IRS Issues New Interim CAMT Guidance (Notices 2025-46 & 2025-49)
Treasury and the IRS released two interim notices—Notice 2025-46 and Notice 2025-49—that (1) give detailed relief/clarity for domestic corporate transactions, troubled companies, and consolidated groups, and (2) refine AFSI (adjusted financial statement income) mechanics, including fair-value/mark-to-market items, repairs for regulated operations (ASC 980), and certain “eligible” §197 goodwill. The agencies also signal they intend to partially withdraw pieces of the Sept. 2024 proposed regs and repropose them, and they relax reliance/applicability rules for pre-final-reg years.
Why this matters
If you advise C-corps with $1B+ average AFSI (or those tracking toward that threshold via consolidation or acquisitions), these notices meaningfully reduce compliance friction, better align CAMT with regular tax treatment in key situations, and clarify what taxpayers can rely on before final regulations land.
What’s new—at a glance
1) Domestic corporate transactions, troubled companies, consolidated groups (Notice 2025-46)
Corporate transactions: Interim rules for “domestic covered asset transactions” to prevent AFSI distortions when basis steps and similar events occur.
Troubled companies / bankruptcy: Excludes certain discharge-of-indebtedness amounts from AFSI during bankruptcy/insolvency, paired with attribute-reduction mechanics so relief isn’t a free lunch. Also provides “fresh-start” accounting guidance for emergence from bankruptcy and how to recompute AFSI using CAMT basis.
Consolidated groups: Clarifies how AFSI is determined within tax consolidated groups, aligning intra-group results with CAMT objectives.
2) AFSI refinements and reliance/applicability (Notice 2025-49)
Reliance & applicability reset: Treasury/IRS preview that no section of the 2024 proposed regs (or forthcoming reproposed regs) would apply to years beginning before the relevant final regs are published. For pre-final-reg years, taxpayers can selectively rely on sections of the proposed regs or on the interim notices without adopting all specified sections, subject to consistency rules.
Fair-value / mark-to-market: Detailed treatment for fair-value measurement adjustments and subsequent AFSI carrying/“CAMT basis” rules to curb timing mismatches.
Regulated operations (ASC 980): Addresses repair/maintenance costs and regulatory assets to avoid over- or under-inclusion in AFSI for regulated taxpayers.
FSNOLs & basis interactions: Confirms FSNOL mechanics and how carryforwards and basis adjustments interplay with AFSI limits (e.g., 80% cap paradigms).
“Eligible” §197 goodwill: Lays out CAMT basis rules for eligible goodwill and how dispositions flow through AFSI.
Deeper dive: key practitioner takeaways
A. Bankruptcy, insolvency, and attribute reduction
When discharge of indebtedness is excluded from AFSI due to bankruptcy/insolvency, the taxpayer must reduce CAMT attributes by specified amounts; the notice provides ordering and caps, and coordinates with regular tax basis adjustments. Fresh-start emergence rules tell you to recompute gains/losses using CAMT basis and then set CAMT basis to AFS basis going forward. Practical upshot: less artificial AFSI, but meticulous attribute tracking is required.
B. Domestic covered asset transactions
Interim rules target basis step-ups/downs, asset transfers, and similar transactions so AFSI reflects economic income without double counting. Expect examples and coordination with attribute rules when transactions occur in or around bankruptcy processes.
C. Consolidated group alignment
The notices reinforce that AFSI for consolidated groups should reflect items properly allocable to members, with regulatory authority for exceptions—reducing risk that consolidation mechanics produce unintended CAMT exposures.
D. Fair-value, mark-to-market, and subsequent adjustments
Notice 2025-49 provides CAMT basis concepts for items measured at fair value (including lower-of-cost-or-market and certain IFRS analogs) and mark-to-market hedges, plus rules for subsequent adjustment dates so AFSI tracks true economic changes rather than oscillating with accounting conventions.
E. Regulated operations and repairs (ASC 980)
For regulated utilities and similar taxpayers, the guidance accommodates regulatory asset capitalization and certain repairs to avoid inflating AFSI when GAAP requires capitalization that doesn’t mirror tax economics.
F. Eligible §197 goodwill
The notice specifies how to compute CAMT basis for eligible goodwill and how dispositions are handled for AFSI—closing gaps between book and tax that previously produced volatility.
Effective dates, reliance, and planning windows
Intent to partially withdraw 2024 proposed regs and issue revised proposed regs that incorporate these interim rules. That means some approaches you modeled off 2024 proposals may change.
For tax years beginning before final regs are published, taxpayers may rely on parts of the proposed regs (as modified by these notices) or rely solely on the notices, without being forced to adopt every specified section—provided they apply the chosen rule(s) consistently.
Treasury/IRS preview that no proposed section will apply retroactively to pre-final-reg years once final regs issue—reducing retroactive whiplash risk.
Who is affected?
Large C-corps already in CAMT scope (or near it), including consolidated groups, regulated operations (ASC 980), and entities with fair-value/mark-to-market exposure.
Distressed or restructuring clients (bankruptcy/insolvency) where COD income, attribute reductions, and fresh-start accounting can swing AFSI.
Action checklist for tax teams (next 30–60 days)
Map exposure: Inventory clients with potential CAMT nexus (consolidated groups, regulated operations, heavy fair-value/hedging, recent or planned asset transactions).
Update models: Re-run AFSI/CAMT models to reflect interim basis rules, FSNOL limits, and fair-value/mark-to-market guidance. Document your reliance posture (Notices vs. selected proposed sections) for pre-final-reg years.
Restructurings: For bankruptcy/insolvency cases, layer in the COD exclusions + attribute reduction schedule and fresh-start recomputations.
Policies & controls: Tighten AFSI data pipelines (book-to-CAMT basis tracking; hedge accounting; regulatory assets).
Disclosures & documentation: Maintain contemporaneous memos on reliance and consistency to support positions through exam.
Open questions to watch
Details of the re-proposed regulations and final applicability dates.
Additional partnership coordination (interplay with Notices 2025-27 and 2025-28).
Sources
Primary text of Notice 2025-46 (domestic transactions, troubled companies, consolidated groups) and Notice 2025-49 (AFSI adjustments, reliance/applicability framework, regulated operations, fair-value, §197 goodwill). (irs.gov)
For concise practitioner summaries, see recent alerts from major firms. (KPMG)
Note: This article is for information only and not legal or tax advice.