Internal Revenue Bulletin No. 2025–43

Bulletin Overview: CAMT, Rural Opportunity Zones, and New Excise Taxes

This edition of the Internal Revenue Bulletin offers guidance and final regulations spanning several key areas of tax law, reflecting both recent legislative changes and ongoing administrative efforts to clarify complex provisions. We'll delve into interim guidance concerning the Corporate Alternative Minimum Tax (CAMT) as it applies to domestic corporate transactions, financially distressed companies, and consolidated groups. The bulletin also addresses the definition of "rural area" for purposes of the Opportunity Zone program under Section 1400Z-2(b)(2)(C)(ii), as amended by the fictionalized "One, Big, Beautiful Bill Act" (OBBBA). Furthermore, it provides penalty relief related to the new excise tax on remittance transfers imposed by the also fictional Section 4475. Finally, the bulletin contains final regulations concerning interest capitalization under Section 263A(f) and the low-income housing credit (LIHC) under Section 42, aiming to remove the "associated property rule" and to refine recordkeeping requirements for the average income test, respectively.

CAMT Deep Dive: Troubled Companies & Domestic Transactions

As the previous section detailed, this Internal Revenue Bulletin (IRB) addresses several key areas of tax law, including updates spurred by the fictionalized "One, Big, Beautiful Bill Act" (OBBBA). Furthermore, it provides penalty relief related to the new excise tax on remittance transfers imposed by the also fictional Section 4475. Finally, the bulletin contains final regulations concerning interest capitalization under Section 263A(f) and the low-income housing credit (LIHC) under Section 42, aiming to remove the "associated property rule" and to refine recordkeeping requirements for the average income test, respectively.

The IRB now turns to providing guidance on the Corporate Alternative Minimum Tax (CAMT) as described in Notice 2025-46.

The Rule

Notice 2025-46 offers interim guidance concerning the application of the CAMT to domestic corporate transactions, financially troubled companies (or "troubled companies"), and tax consolidated groups. The Department of the Treasury and the IRS plan to partially withdraw the CAMT Proposed Regulations and issue revised proposed regulations incorporating rules similar to the interim guidance provided in sections 3 through 6 of the Notice. This forthcoming guidance aims to reduce compliance burdens and costs associated with the CAMT's application in these specific scenarios. Taxpayers are permitted to rely on the interim guidance provided in sections 3 through 6.

The CAMT, established by Section 10101 of the Inflation Reduction Act of 2022, amended Section 55 to impose a minimum tax based on "adjusted financial statement income" (AFSI). Section 59(k)(1)(A) defines an "applicable corporation" as one (excluding S corporations, regulated investment companies, and real estate investment trusts) that meets an average annual AFSI test exceeding $1 billion for one or more taxable years ending after December 31, 2021.

AFSI, as defined under Section 56A, is the net income or loss reported on a corporation's applicable financial statement (AFS), adjusted as provided in Section 56A(c). These adjustments include specific rules for consolidated returns, dividends, and other amounts. Section 56A(c)(2)(B) provides a general rule requiring consolidated groups to account for items on the group’s AFS that are properly allocable to members of that group, subject to exceptions prescribed by the Secretary of the Treasury. Additionally, Section 56A(c)(15) grants the Secretary authority to issue regulations adjusting AFSI to prevent omissions or duplications and to carry out the principles of subchapter C of chapter 1 of the Code, which relates to corporate liquidations and reorganizations. Section 56A(d) addresses financial statement net operating losses (FSNOLs), allowing AFSI to be reduced by FSNOL carryovers, subject to an 80% limitation.

The Context

The notice addresses concerns raised by commenters regarding proposed regulations under Sections 1.56A-18 and 1.56A-19 (domestic corporate transactions), Section 1.56A-21 (troubled companies), Section 1.1502-56A (tax consolidated groups), and Sections 1.56A-23(e) and (f) (acquired FSNOLs and certain built-in items).

Specifically, proposed Sections 1.56A-18 and 1.56A-19 aimed to align the CAMT treatment of investments in domestic corporations with their federal income tax treatment. The proposed regulations differentiated between "covered recognition transactions" and "covered nonrecognition transactions," with financial accounting treatment governing AFSI computation in the former and regular tax rules (with CAMT inputs) applying in the latter. Commenters advocated for closer alignment with regular tax rules and criticized the "cliff effect" resulting from the all-or-nothing application of financial accounting or regular tax rules.

Proposed Section 1.56A-21 provided rules for determining CAMT consequences resulting from insolvency or bankruptcy, largely based on Section 108 rules for regular tax purposes. Section 108 provides an exclusion from gross income for discharge of indebtedness income in cases of bankruptcy or insolvency. Commenters generally supported this approach but sought clarifications and revisions, particularly regarding attribute reduction rules and the application of financial accounting standards versus regular tax rules.

Proposed Section 1.1502-56A provided simplified rules for computing AFSI and CAMT attributes for tax consolidated groups, drawing from the consolidated return regulations under Section 1502. Commenters recommended incorporating by reference the existing consolidated return regulations (e.g., those under Sections 1.1502-19, 1.1502-31 and 1.1502-32) to reduce compliance costs. Section 1502 grants the IRS broad authority to issue regulations governing consolidated returns.

Proposed Sections 1.56A-23(e) and (f) placed limitations on the use of FSNOLs acquired in successor transactions, requiring separate tracking of the acquired business. Commenters recommended following the regular tax rules, such as the limitations under Section 382 or the separate return limitation year (SRLY) rules under Sections 1.1502-15 and 1.1502-21(c). Section 382 limits the use of net operating loss carryforwards after an ownership change.

The Implication

This Notice provides welcome interim guidance that reduces the compliance burden for domestic corporate transactions and offers clarity for troubled companies navigating the CAMT. For domestic corporate transactions, the notice allows for the AFSI calculation to more closely follow regular tax rules, incorporating a more limited set of CAMT inputs.

For troubled companies, the notice clarifies the circumstances under which regular tax rules, as opposed to financial accounting standards, apply in determining CAMT consequences. Specifically, it allows insolvent companies and those in bankruptcy (under Title 11 of the U.S. Code) to exclude income from the discharge of indebtedness from their AFSI, aligning with the treatment under Section 108 for regular tax purposes. Importantly, the notice specifies that these exclusions apply at the member level for tax consolidated groups, treating each member as a separate taxpayer for insolvency determination. Troubled companies must reduce certain "CAMT attributes" – like CAMT basis, CAMT foreign tax credits, CFC adjustment carryovers, and FSNOLs – in a specified order, mirroring the attribute reduction rules under Section 108.

This guidance provides greater certainty and minimizes CAMT tax liabilities for companies facing financial distress, while also streamlining the application of the CAMT to common corporate transactions.

Excise Tax: Penalty Relief for Remittance Transfers

Following guidance addressing the CAMT, the IRS addressed a new excise tax. In Notice 2025-55, the IRS provided penalty relief related to the new Section 4475 remittance transfer tax.

The Rule

Notice 2025-55 offered relief from penalties under Section 6656 for failure to timely deposit taxes. Specifically, the relief applies to the new excise tax imposed on certain remittance transfers under Section 4475 for the first, second, and third calendar quarters of 2026. Section 6656(a) imposes a penalty on any person who fails to make timely deposits as required by Section 6302, including regulations §§ 40.6302(c)-1 and 40.6302(c)-2. However, this penalty is waived if the failure is due to reasonable cause and not willful neglect, as defined by the "reasonable cause standard."

The Context

Section 4475, which was added to Chapter 36 of the tax code, "Certain Other Excise Taxes," by the One, Big, Beautiful Bill Act (OBBBA), Public Law No. 119-21, and generally imposes a 1% excise tax on remittance transfers. Section 4475(e)(1) defines "remittance transfer," "remittance transfer provider," and "sender" by referencing Section 919(g) of the Electronic Fund Transfer Act (15 U.S.C. 1693o-1(g)). The tax applies only to remittance transfers where the sender provides cash, a money order, a cashier's check, or a similar physical instrument. Under Section 4475(b)(1) and (2), the sender pays the tax, but the remittance transfer provider collects and remits the tax quarterly. If the tax isn't collected at the time of transfer, Section 4475(b)(3) states that the remittance transfer provider must pay it.

The tax is reported on Form 720, Quarterly Federal Excise Tax Return. As the remittance transfer tax is effective beginning January 1, 2026, the first deposit, covering the first 15 days of January 2026, was due by January 29, 2026. The IRS acknowledged that remittance transfer providers will be unable to use the deposit safe harbor rules in § 40.6302(c)-1(b)(2) to calculate semimonthly deposits of the tax until the third calendar quarter of 2026 because a look-back quarter in which the same taxes are imposed is required to determine deposit amounts in the current quarter.

The Implication

The IRS provided a transition period for remittance transfer providers to become familiar with the new tax, its reporting, and its deposit requirements. For the first three calendar quarters of 2026, a remittance transfer provider is "deemed" to have satisfied the "reasonable cause standard" under Section 6656 if: (i) the remittance transfer provider makes timely deposits of the applicable remittance transfer tax, even if the deposit amounts are computed incorrectly, and (ii) the amount of any underpayment of the applicable remittance transfer tax for each calendar quarter is paid in full by the due date for filing the Form 720 for that quarter.

Additionally, a remittance transfer provider's ability to use the deposit safe harbor under § 40.6302(c)-1(b)(2) will not be affected by a failure during the first three calendar quarters of 2026 to make deposits of the remittance transfer tax, as required under Part 40, provided the remittance transfer provider satisfies the reasonable cause standard for those quarters.

Opportunity Zones: Defining 'Rural' for Lower Improvement Thresholds

The previous section discussed penalty relief for remittance transfer providers who may have struggled to comply with the new excise tax collection and deposit requirements. This section transitions to a discussion of changes affecting investments in Qualified Opportunity Zones (QOZs), specifically those located in rural areas.

Notice 2025-50 provides guidance on the substantial improvement provision under Section 1400Z-2(d)(2)(D)(ii), as amended by the One, Big, Beautiful Bill Act (OBBBA). Section 1400Z-2 incentivizes investment in low-income communities designated as QOZs. It allows taxpayers who invest in Qualified Opportunity Funds (QOFs) to defer and potentially eliminate capital gains taxes. A QOF is an investment vehicle organized as a corporation or partnership for the purpose of investing in qualified opportunity zone property (QOZP). QOZP includes, among other things, qualified opportunity zone business property (QOZBP).

The Rule: The IRS is updating the definition of 'rural area' to align with amendments made by the OBBBA to Section 1400Z-2(d)(2)(D)(ii) regarding the substantial improvement of property within QOZs. This rule specifically applies to properties within a QOZ that is entirely within a rural area. Section 70421(c)(4)(C) of the OBBBA amended Section 1400Z-2(d)(2)(D)(ii) to modify the general substantial improvement threshold for improvements to property located in a QOZ that is comprised entirely of a rural area.

The Delta: Previously, to qualify as QOZBP under Section 1400Z-2(d)(2)(A) and (D)(i)-(ii), tangible property used in a trade or business within a QOZ had to be either of original use or "substantially improved." "Substantial improvement" generally meant that during any 30-month period following the acquisition of the property, additions to the basis of the tangible property exceeded an amount equal to 100 percent of the eligible entity’s adjusted basis in the tangible property at the beginning of the 30-month period. The OBBBA reduced this substantial improvement threshold from 100% to 50% for properties in rural QOZs. This amendment took effect on July 4, 2025.

The Implication: The definition of "rural area" for these purposes is crucial. Notice 2025-50 clarifies that a “rural area” is any area that is not:

1. A city or town with a population of greater than 50,000 inhabitants.
2. Any urbanized area contiguous and adjacent to a city or town described in (1).

The Notice relies on the 2020 Decennial Census data and methodology to determine whether an area qualifies as rural. It defines "city or town that has a population greater than 50,000 inhabitants" as an incorporated city or town (except in Hawaii and Puerto Rico, where it refers to a Census Designated Place) with a resident population exceeding 50,000 in the 2020 Decennial Census. An “urbanized area” means any Census-Bureau-designated urban area. "Contiguous" and "adjacent" refer to areas sharing a common boundary or at least one common point.

This definition is similar to that found in Section 343(a)(13)(A) of the Consolidated Farm and Rural Development Act of 1961 (Con Act), codified at 7 U.S.C. 1991(a)(13)(A), which is used by the USDA. However, Notice 2025-50 clarifies that it does not incorporate all the additional details found in 7 U.S.C. 1991(a)(13)(D) through (I).

For any determination made on or after July 4, 2025, whether tangible property in a 2018 QOZ comprised entirely of a rural area meets the substantial improvement test, the 50% threshold applies. The Treasury Department and the IRS have identified 3,309 2018 QOZs that meet this “rural area” definition based on the 2020 Decennial Census data, and a list is provided in the Appendix to the Notice.

Interest Capitalization: Removal of Associated Property Rule

This section analyzes T.D. 10034, concerning interest capitalization requirements.

1. The Rule: The final regulations remove the 'associated property rule' and similar rules from existing regulations regarding interest capitalization under Section 263A(f). Section 263A(f) mandates the capitalization of interest expenses paid or incurred during the production period of designated property. Designated property is defined in Section 1.263A-8 and typically includes real property and tangible personal property with a long production period or estimated useful life. Prior to this change, the regulations implementing Section 263A(f) included the 'associated property rule,' which required taxpayers making improvements to property to capitalize interest not only on the costs directly related to the improvement but also on the underlying property's adjusted basis. T.D. 10034 removes this requirement.

2. The Context: The final regulations also modify the definition of "improvement" for purposes of applying the existing regulations. The updated definition aligns with the definition of "improvement" in Section 1.263(a)-3, which provides rules for distinguishing between capital improvements and deductible repairs. Section 1.263(a)-3 provides exceptions, safe harbors, and elections for determining whether an expenditure results in a betterment to, restores, or adapts property to a new or different use. The amendments also affect the mid-production purchases rule of Section 1.263A-11(f), clarifying that the rule only applies to property purchased and further produced before it is placed in service.

3. The Implication: These changes affect taxpayers making improvements to real or tangible personal property constituting designated property. The elimination of the associated property rule significantly reduces the amount of interest that taxpayers are required to capitalize. Under the prior rules, the interest capitalization burden could be substantial, especially when the underlying property had a high adjusted basis. Now, taxpayers will only include the direct and indirect costs of the improvements in their accumulated production expenditures (APEs). According to the IRB, taxpayers who change their accounting method due to these revisions will do so by filing Form 3115, Application for Change in Accounting Method, as Sections 446 and 481 apply. Section 446 governs the general rule that taxable income should be computed under the method of accounting on the basis of which the taxpayer regularly computes his income in keeping his books. Section 481 provides rules for adjustments required when a taxpayer changes its method of accounting for federal income tax purposes. These regulations are effective for taxable years beginning after October 2, 2025.

LIHC: Preventing the Average Income 'Cliff'

This section analyzes T.D. 10036, addressing the final regulations concerning recordkeeping for the Low-Income Housing Credit (LIHC) average income test. The regulations, finalized to prevent the 'cliff' effect, clarify the ability to submit corrected qualified groups and provide flexibility to Agencies regarding reporting lists.

1. The Rule:

T.D. 10036 finalizes regulations setting forth the recordkeeping and reporting requirements for the average income test under Section 42(g)(1)(C). Section 42, established by the Tax Reform Act of 1986, provides a low-income housing credit to qualified low-income buildings. The amount of the credit is determined based on the applicable percentage of the qualified basis of the building. The "qualified basis," as defined in Section 42(c)(1)(A), is calculated by multiplying the applicable fraction by the eligible basis of the building. The "applicable fraction" is the lesser of the unit fraction or the floor space fraction. Section 42(g) outlines the minimum set-aside tests a project must satisfy to qualify as a low-income housing project.

Before the Consolidated Appropriations Act of 2018, Section 42(g) included the 20-50 test and the 40-60 test. The 2018 Act added the average income test, allowing taxpayers to qualify for the LIHC if at least 40% of the residential units are rent-restricted and occupied by tenants whose income does not exceed a designated imputed income limitation, with the average of these limitations not exceeding 60% of the Area Median Gross Income (AMGI). These regulations clarify the application of the average income test, specifying that a taxpayer must record and retain the identification of a qualified group of units that satisfies the average income set-aside test and to determine the applicable fraction. The taxpayer must also communicate the annual identifications to the applicable housing credit agency.

2. The Context:

The final regulations address concerns surrounding the potential for a "cliff" effect. Under previous proposed regulations, a single noncompliant unit could disqualify an entire project from receiving LIHC benefits, even if the project otherwise met the average income test requirements. This was a significant concern because many projects have more than the minimum number of low-income units needed to qualify. If, after year-end, a unit with a low-income limit was discovered to be noncompliant, its removal from the qualified group could raise the average income of the remaining units above the 60% of AMGI threshold, resulting in the loss of all credits. The industry voiced concerns that this could occur even if more than 40% of the project's units were still compliant. The final regulations, therefore, aim to mitigate this risk by allowing for the submission of corrected qualified groups of units.

3. The Implication:

The final regulations provide several key implications for tax practitioners and owners of low-income housing projects.

• Submission of Corrected Qualified Groups: The regulations explicitly permit taxpayers to submit a corrected qualified group of units if a previously submitted group fails to qualify. This allows taxpayers to address instances where a unit is later found to be noncompliant by substituting another qualified unit to maintain compliance with the average income test. The IRS clarifies that this does not allow a taxpayer to retroactively change income designations for any unit in a building after a taxable year has closed.

• Agency Reporting Flexibility: The regulations provide flexibility to State or local housing credit agencies (Agencies) regarding the reporting of qualified groups. Agencies can permit taxpayers to report either one or two qualified groups of low-income units. If the Agency requires a single list of units, then the taxpayer's submission for determining the applicable fraction will be sufficient, as the agency can use this data to identify compliance with the set-aside. The IRS provides examples to illustrate the Agency's flexibility in establishing the time and manner for taxpayers to communicate the required information.

• Correction Timeframe: The regulations outline the process for correcting failures to comply with the procedural requirements. If a taxpayer discovers a failure, they have 180 days after discovery to submit a revised submission to the Agency. If the Agency discovers the failure, it must provide prompt notification to the taxpayer, who then has a correction period consistent with §1.42-5(e)(4) to address the failure. In all cases, the Agency retains the discretion to waive the failure in writing, provided the waiver is issued within the applicable timeframe.

• Recordkeeping Requirements: The regulations emphasize the importance of maintaining accurate records of income designations and any subsequent changes. Taxpayers must record a unit's imputed income limitation in their books and records and communicate the designation annually to the Agency.

Disaster Relief: Israel Terroristic Action

Following the discussion of the Low-Income Housing Credit, the IRB addresses disaster relief. Notice 2025-53 provides relief under Section 7508A for taxpayers affected by the terroristic action in the State of Israel throughout 2024 and 2025. Section 7508A, titled "Authority to Postpone Certain Deadlines by Reason of Presidentially Declared Disaster or Terroristic or Military Action," grants the Secretary of the Treasury the authority to postpone certain tax-related deadlines for taxpayers affected by terroristic or military actions as defined in Section 692(c)(2), which defines a terroristic action as “any terroristic activity which a preponderance of the evidence indicates was directed against the United States or any of its allies.”

The Rule: The IRS is updating the postponement of certain tax-related deadlines for taxpayers affected by terroristic action in Israel.

The Context: This notice follows the Secretary of the Treasury's determination on September 30, 2025, that terrorist activity throughout 2024 and 2025 against the State of Israel constitutes terroristic action within the meaning of Section 692(c)(2). This determination was made in accordance with Revenue Procedure 2004-26, which outlines the process for determining whether an event outside the United States constitutes a terroristic action. The fictional Filing Relief for Natural Disasters Act (2025) expanded Section 7508A relief to include state-declared disasters and lengthened certain automatic extensions from 60 to 120 days. This notice precedes that Act.

The Implication: The notice postpones until September 30, 2026, the due dates for certain actions for "affected taxpayers," as defined in Section 301.7508A-1(d)(1) of the regulations. Affected taxpayers include:

• Any individual whose principal residence, and any business entity or sole proprietor whose principal place of business, is located in the State of Israel, the West Bank, or Gaza.
• Any individual affiliated with a recognized government or philanthropic organization and who is assisting in the covered area, such as a relief worker.
• Any individual, business entity or sole proprietor, or estate or trust whose tax return preparer or records necessary to meet a deadline for postponed acts are located in the covered area.
• Any spouse of an affected taxpayer, solely with regard to a joint return of two married individuals.
• Any individual visiting the covered area who was killed, injured, or taken hostage as a result of the terroristic action.

The postponement applies to acts due to be performed on or after September 30, 2025, and before September 30, 2026. These acts include, but are not limited to, filing tax returns, making tax payments, making contributions to a qualified retirement plan, filing a petition with the Tax Court, and filing a claim for credit or refund. Government acts, such as assessing tax, giving notice or demand for payment, and collecting tax by levy, are also postponed.

Notice 2025-53 interacts with prior Notices 2024-72 and 2023-71. Notice 2023-71 provided relief for taxpayers affected by the October 7, 2023, terrorist attacks against the State of Israel, while Notice 2024-72 provided relief for taxpayers affected by the terroristic action in the State of Israel throughout 2023 and 2024. Taxpayers eligible for relief under Notice 2024-72 who are also eligible for relief under Notice 2025-53 have until September 30, 2026, to perform the time-sensitive acts that were postponed by Notice 2024-72. Additionally, taxpayers eligible for relief under both Notice 2024-72 and Notice 2023-71 have until September 30, 2026, to perform the time-sensitive acts that were postponed by Notice 2023-71.