Internal Revenue Bulletin No. 2025–34

## Bulletin Overview: Treasury Retreats on CAMT Partnership Rules & Expands Superfund List

Internal Revenue Bulletin 2025–34, released August 18, 2025, features a significant development concerning the Corporate Alternative Minimum Tax (CAMT) and an expansion of the Superfund taxable substance list. The lead story, Notice 2025-28, details the Treasury and IRS's intention to partially withdraw proposed regulations regarding the application of the CAMT to applicable corporations with financial statement income (FSI) attributable to investments in partnerships. The CAMT, enacted as part of the Inflation Reduction Act of 2022, imposes a 15% minimum tax on the Adjusted Financial Statement Income (AFSI) of large corporations under Section 56A. Section 56A defines AFSI as the net income or loss of a taxpayer as set forth in its Applicable Financial Statement (AFS), adjusted for specific items. In its place, the IRS will issue revised proposed regulations, along with interim guidance providing simplified methods for determining an applicable corporation’s AFSI with respect to partnership investments, partnership reporting requirements, and rules for partnership contributions and distributions. The second key item is Notice 2025-41, which adds 21 chemical substances to the list of taxable substances under Section 4672, subjecting them to the excise tax imposed by Section 4671. Section 4671(a) imposes an excise tax on the sale or use of a taxable substance by the importer thereof. A "taxable substance," as defined in Section 4672(a)(1), is any substance listed by the Secretary of the Treasury. This notice also corrects the spelling of sodium nitrilotriacetate monohydrate from Notice 2021-66. Overall, this IRB represents a compliance relief measure for corporate partners grappling with the complexities of CAMT and a regulatory expansion for chemical importers under the reinstated Superfund excise tax.

## Deep Dive (Notice 2025-28): The CAMT Compliance Pivot

As noted in the previous section, this IRB represents a compliance relief measure for corporate partners grappling with the complexities of the Corporate Alternative Minimum Tax (CAMT). Notice 2025-28 delivers on that promise by partially withdrawing previously proposed regulations related to partnership interests.

**1. The Context: "Bottom-Up" Burdens**

The backdrop to this notice is the outcry over the complexity of the proposed regulations REG-112129-23, issued in September 2024. These regulations addressed the application of the CAMT, established by Section 10101 of the Inflation Reduction Act of 2022 which amended Section 55 to impose the CAMT, to partnerships and CAMT entity partners. A "CAMT entity partner" is defined in proposed § 1.56A-5(e)(4) as any CAMT entity that is a partner in a partnership. The most criticized aspect was the "bottom-up" approach for calculating a partner's distributive share of Adjusted Financial Statement Income (AFSI).

Under proposed § 1.56A-5, a CAMT entity partner was required to disregard any amount reflected in its financial statement income, as defined in proposed § 1.56A-1(b)(20) (FSI), with respect to a partnership investment. The partner then had to compute its distributive share of AFSI using a four-step method. This required the partnership to determine its "modified FSI" and for the CAMT entity partner to calculate its "distributive share percentage." Taxpayers argued that this "bottom-up" methodology was excessively burdensome and would impose significant compliance costs. The IRS issued Notice 2025-28 specifically to "reduce burdens and costs" after massive industry pushback against the complexity of tracking CAMT basis and the "bottom-up" distributive share calculation.

**2. The Relief: Simplified Methods**

In response to these concerns, the IRS is now offering interim simplified methods to determine a partner's distributive share of partnership AFSI under Section 56A(c)(2)(D), which governs how a partner’s AFSI is adjusted to account for their partnership interest. Section 56A(c)(15)(B) grants the Secretary of the Treasury the authority to issue regulations and guidance to make adjustments to AFSI, specifically preventing the omission or duplication of items and carrying out the principles of subchapter K of chapter 1 of the Code, relating to partnership contributions and distributions. Notice 2025-28 announces the intention to partially withdraw the CAMT proposed regulations, specifically Prop. Reg. § 1.56A-5 (adjustments for a partner’s distributive share of partnership AFSI) and Prop. Reg. § 1.56A-20 (adjustments for partnership contributions and distributions), and issue revised proposed regulations including rules similar to the interim guidance. The interim guidance provided in sections 3 through 7 of this notice can be relied on by taxpayers.

**3. The "Top-Down Election" (Section 3)**

Section 3 of Notice 2025-28 introduces a "top-down" election for CAMT entity partners. Instead of the complex "bottom-up" calculation, a CAMT entity partner can now elect to determine its AFSI with respect to a partnership based on its own Financial Statement Income (FSI). Specifically, the partner includes 80% of the FSI it recognizes with respect to its partnership interest. This simplifies the process, as the partner relies on its own financial statements rather than requiring detailed information from the partnership. The election is made annually and applies to all partnership interests held by the CAMT entity partner.

**4. The "Taxable-Income Election" (Section 4)**

Section 4 provides an alternative simplified method for certain partners with smaller partnership interests. This "taxable-income election" is available to a partner if both of the following requirements are met: (1) the partner's interest in the partnership is less than 20% and (2) the investment value is no more than $200 million. A partner meeting these requirements can elect to use its regular tax taxable income figures, instead of financial statement income, to determine its distributive share of partnership AFSI. This is a significant simplification, as it allows these partners to avoid the complexities of AFSI calculations altogether.

## Notice 2025-28 Continued: Reasonable Methods & Contributions

As discussed in the previous section, Notice 2025-28 provides relief for partners with smaller partnership interests by allowing them to use their regular tax taxable income figures, instead of financial statement income, to determine their distributive share of partnership AFSI if both the partner's interest in the partnership is less than 20% and the investment value is no more than $200 million.

Section 5 of Notice 2025-28 further eases the burden on partnerships by allowing them to use "any reasonable method" to determine a CAMT entity partner's distributive share of modified Financial Statement Income (FSI), provided the same method is consistently applied to all CAMT entity partners within the partnership. The forthcoming proposed regulations are expected to reflect this change in Prop. Reg. § 1.56A-5.

A reasonable method must be consistent with the purposes of Section 56A, which imposes the Corporate Alternative Minimum Tax (CAMT). Therefore, a reasonable method cannot allocate more or less than all of the partnership's modified FSI among its partners, nor can it be undertaken with a principal purpose of avoiding applicable corporation status or reducing CAMT liability under Section 55, which defines the alternative minimum tax. Permissible methods include basing a CAMT entity partner's distributive share of modified FSI on either (a) the partner's relative share of "net Section 704(b) income or loss" (disregarding Section 704(c) and regulatory allocations) or (b) the provisions in the partnership agreement used to allocate net Section 704(b) income or loss for the entire taxable year, provided those allocations comply with Section 704(b). Section 704(b) governs how partnership allocations must have substantial economic effect. For these purposes, guaranteed payments under Section 707(c), which are payments made to a partner for services or the use of capital, deductible for regular tax purposes, are treated as a share of net Section 704(b) income.

The interaction between traditional partnership allocation rules and CAMT is a primary focus of this recent guidance. Interim guidance now permits "reasonable methods" based on net Section 704(b) income or loss, aligning CAMT allocations with the economic arrangement of the partners as defined in the partnership agreement, provided the allocations have substantial economic effect. For taxpayers electing the "Full Subchapter K Method" under Notice 2025-28, the principles of Section 704(c) apply. This means that if property with a book-tax disparity is contributed, the partnership must use 704(c) methods (e.g., traditional, remedial, or curative) to allocate AFSI items, ensuring that built-in gains reflected in the financial statements are appropriately tracked and allocated for CAMT purposes.

A partnership selects a reasonable method by attaching a statement, titled "Reasonable Allocation Method for CAMT," to its federal income or information return. The statement must include the partnership’s name, address, taxpayer identification number, a statement that the partnership is applying a reasonable method under section 5 of Notice 2025-28 and a description of the reasonable method. Once chosen, the partnership must consistently apply this method for all subsequent taxable years beginning before the issuance of the forthcoming proposed regulations.

Section 6 introduces additional methods for accounting for partnership contributions and distributions, aligning more closely with regular tax principles under Subchapter K of the Internal Revenue Code. These methods do not apply to partnership contributions and distributions involving stock of a foreign corporation, which are governed by Prop. Reg. § 1.56A-4(c).

Two methods are provided: the "Modified -20 Method" and the "Full Subchapter K Method." The *Modified -20 Method* allows a CAMT entity partner to apply Prop. Reg. § 1.56A-20 with specific modifications. Most notably, the Modified -20 Method relies on Section 752, which dictates the treatment of certain liabilities, and Sections 1.707-4, 1.707-5 and 1.707-6 of the Code, which govern disguised sales, to determine whether Section 721(a) or Section 731(b) apply to partnership contributions and distributions of property subject to liabilities. Section 721(a) generally provides that no gain or loss is recognized upon the contribution of property to a partnership in exchange for an interest in the partnership. Section 731(b) states that no gain or loss is recognized to a partnership on a distribution to a partner.

Under interim guidance, Section 707(a)(2)(B) principles are imported to determine whether a transaction is a non-taxable contribution/distribution or a taxable sale. If a transaction is recharacterized as a disguised sale for regular tax purposes, it is generally treated as a taxable "recognition transaction" for CAMT, triggering immediate AFSI impact rather than being subject to the CAMT "deferred sale" deferral rules.

Under the Modified -20 Method, the applicable recovery period for deferred sale property that is "property to which section 168 applies" (as defined in Prop. Reg. § 1.56A-15(c)), qualified wireless spectrum, or subject to depreciation or amortization for Applicable Financial Statement (AFS) purposes is 15 years. If the deferred sale property is not subject to depreciation or amortization for AFS purposes, there is no applicable recovery period, and no deferred sale gain or loss is required to be included in a contributor’s AFSI, except in specific disposition events.

A CAMT entity partner chooses the Modified -20 Method by attaching a statement, titled "Modified -20 Method for CAMT," to its federal income tax return. Controlled foreign corporations (CFCs) utilize a modified procedure following the guidelines in Section 1.964-1(c)(3).

The *Full Subchapter K Method* allows a partnership (with the written consent of all CAMT entity partners that were partners at any time during the year for which the full subchapter K method is adopted and that do not have a top-down or taxable-income election in effect with respect to the partnership investment) to apply the principles of Sections 721 and 731 to determine its partners’ distributive shares of partnership AFSI resulting from partnership contributions and distributions. Under this method, all provisions of Subchapter K apply, using CAMT inputs (e.g., CAMT basis) where appropriate. If a partnership adopts the full Subchapter K method, it must adopt the same relevant methods and elections for CAMT purposes as it does for regular tax purposes (for instance, the remedial allocation method under Section 1.704-3(d)).

Under this method, a distribution of property does not trigger AFSI gain/loss to the partnership or partner unless it would trigger gain/loss for regular tax (e.g., cash in excess of basis).

A partnership chooses the Full Subchapter K Method by attaching a statement, titled "Full Subchapter K Method for CAMT," to its federal income or information return.

Finally, Section 8 confirms that taxpayers can rely on the guidance provided in proposed Prop. Reg. §§ 1.56A-5 and 1.56A-20, as modified by this notice, for taxable years beginning before the date the forthcoming proposed regulations are published in the Federal Register, including for the purposes of filing amended returns or administrative adjustment requests. This means taxpayers can rely on this guidance immediately for taxable years ending on or before Sept 13, 2024.

CAMT basis is a specialized metric used to track a partner’s investment in a partnership for purposes of calculating Adjusted Financial Statement Income (AFSI). For interests held as of the first day of the partnership's first tax year ending after December 31, 2019, the initial CAMT basis equals the partner's Applicable Financial Statement (AFS) basis at that time. The basis is then adjusted annually by the partner’s distributive share of partnership AFSI, decreased by the partner’s share of negative partnership AFSI, increased by contributions of property and decreased by distributions of property (adjusted for any deferred gains/losses under the "deferred sale method"), and adjusted for other CAMT or regular tax items as required by Section 56A.

## Deep Dive (Notice 2025-41): Superfund List Grows by 21 Substances

As highlighted in the previous section, Notice 2025-28 allowed taxpayers to rely on proposed regulations for certain CAMT adjustments. This section turns to Notice 2025-41, which addresses modifications to the list of taxable substances subject to the Superfund excise tax imposed under Section 4671. Section 4671(a) imposes an excise tax on the sale or use of a taxable substance by the importer thereof. A "taxable substance," as defined in Section 4672(a)(1), is any substance listed by the Secretary of the Treasury.

This notice expands that list by 21 substances. These additions include a range of chemicals such as polyphenylene sulfide, cellulose acetate, 4,4’-isopropylidenediphenol-epichlorohydrin copolymer, nylon 6, caprolactam, and several glycol ethers, among others. The inclusion of these substances stems from the determination that taxable chemicals listed in Section 4661(b) constitute more than 20% of either the weight or the value of the materials used in their production, increased from 50% in prior years. This determination is made based on the predominant method of production. Revenue Procedure 2022-26 provides the exclusive procedures for requesting that a substance be added to or removed from the list of taxable substances under Section 4672(a).

Crucially, the effective date for the Section 4671 tax on these newly added substances is January 1, 2026. Thus, the tax will apply to sales or uses of these substances by importers on or after that date.

Finally, Notice 2025-41 also addresses a prior error regarding 'sodium nitrilotriacetate monohydrate.' Specifically, it corrects a typographical error in the spelling of the substance's name and sets the tax rate at $3.97 per ton, effective retroactively to July 1, 2022. This correction impacts compliance for prior periods and necessitates review of past filings. The American Chemistry Council has noted that the Superfund tax increases costs for 42 specific building-block chemicals, potentially exceeding profit margins for certain domestic plants.