Tax News & Views Weekly Roundup: Auto-Trump Accounts, Athlete Salary Taxes, and More Data Centers

Trump Account Roll-out

Trump Accounts Auto-Enroll Success Hinges on Parents’ Key Step - Brett Samuels, Bloomberg Tax:

Benefits attorneys said the design behind automatic enrollment of millions of kids is likely well-intentioned and could increase participation, but they cautioned that parents or guardians will have to actively set up the accounts, and the administration provide education and awareness to ensure they know how.

“There is still an open question, how many parents will take that active step?” said Hillary August, a partner at Mayer Brown. “If you had a portion of the population that you were worried weren’t going to open the accounts in the first place, it’s not clear whether that population will still be able to go ahead and claim the accounts or will choose to do that.”

Trump Accounts’ Extraordinary Expansion Puts Individual Stocks Into Kids’ Holdings - Richard Rubin and Ashlea Ebeling, The Wall Street Journal ($):

With two sweeping late-September changes, the Treasury Department transformed the Trump Accounts program into something new and extraordinary: A universal child investment vehicle where millions of kids will receive donated stocks in individual companies.

The catch? Children and their parents can’t pick the stocks or reject donated shares, and they can’t sell for five years.

In Congress

Bipartisan Bill Would Address Tax Parity for Public Sports Teams - Cady Stanton, Tax Notes ($):

Most professional sports franchises in the United States aren’t operated as publicly held corporations, but for the handful that are — the Atlanta Braves, New York Knicks, and New York Rangers — the expanded limitation is expected to apply to deductions for top players’ salaries, as they are typically the highest-paid employees of a franchise.

The three publicly held sports teams in the United States and the members of Congress who represent them have raised concerns that the limitation could put those teams at an economic and competitive disadvantage when it goes into effect.

“For publicly traded professional sports organizations like the Atlanta Braves, this means players and other on-field personnel will be swept into a tax rule designed around executive compensation,” Sen. Katie Britt, R-Ala., who cosponsored the bill with Warnock, said in a statement. “Our bipartisan bill makes a targeted correction by excluding athletic personnel from that additional five-employee category while leaving the existing executive-compensation rules in place.”

Data Centers and AI

Data Center Boom Fuels Billion-Dollar Dilemma for Tax Assessors - Daniel Moore, Bloomberg Tax:

Tax assessors may seem unlikely players in the data center culture wars roiling the country. But as large-scale data centers proliferate, the local officials tasked with determining how much they are worth increasingly risk getting caught in the middle.

A trade group for the profession is scrambling to draw up guidelines, and the revenue chief in one data center hotbed said he’s getting so many calls for advice from tax officials in other counties and states that he started tracking them with a spreadsheet.

AI Boom Complicates Tax Treatment of Data Center Leases - Edward Beeby, Tax Notes ($):

Rapid data center expansion in support of artificial intelligence tools is creating new tax questions over whether economic arrangements involving servers, GPUs, cooling systems, and other potentially short-lived equipment constitute true leases, sales, service contracts, or something else.

The distinction can affect who is treated as owning the equipment and who may claim depreciation, credits, and other tax benefits, according to Sam Chen of KPMG LLP.

Speaking October 7 at the American Bar Association Virtual Fall Tax Meeting, Chen said the analysis becomes harder when equipment has a short or uncertain useful life or when the contract includes substantial services. There can be mismatches between fast-changing data center technology and long-standing tax rules that focus on economic life, residual value, control, and ownership.

Opportunity Zones

The Ins and Outs of OZ: Information Reporting and Decertification - Marie Sapirie, Tax Notes ($):

The effective date of the final regulations may cause some challenges for taxpayers. The final rules are unlikely to be published in 2026 because of the notice and comment period and finalization process. But the reporting requirements enacted by the OBBBA are in effect for 2026, Millett noted. Taxpayers must ensure that they report what the code requires for 2026, but they should simultaneously prepare for the new requirements by updating their legal documents to cover the items in the proposed regs and include a catchall provision for any changes that may come in the final rules, she said.

The proposed rules offer key clarifications for QOFs and attempt to balance interests and policy considerations while mostly adhering to the statutory language. Although the rules were anticipated by the OBBBA, there will likely still be a period of education and implementation ahead for QOFs.

Enforcement

Regs Issued to Warn Against Marketed Tax Strategy, Official Says - Edward Beeby, Tax Notes ($):

Recent guidance targeting a tax strategy involving exchange-traded funds put the market on notice that the government believes the transaction fails under existing tax law, a Treasury official said, but questions remain about its scope.

Speaking October 5 at the American Bar Association Section of Taxation’s Virtual Fall Tax Meeting, Theron West Jr. of the Treasury Office of Tax Policy explained the government’s motivations for promulgating the revenue ruling and notice on September 28.

“These facts don’t work under current law,” West said. “We wanted to put out this notice to let people know that we’re aware of them [and] our general thinking.”

Tax Pros Need to Be Experts on Experts in Economic Substance Cases - Kristen A. Parillo, Tax Notes ($):

“The level of effort that’s necessary and needed to substantiate business purpose and economic substance in a complex transaction should not be underestimated,” said Jean A. Pawlow of Latham & Watkins LLP.

Developing a storyline, knowing what the documents say and what the fact witnesses will testify to, and figuring out how to support the storyline with experts “is sort of the new variation of transfer pricing cases, where the dollar amounts are very large,” Pawlow said.

Because the transactions in codified economic substance cases are typically complex, tax professionals should think early and hard about how to position their cases, Pawlow said. “What court should you choose, and do you want to be first in the pack or farther back? If you have witnesses that are maybe retiring, how do you preserve testimony? What do you do about witnesses who have left?”

On the Campaign Trail

Arizona Swing-Seat Races Test Impact of GOP’s Signature Tax Law - Zach C. Cohen

The impact of the law on a swing state like Arizona will test how and whether the GOP’s biggest legislative accomplishment of this Congress addressed voters’ primary concern: the rising prices of essentials like food, healthcare, and energy.

The outcomes could also illustrate the challenges lawmakers will face during future debates over the nation’s fiscal health. The law passed only after congressional Republicans took pains to cut more than $1 trillion in spending — including from programs that provide food and healthcare benefits — in exchange for locking in attractive tax cuts.

California Billionaire Tax

Billionaires are fleeing California. The tax agency is preparing to chase them. - Will McCarthy and Jeremy B. White, Politico:

“If the question is, ‘What is the extent that FTB will go to tax someone they think has money?’” said Michael Cataldo, a shareholder with Cataldo Tax Law. “The answer is pretty far.”

There is no doubt that billionaires are taking it seriously. Tim Noonan, a state tax lawyer, said he is seeing “many taxpayers who fit the bill” taking steps to move. The level of urgency has ramped up since Prop 40 qualified for the ballot, even if some billionaires might not have thought much about it eight months ago.

But as Hyatt learned, shedding a California tax residency is a challenging task. And as billionaires prepare to leave the state, they will likely take many of the immediate steps that Hyatt did. They will get a new driver’s license, open a bank account in their state of choice, register to vote again, perhaps even re-register their Land Rovers in Nevada or Florida or Texas. But it will not be enough.

Blogs & Bits

Fewer People Could Receive Refundable Tax Credits Using Proposed IRS Form—Including Those Who Are Eligible, Elaine Maag, Tax Policy Center TaxVox blog. "Every additional question, form, certification, or eligibility determination creates another opportunity for an eligible person to make a mistake or abandon a claim."

A Small Value-Added Tax Could Pay for Tariff Repeal, Erica York, The Tax Foundation Tax Policy Blog. "Because a VAT is less distortive than tariffs, a conventionally revenue-neutral swap would expand US output, leading to a $130.1 billion revenue gain over the budget window on a dynamic basis and a slight decrease in the long-run debt-to-GDP ratio."

Once Bitten, Twice Taxed? The NIIT Treaty Cases Take a Turn, Manasa Nadig, The Buzz About Taxes. "Court cases involving the interpretation of tax treaties are always interesting—but the latest developments in Christensen and Bruyea bring disappointing news for taxpayers."

What Day Is It?

Chicago Fire

It's Fire Prevention Day--to commemorate the Great Chicago Fire, which raged through the city 155 years ago today. All (according to legend) because of Mrs. O'Leary's ornery cow. The day is part of Fire Prevention Week, created by President Calvin Coolidge in 1920.

A good reminder that preventing fires is much, much easier than stopping them once they've spread--especially with today's homes, that often contain very flammable materials. Here are some tips to keep your house fire-free.