Key Takeaways
- ACA House Vote on Tap.
- DOA in Senate.
- Compromise efforts continue.
- Importance of well-documented R&D credits.
- Big year in partnership self-employment tax fight.
- California hits inactive LLC with annual fee; disregards "abusive" ESOP.
- Clooney goes to France.
- Start 2026 year-end planning today.
- Apple Tree Day.
House Democrats Plan to Force Obamacare Subsidies Vote This Week - Maeve Sheehey, Bloomberg ($):
...
The three-year extension is likely to pass the House, but Republican leaders may try to flip their party’s four renegade members by promising an alternative health-care agenda. The legislation appears dead on arrival in the Senate, where Republican leaders oppose it.
Why legislation is suddenly swamping Congress - Jake Sherman, Andrew Desiderio and Laura Weiss, Punchbowl News:
...
While the House’s three-year clean extension is D.O.A. in the Senate, Thune told us he’s “not averse” to a deal that includes a pared-back extension of the Obamacare subsidies. Thune said any deal would need to come together within the next month in order to have a realistic chance of success.
A bipartisan group of senators met again Monday night as they try to strike a compromise. Sen. Bernie Moreno (R-Ohio), who’s helping lead those talks, said after the meeting that they’ve made “a tremendous amount of progress” but compared the effort to “climbing Mt. Everest.”
IRS Still Focused on R&D Credit Claims
IRS Keeps Focus on R&D Tax Credit Even as Agency Staff Shrinks - Hogan Humphries, Alexander Fox, and Greg Sweigert, Bloomberg ($):
The IRS views these as high-risk areas where aggressive tax positions are common. It’s crucial to have strong documentation and well-reasoned positions supporting R&D credit claims.
Related: Eide Bailly Research & Development Tax Incentives Services.
Big Year For Partnership Self-Employment Tax Fight
SECA Tax Saga Advances to Appellate Courts in 2026 - Kristen Parillo, Tax Notes ($):
...
The dispute is one of three appellate-level cases in which taxpayers are challenging the Tax Court’s November 2023 precedential ruling in Soroban Capital Partners LP v. Commissioner, 161 T.C. 310 (2023). The other cases are pending in the First and Second circuits but aren’t as far along as the appeal in Sirius.
The Soroban opinion addressed for the first time how section 1402(a)(13) applies to state law limited partners. Enacted in 1977, section 1402(a)(13) excludes from the calculation of net self-employment earnings subject to Self-Employment Contributions Act (SECA) tax the distributive share of income or loss of a “limited partner, as such,” other than guaranteed payments made to that partner as remuneration for services rendered to or on behalf of the partnership.
Related: Eide Bailly Pass-through Entity Consulting Services.
California: Inactive LLCs taxed; ESOP deemed too sketchy
California Says Business Still Owes LLC Tax, Even if Inactive - Casey Murray, Bloomberg ($):
The business, A+ Lives LLC, contended that it didn’t need to pay the tax applied by the Franchise Tax Board because it didn’t garner income in 2020. The company also argued the tax shouldn’t apply because 2020 was its first year.
Administrative Law Judge Veronica Long wrote in her precedential opinion that the business filed its articles of organization in 2019, therefore it wasn’t still in its first year of business in 2020.
California Company’s ESOP Deemed an Abusive Tax Avoidance Scheme - Richard Tzul, Bloomberg ($):
...
This setup lacked both a business purpose and economic substance, the OTA ruled. In fact, the transaction mirrors S corporation/ESOP shelters that the IRS has identified as abusive, in which the corporation’s pass-through income is funneled to a tax-exempt entity to avoid paying taxes entirely.
[The owner] argued the ESOP was for employee retention and that he relied on professional advice in creating the plan. The panel rejected these claims, finding that [the owner] was the plan’s sole stock beneficiary during the disputed years, and he provided no documents substantiating his reliance on advisers.
Related: Employee-Owned Companies (ESOP).
It's Hard to Say Goodbye
If George Clooney Gives Up US Citizenship, He’d Face Big IRS Exit Tax - Robert Wood, Forbes:
Having multiple citizenships is not uncommon, and there’s been no suggestion that Clooney will give up his US passport. He likely already has a complex tax picture, paying tax and filing annual tax returns in both countries. If you are a U.S. citizen, the mere fact that you live abroad—even forever—does not mean that you avoid U.S. taxes or the annual slog to file IRS returns. If you want to stop paying U.S. tax, you have to go a step further and give up your passport or green card.
That can be costly, since the U.S. has an exit tax tied to assets and income that would eat into Clooney’s wealth which is reportedly $500 million or more.
Related: Eide Bailly Global Mobility Services.
Tariffs: Digging In, Digging Out
Trump: Losing ability to issue tariffs would be ‘terrible blow’ to US national security - Max Rego, The Hill:
“Tariffs are an overwhelming benefit to our Nation, as they have been incredible for our National Security and Prosperity (like nobody has ever seen before!),” the president wrote on Truth Social.
Trump Rolls Back Tariffs on Furniture and Kitchen Cabinets - Alex Frangos, Wall Street Journal:
The increased tariffs, announced in September to target lumber-based products, were set to go into effect on Jan. 1, according to a White House statement published on New Year’s Eve.
Blogs and Bits
New Year 2026 brings tax changes in 43 states - Kay Bell, Don't Mess With Taxes. "There is good news for taxpayers in nine states. Filers in Georgia, Indiana, Kentucky, Mississippi, Montana, Nebraska, North Carolina, Ohio, and Oklahoma will see reduced individual income tax rates this year."
Why California’s One-Time Wealth Tax Won’t Work - Jack Salmon, The Unseen and the Unsaid. "California’s reliance on high earners is unusually extreme. A small fraction of taxpayers accounts for a disproportionate share of personal income tax receipts, with the top 1% typically contributing 40-50% of all state income tax receipts."
Related: Eide Bailly State and Local Tax Services.
Two Passports, One Taxman: Dual Citizenship in the Crosshairs - Manasa Nadig, The Buzz About Taxes. "If you are a U.S. person, you are subject to U.S. tax on your worldwide income and to the foreign asset reporting regimes discussed below—even if you also hold another passport, even if you have never lived in the United States as an adult, and even if your “other” country is where all of your income and assets sit."
Let's stop hiding the income and outlay pie charts in an instruction booklet few read - Annette Nellen, 21st Century Taxation:
...
The charts show the percentage of income and outlays of the federal government within broad categories. The income one also shows how much comes from borrowing (27% for 2024) and the outlays one shows that 13% of them go to pay interest on the borrowing. While these are general charts, I think they are helpful for anyone to get a basic understanding of federal government activities and perhaps generate questions for elected officials and those running for office.
Start 2026 Year-End Tax Planning Now!
It's human to focus on tax planning at year-end. Our species seems to be deadline-driven.
It's divine to start your tax planning in January. Or, at least, it can pay to do so.
One easy move is to fund your 2026 Individual Retirement Arrangement right darn now, rather than waiting until the April 2027 deadline. When you put money in your IRA at the start of the year instead of at the last minute, you are earning tax-advantaged returns 15 1/2 months longer. Do that every year and it adds up.
I asked the CoPilot AI what the difference would have been for total returns on $7,000 annual contributions on January 1 vs April 15 for the 30-year period from 1995 through 2024. (I know, the IRA contribution cap was lower for many of those years, but bear with me - the point I'm making still holds.) I used current top-end tax rates. I assumed the funds would be immediately invested in an S&P 500 index fund once contributed, and in a money market fund if not invested.
Using these admittedly crude assumptions, investing on January 1 would have left an investor with an additional $178,000 in savings on December 31, 2024, with a total account balance of over $1.3 million.
Past performance is no guarantee of future results. That said, the sooner you put your money to work in a tax-advantaged account, the better your after-tax returns. IRA now! If your employer lets you front-load your 401(k) and you can afford it, do so. The same goes for other tax-advantaged savings vehicles, like Health Savings Accounts and Sec. 529 plans.
What day is it?
It's Apple Tree Day! "So mull that cider and fill your homes with that sweet aroma as we come together to celebrate this great holiday."
Make a habit of sustained success.
