Year-End Tax Strategies | Planning for Businesses

And not to forget when evaluating this, you should really look at the group's gross receipts, not just a particular entity in the subsidiary. This is entities maybe part of a foreign group worth mentioning in the excess business thousand dollars for joint filers. These amounts are now lower than what was available in 2025. And the main reason for that is that the indexing year for inflation has moved from 2017 24.

Bella Brickle:Hi Goran, sorry to interrupt. The audio is still going in and out. Do you mind trying to dial in and I'll jump to this next polling question while we wait for you to dial in by phone. I'm just going to launch this.

Goran Vukicevic:A hypothetical manufacturer that needs more production capacity so the management decides to invest in some...

Bella Brickle:Gorin, can you hear me? Sorry, we're experiencing some technical difficulties. Gorin, if you can hear me, please dial in by phone. We have the audience members answering polling question number two while we wait. All right. Let's just give him a few seconds to join us by phone. All right. Looks like we're still waiting for him. Gary or Dean, would you be open to us moving forward to one of your sections?

Gary Bingel:Sure. You can try to move forward to the state and local section.

Bella Brickle:Okay, great. I will move us there and then we can jump back when he's able to join us again.

Gary Bingel:Okay. Thanks everybody for joining us. Sorry, I apologize for the technical difficulties here. Hopefully Goren can dial back in and we can pick up there. We did have one or two questions asking us to talk a little bit about planning in light of the election results last night and some that are still pouring in. And I'll say, I think a lot of that is going to be anybody's guess. I head up the state and local tax group and I'll say the way a lot of the state houses flipped, I would not be surprised to see a lot of changes coming around at the state level, especially a state like Texas that is always a little bit of an outlier in a lot of ways anyway, just doesn't have a corporate income tax.

And they totally flipped, so we'll have to really wait and see what happens when the new administrations get sworn in and what's on their agenda. I don't think anybody was expecting quite such a radical change, and I think we're going to have to wait and see now what's on some of the agendas for that, but I don't think it's going to be business as usual in many states. So coming on, I'm going to go through, there's a lot of state and local developments. There's about 30 slides. I'm not going to go through all of them in detail. What we're going to do is use them kind of as talking points, and we all wanted to include a little bit of extra information in the slides so that people can take them away and have some details to talk about. Some of the big touch points and big things to think about are, it says OBBA, conformity decoupling.

I'm going to just say state and local decoupling, and we're really using the big beautiful bill to illustrate some of those items we're going to go through. Nexus always is an issue. It's always expanding. States are always looking for ways, whether it's looking for ways to increase nexus and impose nexus on companies, whether it's further limiting public 86-272 or even just tweaking some of their existing economic nexus provisions and such. Combined reporting, we're going to see some changes as far as Joyce and Finnegan and some case law there that may lead to some planning opportunities. Sales tax base, the big thing here, which I think is going to keep getting bigger over the next, especially now maybe in light of the election, are the expansion of the sales tax base to services and/or really any sort of digital offering. A lot of times states over the last few years, starting with Maryland and the digital ad tax have been looking to expand the tax base as much as possible into what I'll call the modern economy, gaming, crypto, any sort of software, all those sorts of things.

Residence taxes are growing. It's not a huge wave yet, I'll say. There are a handful of states, New York City being at the forefront as Florida part of the elections yesterday, they passed their referendum to expand the, I believe or primary property tax exemption, which kind of has the same impact of primary homes and not to secondary homes and trying to tax secondary homes, which are usually folks. So those are some of the, I'm going to say general trends to keep an eye on.

OBBA, the changes were enacted back in July of 20 and as Gorn these are just some of the major provisions that states have somewhat decoupled from. Bonus depreciation, 179 expensing, R&E and 163. Each state's a little bit different, I'm going to say, and there's different ways to look at this. Number one, you have to look at when the state actually adheres to the federal or what they use as their starting point. Do they use a rolling conformity starting point or a set conformity starting point? They use a set conformity starting point or a static starting point, and that's before the enactment of OBBA. They don't have to enact technically any actual adjustments, rolling conformity date or a conformity date that is after the enactment of the federal legislation. They do have to enact specific decoupling provisions, and that's just one thing to keep an eye out for.

Also, things to look for are how they go about mechanically doing some of those things. They make you add it back and then subtract it if they aren't decoupling, and there's just a myriad of different ways that states go through this.

And this is outlined a little bit here. You look at the starting point, specific decoupling provisions, and I would go through it to the extent your companies have any of these items and literally lay out a matrix as far as for each state and the items and who decouples, how they decouple. Is it permanent? Is it merely a deferred? And what are the actual return mechanics? I'm a big one for trying to have some sort of process in place to make this through or to make it through the actual return process. So I would double check that and make sure that you have something in place and you're not waiting till the last minute for things.

The reason I have this one on here, New York City, New York State, it shows that states are often kind of behind a little bit, shocking though that may be. States like New York City and New York State actually retroactively decoupled. So instead of waiting, looking last year and decoupling then, they actually didn't decouple till this year, but then they went through and decoupled retroactively back to 2025, which created a lot of confusion. Taxpayers have to go back if their returns were already filed, they needed to go back and amend those returns. And many states that did this, luckily there aren't a lot that did it retroactively to 2025, but states did come out with specific guidance. As you can see here, New York City Finance Memo 2062 says, "Okay, to the extent that we retroactively decoupled, if you have underpayments, we'll waive the penalties and the interest for those underpayments for any changes." And it goes through and tells you exactly how to make those amendments or if you get a notice, what to put in that notice so that you can get those penalties and interest waived.

Again, every state's a little bit different. If you look through, usually on their state websites, they'll have guidance for what to do if they're retroactively recoupled or decoupled.

These next couple states, I'm just going to go through real quickly just to highlight how many states decoupled from the OBBA. Michigan had decoupling, and one of the things to look for is did they decouple for all taxes or just for corporate or just for individual? And each state has a little bit of a nuance there. Illinois, again, another state that went through and has some decoupling. One of the things to look for here is at the end here, looking ahead, Senate Bill 3019, which was signed mid - 2026, limits NOL deductions to the greater 500,000 or percentage of income for tax years ending on or after 12 / 31 / 27. So starting next year, Illinois is going to start limiting NOLs. One of the reasons for this, it's the first thing states look at whenever there's any sort of downturn or hiccup in the economy or they're having some sort of budgetary issues is limiting NOLs.

Several states did this. It's one of the things I would look at if you have a lot of state NOLs and double check, especially for provision purposes, which states are limiting the NOL usage in some way or another. This is just a little snapshot of OBBA conformity, kind of goes through how many states, all the different nuances and such. And I'm going to say pretty much every research platform, BNA, CCH, et cetera, have some sort of creative charts for these things. So you don't have to be starting from scratch and recreating the wheel. Most of the research platforms have already done this for you and already have created some of the OBBA decoupling charts or some recharts and things, and I would always start with that. Very often, you may need to go through and do a little bit more research, but that'll get you 80, 90% of the way there.

And here we have the next poll. Since the OBBA, all states with a corporate income tax have fully adhered to the OBBA provisions, true or false? I'll give people just 15, 30 seconds to try and answer that quickly or click back onto the screen and such and answer it. Hopefully everybody's gotten it by now. I'm going to move on. Hawaii, again, decoupled. Their fixed date conformity. So again, just take a look for each state, see exactly what's decoupled, what hasn't. For tax years beginning on or after one / one / 26, they incorporate the IRC as of December 31, 25. Previously it was 12 / 31 / 24. Hawaii, there are states, don't assume that states that seem to be rolling conformity actually are. There are some states that are actually static conformity, but they've gone through every year and just updated it year by year as opposed to just becoming rolling conformity.

So you do have to pay close attention to that.

And here we go. Correct answer, 87% of the people got that correct. False. All states with corporate income tax have not fully adhered to the OBBA provisions. We just went through a whole bunch of decoupling. Texas franchise tax. This is actually a somewhat big change. Texas did have a couple somewhat significant changes this year. As we know, Texas doesn't impose a corporate income tax. It has that franchise tax or margins tax as people refer to it. And the big change they had for people who have dealt with this, it used to be really tied to the 2007 Internal Revenue Code, which create a lot of confusion, especially now trying to go back 20 years and trying to figure out for some of these provisions like revenue recognition and such, cost of goods sold, et cetera, what were the provisions 20 years ago? Well, they finally came out and changed their position and said, okay, starting with a 2026 report year, which is the accounting periods ending in 2025, essentially they're going to be able to use the amounts taken from your federal return for that year.

So you don't have to go back to 2007 and try and figure out some of the changes. So basically they've updated it administratively and said that they're going to be looking at the current IRC, not making you look back to 2007. Now, there are some specific Texas statutes and rules that specifically reference the 2007 IRC, and for those you do have to still use the IRC of 2007. It's really just for those provisions that don't specifically reference 2007. So what changes cost of goods sold may include federal depreciation, including the bonus depreciation, et cetera. And what you're going to have now is a one-time catch-up depreciation adjustment on your 2026 report, which again is the one using 2025 numbers. So you're going to have one big catch-up provision there, which depending upon your facts could be a really significant catch-up provision. Some of the things that don't change, GILTI, FIDI, Section 174, cost of goods sold, that is one of those provisions I mentioned that continues to be tied to the 2007 Internal Revenue Code.

And there is specific guidance that came out in December of last year from the comptroller that goes through some of these changes and how to apply it for things like total revenue and cost of goods sold and such.

The franchise tax, as people know or should know, ever since Wayfair in 2018, most states have implemented some sort of economic nexus provision, not just for sales tax, but also for income and franchise tax purposes. Texas has a $500,000 economic bright line nexus threshold. And starting with January 7th, 2026, they amended the rule slightly. This doesn't impact a ton of taxpayers, but it will impact some. There are some companies out there like regulated investment companies and employee retirement services that apportion their gross margin under something other than gross receipts, and there was some confusion as to how they would calculate this $500,000 threshold since they were using things like location of beneficiaries. This rule really just clarifies that if you're using one of these other methods to apportion your margin, you still use the $500,000 of gross receipts. And so it's really, to me, a clarification more than anything, but I'm assuming they did this for a reason.

There were probably some retirement plans and RICs and things that were saying, "Well, we don't have nexus because we don't have 500,000 of gross receipts. We're apportioning using something else." So they went through and clarified that. The other thing they did, keep in mind for Texas, that Texas is where the services performed state as far as apportionment. So just because you have Texas customers does not necessarily mean you have Texas receipts. It's something to look at. And I'm going to say that very broadly for all states, it's something we constantly see is making sure that companies that sell other than tangible personal property are properly sourcing their receipts. How are they applying market sourcing? How are they applying cost of performance sourcing, et cetera? Something to really look at, and Texas is one of these states. They, again, like I said, buck the trend, they're not a market sourcing state.

They look their cost of performance state.

Each member of the combined group has tested itself against threshold. They're a joy state. Arkansas corporate income tax. Starting 2026, they adopted an economic nexus threshold for corporate income tax. They didn't really have a bright line threshold before that. They just had a very broad economic nexus threshold and they input this or started this bright line threshold of $250,000 now. Before that, it was just a very broad economic nexus or receipts based if you have receipts from doing business in the state, which a lot of states have, and to be honest, in today's world, that's very vague as to how they're going to use that. It obviously can't be dollar one, does it fall under Wayfair or something else? I'm glad Arkansas went through and did this.

District of Columbia, Finnegan and Joyce. There have been a couple Finnegan and Joyce issues this year. For tax years beginning before 26, DC followed Joyce. Now they follow Finnegan. Under Finnegan, hopefully everybody knows, you basically look at the whole unitary group really as one taxpayer, although that possibly could change depending upon what happens in Massachusetts in the Smithfield case that we're going to talk about in a little bit. Louisiana entity classification. Previously, Louisiana did not automatically follow federal S elections. There's still a handful of states where you have to make a separate S election and such. So they treated S corporations just like C corporations. Starting in 2026, federal S status is recognized in Louisiana. And the option for Q subs used to be able to treat Q subs as separate taxpayer. Now they're just automatically disregarded, kind of just conforming more to federal treatment for S-Corps and these flow-through entities.

One thing I want to point out, Louisiana is one of those states, and we're going to talk a little about the pass through entity tax provisions. An S-corporation that files a composite return for its non-resident shareholders cannot make the PTT election for that period. So it's something to be aware of, again, with the pass-through entity taxes. Every state has its own little nuances as far as how they're going to apply the credit for taxes paid to other states, when you can make a PTT election, what sorts of entities are involved, et cetera. So I just want to reiterate that, that it's an important note to go back to the extent you have pass-through entities, confirm not just how the states treat them, but how they're going to treat entities pass through entity tax elections and what impacts it may have on things like withholding and composite returns and such, how you can take the credits, whether you can make a composite return election, et cetera.

Some other things just to keep in the back of your mind, again, Colorado changed to worldwide combined reporting for tax years starting in 27, unless you elect Waters Edge. Illinois, like I mentioned before, they're limiting NOLs starting in 27. So NOL is going to be limited to $500,000 or 15% of income, and then it rises up to 80% of income by 2030. New Jersey also has an NOL cap. They're going to limit it to $1 million of allocated income. And New York is one of the states, again, we talked about states are always looking to expand the push nexus and bring in as many outside non out-of-state taxpayers as possible. And New York upheld the regulation for the latest interpretation of public 86-272 in its application for various internet activities. They said you cannot apply this rule. It was a new rule they implemented. They said you cannot apply this retroactively, which New York was going to try and do.

They said you can absolutely implement this prospectively. So that's one thing, make sure there's probably still some auditors out there trying to at least initially try and implement it retroactively for nexus and such. Just make sure you push back. And this is pending in the court of appeals. We'll see. It could go one way or the other. I would be surprised if they allow it to be applied retroactively. So we'll see what happens, but it's possible it could. It also possibly could strike down the whole thing and say this is not a valid rule to start with.

Poll number four. For the 2026 tax year, A, some states limit the use of NOLs. B, some states have changed their economic nexus provisions for sales tax. C, both A and B, and D, neither A nor B. And we'll just give you a couple, 30 seconds or so here to go through that and answer that. Okay. Hopefully everybody got back and answered that. Going to move on. Pass through entity taxes. Like I said, they've been around for a while, but there are still changes going on. States continue to tweak them, some states continue to enact them.

So I always recommend for what I consider a major election like this, make sure you're revisiting it every year, make sure you're making sure it makes sense every year you're still getting the bang for the buck you need, et cetera. And make sure you don't take it for granted that the treatment in one state is going to apply to another state. I'm going to use Maine as an example there for the pass through entity taxes and the credits for taxes paid to other states. Maine just enacted a PTT effective for taxers beginning in 27. Prior to enacting this, Maine did not allow a credit for taxes paid to the other states if it was a PTET tax paid to the other states. Most states will allow that, but Maine said, "We don't have a pass through entity tax, elective pass through any tax. We're not going to allow a credit for other states that have it." And we've seen taxpayers get caught up in that.

Again, states like, I believe it's Pennsylvania only allow the PT&T credit as a credit for tax paid other states for certain types of entities. I believe they only allow it for S corps and not partnerships. So make sure you address all those nuances. Don't make any assumptions because that's always going to come back and bite you. Minnesota, the rest of these states, remember when the PT&T was originally enacted in a lot of these states, they had a limited sunset period or a defined sunset period or they were tied somehow to a change in the federal limits and such. States basically had to go through the OBBA when the federal SALT cap changed from 10,000 to 40,000. Basically that impacted a lot of these states and their PT&T regimes, either automatically sunsetting them or they were set to sunset anyway due to the timing. And basically all these states had to go through then and reenact it or tweak it or take away the sunset and such.

So again, just make sure when you're going through these that you're using the most up-to-date information and such.

The big change on here I do want to highlight is California. They used to be very strict with that June 15th prepayment in order to elect it. Elected PTT in California missed that prepayment, you could not make the PT&T. They've now changed that and given you a little bit of leeway where if you miss that June 15th payment, basically the credit you get gets reduced pretty significantly by 12.5% of the shortfall. So it's a significant shortfall, you could be getting a pretty big haircut there. So keep an eye out for that and make sure that you're making those payments and making estimated payments, calculating them correctly and being conservative I'll say.

Here are the results, both A and B, 92%. Good job. That's the correct answer. States very seldom do all states ever do anything. So they're all changing things constantly. And like I said, whenever there's any sort of blip in the economy or in their budgets, NOLs are usually the first thing they look to limit. Massachusetts going to get into a couple cases now. Smithfield was really busy this year. They had a big California case we're going to talk about. And then this Massachusetts case, which is a really interesting case. For folks who are familiar with combined reporting and Joyce versus Finnegan, it really comes in one of the more significant differences is in apportionment and how you define in-state sales, let's say. Do you include under Joyce, if a individual entity in a combined group is protected under publicly 6272, you do not include those sales in the numerator when calculating the combined apportionment factors.

Under Finnegan, if one entity in the group has nexus, then basically for determining apportionment, all entities in the group are deemed to have nexus. Well, Smithfield challenged this and the tax commissioner said, yeah, basically that's not right because the term taxpayer means each individual member, not the unitary group or the term person in 86-272 refers to each individual member, not the unitary group. So they said you can't just say, okay, one group, one entity and the group has nexus, therefore they all do when computing the numerator. You have to still apply 86-272 and if an entity is protected, those sales don't go in the numerator. This matters for a couple reasons. One, combined groups in Massachusetts may want to go back and see if it's beneficial to recalculate their apportionment and possibly file protective refund claims. Two, if a lot of states start to follow this, basically in some ways it kind of does away with Finnegan and means all states or Joyce is the only way of really computing combined returns.

So there could be opportunities in other states as well. This is a pretty important case. I could see there being a lot of potential refunds out there in Massachusetts rather as well as other states. I believe this is under appeal, so we're going to have to see how this ends up playing out, but this is one definitely to keep an eye on. And here's California Smithfield case. Like I said, Smithfield was very busy this year, or at least their attorneys were.

When I first heard about this case, I though, well, it's probably kind of narrow. It really only applies to agricultural companies. And then when you read the case, it actually is much broader. So what happened in Smithfield was Smithfield is based outside of California. Nearly all of their farms and plants, et cetera, were outside California, but California uses a single factor sales formula as far as apportionment for California purposes. And the court said, "Well, you know what? The way our apportionment provisions are written, it really looks at all your business activities. And since your property and payroll are such significant drivers of your income, it's not right that we should be excluding them from apportionment and therefore single factor isn't the right way to go. You should be using three factor." And they also talked about, "Well, are you an agricultural business?" And there was a lot of talk about them somewhat proving they were an agricultural business, but the language in here goes much further than just agricultural businesses.

It actually, the way the dicta is, it could apply to basically any sort of company that is very capital intensive or payroll intensive that maybe single factor isn't automatically the way to go in California. So this is going to be, again, a big one to follow. California had a lot of litigation 10, 15 years ago under the MTC and whether you could elect three factor versus single factor and those were shot down. This is really just another attack on that and really getting at fair apportionment, which I actually think this is the right decision because to say all your income is just earned where your sales are and exclude altogether your other income producing activities of property and payroll to me never made sense. So I'll be interested to see what happens with these. That's income tax. Now sales tax, like I said, sales tax priorities, states are going to keep looking to expand the sales tax base.

States get a ton of their revenue from sales tax. I don't know if I want to say a hidden tax, but it's not like you pay all your sales tax at the end of the year. So it's kind of more death by a thousand cuts throughout the year every time you buy something. And so it's a little bit more, I'm going to say hidden, if you will. States are going to keep trying to expand their sales tax base to additional services and really into the modern economy of any sort of digital products and such. So we see them trying to change their economic nexus provisions a little bit. We see marketplace facilitator rules kind of expanding and then digital products and such. And the SaaS base expansion. California and Colorado are two states that historically did not tax software as a service. That's changing in 2027.

So you need to keep an eye out not just if you're selling those things, but if you're buying them, because if you're selling it, obviously you need to start charging sales tax in these jurisdictions. If you're buying software in these jurisdictions, you need to make sure that your vendor is charging you sales tax or that you're accruing use tax. So make sure that you have that on your radar screen.

Illinois, this is a trend we've seen. Illinois move the 200 transaction threshold for remote retailers. If people remember when Wayfair first came out, the economic nexus thresholds were $100,000 or 200 transactions. Less than half the states still have a transaction threshold. I think that's largely because they realized how many small internet retailers are out there that are selling five, $10 tchotchkes and they realize that it's costing them more to process these returns from those companies than they're getting in sales tax revenue because they were pulling in so many small vendors because of the transaction threshold.

North Carolina, this really just... When you're looking at these economic nexus provisions, especially for sales tax, you have to look at each state and see how they actually implement it. Some states will say once you meet the $100,000 threshold, your very next sale, the very next day you have to register and start collecting sales tax. Some states like here in North Carolina, they give you 60 days, 90 days, say the first day of the following quarter or first day of the following calendar year. So again, you have to look at each state individually to really nail that down. Don't just assume, oh, we're going to apply what we saw in one state to another state.

Maine, again, there's a few states here that are expanding it. They're sales tax based to various digital audiovisual services, streaming audiobooks, podcasts, et cetera. We saw the same thing with Washington State last year, and I think we're going to keep seeing this. So it's definitely something to continue to monitor and keep your eye out for. Poll five, apportionment continues to be a major issue for corporations and continues to be litigated, true or false? And I've been told the polls stay open so people can answer those in the meantime. Utah digital content and gaming. Again, effective July one, 26, Utah expressly starts to charge sales tax for access to digital audio video works, books, services, et cetera. These are all things just keep an eye out for and be aware of that states are going to continue to tax more and more of these types of services.

Apportionment continues to be a major issue, true. We had the Smithfield case we've talked specifically about. Washington digital and software taxes, like I said, starting last year, Washington enacted, greatly broadened their sales tax base for basically anything that touches a computer now is going to be subject to sales tax, it seems like in Washington. I think if we were charging for this webinar, it would be subject to sales tax in Washington. So it's something advertising services states continue to attack these and really one of the issues becomes how they source these that can also trigger economic nexus. It's not just a matter of, oh, now they're taxing this service. Well, we don't have anything in the state. Well, are you sure you don't have anything in the state, any sales in the state? States like Washington have very unique sourcing provisions, especially for things like various marketing and digital advertising sorts of activities that you may not even have a customer in the state, but because of how they source it using IP addresses, you may end up having revenue source there some way that could create next.

Digital advertising taxes, here's just an overview where we stand. Maryland had their digital advertising gross receipts tax. That was struck down by the court under the Internet Tax Freedom Act as well as the commerce clause and due process clause. It has been appealed. Washington, it's been active since last year. There is a lawsuit pending there. Illinois have got the Targeted Advertising Services Tax Act. Chicago Social Media Amusement Tax, there's a case pending there. Utah, we've got the targeted advertising tax. So again, all these advertising taxes, and then we have Pennsylvania and some other states where these things are proposed, but not yet fully enacted.

As I mentioned, Colorado and California are going to be taxing SaaS starting one / one / 27. And then finally, second home taxes. It's something we're seeing more and more of. New York City and Rhode Island illustrate a growing property tax trend and trying to expand basically the property tax or penalize, if you will, people who own second homes there. These are all being challenged. It'll be interesting to see how these are held up. I think the New York City one especially has a lot of issues with it. We spent a lot of time on this and their rulings that how they're granting exemptions is a little bit haphazard. We've seen taxpayers with very similar, if not identical fact patterns. One gets an exemption for it, one doesn't.

Some of these can be very material for high net worth clients or some sort of real estate investors and such. The key issues are how you define primary residence, how you define secondary home. The devil's always in the details of the definitions. Other jurisdictions to watch are Montana, Hawaii, Vermont, California cities are starting to look at some of these. So there's a lot of growing appetite for these. Like I said, Florida, just yesterday they had passed a referendum and they needed a super majority of 60%. I think they had 65%-ish to increase the homestead exemption. I think it triples to 150,000 for only primary residences and such. So it's kind of a different way of going about instead of directly taxing these second homes or just granting a huge exemption for people on their primary homes, which again, then essentially ends up taxing the secondary homes, if you will.

Non-prior talked about this. There are some supplemental roles and things out there. I don't want to spend a lot of time this other than to make people aware that the tax is out there. It's being administered, I'll say in less than the best way is the best way I can put it. Rhode Island, and with a lot of these things you really need to plan, that's one of the things we wanted to talk about. When you're selling a home or buying a home, you really need to look at this and see not just how you're going to use it, but how the person before you used it. In New York City, the measurement date is actually January 5th. We have taxpayers that bought the home after that and before the tax was even enacted, and they're now saddled with this huge extra tax bill that was enacted after they bought it, but the measurement date or how it was measured was before they bought it.

And so it's very easy for taxpayers to get caught up in some of these. There's going to be a lot of litigation over a lot of these taxes. Poll six, which I believe is the last poll in the last slide for state and local during 2026, states sought to raise revenue through subjecting additional types of sales such as those delivered through digitally to sales tax, imposing additional taxes or fees on second homes, both A and B, and neither A nor B.

Bella Brickle:All right, thank you. And while folks are answering that one, I'm just going to put it back to the beginning of Goran section who has now joined us again and he will be able to cover the federal tax planning strategies.

Goran Vukicevic:Hey, can you hear me, Bella?

Bella Brickle:Yes, we can.

Goran Vukicevic:Everyone? Perfect. All right. And I'm not seeing the slides, so I'm not sure what slide we're on right now.

Bella Brickle:You have your first slide up that says 2026 federal tax planning key numbers.

Goran Vukicevic:Okay. Well, let's see here. Okay. So I don't know how far along I got. I called my interim provider here in the meantime and canceled it and signed up for a new one. But just starting where we left off, a couple key numbers again to bring back, and Gary touched upon some of these in the state slides, but again, the bonus depreciation has come back in effect for part of 2025 and definitely for 2026. There were some adjustments, inflation adjustments for section 79, obviously expensing and phase out numbers as well as the gross receipts numbers for small business. A reminder on that, that's a three-year average you're looking for the previous three years. And also when you're considering that, you really should consider the total group's gross receipts. So sometimes I see a US entity that's owned by foreign multinational group and they forget to include the full group's receipts into consideration.

The other one is related, the other number that's worth mentioning here is the excess business loss thresholds which have been adjusted down for the numbers in 2026. Again, this is mostly related to the change in indexing year for the inflation, which changed from 2017 to 2024. So all those previous years inflation got readjusted. So moving on to the next slide.

There you go. So putting this kind of in action, if you consider a hypothetical manufacturer that's looking to expand their production activity and as a result they're buying additional equipment, if you're a finance director, you're sort of asked what's the tax impact on that? What can we deduct? And that's when we default to depreciation provisions with bonus in section 179 and evaluate each with the bonus. Depreciation generally applies automatically to all the eligible property unless the taxpayer specifically elects out and now at 100% you deduct a full basis and then that can obviously either reduce your current taxable income or potentially create or increase your tax loss. Any tax loss generated then obviously gets carried for this NOL and going forward those would be limited to 80% usage. The important thing here to say is also that, as I mentioned, if you're electing out from bonus to position, you have to do so by asset class.

You can't necessarily specify any specific assets. This is the difference with section 179, which is a little more selective. As a business, you can elect which eligible assets and how much of their cost to expense. Of course, the downside is there is the dollar limit and investment pays outs that we discussed as well as the business income limitation, which does not allow for you to generate taxable loss with the section 179, rather that any amount slow gets carried on to future years and used, which in some cases might be better than generating NOLs as 179 carried forward is not going to be limited upon further usage. The other reason you might consider 179 or a bonus, obviously a lot of times it's the adjustment for the state level, it's a little more beneficial, but also it does cover certain improvements to existing non-residential buildings that includes some types of roofs, HVACs, fire protection security systems that are not covered under bonus depreciation.

Obviously when evaluating either provision, you want to look at eligibility, acquisition history, and of course when the property's ready and available for use. Important to mention that use property does qualify for either bonus or 179. However, if you do have property that's been acquired from related party, you should be careful with that and look into a little more detail because that might be disqualified from either. Next slide I think was Paul. I don't know if that's been answered yet.

Yeah. And interest of time, I'll just skip this slide as well. This is just illustrating the cash impact of bonus depreciation 179 and interplay with NOLs. Now obviously we've considered the equipment, but now you might need a building to house that equipment, additional production facility. So if you're putting that in place into 2025 and beyond, you're in luck because now under revenue code 168N, which Gary has referenced so many slides, a taxpayer can elect 100% first year depreciation deduction for qualified production property. Qualified production property here is a non-residential building that is used as integral part of a domestic manufacturing production or refining activity. So without the selection, you're basically stuck to doing a straight line 39-year depreciation.

Properties QPP, if it meets all the requirements outlined, again, meaning that's integral, non-residential property, integral for use of qualified production activity. So original use of the taxpayer and then construction is started after sometime before January 1st, 2029 and put in place before January 1st, 2031. Important to note that certain parts of the building that are used for things like office initiative work, parking research, and any other function not related to manufacturing will be excluded. So you have to make sure there's adequate documentation allocation of the parts of the building that are used for manufacturing if that will be your basis.

Definitions are unqualified production, this is basically again any manufacturing, production or refining of a qualified product that results in substantial transformation of the property and makes of that product. Qualified product here is tangible personal property other than food and beverage prepared in the same building as the retail establishment where they're sold. So I think restaurants obviously will not qualify in this case. And then substantial transformation is defined as turning raw materials or components into a distinct fundamental different item. Some of the examples shown are using wood pulp, turning into paper, steel rods into bolts, or even fresh tuna into canned tuna. Assembling goods, obviously it's not qualified. Now you can move to the next slide. Before considering all this additional expenditure, it's also worth looking at your existing assets and inventory and seeing if there are any missed deductions that we can take before the year end.

So again, it's possible to deduct your catch-up depreciation, which includes bonus for any assets that were placed for service in prior years and maybe were mistakenly classified as property with a longer recovering period. So reviewing your fixed asset schedules and performing a cost figuration study, again, can identify these assets eligible for accounting method changes for shorter recovery periods. Secondly, I'd highlight that it's important for business to review their capitalization policies and smaller equipment purchases to make sure you're taking advantage of the minute safe harbor. If you remember under tangible property regulations, business generally can expense $2,500 per invoice if they don't have applicable financial statements or $5,000 if they do. So if you're looking through your GL and you see a capitalized laptop invoice for $40,000, but if you look in more detail and you find out that really this is 20 laptops over $2,000, well then we might have the ability to expense that for books and for tax.

Now with this, obviously your book quick safety policy has to be in place at the beginning of the year in order for you to claim the minimum safe harbor. But if you did miss it, if it's not in place for 2026, you can obviously put in place in 2027 as this is an annual election and no method change is needed. And finally, it's worth looking at if your inventory heavy business at any obsolete inventory is you might be able to accelerate those losses by disposing of that inventory that might be damaged or defective. Or on the other hand, you might be able to write down costs of any qualifying subnormal goods or inventory items that can't be sold at a selling price for whatever reason. Next slide.

Now for businesses, for any companies that are importing goods in the United States, obviously tariffs have become an increasingly significant cost of doing business, which has led many companies to really evaluate alternative supplies and sourcing arrangements, stockpile and inventory, or even move their production to the US. There are a few other opportunities here that it's worth looking at. Two of those strategies are in the slide here, first sale valuation and cost and bundling. First, starting with the first sale valuation for companies that are importing goods through call it multi-tier supply chains, first sale rule may allow for the customs duties to be calculated using the price paid in the earlier transaction rather than the higher price that's ultimately paid by the US importer. So if you look at the simplistic example on the slide, if you have a manufacturer that sells goods to an intermediary, let's say for $800,000, and then that intermediary turns around and sells those goods to a US importer for that one million, ordinarily the custom duties will be at the $1 million purchase price.

However, if the earlier transaction qualifies in the first sale rules, the importer may be able to lower the value for the customs purpose that you would still record as one million for your books, but for customs you'd paid potentially tariffs on the $800,000. And in this example, assuming 25% rate, that could be a savings of $50,000. Now, it's nothing simple as that. Not every transaction will qualify, and as a business you would need to demonstrate that the earlier sale is a bonafide transaction, that the goods were clearly destined for the US, and then the pricing and all documentation satisfies the customs requirements. So from a planning perspective, you should really look at your supply chains to see if there's any earlier qualifying sales that might exist. The other option I think a lot of people are probably familiar with is cost and bundling, which focuses on identifying amounts included in purchase price that may not be required to be included in the customer's value.

So example here would be if a company's purchasing a machinery from abroad, but then they're paying a single price for the equipment, freight, and maybe installation services that are to be performed in the United States after importation. Depending on the circumstances and documentation, some of those charges could be excluded from the dutiable value. Other potential areas to look at is qualifying buying commissions, any separately stated identifiable services or development costs. Here, a common example I see is when a US company is a purchasing agent and that purchasing agent is really acting on behalf of the company and negotiating deals, finding the manufacturers, coordinating. And then as a purchaser, then you end up paying, let's say, a certain fee for whatever you're buying. On top of that, there's the commission. Well, that commission might be able to be excluded from the duty. Now, important thing here to remember To understand is that simply separating charge and invoice does not make them non-dutyable.

You really have to look at the nature of the charges and under all the agreements to really support the exclusion.

Go to the next slide. A few other year-end customs planning ideas or things to look at is really evaluating products and transactions that create greatest duty exposure, looking to confirm the classification's correct, country of origin is correct, and consider any relevant trade agreement requirements for related party purchases. Year-end transfer pricing adjustments can have consequences beyond income tax. If the adjustment changes the price of goods previously imported to the US, it may also impact the custom value and then the tariffs owed. So on the one hand you're getting a deduction from the income tax side, but then you're obviously suffering, potentially increasing your tariffs owed.

Any change you consider when it comes to import treatment of tariffs, you really want to make sure you're coordinating across all the different groups involved. So want to align your corporate tax finance procurement teams and obviously your customs broker. Next slide. Briefly going to touch upon our research and development in section 174. Obviously this is a big topic for 2025, and the result now is that 2026 and on, we can now deduct our domestic research and development costs. The foreign costs still remain subject to capitalization amortization over 15 years. The key sort of planning consideration here for any business is to really dive into your R&D expenditures and really understand and track what's been spent, and especially if you're using any overseas employees or contractors. I encourage you to look beyond just the address on an invoice that you're paying for a third party contractor.

They might be outsourcing the R&D abroad as well. So in that case, you're deducting what you think is domestic R&D or taking a credit, but really it might need to be capitalized.

And it's also worth looking obviously at section 41, which deals with the R&D credits. If we're already valuing things that need to be capitalized as section 174, at the same time we should consider which of those might be subject to R&D. Obviously these buckets are a little different and R&D expenses, that bucket's going to be a little more narrower than section 174. So we shouldn't assume that what we capitalize or deduct is domestic or foreign R&D expenses automatically qualify for R&D credits. Next slide please. Again, this next slide is really about just revisiting what's been done in 2025 tax returns and making sure that that's continued on future years. So as part of the transition under section 174, many business had the option to either take all the deduction for domestic R&D that's still capitalized in 2025 or split it between 2025 and 2026. In some cases, go back and amend previous years to let's say claim some refunds if those were applicable.

In case where your company has never abided by the Section 174 rules and never capitalized any domestic or foreign R&D for 22 or 24, while you still have a chance to make a correction through an automatic method change procedures which have been ironed out through revenue procedure 2026, 32, obviously this will allow you to close those past periods and even potentially have the opportunity to take any R&D credit in those years if applicable. Next slide. Speaking of R&D, again, this is obviously a planning opportunity that's been around for a long time. Most companies are doing some sort of R&D even though they might not want to admit it. What's a big change here is really around reporting. Form 6765, section G is now required starting 2026. What this is basically requires you to provide a detailed project load reporting for any R&D you're claiming. So if you're claiming, if you're working on one project, one drug, it doesn't really change much for you.

But if you have multiple projects, there might be some additional administrative burden for you. There is an exemption here for qualified small businesses that check the box to claim the payroll tax credit and from some smaller filers which have QRE or qualified research expenses of 1.5 million or less and their gross receipts are less than 50 million. Obviously I always like to highlight the ability for some of the early stage non-revenue or non-income taxable income generating businesses. The opportunity to take the R&D credit apply towards payroll tax, which is now up to $500 that can be applied towards certain social security and Medicare taxes. The qualified agents have to have receipts of less than five million a year and not have any gross receipts for a five-year period ending with the year in question. So for 2026, that would mean you would generate no gross receipts in 2022 or later, not before.

One note here also the notes that the credit is only available once you file the returns, so typically you want to try to file your returns in the first part of the year. Next slide please. I'm not going to spend too much time on these in just interest of time in the presentation, but these are some general opportunities to either accelerate deductions to 2026 or maybe defer your taxable income opportunities around accrued bonus payments, making sure those are fixed and determinable and paid out by two and a half months at the year end, accelerating certain prepaids or potentially electing into section 451C deferral if you have significant upfront payments for goods or services. And obviously considering retirement plans and seeing if any of those payments can be made after year and still be deductible. Next slide please.

A few other items to change for 2026 that are worth mentioning. Obviously employers can no longer deduct costs associated with employer operated eating facility or meals provided to an employee for the convenience from the employer. So tracking these can be a bit nuanced and really fact specific, but might require in the end of setting up a separate category cost on your P&L. The other important development is related to corporations and shareable deductions. Now the corporations can only deduct charitable gifts to the extent they exceed 1% of taxable income to disallow an amount permanently lost unless the gift exceeds 10% of taxable income ceiling. So in our example here, if you have a $10 million taxable position before charitable contributions, your four is going to be $100,000 and you're ceiling one million. So if you had $150,000 of charitable contributions that you only will deduct 50 as that 100 would be disallowed.

And just mentioning quickly the employer childcare credit, which has been around for a long time, but now the benefits have increased significantly to 40% and up to half a million dollar credit for the year and the 50% is $600,000 for a small business. Next slide.

Quickly addressing the changes to business interest limitation. Again, if you're a small business, this doesn't pertain to you, but if you're not and your business interest is limited, the big change that took place 2025 is that now we can add back depreciation and amortization when calculating adjusted taxable income, which obviously raises the limit for most taxpayers, especially those that are capital intensive business. In 2026, the changes that if you have foreign subsidiaries, some of the income related to those subpart F, former GILT gross ups no longer count towards the adjusted taxable income, which now means that would lower your potential limit of deduction. The big loophole that's been closed is related to interest that's capitalized related to certain costs or assets, which that interest now generally counts toward limit as well. And then if the limit applies, it reaches the capitalized interest first, then interest that you would otherwise deduct.

And any capitalized interest that is disallowed, then carries forward as deductible interest, not as part of that assets cost. So it changes there. Two exceptions to this are interest capitalized under 263G and 263 capital AF. 263G is interest on straddle, so mostly for companies that are investment trading activity. 263F is interest on property that you build or produce. So again, if you're in that line of business, your limitation might increase. Next slide. So I'm trying to get to this, leave some time for Dean, but this is just a general illustration of really the limitation under EBITDA versus EBIT and generally seeing a higher limit, meaning bigger deduction. Next slide.

Again, important year-end planning consideration also relates to any owners of a pass through entities, S corporations or partnerships. I mean, this is pretty standard stuff here, just considering that even though the business might generate significant deductions through bonus depreciation and tax money opportunities, the ultimate owner are still going to be potentially limited on the loss that they can take, whether it's through a basis, at risk, passive activity or excess business loss. So there should be some planning around if possible. Next slide, and I'll probably close with this. Just two other provisions or two other areas that were affected by QBBA. One, the qualified business income reduction, which became permanent in 2025. So again, something that most pass through owners have been hoping for and we hope that even after the collection shake up, which it looks like it would. Again, too much more on this amounts have increased a little bit, but again, always good to have some planning on this end and looking at the owner's overall tax position rather than just looking at the business independently.

And finally, QBA expanded the benefits for the qualified small business stock for any stock that was acquired after July of 2025. Highlight some of the new rules. Shareholders now exclude 50% of qualified gain after three years, 75% of the four and 100% of the five years whereas before it was the five years or nothing. The limitation also increased from 10 to 15 million and the gross asset ceiling moved up from 50 to 75. The regulations around original issuance and active business requirements remain the same. So this is an area that really should be monitored and evaluated regularly rather than just looking at it when there's a transaction horizon. In the final slide, this is really just a highlight of some of the things that we went through. It was really going to feed in nicely into Gary's presentation, but I guess now we'll have two for Dean's.

Bella Brickle:Dean, you're still muted.

Dean Peterson:Thanks very much, Bella, and thanks for the handoff, Gorin. I'm Dean Peterson. I'm the head of international tax at EisnerAmper. And in the time remaining, I will go at a high level over items that are important from a US international tax perspective. There are a lot of them, so I have a lot of numeric examples, which I will probably skip over so you can page through them yourself. And if you have questions, of course, you can always reach out to me or someone on my team. So 2026 will be the first year under the One Big Beautiful Bill Act, international rules. So 2025 results are going to change or would not come out the same as they will in 2026. So the most important pieces here are the first, I'd say four or five of these are NCTI, which is net CFC tested income, which replaces GILTI, which is something that everybody has toiled with over the last few years since the 2017 Tax Cuts and Jobs Act.

FDAY is the new FIDI. So FIDI was a very useful tax deduction for manufacturers or exporters of goods and services that were created in the US. That's been a nice tax deduction for people in those businesses. And now it's called FIDAY, and it has some other twists to it that make it slightly less appealing, but nonetheless, it's really important to look after your FIDAY calculation for 2026. CFC ownership and attribution. 958 was something that was repealed under the Tax Cuts and Jobs Act in 2017 and to dismay of a lot of tax preparers as well as taxpayers who had CFCs. So now 958 is restored, and I'll explain to you why that's important. Transfer pricing, always an important topic no matter what time of year it is. Here at the end of the year, we're going to talk about booking true-ups for transfer pricing before December 31st and some of the cases that are out there, including Coca-Cola, 3M, Medtronic, and Meta.

And a lot of those are, when we're talking about litigation as well, we're going to talk a little bit about Loper Bright, which is interesting and affects a lot of these cases that are out there right now. For a more select group of our listeners, BEAT and Pillar Two, I'll discuss that briefly because BEAT only comes into play for groups that have more than $500 million of revenue and Pillar Two only for groups that have more than 750 million euros of turnover. And finally, we're going to close it out with tariffs and customs because that's a really hot topic right now. Everybody seems to be talking about tariffs and customs.

What the tariff environment going to look like? How do you get refunds? What do the refunds look like and how do you treat them once they come in? All right, so here are a list of the international provisions that changed for 2026. And here we're going to focus a little bit on some of the terminology, including the NCTI deduction, which gives you a higher US floor for your CFC income, the QBI exclusion, which is something that was repealed under OB3. And that was something that gave you a 10% return on tangible assets, and that was excluded from certain calculations, which now that 10% is going to be gone. So it's going to affect companies that are sort of asset heavy such as manufacturers and they'll need to recalculate their FDAI and their NCTE for 2026.

Yeah, FIDI to FDAI, FDAI has changed it to a 33.34% deduction with a 14% effective tax rate because of no QBI, whereas in previous years, the FIDI, F-D-I-I, was a 37.5% deduction with a 13.1.25% effective tax rate. So it's a small change, but nonetheless, it's not insignificant and it requires recalculating a lot of that information, maybe doing a new analysis of your FDAI. Some of the things in FIDAI that are no longer allowed, interest and research and experimental expenditures used to reduce the base for your FIDI calculation. However, for FIDAI, one of the biggest changes in 2026 is that is now excluded. And I have a numeric example later on to show you there, and that favors US R&D and US borrowing as well. Gorin touched on the R&D 174 cap A, which I'll go through as well very briefly toward the end. CFC attribution, the 958 restoration, which is great.

One of the benefits there is some of the CFCs are going to lose their CFC status, which means that there will be less reporting. However, be careful with that because there are some other tests that are going to be required to make sure you don't have to do the same CFC type reporting on say a form 5471. And BT, as I mentioned, it's going to be a 10.5% rate, whereas previous years it was 10% based on the 2017 Tax Cuts and Jobs Act. So there's a small change for those taxpayers that are affected by it. For NCTI, higher floor, better credits, no asset offset.

So the effective rate of NCTI is 12.6%. With the 90% credit, the US tax becomes zero at about 14% of that rate. So there is no asset-based exclusion. The 10% return on tangible assets known as QBI, it no longer shields income because QBI doesn't exist anymore. So once again, asset-heavy CFCs are going to see the largest increase. There are fewer expenses to reduce the credit limit, which I mentioned earlier. Interest and research and experimental expenditures are no longer going to be calculated in this NCTI calculation. However, the high tax exclusion remains. So we used to call the GILTI-high tax exception, GILTI-high tax exclusion remains. So an election can be made to exclude CFC income taxed above 18.9%, and that needs to be figured entity by entity. So obviously the new GILTI known as NCTI is going to be an important thing for you to calculate and for you to look after.

I have a step-by-step process here for you to look at it. I'm going to run through this quickly because I think it's very important. So it has six steps. The first thing you do is you compute the tested income CFC by CFC. So it's gross income, less deductions and foreign income taxes and you exclude your subpart income. You can also aggregate across CFC, so tested losses, offset tested income. And once again, there's no 10% QBI return starting in 2026. Then we need to look to section 78 for the section 78 gross up where we add back the deem paid foreign taxes back into your income. There's also potential section 250 deduction, which offers 40% of NICTI plus the gross up, which brings you down to that 12.6% effective tax rate. And at that point, you apply the 21% tax rate and consider things like a 962 election if you've done that in the past, or we can actually help you walk through one of those when you're able then to credit 90% of your foreign taxes.

So while I'm sorry I'm running through this a bit quickly, but I think this is really important. It's something that you should come to me or someone on my team to discuss with you, and we can walk right through this with you based on last year's results in your current year situation. So here's an example showing the increase in the combined rate, 12.22% in 2025 under GILTI and under NICTI it's slightly higher, 13.6%. So there's a different amount of residual tax. And you'll have these handouts to look through and you can walk through these examples at a more civilized pace than I'm doing it right now. This is a comparison describing the differences between ineffective tax rate between GILTI and NCTI and where they kind of meet in the middle around 15%. So again, something that you can look through afterwards, and that brings us to another poll question.

So in 2026, at what foreign tax rate does residual US tax on NICTI reached zero, assuming there are no allocated expenses and no NICTI high tax exclusion? So I was advised that this poll will stay function for 60 seconds, so I'm going to move on to the next slide.

So now we're going to talk about FDAY. As noted earlier, interest and research and experimental expenditures or R&D no longer shrink that deduction because QBI no longer exists here. Fide can be applied to goods and services, so the sale of tangible goods to foreign customers for foreign use, which is important, and services to foreign customers are eligible as our licenses are foreign use. So this is very fact specific. So it's important that you talk to your tax professional who has a lot of experience with this, as my team does, to make sure that you properly model out your FDAY for 2026. We can help you get that deduction. We help clients get the FIDI deduction many times in the past, and this is going to take a few tweaks. And the deduction may not be quite as substantial, but it will be very close. Oh, looks like poll number seven here.

All right. The answer is 14%, so it looks like we have a wide range of guesses here, but yep, 14% still wins by a whisker. Okay. When you're talking about the FIDAY deduction, you're talking about goods and services both. So tangible goods, sales to foreign persons for foreign use, which include leases and licenses of IP.

It has to be delivery outside the US and no later US use. Services also included, services to a business's operations that benefit are outside the US, services to individuals located abroad that may qualify for FIDE as well. And then what is excluded, financial services income, sub F income, NICTI, dividends, et cetera. Once again, you can go through this list when you have more time to walk through that. And here's an example of FIDE, and you can see at the bottom here, you're getting your tax savings at 21%, and the effective rate on your qualifying income is 13.125 under FIDI in 2025, and it's a little bit higher, 14% under FIDE in 2026.

So okay, Goren talked about domestic R&E, 174 cap A, so we're going to skip over that. Goran also hit 163J. I though this was interesting, so I'll point this out quickly. If you're doing your research and development in the US in 2026, you get much bigger first-year tax deduction with US R&D, which can mean a significant tax savings. This is an example. If you had $3 million of research and development in the US, your first year cash tax difference could be $609,000. Instead of deducting this or amortizing it over a period of years, you can take that deduction straight away in the year that you're doing this. So that's important. Downward attribution, which I mentioned earlier, this gives you an opportunity to maybe file fewer 5471s. So as you can see here through 2025, the 100% owned US subsidiary on the left looks like it's a US sub owned by a non-US company.

However, that non-US company also owns a foreign company which has an interest in a US fund. So that sponsor's 80% interest was attributed to the US company, and therefore the US company had to file a 5471 for that US sub as well. So that 958 is now restored, so that removes some of that onerous burden, and that's going to help some taxpayers who have a number of non-US operations, especially CFCs. Yeah, so the downward attribution's going to go away. It's easier for most and more challenging for some. You can review this slide to determine if your reporting fits in any of these categories. Here's an example that I'm going to skip over right now. Some items here that are pretty important, I think the CFC look-through rule being made permanent is great because that was always something that we had to wait till the end of the year to find out if Congress was going to renew it, so that can be beneficial for taxpayers and their planning.

Under poll number eight here, under the restored 958 stock owned by a foreign person is A, treated as owned by its US-related sub, not treated as owned by a US-related person, ignored for every CFC test. No, that one's not true. Or taxes subpart F income. So I'll let you answer those. We'll probably get a wide range of answers once again. A couple of things. Pillar two, if you are in a category where you have more than 750 million euros of turnover, then please come talk to me about pillar two. There's a lot of acronyms and a lot of rules and the side-by-side package that was introduced by the OECD to accommodate the United States' refusal to enter into Pillar Two. We can go into detail on that.

All right, looks like we got another wide range of answers, and B is the correct answer, not treated as owned by a related US person. Let's see, we're going to skip over this. This is BEAT, and again, applies to a select group of taxpayers with more than $500 million of turnover. A BEAT example you can peruse at your leisure. Transfer pricing, always important. As I mentioned earlier, I'm going to recommend you get in touch with me and/or my partner, Mike Arena, to talk about how to handle year-end transfer pricing true-ups and adjustments, matching IP to substance, which is extremely important at this point because of some certain court cases that are out there. So we have an example of customs duty and VAT on the year-end price change. So please pay careful attention and contact Mike Arena if you're planning to make some changes to your transfer pricing values.

A lot of cases out there related to TP right now, Coca-Cola, 3M, Medtronic, Facebook as well. Some of them are affected by Loper Bright, which says courts no longer need to defer to an agency's readings of the statute, which is interesting because now the courts can come up with their own readings of the statute and apply accordingly. If you have questions about any of these cases, you can go to my colleagues, Mary Forster or Sarah Atkinson, and they're able to help out and advise there. Poll number nine, how can a controlled taxpayer reduce its US income for a year-end transfer pricing adjustment?

Yeah, you have several options here. I'm going to go on in the interest of time. One slide that I think is important is just so you understand some of the significant penalties involved with missing some of these US tax filings. So Form 5471 is $10,000 per form per year. A 5472 is $25,000 per form per year. And some of these forms, if you don't file them or file them in a substantially incomplete manner, it leaves the statute open. So the statute never runs in those years. So it's important that you contact your international tax provider to help you through those. Okay, I see we're running a little bit over time right now. Okay, nice work. By booking the adjustment in the year, so the original return flexed it, that's the correct answer.

I'm going to go to my last slide here. Here's your action calendar between now and the end of the year. For November, rerun your NCT, your Fide and your BEAT models so you know what to expect in 2026. And that's something you can call us for. We're always happy to help. Update your 163 model as well, which Gorin discussed earlier. Make sure you're requesting PFIC statements, which is always important. By December 15th of this year, make your fourth quarter adjustments. By December 31st, review your customs and VAT effects of your 2026 sales, and then some other stuff related to tax compliance work. The takeaways for international tax planning, I'll run through this quickly and then I'll finish up. Think about your NCT. Come to us to talk about FDAY. We may be able to help you get a deduction. 958 being restored, has restored some old rules that require some new testing that may reduce your tax compliance.

Take care of your transfer pricing at year end, call us to help you with that. And the last thing I'm going to talk about is tariffs. Since IEPA was declared ineligible or since the IEPA tariffs were ruled not to be constitutional, please keep a good list of which tariffs you paid related to those sections. I think it was section, it wasn't 301, but make sure you have a spreadsheet of those to see if you can apply for a refund. We can help you with that. And with that, I will close the presentation. I want to say thank you very much to everyone who participated. Sorry we had some technical difficulties that I had to rush through my presentation, but thank you very much.

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