6 AFSI adjustments with respect to controlled foreign corporations.
(a) Overview.
(b) Section 56A(c)(3) adjustment to AFSI.
(1) Aggregate adjustment.
(2) Tax reduction.
(3) Aggregate negative adjustment.
(4) Reduction for utilization of a CFC adjustment carryover.
(5) CFC adjustment carryover mechanics.
(6) Definition of CFC adjustment carryover.
(7) Tax consolidated groups.
(c) Computing the adjusted net income or loss of a controlled foreign corporation.
(1) In general.
(2) Adjustments relating to ownership of stock of a foreign corporation
(i) In general
(ii) Amounts relating to ownership of stock of a foreign corporation reflected in controlled foreign corporation's FSI.
(iii) Amounts relating to ownership of stock of a foreign corporation included for regular tax purposes.
(iv) Stock of a foreign corporation owned by a partnership.
(3) Controlled foreign corporations engaged in a U.S. trade or business.
(4) Foreign income tax expense.
(5) FSNOL carryovers.
(d) Definition of a CAMT excluded dividend.
(e) Examples.
(1) Example 1: Dividend received by a controlled foreign corporation from another foreign controlled corporation.
(2) Example 2: Sale of stock of lower-tier controlled foreign corporation.
(3) Example 3: Controlled foreign corporation held through a partnership.
(f) Applicability date.
(1) In general.
(2) Multiple United States shareholders with different taxable years.
(3) Transactions involving foreign stock.
§ 1.56A-7 AFSI adjustments with respect to effectively connected income.
(a) Overview.
(b) Adjusted financial statement income of foreign corporations.
(c) Applicability date.
§ 1.56A-8 AFSI adjustments for certain Federal and foreign income taxes.
(a) Overview.
(b) AFSI adjustments for applicable income taxes.
(1) In general.
(2) Definition of applicable income taxes.
(c) Applicable corporations that choose not to credit foreign income taxes.
(d) Requirements for an applicable income tax to be considered taken into account in an AFS.
(e) Examples.
(1) Example 1.
(2) Example 2.
(3) Example 3.
(f) Applicability date.
§ 1.56A-9 AFSI adjustments for owners of disregarded entities or branches.
(a) Overview.
(b) Rules for determining the FSI and AFSI of a CAMT entity that owns a disregarded entity or branch.
(1) In general.
(2) Transactions disregarded.
(3) Certain disregarded entities or branches subject to the rules in § 1.56A-2(h).
(c) Applicability date.
§ 1.56A-10 AFSI adjustments for cooperatives.
(a) Overview.
(b) AFSI adjustments for cooperatives.
(c) Applicability date.
§ 1.56A-11 AFSI adjustments for Alaska Native Corporations.
(a) Overview.
(b) Definitions.
(1) Alaska Native Corporation.
(2) ANCSA property.
(3) Specified payments.
(c) Cost recovery and depletion.
(d) Deduction for specified payments.
(e) Applicability date.
§ 1.56A-12 AFSI adjustments with respect to certain tax credits .
(a) Overview.
(b) Proceeds from certain credits excluded from AFSI.
(c) Treatment of transferee taxpayer.
(d) Recapture disregarded as expense in determining AFSI.
(e) Applicability date.
§ 1.56A-13 AFSI adjustments for covered benefit plans.
(a) Overview.
(b) Adjustments to AFSI for covered benefit plans.
(c) Covered benefit plan.
(1) General definition.
(2) Qualified defined benefit pension plan.
(3) Qualified foreign plan.
(4) Other defined benefit plan.
(d) Applicability date.
§ 1.56A-14 AFSI adjustments for tax-exempt entities.
(a) Overview.
(b) AFSI adjustments for tax-exempt entities.
(c) Applicability date.
§ 1.56A-15 AFSI adjustments for section 168 property.
(a) Overview.
(b) Definitions.
(1) Covered book inventoriable depreciation.
(2) Covered book COGS depreciation.
(3) Covered book depreciation expense.
(4) Covered book expense.
(5) Deductible tax depreciation.
(6) Section 168 property.
(7) Tax COGS depreciation.
(8) Tax depreciation.
(9) Tax depreciation section 481(a) adjustment.
(10) Tax capitalization method change.
(11) Tax capitalization method change AFSI adjustment.
(c) Property to which section 168 applies.
(1) In general.
(2) Property to which section 168 applies includes only the portion of property for which a depreciation deduction is allowable under section 167.
(3) Deductible expenditures are not property to which section 168 applies.
(4) Property to which section 168 applies does not include property that is not depreciable under section 168 for regular tax purposes.
(5) Effect of election out of additional first year depreciation.
(6) Property placed in service in taxable years beginning before the CAMT effective date.
(d) AFSI adjustments for depreciation and other amounts with respect to section 168 property.
(1) In general.
(2) Special rules for section 168 property held by a partnership.
(i) In general.
(ii) Basis adjustment under section 743(b) of the Code.
(iii) Basis adjustment under section 734(b) of the Code.
(iv) Basis adjustment under § 1.1017-1(g)(2).
(3) Special rules for determining tax COGS depreciation and covered book COGS depreciation adjustments.
(i) In general.
(ii) Simplifying methods.
(4) Adjustment period for tax capitalization method change AFSI adjustments.
(5) Examples.
(i) Example 1: Tax COGS depreciation and covered book COGS depreciation adjustments under FIFO method.
(ii) Example 2: Tax COGS depreciation and covered book COGS depreciation adjustments under LIFO method.
(iii) Example 3: Tax COGS depreciation and covered book COGS depreciation adjustments under LIFO method.
(iv) Example 4: Net positive tax depreciation section 481(a) adjustment.
(v) Example 5: Change in method of accounting to treat the replacement of a portion of section 168 property as a deductible repair.
(vi) Example 6: Change in method of accounting to capitalize costs to section 168 property as required under section 263A.
(vii) Example 7: Deductible tax depreciation under section 174.
(viii) Example 8: Section 168 property treated as leased property for AFS purposes.
(ix) Example 9: Basis adjustment under section 743(b) to section 168 property.
(x) Example 10: Basis adjustment under section 734(b) to section 168 property.
(e) AFSI adjustments upon disposition of section 168 property.
(1) In general.
(2) Adjustments to the AFS basis of section 168 property.
(i) In general.
(ii) Special rules regarding adjustments to the AFS basis of section 168 property.
(A) Property placed in service prior to the effective date of CAMT.
(B) Property acquired in certain transactions to which section 168(i)(7) applies.
(C) Coordination with section 56A(c)(5).
(D) Determination of CAMT basis of section 168 property following a change in method of accounting for depreciation or a tax capitalization method change.
(E) Adjustments to the AFS basis of section 168 property include only the covered book amounts actually disregarded in determining AFSI.
(3) Special rules for section 168 property disposed of by a partnership.
(4) Treatment of amounts recognized in FSI upon the disposition of section 168 property.
(5) Determining the appropriate asset.
(6) Subsequent AFS dispositions.
(7) Intercompany transactions.
(8) Examples.
(i) Example 1: Disposition of section 168 property.
(ii) Example 2: Property acquired in a covered nonrecognition transaction.
(iii) Example 3: Property acquired in a covered recognition transaction.
(iv) Example 4: Property for which a tax credit was claimed.
(v) Example 5: Disposition of property that was subject to a tax capitalization method change and is not section 168 property at time of disposition.
(vi) Example 6: Disposition of property that was subject to a tax capitalization method change and is section 168 property at time of disposition.
(vii) Example 7: Installment sale under section 453.
(viii) Example 8: Like-kind exchange under section 1031.
(ix) Example 9: Replacement property received in a like-kind exchange.
(x) Example 10: Section 168 property disposed of by a partnership.
(xi) Example 11: Section 168 property disposed of by a partnership with a section 743(b) basis adjustment in place.
(f) Applicability date.
§ 1.56A-16 AFSI adjustments for qualified wireless spectrum property.
(a) Overview.
(b) Definitions.
(1) Covered book amortization expense.
(2) Covered book wireless spectrum expense.
(3) Deductible tax amortization.
(4) Qualified wireless spectrum.
(5) Tax amortization.
(6) Tax amortization section 481(a) adjustment.
(7) Tax capitalization method change for qualified wireless spectrum.
(8) Tax capitalization method change AFSI adjustment for qualified wireless spectrum.
(c) Qualified wireless spectrum.
(1) In general.
(2) Qualified wireless spectrum does not include wireless spectrum that is not depreciable under section 197 for regular tax purposes.
(d) AFSI adjustments for amortization and other amounts with respect to qualified wireless spectrum.
(1) In general.
(2) Special rules for qualified wireless spectrum held by a partnership.
(i) In general.
(ii) Basis adjustment under section 743(b) of the Code.
(iii) Basis adjustment under section 734(b) of the Code.
(iv) Basis adjustment under § 1.1017-1(g)(2).
(3) Adjustment period for tax capitalization method change AFSI adjustments for qualified wireless spectrum.
(e) AFSI adjustments upon disposition of qualified wireless spectrum.
(1) In general.
(2) Adjustments to the AFS basis of qualified wireless spectrum.
(i) In general.
(ii) Special rules regarding adjustments to the AFS basis of qualified wireless spectrum.
(A) Qualified wireless spectrum placed in service prior to the effective date of CAMT.
(B) Qualified wireless spectrum acquired in certain transactions to which section 197(f)(2) applies.
(C) Determination of CAMT basis of qualified wireless spectrum following a change in method of accounting for amortization or a tax capitalization method change for qualified wireless spectrum.
(D) Adjustments to the AFS basis of qualified wireless spectrum include only the covered book amounts actually disregarded in determining AFSI.
(3) Special rule for qualified wireless spectrum disposed of by a partnership.
(4) Treatment of amounts recognized in FSI upon the disposition of qualified wireless spectrum.
(5) Subsequent AFS dispositions.
(6) Intercompany transactions.
(7) Example.
(f) Applicability date.
§ 1.56A-17 AFSI adjustments to prevent certain duplications or omissions.
(a) Overview.
(b) In general.
(c) Change in accounting principle.
(1) In general.
(2) Accounting principle change amount.
(i) In general.
(ii) Change in AFS under paragraph (c)(5) of this section.
(3) Adjustment spread period rule.
(i) Duplications.
(ii) Omissions.
(iii) Short periods.
(4) Acceleration of accounting principle change amount.
(5) Use of different priority AFSs in consecutive taxable years.
(6) Examples.
(i) Example 1: Adjustment spread period: duplicated income spread over 2 years.
(ii) Example 2: Adjustment spread period: duplicated income spread over 10 years.
(iii) Example 3: Adjustment spread period: duplications expected over twenty-year period.
(d) Restatement of a prior year's AFS.
(1) In general.
(i) Adjustments to AFSI.
(ii) Further adjustments to AFSI.
(2) Exception for amended return.
(3) Reconciliation of retained earnings in AFS.
(4) Example.
(e) Adjustment for amounts disclosed in an auditor's opinion.
(1) In general.
(2) Further adjustments to AFSI.
(f) No adjustment for timing differences.
(g) Applicability date.
§ 1.56A-18 AFSI, CAMT basis, and CAMT retained earnings resulting from certain corporate transactions.
(a) Overview.
(1) Scope.
(2) Exceptions.
(3) Cross-references.
(i) Corporate reorganizations and organizations.
(ii) Transactions within a tax consolidated group.
(iii) Deferral of loss from disposition between certain members of a CAMT-related group.
(iv) Certain arrangements disregarded or recharacterized.
(v) Clear reflection of income requirement.
(vi) AFSI and CAMT attribute rules regarding troubled corporations.
(vii) Financial statement net operating losses.
(viii) Minimum tax credits.
(ix) AFSI history.
(x) Certain stock owned by insurance companies.
(b) Definitions.
(1) Acquiror corporation.
(i) Covered nonrecognition transaction.
(ii) Covered recognition transaction.
(2) B reorganization.
(3) CAMT current earnings.
(4) CAMT earnings.
(5) CAMT retained earnings.
(i) In general.
(ii) Timing of determination.
(6) Component transaction.
(7) Controlled corporation.
(i) Covered nonrecognition transaction.
(ii) Covered recognition transaction.
(8) Corporate dissolution.
(9) Covered nonrecognition transaction.
(10) Covered recognition transaction.
(11) Covered transaction.
(12) Distributing corporation.
(i) Covered nonrecognition transaction.
(ii) Covered recognition transaction.
(13) Distributing corporation shareholder or security holder.
(14) Distribution recipient.
(15) E reorganization.
(16) F reorganization.
(17) Liquidating corporation.
(i) Covered nonrecognition transaction.
(ii) Covered recognition transaction.
(18) Liquidation recipient.
(19) Party.
(20) Property.
(21) Qualified property.
(22) Recapitalization corporation.
(i) Covered nonrecognition transaction.
(ii) Covered recognition transaction.
(23) Recapitalizing corporation shareholder or security holder.
(24) Resulting corporation.
(i) Covered nonrecognition transaction.
(ii) Covered recognition transaction.
(25) Section 351 exchange.
(26) Section 351 transferee.
(i) Covered nonrecognition transaction.
(ii) Covered recognition transaction.
(27) Section 351 transferor.
(i) Covered nonrecognition transaction.
(ii) Covered recognition transaction.
(28) Section 355 transaction.
(29) Target corporation.
(i) Covered nonrecognition transaction.
(ii) Covered recognition transaction.
(30) Target corporation shareholder or security holder.
(31) Transferor corporation.
(32) Transferor corporation shareholder or security holder.
(c) Operating rules for this section and § 1.56A-19.
(1) Treatment of stock.
(2) FSI resulting from stock investments.
(i) In general.
(ii) Exceptions.
(iii) Characterization of FSI resulting from stock investments.
(3) Purchase accounting and push down accounting for stock acquisitions.
(4) Purchase accounting and push down accounting for asset acquisitions.
(5) Determination of CAMT consequences of component transactions.
(i) Generally separate treatment.
(ii) Effect of other component transactions.
(6) CAMT stock basis transition rule.
(7) CAMT retained earnings following certain cross border transactions.
(i) Inbound liquidations and reorganizations.
(ii) Section 355 distributions.
(8) Examples.
(i) Example 1: Treatment of stock.
(ii) Example 2: FSI resulting from stock investments marked to market.
(iii) Example 3: FSI resulting from stock investments due to equity method annual inclusions.
(iv) Example 4: Remeasurement gain.
(v) Example 5: Purchase accounting and push down accounting.
(vi) Example 6: Identification of component transactions.
(vii) Example 7: Effect of component transaction on other component transactions.
(viii) Example 8: CAMT stock basis transition rule.
(ix) Example 9: CAMT retained earnings.
(d) CAMT consequences of certain non-liquidating stock and property distributions.
(1) Distributing corporation in covered nonrecognition transaction.
(2) Distributing corporation in covered recognition transaction.
(3) Section 355(c) distributions in covered recognition transactions.
(4) Distribution recipient.
(5) Examples.
(i) Example 1: Stock distribution.
(ii) Example 2: Property distribution.
(iii) Example 3: Redemption.
(iv) Example 4: Dividends received deduction.
(v) Example 5: Extraordinary dividend.
(e) Section 336(e) elections.
(1) Distributing corporation with regard to dispositions described in section 355(d)(2) or (e)(2).
(2) Target corporation with regard to dispositions described in section 355(d)(2) or (e)(2).
(3) Distributing corporation shareholder or security holder with regard to dispositions described in section 355(d)(2) or (e)(2).
(4) Distributing corporation with regard to distributions not described in section 355(d)(2) or (e)(2) for which a section 336(e) election is made.
(5) Target corporation with regard to distributions not described in section 355(d)(2) or (e)(2).
(6) New target corporation with regard to distributions not described in section 355(d)(2) or (e)(2).
(7) Example.
(f) CAMT consequences of certain liquidating distributions.
(1) Liquidating corporation in covered nonrecognition transaction.
(2) Liquidating corporation in covered recognition transaction.
(3) Component transactions of a liquidation consisting of covered recognition and covered nonrecognition transactions.
(4) Consequences to liquidation recipient in covered nonrecognition transaction.
(5) Consequences to liquidation recipient in covered recognition transaction.
(6) Examples.
(i) Example 1: Nonrecognition subsidiary liquidation.
(ii) Example 2: Component transactions.
(g) CAMT consequences of stock sales.
(1) Target corporation shareholder.
(i) In general.
(ii) Stock sales for which a section 336(e) or 338(h)(10) election is made.
(2) Target corporation.
(i) In general.
(ii) Stock sales for which a section 336(e), 338(g), or 338(h)(10) election is made.
(3) Acquiror corporation.
(4) New target corporation.
(5) Section 304 transactions.
(6) Examples.
(i) Example 1: Acquisition of stock of a target corporation.
(ii) Example 2: Covered recognition transaction stock sale: section 338(h)(10) election.
(iii) Example 3: Covered recognition transaction stock sale: section 336(e) election.
(h) CAMT consequences of asset sales.
(1) Target corporation.
(2) Acquiror corporation.
(3) Example.
(i) Applicability date.
§ 1.56A-19 AFSI, CAMT basis and CAMT retained earnings resulting from certain corporate reorganizations and organizations.
(a) Overview.
(b) CAMT consequences of B reorganizations.
(1) Target corporation shareholder or security holder in covered nonrecognition transaction.
(2) Target corporation shareholder or security holder in covered recognition transaction.
(3) Acquiror corporation in covered nonrecognition transaction.
(4) Acquiror corporation in covered recognition transaction.
(i) Failure to qualify as B reorganization.
(ii) Failure to qualify under § 1.1032-2(b).
(5) Acquiror corporation parent in covered nonrecognition transaction.
(6) Acquiror corporation parent in covered recognition transaction.
(i) Use of old and cold parent stock with qualifying B reorganization.
(ii) Use of parent stock with transaction that does not qualify as a B reorganization.
(7) Examples.
(i) Example 1: Covered nonrecognition transaction.
(ii) Example 2: Covered recognition transaction.
(c) CAMT consequences of certain acquisitive reorganizations.
(1) Target corporation in a covered nonrecognition transaction.
(i) Reorganization exchanges.
(ii) Section 361(c) distributions.
(2) Target corporation in covered recognition transaction.
(3) Acquiror corporation qualification for covered nonrecognition transaction.
(4) Acquiror corporation in covered recognition transaction.
(i) Failure to qualify as an asset reorganization.
(ii) Failure to qualify under § 1.1032-2(b).
(5) Acquiror corporation parent in covered nonrecognition transaction.
(6) Acquiror corporation parent in covered recognition transaction.
(i) Use of old and cold parent stock with qualifying acquisitive reorganization.
(ii) Use of parent stock in a transaction that does not qualify as an acquisitive reorganization.
(7) Target corporation shareholder or security holder in covered nonrecognition transaction.
(8) Examples.
(i) Example 1: Covered nonrecognition transaction.
(ii) Example 2: Covered nonrecognition transaction with nonqualifying consideration.
(d) CAMT consequences of section 355 transactions.
(1) Distributing corporation in covered nonrecognition transactions.
(i) Controlled contribution.
(ii) Section 361(c) distributions and transfers.
(iii) Section 355(c) distributions.
(2) Distributing corporation in covered recognition transactions.
(i) Controlled contribution.
(ii) Section 361(c) distribution.
(3) Distributing corporation shareholder or security holder.
(4) Controlled corporation in covered nonrecognition transaction.
(5) Controlled corporation in covered recognition transaction.
(i) Qualification.
(ii) CAMT consequences.
(6) Examples.
(i) Example 1: Covered nonrecognition transaction to distributing corporation and controlled corporation.
(ii) Example 2: Distributing corporation boot-purge exception.
(iii) Example 3: Covered recognition transaction to distributing corporation.
(e) CAMT consequences of recapitalizations.
(1) Recapitalizing corporation in covered nonrecognition transaction.
(2) Component transactions consisting of covered nonrecognition transaction and corporate distributions.
(3) Recapitalizing corporation shareholder or security holder.
(4) Examples.
(i) Example 1: Covered nonrecognition transaction.
(ii) Example 2: E Reorganization and corporate distribution.
(f) CAMT consequences of F reorganizations.
(1) Transferor corporation in covered nonrecognition transaction.
(2) Component transactions consisting of covered nonrecognition transaction and corporate distributions.
(3) Resulting corporation.
(4) Transferor corporation shareholder or security holder.
(5) Examples.
(i) Example 1: Covered nonrecognition transaction.
(ii) Example 2: Component transactions.
(g) CAMT consequences of section 351 exchanges.
(1) Component transactions consisting of covered recognition and covered nonrecognition transactions.
(2) Section 351 transferor in covered nonrecognition transaction.
(3) Section 351 transferor in covered recognition transaction.
(4) Section 351 transferee in covered nonrecognition transaction.
(i) Section 351 transferee's AFSI.
(ii) Section 351 transferee's CAMT basis in property.
(iii) Special CAMT basis rule.
(5) Section 351 transferee in covered recognition transaction.
(i) Section 351 transferee's AFSI.
(ii) Section 351 transferee's CAMT basis in property.
(iii) Special CAMT basis rule.
(iv) Section 351 transferee's CAMT retained earnings.
(6) Examples.
(i) Example 1: Covered nonrecognition transaction.
(ii) Example 2: Covered recognition transaction.
(iii) Example 3: Component transactions.
(iv) Example 4: Covered recognition transaction.
(h) Applicability date.
§ 1.56A-20 AFSI adjustments to apply certain subchapter K principles.
(a) Overview.
(1) In general.
(2) Scope of rules.
(b) General operating rules.
(c) Contributions of property.
(1) In general.
(2) Contribution of property with financial accounting built-in gain or loss.
(i) Deferred sale approach.
(ii) Inclusion of deferred sale gain or loss upon a decrease in contributor's distributive share percentage.
(iii) Inclusion of deferred sale gain or loss upon disposition of deferred sale property.
(iv) Inclusion of deferred sale gain upon an acceleration event described in § 1.721(c)-4(b).
(v) Tiered partnerships.
(3) Basis rules.
(i) Basis of property contributed to partnership.
(ii) Basis of partnership investment for contributed property.
(d) Distributions of property.
(1) Gain or loss recognized by partnership.
(i) In general.
(ii) Deferred distribution gain or loss approach.
(iii) Acceleration of deferred distribution gain or loss.
(2) Partner inclusions of deferred distribution gain or loss.
(i) Partners' allocable shares of deferred distribution gain or loss.
(ii) Acceleration of a partner's allocable share of deferred distribution gain or loss.
(iii) FSI resulting to a partner from a distribution of property or money.
(iv) Tiered partnerships.
(3) Basis rules.
(i) Basis of distributed property.
(ii) Basis of partner's investment in partnership.
(e) Liability allocation rules.
(1) General rule.
(2) Application of rules to contributions and distributions.
(f) Proportionate deferred sale approach for partial nonrecognition transactions under sections 721(a) and 731(b).
(g) Maintenance of books and records and reporting requirements.
(1) Information to be included in books and records.
(2) Reporting requirements.
(i) In general.
(ii) Form of reporting.
(h) Examples.
(1) Example 1: Contribution of property to an existing partnership with no deferred sale gain or loss.
(2) Example 2: Contribution of property to a new partnership with deferred sale gain.
(3) Example 3: Acceleration of deferred sale gain upon disposition of a portion of CAMT entity's partnership investment.
(4) Example 4: Partnership disposition of deferred sale property.
(5) Example 5: Part disguised sale of property to partnership and part deferred sale gain.
(6) Example 6: Contribution of encumbered property.
(7) Example 7: Current distribution of section 168 property to partner.
(8) Example 8: Acceleration of gain due to partnership dissolution.
(9) Example 9: Acceleration of gain due to liquidation of partner's interest.
(i) Applicability date.
§ 1.56A-21 AFSI adjustments for troubled companies.
(a) Overview.
(1) Scope.
(2) AFS consequences resulting from disposition of property.
(3) AFS consequences resulting from certain covered nonrecognition transactions.
(4) Disregarded entities.
(b) Definitions.
(1) CAMT attribute.
(2) Covered property.
(3) Discharge of indebtedness.
(i) In general.
(ii) Adjustments to AFS basis.
(iii) Scope of discharge of indebtedness.
(4) Federal financial assistance.
(5) Indebtedness.
(6) Insolvent.
(i) In general.
(ii) Timing of determination.
(7) Title 11 case.
(c) Discharge of indebtedness income.
(1) AFSI in title 11 cases.
(2) AFSI in cases of insolvency.
(3) Disregarded entities.
(i) In general.
(ii) Title 11 cases.
(iii) Insolvency.
(4) Attribute reduction.
(i) Overview.
(ii) Required attribute reduction amount.
(iii) Attribute reduction.
(iv) Timing and allocation of reductions.
(v) Order of reductions.
(5) Amount of attribute reduction.
(i) CAMT basis, FSNOLs, and CFC adjustment carryovers.
(ii) CAMT basis reduction limitation.
(iii) Election under section 108(b)(5).
(iv) CAMT foreign tax credits.
(6) Examples.
(i) Example 1: Bankruptcy emergence in a covered nonrecognition transaction.
(ii) Example 2: Bankruptcy emergence in a covered recognition transaction.
(iii) Example 3: Attribute reduction.
(iv) Example 4: Excluded income from the discharge of indebtedness of insolvent taxpayer.
(d) Fresh start accounting for emergence from bankruptcy.
(1) Scope.
(2) AFSI consequences resulting from emergence from bankruptcy.
(i) General rule.
(ii) Discharge of indebtedness.
(iii) Covered transactions.
(3) AFSI consequences of title 11 cases.
(i) Covered recognition transactions.
(ii) Covered nonrecognition transactions.
(4) Discharge of indebtedness.
(5) Disregarded entities.
(6) Example.
(e) Application to investments in partnerships.
(1) Scope.
(2) Discharge of indebtedness income of a partnership.
(i) Calculation of partnership's AFSI.
(ii) Exclusion from AFSI and attribute reduction at the partner level.
(iii) Discharge of indebtedness income separately stated to partners.
(3) Inclusion of partnership liabilities for purposes of determining insolvency.
(f) Federal financial assistance.
(1) In general.
(2) Example.
(g) Applicability date.
§ 1.56A-22 AFSI adjustments for certain insurance companies and other specified industries.
(a) Overview.
(b) Definitions.
(1) Covered insurance company.
(2) Covered investment pool.
(3) Covered obligations.
(4) Covered reinsurance agreement.
(5) Covered variable contract.
(6) Withheld assets.
(7) Withheld assets payable.
(8) Withheld assets receivable.
(c) AFSI adjustments for covered variable contracts.
(1) Non-application of certain provisions.
(i) In general.
(ii) Requirements.
(2) Example.
(d) AFSI adjustments for covered reinsurance agreements.
(1) In general.
(i) Ceding company.
(ii) Reinsurer.
(2) Effect of retrocession agreement.
(3) Fair value accounting.
(4) Examples.
(i) Example 1: Covered reinsurance transaction.
(ii) Example 2: Fair value accounting.
(e) Use of fresh start basis.
(1) Federal Home Loan Mortgage Corporation.
(2) Existing Blue Cross or Blue Shield organizations.
(3) Certain pension business entities.
(f) Applicability date.
§ 1.56A-23 AFSI adjustments for financial statement net operating losses and other attributes.
(a) Overview.
(b) Definition of financial statement net operating loss.
(c) AFSI adjustments for the utilization of an FSNOL.
(d) FSNOL carryovers.
(1) In general.
(2) Example.
(e) Limitation on use of FSNOL carryovers following acquisitions.
(1) In general.
(i) Successor after stock acquisitions.
(ii) Tax consolidated groups.
(2) Successor transaction.
(3) Limitation.
(i) In general.
(ii) Separately tracked income.
(iii) Separation of predecessor business from related FSNOLs.
(iv) Integration of predecessor and acquiror businesses.
(v) Successor transaction involving multiple separately tracked businesses.
(4) Examples.
(i) Example 1: Acquisition of Target stock followed by contribution of assets.
(ii) Example 2: Acquisition of Target assets.
(iii) Example 3: Acquisition of multiple lines of business.
(iv) Example 4: Negative tracked register
(v) Example 5: Acquisition of subgroup
(vi) Example 6: Asset transfer to affiliate that is not a member of the transferor's tax consolidated group.
(f) Limitation of use of built-in losses following acquisitions.
(1) Scope.
(2) Operating rules.
(i) General rule.
(ii) Asset acquisition.
(iii) Association of built-in loss with separately tracked acquired business.
(iv) Ordering rule.
(v) Carryover of built-in loss not allowed in year of recognition.
(3) Built-in losses.
(i) Definition.
(ii) Timing rule.
(4) CAMT net unrealized built-in loss.
(i) Successor transaction results in a section 382 ownership change.
(ii) Successor transaction does not result in a section 382 ownership change.
(iii) Inapplicability of NUBIL limitation.
(iv) Successor transaction treated as ownership change.
(v) No consideration in excess of fair market value.
(5) Example: Determination of recognized built-in loss.
(g) Applicability date.
§ 1.56A-24 AFSI adjustments for hedging transactions and hedged items.
(a) Overview.
(b) Definitions.
(1) AFSI hedge.
(i) In general.
(ii) Exception for certain insurance hedges.
(2) AFSI subsequent adjustment date.
(i) In general.
(ii) Certain corporate and partnership transactions.
(A) Covered nonrecognition transactions.
(B) Covered recognition transactions and certain partnership transactions.
(3) Fair value measurement adjustment.
(4) Hedged item.
(5) Net investment hedge.
(c) Fair value measurement adjustments for an AFSI hedge or a hedged item.
(1) Scope.
(2) Treatment of fair value measurement adjustment for certain AFSI hedges or hedged items.
(3) Application to prior taxable years.
(d) Net investment hedge adjustments.
(e) Operative rules.
(1) Inclusion of certain taxable amounts in AFSI.
(2) Subsequent adjustments for AFSI hedges and hedged items.
(3) Subsequent adjustments for net investment hedges.
(f) Examples.
(1) Example 1: Fair value measurement adjustment for an AFSI hedge.
(2) Example 2: AFSI hedge marked to market for regular tax purposes.
(3) Example 3: Fair value measurement adjustment for AFSI hedge and hedged item.
(4) Example 4: Net investment hedge marked to market.
(5) Example 5: Inclusion of original issue discount (OID) in AFSI.
(6) Example 6: Subsequent adjustments for AFSI hedge.
(7) Example 7: Subsequent adjustments for AFSI hedge with negative carrying value.
(g) Applicability date.
§ 1.56A-25 AFSI adjustments for mortgage servicing income.
(a) Overview.
(b) In general.
(c) Applicability date.
§ 1.56A-26 AFSI adjustments for certain related party transactions and CAMT avoidance transactions .
(a) Overview.
(b) Deferral of loss from dispositions between or among certain related entities.
(1) CAMT-related group.
(2) Required deferral.
(c) General anti-abuse rule.
(d) Clear reflection of income requirement.
(1) In general.
(2) Appropriate adjustments.
(3) Example: Transfer accounted for at historical cost for accounting purposes.
(e) Applicability date.
§ 1.56A-27 AFSI adjustments for foreign governments.
(a) Overview.
(b) In general.
(c) Applicability date.