Year-End Tax Planning Webinars for Funds and GPs | Part II

Lindsey Karbowski:Thanks, mark. As Mark mentioned, we're going to be covering the one big beautiful bill act. So we're going to be going through a few items that may have changed since we last had a bill. Next we're going to go into case updates with Sarah, some policy issues to watch, and we're going to go over some IRS audit campaigns. Okay, so starting with one of the more popular updates that came out of the one big beautiful bill is related to the Section 1202 qualified Small Business Stock enhancements. This section was enacted in the nineties to spur investment in small businesses. It provides for exclusion of capital gains related to the sale of US corporate stock and qualified small businesses, and a small business would be a USC corp that uses at least 80% of its assets in an active trader business. And in order to meet this, they would also have to have aggregate gross assets before and immediately after issuance and meet that threshold.

So the holder of the shares would be any non-corporate taxpayer, which includes partnerships S-corp, and they would have to acquire the stock on initial issuance. So for example, an investor in a partnership holding QSBS could exclude their pro rata share of the gain held through these pass-through entities depending on if they were in the funds at the time of the issuance. So looking here, that was a little bit of background, but the latest update with the one big beautiful bill is they increased the gain exclusion amount to 15 million. So previously it was 10 million and then you also had 10 times adjusted tax basis. If that was larger, you could use that and that is an annual limit. The gross assets test threshold as well was increased from 50 million to 75 million. So that's another added benefit for this qualified small business stock. In addition, these thresholds of 15,000,070 5 million are going to be adjusted annually for inflation starting in 2027, and then previously you had to have the stock held for more than five years.

So then now it's created a new holding period schedule allowing taxpayers to exclude gain as follows. So as long as you held it at least three years, you'd be able to exclude 50% of the gain as long as it's held for at least four years, 75% of the gain and then at least five years a hundred percent of the gain. So the portion that's not excludable, so like the other 50% or other 25%, that would be subject to a 28% tax rate, which is the collectibles tax rate plus NII, which is 3.8%. So that would be a total of 31.8%, and then this change would be effective for stock issued after the date. And so that would be July 5th, 2025. So overall it not only increased the exclusion, it increased the test. It also included holding period changes, so all beneficial items. So if previously you looked at your corporation investments and realized that you didn't meet the 50% threshold, now with the threshold being higher, you might have more QSBS opportunities.

In addition, the holding period helps here for investors. So it's definitely something that people can take another look at. This next table kind of summarizes what it was like before the one big beautiful bill as well as after. So previously from 93 to 2009, again, you had to hold it more than five years and you'd get 50% exclusion. And then the other 50%, like we mentioned, was the 28% plus the 3.8% for the NII. So again, just because it says 50% exclusion does not mean 50% tax reduction. You still have to consider that higher rate. And then again, it was for 75%, then a hundred percent, and then now after the date of enactment starting July 5th, 2025, as long as you held it at least three years, so that's inclusive of three years, then it's 50% partial exclusion, and as I mentioned before, 75 and a hundred percent not included in these numbers is state percentages.

You do want to consider if states conform. Unfortunately, there's a few states that do not conform such as Alabama, California, Mississippi, Pennsylvania. But the good news is New Jersey is a state that is planning to conform for realization events beginning after January 1st, 2026. So something to keep in mind. So again, this is a very beneficial provision. It's got a lot of complicated requirements and there's definitely some nuances to consider, especially upon purchase and exit. So you just want to make sure you get it right from a tax perspective, you want to have proper documentation. So definitely talk to your tax advisor, see if they can determine if you have a qualified trader business for this situation. They can do active testing and monitoring, some structuring, tax gain calculations, and just overall analysis to ensure that you have a good QSBS. And we have a dedicated team around this as well that can answer any detailed questions. Just remember there's a lot of pitfalls around this. So definitely important to include your tax advisors.

Marc Stahl:Lindsey, we have seen a lot of increased questions in this area with the increase going from 50 to 75 million and especially now that the benefit starts already at three years versus five years. I think the main takeaway here is also you have to remember the July 50. That's a very important date because anything prior to that date still falls under the old rules and you're going to be subject to the 50 and the $10 million exclusion under the old date. But anything starting July 5th, those are the key provisions and takeaways that I think we need to keep in mind here as well.

Sarah Adkisson:I actually just want to point out one other thing that I don't think has gotten a lot of attention. Like Lindsey said, this was created in 1993, and so for over 30 years, that 10 million and $50 million, those were both static. They never changed or went up. One of the big changes that this bill does also make is that 15 million and the $75 million amounts, those are now going to be increased every year for inflation. So it was no longer going to be static. It will increase, and I think that's a pretty big help to a lot of taxpayers,

Lindsey Karbowski:Definitely. All right, another very good outcome of the OBBA was the bonus depreciation and expensing under section 1 79. So under 1 79, it's going to be permanently increased to 2.5 million. I think before it was 1.2 million and the phase out has also increased to 4 million. It was previously 3 million, and this is also retroactive to January 1st, 2025. And qualifying property is defined as depreciable tangible property. So you can do office equipment, computer software, qualified property, anything that's purchased and used in an active conduct of a trader business. So something to keep in mind there, especially when you think about states, is sometimes you want to use section 1 79 versus bonus because the states may conform more to that than the bonus depreciation. So always keep states in mind when you're thinking about this. Also note that your section 1 79 deduction can't create larger losses. So if your manco is running a loss, you just want to make sure that you consider whether or not this can be taken.

Another added benefit is bonus depreciation. So under TCJA, it started out at a hundred percent bonus, and then beginning in 23, it was reduced by 20% each year. So it was set to expire in 2027. And so for 2025, that would've meant 40% bonus depreciation, but the OBBA brought it back up to a hundred percent. There is still this window though of January 1st to January 19th where the bonus depreciation for assets placed in service during that period would be 40%. So you just want to watch out there, but again, the bonus depreciations beginning January 20th and on will be a hundred percent. So this is a big benefit for many businesses to take advantage of.

In addition, they created a new category of qualified production property. So this is non-residential real property used in the qualified production activity in the us. So normally it would have a 39 year life, but now it would qualify for a hundred percent bonus. And think about this would be for domestic manufacturing production and refining facilities. So this is pretty big, and again, this is just temporary for construction beginning after January 19th, 2025 and before 2029. Okay, and next is domestic research and experimental expenditures. So again, under TCJA, generally you're required to capitalize and amortize over a five year period, but beginning in 2025, it rolls back that mandatory capitalization and now you're able to immediately expense your research and experimental expenditures, specifically the domestic expenditures, but you also have the option to still amortize it so you could fully deduct them when it's incurred. You could amortize them over 60 months or you could take an optional 10 year write off.

So these changes will be treated as a change in accounting method applied on a cutoff basis for any domestic r and e expenditures. In addition, just keep in mind that this is just for domestic research and experimental expenditures. So any expenses that are conducted outside the US would have to be capitalized over 15 years under 1 74. In addition, certain small businesses that have annual gross receipts of 31 million or less may elect to apply the change retroactively, and they can determine whether or not they want to go back and amend certain returns after 2021. In addition, all taxpayers, regardless of size, are going to be eligible to deduct any remaining on amortized amounts. So if you're capitalizing and amortizing starting in 2022, you could go back and now deduct the unamortized balance and you can choose whether or not you want to do it over one or two taxable year period. So this flexibility really helps with your planning process. So if you are expecting taxable income in one year, that you can decide whether or not you want to deduct over one to two years. So this added benefit could really help businesses.

Next is the IRC section 1 63 J business interest expense. So again, under TCJA, this was enacted as a limitation to deducting business interest expense and it's limited to 30% of adjusted taxable income. When TCJA first came out, there was an add back for amortization depreciation and depletion, then they remove that add back. So by removing the add back starting in 2022, that effectively lowered your ability to deduct business interest expense. And so now OBBA is resurrecting that and now you can add back your depreciation amortization dep depletion for purposes of calculating the interest expense limitation. So effectively you're going to be able to increase the deductible interest limit for businesses. So this would apply for management companies with business interest expense, maybe trader hedge funds or portfolio companies that run active trades or businesses during that time. When you did have to include the deduction, some people may have took advantage of interest capitalization, but that is now disallowed under the one big beautiful bill act. So something to keep in mind in your planning, but overall, a beneficial update,

Marc Stahl:The addition of depreciation and amortization depletion is actually adjusting your A TI. It's making that number a little bit higher so you have a little bit more cushion to absorb some of the 30% of your interest expense.

Sarah Adkisson:I also just want to jump in and point out there's a bit of an interplay here between 1 63 J that change with the 1 74 cap, a change from the guidance that the IRS has released. It does seem that if you choose to take the amortization in 2025 or over 2025 and 2026, that will be counted as amortization for purposes of the 1 63 J. So that would increase the amount that you would be able to take overall potentially just fund planning opportunity,

Marc Stahl:Just the more additional add back to increase the 30% deduction.

Lindsey Karbowski:Alright, in addition for higher C-section 1 99, a qualified business income, this was provided for a 20% deduction for non-specified service trader. Business specified service trader businesses is accounting firms, consulting firms, financial services firms, so anything that's non SSTB in this case, it expands the phase in range for these limitations. And in addition, there's an added new 400 minimum deduction for taxpayers if they have at least a thousand dollars in qualified business income. And this is also indexed for inflation qualified dividends will continue to be a benefit also for 20% QBI deduction. And then for the state and local tax limitation deduction cap. So under TCJA, it was originally 10,000 and now the one big beautiful bill has brought it up to 40,000 for years 2025 to 2029, and then it'll revert back to the 10,000 limitations starting in 2030. But unfortunately it is phased out once you reach adjusted gross income over 500,000.

So not all taxpayers will be able to take advantage of it. Some of the wealthier ones will still have to use the PE workaround. So the good news around the PE is they did talk about potentially getting rid of this pass through entity tax deduction, but fortunately this is still available to use for funds as a workaround, but just something to keep in mind in case it comes back. And we do have a more in depth webinar on state and local tax issues coming up on December 5th from 12 to one. So definitely join that. They'll go into more in depth on a lot of the state and local tax issues. And then in addition to that same webinar will be covering international tax updates too. So stay tuned for that.

Some other notable changes here, so IRC section 4 61 L, excess business losses. This again was permanently extended. It was a provision from the TCJA, it just allows excess business losses for non-corporate taxpayers. It was set to expire in 2028. This loss is determined at the partner shareholder level and any disallowed loss becomes an NOL going forward. So this could apply again to management companies trader funds, and for 2025, the limitation in 626,000 for married filing jointly, but beginning in 2026, it's actually going to reset back down and be infl adjusted for 2025. So you're going to have a limitation of 512,000 beginning in 2026. So there's going to be a jump up and then a jump down for that deduction. And again, this is one of those items that there was discussions that perhaps if you wouldn't be able to use this as an NOO carried forward. So fortunately that was removed in the final bill, but again, something else to watch out for if it does come back.

Qualified opportunity zone program. So again, that was put in under TCJA that would've expired in 2026. It's now made permanent and as well as expanded, this gives you the ability to defer capital gains by investing in opportunity zones within 180 days. It created to a spur investment in low income areas. Governors can designate new opportunity zones for further 10 years, and they now have this new qualified rural opportunity fund option, which was not previously around. And so this is definitely a potential area that PE funds can look into in terms of investing in any qualified opportunity zone funds. Some other items here, miscellaneous itemized deductions. So if you recall under TAJA that was removed, so it used to be deductions that were able to be deducted if it exceeded 2% of a GI. Again, that is permanently not allowed. And lifetime estate and gift tax exemption was raised at 15 million beginning in 2026. That's permanently indexed to inflation from 2025 and the 2025 limited lifetime exclusion is 13 million. The corporate

Marc Stahl:Even over here, sorry, sorry, Lindsey, even over here, if you already maximized out and you already maximized all your gift and estate tax planning, you hit the maximum up until now, you're still getting another couple of million that you're able to utilize up to $15 million. So even a tax planning opportunity for people that already think they already maxed out, they increased the exemption rate to now 15 million. So you still, even if you think you maxed out, you still have a couple of million now to give away.

Lindsey Karbowski:In addition, the corporate charitable deductions are limited to 10% of taxable income and they'll lose the first 1% beginning of 2026. All right, and then here for I guess since we're in a giving season talking about some charitable deductions here at the individual level, there's now a new charitable contributions floor. So the 60% of a GI limitation was made permanent under the one big beautiful bill, but they also implemented a new half percent floor on charitable contributions. So that's beginning after December 31st, 2025. And then any disallowed charitable deductions are carried forward to the extent that they already have an excess carried forward here for the itemized deduction limitation. So the one big beautiful bill replaced the PS limitation with a new overall itemized deduction limitation that's effective after December 31st, 2025. This is applied after the application of any other itemized deduction limitations, including that charitable contributions floor discussed above. And so the percentage here is two over 37 of the lesser of the itemized deduction amount or of excess taxable income over the 37% tax bracket threshold. The new limitation does not impact 1 99 a qualified business income deduction, and I think this is also based on the, you have to look at what the brackets will be next year, so I don't know if we have the exact dollar amount yet for that.

And then in addition, there's above the line charitable deductions, so the OBBA permanently reinstated above the line charitable deductions up to 2000 for joint filers or 1000 for other filers after December 31st, 2025. So something to keep in mind during this time of year. Okay, I think we're going to go into a polling question here. True or false, the OBBA tax updates were generally favorable for individuals and businesses, and we'll give you guys a minute.

Marc Stahl:Lindsey, if I may. I'm just going to go back a little bit to the 4 61 excess business losses

And just talk about that a little bit. I think it's not just applies to businesses like management companies and the sort, or let's say portfolio companies, manufacturing businesses. I know you mentioned it also applies to trader funds, so that's also like funds that are giving you above the line deductions where they're heavily trading and they say so as much on their K ones that they're a trader fund. The 4 61 does apply to that, and we also believe that it's not just applying to the deductions that they're passing through, that only the deductions are. The question sometimes we get is does it apply just to deductions or it also includes dividends, interest, capital gains, and the answers that, at least for us, I know this is a question that's been asked to the IRS, we haven't heard really an answer back, but we would tend to think that it should include everything from the trader fund that is doing, right? So it's not just you just take the expenses and you limit that you should probably take all of your taxable income from your trader fund and throw that into the calculation that you get up to your aggregation, that you aggregated all your income from all your businesses, including income from this trader fund.

Lindsey Karbowski:Okay, looks like 90% response and true.

Sarah Adkisson:Alright, we have a really great question about the charitable deduction. So our 2025 carryover charitable deduction subject to the 0.5% floor in 2026. So yes, if they are carried over that 0.5% will be applied on carryovers in 2026, and that will be true also for pretty much any carryover that you get going forward will be subject again to that 0.5% floor. So it's kind of in perpetuity. Sorry. Got excited about that question.

Lindsey Karbowski:Next we got case. I think we're going to go into the third polling question already too.

Sarah Adkisson:Yes.

Lindsey Karbowski:Are you traveling for Thanksgiving? Yeah, there you go. Make it easy.

Sarah Adkisson:Lindsey, what are you doing for Thanksgiving? Anything fun

Lindsey Karbowski:Driving in a car with kids for five hours? Yep. Yep.

Sarah Adkisson:The five hours probably not so much, but traveling with kids can be fun, right?

Lindsey Karbowski:Yes, yes.

Marc Stahl:We will also take this opportunity to remind everybody that part of our series for state and local and international tax planning opportunities and updates will be on December 5th, Friday, December 5th at 12 o'clock.

Sarah Adkisson:Think we're good to skip ahead. Not as many people traveling as I would've thought. It's very interesting. It's a good data point there. So I am going to do an update here. It says case updates. It's really mostly just these CIGA cases that we have been following for it seems like at least two or three years at this point. There's three main cases that we have been following that have been working their way through the court systems that deal with different funds and capital is, it seems like the main star of this has top billing, but then we also have denim capital and serious solutions. And all of these cases, the firms have been generally structured in a very similar fashion, not exactly the exact same fashion, but close enough that they all kind of been lumped together. So they were structured as a partnership with one general partnership and then multiple limited partners in some cases as little as three in some cases it's been much more than that.

The general partner is an entity and that entity is put in charge of handling all of the business affairs has the ultimate authority to act on behalf of the partnership, at least on paper. That is the case. The limited partners perform services for the partnership, but under the terms of the partnership, were not authorized necessarily to take part in the management operation or control of the actual partnership. These LPs received guaranteed payments, which we know those are going to be subject to the self-employment tax. They also receive distributed shares, and this is really the crux of all of these cases is these limited partners are saying that these distributed shares are excluded from a tax under IRC section 1402 A 13. The IRS does not like this because that's potentially quite a bit of money that they're losing out on from that tax. So the IRS has been challenging the exclusion of these distributive shares and they're saying that they're limited name only because section 1402 A 13 is basically excludes the income from limited partners.

The IRS is saying that they're not really limited, that they are actually involved in the day-to-day operations of these funds. So they've assessed the seek tax against these distributive shares. So that's kind of just the background of all of these cases is we've had two decisions so far in SOB and capital. We had the first one in November of 2023. That one was a summary judgment case. So they didn't decide necessarily whether the SOB and partners were actually limited partners or not. They just decided certain procedural questions. And under that decision that November, 2023 decision, they held that limited partners of state limited partnerships are not qualified for 1402 a 13 just because they are called limited partners. That was the argument that had been being made was, well, we are called limited partners. 1402 A 13 says limited partners don't have to end of story.

The tax court said no, that's not the case. And they also held that there needed to be a functional analysis test to determine whether limited partners qualified for the 1402 A 13 exclusion. However, in that case, they did not apply a functional analysis. They just said you need to do a functional analysis and then did not define what the functional analysis would actually look like. They did do a functional analysis earlier this year. So in that decision, they actually did analyze the SOIN Limited partners activities and they spent a lot of time focusing on these roles, in particular in their role in generating income, how they participated in management, how much time they devoted to the business, what their capital contributions were compared to their distributions and how they were marketed to the public. The court was very, very clear in their decision that none of these factors was more important than the other.

They should not be given more weight than one of the other ones. When they went through each one of these identified factors, they essentially determined that bin's partners were limited in name only and some of the things they looked to was included. How they were marketed to the public was that they were very much marketed as the people to talk to. In one instances, one of the partners had a clause where if they were incapacitated or left the firm, clients could also leave the firm. They were very active according to the court in day-to-day management and operations. So those are all of the factors that they really looked to and they just determined that on balance, they were not limited partners. So Soin Capital has appealed that decision to the Second Circuit and that the Second Circuit encompasses New York.

Now, these two other cases that we have, denim capital was very similar in the facts to soin, and that was a December 20, 24 case that the tax court held. So the first Orbin case was in 2023. Denim was in 2024 where the tax court basically looked to the first Soin case and said, well, we felt that they must have to do a functional analysis test. They did a functional analysis test in denim in 2024, and they looked at very similar factors, how much time was devoted to the business, what was the level of participation that the limited partners had in the daily management of the company? Did they treat their work for the businesses full-time or was it supplemental to a different full-time job that they were running? Denim has appealed their decision to the First Circuit.

And then finally we have serious solutions. Again, similar facts. This was interesting in that, sorry, serious solutions, not serious Capital actually requested summary judgment against themselves, and this was a strategic play here that they made because they wanted to bring an appeal faster because they want to appeal in the fifth Circuit, which is where they did appeal. The Fifth Circuit is in Texas and it tends to be very taxpayer friendly. So oral arguments were heard back in February, 2025. We are expecting a decision sometime soon. I would say looking at past history, we had a November, 2023 decision, a December 20, 24 decision. So I'm guessing we may get another holiday decision potentially on serious solution. So that is one that we are definitely keeping an eye on all of these.

So there is a reason that I was saying where each one was being appealed to. Bin is a presidential case. So every case that is like this, it has similar facts. The tax court and lower courts are going to defer to the SO and decision for any case involving the same issue. But because it involves three different circuits, the tax court will be bound to apply the decision of a circuit court on any case that's appealable to that circuit court. So to put it in using serious solutions as an example, the Fifth Circuit does seem poised to find in favor of the taxpayer. Any decision that would be appealable to the Fifth Circuit, the tax court will be bound to follow the fifth circuit's decision. If the second or first circuit holds in favor of the IRS, the tax court will be bound to those courts in any decision that has a similar issue that would then be appealable to the first or second circuit. So this is potentially going to end up in what's called a circuit split, and that will require a Supreme Court decision to resolve.

Like I said, the first and second courts, they're considered a little more favorable to the government than the Fifth Circuit. The fifth Circuit is pretty taxpayer friendly. There have never been regulations on interpreting this section. So because of that lack of regulations and because so is presidential, at least for now, so is essentially the law of the land on 1402 A 13, what this means in practice is limited partners need to look very carefully at those five factors that have been identified by the court in bin and also in Dunham, and see if on balance, they think they are limited in name only or if they're truly a limited partner. Hopefully in next year's we will have a much, much better answer to this question. We hope I, so moving on, we have some policy issues to watch as well. Mark, did you have any questions or color commentary on, so

Marc Stahl:If you remember when TCGA was coming out, they were doing a whole bunch of preamble, what they're looking to, this did come up as one of the I guess laws that they were looking into, whether the SE income, do they want to put it in? Do they want to take it out from the Congress and from the IRS perspective, do they want to say a limited partner? Did they want to define it? And at that point, they did let it go. It never made it to the end, and this is why where we stand today. At that point,

Sarah Adkisson:It was never a part of the conversation in the one big beautiful bill act, which is very interesting considering that these cases have been working their way through for years at this point. So it was very interesting that Congress just kind of was like, eh, we don't really care. We'll let the courts figure it out.

Marc Stahl:They had an opportunity and they passed on it.

Sarah Adkisson:Yeah, I will say that the IRIS for years is also always, they keep putting the regulations for 1402, a 13 on their priority guidance plan. It's been on there for off and on for years. They took it off this year, which I found very interesting. Very telling, definitely won't be seeing regulations on this year, so that Awesome. We'll just keep it going. I think they're definitely just planning to rely on this working its way through the courts so they don't have to worry about it. Oh, right. Polling question number four. What is your favorite Thanksgiving side dish? Green beans, mac and cheese, stuffing, potatoes, or mashed potatoes. I'm actually very curious to know if Lindsey or Mark have a favorite out of this list or one that's not on this list. I got to go with mashed potatoes. The classic, right?

I'd be torn between stuffing and mashed potatoes myself.

Lindsey Karbowski:Yeah, I mean, mac and cheese can sometimes be the star of the show depending how it's done.

Sarah Adkisson:Very good point. Green beans. I feel like it is a very controversial pick because there's so many different ways you can do it. You'll note I did not put green bean casserole.

Lindsey Karbowski:I was going to say casserole. Are we talking plain or are we talking casserole?

Sarah Adkisson:Definitely a controversial one. People feel very, very strongly on both. I feel like green beans and sweet potatoes, the sweet potatoes with the marshmallows on top. People get very excited about those, but I'm not a fan, honestly. Yeah, that's It's sweet enough without the marshmallows on top of there. Somebody said there should be an option for numb next year. We'll make sure that there's an option for none. Everyone give it a few more seconds. Looks like we have had everyone who's going. I think we've got everyone who's going to submit has submitted.

To the next one. All right. Stuffing. Stuffing was the winner.

Dark horse candidate there. Green beans not as popular. It's very important data that we're gathering here. All right, so kind of jumping back to the one big beautiful bill, there were a lot of provisions that were included in the bill that ended up getting cut, and it's important to remember these provisions because provisions that are put into a bill have a chance of coming back. So the first one is the litigation funding tax. This was a very interesting provision that was, I think, pretty existential for the litigation funding industry. This provision would've imposed a tax of up to almost 41% on proceeds that were earned by third parties who provide litigation funding.

This was removed not for any other reason than the Senate. Parliamentarian did not think it met the requirements of reconciliation. This one is an interesting case because people have asked a lot of questions about it, particularly obviously people within this space. But it's actually unlikely to see any movement in the near future because it was a bill sponsored by Senator Tillis. It was put into this bill actually to sweeten the deal for him to vote for the one big beautiful bill act. He ultimately did not vote for the one big beautiful bill act and is retiring. So the big champion of this provision is going to be gone from Congress after 2026. So like I said, it would've been very existential for the industry. It's unlikely that we're going to see it come back at least in the near future. Doesn't mean that it won't come back maybe four or five, 10 years down the road.

There was also originally a huge increase on the excise tax on private foundations, foundation's net investment income. So right now it's 1.39%. The bill would have created progressive tax rates that would've gone from that 1.1 0.39% all the way up to 10%. That also eventually got cut, I believe, by the Senate parliamentarian again. But that is something that has been introduced multiple times in different congresses by different people. So that is one to keep an eye on. If there is a future tax bill or future spending bill, a future reconciliation bill, that's definitely one to look at because it did raise a fair amount of money potentially there was also a 50% limit on the amortization of sports franchise.

This one was an interesting one because it's not a provision that raises a lot of money at all. Obviously for a lot of people saying, oh, 1 billion isn't a lot of money, but that's over a 10 year period and 1 billion in terms of the federal budget is a rounding error if that. It's a decimal point. So however, this is a provision that has a very personal interest from President Trump. So this is one also to stick, keep an eye on as we are within this administration because anytime there's any kind of funding bill, any kind of budget, there is a potential that this comes up again and ends up being put in the bill. Now, I will say that the reason I would've raised less than $1 billion is because the way it was written, it would have applied to purchases made in 2027 or on. So I think they kind of realized that everyone would just make their purchases in 2026. And then we also had the revenge tax, retaliatory tax, revenge tax, whatever you want to call it. This was section eight ninety nine. It would've created a new code section.

And this was a really interesting provision because it would have essentially found a way to circumvent tax treaties. It would've introduced these retaliatory taxes against foreign individuals and companies if the country they were from was deemed to have discriminatory taxes against the United States. And some of that would have been at the discretion of the secretary, whether or not that country was considered to have a discriminatory tax against the United States. And for the most part, this was really trying to target these digital services tax that we're seeing Europe putting into effect and was probably in a lot of ways being used as a negotiation tool during the early on trade negotiations that were happening right after April 9th. The provision as drafted in both the Senate and the House would've included taxation on US investments, even investments that would normally not be subject to tax under treaties. Like I said, it would've circumvented some of these treater provisions.

So even though this was removed and this was removed at the request of Treasury Secretary Bessant, there had been members of Congress as well as the Treasury Secretary who requested to be removed, who have brought it back up, postpone. It seems that this may end up being either a common negotiation tactic to say, well, maybe we will revisit this potential revenge tax for certain countries. Or it could be something that they looked at the money it would bring in and decided that maybe it would be worth bringing it back. So that's definitely one that we want to keep an eye on just because it's been brought up multiple times post bell, which is kind of surprising. For instance, some of the other provisions that I just talked about, I haven't really heard that much about them, but this one I have so definitely a big one to watch.

So some notable concerns as well carried interest that a lot of people were very concerned about carried interest being in this bell. Again, it's been a personal interest for the president. He's repeatedly requested that it be eliminated. This was first brought up in the TCJA in 2017. I think people kind of have forgotten that this was first brought up in 2017 during the TCJA. The extended holding period was a compromise that was reached between the White House and the House of Representatives in the Senate. It was brought up again during the negotiations of the bill, but it was actually never drafted in any of the forms of the bill. No, no version of it ended up even in drafts that weren't released is my understanding. It does not seem to have a lot of legs in the Congress that we currently have. Having said that midterm elections are going to happen in 2026, the whatever the breakdown of congresses after 2026, that could change the calculus.

This could be something if Democrats win control of the House and the Senate that they would agree with Trump on and work to make happen. I don't necessarily think that's really likely, but just has to be addressed because we get so many questions about the carried interest provision and I know that people would've asked if we hadn't talked about it. So that is at least my take right now is that for right now carried interest is safe. Even with the President wanting to eliminate it, ask again later. I feel like a magic eight ball. So, so even though the shutdown has ended, hooray, we're very glad of that. There's still a lot of delivering problems both from the shutdown and from the things that caused the shutdown, which is a lack of funding for a lot of the agencies. So for anyone who's not familiar, the government shuts down because there's no funding for the government to continue running. Congress is supposed to appropriate money by the end of the year, by September 30th, the end of the fiscal year in order for the government to be funded for the next year.

That's in theory, it is over the historically we end up having these continuing resolutions that's kind of become the norm. But when they don't do that, when they don't do a continuing resolution, we end up with these shutdowns. And shutdowns have a lot of lingering effects. Particularly we had the one big beautiful bell, right, A big and beautiful bill that came out, which we have no guidance on. We have very limited guidance right now, and the shutdown could further delay any issuance of guidance on that. We're really kind of seeing a trickle right now for the IRS. It causes delays in processing, it causes delays in responses when you need a response, it causes delays in refunds. We've had a lot of clients who reached out because they weren't getting a response from the IRS or they were in the middle of trying to get the refund and they haven't gotten it.

But even beyond tax, even beyond the IRS, there are other implications because if certain agencies aren't funded, they can't do things unless it's by if they charge a lot of fees or something. Some agencies can continue going, but it can cause delays in terms of deals being approved by the SEC as we've seen. It can cause volatility in markets. It can cause issues with court decisions being put out because they aren't able to meet. So we could see a delay in the denim case decision because of the shutdown for all we know. So it's just something to keep in mind. The current funding is only through January 30th, 2026. There is a chance that we see another government shutdown starting on January 31st, 2026. So we'll obviously be keeping people informed on where the government is in terms of funding and if we think a shutdown is going to occur again in the middle of filing season, wouldn't that be wonderful? And of course, we have the continued regulatory freeze. There's an executive order from January, 2025. While it technically was for 90 days, it is effectively still in effect. So this can result in some slower regulation drafting. It can result in regulations being repealed or withdrawn. We just saw some changes in today with the stock excise buyback tax final regulations come out. They had some major changes made from the proposed regulations. So the regulatory freeze in the directive from the top of having less stringent regulations is also something to just kind of keep an eye on.

And then finally, we have the IS audit campaigns. These are campaigns that we're seeing the IRS doing more and more. So this may come as attractive people, but with that tax court decision, we are seeing more seek a tax audits. They are absolutely putting that decision to use. So that's one audit campaign that we're definitely seeing an uptick in. Audits of Schedule C, particularly gross receipts versus deductions, A lot of audit activity there. Depreciation claims, particularly jets, there's been a noticeable uptick in the number of jets that are being audited. Apparently in particular, they're challenging its business use.

Also seeing a lot of audits on the research and development credit, which makes sense. There's been a lot of push for people to claim the credit. With the change in the capitalization and amortization with the 1 74 people, were able to claim a larger credit with that. So that makes some sense that people are having that examined. More charitable contribution deductions. That one is very interesting. I know one of the things they've been looking at is valuations of stock donations, and even in some cases saying is they've questioned why somebody didn't sell a stock and then donate the cash from the sale of the stock, which they're not required to do. But that is something that has come up apparently in audit and then withholding issues, just companies and employers not withholding appropriately and remitting to the government. I think we are at the end of the presentation. I don't know if we wanted to answer any questions or anything.

Marc Stahl:Sarah, can we go back just to depreciation claims for a second?

Sarah Adkisson:Yeah.

Marc Stahl:You mentioned there audit, especially in the Jets, right? So when you're dealing with aircraft right now with bonus depreciation, obviously it makes it a lot more attractive to buy, right? You are basically, if it costs you $10 million for the jet, you're getting it right off the bat instead of having to take it over seven years. But you do have to have the business use. There's a certain percentage of business use that has to be used for this. And if you don't meet those business use, it doesn't meet the business use percentage, then you weren't entitled to bonus and you kind fall under a DS, which is a different, it's kind of on the makers, but it makes you do it anywhere between five and seven years. So the thing to keep in mind there, that is, even though bonus depreciation is now a hundred percent for aircraft in that sense, especially for private aircraft, if it's new to you, keep in mind two things, a depreciation on the federal purpose on the federal side.

Make sure you do your business use tests in order to get it. And the second thing to keep in mind is that the states do decouple from the federal bonus depreciation. And these numbers are huge, and people think, oh yeah, I expense that. It's no longer here. But for state purposes, if you're dealing with a $20 million jet or a $30 million jet, that's quite an add-back on the state side. And keep that in mind that you don't get surprised later on that there's a lot of state taxes you have to pay because you weren't entitled to the bonus depreciation. That's a good point. So with that, I want to thank all our presenters today, Sarah and Lindsey. Great job. Thank you so much. And I want to thank everybody involved getting this webinar together. Thank you so much, and remind everybody for our third and final webinar on December 5th, that closes out our year end tax planning webinars on December 5th, which we will discuss state and local and international tax planning and regulation updates, Astrid.

 Transcribed by Rev.com AI