Almost four years after the enactment of the corporate alternative minimum tax (CAMT), many large corporations still operate in a regime that requires navigation by star chart. The celestial landscape has repeatedly shifted—from notice guidance issued in 2023 and 2024 to the 600-plus-page proposed regulations issued in late 2024 (generally making the prior notice guidance obsolete) to the One Big Beautiful Bill Act (OBBBA) in 2025, and now to taxpayer-favorable interim CAMT notices from Treasury and the Internal Revenue Service that add both relief and potential whipsaws and thus many new decision points.1 Taxpayer choices for how to navigate the CAMT universe can materially affect tax liabilities, financial reporting, and cash planning. This article provides a practical field guide to key CAMT considerations for applicable corporations, highlighting recent developments and planning moves that matter most for past, current, and future tax years.
OBBBA’s Meteor Threat: Regular Tax Relief Brings CAMT Exposure
The OBBBA, enacted on July 4, 2025, delivered several taxpayer-favorable changes aimed at reducing regular taxable income for businesses. These changes include the reinstatement and permanence of the big three business extenders—a higher cap on interest deductions, 100 percent bonus depreciation, and expensing of domestic research and experimental (R&E) costs—as well as modifications to the foreign-derived intangible income (FDII) rules, now the foreign-derived deduction eligible income (FDDEI) rules. For regular tax purposes, many taxpayers have welcomed these changes. In the CAMT universe, however, those same provisions can shift the balance of power by widening the gap between taxable income and book income—the gap where CAMT liability can emerge.
A taxpayer subject to CAMT (that is, an applicable corporation) determines its CAMT liability based on its adjusted financial statement income (AFSI), computed as net financial statement income (FSI) with specified adjustments, rather than its regular taxable income. The core dynamic is straightforward: “favorable” OBBBA provisions often decrease taxable income without a corresponding decrease in AFSI. When AFSI stays constant while taxable income drops, the odds increase that an applicable corporation will become a CAMT payor (or have increased CAMT liability). As a result, applicable corporations that would otherwise celebrate regular tax savings may find themselves becoming CAMT payors for the first time or paying more CAMT than in prior years.
Interim Guidance: New Tools and Complexity
Since the issuance of the 2024 CAMT proposed regulations, Treasury and the IRS have released a steady stream of interim guidance (hereinafter called the Notices) with the stated aim of “re-proposing” the regulations.2 For many taxpayers, the Notices function like a complicated set of navigational instruments, in that they can be used to chart a more favorable path through the galaxy but are easy to break. The Notices meaningfully replot the CAMT star chart, most notably by giving taxpayers significant flexibility in choosing which pieces of CAMT guidance to apply and creating a number of new liability AFSI adjustments. Importantly, Notice 2025-49 significantly eases the 2024 CAMT proposed regulations’ reliance rules, generally allowing taxpayers to selectively apply individual sections of the 2024 CAMT proposed regulations and the Notices on a section-by-section basis, without needing to early-adopt a significant portion of the 2024 CAMT proposed regulations or comply with CAMT test-group consistency requirements. This flexibility can be a powerful planning lever.
This article provides a high-level overview of the six most important liability AFSI adjustments that Treasury and the IRS, through Notice guidance, have promulgated over the past year. The list below is not exhaustive, but rather is intended to guide applicable corporations, their tax functions, and their tax advisors alongside the six brightest stars in the new galaxy that is the current CAMT regime.
The Six Brightest Stars
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Recovery of Domestic R&E Costs
Escaping the CAMT Gravitational Pull
CAMT’s drafters may not have anticipated that the regular tax rules for Section 174 would change course mid-orbit. Under former Section 174 (as amended by the Tax Cuts and Jobs Act, the TCJA), domestic R&E costs paid or incurred in tax years beginning after 2021 were generally forced into capitalization and five-year amortization (with foreign R&E costs stretched to fifteen years). That deferral often pushed regular taxable income above FSI, creating a CAMT “shield” because AFSI generally followed book treatment. The OBBBA then flipped the script: new Section 174A restores immediate deductibility for domestic R&E costs incurred in tax years beginning after 2024 and offers transition elections to accelerate the recovery of unamortized 2022–2024 domestic R&E costs over one or two years (the “Section 174 transition adjustment”). Although this relief is welcome for regular tax purposes, those same elections create a CAMT gravitational pull by leaving AFSI higher than taxable income.
Notice 2026-7 provides a targeted liability AFSI adjustment for the TCJA-era domestic R&E costs still being recovered post-2024. For tax years beginning after 2024, an applicable corporation may reduce liability AFSI by the domestic Section 174 amortization deductions attributable to amounts capitalized in 2022 through 2024, but only to the extent those deductions are taken into account in computing regular taxable income for the year. The reduction can reflect either the Section 174 transition adjustment or continued amortization if no acceleration is elected. To prevent double counting, AFSI must be increased by the current year book amortization expense that relates to domestic R&E costs capitalized under pre-OBBBA Section 174 in 2022 to 2024. Notably, Notice 2026-7 does not require a retroactive clawback of prior-year book expense previously reflected in AFSI in 2023 or 2024.
Scope and tracing are in the fine print of this star chart. The adjustment is limited to domestic R&E costs capitalized under pre-OBBBA Section 174 in 2022 to 2024, does not apply to foreign R&E costs, and does not create a CAMT analogue for post-2024 domestic R&E costs currently deductible under Section 174A (or capitalized and amortized under a Section 174A(c) or 59(e) election). The required add-back for book amortization can also be complex, because financial accounting capitalization rules do not mirror Section 174, so taxpayers need defensible mapping between the 2022-to-2024 tax capitalized pool and the amount their adjustable financial statement (AFS) treats as amortizable development costs. Finally, this relief operates only for liability AFSI (not scope AFSI) and carries the usual consistency expectations, even though Notice 2026-7 does not impose a heavy election-statement regime in this instance.
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Deductible Tax Repairs
Restoring the Spacecraft Without Rebuilding the Space Station
In the CAMT galaxy, book capitalization of repair and maintenance costs has long forced taxpayers to treat routine fixes as if they were full ship rebuilds. Notice 2026-7 delivers relief in the form of a liability AFSI adjustment for “deductible tax repairs” with respect to “eligible repair assets” (generally, Section 168 property), allowing an applicable corporation to reduce liability AFSI for amounts that are deducted under Treasury Regulations Section 1.162-4 (or otherwise recovered for regular tax purposes, including through cost of goods sold) even when those same costs are capitalized and depreciated for AFS purposes. The rule then prevents double-counting by requiring taxpayers to disregard the corresponding AFS items—most notably book depreciation expense, impairment losses, and impairment loss reversals—attributable to those eligible repair assets in determining AFSI. In cosmic terms, Notice 2026-7 finally allows a taxpayer to repair its spacecraft without experiencing detrimental effects due to CAMT.
Yet, as with most CAMT relief provisions, this one is more like an emergency repair done in orbit than a leisurely tune-up in a dry dock. The adjustment is limited to repairs of Section 168 property—meaning that assets outside the Modified Accelerated Cost Recovery System (including certain pre-1987 property) remain out of reach. Notice 2026-7 also pulls Section 481(a) adjustments for eligible repair assets into the computation to the extent that those amounts are taken into account in regular taxable income, and requires a cumulative true-up if a later accounting method change alters the characterization of what would otherwise be eligible repair assets (for example, switching from capitalizing and depreciating a cost to deducting it as a repair, or vice versa). Finally, once the taxpayer makes the election, consistency and annual reporting rules apply: the taxpayer must apply the approach in future years and maintain records robust enough to trace deductible tax repairs to eligible repair assets and ensure the corresponding AFS depreciation/impairment items are properly disregarded. Shortcuts here tend to have hazards—usually in the form of compliance costs and audit risk.
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Amortization of Section 197 Intangibles
Realigning the Star Path
Section 197 intangibles have always been a classic CAMT obstacle: for regular tax, acquired goodwill and certain other intangibles typically generate a steady fifteen-year amortization deduction, whereas for GAAP these assets can sit on the balance sheet indefinitely, coming off the books only through impairment or disposition. Notice 2026-7 responds with an elective liability AFSI adjustment for Section 197 amortization attributable to “eligible intangibles” (broadly, goodwill and other Section 197 intangibles that are not amortizable for AFS purposes). The mechanics are a targeted replace-book-with-tax maneuver: liability AFSI is reduced by the amount of deductible tax amortization attributable to eligible intangibles, but only to the extent that those amounts are recovered through cost of goods sold or otherwise allowed as a deduction in computing taxable income for the year. To prevent double-counting, the corresponding AFS-side amortization and other covered book intangible expenses with respect to the same eligible intangibles are disregarded in determining AFSI. In other words, Notice 2026-7 gives taxpayers a way to pull CAMT out of the “impairment-only” gravitational pull and back toward the regular tax timeline—at least prior to a disposition.
The fine print, however, reads less like preparation for a smooth liftoff and more like a launch through an asteroid field. First, the adjustment is computed through multiple components, including taking into account certain Section 481(a) adjustments related to eligible intangible amortization to the extent those amounts are taken into account in computing taxable income for the year—so accounting method changes can ripple into AFSI even when the financial statements barely register a flicker.
An additional adjustment can apply when an applicable corporation disposes of an eligible intangible for regular tax purposes. That rule is aimed at avoiding duplicate basis recovery and can require an AFSI increase tied to the intangible’s CAMT basis—an amount determined under a cryptic formula. If that CAMT basis number goes negative (as it can), the applicable corporation is forced to include the negative amount in AFSI upon a disposition. If a tax disposition occurs before the intangible is treated as disposed of for AFS purposes, subsequent AFS basis recovery reflected in FSI is disregarded in determining AFSI, preventing a second escape pod of basis from slipping into the computation.
Partnership-held intangibles require their own coordination protocols—special allocation and reporting rules apply so that CAMT entity partners properly reflect the adjustment and any related CAMT basis effects, and those computations must be harmonized with whatever other CAMT partnership elections the partner has made.
As with the other elective adjustments, once elected, the adjustment must be applied consistently across all eligible intangibles and future years absent further guidance. This means that the compliance infrastructure must be strong.
The bigger operational lesson about the Section 197 intangible adjustment is familiar: like any powerful CAMT election, it can be a valuable tool in the right hands—but it is unforgiving when wielded without disciplined records to back it up.
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Mark-to-Market Relief
Parking Volatility Until Reentry
Taxpayers who mark-to-market significant items for book purposes may feel as if they are flying through a meteor shower: book can pull unrealized fair value changes into FSI long before the tax rules recognize taxable income. Notice 2025-49 offers two elective paths to slow that volatility down for CAMT purposes. First, the fair value item exclusion option allows a taxpayer to adjust AFSI to disregard unrealized gains and losses reflected in FSI for certain items measured at fair value for AFS purposes but not marked-to-market for regular tax purposes (for example, digital assets). Covered items, among other requirements, must be subject to required periodic fair value determinations at least annually.
Second, the hedge coordination option addresses a narrower mismatch: when both the hedged item and the related AFSI hedge are marked-to-market for regular tax purposes but only one side carries a fair value measurement adjustment in FSI, the taxpayer may adjust AFSI to disregard that one-sided fair value measurement adjustment to keep the hedge pair moving in formation.
But the rudder transforms into a speed brake with the fine print provided for this adjustment. The fair value item exclusion option does not cover numerous items that are typically marked-to-market—it generally does not apply to partnership investments, stock in domestic or foreign corporations, net investment hedges, or certain assets or liabilities of covered insurance companies. Furthermore, it does not help a taxpayer avoid CAMT black holes from book impairments. More important, both options are deferrals, not permanent exclusions. Amounts disregarded must be brought back into AFSI in a later year—typically upon a subsequent adjustment date, such as a disposition of the item or if the taxpayer stops applying the option. Under both options, the inclusion of the corresponding item in regular taxable income can trigger an inclusion in AFSI. Using either option can also affect CAMT attributes (including CAMT basis) and therefore requires taxpayers to track new, parallel CAMT attributes over time.
Like the partnership elections, these choices are powerful because they are elective. But once a taxpayer chooses to park volatility in orbit for AFSI, it needs the controls, documentation, and disciplined consistency to know when the deferral must deorbit and reenter the computation.
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Embedded Depreciation in NOLs
Recovering the Hidden Blueprints
Pre-CAMT “regular” tax net operating losses (NOLs) can carry a hidden payload: depreciation deductions from Section 168 property that reduced taxable income in years before CAMT. The depreciation can be viewed as embedded inside the regular tax NOL—and decreasing taxable income in the year it is used for regular tax purposes. However, prior to Notice 2025-49, there was no corresponding AFSI adjustment to account for this depreciation in AFSI. Notice 2025-49 offers a targeted release valve for that mismatch by allowing a taxpayer to reduce liability AFSI by the depreciation portion of an eligible NOL deduction when the taxpayer is permitted to deduct a pre-2020 regular tax NOL carryover. The adjustment is not limited to depreciation sitting in a separate line item—it expressly includes depreciation allocated to inventory and recovered through cost of goods sold, which is often where the real dollars are buried for manufacturers and other capital-intensive businesses. Notice 2025-49 gives taxpayers flexibility in computing the depreciation portion using any reasonable approach, and it blesses two approaches as reasonable safe paths: a proportional approach and a lesser-of approach.
The procedural rules matter as much as the math. If an NOL deduction for a year is attributable to more than one pre-CAMT NOL, the taxpayer may use different reasonable approaches for different NOLs—meaning, for example, one year’s loss can follow the proportional approach whereas another year’s loss can follow the lesser-of approach. But once a taxpayer selects an approach for a particular pre-CAMT NOL, it must use that approach consistently each year with respect to that same NOL, though it may use a different method for other pre-CAMT NOLs that reduce AFSI in the same year. And it must report the method used for each NOL to the IRS.
In cosmic terms, this procedure is about recovering the blueprints to an old space station and doing so in a way that doesn’t attract unwanted attention.
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Partnership Top-Down and Taxable Income Elections
Choosing Your Path: Commander or Pilot
Notice 2025-28, an early course correction for those navigating the galactic complexities of CAMT, equips applicable corporations with two paths for calculating AFSI from a partnership investment for liability purposes: the top-down election or taxable-income election. The top-down election grants a twenty-percent reduction—like wielding a laser to slice away excess computational burden—by trimming the partner’s FSI from the partnership investment to estimate the partner’s distributive share of the partnership’s AFSI. However, the general AFSI adjustments do not apply. Meanwhile, the taxable-income election, available only in select scenarios, allows AFSI from the partnership to be determined by reference to the partner’s taxable income from that investment. Either election can be made on a partnership-by-partnership basis, giving each taxpayer significant freedom to chart its own course in the galaxy.
Yet beware: both the top-down and the taxable-income elections resemble attempts at avoiding a collision in space rather than smooth redocking. Neither is as straightforward as its name implies—each requires further modifications and adjustments, much like recalibrating an onboard computer or adjusting the engines mid-orbit. The loss limitation rules are as intricate as the plans for a massive space station, and when either election is employed, the partner’s CAMT basis in the partnership investment must be calculated—a task demanding knowledge of prior years, calculations, and records. Furthermore, once the applicable corporation makes an election, its destiny is set: each election is binding, and the corporation cannot change its path with respect to the specific partnership until the next mission plan. Additionally, eligibility for the taxable-income election depends on the facts at hand and requires annual reassessment, as if a governing council is continually evaluating who is worthy of advancement to the next rank. Each election must be reported to the IRS.
In the realm of CAMT, much like the journey into space, shortcuts in the partnership universe often lead to unexpected encounters with space debris. Choose your partnership path thoughtfully; the consequences of your choices may be surprising.
2025 Tax Year Challenges: Where the Toughest CAMT Voyages Remain
Even with meaningful interim guidance, CAMT remains an intergalactic regime that rewards disciplined navigation. The OBBBA may lower regular tax through accelerated deductions and other incentives, but those same changes can widen book/tax gaps and pull otherwise comfortable applicable corporations into CAMT payor status. At the same time, the interim CAMT guidance has introduced real planning possibilities that can meaningfully change outcomes when applied thoughtfully. To manage CAMT risks, applicable corporations should treat planning as if for a mission briefing: improve visibility, preserve flexibility, and avoid surprises. Here are some best practices:
- Leverage reliance flexibilities. Applicable corporations should use the ability to selectively apply beneficial sections of the interim CAMT guidance to assemble the most advantageous and supportable route through the asteroid field—without committing to anything unnecessary;
- Model the impact of all changes and elections. Applicable corporations should quantify the combined effects of OBBBA provisions and available interim guidance on current and future CAMT liabilities, cash needs, and financial statement outcomes. Because many elections are binding, the model should run like a multiyear mission timeline—not a single launch—so the applicable corporation can see when today’s shortcut becomes tomorrow’s gravitational pull;
- Evaluate and strategize partnership elections. For applicable corporations with partnership interests, assess Notice 2025-28 elections on a partnership-by-partnership basis. In practice, each partnership can be its own planet—with its own reporting climate—and the wrong election can strand you far from resupply;
- Review and amend prior returns. Several favorable provisions in the Notices may be applied to 2024 (and potentially 2023) through amended returns, which can generate refunds and improve cash tax outcomes—think of it as recovering supplies from an earlier campaign before the next mission;
- Strengthen compliance infrastructure. Given the regime’s complexity, invest in processes and systems to track eligible costs, compute adjustments, document elections, and support required disclosures. In other words: build a safety plan now to avoid a post-mission crisis; and
- Engage in advocacy. Treasury and the IRS have shown willingness to incorporate taxpayer feedback into guidance. Continue to submit comments on complex or impractical aspects of CAMT to help shape future guidance—because even in this galaxy, revisions to the mission plan are possible.
Applicable corporations should know CAMT planning is mission critical. Tax departments and advisors should build a clear inventory of AFSI drivers, run multiyear modeling that captures both cash tax and financial reporting impacts (including whether CAMT credits will be usable or stranded), and deploy elections only after pressure-testing consistency requirements, attribute tracking, and reporting realities.
The CAMT galaxy is still shifting, but applicable corporations that invest now in controls, documentation, and forward-looking planning will be best positioned to keep CAMT from dictating the mission—and will help to ensure that the next round of guidance creates opportunities rather than surprises.
Monisha Santamaria is a principal in KPMG’s Washington National Tax pass-throughs group. Natalie Tucker is a partner and Jessica Theilken is a managing director in the Washington National Tax accounting methods group.
Disclaimer: The information in this article is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of Section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax advisor. This article represents the views of the authors only and does not necessarily represent the views or professional advice of KPMG LLP.
© 2026 KPMG LLP, a Delaware limited liability partnership, and its subsidiaries are part of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Endnotes
- See Notices 2025-27, 2025-28, 2025-46, 2025-49, and 2026-7.
- United States Department of the Treasury, Treasury Issues Interim CAMT Guidance to Reduce Burdens, Support US Investment, and Maximize Growth [press release], February 18, 2026, https://home.treasury.gov/news/press-releases/sb0397.
