Par. 9. Sections 1.56A-0 through 1.56A-27 are added to read as follows:
(a) Overview. This section provides rules under section 56A(c)(14) of the Code for determining AFSI adjustments with respect to qualified wireless spectrum. Paragraph (b) of this section provides definitions that apply for purposes of this section. Paragraph (c) of this section provides rules for determining the extent to which property is qualified wireless spectrum. Paragraph (d) of this section provides rules for adjusting AFSI for amortization and other amounts with respect to qualified wireless spectrum. Paragraph (e) of this section provides rules for adjusting AFSI upon the disposition of qualified wireless spectrum. Paragraph (f) of this section provides the applicability date of this section.
(b) Definitions. For purposes of this section:
(1) Covered book amortization expense. The term covered book amortization expense means any of the following items that are taken into account in FSI with respect to qualified wireless spectrum—
(i) Amortization expense;
(ii) Other recovery of AFS basis (including from an impairment loss) that occurs prior to the taxable year in which the disposition occurs for regular tax purposes; or
(iii) Impairment loss reversal.
(2) Covered book wireless spectrum expense. The term covered book wireless spectrum expense means an amount, other than covered book amortization expense, that—
(i) Reduces FSI; and
(ii) Is reflected in the basis for depreciation, as defined in §§ 1.167(g)-1 and 1.197-2(f)(1)(ii) (without regard to any adjustments described in section 1016(a)(2) and (3) of the Code), of qualified wireless spectrum for regular tax purposes.
(3) Deductible tax amortization. The term deductible tax amortization means tax amortization, as defined in paragraph (b)(5) of this section, that is allowed as a deduction in computing taxable income.
(4) Qualified wireless spectrum. The term qualified wireless spectrum means property that meets the requirements of paragraph (c) of this section.
(5) Tax amortization. The term tax amortization means amortization deductions allowed under section 197 of the Code with respect to qualified wireless spectrum.
(6) Tax amortization section 481(a) adjustment. The term tax amortization section 481(a) adjustment means the net amount of the adjustments required under section 481(a) of the Code for a change in method of accounting for amortization for any item of qualified wireless spectrum.
(7) Tax capitalization method change for qualified wireless spectrum. The term tax capitalization method change for qualified wireless spectrum means a change in method of accounting for regular tax purposes involving a change from capitalizing and depreciating costs as qualified wireless spectrum to deducting the costs (or vice versa).
(8) Tax capitalization method change AFSI adjustment for qualified wireless spectrum. The term tax capitalization method change AFSI adjustment for qualified wireless spectrum means an adjustment to AFSI that is required under paragraph (d)(1) of this section if a CAMT entity makes a tax capitalization method change for qualified wireless spectrum. The tax capitalization method change AFSI adjustment for qualified wireless spectrum is computed separately for each tax capitalization method change for qualified wireless spectrum and equals the difference between the following amounts computed as of the beginning of the tax year of change—
(i) The cumulative amount of adjustments to AFSI under paragraph (d)(1) of this section with respect to the cost(s) subject to the tax capitalization method change for qualified wireless spectrum that were made with respect to taxable years beginning after December 31, 2019, and before the tax year of change; and
(ii) The cumulative amount of adjustments to AFSI under paragraph (d)(1) of this section with respect to the cost(s) subject to the tax capitalization method change for qualified wireless spectrum that would have been made with respect to taxable years beginning after December 31, 2019, and before the tax year of change, if the new method of accounting for the cost(s) had been applied for regular tax purposes in those taxable years.
(c) Qualified wireless spectrum —(1) In general. For purposes of section 56A(c)(14) and this section, qualified wireless spectrum is wireless spectrum that is—
(i) Used in the trade or business of a wireless telecommunications carrier;
(ii) An amortizable section 197 intangible under section 197(c)(1) and (d)(1)(D); and
(iii) Acquired after December 31, 2007, and before August 16, 2022.
(2) Qualified wireless spectrum does not include wireless spectrum that is not depreciable under section 197 for regular tax purposes. Qualified wireless spectrum does not include wireless spectrum that is not subject to amortization under section 197 for regular tax purposes. For example, if a foreign corporation other than a controlled foreign corporation is not subject to U.S. taxation, then wireless spectrum owned by the foreign corporation is not treated as qualified wireless spectrum.
(d) AFSI adjustments for amortization and other amounts with respect to qualified wireless spectrum —(1) In general. The AFSI of a CAMT entity for a taxable year is—
(i) Reduced by deductible tax amortization with respect to qualified wireless spectrum, but only to the extent of the amount allowed as a deduction in computing taxable income for the taxable year;
(ii) Adjusted to disregard covered book amortization expense, covered book wireless spectrum expense, and amounts described in paragraph (e)(5) of this section with respect to qualified wireless spectrum, including qualified wireless spectrum placed in service for regular tax purposes in a taxable year subsequent to the taxable year the wireless spectrum is treated as placed in service for AFS purposes;
(iii) Reduced by any tax amortization section 481(a) adjustment with respect to qualified wireless spectrum 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;
(iv) Increased by any tax amortization section 481(a) adjustment with respect to qualified wireless spectrum 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;
(v) Increased or decreased, as appropriate, by any tax capitalization method change AFSI adjustment for qualified wireless spectrum in accordance with paragraph (d)(3) of this section; and
(vi) Adjusted for other items as provided in IRB guidance the IRS may publish.
(2) Special rules for qualified wireless spectrum held by a partnership —(i) In general. If qualified wireless spectrum is held by a partnership, see § 1.56A-5(e) for the manner in which the adjustments provided in paragraph (d)(1) of this section are taken into account by the partnership and its CAMT entity partners under the applicable method described in § 1.56A-5(c).
(ii) Basis adjustment under section 743(b) of the Code. If qualified wireless spectrum is held by a partnership, the adjustments provided in paragraphs (d)(1)(i) and (iii) through (vi) of this section do not include any amounts resulting from any basis adjustment under section 743(b) of the Code attributable to the qualified wireless spectrum that are treated as increases or decreases to tax amortization or a tax amortization section 481(a) adjustment for regular tax purposes. See § 1.743-1(j)(4). Instead, such amounts resulting from any basis adjustment under section 743(b) attributable to the qualified wireless spectrum that would have been included in the adjustments provided in paragraphs (d)(1)(i), (ii), and (iv) through (vi) of this section are separately stated to the CAMT entity partners under § 1.56A-5(e)(4)(i) and are taken into account by the CAMT entity partners in the manner provided in § 1.56A-5(e)(4)(ii)(A).
(iii) Basis adjustment under section 734(b) of the Code. If qualified wireless spectrum is held by a partnership, the adjustments provided in paragraphs (d)(1)(i) and (iii) through (vi) of this section include amounts resulting from any basis adjustment under section 734(b) of the Code attributable to the qualified wireless spectrum that are treated as increases or decreases to tax amortization or a tax amortization section 481(a) adjustment for regular tax purposes. See § 1.734-1(e).
(iv) Basis adjustment under § 1.1017-1(g)(2). If qualified wireless spectrum is held by a partnership, the adjustments provided in paragraphs (d)(1)(i) and (iii) through (vi) of this section do not include any decreases in tax amortization or income amounts for regular tax purposes, as applicable, resulting from any basis adjustment under § 1.1017-1(g)(2) attributable to qualified wireless spectrum (as calculated under § 1.743-1(j)(4)(ii)). Instead, such decreases in tax depreciation or income amounts, as applicable, resulting from any basis adjustment under § 1.1017-1(g)(2) attributable to section 168 property that would have been included in the adjustments provided in paragraphs (d)(1)(i), (ii), and (iv) through (vii) of this section are separately stated to the CAMT entity partners under § 1.56A-5(e)(4)(i) and are taken into account by the CAMT entity partners in the manner provided in § 1.56A-5(e)(4)(ii)(A).
(3) Adjustment period for tax capitalization method change AFSI adjustments for qualified wireless spectrum. A tax capitalization method change AFSI adjustment for qualified wireless spectrum that is negative reduces AFSI under paragraph (d)(1)(v) of this section in the tax year of change by the full amount of the adjustment. A tax capitalization method change AFSI adjustment for qualified wireless spectrum that is positive increases AFSI under paragraph (d)(1)(v) of this section ratably over four taxable years beginning with the tax year of change. For purposes of this paragraph (d)(3), if any taxable year during the four-year spread period for a tax capitalization method change AFSI adjustment for qualified wireless spectrum that is positive is a short taxable year, the CAMT entity takes the adjustment into account as if that short taxable year were a full 12-month taxable year. If, in any taxable year, a CAMT entity ceases to engage in the trade or business to which the tax capitalization method change AFSI adjustment for qualified wireless spectrum relates, the CAMT entity includes in AFSI for such taxable year any portion of the adjustment not included in AFSI for a previous taxable year.
(e) AFSI adjustments upon disposition of qualified wireless spectrum —(1) In general. Except as otherwise provided in paragraph (e)(7) of this section, if a CAMT entity disposes of qualified wireless spectrum for regular tax purposes, the CAMT entity adjusts 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 qualified wireless spectrum as of the date of the disposition (disposition date), as determined under paragraph (e)(2)(i) of this section. To the extent the CAMT basis of the qualified wireless spectrum 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 qualified wireless spectrum.
(2) Adjustments to the AFS basis of qualified wireless spectrum —(i) In general. For purposes of applying paragraph (e)(1) of this section, and subject to paragraphs (e)(2)(ii) and (e)(3) of this section, the CAMT basis of the qualified wireless spectrum as of the disposition date is the AFS basis of the qualified wireless spectrum as of that date—
(A) Decreased by the full amount of tax amortization with respect to such property as of the disposition date;
(B) Increased by the amount of any covered book wireless spectrum expense with respect to such property;
(C) Increased by the amount of any covered book amortization expense that reduced the AFS basis of such property as of the disposition date, including covered book amortization expense with respect to AFS basis increases that are otherwise disregarded for AFSI and CAMT basis purposes (for example, AFS basis increases that are disregarded for AFSI and CAMT basis purposes under §§ 1.56A-18 and 1.56A-19);
(D) Decreased by any reductions to the CAMT basis of such property under § 1.56A-21(c)(4) and (5); 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 other sections of the section 56A regulations with respect to such property (for example, AFS basis adjustments that are disregarded for AFSI and CAMT basis purposes under §§ 1.56A-18 and 1.56A-19).
(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. The amounts described in paragraph (e)(2)(i) of this section include amounts attributable to all taxable years beginning before January 1, 2023 (including taxable years beginning on or before December 31, 2019).
(B) Qualified wireless spectrum acquired in certain transactions to which section 197(f)(2) applies. In the case of qualified wireless spectrum that was acquired by a CAMT entity in a transaction that is a covered recognition transaction, as defined in § 1.56A-18(b)(10), with respect to at least one party to the transaction, or in a transaction described in § 1.56A-20, the amounts described in paragraph (e)(2)(i) of this section include only amounts attributable to the period following the transaction, regardless of whether section 197(f)(2) applies to any portion of the transaction for regular tax purposes. For rules regarding transactions involving members of a tax consolidated group, see § 1.1502-56A(e).
(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. In the case of qualified wireless spectrum for which the CAMT entity made a change in method of accounting for amortization for regular tax purposes or a tax capitalization method change for qualified wireless spectrum, the amounts described in paragraph (e)(2)(i) of this section are determined as though the CAMT entity used the method of accounting to which it changed to under the corresponding method change when making the adjustments under paragraph (d)(1) of this section in all taxable years prior to the taxable year in which the disposition of the qualified wireless spectrum occurs. The immediately preceding sentence applies regardless of whether the full amount of a corresponding tax amortization section 481(a) adjustment or a tax capitalization method change AFSI adjustment for qualified wireless spectrum has been taken into account in AFSI under paragraph (d)(1) of this section as of the end of the taxable year in which the disposition of the qualified wireless spectrum occurs.
(D) Adjustments to the AFS basis of qualified wireless spectrum include only the covered book amounts actually disregarded in determining AFSI. The adjustments described in paragraphs (e)(2)(i)(B) and (C) of this section include only amounts that were actually disregarded by the CAMT entity under paragraph (d)(1)(ii) of this section in computing its AFSI, modified FSI, or adjusted net income or loss for the relevant taxable years. Accordingly, for a taxable year ending after December 31, 2019, only the amounts disregarded under paragraph (d)(1)(ii) of this section in computing the AFSI, modified FSI, or adjusted net income or loss reported by the CAMT entity as required by the section 56A regulations or other sections of the Code (for example, on its annual return on Form 4626 (or any successor), on its Form 5471, or in accordance with the reporting requirements in § 1.56A-5(h)) for such taxable year with respect to the qualified wireless spectrum are taken into account in computing the adjustments described in in paragraphs (e)(2)(i)(B) and (C) of this section. For a taxable year ending on or before December 31, 2019, or for a taxable year in which the CAMT entity satisfied the simplified method under § 1.59-2(g) (including a taxable year included in the relevant three-taxable-year period), the CAMT entity is deemed to have disregarded the appropriate amounts under paragraph (d)(1)(ii) of this section with respect to the qualified wireless spectrum for such taxable year.
(3) Special rule for qualified wireless spectrum disposed of by a partnership. If a partnership disposes of qualified wireless spectrum—
(i) The adjustment under paragraph (e)(1) of this section with respect to the qualified wireless spectrum is taken into account in determining the partnership's modified FSI under § 1.56A-5(e)(3); and
(ii) For purposes of determining the adjustment under paragraph (e)(1) of this section with respect to the qualified wireless spectrum, the adjustment to the partnership's AFS basis in the qualified wireless spectrum under paragraph (e)(2)(i)(A) of this section—
(A) Includes any curative allocation under § 1.704-3(c) or remedial item under § 1.704-3(d) that is treated as tax amortization, but excludes any other curative allocation or offsetting remedial income item;
(B) Includes any tax amortization (including any reduction in tax amortization) with respect to a section 734(b) adjustment;
(C) Excludes any tax amortization (including any reduction in tax amortization) with respect to a section 743(b) basis adjustment; and
(D) Excludes any tax amortization (including any reduction in tax amortization) with respect to a basis adjustment under § 1.1017-1(g)(2).
(iii) For purposes of determining the adjustment under paragraph (e)(1) of this section with respect to the qualified wireless spectrum, the adjustment to the partnership's AFS basis in the qualified wireless spectrum under paragraph (e)(2)(i)(D) of this section excludes any basis adjustment under § 1.1017-1(g)(2), regardless of whether any partner in the partnership is subject to the attribute reduction rules under § 1.56A-21(c)(5) and (6). However, if a partner in the partnership is subject to the attribute reduction rules under § 1.56A-21(c)(5) and (6), the partner increases its distributive share amount (under § 1.56A-5(e)(4)(ii)(B)) for the taxable year of the disposition of the qualified wireless spectrum by the amount of any basis adjustment under § 1.1017-1(g)(2) with respect to the qualified wireless spectrum that has not yet been taken into account for regular tax purposes. See § 1.1017-1(g)(2)(v).
(iv) If a partner has a basis adjustment under section 743(b) in place with respect to qualified wireless spectrum held by a partnership that is disposed of by the partnership, the partner—
(A) Increases its distributive share amount (under § 1.56A-5(e)(4)(ii)(B)) for the taxable year of the disposition of the qualified wireless spectrum by an amount equal to the total amount of any tax amortization or tax amortization section 481(a) adjustment(s) with respect to a section 743(b) basis adjustment that decreased the partner's distributive share amount under § 1.56A-5(e)(1)(iv) and (e)(4)(ii)(A) for taxable years prior to the disposition; and
(B) Decreases its distributive share amount (under § 1.56A-5(e)(4)(ii)(B)) for the taxable year of the disposition of the qualified wireless spectrum by an amount equal to the total amount of any tax amortization or tax amortization section 481(a) adjustment(s) with respect to a section 743(b) basis adjustment that increased the partner's distributive share amount under § 1.56A-5(e)(1)(iv) and (e)(4)(ii)(A) for taxable years prior to the disposition.
(4) Treatment of amounts recognized in FSI upon the disposition of qualified wireless spectrum. Except as otherwise provided in other sections of the section 56A regulations, if a CAMT entity disposes of qualified wireless spectrum for regular tax purposes and recognizes gain or loss from the disposition in its FSI, the gain or loss (as redetermined under paragraph (e)(1) of this section) 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.
(5) Subsequent AFS dispositions. If qualified wireless spectrum 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 wireless spectrum that is reflected in FSI following the date such wireless spectrum is disposed of for regular tax purposes is disregarded in determining AFSI.
(6) Intercompany transactions. If a member of a tax consolidated group disposes of qualified wireless spectrum for regular tax purposes in an intercompany transaction, as defined in § 1.1502-13(b)(1)(i), for which the AFS consolidation entries are taken into account under § 1.1502-56A(c)(3)(i) in determining AFSI of the tax consolidated group for the taxable year that includes the intercompany transaction, the member's AFSI adjustment under paragraph (e)(1) of this section is determined as of the date of the intercompany transaction. However, the AFSI adjustment is deferred, and the tax consolidated group does not adjust AFSI under this paragraph (e), until the taxable year in which the AFS consolidation entries related to the disposition become disregarded under § 1.1502-56A(c)(3)(ii). See § 1.1502-56A(e)(3).
(7) Example. The following example illustrates the application of this paragraph (e).
(i) Facts. X is an applicable corporation for the calendar year ending December 31, 2024. On January 1, 2019, X acquired Wireless Spectrum 1, which is qualified wireless spectrum, at a cost of $1,000x. For AFS purposes, X does not amortize Wireless Spectrum 1. For regular tax purposes, X amortizes Wireless Spectrum 1 ratably over 15 years and recognizes $67x ($1,000x cost/15 years) of deductible tax amortization in 2019 and each year thereafter until X sells Wireless Spectrum 1 (a disposition for regular tax and AFS purposes) on January 1, 2025, for $900x. For 2025, X takes into account $100x of net loss from the sale of Wireless Spectrum 1 in its FSI ($900x consideration−$1,000x of AFS basis ($1,000x cost−$0x accumulated covered book amortization expense as of January 1, 2025)).
(ii) Analysis: Taxable year 2024. In determining AFSI for the taxable year ending December 31, 2024, X does not have any covered book amortization expense or covered book wireless spectrum expense reflected in X's FSI with respect to Wireless Spectrum 1, and thus, the adjustment to disregard the amounts under paragraph (d)(1)(ii) of this section is zero. In addition, X reduces AFSI under paragraph (d)(1)(i) of this section for the $67x of deductible tax amortization with respect to Wireless Spectrum 1.
(iii) Analysis: Taxable year 2025. To determine the AFSI adjustment for the gain or loss from the sale of Wireless Spectrum 1 under paragraph (e)(1) of this section, X determines the CAMT basis of such property by adjusting the AFS basis of such property by the amounts described in paragraph (e)(2)(i) of this section with respect to such property, including those amounts attributable to taxable years beginning before January 1, 2023 (as required by paragraph (e)(2)(ii)(A) of this section). Accordingly, the CAMT basis of Wireless Spectrum 1 for AFSI purposes is $598x ($1,000x AFS basis + $0x accumulated covered book amortization expense−$402x of accumulated tax amortization). Thus, the redetermined gain on the sale of Wireless Spectrum 1 for AFSI purposes is $302x ($900x consideration−$598x CAMT basis), and X's AFSI adjustment under paragraph (e)(1) of this section to reflect the redetermined gain is a positive adjustment of $402x ($302x redetermined gain−$100x net loss in FSI).
(f) Applicability date. This section applies to taxable years ending after [DATE OF PUBLICATION OF FINAL RULE IN THE Federal Register ].