Prop. Treas. Reg. § 1.56A-1 Definitions and general rules for determining adjusted financial statement income.

Par. 9. Sections 1.56A-0 through 1.56A-27 are added to read as follows:

(a) Overview —(1) In general. This section provides general definitions that apply for purposes of the regulations provided in this section and §§ 1.56A-2 through 1.56A-27, 1.59-2 through 1.59-4, 1.1502-53, and 1.1502-56A and provides general rules under section 56A of the Code for determining financial statement income (FSI) and adjusted financial statement income (AFSI), which are relevant for determining whether, and to what extent, a corporation is subject to the corporate alternative minimum tax (CAMT) under section 55(a) of the Code. Paragraph (b) of this section provides general definitions that apply for purposes of this section and §§ 1.56A-2 through 1.56A-27 and 1.1502-56A (collectively, the section 56A regulations), as well as §§ 1.59-2 through 1.59-4 and 1.1502-53. Paragraph (c) of this section provides general rules for determining an entity's FSI, including for situations in which the financial results of an entity are consolidated with the financial results of one or more other entities in a consolidated financial statement. Paragraph (d) of this section provides general rules for determining an entity's AFSI. Paragraph (e) of this section provides rules for translating AFSI that is denominated in a currency other than the U.S. dollar. Paragraph (f) of this section provides rules for determining the classification of an entity for purposes of the section 56A regulations. Paragraph (g) of this section provides general substantiation requirements. Paragraph (h) of this section provides general reporting requirements. Paragraph (i) of this section provides the applicability date of this section.

(2) Scope of the section 56A regulations. The section 56A regulations apply to determine a CAMT entity's AFSI, modified FSI, or adjusted net income or loss, as applicable, for purposes of sections 55 through 59 of the Code. The section 56A regulations apply to any CAMT entity whose AFSI, modified FSI, or adjusted net income or loss, as applicable, is relevant for determining—

(i) Whether the CAMT entity or any other CAMT entity is an applicable corporation under section 59(k); or

(ii) The tentative minimum tax under section 55(b)(2)(A) of the CAMT entity or any other CAMT entity.

(b) Definitions. For purposes of the section 56A regulations:

(1) Adjusted financial statement income. The term adjusted financial statement income (AFSI) means:

(i) With respect to a corporate alternative minimum tax (CAMT) entity whose applicable financial statement (AFS) for the taxable year is not described in § 1.56A-2(c)(6), the CAMT entity's FSI for the taxable year, adjusted as provided in the section 56A regulations. The IRS may publish IRB guidance that permits CAMT entities to make other AFSI adjustments.

(ii) With respect to a CAMT entity whose AFS for the taxable year is described in § 1.56A-2(c)(6)—

(A) For a CAMT entity that is a controlled foreign corporation, the amount described in paragraph (b)(20)(ii) of this section for the taxable year, adjusted as provided in the section 56A regulations;

(B) For a CAMT entity that is a partnership, the partnership's items of income, gain, loss, and deduction that are reflected on the partnership's return of partnership income for the taxable year and taken into account in determining the taxable income of each partner (without adjustment); and

(C) For a CAMT entity other than a controlled foreign corporation or a partnership, the CAMT entity's taxable income for the taxable year (without adjustment).

(2) Adjusted net income or loss. The term adjusted net income or loss means, with respect to a controlled foreign corporation for a taxable year, the amount provided in § 1.56A-6(c).

(3) AFS basis. The term AFS basis means the carrying value of an item for AFS purposes. See paragraph (c)(4) of this section for rules that apply to determine a CAMT entity's AFS basis in an item if the CAMT entity's AFS is a consolidated financial statement.

(4) AFS consolidation entries. The term AFS consolidation entries means the financial accounting journal entries that are made in preparing a consolidated financial statement for a financial statement group in order to present the financial results of that financial statement group as though all members of the financial statement group were a single economic entity, including journal entries—

(i) To eliminate the effect of transactions and investments between members of the financial statement group;

(ii) To report amounts that are not recorded in the separate books and records of one or more members of the financial statement group; and

(iii) To correct or otherwise adjust amounts that are reported in the separate books and records of one or more members of the financial statement group.

(5) Applicable corporation. The term applicable corporation has the meaning provided in § 1.59-2(b)(1).

(6) Applicable financial statement. The term applicable financial statement (AFS) has the meaning provided in § 1.56A-2(b).

(7) CAMT basis. The term CAMT basis means the basis of an item for purposes of determining AFSI. Except as otherwise provided in the section 56A regulations (for example, §§ 1.56A-4(d)(5), 1.56A-15(e) and 1.56A-16(e)), the CAMT basis of an item is the AFS basis of the item, adjusted as provided in the section 56A regulations. See paragraph (d)(3) of this section for rules for determining the AFS basis of an item that arose in a taxable year beginning before January 1, 2023.

(8) CAMT entity. The term CAMT entity means any entity identified in section 7701 of the Code and the regulations under section 7701 other than a disregarded entity.

(9) CAMT foreign tax credit. The term CAMT foreign tax credit means the credit allowed to an applicable corporation under section 59(l), as computed under § 1.59-4(c).

(10) CFC adjustment carryover. The term CFC adjustment carryover has the meaning provided in § 1.56A-6(b)(6).

(11) Change in accounting principle. The term change in accounting principle means a change from using one accepted accounting principle or practice to another accepted accounting principle or practice for AFS purposes if there are two or more accepted accounting principles or practices that apply or if the original accepted accounting principle or practice is no longer accepted. A change in the method of applying an accepted accounting principle or practice for AFS purposes also is considered a change in accounting principle. See, for example, FASB Accounting Standards Codification (ASC) 250-10-20.

(12) Consolidated financial statement. The term consolidated financial statement means a financial statement that presents the assets, liabilities, equity, income, and expenses of more than one CAMT entity as those of a single economic entity.

(13) Controlled foreign corporation. The term controlled foreign corporation has the meaning provided under section 957 of the Code or, if applicable, section 953(c)(1)(B) of the Code.

(14) Disregarded entity. The term disregarded entity means an entity that is disregarded as separate from its owner under § 301.7701-3 of this chapter, a qualified subchapter S subsidiary within the meaning of section 1361(b)(3)(B) of the Code, and a qualified real estate investment trust subsidiary within the meaning of section 856(i)(2) of the Code.

(15) Equity method. The term equity method means the practice, under financial accounting principles, of a CAMT entity (investor) initially recording its investment in the equity of another CAMT entity (investee) as an asset in the investor's AFS, generally, at cost and then adjusting the AFS basis of such asset by the investor's share of the earnings or losses of the investee for periods following the date of investment. See, for example, ASC 323. The equity method includes the hypothetical liquidation at book value (HLBV) method under which the investor uses a balance sheet approach to calculate the investor's share of investee earnings or losses based on the change in the investor's claim on the net assets of the investee.

(16) Equity method basis adjustment. The term equity method basis adjustment means the practice, under financial accounting principles, of a CAMT entity (investor) adjusting its AFS basis in an investment in the equity of another CAMT entity (investee) accounted for under the equity method to reflect amortization of the difference (or a portion of the difference) between the investor's proportionate share of the fair value of the investee's net assets and the investor's proportionate share of the carrying value of the investees net assets as of the date investor acquired the investment. See, for example, ASC 323-10-35-13.

(17) Fair value method. The term fair value method means the practice, under financial accounting principles, of a CAMT entity (investor) recording its investment in the equity of another CAMT entity (investee) as an asset in the investor's AFS and adjusting the AFS basis of such asset as of each reporting date by reference to the investment's fair value (or by reference to the original cost of the investment, reduced for any impairment, if the fair value is not readily determinable). See, for example, ASC 321-10.

(18) Federal income taxes. The term Federal income taxes means taxes imposed by subtitle A of the Code (subtitle A). Federal income taxes include amounts allowed as credits against taxes imposed by subtitle A, including credit amounts that are generated by a partnership and passed through to a partner.

(19) Financial statement group. The term financial statement group means a group of CAMT entities whose financial results are consolidated and reported on the same consolidated financial statement.

(20) Financial statement income. The term financial statement income (FSI) means:

(i) With respect to a CAMT entity other than a CAMT entity described in paragraph (b)(20)(ii) of this section for a taxable year, the net income or loss of the CAMT entity set forth on the income statement (sometimes referred to as the statement of earnings, the statement of operations, or the statement of profit and loss) included in the CAMT entity's AFS for the taxable year. FSI includes all the CAMT entity's items of income, expense, gain, and loss reflected in the net income or loss set forth on the income statement for the taxable year, including nonrecurring items and net income or loss from discontinued operations. FSI does not include amounts reflected elsewhere in the CAMT entity's AFS, including in equity accounts such as retained earnings and other comprehensive income (OCI). See paragraph (c) of this section for rules that apply to determine FSI of a CAMT entity.

(ii) With respect to a CAMT entity that is a controlled foreign corporation and whose AFS is the tax return under § 1.56A-2(c)(6), the amount determined under § 1.964-1(a)(1) for a taxable year without adjustment for § 1.964-1(a)(1)(iii).

(21) Financial statement net operating loss. The term financial statement net operating loss (FSNOL) has the meaning provided in § 1.56A-23(b).

(22) For regular tax purposes. The term for regular tax purposes means for purposes of computing a CAMT entity's regular tax liability, as defined under section 26(b) of the Code, or, if the CAMT entity is a pass-through entity or a controlled foreign corporation, the regular tax liability of a direct or indirect owner of the CAMT entity, as applicable.

(23) Foreign income tax. The term foreign income tax has the meaning provided in § 1.901-2.

(24) FPMG. The term FPMG (foreign-parented multinational group) has the meaning provided in § 1.59-3(c).

(25) FPMG common parent. The term FPMG common parent has the meaning provided in § 1.59-3(b)(9).

(26) FSNOL carryover. The term FSNOL carryover has the meaning provided in § 1.56A-23(d).

(27) GAAP. The term GAAP means United States Generally Accepted Accounting Principles, which are a common set of accounting rules, standards, and procedures that are generally issued by the Financial Accounting Standards Board (FASB) and, where applicable, the United States Securities and Exchange Commission (SEC).

(28) IFRS. The term IFRS means International Financial Reporting Standards, which are a common set of accounting rules, standards, and procedures that are generally issued by the International Accounting Standards Board.

(29) Impairment loss. The term impairment loss means a loss reflected in a CAMT entity's FSI from the impairment write-down of the AFS basis of an asset (or a group of assets) to fair value while the asset (or group of assets) is still held by the CAMT entity. An impairment write-down occurs if an asset (or a group of assets) is tested for impairment and the asset (or group of assets) has an AFS basis that exceeds the fair value of the asset (or group of assets). The frequency with which an asset (or a group of assets) is tested for impairment is not relevant in determining whether an impairment loss has occurred.

(30) Impairment loss reversal. The term impairment loss reversal means the reversal of a prior-year impairment loss that is reflected in the current-year computation of FSI.

(31) IRB guidance. The term IRB guidance means guidance published in the Internal Revenue Bulletin ( see § 601.601(d) of this chapter) after [DATE OF PUBLICATION OF THE FINAL RULE IN THE FEDERAL REGISTER ].

(32) Modified FSI. The term modified FSI means, with respect to a partnership for a taxable year, the amount provided in § 1.56A-5(e)(3).

(33) Partnership and tiered partnership. The term partnership has the meaning provided under sections 761(a) and 7701(a)(2) of the Code and the regulations under sections 761 and 7701. The term tiered partnership means a structure in which a partnership (upper-tier partnership) owns an interest in another partnership (lower-tier partnership).

(34) Pass-through entity. The term pass-through entity means a partnership, an S corporation as defined in section 1361(a)(1) of the Code, or any other CAMT entity other than a C corporation, as defined in section 1361(a)(2) of the Code, to the extent that the income or deductions of the entity are included in the income of one or more direct or indirect owners or beneficiaries of the entity for regular tax purposes.

(35) Purchase accounting. The term purchase accounting means the practice, under financial accounting principles, of a CAMT entity recording acquisitions of other CAMT entities or lines of business on its AFS at fair value, with the acquiring CAMT entity valuing the assets and liabilities of the acquired CAMT entity or line of business at their fair value as of the acquisition date. See, for example, ASC 805-20-25-1.

(36) Push down accounting. The term push down accounting means the practice, under financial accounting principles, of an acquired CAMT entity adjusting the AFS basis of its assets and liabilities and the assets and liabilities of any lower-tier entities to fair value as of the date the CAMT entity is acquired. See, for example, ASC 805-50-25-4.

(37) Qualified wireless spectrum. The term qualified wireless spectrum has the meaning provided in § 1.56A-16(b)(4).

(38) Restated AFS. The term restated AFS means an AFS for a specific accounting period that is revised and reissued to correct the original AFS issued for that accounting period. Adjustments to the financial results of a prior accounting period that are disclosed in an original AFS for comparison purposes (for example, in the case of a change in accounting principle) do not constitute a restated AFS for that prior accounting period.

(39) Section 56A regulations. The term section 56A regulations means the regulations provided in this section and §§ 1.56A-2 through 1.56A-27 and 1.1502-56A.

(40) Section 168 property. The term section 168 property has the meaning provided in § 1.56A-15(b)(6).

(41) Separate financial statement. The term separate financial statement means a financial statement that is not a consolidated financial statement and that presents the assets, liabilities, equity, income, and expenses of a single CAMT entity (including the assets, liabilities, equity, income, and expenses of that single CAMT entity with respect to its investment in other CAMT entities).

(42) Statutory references —(i) Chapter 1. The term chapter 1 means chapter 1 of subtitle A.

(ii) Code. The term Code means the Internal Revenue Code.

(iii) Subchapter K. The term subchapter K means subchapter K of chapter 1.

(iv) Subtitle A. The term subtitle A means subtitle A of the Code.

(43) Tax consolidated group. The term tax consolidated group has the meaning given the term consolidated group in § 1.1502-1(h).

(44) United States shareholder. The term United States shareholder has the meaning provided under section 951(b) of the Code or, if applicable, section 953(c)(1)(A) of the Code.

(c) General rules for determining FSI —(1) Federal income tax treatment not relevant for FSI. FSI includes all items of income, expense, gain, and loss reflected in the net income or loss of a CAMT entity set forth in the income statement included in the CAMT entity's AFS, regardless of whether the amounts are realized, recognized, or otherwise taken into account for regular tax purposes. For example, FSI includes income reported on the income statement included in a CAMT entity's AFS for a taxable year even if the income is not treated as AFS revenue for that taxable year for purposes of the AFS income inclusion rule under § 1.451-3(b). Similarly, FSI includes gain or loss reported on the income statement included in a CAMT entity's AFS for a taxable year even if the gain or loss is deferred or not recognized for regular tax purposes (for example, gain on a like-kind exchange that qualifies for nonrecognition treatment under section 1031 of the Code).

(2) Tax consolidated groups; CAMT entities that own disregarded entities —(i) Tax consolidated groups. For purposes of the section 56A regulations, if the AFS of each member of a tax consolidated group is not the same consolidated financial statement after the application of § 1.56A-2(g), then the tax consolidated group combines the financial results of all CAMT entities reflected in the different AFSs of its members to form one consolidated financial statement that is treated as the AFS of the tax consolidated group (tax consolidated group AFS). For purposes of the preceding sentence, the financial results of each CAMT entity may not be included in the tax consolidated group AFS more than once, and the tax consolidated group makes any AFS consolidation entries not otherwise reflected in the AFS of any member that would have been made if the tax consolidated group AFS actually had been prepared. For additional rules for determining the FSI of a tax consolidated group, see § 1.1502-56A.

(ii) CAMT entities that own a disregarded entity or branch. For rules for determining the FSI of a CAMT entity that owns a disregarded entity or branch, see § 1.56A-9.

(3) Determining FSI from a consolidated AFS. If a CAMT entity's AFS is a consolidated financial statement under paragraph (c)(2)(i) of this section or § 1.56A-2(g) (consolidated AFS), the CAMT entity applies this paragraph (c)(3) to determine the amount of the net income or loss of the financial statement group set forth on the income statement included in the consolidated AFS (consolidated FSI) that is the CAMT entity's FSI. Except as provided in § 1.1502-56A(c), the CAMT entity's FSI is determined in accordance with this paragraph (c)(3).

(i) In general. The amount of consolidated FSI that is the CAMT entity's FSI must be supported by the CAMT entity's separate books and records (including trial balances) used to create the consolidated AFS.

(ii) No netting losses against income within the consolidated AFS. Except as provided in paragraphs (c)(3)(iii)(B) and (C) of this section, the amount of consolidated FSI that is the CAMT entity's FSI is determined without regard to the financial results of other CAMT entities that are members of the financial statement group for which the consolidated AFS is prepared. Accordingly, if two or more CAMT entities are members of that financial statement group, the loss of one CAMT entity may not offset the income of another CAMT entity for purposes of determining the FSI of either CAMT entity, notwithstanding that the amounts are reflected in the consolidated FSI on a net basis.

(iii) Elimination journal entries. In determining the amount of consolidated FSI that is the CAMT entity's FSI:

(A) AFS consolidation entries that eliminate the effect of transactions between the CAMT entity and another CAMT entity that is a member of the financial statement group for which the consolidated AFS is prepared are disregarded.

(B) AFS consolidation entries that eliminate any income, loss, expense, asset, liability, or other item of the CAMT entity with respect to its investment in another CAMT entity (for example, an interest in a partnership or stock in a corporation) that is a member of the financial statement group for which the consolidated AFS is prepared are disregarded.

(C) If a CAMT entity has an investment in a partnership or a domestic corporation that is a member of the CAMT entity's financial statement group for which the consolidated AFS is prepared, the income or loss reflected in the FSI of the CAMT entity with respect to the investment (after the application of paragraph (c)(3)(iii)(B) of this section) and any balance sheet accounts reflected in the CAMT entity's separate books and records with respect to the investment are determined as though the CAMT entity prepared a separate financial statement in which the investment was properly accounted for under the relevant accounting standards for investments in other entities (for example, the Parent-Entity Financial Statement accounting standards described in ASC 810-10-45-11), if the CAMT entity does not so account for the investment in the CAMT entity's separate books and records used to prepare the consolidated AFS.

(iv) Consolidation entries other than elimination entries. AFS consolidation entries, other than elimination entries described in paragraphs (c)(3)(iii)(A) and (B) of this section, that relate to one or more CAMT entities that are members of the financial statement group for which the consolidated AFS is prepared and that are not reflected in the separate books and records of one or more of the CAMT entities are appropriately allocated or pushed down (or both), as applicable, to each CAMT entity to which the AFS consolidation entries relate and taken into account in each CAMT entity's FSI.

(v) Reconciliation requirement. The CAMT entity must maintain books and records sufficient to demonstrate how its FSI (as determined under this paragraph (c)(3)) reconciles to consolidated FSI.

(4) Determining AFS basis and balance sheet account amounts if the CAMT entity's AFS is a consolidated financial statement —(i) In general. If, under § 1.56A-2(g), a CAMT entity's AFS is a consolidated financial statement, and if the CAMT entity's balance sheet accounts or AFS basis in any item is relevant for determining the CAMT entity's AFSI, then the CAMT entity uses the balance sheet accounts or AFS basis reflected in the CAMT entity's separate books and records (including the CAMT entity's trial balance) used to create the consolidated financial statement. The balance sheet accounts or AFS basis are determined without regard to any AFS consolidation entries described in paragraphs (c)(3)(iii)(A) and (B) of this section, but with regard to paragraphs (c)(3)(iii)(C) and (c)(3)(iv) of this section.

(ii) Purchase accounting and push down accounting. In the case of a CAMT entity subject to the accounting standards for business combinations, the application of paragraphs (c)(3) and (c)(4)(i) of this section will result in any purchase accounting and push down accounting adjustments, as applicable, being reflected in the CAMT entity's AFS basis, balance sheet accounts, and FSI. However, the purchase accounting and push down accounting adjustments, as applicable, may be disregarded under other sections of the section 56A regulations for purposes of determining the CAMT entity's CAMT basis and AFSI ( see, for example, §§ 1.56A-18(c)(3) and 1.56A-4(c)(4) and (d)(4)).

(5) Coordination rule. This paragraph (c) applies before paragraphs (d) and (e) of this section and before all other sections of the section 56A regulations other than § 1.56A-2. Accordingly, references to AFS basis and FSI in paragraphs (d) and (e) of this section and in §§ 1.56A-3 through 1.56A-27 mean AFS basis and FSI as determined under this paragraph (c).

(6) Examples. The following examples illustrate the application of paragraph (c)(3) of this section.

(i) Example 1: FSI of component members of a financial statement group— (A) General Facts. X is a domestic corporation and Y is a domestic partnership. X is a general partner in Y with a 40% interest in Y. The financial results of X are consolidated with the financial results of Y on a consolidated AFS (XY Consolidated AFS) for the financial reporting period beginning January 1, 2024, and ending December 31, 2024. X and Y are the only CAMT entities whose financial results are reflected in the XY Consolidated AFS. Under § 1.56A-2(g), X's AFS and Y's AFS is the XY Consolidated AFS.

(B) Facts: Consolidation entries. The XY Consolidated AFS, which is prepared under GAAP, reflects consolidated FSI of $1,650x. X's and Y's separate books and records used to prepare the XY Consolidated AFS disclose that X had net income of $2,000x and that Y had a net loss of $500x. Further, the $2,000x net income of X includes $1x of income for services rendered to Y and a loss of $200x reflecting X's share of Y's net loss, which is consistent with the loss that X would have reported with respect to X's investment in Y had it prepared a nonconsolidated AFS in which X's investment in Y was accounted for under the Parent-Entity Statement accounting standards described in ASC 810-10-45-11. These amounts are eliminated from consolidated FSI through AFS consolidation entries made in preparing the XY Consolidated AFS. Y's loss of $500x includes $1x of expense that Y incurred for services provided by X. The $1x expense is also eliminated from consolidated FSI through AFS consolidation entries made in preparing the XY Consolidated AFS. An AFS consolidation entry is also made to take into account in consolidated FSI $50x of expenses incurred by X to a third party and not reflected in X's separate books and records. Accordingly, the information from X's and Y's source documents, the AFS consolidation entries, and consolidated FSI for the XY Consolidated AFS are summarized as follows (all amounts are stated in U.S. dollars):

(C) Analysis: X's FSI. X and Y determine their respective portions of the consolidated FSI set forth on the XY Consolidated AFS by applying the rules in paragraph (c)(3) of this section. Accordingly, the amount of consolidated FSI that is X's FSI is based upon X's separate books and records used in preparing the XY Consolidated AFS. These disclose net income of $2,000x. In determining X's FSI, this amount is not reduced by the $500x net loss reflected in Y's separate books and records (even though consolidated FSI is reduced by the net loss). Further, pursuant to paragraph (c)(3)(iii)(A) of this section, the AFS consolidation entries eliminating the $1x of income from services rendered to Y and the $200x loss from X's investment in Y is disregarded. That is, X's FSI includes these two amounts. Additionally, because X accounts for X's investment in Y in X's separate books and records in a manner consistent with how the investment would have been accounted for had X prepared a nonconsolidated AFS in which X's investment in Y was accounted for under the Parent-Entity Statement accounting standards described in ASC 810-10-45-11, X is not required to further adjust the amount that it reports with respect to X's investment in Y under paragraph (c)(3)(iii)(B) of this section. Finally, pursuant to paragraph (c)(3)(iv) of this section, X reduces its FSI by $50x, the AFS consolidation entry for administrative costs of X that were not reflected in X's separate books and records. Accordingly, the amount of consolidated FSI that is X's FSI is $1,950x ($2,000x−$50x).

(D) Analysis: Y's FSI. The amount of consolidated FSI that is Y's FSI is similarly determined. Y's separate books and records disclose a net loss of $500x. In determining Y's FSI, this amount is not offset by any portion of X's net income (even though the amounts are netted in consolidated FSI). Further, pursuant to paragraph (c)(3)(iii)(A) of this section, the AFS consolidation entry eliminating $1x of expense for services provided by X is disregarded. That is, such expense is included in Y's FSI. Accordingly, the amount of consolidated FSI that is Y's FSI is a net loss of $500x. Pursuant to paragraph (c)(3) of this section, the amounts of consolidated FSI that are X's FSI and Y's FSI are determined as follows:

(ii) Example 2: Consolidation entries if an item is converted from one financial accounting standard to another— (A) Facts. X is a domestic corporation and a wholly-owned subsidiary of FC, a foreign corporation. Each of X and FC uses the calendar year as its taxable year. The financial results of X are consolidated with the financial results of FC on a consolidated AFS (XFC Consolidated AFS) for the financial reporting period beginning January 1, 2024, and ending December 31, 2024. X and FC are the only CAMT entities whose financial results are reflected in the XFC Consolidated AFS (XFC financial statement group). Under § 1.56A-2(g), X's AFS and FC's AFS is the XFC Consolidated AFS. The XFC Consolidated AFS, which is prepared under IFRS, reflects consolidated FSI of $2,000x. X maintains its separate books and records under GAAP, which reflect that X had net income of $500x, applying the last-in, first-out (LIFO) method of inventory identification as permitted under GAAP. FC's separate books and records reflect net income of $1,400x as reported under IFRS. The XFC financial statement group records AFS consolidation entries to convert X's separate books and records from GAAP to IFRS, which requires the use of the FIFO method of inventory identification. The entries result in an additional $100x of net income to the XFC financial statement group. The additional $100x of net income is not reflected in the separate books and records of X.

(B) Analysis. X applies paragraph (c)(3)(iv) of this section to determine the amount of consolidated FSI that is X's FSI. Accordingly, the amount of consolidated FSI that is X's FSI is based upon X's separate books and records used in preparing the XFC Consolidated AFS. Although X's separate books and records reflected net income of $500x under GAAP, X increases its FSI by $100x pursuant to paragraph (c)(3)(iv) of this section to reflect the AFS consolidation entries to convert X's books and records from GAAP to IFRS. Accordingly, the amount of consolidated FSI that is X's FSI is $600x ($500x + $100x).

(d) General rules for determining AFSI— (1) Federal income tax treatment not relevant for AFSI except as otherwise provided in guidance. Except as otherwise provided in section 56A of the Code or the section 56A regulations, AFSI includes all items of income, expense, gain, and loss reflected in a CAMT entity's FSI regardless of whether those items are realized, recognized, or otherwise taken into account for regular tax purposes. For example, if FSI reflects gain or loss from a transaction that qualifies for nonrecognition treatment for regular tax purposes, and if no provision in the section 56A regulations provides for an adjustment to apply nonrecognition treatment for AFSI purposes, then the gain or loss is included in AFSI.

(2) Limitation on AFSI adjustments. Except as otherwise provided in the section 56A regulations, a CAMT entity may not make any adjustments to its FSI in determining its AFSI.

(3) AFSI adjustments for taxable years beginning before January 1, 2023 —(i) In general. Except as otherwise provided in the section 56A regulations, the AFSI adjustments described in the section 56A regulations, including those adjustments that affect the CAMT basis of an item, are made for taxable years ending after December 31, 2019.

(ii) Exception for AFSI adjustments that arise from transactions or events that occur in taxable years ending on or before December 31, 2019. Except as otherwise provided in the section 56A regulations (for example, in § 1.56A-15(c)(6) and (e)(2)(ii)(A) for AFSI adjustments for section 168 property, § 1.56A-16(e)(2)(ii)(A) for AFSI adjustments for qualified wireless spectrum, and § 1.56A-24(c)(3) for AFSI adjustments for hedging transactions and hedged items), for purposes of paragraph (d)(3)(i) of this section, any AFSI adjustment described in the section 56A regulations that arises from an event or a transaction that occurs in a taxable year that ends on or before December 31, 2019, is not made in determining AFSI for taxable years ending after December 31, 2019.

(4) Redetermination of FSI gains and losses. Except as otherwise provided in the section 56A regulations, if a gain or loss is reflected in FSI with respect to an item that has a CAMT basis that is different from its AFS basis, and if the gain or loss is recognized for AFSI purposes under the section 56A regulations, then the gain or loss reflected in FSI is redetermined for AFSI purposes by reference to the CAMT basis of the item.

(5) Tax consolidated groups. For rules for determining the AFSI of a tax consolidated group, see § 1.1502-56A.

(6) CAMT entities that own disregarded entities. For rules for determining the AFSI of a CAMT entity that owns a disregarded entity, see § 1.56A-9.

(e) Rules for translating AFSI to U.S. dollars. AFSI must be expressed in U.S. dollars. A CAMT entity whose AFSI is not expressed in U.S. dollars must translate its AFSI, after having made all other applicable adjustments under the section 56A regulations except for those adjustments that already are expressed in U.S. dollars, to U.S. dollars using the weighted average exchange rate, as defined in § 1.989(b)-1, for the CAMT entity's taxable year. See § 1.56A-6(c)(1) for separate rules that apply for translating a controlled foreign corporation's adjusted net income or loss to U.S. dollars.

(f) Entity classification and treatment —(1) Entity classification. The classification of an entity for regular tax purposes applies for purposes of the section 56A regulations, regardless of whether the entity is classified differently for AFS purposes. For example, if an entity is classified as a partnership for regular tax purposes, the entity is classified as a partnership for purposes of the section 56A regulations, regardless of whether the entity is classified as a partnership for AFS purposes. As another example, if an entity is classified as a disregarded entity for regular tax purposes, the entity is classified as a disregarded entity for purposes of the section 56A regulations, regardless of whether the entity is treated as a regarded entity for AFS purposes.

(2) Treatment of an entity as domestic or foreign. The treatment of an entity as domestic or foreign for regular tax purposes applies for purposes of the section 56A regulations, regardless of whether the entity is treated differently for AFS purposes. For example, if an entity created or organized under the law of a foreign jurisdiction is treated as a domestic corporation for regular tax purposes under section 1504(d) (regarding subsidiaries formed to comply with foreign law) or section 7874(b) of the Code (regarding inverted corporations), the entity is treated as a domestic corporation for AFS purposes.

(g) Substantiation requirement —(1) In general. In accordance with § 1.6001-1(a), a corporation that is an applicable corporation for any taxable year must maintain books and records sufficient to demonstrate how it complies with the section 56A regulations, including:

(i) The identification of the corporation's AFS;

(ii) The determination of the corporation's FSI, including how its FSI (if determined under paragraph (c)(3) of this section) reconciles to consolidated FSI as required pursuant to paragraph (c)(3)(v) of this section;

(iii) The substantiation of any AFSI adjustments required by the section 56A regulations, including those required under § 1.56A-6 in determining the adjusted net income or loss of a CFC in which the corporation is a shareholder; and

(iv) The substantiation of AFS basis and CAMT basis.

(2) Other CAMT entity recordkeeping requirements. See §§ 1.56A-5(h), 1.56A-5(i), and 1.56A-20(g) for recordkeeping requirements for partnerships and their CAMT entity partners.

(3) Applicable corporation determination record keeping requirements. See § 1.59-2(i) for recordkeeping requirements related to the determination of whether a corporation is an applicable corporation.

(h) Reporting requirement —(1) Applicable corporations. A corporation that is an applicable corporation for any taxable year must make an annual return on Form 4626, Alternative Minimum Tax—Corporations (or any successor form), for such year, setting forth the required information in the form and manner as the Form 4626 (or any successor form) or its instructions prescribe. Returns on Form 4626 (or any successor form) for a taxable year must be filed with the corporation's Federal income tax return on or before the due date (taking into account extensions) for filing the corporation's Federal income tax return. See §§ 1.6011-1 and 601.602 of this chapter.

(2) Applicable corporation determination reporting requirement. See § 1.59-2(j) for reporting requirements related to the determination of whether a corporation is an applicable corporation.

(3) Other reporting required for CAMT entities —(i) Special rules for reporting distributive shares of AFSI and application of subchapter K. See §§ 1.56A-5(h)(1), 1.56A-5(i), and 1.56A-20(g)(2) for reporting requirements for partnerships and their CAMT entity partners.

(ii) Other reporting requirements. Forms filed for CAMT entities pursuant to sections 6011, 6031, 6038, and 6038A of the Code and the regulations under these sections (for example, Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations ) must set forth and furnish the required information in the form and manner as the applicable form or its instructions prescribe, including information relevant to the determination of an applicable corporation's tentative minimum tax under section 55(b)(2)(A).

(i) Applicability date. This section applies to taxable years ending after September 13, 2024.