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 of the Code for adjusting AFSI for losses that arise in certain related party transactions and for CAMT avoidance transactions. Paragraph (b) of this section provides rules for adjusting AFSI for losses that arise from the sale or exchange of property between CAMT entities that are related. Paragraph (c) of this section provides an anti-abuse rule to adjust AFSI for transactions undertaken with a principal purpose of avoiding applicable corporation status or reducing or avoiding a CAMT liability under section 55 of the Code. Paragraph (d) of this section provides for the clear reflection of income under the principles of section 482 of the Code. Paragraph (e) of this section provides the applicability date of this section.
(b) Deferral of loss from disposition between or among certain related entities —(1) CAMT-related group. For purposes of this paragraph (b), the term CAMT-related group means any two or more CAMT entities that are treated as a single employer under section 52(a) and (b) of the Code. See § 1.59-2(e).
(2) Required deferral. If the AFSI of a CAMT entity (as determined after the application of all other sections of the section 56A regulations other than § 1.56A-23) reflects a loss resulting from a sale, exchange, or any other disposition of property (including stock) between that CAMT entity and one or more CAMT entities that are part of that CAMT entity's CAMT-related group (including after application of paragraph (d) of this section), that loss is deferred for AFSI purposes until no member of that CAMT entity's CAMT-related group holds that property (in whole or in part).
(c) General anti-abuse rule. Arrangements entered into with a principal purpose of avoiding the application of the corporate alternative minimum tax rules under sections 55 through 59 of the Code, the section 56A regulations, or §§ 1.59-2 through 1.59-4, including avoiding treatment as an applicable corporation or reducing or otherwise avoiding a liability under section 55(a), may be disregarded or recharacterized by the Commissioner to the extent necessary to carry out the purposes of the corporate alternative minimum tax, the section 56A regulations, and §§ 1.59-2 through 1.59-4.
(d) Clear reflection of income requirement —(1) In general. For purposes of determining AFSI, if any item of income, expense, gain, or loss reflected in the FSI of the CAMT entity with respect to a controlled transaction or controlled transfer (as defined in § 1.482-1(i)(8)) between two or more CAMT entities does not reflect the principles of section 482 and the regulations under section 482, then the CAMT entity must make appropriate adjustments to CAMT basis to reflect these principles (regardless of whether section 482 is otherwise considered to apply).
(2) Appropriate adjustments. For purposes of calculating AFSI following a transaction described in paragraph (d)(1) of this section that does not reflect the principles of section 482 and the regulations under section 482, the CAMT entity must make appropriate adjustments to CAMT basis to reflect the adjustments required by paragraph (d)(1) of this section.
(3) Example: Transfer accounted for at historical cost for accounting purposes. The following example illustrates the application of paragraphs (d)(1) and (2) of this section.
(i) Facts. X is a domestic corporation that owns all the stock of FC, a controlled foreign corporation. FC's functional currency is the U.S. dollar. X's and FC's financial results are consolidated in the financial statement included with X's Form 10-K, filed with the SEC and prepared using GAAP, and which serves as both X's and FC's AFS. On July 1, FC sells to X self-created intangible property with a zero AFS basis in the financial accounts of FC, a zero CAMT basis and a zero basis for regular tax purposes on the date of transfer. GAAP measures the transferred intangible property at the carrying value of the intangible property in the accounts of FC on the date of the transfer. No gain is reflected in the AFS for the transfer of the intangible property. Under the arm's length standard in the regulations under section 482, the arm's length sale price of the intangible property at the time of transfer is $10x.
(ii) Analysis. The sale of the self-created intangible property by FC to X is a controlled transaction or controlled transfer under § 1.482-1(i)(8). Under paragraph (d)(1) of this section, X's AFSI with respect to the sale is adjusted to reflect the arm's length price at the time of the sale, or $10x, rather than the $0 properly shown for financial accounting purposes. Accordingly, FC recognizes a gain of $10x, and X's AFSI is increased by its pro rata share, or 100%, of the additional FC income. Going forward, under paragraph (d)(2) of this section, X's CAMT basis in the intangible property is appropriately adjusted to reflect the $10x that X is treated as paying for the intangible property.
(e) Applicability date. This section applies to taxable years ending after September 13, 2024.