Key Takeaways
- The IRS has its sights on trust-stacking.
- The Trump administration is backing out of its own first-term North America trade deal.
- OBBBA deduction for tips future isn't certain.
- Few ways around NYC's new tax on second homes.
- Happy July 4th!
IRS and Stacking
Silicon Valley Is Obsessed With ‘Trust Stacking,’ and the IRS Doesn’t Like It - Ashlea Ebeling, Richard Rubin and Peter Santilli, The Wall Street Journal ($):
A hot tax break beloved by company founders and angel investors is expanding so rapidly that it is drawing the ire of the Trump administration.
At issue is what is known as trust stacking, which multiplies the benefits of a tax break for investors in small companies by two, three, four or even more times. The Qualified Small Business Stock tax break, or QSBS, allows founders to exclude up to $15 million in capital gains from their taxable income. But people are trying to exclude $60 million and beyond by transferring shares to trusts in their relatives’ names.
Treasury Department officials in this administration typically take a pro-taxpayer posture, but they have signaled a coming crackdown.
“Let me just warn you,” said Kenneth Kies, the Treasury’s top tax-policy official, in a speech last month. “We don’t like stacking, OK?”
At issue is what is known as trust stacking, which multiplies the benefits of a tax break for investors in small companies by two, three, four or even more times. The Qualified Small Business Stock tax break, or QSBS, allows founders to exclude up to $15 million in capital gains from their taxable income. But people are trying to exclude $60 million and beyond by transferring shares to trusts in their relatives’ names.
Treasury Department officials in this administration typically take a pro-taxpayer posture, but they have signaled a coming crackdown.
“Let me just warn you,” said Kenneth Kies, the Treasury’s top tax-policy official, in a speech last month. “We don’t like stacking, OK?”
Global Developments
US declines to extend North American trade deal, starting clock to end it while seeking changes - David Lawder, Reuters:
Industry groups, including those representing automakers, have called for continuation of USMCA as a trilateral deal with duty-free trade to keep U.S. manufacturing competitive against competitors in Asia and Europe.
Nissan CEO Ivan Espinosa told Reuters that the future of the USMCA, including potential requirements for more U.S. content, could worsen a growing affordability problem for American car buyers and this needs to be considered by policymakers.
Nissan builds two small cars in Mexico for the U.S. market — the Versa and Sentra — both now subject to a 25% tariff, but they remain profitable, he told Reuters in an interview in New York.
Nissan CEO Ivan Espinosa told Reuters that the future of the USMCA, including potential requirements for more U.S. content, could worsen a growing affordability problem for American car buyers and this needs to be considered by policymakers.
Nissan builds two small cars in Mexico for the U.S. market — the Versa and Sentra — both now subject to a 25% tariff, but they remain profitable, he told Reuters in an interview in New York.
Canada’s Cross-Border Tax Avoidance Plan Too Sweeping, Pros Say - James Munson, Bloomberg Tax ($):
Canada’s decision to deviate from global norms in targeting cross-border tax avoidance structures would weaken investment and raise costs for companies, especially those working with entities in the US, tax professionals say.
Canada’s Department of Finance is examining feedback on a draft bill aimed at hybrid mismatch arrangements—business plans that exploit differences in tax treatment across jurisdictions. The proposal wouldn’t just needlessly raise taxes and legal fees, but is also too broad and would capture common US-Canada tax arrangements not intended as targets under international guidance, several practitioners said.
“Rules that create double taxation, produce anomalous results, and impose significant computational burdens on ordinary cross-border arrangements will increase the cost and uncertainty of investing in Canada,” Kaitlin Gray, tax partner at Osler, Hoskin and Harcourt LLP, said in an email.
Canada’s Department of Finance is examining feedback on a draft bill aimed at hybrid mismatch arrangements—business plans that exploit differences in tax treatment across jurisdictions. The proposal wouldn’t just needlessly raise taxes and legal fees, but is also too broad and would capture common US-Canada tax arrangements not intended as targets under international guidance, several practitioners said.
“Rules that create double taxation, produce anomalous results, and impose significant computational burdens on ordinary cross-border arrangements will increase the cost and uncertainty of investing in Canada,” Kaitlin Gray, tax partner at Osler, Hoskin and Harcourt LLP, said in an email.
Microsoft's Irish Profit Powerhouse - Richard Rubin and Theo Francis, The Wall Street Journal ($):
Unlike some tech companies that kept intellectual property in the U.S. or repatriated it after tax-law changes, Microsoft has continued using Ireland as the center of its foreign operations. The country offers access to the EU market, native English speakers and an educated workforce. It has also historically attracted foreign companies with low tax rates and other incentives.
Microsoft employed 6,654 people in Ireland and reported $47 billion in pretax profits there, according to the new disclosure. In Germany, by contrast, it had 3,471 employees and recorded $661 million in pretax profits. A company official said pretax profit isn’t necessarily a useful measure and urged caution in interpreting the disclosures.
Microsoft employed 6,654 people in Ireland and reported $47 billion in pretax profits there, according to the new disclosure. In Germany, by contrast, it had 3,471 employees and recorded $661 million in pretax profits. A company official said pretax profit isn’t necessarily a useful measure and urged caution in interpreting the disclosures.
More Tax Tweaks
Tax Preparer, Tax-Exempt Hospital Bills Move Ahead at House Panel - Chris Cioffi and Victoria Knight, Bloomberg Tax ($):
The House Ways and Means Committee advanced several pieces of tax legislation Wednesday — the most contentious of which imposes new reporting requirements on nonprofit hospitals. The move is sure to trigger pushback from hospitals and health systems.
The legislation (H.R. 9504) is the culmination of longstanding bipartisan concern among lawmakers who have long-called for greater scrutiny of tax-exempt hospitals. Congress has fixated on the “community benefit” portion of the Form 990, which tax-exempt groups must fill out to maintain their nonprofit status.
“Tax-exempt hospitals look less like hospitals and more like hedge funds,” said Ways and Means Chair Jason Smith (R-Mo.) in his opening statements. “Americans deserve to know how much charity care a tax-exempt hospital provides to vulnerable patients.”
The legislation (H.R. 9504) is the culmination of longstanding bipartisan concern among lawmakers who have long-called for greater scrutiny of tax-exempt hospitals. Congress has fixated on the “community benefit” portion of the Form 990, which tax-exempt groups must fill out to maintain their nonprofit status.
“Tax-exempt hospitals look less like hospitals and more like hedge funds,” said Ways and Means Chair Jason Smith (R-Mo.) in his opening statements. “Americans deserve to know how much charity care a tax-exempt hospital provides to vulnerable patients.”
State/Local Taxes on Wealthy
Mamdani’s New Pied-à-Terre Tax Leaves Wealthy With Few Loopholes - Paulina Cachero and Ben Steverman, Bloomberg Tax ($):
The scramble for workarounds began almost immediately. Luxury brokers and tax attorneys said clients floated transferring properties into LLCs or trusts, turning them into $1-a-month rentals, rushing purchases to beat the July 1 deadline or securing a price just below the taxable threshold.
“The people who would be impacted by this policy are going to try to avoid this tax at any cost,” Serhant agent Peter Zaitzeff said. “And they’re usually very good at doing so.”
But in this case, the loopholes are narrow and the penalties for trying to skirt the tax bill are steep. While there are a few legitimate exemptions, there’s no obvious strategy to circumvent the new charge, said Ben Williams, who leads the property tax department for Rosenberg & Estis. “You either use it as your primary residence or not."
“The people who would be impacted by this policy are going to try to avoid this tax at any cost,” Serhant agent Peter Zaitzeff said. “And they’re usually very good at doing so.”
But in this case, the loopholes are narrow and the penalties for trying to skirt the tax bill are steep. While there are a few legitimate exemptions, there’s no obvious strategy to circumvent the new charge, said Ben Williams, who leads the property tax department for Rosenberg & Estis. “You either use it as your primary residence or not."
‘Taylor Swift Tax’ Stirs Bad Blood With Rhode Island Homeowners - Greg Ryan, Bloomberg Tax ($):
Rhode Island’s new tax on second homes is nicknamed for its most famous part-time resident, music superstar Taylor Swift, but the levy will also squeeze owners of saltbox houses on the coast that are much less grand than the singer’s Holiday House mansion.
Under an annual property tax measure that takes effect Wednesday, the state will collect $5 for every $1,000 that a vacation home’s value is assessed over $1 million. Rhode Island lawmakers passed the measure last year, targeting out-of-towners in coastal enclaves like Newport and Little Compton to raise revenue for affordable housing construction.
Under an annual property tax measure that takes effect Wednesday, the state will collect $5 for every $1,000 that a vacation home’s value is assessed over $1 million. Rhode Island lawmakers passed the measure last year, targeting out-of-towners in coastal enclaves like Newport and Little Compton to raise revenue for affordable housing construction.
OBBBA Check-in
One Year of the OBBBA’s Changes to Energy Credits - Marie Sapirie, Tax Notes ($):
The first anniversary of the One Big Beautiful Bill Act (P.L. 119-21) is approaching, and Treasury and the IRS still have many questions to answer about its changes to energy tax credits — particularly around the new rules on prohibited foreign entities. But the market is starting to regain headway, even with uncertainty around how to handle the changes for foreign entities of concern.
“Guidance from Treasury would be incredibly helpful, but I think we need to find a way to forge ahead,” said Lauren Collins of Vinson & Elkins LLP. Because the timing of that guidance is uncertain, the industry is trying to find solutions, she added. Collins said that immediately after the addition of prevailing wage and apprenticeship rules in the Inflation Reduction Act, the industry and advisers were apprehensive. “But then the industry worked through it, and consultants emerged with processes and procedures for cure, and it’s no longer that big of a deal,” she said. “I’m hopeful that a year from now, we will look back on the prohibited foreign entity rules and say the same thing.”
“Guidance from Treasury would be incredibly helpful, but I think we need to find a way to forge ahead,” said Lauren Collins of Vinson & Elkins LLP. Because the timing of that guidance is uncertain, the industry is trying to find solutions, she added. Collins said that immediately after the addition of prevailing wage and apprenticeship rules in the Inflation Reduction Act, the industry and advisers were apprehensive. “But then the industry worked through it, and consultants emerged with processes and procedures for cure, and it’s no longer that big of a deal,” she said. “I’m hopeful that a year from now, we will look back on the prohibited foreign entity rules and say the same thing.”
Temporary OBBBA Tax Breaks Face Murky Future in Congress - Marie Sapirie, Tax Notes ($):
The first anniversary of the One Big Beautiful Bill Act (P.L. 119-21) is approaching, and Treasury and the IRS still have many questions to answer about its changes to energy tax credits — particularly around the new rules on prohibited foreign entities. But the market is starting to regain headway, even with uncertainty around how to handle the changes for foreign entities of concern.
“Guidance from Treasury would be incredibly helpful, but I think we need to find a way to forge ahead,” said Lauren Collins of Vinson & Elkins LLP. Because the timing of that guidance is uncertain, the industry is trying to find solutions, she added. Collins said that immediately after the addition of prevailing wage and apprenticeship rules in the Inflation Reduction Act, the industry and advisers were apprehensive. “But then the industry worked through it, and consultants emerged with processes and procedures for cure, and it’s no longer that big of a deal,” she said. “I’m hopeful that a year from now, we will look back on the prohibited foreign entity rules and say the same thing.”
“Guidance from Treasury would be incredibly helpful, but I think we need to find a way to forge ahead,” said Lauren Collins of Vinson & Elkins LLP. Because the timing of that guidance is uncertain, the industry is trying to find solutions, she added. Collins said that immediately after the addition of prevailing wage and apprenticeship rules in the Inflation Reduction Act, the industry and advisers were apprehensive. “But then the industry worked through it, and consultants emerged with processes and procedures for cure, and it’s no longer that big of a deal,” she said. “I’m hopeful that a year from now, we will look back on the prohibited foreign entity rules and say the same thing.”
Mid-year Mark
Top Federal Tax Policies Of 2026: Midyear Report - Asha Glover, Law360 Tax Authority ($):
House of Representatives and Senate lawmakers have introduced proposals to make IRS administrative changes, with both garnering bipartisan support.
While the budget reconciliation process has been used by both parties in recent years to pass major tax policy changes along party lines, other legislation generally requires bipartisan support to get to the president's desk, Mark Epley, a partner at Arnold & Porter Kaye Scholer LLP, told Law360.
"In the absence of reconciliation, the only way to do tax legislation — or anything for that matter — is through genuine, bona fide, bipartisan agreement, and, as it happens, those are sort of the most durable changes," Epley said. "Improving tax administration is something around which the two parties have been able to find consensus."
While the budget reconciliation process has been used by both parties in recent years to pass major tax policy changes along party lines, other legislation generally requires bipartisan support to get to the president's desk, Mark Epley, a partner at Arnold & Porter Kaye Scholer LLP, told Law360.
"In the absence of reconciliation, the only way to do tax legislation — or anything for that matter — is through genuine, bona fide, bipartisan agreement, and, as it happens, those are sort of the most durable changes," Epley said. "Improving tax administration is something around which the two parties have been able to find consensus."
July 4th and Taxes
Top Federal Tax Policies Of 2026: Midyear Report - Asha Glover, Law360 Tax Authority ($):
Americans often remember the Revolution as a tax revolt. “No taxation without representation” has been a durable slogan for centuries, repeated by schoolchildren and politicians who agree on little else. Nearly everyone knows the Boston Tea Party; many can summon at least a hazy memory of the Stamp Act or the Townshend duties.
So why does the Declaration of Independence mention taxes only once?
The declaration is famous for its list of 27 grievances — a litany of complaints that accounts for more than half of the document’s 1,320 words. But the Continental Congress spared just eight words for its single complaint about taxes, attacking King George III “for imposing Taxes on us without our Consent.”
So why does the Declaration of Independence mention taxes only once?
The declaration is famous for its list of 27 grievances — a litany of complaints that accounts for more than half of the document’s 1,320 words. But the Continental Congress spared just eight words for its single complaint about taxes, attacking King George III “for imposing Taxes on us without our Consent.”
Blogs & Bits
What 250 Years of Tax History Reveal About the US Tax Code - Nate Scherer, William McBride, The Tax Foundation Tax Policy Blog. "Just as many parts of American life have transformed over the past 250 years, so too has the federal tax system."
Can Tax Credits Ease The Tariff Burden? - Janet Holtzblatt, Robert McClelland, John Wong, The Tax Policy Center Taxvox blog. "In a new report, we show that families' real after-tax income declined, on average, by $1,250 as consequence of the IEEPA tariffs."
Don’t miss the July 10 COVID penalty tax refund filing deadline - Kay Bell, Don't Mess With Taxes. "COVID-19 continues to ripple through our lives, but at least this time it could be a positive for millions of taxpayers."
Happy July 4th and the 250th anniversary of the U.S.A.!
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