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an applicable corporation unless, as a
result of an ownership change or a con- Taxpayers and practitioners have been
sistent reduction in AFSI below a yet-
to-be-determined applicable threshold, eagerly awaiting guidance on myriad open
the IRS determines that it would not questions with respect to the corporate AMT.
be appropriate to continue to treat such
corporation as an applicable corpora-
tion. Very generally, for purposes of de- Rules for calculating AFSI liquidations and reorganizations; and
termining whether a corporation is an Sec. 56A defines “adjusted financial (3) appropriately address transactions
applicable corporation, Notice 2023-7 statement income” of a corporation related to partnership contributions
provides rules for certain corporate (taxpayer) as the taxpayer’s net income and distributions.
acquisitions and dispositions. or loss reported in the taxpayer’s ap- Taxpayers and practitioners have
When applying the AFSI test, AFSI plicable financial statement (as defined been eagerly awaiting guidance on
of persons treated as a single employer in Sec. 451(b)(3)), with adjustments for myriad open questions with respect to
with such corporation under Sec. 52(a) certain items. If a taxpayer’s financial the corporate AMT. The next section
or (b) is treated as AFSI of such cor- results are reported on the applicable of this item provides an overview of the
poration. For a corporation that is a financial statement for a group of enti- corporate AMT FTC and examines
member of a foreign-parented multina- ties, the act treats that consolidated some unanswered questions about it as
tional group, the AFSI test is applied by financial statement as the taxpayer’s of this writing.
aggregating the AFSI for all members applicable financial statement. Special
of the foreign-parented multinational rules apply for cooperatives, Alaska The corporate AMT FTC
group in which the applicable corpora- Native corporations, and mortgage ser- Tentative minimum tax may be reduced
tion is a member. For purposes of this vicing companies. Sec. 56A(c) provides by a corporate AMT FTC if the ap-
rule, the term “foreign-parented multi- a number of specific adjustments in plicable corporation chooses to claim
national group” means, with respect to arriving at AFSI to essentially (1) align an FTC for the tax year. The corporate
any tax year, two or more entities if: the members of the financial statement AMT FTC is the sum of:
1. At least one entity is a domestic group with the members of the tax fil- 1. Foreign income taxes (within the
corporation (or a foreign corporation ing group and (2) to account for various meaning of Sec. 901) paid or ac-
engaged in a U.S. trade or business); tax items. crued by an applicable corporation;
2. Such entities are included in the One such adjustment is to take and
same applicable financial statement into account certain items of foreign 2. The lesser of:
with respect to such year; and income. Sec. 56A(c)(3) provides that, a. The amount of foreign income
3. The common parent is a foreign in the case of a corporation that is a taxes (within the meaning of Sec.
corporation or, if there is no com- U.S. shareholder of a controlled foreign 901) taken into account on the
mon parent, the entities are treated corporation (CFC), AFSI includes applicable financial statement of
as having a common parent that is the corporation’s pro rata share of the each CFC and paid or accrued by
a foreign corporation under regula- AFSI of such CFC (the CFC AFSI the CFC for U.S. federal income
tions prescribed by the IRS. adjustment). For this purpose, the AFSI tax purposes, or
Additionally, a domestic corpora- of CFCs is aggregated globally, and a b. The applicable corporation’s pro
tion (or foreign corporation with a U.S. loss by one CFC may offset income rata share of the CFC AFSI ad-
trade or business) that is a member of another CFC. However, net overall justment multiplied by 15%.
of the foreign-parented multinational losses of CFCs may not reduce AFSI of Thus, foreign income taxes paid or
group must meet an additional $100 a U.S. corporation but may be carried accrued by CFCs are subject to a limi-
million threshold by looking solely forward and used to offset the global tation equal to the applicable corpora-
to its U.S.-related income. Thus, the CFC AFSI in future years. tion’s CFC AFSI adjustment multiplied
foreign-parented multinational group In addition to the adjustments ex- by 15%, while foreign income taxes
must meet the AFSI test, and the pressly provided in Sec. 56A, the IRS paid or accrued directly by a domestic
domestic corporation (or foreign cor- is also granted regulatory authority to corporation, such as withholding taxes
poration with a U.S. trade or business) provide adjustments to (1) prevent the or the taxes paid on income of a foreign
must meet the separate $100 mil- omission or duplication of any item; activity conducted directly by the cor-
lion threshold. (2) appropriately address corporate poration, are not subject to a limitation.

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