On February 18, 2026, Treasury and the IRS released Notice 2026-7, providing additional interim guidance on the corporate alternative minimum tax (CAMT) while the government works toward revised proposed and final regulations. The notice primarily adds or modifies several adjustments to financial statement income to reduce mismatches between financial reporting and tax rules that can create a CAMT liability.
This notice is the latest in a series of taxpayer‑favorable CAMT pronouncements issued over the past year to reduce compliance burdens and mitigate CAMT exposures, including Notice 2025‑27 (interim simplified method for applicable‑corporation status and estimated tax penalty relief), Notice 2025‑28 (simplified interim rules for partnership investments), Notice 2025‑46 (interim guidance for domestic corporate transactions, financially troubled companies, and consolidated groups), and Notice 2025‑49 (additional AFSI adjustments and more flexible reliance guidance pending final regulations).
Background
CAMT is a 15% minimum tax that can apply to very large corporations based on adjusted financial statement income (AFSI). Financial statement accounting and tax accounting can have significant divergences, such as the timing for recognizing income or deductions and the mechanism for recovering costs, including whether capitalized costs can be amortized over time. These differences can cause AFSI to be higher than a corporation’s regular taxable income—potentially triggering CAMT even when applying the lower 15% rate to AFSI. Notice 2026-7 responds to taxpayer feedback by expanding adjustments to better align AFSI with how certain costs are treated for tax purposes.
Key Changes in Notice 2026-7
Notice 2026-7 provides new or expanded AFSI adjustments in several areas where financial statement and income tax accounting principles differ. Specifically, it allows AFSI adjustments related to
- certain repair and maintenance costs that are deductible for tax but capitalized/depreciated for financial statement purposes;
- Section 197 amortization for goodwill and certain other eligible intangibles that generally are not amortized for financial statement purposes;
- a transition adjustment for domestic R&D/software costs by allowing a reduction to AFSI for continued amortization of prior-year domestic Section 174 costs during the post‑2024 transition period, including any amounts accelerated under the election provided in section 70302(f)(2)(A) of the OBBBA;
- certain Section 181 qualified production costs (film/TV/live theatrical/sound recordings) that may be deducted for tax but capitalized for financial statement purposes; and
- certain low-cost tangible property deducted as materials and supplies for tax but capitalized/depreciated for financial statement purposes.
It appears that the adjustment reducing AFSI for amortization of previously capitalized domestic Section 174 costs may reduce AFSI in a double benefit to taxpayers to the extent those costs were previously deducted for financial statement purposes in the year incurred and also reduce AFSI in a subsequent year when amortized for regular tax purposes. The notice also clarifies CAMT treatment for financially troubled companies (including bankruptcy emergence effects). In addition, it refines international rules by (1) converting a proposed per se anti-avoidance trigger in certain foreign covered asset transactions into a rebuttable presumption and (2) coordinating CAMT results for Section 367(d) intangible transfers to mitigate potential double counting.
Reliance and Effectiveness
The notice is effective February 18, 2026, and may generally be relied upon for taxable years beginning before forthcoming proposed regulations are published, subject to stated conditions. Several of the new AFSI adjustments (including repairs, eligible intangibles, domestic research amortization, qualified production costs, and materials/supplies) come with consistency requirements—once a taxpayer starts applying an adjustment, it generally must continue applying it in later years until the relevant assets are disposed of or further guidance says otherwise. The notice also introduces specific return statement requirements to claim certain adjustments and a statement process to rebut the two‑year presumption in the covered foreign transaction context.
How BDO Can Help
- CAMT applicability and exposure assessment — Determine whether a corporation may be (or become) an applicable corporation and identify the biggest AFSI drivers.
- Modeling and adoption strategy — Quantify the impact of the new AFSI adjustments (including multi-year consistency implications), evaluate implications on other provisions, and assist in implementing recommendations.
- Process and data design — Help define data requirements, controls, and documentation to operationalize the new adjustments in an efficient and auditable manner.
- Transaction support — Integrate CAMT considerations into M&A diligence, purchase price allocation sensitivities, and cross-border structuring (including covered asset transactions and Section 367(d) planning).
- Compliance readiness — Prepare return positions, required statements, and defensible files aligned to the notice’s reliance and reporting framework.
Please visit BDO’s Corporate Tax Services page for more information on how BDO can help.