Speaker 1: 0:03

Welcome to Beans Talk, MJ's podcast where we are sharing and showcasing our areas of expertise through conversations with practice leaders on their knowledge and experience. Welcome back to the Beans Talk Podcast here at Mauldin and Jenkins, where we try and uh take tax accounting, uh, any other concepts that we here can advise on and try and break them down for our audience. Uh today we're going to be talking about the big, beautiful bill, a lot of the 2025 legislative changes. We've obviously talked about this before, but as we near the end of 2025, we want to talk through more of the uh planning concepts, you know, everything that we might want to be thinking about as we head into the end of 2025 and and beyond, right? What were the significant changes and the significant uh items that came out of the bill? And and to help me do that, uh, we're excited to have William Roberts here, who leads our international tax office, and uh and welcoming back, Jeff Doris from the uh state and local side. So uh thank you again for being here. And William, welcome to the show. Thanks for having me. Thanks for having me. So uh, you know, the International Tax Office, uh, you know, can can you uh can you introduce yourself a little bit for the audience and uh and and kind of give a background of of what your what your team does?

Speaker 2: 1:20

Sure, sure. Well, I'm William Roberts, I head the international tax practice, as y'all know. Um my group, we basically do two things. Well, we do several things, but two of the biggest things we do is we advise partnerships, corporations, individuals on their the U.S. tax aspects of going international, meaning if they want to go overseas, you know, what are the tax consequences of you know setting up an overseas operations? If they are foreign individuals and they want to come to the US, you know, what are the US tax consequences of doing that? So we advise them not only just tax consequences, but you know, treaty analysis and anything that will help them minimize and their their their taxes paid on a worldwide basis. And once we advise them, we can also prepare any of the tax returns uh from a US side uh to help them report those operations. So basically consulting and compliance, and you know that that's basically what we do.

Speaker 1: 2:10

Yeah. And Jeff, you know, you've been on the you were one of the early uh members here on the uh on the podcast. Can you remind the audience uh what your team does?

Speaker 3: 2:19

Yeah, so similar to what William does on the international side, we take that more state and local. So we will advise um any of our businesses that that have state and local tax needs, so sales tax, personal property tax, any of that that stuff. Um, you know, as our clients go across state lines, uh your tax complexities really get get more complex. So as they as they spread their their wings and and and grow, we advise them on how to stay compliant and how to reduce their tax liabilities. Yeah.

Speaker 1: 2:48

And we're gonna try something a little different with this podcast, I feel like it's gonna be, hey, you know, we each have our own little lanes. Um, you know, I'm more on the federal, you know, US tax side and you've obviously international and then state and local. So we're gonna try and approach this, you know, hey, 2025 year in, what do we need to be thinking about? Obviously, there's different things, right? Uh from your perspective, from your perspective, from my perspective. So, you know, just I I think the takeaways are gonna be, hey, what general things are do you want to be, you know, taking away from this? Um, you know, what are the what do the bill change? How is it gonna change how you approach how you view your business, how you view yourself, you know, individually and internationally, right? So, you know, I we'll see how that goes. Um, but you know, I I I guess my my first question is, hey, what were the biggest, you know, results of the bill from an international, state, and local side that that we need to be aware of and kind of what do they incentivize out of that bill?

Speaker 3: 3:46

Sure. Okay. I mean, you know, from an international tax perspective, you know, they're basically, you know, we have to think about outbound and inbound. Uh inbound, there really wasn't as many big overhaul changes that I can think of. It was really most of an outbound context, meaning that if you have a foreign operation overseas, you know, back in the day you used to be able to defer the timing of when you would bring back income from those operations. But now, well, you know, since guilty, well, since subhard F came in, you they had anti-deferral regimes, so you had inclusions if you were engaging in these subhard F type income shenanigans. Basically, if you were engaging in foreign shenanigans, you couldn't defer that kind of income. Then in 2017 with the TCJA, they they introduced Guilty to us. And Guilty basically said, well, even more than subhard F, everything that you earned with the exception of 10% due to tangible income was coming back through something called guilty. And guilty stood for global and intangible low tax income, which basically meant nothing. No more shenanigans. Yeah, no more shenanigans. It's all coming back with the exception of 10%. So in other words, if you had everything that wasn't subhard F income, anything you earned was coming back with the exception of 10% of your income. When you say coming back, just mean taxing. I mean, yeah, it's taxed in the U.S. So you you was no deferment, you had to include that income on your US tax return in year one, and then the extent you actually paid that income back in year two, you didn't have to pay tax on it again because it was previously taxed earnings and profits. So, with all that being said, the new tax bill, and there was and the and it was achieved the the whole achievement of it was trying to you got taxed at a lower tax rate. You got a 50% tax deduction under Section 250, and that basically gave you a 10.5% tax rate on that income. And then you got uh 40, you know, foreign tax credit for the guilty purposes, but it was only 80%. So you had a 20% haircut. In the new OB3, which I like to say, so I don't have to say OBBBA so many times and confuse myself. Under the OB3, the 40%, you know, the 50% tax deduction for two under section 250 became 40%, which effectively gives you a tax rate of 12.6% on that guilty income. And again, guilty income, if uh and now it's called necktie, by the way, uh net CFC tested income. And why they did that and why that's important is because they're acronyms. Yeah, right. They they like it. So just think of guilty, uh, you know, you felt bad about this, you know, kind of guilty. Now nect is kind of enough to you know choke you kind of feel like you're everything's coming back, so you kind of feel the pressure, right? But necktie now, and the reason they did it is did that because net CFC tested income, because they took away the Q Bye aspect. So if you're a forum manufacturer and you had lots of you know tangible assets to produce your goods overseas and you know in your CFC, that is no longer there. So therefore, if you looked at the way the calculation was and on a form 8992, the bottom half of the form doesn't even need to exist anymore. Uh, and again, this is for tax years starting in 2026. This year you still got to go through it. But in 2026, you you don't have that. And they took away some other prevented, you know, provisions like RD and interest expense can only be allocated against US source income, not necessarily against um necktie. And that 20% haircut is now a 10% haircut. So big changes like that are coming uh in 2026. And you know, one of the key takeaways, I'm sure which we'll say over and over again throughout this podcast is one, you got to model all these provisions, and you can't do it in a vacuum. You got to model them all as they work together. And then you gotta be thinking about you know the compliance aspect of it. You know, there'd be a new form. So you got to basically rework your work papers to do your compliance.

Speaker 2: 7:13

So and we can we can get into all the other provisions, but well, I th and and and I one of the other common themes I think we're gonna discre uh discuss, right, is what was the intent of the bill? And it was really to encourage more US investment, right? I mean, kind of, you know, you can talk about necktie, it's like, well, if we restrict international investments, you know, and and increase the tax rates, right? Then really what we're doing by default is increasing the investment in the US and you hit on research and development. Right. And you know, there there's obviously a much more uh I guess a push to invest in US research and development versus international research and development because I can expense it immediately now. And if I still invest in abroad, you know, RD abroad, I have a 15-year amortization period. I can't cost recover it as quickly. I don't get an RD credit for it. Um, and so it it it's I think we'll see that theme more and more, right? Of hey, this whole push was to get, you know, even even at the individual level with Trump account, like the whole push is to get cash invested in the U.S. And so that's pretty much what we're seeing from the from the international side. Is that right?

Speaker 3: 8:17

That's right, that's right. And and again, and that can't be overstressed, right? Trump, you know, whether you like him or don't like him, it's irrespective, right? His his goal, he saw how the US was not manufacturing anything, sending all the IP and manufacturing jobs overseas, you know, his regime and with part of the TCGA, and again, this OB3 really corrects some of the things they didn't foresee or the things that really didn't work well on the TCGA, TCJA. So this OB3 really kind of corrects that and makes those changes that were gonna fall off a cliff, you know, rework them and make everything permanent. So these are permanent provisions until Congress comes and chains them under the next regime, under the next president or whatever. But yeah, so it really does help that. And, you know, it's it's funny you talk about the goal of this, and I'm gonna make a Star Wars reference here, but right? I was I was talking to some friends over this weekend actually, and you know, they have 25-year-old kids, 23-year-old kids, and they were expressing concern about not being able to have the American dream like they had, right? And this is all funny as we're down on the beach sipping cocktails. But and then you read, you know, Wall Street Journal articles about uh, you know, we're not making everything in the US. And then you get that email from that uncle about the little story about how you know the guy wakes up and he, you know, he drinks his coffee and out of all these foreign-made machines, drives a foreign-made car, and then wonders why he can't, you know, get a great American job. So I feel like the American manufacturing and research industry is kind of like Princess Leia, right? Uh, in that scene of Star Wars where she sits down with R2D2 and the OB3 is OB1 and the OB3 is helping, you know, it's like, help me, OB3, you're my only hope. So I feel like the American manufacturing industry is really, you know, on its last legs. And that's that's what this OB3 tax act, at least for the tax provisions, was designed to do was to help OB, you know, help, help, help Princess Leia, the American industry, the manufacturing industry, regain their competitive advantage.

Speaker 2: 10:06

Well, there's certainly encouragement in, like you said, manufacturing. You know, there's a new provision for what's called qualified production property, where if you build, you know, real property, you know, buildings, you can you can just expense them right away, you know, once you put them in service, assuming you meet certain qualifications. But that's a big number, right? I mean, usually if you're building a building, you got to recover that cost over 40 years. But now, if I can, hey, if I can expense that in year one and basically, you know, offset, you know, I have significant tax savings in the manufacturing world. Uh, you know, we've got 100% bonus depreciation um or 179 expenses, kind of two to kind of go hand in hand. But yeah, I mean, there there was, hey, we we want to make sure that you're comfortable with obviously the cost recovery and the tax savings associated with investing in this property, whether it's real or personal. Um, yeah, I mean, I think that that like you said, it's hey, this is not our only hope, but they want to encourage the investment, they want you to have some, you know, comfort that you will get the the tax benefit of that investment. And uh, and I think that's where we are. Yeah, that's right. You know, and and Jeff, I know you know, federal and state kind of go hand in hand as far as the OB3 goes, but you know what what kind of considerations on the front end do we need to take at the state level, right? I mean, with the changes. I mean, I know each state may not necessarily adopt everything. So what do we need to be cognizant of there as we kind of go into your end? Well, I just I want to welcome William and our international folks to the game. You talk about a a kind of a modeling nightmare where you can't model out all these different forms and taxes in a vacuum, you have to model them together. So if you look at a 50 state income tax state modeling, well, when you have concepts uh, you know, throwback rules and and where states have apportioned methodologies where there are uh revenues sourced from different different methods from one state to the next, one industry to the next, uh we do apportionment plannings and things like that. So if you move income from one state A to state B, how does that impact your your tax returns? So you you can't model those in a vacuum either, right? Because if if you depending on how that state is, like Georgia, when when you recognize all your income in the state on the state return, do you get a credit for other stack state taxes pay and that sort of thing? So you have to model that out. Um, but the biggest the biggest thing that comes from you know the tax bill are how those states couple or decouple from federal taxable income. Um so your your bill is a federal tax, right? It is not a state tax uh bill. So we look at, okay, well, how does each state uh adopt or not adopt, and how do they conform to the federal taxable income? So you always want to consider things like your bonus depreciation. Some states uh conform to federal taxable income without modification. And so in that case, you would get all your bonus depreciation deductions. And then some states absolutely do not want you to take bonus depreciation deductions on your state income tax return. So then you have to decouple and go back to your normal depreciation methods, or some states will have their own depreciation methods, which is whatever they can dream of. Um, so you model all those and and come out and see what your state income tax plan is. But the biggest, the biggest takeaway from from the bill is analyzing each state and how they are going to uh allow or not allow uh those deductions. Yeah, and I I think one of the biggest takeaways from the bill at the state level was kind of the the salt deduction, right? And we heard God, we heard salt, salt, salt for so long, right? Of hey, they're gonna take away our our salt, our PTE regime, which is kind of allowing us to deduct salt or state and local income tax at the entity level for for qualified businesses. And, you know, uh a lot of states, I feel like, kind of had their state and local deduction regimes tied to the expiration of the original of the 2017 bill, right? And so I think you've got a lot of states now that are either, hey, these PTE regimes have expired or we're not they're in flux or or things like that. I mean, have you heard anything or or what is there to consider there in terms of, hey, we might lose these deductions, we might not. Like what what do we do if we don't know? And right now there's not a lot of movement. I mean, that's that's the I think uh you mentioned it that the way they were were structuring those was based on the TCGA, right? So so uh states, it takes a long time for Congress to to adopt, even though we weren't necessarily expecting uh uh as quick of an adoption for OBBA as as it as it came out, but um states are notoriously even slower. So once the the OBBA comes out, uh states have started to discuss what they're gonna do with that, but there's not been a lot of movement yet. So we'll see. If you're in the rights, right industry and in the right state. So there's a lot of a lot of your political action campaign folks are for out there lobbying for for new adoptions, I guess we could call them. So so with some certainty on the federal side comes extreme uncertainty on the state side. Always. And so and certainty on the federal side, I feel like is not as certain as it used to be. But um, but here here's why I'm excited to kind of have everybody here to to discuss this, right? Because and and William, you and I were talking about this beforehand, right? Is you know, yes, there's a there is a push for an investment in the US. Um but sometimes what's best for US tax might not be best for international tax, right? I mean, if I if I can write everything off a hundred percent here, well, maybe that impacts me negatively, you know, on the international side or the state side. And so, you know, I I think what we want to get around to when we're talking about, you know, year-end planning is it might not be just year-in planning, right? It almost is just, hey, we need to take a fundamental look at your your structure, that's right, you know, how how everything is taxed, not just at the end of this year, but going forward, right? Because it I think there's, you know, with with interest rates changing, with interest deductibility rules changing, uh, new exclusions for you know, 1202 stock, certain things like that. I mean, let's let's start on the international side. Like what what kind of structural discussions do we need to be having? Or what's an example of where, hey, something here might not be as good if if I if I operate abroad, things like that.

Speaker 3: 16:23

Right. And let you know, just real quick, let me step before I answer that question, let me talk about what is creating this investment in the US push. And it's something called what used to be called FIDI, foreign derived intangible income. And now it's called FIDA, which is foreign-derived deduction eligible income. Uh, so another acronym to acronym to remember. But basically what it is saying is kind of like guilty, but this is a US version, if you have a US person who is providing sort of selling goods or providing services to an overseas market, they get a 33% deduction under Section 250 on that uh income earned overseas. Uh and so that's under the new, the new OB3 provisions. But the thing that is kind of helping uh US manufacturers is if you're a really if you're a really heavy capital intensive manufacturing asset type of entity, like whether it be car manufacturers or you know, whatever, any making widgets, right? And you had all this high dollar, you know, all these high dollar assets and buildings on your books, then, or you know, your production assets, you again, that Q BI was a 10% you know exclusion from your your, at least in this case, fidae income. And a lot of times that was greater than the actual income you earn. So a lot of times these manufacturers couldn't take advantage of this of this Fidae deduction. So by removing that Q buy just the same way as it did in Guilty, it was kind of a penalty for the foreign investors, but it's kind of a gimme, you know, benefit for the U.S. manufacturers because they don't have to worry about that now. So more income is is subject to the you know the 14% rate. And again, you don't have to do the RD and interest expense portion against that. Well, how all that ties together is guilty and and fide, well, necktie and fide work hand in hand. So under section 250, you get a combined deduction that is only applicable if there's income. So in other words, if there's uh if you if you don't have income or if you have more of these two types of income greater than you know just your standard non-fide and non-necktie income, then you actually have to reduce both of those under the provisions so you don't overtake your US income. So to the extent you create a you know a plant or you buy a bunch of equipment and you create a net operating loss, then that not only affects your Section 250 deduction, but also for guilty purposes and your foreign tax credit purposes, you can't take a foreign tax credit if you have no worldwide income or if you have a loss for worldwide income. So to the extent you start messing around with, hey, this great, you know, these these new plants, you know, these new pieces, parts, and machinery, it looks great. Let's buy a bunch of them, write them all off. And now you've created an NOL, which from a US only perspective, that's awesome. From a state perspective, that's awesome. You get all this good stuff and you don't have to pay tax on it. Well, if you just created a hundred million dollar inclusion of uh of Fiday income, you can't take that foreign tax credit now. And the thing is, is you've wasted that foreign tax credit because unlike subpart F, where you can kind of bank those foreign tax credits, Fidae, uh, I'm sorry, necktie, uh necktie guilty, those, yeah, they can't be carried forward. So you've lost that that ability to take that foreign tax credit. So that's the thing. You push here uh on bonus appreciation and the plants, you lose your ability to possibly take a 250 deduction or a foreign tax credit under necktie. So you gotta plan that very carefully in addition to the states.

Speaker 2: 19:36

I I think what we'll take away from that, right, is you really gotta model this stuff out because what's good for me is not good for you, is maybe good for, you know, it it really does take a real just model, right? I mean and and a lot of assumptions. And you know, I I think the one of the you know, to kind of tie into that, right? I think one of the exciting things that came out of the bill from on the domestic side was you know, we were able to expense 174 RD costs, you know, immediately and also catch up on RD costs, right? Well um and there was a provision that if you were small enough, a small enough taxpayer, you can go back and expense and amend your returns and expense and maybe clean refunds. Well, you know, you you really start digging into it and doesn't really make a lot of sense for a lot of people because hey, well, if I go back and amend, well, now I have interest deductibility implications, right? I have state implications and I have uh what's called 280c implications where I might not actually get the entire benefit of that deduction in a prior year, but hey, I've I've got this opportunity to deduct it in the next one or two years after the enactment of the bill. And so it it there are circumstances where, hey, it it makes sense to go back and amend, but most of the time it's well, let's take it in in the next year or two and you know, add on to the complexity of, well, if I take it all in year one and I'm operating abroad and I drive myself into a loss, well, man, that might hinder my ability to, you know, really take advantage of everything. So maybe I need to amortize RD costs over two years, right? Or if I I'm limited in my interest expense ability to go backwards, you know. So I I think those are the fun discussions that you're having with clients of yes, in a in a vacuum, one thing makes sense, but it might not make sense globally. And you know, you're more advantageous over two or three years, like you kind of have to, you know, go back to the model. You don't model it in a in one year, you model it over two or three years and make sure it makes sense from a cash flow perspective from an operational perspective, you know, it's true over a year, right?

Speaker 3: 21:40

Yeah, that's right. And like you say, when you when you're modeling the the bonus depreciation and all that, you know, you can pick and choose, right? I mean, I'm not the Fed tax expert here, but I think you can pick and choose, right? And so if you have assets that are that they're gonna be next year coming up, are gonna be high tariff assets, and you want and you need to start buying those now, then you need to ask yourself, okay, is this better to bonus depreciate these ones or these other assets that may not be tariff sensitive? Because we're not even talking about tariffs here. And quite frankly, that's outside the scope of this discussion. But that's also something you gotta think about. And so again, so if you're looking at that, and then you're right, and then you bring up the you know the interest expense for you know, deductibility, you know, and I'll let you cover 163J, but just one of the things that that has to do with with the new provision is starting in 2026, you can't include foreign inclusions under subpart F or guilty in your uh, I guess, tax adjusted taxable income base, right? So that's another thing you got to think about. So all the stuff, you know, you really it's all tied together. So you you either need to get your young people to start making these models or brush up on your uh uh Excel skills because these are not gonna be your standard if-then statements, these are gonna be huge spreadsheets trying to deal with all this.

Speaker 2: 22:48

By young people, you mean your Mauldin and Jenkins advisors.

Speaker 3: 22:50

That's right, that's right, yeah. Yeah, younger people than me, right?

Speaker 2: 22:53

Yeah, yeah. Um no, I mean it it all makes sense, right? And so, you know, I I guess shifting focus a little bit, right? Uh, you know, we're talking about modeling a couple years out, right? And so I think, you know, and and we'll get into the details, I think, in a later podcast about the true, hey, you know, we dove into the federal tax changes, I think, from EOBB3. And so we we won't dive into that too much. I think it's more just, hey, these are things to be thinking about. That's uh I think that's what we want the takeaway to be. And so, you know, Jeff on the on the on the salt side, you know, we mentioned kind of decoupling and and and state versus federal provisions and and that what other things do we need to be thinking about kind of on the state and local side, not necessarily as a result of the law of change, but just just kind of as as we approach year end. Yeah, I mean, the the tax law obviously has its state implications. And and you know, I joked earlier about the modeling and and with William and and there's absolutely modeling that goes into it. But every year I advise our clients that that they need to monitor their Nexus footprint. I mean, state taxation is always about Nexus. Where do you have Nexus? Where don't you have Nexus? Nexus changes every year uh based on your activities and and dependent depending on if you're uh a retailer and you're a remote retailer, you can have Nexus in a state for one year, not the next year. So it's a it's a fluid uh uh concept, right? Where do you have Nexus? So always monitoring your Nexus footprint, uh that's gonna change your models everywhere down the line. If you have Nexus and you you build it in, and if not, you you pull it out and that sort of thing. But but you always monitor your Nexus footprint. Um, you always look for opportunities. So, as the problem with Nexus is when you create Nexus in a new state, well, that state may or may not um uh uh tax certain items, they may not source revenue and and and the deductions the same way as another state that you're used to. And as businesses grow, what what tends to happen is year one or year one through 50, they are locally domiciled to their state or their one or two states. And so they have a process, you know, they have their local CPA or accounted and they build their process out. And then as they start growing, they come into new states and it's it's more about growth of the business and and how do we become profitable and do that? And and typically it's less about our tax and our accounting and that sort of thing. So then they get into this time of year and they don't realize the the state tax implications, you know, whether there's apportionment planning issues that should be done, or where do they need new schedules uh and that source their sales of of their revenue a different way for that state versus their other states and and all those types of state year-in planning that that we always you know advise our clients on. Yeah, yeah. And and and going back to earlier is better, right? And and and you know, going back to our PTE discussion, you know, I know there are some states where if you don't elect to be taxed under the PTE regime before the end of the year, well, then you're out of luck, right? You don't get that deduction. So, you know, I I think that yeah, I mean, the earlier that you you reach out to your advisors to kind of, hey, we expanded into states, we kind of want to make sure our methodologies are right. And and obviously from a tax, you know, compliance perspective, we're we're doing the right things. I think that's a very important takeaway from that, right? So well, this time of year too, you know, we're all busy as we move into the new year. This time of the year may be the only call it quiet time or downtime or quiet air time that you have. Once you get into December and and you know, first of the year, you lose the ability to to increase, you know, and and uh clean up your processes, right? So a lot of times we we always uh put things aside or or look at something and say, okay, this makes sense materially, we're correct, but maybe there are still nuances where you're doing something right or wrong and and and you need to clean it up. Well, we we we try to advise, let's take the time now to do it so that when we get into year one, that could be credit related, it could be expense related, sales and use tax, it doesn't matter. Um, but just cleaning up those processes. I I think a lot of people don't understand that, especially like and and we might dive into credits here in a minute, right? That that 90% of that work can be done before the end of the year, right? So, I mean, are there any credits where we we need to be thinking about it or or or just a what should we be doing as clients or advisors in the next couple months to kind of you know make compliance season a little easier for for us and them? Well, yeah, uh the credits are a great example of you know, the activity that generates the credits are happening now or happen during the year. They're not after the year, right? So, so a lot of times we're we're getting close to the end of October, end of November. Uh, you can go ahead and quantify the first six months of those credits and you can do a lot of the legwork uh from a documentation standpoint to be able to claim those credits, do it now so that come first of the year when we're in the midst of tax season and and audit season and that sort of thing. A lot of the legwork on that has been done. William, anything comparable on the international side, things that we need to be really thinking about before you're in? I mean, that that need to be done before you're in, right? Or is it just kind of a rolling plan?

Speaker 3: 27:47

I I mean, I think a lot of it is a rolling plan, but you know, to address something that could be done now or you're thinking about now for sure, is when you talk about your Nexus footprint, well, um, you need to think about your, you need to look at your structure overseas, right? And obviously account for your guilty necktie changes. Uh, think about if you're an exporter or a service provider for overseas, you need to be thinking about how the new Fidae versus you know Fidae versus Fidel, you know, FDII regime changes are going to work. But more, you know, one thing that's kind of overlooked to a certain degree, but if you had to experience it and you felt the pain, is there's uh uh something called downward attribution. It was under 958 B4. In the olden days, if you had a C if you had a foreign parent owned 100% of a US sub and 100% of a foreign sub, you know, you couldn't constructively attribute the ownership of that foreign sub to the U.S. sub. And then the TCGA repealed 958 B4 and said, well, now you can constructively attribute from a foreign person. So now the US sub was considered 100% owner of the foreign sub, which created, you know, uh 5471, you know, reporting requirements, 5471, something, right? Um, and then what would happen was is let's just say there's uh the foreign parent, there was a 90%, you know, the foreign parent owned 90% of the foreign sub, still 100% of the US sub, but then the foreign sub was also owned uh 10% by an unrelated, you know, third-party US person, right? So under the way the under the repeal of the downward attribution rules, you had now the you the foreign sub was considered a CFC, which was 10% owned directly by the US person, and you know, the the indirectly constructively owned by the U.S. sub. So you had a CFC, and what that was doing is these minority investors were saying, Oh, I just want to invest in this foreign corporation and get a dividend every now and then. Well, now they're completely subject as U.S. shareholders to guilty and subpart F inclusions, which is something they didn't bargain for. And then in addition, the foreign sub now had all these 5471 reporting requirements. And that sounds horrible for the US minority investor, and that's that is the case. But it was even more burdensome if you were this US, you know, this US sub who had no direct interest in this foreign sub, uh, but because of the Hour attribution, you are now a US shareholder and you have all these 5471 requirements, which is great if you only have one or two. But you know, I've seen if you have a hundred of them, uh, then you've got all these filing requirements, which adds a lot of complexity for compliance and all that. So the OB3, it repealed the repeal. So now I'm not going to go under the super 951B provisions, but basically uh that downward attribution is no longer there. So what that does is you need to start thinking about your footprint and say, well, what are my new compliance obligations? And you know, the US sub being owned by the foreign parent no longer has a 5471 requirement, you know, unless, again, there's these super super provisions I won't get into. And then the US investor, uh, you know, they don't necessarily have uh that's not a CFC anymore. So they're now back to their traditional, uh, they only get income inclusions if there's an actual dividend. So that's something when you have to when you do monitor and you think about, well, now that I have these these new provisions, how do I, how does my organization structure look now? I'm gonna be relieved that I don't have this inclusion, but you know, if I was getting a lot of subpart F, what happens now, you know, with those with the tax credits? I mean, I think you can still keep them and when you make it, you know, get a dividend under uh you know 960 nowadays, if there's a subpart F inclusion further, then you could probably take those foreign tax credits. 902 was a was a kind of an indirect credit, they don't, you know, that nine they don't have it anymore because of the TCJA. But so you got to start planning for stuff like that and then just think about does it make sense to still keep these investments in these minority shareholders in these foreign corporations? So that's that's definitely something you start to think about. And then just in general, to to monitor all the rest of the other changes. Do we really need this entity, you know, in Croatia? Do we really need this entity in Germany? Let's you know what kind of you know aspects are being thrown off by the new OB3 provisions? Just general structural planning, right?

Speaker 2: 31:48

And you know, and and and the same applies on the domestic side too, right? That's right. We you know 2017 Shaq's law change kind of jump started. Hey, are we are we organized right? Are we structured right on the domestic side? And I think we'll have those conversations again because you know, there were changes to 1202 qualified small business stock, um, which allows more taxpayers to maybe take advantage. Um, obviously the corporate tax rates are still very low. You know, QBI, the qualified business income deduction for pass-throughs were were made permanent. So you're gonna have those similar conversations on the domestic side that you had in 2017. And so I think it's a it's a really good time to not just for year end, but just you know, the next year or two, right? To to have those conversations of, hey, are we let's make sure we're aligned in our in our operational efficiencies and our tax and our structural efficiencies to take advantage of of what we now know is permanent, you know, maybe some additional exclusions in in this qualified small business stock world, right? And also in the international world. Yeah. And then and bringing in state and local, right? I mean, let's let's make sure we're we're hey, our sourcing methodologies are right for our operations and where we want to expand and credits that are available to us. So it's a fun conversation when you when you combine everything and you really get an idea and a sense of a client's, you know, here's where we are now, here's where we want to get to. Well, this is a perfect time to come in and say, okay, well, if we restructure now based on your goals, hey, we could we could really streamline your your tax efficiencies or your international efficiencies. And I think that's that for me, that's the main takeaway, right? I mean, what you know, I I think we we kind of frame this up as year-end planning, but it's really just go forward planning. It's we we want to know what your what your goals are. Um, yeah, we can help you in the short term, but also we want to make sure it's not just a short-term game. We want to make sure you're structured for the long term and and taking advantage of, you know, some a little bit more certainty in the tax law, at least for, you know, maybe the next eight years, even though everything's permanent, and there's nothing's permanent. All all taxes are complex and and we see it a lot where you know sometimes you you realize you should have done something five years ago and you learn the hard way that we didn't model this and we should have for that sort of thing. Well, when you start having new bills, you know, tax planning and and whether it's year-end planning or go forward planning or whatever, your your intent one is to reduce if you have any opportunities to reduce your tax liability, but two, let's not have any uh's, right? So let's let's continue to model this and look at this because there are a lot of changing, there's a lot of moving pieces, whether it's international, federal, state. Um, so get it right to the best, best of our ability. Yeah, I mean, there are always one-off planning strategies that you can deploy, but a good tax structuring discussion probably takes the course of three or four or five years to really implement and and perfect, right? So, you know, if you're restructuring, it may take time to migrate to that new structure, you know, properly. And you know, I'm sure you experienced that. And plans change too. So you might have structured and modeled something for a plan that was in place three years ago and and your three, five, 10 year outlook has now changed for whatever reason. And and so now you have the models in place to be able to go forward with those. Yeah, I mean, it's it's rapidly changing, right? I mean, we've got obviously we talked about interest rates and interest deductibility and and and hey, maybe exclusions and and gain exclusions that I can qualify for. So a great time, I think, to to contact your advisors and say, hey, am I structured right? Or, you know, let's let's let's have those conversations of here's where I want to get to, what's the best, best way for me to get there? And those are the fun conversations, I think. So um, you know, I I've I've enjoyed this, right? So anything that we really want to take away from this, other than, hey, let's let's keep the conversation rolling. Let's let's make sure we model these things appropriately and get the right variables in there. Anything else to take away from from today that you want the listeners to hear?

Speaker 3: 35:39

Well, you know, I'll I'll give you, you know, real quick, um, give you another concrete example about how things interact, right? When I just talked about the downward attribution, and now you have these minority shareholders and you mentioned individuals and partnerships flow throughs. Well, when you now have this no, you know, subhard F guilty inclusion, now if you're a minority minority shareholder and your your foreign corporation is a passive corporation, you may have just bought yourself into a PFIC, which is a passive foreign investment corporation. Now, that's horrible in and of itself. But if it's gone through, if it goes through a partnership and the partnership, you know, has different at you know, different rules for the PFICs and everything like that. And if it was a if it relied on, if the partners relied on a CFC PFIC overlap and now this thing is no longer a CFC, well, guess what? Now you're in a PFIC situation. Then you have to ask yourself, do I make a qualified election? Can I make a qualified election? Who makes it? So all these questions start popping up just by virtue of all these regime changes. Um, and then one thing we didn't talk about is real, but real quick, I think it's equally important is under, you know, which you know, structuring, right? We're talking about structuring here. Well, there's a new provision, at least in the international context, where, you know, before 2026 starts, you have this last, whoever holds the stock of a foreign corporation on the last day gets the guilty and gets the subpart F. Starting in 2026, it's a pro-RADA share. So you can't rely on just saying, okay, well, if I if I sell my CFC stock, I don't get that subpart F income, you know, if I sell it for the end of the year. Kind of a per day. Yeah, so now it's a pro-RATA thing. And so now that's going. So now you've got all these team of MA people that are gonna be, you know, the due diligence side, you know, what are, you know, what's the tax attributes of this, you know, and how do you adjust your buy-sell prices? So we so MA deals to try to maybe take into account some of these foreign aspects and domestic aspects and solid aspects are gonna have to consider this very important. You know, a minor, seemingly minor changes can have huge implications on the MA world as well, um, because it will definitely affect the buy and sell. So, in addition to this modeling, you know, one last thing, for at least from an international tax perspective, all these forms require huge work papers, right? I mean, I've I've worked with one client that had a thousand-page you know spreadsheet and had all the various aspects of foreign tax credits, everything like that. So all these were all your work papers are gonna have to be redone to account for just the foreign tax aspect of it. Same thing with your study. You talk about that 50-page, you know, 50 state model, that's gonna be brutal to get your work papers, you know, doing pro forma returns and all that. So, and then your Fed tax, you know, work papers as well. So that will have to be all those will have to be reworked for 2026 going forward. Sure. Yeah.

Speaker 2: 38:07

Well, you know, modeling 100%, but don't overlook things like on the state tax side. If you look at sales tax rates change January 1 across the country in a lot of cases, um, filing frequencies change. So depending on what industry you're in, if you're quarterly or semi-annual or annual filer, a lot of times they will update your frequencies as of January 1 or sometimes in the middle of the year, so July 1. Uh, so year in, be ready for those. So update your models, that sort of thing. I'm a stickler for processes. Uh, you know, a lot of times fixed asset systems don't always get updated from a federal tax perspective because it's a balance sheet item. It doesn't impact the income tax as much. But from a uh state personal property tax reporting, uh, you're still paying tax on those if they're on your books because you take your fixed asset role. So ghost asset reviews and asset cleansing processes, all good stuff like that. Um, on the expense side, you know, you know, there's a lot of manufacturing exemptions out there for uh equipment and and things like that. So there's always situations where maybe you you you've had a vendor for 30 years and they know not to charge you tax because this is exempt. Well, that for whatever reason you're no longer using that vendor, or you had to go to another vendor and and now they're charging you sales tax for an item that's exempt, just reviewing all those processes. It doesn't matter what tax type you're talking about, but just uh year in as you're getting into it, trying to readdress all of those issues um because it costs your business money if you don't. Yeah. Well, year end and tax law changes in one, right? Kind of just give you a great, not excuse, but a good reason to just hey, let's sit back and let's let's make sure it all makes sense and and make sure we're we're in a place where we can, you know, adhere to procedures and policies and and all that. So I think I think that's that's the biggest takeaway for me, right? Is let's let's let's use this as a good catalyst to be be right going forward. Right. Well, thank you both for joining us. Uh this was a great discussion. Um, I I hope uh our our clients got something out of it, and I know I know I got something out of it. So thank you everybody for listening. Uh please do visit mjcpa.com for more information. Thank you.