Tax News & Views Foreign Entity Fish Egg Friday Roundup

Foreign Entity Rules Likely to Stifle Energy Tax Credit Claims - Erin Schilling, Bloomberg ($):

The $3.4 trillion law, enacted earlier this month, largely hastened the phase outs or ended the clean energy tax credits in the Democrats’ 2022 climate law, which many Republicans and President Donald Trump for years have pledged to claw back. It also put new restrictions on the tax credits to prevent certain countries from benefiting from US tax breaks, limiting the use of components and contract payments with ties to prohibited foreign entities.

Developers—especially those in the solar or storage industries—will have a difficult time tracing and removing prohibited foreign influences, which could cause fewer projects to qualify for the tax credits, tax professionals said.

“This is absolutely choking the ability for projects to contract right now,” said Hilary Lefko, a Norton Rose Fulbright partner.

IRS Issues Guidance On New Deductions For Seniors, Tips, Overtime And Car Interest - Kelly Phillips Erb, Forbes:

Tip income would be temporarily deductible—only for tax years 2025 through 2028—for taxpayers in traditionally and customarily tipped industries, regardless of whether they itemize. The deduction is limited to $25,000 of reported tips. It's important to note that this is a federal income tax deduction, not an exclusion. That means that tips would still be reportable—and taxable at the state and local level. Highly compensated employees won’t benefit since phase-out begins for individuals who make more than $150,000 or $300,000 in the case of a joint return.

...

Workers who receive overtime will be eligible for a deduction for qualified overtime pay of $12,500 ($25,000 for married taxpayers filing jointly). As with tips, this is a deduction, not an exclusion. The deduction would apply to taxpayers regardless of whether they itemize and would also be temporary—only for tax years 2025 through 2028. For purposes of the rule, overtime compensation is defined as the amount paid in excess of the employee’s regular rate—only the overtime compensation is part of the break

Extensions and Permanency for Opportunity Zone Investors - Adam Sweet, Eide Bailly:

The new legislation now makes the Opportunity Zone tax incentive program permanent, allowing investors deferring gains after the 2026 tax year to adopt a rolling 5-year gain deferral period.

There will also be a 10% reduction to the deferred gains for investments (made after the 2026 tax year) held for five years, and an enhanced 15% reduction for qualified investments into certain “rural” zones held for five years.

Bipartisan support helps foundations avoid tax increase in new Trump legislation - Thalia Beaty, Associated Press:

Two Republican senators and a broad bipartisan coalition of funders and nonprofits prevented a 600% increase in taxes levied on the endowments of the largest private foundations as part of President Donald Trump’s the tax and spending legislation.

...

Together, they advocated to remove the provision which, at the high end, would levy a tax of 10% on the investment earnings of foundations with more than $5 billion in assets, up from the current rate of 1.39%.

How Republicans Supersized Silicon Valley’s Favorite Tax Break - Andrew Duehren, New York Times:

The tax break, known as the qualified small business stock exclusion, is a decades-old element of the tax code that Congress has repeatedly made more generous. It allows investors and founders to skip out on paying taxes when they cash out their shares in start-ups. For early owners of stock in a business that started as a shoestring operation and became a major publicly-traded company, like Lyft or LinkedIn, or was bought out by another firm, that could mean millions in tax savings.

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Now, after the recent changes, initial investments in larger companies — those with $75 million in gross assets — can receive the special tax treatment. And the tax exemption will start to ramp up earlier. People who hold the stock for three years will able to cut their tax bill in half, with an additional discount after four years, instead of having to wait the full five years to sell tax-free.

Tax Administration Update: Acting IRS Chief Counsel rejects ICE data request, is replaced.

Leaked Blueprint Reveals ICE Plan To Use IRS Data To Increase Detentions - Autumn Billings, Reason:

Shortly after taking office, President Donald Trump and his administration began pushing the IRS to share taxpayer data to aid in identifying undocumented immigrants. Leaked documents reviewed by ProPublica reveal that an automated system is under development to share data with the Department of Homeland Security (DHS) and Immigration and Customs Enforcement (ICE), despite the agency's concerns over Americans' privacy.

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In April, the IRS negotiated with DHS a "memorandum of understanding" and put in place guardrails to safeguard Americans' private information to quell rising tensions over the legality of taxpayer data-sharing. After all, the unauthorized disclosure of taxpayer return information is a felony offense that carries a penalty of up to a $5,000 fine and 5 years in prison. But in an email reviewed by ProPublica, Andrew De Mello, the IRS's acting general counsel, rejected ICE's request for 7.3 million taxpayer addresses for failing to meet legal requirements, and was forced out of his job two days later, according to people familiar with the matter.

IRS Quietly Replaces Acting Chief Counsel - Lauren Loricchio and Benjamin Valdez, Tax Notes ($):

Andrew De Mello has been removed as acting IRS chief counsel and replaced by Kenneth Kies, Treasury assistant secretary for tax policy, a move that was announced internally last month by IRS Commissioner Billy Long.

De Mello, an ally of President Trump, had been serving as acting chief counsel since March when he replaced William M. Paul, whose title was changed to IRS deputy chief counsel (technical).

The reason for De Mello’s removal is unclear. ProPublica reported July 15 that De Mello refused to disclose the addresses of 7.3 million taxpayers sought by Immigration and Customs Enforcement.

Activists try to preserve IRS’s Direct File now that Trump has ended it - Julie Zauzmer Weil, Washington Post:

The Trump administration has shut down the IRS’s two-year-old experiment in free streamlined tax filing, but the people behind Direct File don’t want to let it go quietly.

The massive tax-and-spending law that President Donald Trump signed on July 4 included funds to study a replacement for the IRS-built website that the Republican administration had already begun to dismantle. Yet the idea of keeping the public filingoption alive in some form has brought together a collection of activists and computer programmers including former IRS employees, nonprofit advocates and even an 18-year-old dishwasher in Arizona who wants to create his own tax filing website despite having never filed a return for himself.

No Tax Refund For Uncashed Retirement Checks, IRS Says - Anna Scott Farrell, Law360 Tax Authority ($). "In Revenue Ruling 2025-15, the agency said that an employer who made a designated distribution in 2024 regarding an individual's $800 accrued benefit by withholding federal income tax and remitting the proper share to the U.S. Treasury Department is not entitled to a refund, even though the individual did not cash the distribution check."

Tariff 10 Percenters

Trump planning 10 percent tariffs on smaller countries - Alex Gangitano, The Hill:

President Trump said there will be a roughly 10 percent tariff set across the board for smaller countries, including those in Africa and the Caribbean.

“We’ll probably set one tariff for all of them,” Trump told reporters on Tuesday evening.

‘Just look at what happened last time’: US exporters fear Trump trade war fallout - Daniel Desrochers, Politico:

President Donald Trump’s flurry of tariff letters to more two dozen countries has triggered new threats of retaliation. Key U.S. industries are increasingly worried they are going to be collateral damage.

The European Union on Monday released a targeted list of $88 billion worth of U.S. goods it plans to tariff if it doesn’t make more progress in trade talks with Trump. Brazil, staring down a 50 percent duty on its exports to the U.S. over Trump’s frustration with their domestic politics, has given its president more leeway to impose unilateral tariffs on the U.S., should the Trump administration follow through on the prohibitive levies.

Another Casualty in the Tariff Wars: The Always-in-Season Tomato - Ana Swanson, New York Times:

The Trump administration announced Monday that it would impose a 17 percent tariff on most imports of tomatoes from Mexico, as it withdrew from a decades-old trade agreement that had prevented those levies from snapping into place.

The tariffs will add to the price of a year-round grocery store staple for many Americans, while funneling more business to domestic tomato growers, largely in Florida.

Blogs and Bits

Your new car's loan interest might be tax deductible - Kay Bell, Don't Mess With Taxes. "Single taxpayers can claim the full auto loan interest deduction only if they have a modified adjusted gross income (MAGI) of $100,000 or less. The income level for married couples tops out at MAGI of $200,000."

Fifth Circuit Affirms Tax Court’s Disallowance of Micro-Captive Insurance Deductions: An Analysis of Swift v. Commissioner - Ed Zollars, Current Federal Tax Developments. "This ruling underscores the critical importance of demonstrating genuine risk distribution and adherence to arm’s-length principles in captive insurance arrangements, as well as the strict requirements for penalty defenses."

IRS Taxes Apply After You Leave U.S. & Departure Can Trigger More - Robert Wood, Forbes. "A recent article notes that denaturalized citizens forced to exit could still face exit tax. The author flags Department of Justice plans for denaturalization proceedings against naturalized citizens who obtained citizenship through fraud or misrepresentation, or who are national security threats. There may be arguments that the tax should not apply in such cases, but if it does--or if you are leaving voluntarily--how does it work?"

Tax Court Sides with Partnership; IRS Cannot Extend Period for Imposing Penalties - Parker Tax Pro Library. "With respect to the IRS's attempt to extend the statute of limitations to six years, the court concluded that JM Assets adequately disclosed the nature and amount of the income the IRS asserted it had omitted on its return and thus Code Sec. 6235(c)(2) did not apply to extend the statute of limitations."

Tax Court Rejects a B* Tax Shelter False Valuation Claim with Warning of Sanctions for Taxpayers, their Counsel, and Expert Witness Proffering the B* - Jack Townsend, Federal Tax Procedure. (Expletives deleted). "Judge Buch is calling a spade a spade in his more polite and refined terms than I use."

I suppose a reference letter is out of the question.

Booz Allen Urges DC Circ. To Affirm IRS Leak Sentence - Anna Scott Farrell, Law360 Tax Authority ($):

Government contractor Booz Allen Hamilton urged the D.C. Circuit to uphold the five-year prison sentence of its former employee for leaking tax returns while on a job at the IRS, saying the crime has hurt the company's reputation and subjected it to "baseless lawsuits."

In an amicus brief Monday, Booz Allen said former employee Charles Littlejohn not only had abused his Internal Revenue Service position but had betrayed the company by illegally downloading thousands of wealthy people's tax returns, including President Donald Trump's, and leaking them to the media for political reasons.

"He deserves no leniency," Booz Allen said.

What day is it?

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Tax News & Views Foreign Entity Fish Egg Friday Roundup

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Joe B. Kristan, CPA