Corporate Alternative Minimum Tax 2026: Notice 2026-7 AFSI Guidance Explained

The corporate alternative minimum tax 2026 landscape just got significantly more complex. The IRS released Notice 2026-7, delivering a critical new round of interim guidance on the Corporate Alternative Minimum Tax (CAMT) — the 15% minimum tax on adjusted financial statement income (AFSI) of applicable corporations enacted by the Inflation Reduction Act of 2022. At SW Accounting & Consulting Corp, we have been closely tracking CAMT developments since its enactment, and Notice 2026-7 represents one of the most substantive guidance packages issued to date. Here is what your tax team needs to know now.

What Is the CAMT and Which Corporations Does It Apply To in 2026? 🏛️

The CAMT applies a 15% minimum tax on AFSI to C corporations whose average annual adjusted financial statement income exceeds $1 billion over the prior three-year period, with a lower $100 million threshold for certain foreign-parented multinational groups.

Under IRC Section 55, an applicable corporation must pay the greater of (a) its regular corporate income tax or (b) 15% of its AFSI. The CAMT first became effective for tax years beginning after December 31, 2022, and continues to apply in 2026 and beyond under the tax framework established by the One Big Beautiful Bill Act (OBBBA).

The fundamental challenge with CAMT is that it starts with financial statement income — book income reported under U.S. GAAP or IFRS — rather than taxable income. This creates significant book-tax timing differences that must be carefully tracked and adjusted. Companies with large accelerated depreciation deductions, R&D cost elections, or other items that generate book-tax gaps may find that their book income substantially exceeds taxable income, triggering CAMT liability even in years when regular tax liability is zero or minimal.

What AFSI Adjustments Does Notice 2026-7 Address? 📊

Notice 2026-7 provides AFSI adjustment guidance for five specific categories: tax-deductible repairs, Section 197 intangibles, domestic research amortization, film and television production costs, and low-cost materials and supplies.

1. Tax-Deductible Repairs

One of the most common sources of book-tax differences is the treatment of repair and maintenance costs. For tax purposes, qualifying repair costs — particularly under the Tangible Property Regulations (Treasury Regulations sections 1.263(a)-1 through 1.263(a)-3) — are often deducted immediately. The same costs may be capitalized and depreciated on the financial statements over the useful life of the related asset. Notice 2026-7 provides guidance on how these timing differences should be reflected in the AFSI computation, helping companies determine whether and how to adjust AFSI for repair-related discrepancies between book and tax treatment.

2. Section 197 Intangibles

Section 197 intangibles — including goodwill, customer lists, trade names, patents, and other acquired intangibles — are amortized over 15 years for federal income tax purposes, regardless of the actual useful life of the intangible. For financial statement purposes under GAAP, amortization periods vary widely and some intangibles (such as goodwill under ASC 350) are not amortized at all but subject to impairment testing. Notice 2026-7 addresses how AFSI should reflect these differences — a matter of particular importance for companies that have made significant acquisitions generating large balances of intangible assets and goodwill.

3. Domestic Research Amortization (Section 174A)

Beginning in tax year 2022, Section 174 required domestic R&D costs to be amortized over 5 years rather than immediately expensed — a significant departure from decades of prior law. The One Big Beautiful Bill Act subsequently modified this through Section 174A to restore immediate expensing for qualifying research expenditures. This sequence of changes creates complex AFSI adjustment questions: companies that were amortizing R&D costs for tax purposes while expensing them for book must now determine the correct AFSI treatment under Notice 2026-7’s interim guidance, particularly for the transition period between the Section 174 amortization regime and the Section 174A immediate expensing restoration.

4. Film and Television Production Costs

The entertainment industry has unique tax treatment for production costs under Section 181 and other applicable provisions. Studios, streamers, and content producers may immediately deduct qualifying production costs for tax while capitalizing those costs on their financial statements and amortizing them against revenue over the life of the content. Notice 2026-7 provides guidance for these entities on how film and TV production cost deductions interact with AFSI calculations — addressing a significant compliance gap that had left entertainment companies without clear CAMT guidance.

5. Low-Cost Materials and Supplies

Under the de minimis safe harbor and materials-and-supplies rules, companies may immediately deduct certain low-cost items for tax purposes that are capitalized on the balance sheet. Notice 2026-7 provides guidance on how these deductions affect the AFSI computation, helping companies with large-scale capital programs accurately adjust AFSI for these ubiquitous book-tax timing differences.

What Are the Troubled Company and Anti-Abuse Rule Updates in Notice 2026-7? 🔍

Notice 2026-7 modifies troubled company AFSI guidance from Notice 2025-46 and revises anti-abuse rules for covered asset transactions, including intangible property transfers subject to section 367(d).

Troubled Company Modifications
Companies undergoing financial distress — including those in bankruptcy, restructuring, or with significant debt modifications — have unique AFSI computation issues that prior guidance in Notice 2025-46 only partially addressed. Notice 2026-7 modifies and refines that guidance based on practitioner feedback. If any of your clients are in or near financial distress, these updates should be reviewed promptly with qualified tax counsel to ensure proper AFSI reporting.

Anti-Abuse Rule Revisions for Covered Asset Transactions
The CAMT’s covered asset transaction rules are designed to prevent corporations from using asset transactions to artificially reduce AFSI. Notice 2026-7 amends these anti-abuse rules to address transaction structures that have been identified as potential CAMT avoidance mechanisms since the earlier guidance was issued.

Section 367(d) Intangible Property
Section 367(d) applies to transfers of intangible property by a U.S. corporation to a foreign corporation in outbound transactions, requiring the U.S. corporation to recognize a deemed royalty stream over the life of the intangible. Notice 2026-7 provides guidance on how AFSI adjustments should be made for intangible property subject to section 367(d) — a critical issue for multinational corporations engaged in IP restructuring or transfers of valuable intangibles to foreign subsidiaries.

What Should Your Company Do Right Now About CAMT? ✅

Companies subject to or approaching CAMT should immediately update AFSI models with Notice 2026-7’s new guidance, review industry-specific adjustments, and schedule a CAMT compliance review before the next quarterly close.

1. Run fresh AFSI modeling incorporating Notice 2026-7: Identify which of the five new guidance categories affect your company’s operations and update your CAMT model accordingly. Pay particular attention to R&D, intangibles from acquisitions, and repair costs — these are the highest-impact items for most companies.
2. Assess your minimum tax credit (MTC) carryforward: Any CAMT paid in excess of regular income tax liability generates a minimum tax credit that can offset future regular tax liability. Accurately track your MTC position as it represents a real cash tax asset.
3. Review covered asset transactions and IP transfer structures: If your company has engaged in covered asset transactions or IP transfers to foreign subsidiaries, have tax counsel review compliance with Notice 2026-7’s revised anti-abuse rules before your next filing.
4. Monitor IRS.gov for final CAMT regulations: Visit the IRS CAMT resource page regularly for updates on interim guidance and the expected publication timeline for final regulations, which will supersede the current notice series.

Frequently Asked Questions ❓