Tax News & Views Weekly Roundup: Hollywood Credits, AI Taxes and Quesadillas

In Congress

IRS Top Lawyer Pick Commits to Recusal on Former Client Matters - Erin Slowey, Bloomberg Tax ($):

Jim Gadwood, a tax controversy attorney at the boutique law firm Miller & Chevalier and nominee for the chief counsel job at the IRS, told Senate Finance Committee lawmakers that, if confirmed, he’d follow recusal and ethics obligations for conflicts of interest with former clients, according to written responses following his confirmation hearing.

If confirmed, Gadwood would handle the biggest legal issues at the IRS and would be joining the agency after a tumultuous first year in Trump’s second term, which has seen an exodus of a quarter of the workforce and a lawsuit from the president.

Tax Goes Hollywood

Lawmakers unveil Hollywood tax incentive proposal - Daniel Miller, Politico:

The stakes are high for the entertainment industry, which has been battered by years of work shifting to countries with lucrative tax credits. But the proposal could face resistance from conservatives wary of a new tax break — particularly one benefitting an industry centered in heavily Democratic California.

The effort involves an unlikely mix of figures — Sen. Adam Schiff and Rep. Laura Friedman of California, red-state lawmakers, Trump and the president’s Hollywood ambassador, Jon Voight. South Carolina Republican Tim Scott introduced the legislation in the Senate, while Texas Republican Nathaniel Moran did so in the House.

But it’s the support of Trump, who has called for the incentive in recent weeks, that likely has spurred the most momentum for the proposed credit.

What to Know About a Federal Film Tax Credit - Derrick Bryson Taylor, The New York Times ($):

The proposal faces formidable obstacles in a divided Congress that has struggled to agree on any major policy changes and where tax legislation is particularly contentious. If it become legislation, the subsidy would bolster the country’s position in the marketplace and help it compete with popular filming locations like Australia, Britain, Canada and Hungary.

President Trump offered his support last month, calling on Republicans and Democrats to work together to write and approve legislation that would keep jobs in the country. “What we watch on the Silver Screen should be made in what was once the Movie and Motion Picture Capital of the World,” he wrote on social media. “Let’s get this done!”

AI and Tax

Sen. Kelly Pushes AI Tax Measures to Fund Workforce Support - Lauren Vella, Bloomberg Tax ($):

Sen. Mark Kelly (D-Ariz.) introduced a bill Thursday that would place three excise taxes on artificial intelligence to feed a federal trust fund dedicated to retraining a displaced American workforce.

The legislation would create a 5% digital advertising tax, an AI usage tax, and a 50% excess profits tax.

Kelly previewed the bill, the “Make AI Work for Americans Act,” in a speech on the Senate floor earlier in the week, but didn’t say how the “AI Horizon Fund” would be fed.
ce signed into law by President Donald Trump, ESOP fiduciaries and trustees will be able to rely on independent expert appraisers who use the IRS rule to determine fair market.

IRS Guidance on AI Needs Reworking, Former Officials Say - Ben Valdez, Tax Notes ($):

IRS guidance telling tax professionals to convey cost savings related to artificial intelligence to clients oversimplifies the process of implementing the technology, according to two former officials.

The IRS Office of Professional Responsibility has cautioned that tax professionals should “fairly credit to the client’s account any cost reductions” associated with the use of generative AI to avoid clashing with Circular 230 rules limiting excess fees in tax return preparation.

While likely well-intentioned, that guidance oversimplifies the billing processes across firms of various sizes, former OPR Director Sharyn Fisk said during a September 23 webinar hosted by the Accounting, Legal & Finance Institute.

At the IRS

IRS proposing new tax return question about citizenship - Juan Carlos Chavez, Yahoo Finance:

For the first time, the Internal Revenue Service is proposing to ask taxpayers about their citizenship or legal authorization to work when they fill out income tax returns next year.

Advocates for immigrants fear the answers could be used to deport workers or their spouses who are in the country without authorization.

The question asks taxpayers and their spouses, if filing jointly, whether they are a "U.S. citizen, U.S. national, or an alien lawfully authorized to work in the U.S."

Tax Fraud Cost Government Up to $304 Billion a Year, Report Says - Erin Slowey, Bloomberg Tax ($):

The federal government lost as high as $304 billion annually to tax fraud over a seven-year period, a watchdog found Friday.

The Government Accountability Office estimated in a report that annual federal tax fraud loss was between $116 billion and $304 billion from 2018 through 2024. It represents between 2% and 6% of the estimated taxes owed to the government.

Minimizing fraud, waste, and abuse is a pillar of the Trump administration’s strategies in the federal government. The IRS has historically struggled to go after fraud after decades of underfunding.

California

Billionaires Fleeing California to Hit Tax Officials’ Scrutiny - Michael J. Bologna, Bloomberg Tax ($):

A half-dozen tech moguls have made noisy departures from California to escape a proposed billionaire tax, but it’s unclear whether that would save them from the 5% levy on accumulated wealth — assuming the ballot measure wins voter approval Nov. 3.

Google co-founders Sergey Brin and Larry Page, venture capitalist Peter Thiel, auto-finance titan Don Hankey, Uber co-founder Travis Kalanick, and filmmaker Steven Spielberg all left ahead of the Jan. 1, 2026, residency cutoff specified in Proposition 40, the Billionaire Tax Act. Other billionaires have moved since the cutoff, or plan to, hoping the tax’s retroactive provisions will be found unconstitutional, said David Lesperance, a tax and immigration attorney with clients in that camp.

International

Overseas Income Regs May Cause M&A Headaches - Natalie Olivo, Law360 Tax Authority ($):

Regulations proposed by the U.S. Treasury Department would provide clean breaks for companies that sell more than 50% of their foreign affiliates, but transactions that fall below this threshold could still expose corporations to post-closing tax risks and deal friction.

The proposed regulations, issued in August, would adopt changes that the July 2025 budget reconciliation bill made to two provisions for offshore earnings: the Subpart F regime, which immediately taxes the global passive income of U.S. corporations, and the provision for global intangible low-taxed income.

Europe’s Competitiveness Problem Is Becoming a Tax Base Problem -Chad Martin, Bloomberg Tax:

Rapid technological development and willingness to deploy capital at staggering scale are essential ingredients for success in the modern global economy. The European Union and its 27 member states are therefore disadvantaged by their excessive regulation, market fragmentation, and business culture of risk aversion.

The result is a weaker homegrown tax base. To resolve this, the EU and its member states should shift enforcement priorities away from burdensome, formalistic reporting regulations toward mission-critical guardrails. The EU should also foster a more integrated, innovation-centered ecosystem in which domestic champions and regional multinational enterprise hubs can thrive, thereby reducing reliance on taxing foreign multinational enterprises.

See further thoughts on international taxes from Chad Martin, Eide Bailly principal and practice lead for transfer pricing services, here.

Blogs & Bits

Fixing A $40 Trillion Problem May Require Broad-Based Taxes, Aparna Mathur, Joseph Rosenberg, The Tax Policy Center Taxvox blog. "Rising federal debt is problematic for several reasons: It crowds out private investment, hurts investor confidence in the US economy, reduces our ability to respond to future crises, and creates a vicious cycle where the government is borrowing to meet its interest payments."

Spending Through the Tax Code, George Callas, Plucking the Golden Goose. "Government subsidies, whether wasteful or effective, often take the form of tax policies that reduce government revenue even though they have the same economic effects as spending programs."

A New Lead In The Tylenol Murders and The Tax Twist You Probably Forgot, Kelly Philips Erb, Taxgirl. "Somehow, even this decades-old murder mystery has a tax connection."

What Day Is It?

Quesadilla

It's National Quesadilla Day! Enjoy some over the weekend.