Accounting
Trump tax bill benefits companies, unless they’re in renewable energy industry
The massive tax and spending bill that President Trump signed into law on July 4 contains plenty of provisions that will benefit companies, unless they’re in the renewable energy industry. Colleges and universities will also take a hit, as will taxpayers who depend on Medicaid, food assistance and owe money on their student loans.
The legislation was dubbed the One Big Beautiful Bill Act until the Senate Parliamentarian agreed with Senate Minority Leader Chuck Schumer, D-New York, and struck out the name.
“Things are generally good for businesses outside of the renewable energy space, and things are generally bad for the research universities,” said David Shapiro, chair of the law firm Saul Ewing’s tax and employee benefits group. “From the research university perspective, we obviously have this increased excise tax, and they’ve taken some of the smaller colleges out of the calculation. Any college with an enrollment of less than 3,000 is excluded, but anything larger than that, the rates go from 1.4% up to 8%.”
The taxes can add up for the larger universities. “The thing that most people didn’t notice, at least at first, is that in the Senate bill, they introduced an expansion of what is subject to the tax,” said Shapiro. “It’s not just regular endowment earnings, but it also now covers any royalty income, whether traditional royalties or milestones from intellectual property developed by any university or college in which any form of federal funds were used in that development. Since virtually all research programs have some amount of federal funding, what it means effectively is that all the colleges, the research institutions that rely on their royalty streams from, say, life sciences or technology, as the driver of a lot of their spend, and that’s where a lot of their income is coming from, that’s also going to be subject to the excise tax. So higher tax covering more things, that was the big news on the tax exempt front.”
There’s also an expanded tax on endowments. “It’s a fairly sweeping provision,” said Shapiro. “If you have the endowment as a separate legal entity, that’ll be swept in. And there’s a broad anti-abuse provision, which says, anything that you might do to try to slice and dice and isolate, they’re supposed to look through that and combine everything into a single [entity]. There is a special rule that says if you’ve got an endowment trust that funds multiple universities, then, although it has to be included in the universities’ tax calculations, it’s only going to be included in one place. So it’s either all going to one, or you whack it up, so there’s that double tax on the endowment itself. It’s a huge thing for a lot of universities. A lot of the same universities rely on some amount of, say, life sciences royalties, and with hospitals, they’re dependent on the Medicaid reimbursements as part of their hospital budgeting. That’s something I know they’re working on, and that’s just overall affecting their economics.”
On the other hand, for businesses, there are many favorable provisions, including expanded tax breaks for qualified small business stock, which previously had to be held for five years to be eligible for a 100% capital gains exclusion. Now there’s a tiered system for stock acquired after July 4, 2025, with a 50% exclusion for three years, 75% for four years, and 100% for five years or more.
The bill also makes permanent the Qualified Business Income deduction of 20%, and increased phase-in income limits to $75,000 (or $150,000 for joint filers), while adding a minimum deduction of $400 for taxpayers with at least $1,000 of QBI from an active trade or business, which will be adjusted for inflation.
“Some are just extensions of the current rules,” said Shapiro. “For instance, the 199A 20% qualified business income deduction. That’s been permanently extended, so pass-through businesses get taxed effectively at a lower rate than the individual tax rate.”
There’s also an extension of 100% bonus depreciation that was made permanent. “Anything with a 20-year useful life, pretty much any equipment that you’re placing at service, you can fully write that off rather than do regular depreciation,” said Shapiro. “That’s a pretty nice incentive. There’s even one that surprised me a little bit, but as a push to get more manufacturing onshore, there’s a special limited-term ability to expense the full building as well, if you making a manufacturing plant and you start construction now and place it in service before the end of 2030. If you’re building a manufacturing plant, doing agricultural production or chemical production, oil or gas. It specifically excludes electric production so wind and solar do not qualify here. This is really about making stuff or converting one thing into another, like a refinery or natural gas type production.”
Energy tax provisions
While some tax breaks are still available for some types of renewable energy businesses, others are being rapidly phased out. “We already have seen some project cancellations where they hadn’t commenced,” said Shapiro. “There was no way that they would be able to be completed in time. But in at least one of those projects, I know there were also some political headwinds, and when you add this in as well, anything where there would be any resistance, you’re going to be knocked out. There may be other opportunities as well. There are other programs which have some measure of appeal than these other incentives that are around, but there’s definitely the incentive to definitely made much more in favor of now making stuff rather than making renewable energy.”
There are more stringent requirements for renewable energy projects. “The bill said that you had to have the asset placed in service by 2027 but also you had to start construction on that facility within one year of the enactment date,” said Ian Boccaccio, principal and income tax practice leader at Ryan. “If you’re in solar or wind and you want the ITC [Investment Tax Credit], that basically means you have to have what’s called the beginning of construction by July 4, 2026. The beginning of construction has been broadly safe harbored in the past through a couple of IRS notices that were published over the past five years, and there were two tests that you could do, either/or, to get ‘beginning of construction’ status. So it’s important that these companies do one of these two safe harbors inside of the next year. The first one is called the physical work test, and that really just means that the work to build the facility is significant in nature. It’s kind of a qualitative standard that many of these projects use to prove that beginning of construction has occurred. The other test is called the 5% project cost test. If you have 5% of the total cost of the project spent when you hit that 5% mark, you’ve been deemed to have met the beginning of construction safe harbor.”
Companies have been able to rely upon these two safe harbors in the past, but on the Monday after
“It indicates perhaps we can’t rely upon these two standards anymore, which we’ve relied upon for the past five or 10 years,” said Bocaccio. “It has people in the renewable energy industry questioning what will they need to do to meet the beginning of construction test by July 4, 2026. Can they rely upon these old two standards that have been in the notices, or does this executive order mean that Treasury is going to redefine what meeting the beginning of construction means? That’s why I say renewable energy companies aren’t just impacted from a tax perspective. It actually impacts the way they operate.”
That will cause many companies to either cancel projects they had planned or try to expedite them as quickly as possible to try to meet that beginning of construction test.
These provisions effectively remove many of the incentives from the Inflation Reduction Act. “I would say that not all technologies were punished, but specifically wind, solar, electric vehicles and charging stations,” said Bocaccio. “Those were credits that were going to be here for some time and have been wiped out.”
For electric cars, the credit is gone by September 2025, and for charging stations, it’s gone as of June 30, 2026. “For solar and wind, those credits are effectively phased out by the end of 2027 assuming they meet that beginning of construction test within the first year, by July 4, 2026,” said Bocaccio. “Solar, wind, EVs, EV charging, they got whacked. They took it on the chin. They really were targeted. But renewable fuel actually got a benefit. The credits for renewable fuel under Section 45Z were supposed to end in 2027, but this bill extended those credits through 2029.”
That includes renewable diesel fuel and other types of fuel that can be produced with zero emissions. “That also goes for zero emission nuclear power,” said Bocaccio. “That’s still good through 2032. Also, there is still a tax credit for manufacturing renewable components. That didn’t go away under Section 45X. Also the credit for carbon sequestration under 405Q, that’s still good through 2032 so the administration has seemed to pick and choose which technology should get which credits, but it’s clear that solar and wind are not on their priority list.”
On the other hand, he noted that the bill restores 100% bonus depreciation. “We had 100% bonus depreciation until 2023 and in 2023 it began to phase out at 20% each year,” said Bocaccio. “In 2023 you couldn’t deduct 100%. The bonus depreciation went down to 80% in ’23 and in ’24 it went down to 60%. In ’25 it was set to go to 40%, but this bill restores 100% bonus depreciation on any asset required placed in service after Jan. 19, 2025.”
“That’s significant,” Bocaccio added. “If I go and buy a building, I can segregate the costs between those assets inside the building that have a 20-year life or less from the parts of the building that have a 39-year life. It’s called a cost segregation analysis. If I can segregate those costs of that building that I bought, and carve out those costs associated with assets that have lives of 20 years or less, I don’t have to amortize the costs I’ve built up over 39 years. Those parts of that building that have a 20 year or less life I can immediately deduct through 100% bonus depreciation, again, spurring investment in the U.S.. The punchline is 2025, any asset with a 20 year life or less can be fully deducted if required after Jan. 19 2025. This is another significant reduction for 202. For taxable income, you take the R&D change plus depreciation change, and U.S. taxpayers are going to have a far smaller tax bill in 2025 because of these provisions.”
International taxes
On the international side, there were many provisions as well. “As we all expected, it was providing incentives for domestic businesses, bringing jobs back to the U.S., and punishing businesses that leave the U.S. with harsher U.S. taxation of international income and benefits for domestic income,” said Robert Christoffel, a counsel at Saul Ewing. “What was great news, I think, for clients in the sausage-making process of the bill, clients were concerned about the reports of the ‘revenge tax’ that we first saw when the House Ways and Means Committee’s first draft of the bill, and then the version that the House passed was similarly potentially egregious. The Senate Finance Committee version changed it a little bit. But lots of clients were still very anxious about this tax, and luckily, it got taken out in light of what we heard was an agreement by the U.S. Treasury with the G7 countries at their G7 meeting, ideally reducing the application of the Pillar Two global minimum tax to not apply to U.S. businesses. So essentially, you end up with a side by side system.”
“It was definitely an 11th hour removal, but we were all breathing a sigh of relief,” said Shapiro.
It’s not clear what is going to happen to the Pillar Two taxes as they apply to U.S. businesses. “That is still an open question,” said Christoffel.
He anticipates that a safe harbor that’s currently scheduled to run out at the end of 2026 and protects U.S. companies from this tax increase in the EU. will be made permanent.
The Financial Accounting Standards Board met this week to discuss its projects on accounting for transfers of cryptocurrency assets and enhancing the disclosures around certain digital assets, such as stablecoins.
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During Wednesday’s meeting, FASB’s board made certain tentative decisions, according to a
At a future meeting, the board plans to consider clarifying the derecognition guidance for crypto transfer arrangements to assess whether the control of a crypto asset has been transferred.
FASB also began deliberations on the
The board decided to provide illustrative examples in Topic 230, Statement of Cash Flows, to clarify whether certain digital assets such as stablecoins can meet the definition of cash equivalents. It also decided to include the following concepts in the illustrative examples:
- Interpretive explanations that link to the current cash equivalents definition;
- The amount and composition of reserve assets; and,
- The nature of qualifying on-demand, contractual cash redemption rights directly with the issuer.
FASB plans to clarify that an entity should consider compliance with relevant laws and regulations when it’s creating a policy concerning which assets that satisfy the Master Glossary definition of the term “cash equivalents“ will be treated as cash equivalents.
“I agree with the staff suggestion to look at examples,” said FASB vice chair Hillary Salo. “From my perspective, I think that is going to help level the playing field. People have been making reasonable judgments. I agree with that. And I think that this is really going to help show those goalposts or guardrails of what types of stablecoins would be in the scope of cash equivalents, and which ones would not be in the scope of cash equivalents. I certainly appreciate that approach, and I think it has the least potential impact of unintended consequences, because I do agree with my fellow board members that we shouldn’t be changing the definition of cash equivalents, and it’s a high bar to get into the cash equivalent definition.”
“I’m definitely supportive of not changing the definition of cash equivalents,” said FASB chair Richard Jones. “I believe that’s settled GAAP in a way, and we’re not really seeing a call to change it for broader issues. I am supportive of the example-based approach. The challenge with examples, though, is everybody’s going to want their exact pattern, but that’s not what we’re doing.”
The examples will explain the rationale for how digital assets such as stablecoins do or do not qualify as cash equivalents and give a roadmap for other types of digital assets with varying fact patterns to be able to apply.
“We really don’t want to be as a board facing a situation where something was a cash equivalent and then no longer is at a later date,” said Jones. “That’s not good for anyone, so keeping it as a high bar with certain rigid criteria, I think, is fine.”
Stablecoins are supposed to be pegged to fiat currencies such as U.S. dollars and thus provide more stability to investors. “In my view, while a stablecoin may meet the accounting definition established for cash equivalents, not every one of those stablecoins in the cash equivalent classification represents the same level of risk,” said FASB member Joyce Joseph.
She noted that the capital markets recognize the distinctions and have established a Stablecoin Stability Assessment Framework to evaluate a stablecoin’s ability to maintain its peg to a fiat currency. Such assessments look at the legal and regulatory framework associated with the stablecoin, and provide investors with information that could enable them to do forward-looking assessments about the stability of the stablecoin.
“However, for an investor to consider and utilize such information for a company analysis the financial statement disclosures would need to include information about the stablecoin itself,” Joseph added. “In outreach, the staff learned that investors supported classifying certain stablecoins as cash equivalents when transparent information is available about the entities at which the reserve assets are held. Therefore, in my view, taking all of this into consideration a relevant and informative company disclosure would include providing investors with the name of the stablecoin and the amount of the stablecoin that is classified as a cash equivalent, so investors can independently assess the liquidity risks more meaningfully and more comprehensively by utilizing broader information that is available in the capital markets and its emerging information.”
Such information could include the issuer, reserves, governance and management, she noted, so investors would get a more holistic look at the risks that holding the stablecoin would entail for a given company.
The board decided to require all entities to disclose the significant classes and related amounts of cash equivalents on an annual basis for each period that a statement of financial position is presented.
Entities should apply the amendments related to the classification of certain digital assets as cash equivalents on a modified prospective basis as of the beginning of the annual reporting period in the year of adoption.
FASB decided that entities should apply the amendments related to the disclosure of the significant classes and amounts of cash equivalents on a prospective basis as of the date of the most recent statement of financial position presented in the period of adoption.
The board will allow early adoption in both interim and annual reporting periods in which financial statements have not been issued or made available for issuance.
FASB also decided to permit entities to adopt the amendments to be illustrated in the examples related to the classification of certain digital assets as cash equivalents without the need to perform a preferability assessment as described in Topic 250, Accounting Changes and Error Corrections.
The board directed the staff to draft a proposed accounting standards update to be voted on by written ballot. The proposed update will have a 90-day comment period.
Senators introduced several pieces of tax-related legislation this week, including measures aimed at improving customer service at the Internal Revenue Service, cracking down on tax evasion and curbing the carried interest tax break, in addition to efforts in the House to repeal the Corporate Transparency Act.
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Senators Bill Cassidy, R-Louisiana, and Mark Warner, D-Virginia, teamed up on introducing a bipartisan bill, the
The bill would establish a dashboard to inform taxpayers of backlogs and wait times; expand electronic access to information and refunds; expand callback technology and online accounts; and inform individuals facing economic hardship about collection alternatives.
“Taxpayers deserve a simple, stress-free experience when dealing with the IRS,” Cassidy said in a statement Wednesday. “This bill makes the process quicker and easier for taxpayers to get the information they need.”
He also mentioned the bill during a
“I’m happy to meet with the team … and do all I can to make it as good as you want it to be,” said Bisignano.
“My bill would equip the IRS with the legislative mandate to create an online dashboard so that taxpayers can monitor average call wait time and budget time accordingly,” said Cassidy. He noted that the bill would allow a callback for taxpayers that might need to wait longer than five minutes to speak to a representative, and establish a program to identify and support taxpayers struggling to make ends meet by providing information about alternative payment methods, such as installments, partial payments and offers in compromise.
“I know people are kind of desperate and don’t know where to turn for cash, so I think this could really ease anxiety,” he added. “This legislation is bipartisan and is likely to pass this Congress.”
Cassidy and Warner
“Taxpayers shouldn’t have to jump through hoops to get basic answers from the IRS — and in the last year, those challenges have only gotten worse,” Warner said in a statement. “I am glad to reintroduce this bipartisan legislation on Tax Day to ease some of this frustration by increasing clear communication and making IRS resources more readily available.”
Stop CHEATERS Act
Also on Tax Day, a group of Senate Democrats and an independent who usually caucuses with Democrats teamed up to introduce the Stop Corporations and High Earners from Avoiding Taxes and Enforce the Rules Strictly (Stop CHEATERS) Act.
Senate Finance Committee ranking member Ron Wyden, D-Oregon, joined with Senators Angus King, I-Maine, Elizabeth Warren, D-Massachusetts, Tim Kaine, D-Virginia, and Sheldon Whitehouse, D-Rhode Island. The bill would provide additional funding for the IRS to strengthen and expand tax collection services and systems and crack down on tax cheating by the wealthy.
“Wealthy tax cheats and scofflaw corporations are stealing billions and billions from the American people by refusing to pay what they legally owe, and far too many of them are getting a free pass because Republicans gutted the enforcement capacity of the IRS,” Wyden said in a statement. “A rich tax cheat who shelters mountains of cash among a web of shell companies and passthroughs is likelier to be struck by lightning than face an IRS audit, and Republicans want to keep it that way. This bill is about making sure the IRS has the resources it needs to go after wealthy tax cheats while improving customer service for the vast majority of American taxpayers who follow the law every year.”
Earlier this week. Wyden also
The Stop CHEATERS Act would provide the IRS with additional funding for tax enforcement focused upon high-income tax evasion, technology operations support, systems modernization, and taxpayer services like free tax-payer assistance.
“As Congress seeks ways to fund much-needed policy priorities and address our growing national debt, there is one common sense solution that should have unanimous bipartisan support: let’s enforce the tax laws already on the books,” said King in a statement. “Our legislation will make sure the IRS has the resources it needs to confront the gap between taxes owed and taxes paid – while ensuring that our tax enforcement professionals are focused on the high-income earners who account for the most tax evasion. This is a serious problem with an easy solution; let’s pass this legislation and make sure every American pays what they owe in taxes.”
Carried interest
Wyden, King and Whitehouse also teamed up on another bill Thursday to close the carried interest tax break for hedge fund managers that
Carried interest is a form of compensation received by a fund manager in exchange for investment management services, according to a
Under the bill, the
“Our tax code is rigged to favor ultra-wealthy investors who know how to game the system to dodge paying a fair share, and there is no better example of how it works in practice than the carried interest loophole,” Wyden said in a statement. “For several decades now we’ve had a tax system that rewards the accumulation of wealth by the rich while punishing middle-class wage earners, and the effect of that system has been the strangulation of prosperity and opportunity for everybody but the ultra-wealthy. There are a lot of problems to fix to restore fairness and common sense to our tax code, and closing the carried interest loophole is a great place to start.”
Repealing Corporate Transparency Act
The House Financial Services Committee is also planning to markup a bill next Tuesday that would fully repeal the Corporate Transparency Act, which has already been significantly
If enacted, the repeal would eliminate beneficial ownership reporting requirements, removing a transparency measure designed to help law enforcement and national security officials identify who is behind U.S. companies.
“This repeal would turn the United States back into one of the easiest places in the world to set up anonymous shell companies, something Congress worked for years to fix,” said Erica Hanichak, deputy director of the FACT Coalition, in a statement. “These entities are routinely used to facilitate corruption, financial crime, and abuse. Rolling back the CTA doesn’t just weaken transparency, it signals to bad actors around the world that the U.S. is once again open for illicit business.”
The Internal Revenue Service rarely penalizes taxpayers who have high balances in foreign bank accounts and fail to file the proper forms, according to a new report.
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The
Taxpayers with specified foreign financial assets that meet a certain dollar threshold are also required to report the information to the IRS by filing Form 8938. Failure to file the form can result in penalties of up to $60,000. However, TIGTA’s previous reports have demonstrated that the IRS rarely enforces these penalties.
The IRS created an Offshore Private Banking Campaign initiative to address tax noncompliance related to taxpayers’ failure to file Form 8938 and information reporting associated with offshore banking accounts, but it’s had limited success.
Even though the initiative identified hundreds of individual taxpayers with significant foreign bank account deposits who failed to file Forms 8938, the campaign only resulted in relatively few taxpayer examinations and a small number of nonfiling penalties. The campaign identified 405 taxpayers with significant foreign account balances who appeared to be noncompliant with their FATCA reporting requirements.
The IRS used two ways to address the 405 noncompliant taxpayers: referral for examinations and the issuance of letters to them.
- 164 taxpayers (who had an average unreported foreign account balance of $1.3 billion) were referred for possible examination, but only 12 of the 164 were examined, with five having $39.7 million in additional tax and $80,000 in penalties assessed.
- 241 noncompliant taxpayers (who had an average unreported account balance of $377 million) received a combination of 225 educational letters (requiring no response from the taxpayers) and 16 soft letters (requiring taxpayers to respond). None of the 241 taxpayers were assessed the initial $10,000 FATCA nonfiling penalty.
“While taxpayers can hold offshore banking accounts for a number of legitimate reasons, some taxpayers have also used them to hide income and evade taxes,” said the report.
Significant assets and income are factors considered by the IRS when assessing whether taxpayers intentionally evaded their tax responsibilities, the report noted. Given the large size of the average unreported foreign account balances, these taxpayers probably have higher levels of sophistication and an awareness of their obligation to comply with the law.
TIGTA believes the IRS needs to establish specific performance measures to determine the effectiveness of the FATCA program. “If the IRS does not plan to enforce the FATCA provisions even where obvious noncompliance is identified, it should at least quantify the enforcement impact of its efforts,” said the report. “This will ensure that IRS decision makers have the information they need to determine if the FATCA program is worth the investment and improves taxpayer compliance.
TIGTA made three recommendations in the report, including revising Campaign 896 processes to include assessing FATCA failure to file penalties; assessing the viability of using Form 1099 data to identify Form 8938 nonfilers; and implementing additional performance measures to give decision makers comprehensive information about the effectiveness of the FATCA program. The IRS disagreed with two of TIGTA’s recommendations and partially agreed with the remaining recommendation. IRS officials didn’t agree to assess penalties in Campaign 896 or with implementing performance measures to assess the effectiveness of the FATCA program.
“From our perspective, TIGTA’s conclusions regarding IRS Campaign 896 are based, in part, on a misguided premise and overgeneralizations, including the treatment of ‘potential noncompliance’ as tantamount to ‘egregious noncompliance’ that warrants a monetary penalty without contemplating the variety of justifications that may exempt a taxpayer from having to file Form 8938,” wrote Mabeline Baldwin, acting commissioner of the IRS’s Large Business and International Division, in response to the report.
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