Treasury Department And IRS Provide Additional Corporate Alternative Minimum Tax Relief

Highlights

• The U.S. Department of the Treasury and IRS on February 18, 2026, issued Notice 2026-7, the fifth corporate alternative minimum tax notice since the end of the prior administration.
• The notice announces forthcoming proposed regulations for two issues previously discussed in other guidance – the treatment of Internal Revenue Code Section 197 intangibles and repairs – and one new issue arising from the One Big Beautiful Bill Act, changes to the amortization of domestic research expenses.
• This Holland & Knight alert discusses the proposed guidance for the three issues.

The U.S. Department of the Treasury and IRS on February 18, 2026, issued Notice 2026-7 (Notice) – the fifth corporate alternative minimum tax (CAMT) notice since the end of the prior administration. The Notice announces forthcoming proposed regulations for two issues previously discussed in other guidance (the treatment of Internal Revenue Code (Code) Section 197 intangibles and repairs) and one new issue arising from the One Big Beautiful Bill Act (OBBB) – changes to the amortization of domestic research expenses.

Background

CAMT was added to the Code as part of the Inflation Reduction Act. By statute, CAMT imposes a 15 percent minimum tax based on adjusted financial statement income (AFSI). The statute provides for 14 adjustments to an applicable financial statement (AFS) to compute AFSI, along with broad authority for the Treasury Department to provide for other adjustments to carry out the purposes of the CAMT.¹

Section 197 Intangibles

The treatment of Section 197 intangibles has long been an issue under the CAMT regime. The problem arises because for financial reporting ("book") purposes, amounts paid for goodwill in particular are usually capitalized in the year paid or incurred and are generally (as further discussed below) not recoverable through amortization, but rather are recoverable to the extent the goodwill is impaired (in which case an impairment loss would be recognized) or written off upon disposition of the goodwill.² However, under Section 197, added to the Code in 1993 as part of a major policy compromise and an exception to normal accounting treatment,³ amounts paid to acquire goodwill, and other intangibles such as going concern value, are generally deducted through amortization, ratably over a 15-year period.⁴

Because the adjustments in Section 56A(c) failed to provide a reduction of AFSI to account for amortization of such intangibles, CAMT as enacted could result in minimum tax in years in which substantial Section 197 amortization is deducted because of the gap between taxable income and book income, a result that is arguably inconsistent with the policy choice made in Section 197.

Most recently, in Notice 2025-49, the IRS tried to address at least some of the concerns posed by this inconsistency. The IRS was specifically reacting to comments pointing out that in deals that had closed before the enactment of CAMT, taxpayers could not have anticipated the financial consequences of this potentially significant disconnect. These comments noted that in modeling for such asset-based transactions, taxpayers might have mispriced the value of the tax benefit of Section 197 amortization.⁵ How this financial impact would have been modeled had taxpayers known about the parallel minimum tax system is not entirely clear, but the IRS responded with transition relief for such pre-CAMT transactions. In Notice 2025-49, the IRS therefore added rules to adjust AFSI for goodwill acquired in transactions that predated the release of the first version of the legislation that contained the CAMT.⁶ The Notice created the concept of "eligible goodwill," which included Section 197 intangibles (not only goodwill) that was acquired in a transaction that was either 1) announced to the public on or before October 28, 2021, or 2) if such transaction was not announced to the public, closed and completed on or before October 28, 2021.⁷ This limited category of intangible assets could in theory include goodwill purchased at any time in the 15-year period prior to the designated grandfathering dates.⁸

In Notice 2026-7, the IRS expanded on this solution with the concept of "eligible intangibles,"⁹ and the Notice provides an express adjustment to AFSI to account for the regular income tax amortization of Section 197 intangibles generally. For purposes of this adjustment, an "eligible intangible" is an intangible asset that is a "section 197 intangible" under Section 197(c) and that is either 1) goodwill (which is further defined in Section 197(d)(1)(A)) or 2) some other intangible assets (excluding those in Section 56A(c)(14)(B), concerning certain wireless spectrum assets, which are separately carved out), the cost of which is capitalized for AFS purposes and not permitted to be amortized for AFS purposes.

Notice 2026-7 provides, however, that intangible assets that are not amortizable under Section 197 for regular tax purposes are not eligible intangibles for purposes of the Notice.¹⁰ That is, an "eligible intangible" does not include an asset that is excluded from Section 197 treatment, presumably including those falling under the anti-churning rule of Section 197(f)(9), which still constitutes a trap for the unwary more than 30 years after enactment. The Notice anticipates that all these new rules concerning eligible intangibles will be included in forthcoming proposed regulations that will be issued under Sections 56A(c)(15) and 56A(e), which provide broad regulatory authority.

With respect to the class of eligible intangibles, the adjustment mechanism in the Notice provides that AFSI is reduced by "deductible intangible tax amortization" with respect to an eligible intangible, but only to the extent of the amount allowed as a deduction in computing taxable income for the taxable year.¹¹ "Deductible intangible tax amortization" means eligible intangible tax amortization that is allowed under Section 197 for regular income tax purposes with respect to an eligible intangible. Eligible intangible tax amortization in turn includes actual amortization deductions allowed under Section 197 with respect to an eligible intangible, once more emphasizing that only viable Section 197 amortization deductions are included in the relief.

Similar provisions of the Notice apply to amortizable intangibles that are part of cost of goods sold (COGS). These special COGS provisions apply the concept of "eligible intangible tax amortization," which is an item (generally of inventory) capitalized under Section 263A and recovered as part of COGS in computing gross income, and eligible intangible tax amortization that is capitalized into the basis of property described in Section 1221(a)(1) that is not inventory and is recovered as part of the computation of gain or loss from the sale or exchange of such property in computing taxable income.¹²

A final adjustment to AFSI with respect to amortizable intangibles is provided with respect to "tax intangible amortization section 481(a) adjustments." This special category covers adjustments required under Section 481(a) with respect to a change in method of accounting that impacts the timing of taking into account eligible intangible tax amortization in computing taxable income.¹³ The adjustment to AFSI provides for a reduction for any "tax intangible amortization section 481(a) adjustment" that is negative, but only to the extent of the amount of the adjustment that is taken into account in computing taxable income for the taxable year, and for an increase for any "tax intangible amortization section 481(a) adjustment" that is positive but also limited to the extent of the amount of the adjustment that is taken into account in computing taxable income for the taxable year.¹⁴

These adjustments to AFSI for purposes of the alternative minimum tax itself will not be carried over into the determination of whether a corporation falls into the category of "applicable corporation"¹⁵ and, therefore, is potentially included in the limited number of large corporations potentially subject to the tax. Thus, the Notice indicates that there will be modifications to proposed regulations under Section 1.59-2 to provide that, for purposes of applying the three-year average annual AFSI test in Section 59(k)(1)(B), which is generally $1 billion for domestic corporations, AFSI will be computed without regard to the Section 197 adjustments provided in the Notice.¹⁶

As noted above, for book purposes, intangibles are generally not amortized. However, there are some situations where amortization is taken into account in FSI, including with respect to eligible intangible assets.¹⁷ To prevent double counting, Notice 2026-7 provides an adjustment to AFSI to disregard the corresponding book items, with special defined terms that include "covered book intangible amortization expense," "covered book intangible COGS amortization" and "covered book intangible expense," together with amounts with respect to dispositions.¹⁸ These defined terms parallel the regular income tax items in the Notice and generally include amortization and other basis recovery items as computed for purposes of determining FSI.¹⁹ The "covered" adjustments apply broadly and include an eligible intangible placed in service for regular tax purposes in a taxable year subsequent to the taxable year the eligible intangible is treated as placed in service for AFS purposes.²⁰

When eligible intangibles are sold or otherwise disposed of, the Notice provides that the applicable entity must adjust AFSI for the taxable year in which the disposition occurs to redetermine any gain or loss taken into account in the CAMT entity's FSI with respect to the disposition for the taxable year by reference to the CAMT basis, rather than the AFS basis of the eligible intangible.²¹ The CAMT basis adjustments are complex and include, for example, a reduction of basis for purposes of determining gain that takes into account the full eligible intangible tax amortization regardless of whether any amount of eligible intangible tax amortization was capitalized for regular tax purposes and not yet taken into account as a reduction to AFSI.²²

Finally, the Notice provides special reporting for some of the adjustments discussed above, requiring the applicable corporation to attach a statement to its return titled "AFSI adjustment for eligible intangibles."²³ If the corporation has used a "reasonable method" under the Notice, specifically with respect to certain COGS items,²⁴ the statement would include whether the taxpayer is using such reasonable method to determine 1) covered book inventoriable intangible expense in ending inventory for AFS purposes for purposes of determining the covered book intangible COGS amortization adjustment under Section 4.04(1)(c) of Notice 2026-7, 2) eligible intangible tax amortization in inventory for regular tax purposes for purposes of determining the eligible tax COGS amortization adjustment under Section 4.04(1)(a) of the Notice or 3) both for the taxable year.²⁵

Repairs

In many respects, the issues arising under the CAMT attributable to the lack of an available adjustment to AFSI to reflect the disparate treatment of repairs capitalized for book purposes that are deducted for regular tax purposes were similar to the concerns arising in connection with intangible tax amortization under Notice 2025-49. For many capital-intensive industries or businesses with large, recurring repairs and maintenance expenditures capitalized for book purposes, this misaligned treatment presented the potential for unwarranted CAMT exposure while imposing complex compliance and administrative burdens.²⁶ The changes to the treatment of repairs in Notice 2026-7 are intended both to relieve this potential CAMT exposure driven by the book-tax timing differences in the treatment of repairs and reduce the administrative compliance burden under prior guidance.²⁷

Section 3 of Notice 2026-7 attempts to address both of these concerns by allowing taxpayers 1) to reduce AFSI by the amount of deductible repairs related to Section 168 property even if they are capitalized for book purposes and 2) effectively eliminate the separate tracking of repair components in a single asset solely for purposes of CAMT compliance. Additional guidance is likely to be provided in the upcoming proposed regulations. Until then, taxpayers may generally rely on Notice 2026-7 for tax years beginning before final CAMT regulations are issued, subject to consistency and disclosure requirements, or they can continue to apply the rules under Notice 2025-49 for tax years beginning before February 18, 2026, and apply the new rules under Notice 2026-7 for tax years beginning on or after that date.

Notice 2026-7 does not attempt to resolve all issues related to repair deductions for purposes of the CAMT. For example, presumably the adjustment to AFI for tax repairs is predicated on the proper deductibility of those repairs for regular income tax purposes under the existing repair regulations and related authorities, not necessarily under the taxpayer's filed return positions. See Treas. Reg. §§ 1.162‑4 and 1.263(a)‑3. Whether or to what extent there will be increased audit activity related to repairs for regular income tax and the implications of any adjustments arising in such audits for CAMT purposes remains to be seen.

In addition, although Notice 2026-27 references required consistency treatment and return statements, it does not specify how such elections should be made, whether change in accounting method procedures apply to changed CAMT treatment and whether elections, once made, are irrevocable or can be changed from year to year.

Although the new repair rules of Notice 2026-27 leave certain issues unresolved pending the proposed regulations, they nevertheless provide welcome interim relief for the primary concerns expressed by taxpayers. Taxpayers can consider requesting specific additional guidance on these issues as the proposed regulations are being developed.

Sections 174 AND 174A

Prior to the Tax Cuts and Jobs Act (TCJA), taxpayers could deduct expenses for both domestic and foreign research. For tax years beginning after December 31, 2021, such expenses were required to be amortized over five years (domestic research) or 15 years (foreign research funded by a U.S. taxpayer). The OBBB reinstated current expensing for domestic research expenses²⁸ but retained 15-year amortization for foreign research expenses.²⁹ A taxpayer can elect to amortize domestic research expenses over 60 months. The OBBB also includes transition rules for domestic research expenses amortized in tax years beginning after December 31, 2021, and before January 1, 2025, that allow a taxpayer to elect to deduct remaining unamortized amounts in the first tax year after December 31, 2024, or ratably over the first and second tax years after December 31, 2024.

A taxpayer who makes the election to deduct previously unamortized domestic research expenses could have a significant cash tax savings, but for CAMT purposes, a taxpayer previously recognized the book tax benefit of the current expense and would potentially have a CAMT liability. Congress did not address this issue as part of the changes to Section 174 and new Section 174A. Stakeholders raised concerns to the Treasury Department and IRS that the restored benefit of current expensing for domestic research and associated transition relief may not benefit taxpayers with significant research expenditures due to a higher AFSI without the associated deductions.

The Treasury Department and IRS responded with helpful guidance for the transition period. Notice 2026-7 allows a CAMT taxpayer to modify AFSI to 1) reduce AFSI by the amount of domestic research expense amortized, up to the amount taken into account for computing regular taxable income for the taxable year, 2) disregard book research or software development amortization, and 3) increase or decrease by any tax research capitalization method change AFSI adjustment (e.g., moving from a capitalizing domestic research expenses under pre-OBBB Section 174 and capitalizing or deducting such cost under another section of the Code or vice versa).

Book research or software development amortization means amortization taken into account in determining financial statement income for a taxable year beginning after December 31, 2024, for amounts 1) incurred for AFS purposes in a taxable year beginning after December 31, 2021, and before January 1, 2025, 2) that are attributable to domestic research expenses and 3) are taken into account as TCJA domestic Section 174 amortization for regular tax purposes.

Conclusion

CAMT is a beast, and though Notice 2026-7 provides several helpful rules, the Treasury Department and IRS will need to propose regulations to "regify" the additional notices issued since the end of the previous administration and address other issues not addressed, such as the foreign tax credit rules for CAMT.

Footnotes

1. Section 56A(c)(1)-(15).

2. Notice 2025-49, p. 20, citing ASC 350-20-35-1; IAS 36. Notice 2025-49 does point out that under certain limited circumstances, goodwill may be recoverable through amortization. See ASC 350-20-35-63, which allows certain private companies and not-for-profit entities to amortize goodwill on a straight-line basis over a 10-year period. Page references are to the PDF document issued September 30, 2025.

3. Pub. L. 103-66, § 13261(g); see Bittker & Lokken: Federal Taxation of Income, Estates, and Gifts (WG&L) ¶ 23.4.1 ("In enacting § 197, Congress intended 'to simplify the law regarding the amortization of intangibles' by a grand compromise allowing virtually all intangible property acquired by purchase to be depreciated over an amortization period (15 years) * * *").

4. Section 197(a).

5. Notice 2025-49, p. 21.

6. Notice 2025-49, p. 58.

7. Notice 2025-49 § 9.03(1)(b).

8. Under Notice 2025-49 § 9.04(1), the adjustment runs through book income, which is reduced by deductible goodwill tax amortization with respect to eligible goodwill, but only to the extent of the amount allowed as a deduction in computing regular taxable income for the taxable year and adjusted to disregard certain other goodwill-like items, primarily those related to certain dispositions of intangible assets.

9. Notice 2026-7, §§ 4.02(6); 4.03(1)(a)-(b).

10. Notice 2026-7, § 4.03(2).

11. Notice 2026-7, § 4.04(1)(b).

12. Notice 2026-7, § 4.02(8).

13 See definition and example in Notice 2026-7, § 4.04.02(9).

14. Notice 2026-7, § 4.04(1)(d).

15. Notice 2026-7, p. 28. Page references are to the PDF document issued February 18, 2026.

16. Notice 2026-7, § 4.01.

17. See note 1, supra.

18. See definitions in Notice 2026-7, § 4.02(1) – (4).

19. See, e.g., Notice 2026-7, § 4.02(1): The term covered book intangible amortization expense means any of the following items, other than covered book intangible COGS amortization, that are taken into account in FSI with respect to an eligible intangible – 1) amortization expense, 2) other recovery of AFS basis (including from an impairment loss) that occurs prior to the taxable year in which the disposition of the eligible intangible occurs for regular tax purposes or 3) Impairment loss reversal.

20. Notice 2026-7, § 4.04(1)(c). This adjustment in § 4.04(1) also incorporates by reference the special adjustments required for dispositions of eligible intangibles. See Notice 2026-7, § 4.07(1), described infra.

21. Notice 2026-7, § 4.07.

22. Notice 2026-7, § 4.07(2) for full list of adjustments.

23. Notice 2026-7, § 4.06(3).

24. The reference to a "reasonable method" is to Section 4.06(2) of the Notice, which addresses the methods used to determine "covered book inventoriable intangible expense" (as discussed above) in ending inventory for AFS purposes for purposes of determining the covered book intangible COGS amortization adjustment or to determine the eligible intangible tax amortization included in ending inventory for regular tax purposes for purposes of determining the eligible intangible tax COGS amortization adjustment and requires that such reasonable method is consistent with and reflects the method of accounting the CAMT entity uses for AFS purposes or regular tax purposes.

25. Notice 2026-7, § 4.06(3)(c).

26. Significantly impacted industries included energy, utilities and large infrastructure companies, as well as manufacturing and industrial companies and transportation and logistics companies such as airlines, railroads and shipping businesses.

27. As a practical matter, Notice 2025-49 effectively required taxpayers to separately track repairs within the AFS basis of Section 168 property to avoid overstating AFSI. This often required the development of revised systems and modeling to effectively bifurcate assets solely for CAMT purposes.

28. Section 174A.

29. Section 174.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.