IRS Notice 2026-7: What R&D-Intensive Companies Need to Know About CAMT Relief

The IRS and Treasury just issued guidance that R&D-intensive corporations need to review before filing. The IRS and Treasury released Notice 2026-7 on February 18, 2026. It provides interim relief for companies facing a costly mismatch between how R&D costs appear on tax returns versus financial statements. If your company capitalized domestic R&D costs between 2022 and 2024, this guidance may directly affect your CAMT exposure.

Background

To understand why this matters, it helps to know what changed in recent years.

Under the Tax Cuts and Jobs Act (TCJA), companies could no longer deduct domestic R&D costs in the year they occurred. Starting in 2022, companies had to capitalize those costs and spread them across five years under §174. That change significantly increased taxable income for many R&D-intensive companies.

In July 2025, Congress reversed course. The enactment of §174A restored the ability to deduct domestic R&D costs in the year they are incurred, starting with tax years beginning after December 31, 2024. That is good news. But it created a new problem during the transition period.

Companies now find themselves in a situation where they are deducting current-year R&D under §174A while still amortizing prior-year capitalized costs under the old TCJA rules. At the same time, most companies expense R&D costs immediately on their financial statements. That timing difference creates a book-tax mismatch. What a company deducts for tax purposes does not match what it expenses on its financial statements.

That mismatch matters because the Corporate Alternative Minimum Tax (CAMT) is calculated based on Adjusted Financial Statement Income (AFSI), which is essentially the income reported on a company’s financial statements. When tax deductions lag behind book expenses, AFSI looks artificially high. That can trigger CAMT liability with no connection to actual economic income.

Key CAMT Relief in Notice 2026-7

Notice 2026-7 fixes that problem for the transition period.

A quick definition: CAMT is a 15% minimum tax that applies to large corporations with average annual AFSI exceeding $1 billion. AFSI is the starting point for calculating that tax, so anything that inflates AFSI can create unexpected tax liability.

For tax years beginning after December 31, 2024, a CAMT entity can now reduce AFSI by its domestic §174 amortization deducted for regular tax purposes. It can also disregard the corresponding book amortization of those same costs.

This adjustment covers domestic research and experimental expenditures, including software development costs, that were capitalized under TCJA §174 between 2022 and 2024 and are still being amortized during the transition period.

Without this relief, companies would face elevated AFSI and potential CAMT exposure. The cause would be timing differences alone, not any real increase in economic income.

A Few Technical Points Worth Knowing

You need to apply this consistently

If your team relies on this adjustment, it must apply it the same way in subsequent years. If your R&D tax treatment changes down the road, you will also need to account for any §481(a) adjustments. Think of a §481(a) adjustment as a catch-up calculation that prevents income or deductions from being counted twice or missed entirely when an accounting method changes.

This relief will not push you into CAMT

One concern companies near the $1 billion AFSI threshold might have is whether taking this adjustment could itself trigger CAMT applicability. It will not. The domestic R&D AFSI adjustment is excluded from the average annual AFSI test used to determine CAMT eligibility, so the relief cannot create the very problem it is designed to solve.

Regulations are coming

Treasury and the IRS have signaled that forthcoming proposed regulations will formalize this guidance under §56A(c)(15) and (e). For now, companies can rely on the notice immediately, subject to its conditions.

Who Should Be Paying Attention

This guidance is most relevant for three groups

1. Corporations with significant domestic R&D spend who capitalized costs under the TCJA between 2022 and 2024 should evaluate whether their AFSI calculations reflect the transition period accurately.
2. Companies near the $1 billion CAMT threshold need to understand how ongoing §174 amortization affects their position.
3. And any tax team currently modeling CAMT exposure for FY2025 and beyond should incorporate this adjustment before finalizing their analysis.

Effective Date

Notice 2026-7 took effect February 18, 2026. Companies can rely on it now, with final regulations still to come.

What to Do Next

The transition from TCJA §174 capitalization to §174A deductibility is creating real complexity for companies with significant R&D spend, and CAMT adds another layer to that analysis. If your tax team is still working through how these changes affect your position, MASSIE can help. We work directly with tax departments to model CAMT exposure, evaluate the impact of Notice 2026-7, and make sure your R&D tax positions are defensible heading into 2025 and beyond.

Jason Massie, CPA, Esq.

As the Founder and President of MASSIE R&D Tax Credits, Jason is responsible for the quality, consistency, and integrity of our services. His strategic vision and leadership drive innovation within the company, encouraging collaboration and ne...