(a) Computation of the book income adjustment.

(1) In general.

(2) Taxpayers subject to the book income adjustment.

(3) Consolidated returns.

(4) Examples.

(b) Adjusted net book income.

(1) In general.

(2) Net book income.

(i) In general.

(ii) Measures of net book income.

(iii) Tax-free transactions and tax-free income.

(iv) Treatment of dividends and other amounts.

(3) Additional rules for consolidated groups.

(i) consolidated adjusted net book income.

(ii) Consolidated net book income.

(iii) Consolidated pre-adjustment alternative minimum taxable income.

(iv) Cross references.

(4) Computation of adjusted net book income when taxable year and financial accounting year differ.

(i) In general.

(ii) Estimating adjusted net book income.

(iii) Election to compute adjusted net book income based on the financial statement for the year ending within the taxable year.

(A) In general.

(B) Time of making election.

(C) Eligibility to make and manner of making election.

(D) Election or revocation of election made on an amended return.

(iv) Quarterly statement filed with the Securities and Exchange Commission (SEC).

(5) Computation of net book income using current earnings and profits.

(i) In general.

(ii) Current earnings and profits of a consolidated group.

(6) Additional rules for computation of net book income of a foreign corporate taxpayer.

(i) Adjusted net book income of a foreign taxpayer.

(ii) Effectively connected net book income of a foreign taxpayer.

(A) In general.

(B) Certain exempt amounts.

(iii) Computation of net book income of a foreign taxpayer using current earnings and profits.

(7) Examples.

(c) Applicable financial statement.

(1) In general.

(i) Statement required to be filed with the Securities and Exchange Commission (SEC).

(ii) Certified audited financial statement.

(iii) Financial statement provided to a government regulator.

(iv) Other financial statements.

(v) Required use of current earnings and profits.

(2) Election to treat net book income as equal to current earnings and profits for the taxable year.

(i) In general.

(ii) Time of making election.

(iii) Eligibility to make and manner of making election.

(iv) Election by common parent of consolidated group.

(v) Election or revocation of election made on an amended return.

(3) Priority among statements.

(i) In general.

(ii) Special priority rules for use of certified audited financial statements and other financial statements.

(iii) Priority among financial statements provided to a government regulator.

(iv) Statements of equal priority.

(A) In general.

(B) Exceptions to the general rule in paragraph (c)(3)(iv)(A).

(4) Use of financial statement for a substantial non-tax purpose.

(5) Special rules.

(i) Applicable financial statement of related corporations.

(A) Applicable financial statement of a consolidated group.

(B) Special rule for statements of equal priority.

(C) Special rule for related corporations.

(D) Anti-abuse rule.

(ii) Applicable financial statement of foreign corporation with a United States trade or business.

(A) In general.

(B) Special rules for applicable financial statement of a trade or business of a foreign taxpayer.

(C) Special rule for statements of equal priority.

(D) Anti-abuse rule.

(iii) Supplement or amendment to an applicable financial statement.

(A) Excluding a restatement of net book income.

(B) Restatement of net book income.

(6) Examples.

(d) Adjustments to net book income.

(1) In general.

(2) Definitions.

(i) Historic practice.

(ii) Accounting literature.

(3) Adjustments for certain taxes.

(i) In general.

(ii) Exception for certain foreign taxes.

(iii) Certain valuation adjustments.

(iv) Examples.

(4) Adjustments to prevent omission or duplication.

(i) In general.

(ii) Special rule for depreciating an asset below is cost.

(iii) Consolidated group using current earnings and profits.

(iv) Restatement of a prior year's applicable financial statement.

(A) In general.

(B) Reconciliation of owner's equity in applicable financial statements.

(B) Use of different priority applicable financial statements in consecutive taxable years.

(D) First successor year defined.

(E) Exceptions.

(v) Adjustment for items previously taxed as subpart F income.

(vi) Adjustment for pooling of interests.

(vii) Adjustment for certain deferred foreign taxes.

(viii) Examples.

(5) Adjustments resulting from disclosure.

(i) Adjustment for footnote disclosure or other supplementary information.

(A) In general.

(B) Disclosures not specifically authorized in the accounting literature.

(ii) Equity adjustments.

(A) In general.

(B) Definition of equity adjustment.

(iii) Amount disclosed in an accountant's opinion.

(iv) Accounting method changes that result in cumulative adjustments to the current year's applicable financial statement.

(A) In general.

(B) Exception.

(v) Examples.

(6) Adjustments applicable to related corporations.

(i) Consolidated returns.

(A) In general.

(B) Corporations included in the consolidated Federal income tax return but excluded from the applicable financial statement.

(C) Corporations included in the applicable financial statement but excluded from the consolidated tax return.

(ii) Adjustment under the principles of section 482.

(iii) Adjustment for dividends received from section 936 corporations.

(A) In general.

(B) Treatment as foreign taxes.

(C) Treatment of taxes imposed on section 936 corporations.

(iv) Adjustment to net book income on sale of certain investments.

(v) Examples.

(7) Adjustments for foreign taxpayers with a United States trade or business.

(i) In general.

(ii) Example.

(8) Adjustment for corporations subject to subchapter F.

(e) Special rules.

(1) Cooperatives.

(2) Alaska Native Corporations.

(3) Insurance companies.

(4) Estimating the net book income adjustment for purposes of estimated tax liability.

(5) Effective/applicability date.