Key Takeaways
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Important IRS guidance on OBBBA research deduction changes.
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Extended window for "superseded" returns opens door to 2024 changes.
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Accounting method change rules for recovering post-2021 domestic research costs.
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The Employee Retention Credit Claim exam surge.
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Tariffs in tiny packages.
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Colorado tax changes.
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Tax shelters, then and now.
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College Colors Day.
OBBBA CPE Opportunity. Eide Bailly presents the second part of "New Tax Legislation: Key Considerations for Your Business" Wednesday, September 3, at 1:00 p.m. Central. Register here. 1.5 hours CPE offered, no charge. Topics include the expanded deductions for state and local taxes, SALT cap workarounds, and the tip and overtime deductions, among others.
IRS Clarifies Options for Retroactive Research Deduction - Nathan Richman, Tax Notes ($):
Released August 28, Rev. Proc. 2025-28, 2025-38 IRB 1, adds new tax accounting method changes and describes how to make statutory elections for taxpayers applying the new research cost rules from the 2025 reconciliation bill (P.L. 119-21).
Jim Donavan, a partner in the Eide Bailly research incentives practice, comments:
- Small business taxpayers, with average annual gross receipts of $31M or less, may retroactively apply §174A to 2022–2024 by filing amended returns or AARs, or making the election on a timely filed original return. This provides immediate expensing of domestic R&E. Specific election statements are required.
- Flexibility in making or revoking Section 280C(c)(2) elections are granted. Again, detailed statements must be included.
- Taxpayers may deduct the full remaining unamortized domestic R&E balance in 2025 or take it ratably over 2025–2026. Specific election statements can be filed in lieu of a Form 3115.
There is a lot to this revenue procedure, and you should consult with your tax advisor to ensure compliance.
A return is "superseded" when a second return is filed before the filing deadline to replace a previous return. The superseding return is then considered the "original" filing. Superseding returns bypass the cumbersome process that often applies to amending partnership returns and allows taxpayers to change elections that normally can only be made on an original return.
Section 280C(c)(2) allows taxpayers to elect a smaller research credit in exchange for larger deductions. The change from amortizing research costs to currently deducting them, along with rate changes, can affect whether taxpayers want to make that election.
Understanding the OBBBA Research or Experimental Expenditure Procedures for Tax Professionals Under Revenue Procedure 2025-28 - Ed Zollars, Current Federal Tax Developments:
Related: Eide Bailly Accounting Methods Services.
IRS Personnel Merry-Go-Round
Schneider Steps Down as IRS Corporate Chief - Chandra Wallace, Tax Notes ($):
Lisa Fuller, who has served as deputy associate chief counsel (corporate) since 2018, now helms the corporate office in an acting capacity, Schneider told Tax Notes.
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An updated organizational chart posted on the IRS website dated August 27 increased the number of vacant positions in the agency’s senior leadership to seven, including positions as deputy commissioner, commissioners of the Tax Exempt and Government Entities and Large Business and International divisions, and director of the Office of Professional Responsibility.
ERC Audit Surge
Big IRS ERC Claim Exam Push Underway - Gil Mitchell, Eide Bailly:
Typically the IRS notifies ERC claimants of the exam using Letter 6612, sent from IRS “Pre-Refund Verification Units”. The letters ask for extensive and detailed information to support the ERC claims.
The letter gives taxpayers only 30 days to provide this extensive documentation. Firms across the country and industry media report a similar surge in correspondence examinations.
Tariffs in Tiny Packages
Donald Trump hits small packages with fresh tariffs as duty-free exemption ends - Aime Williams, Financial Times:
President Donald Trump announced earlier this summer that he would eliminate a tariff waiver that allowed goods worth less than $800 to enter the US duty-free. All packages entering the country will now be subject to tariffs regardless of their value.
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The move has prompted global postal services to announce they will stop sending parcels to America. Agencies in Germany and Singapore said US authorities have not provided enough clarity on how the duties will be collected.
When Mailing a Letter to the U.S. Becomes a Global Headache - Francesca Regalado and Jenny Gross, New York Times:
When he tried to do that last Friday, the post office near his home in Chiang Mai declined to send his documents.
Thailand Post, the country’s postal service, has stopped sending mail to the United States while its transportation partners adjust to President Trump’s decision to end duty exemptions for low-value imports. Many postal services around the world have done the same as they await clarity on how Mr. Trump’s executive order, which went into effect at midnight on Friday, will play out.
Map Shows Countries Suspending Postal Service to United States - Giulia Carbonaro and John Feng, Newsweek. "Postal services in more than 20 countries have announced the temporary suspension of most parcel shipments to the U.S., citing uncertainty over the effects of a Trump administration policy change."
Click on source article for an interactive version of the map.
Tariffs in Big Iron
Caterpillar Says Higher Tariff Costs May Reach $1.8 Billion - Katherine Hamilton, Wall Street Journal:
In the third quarter, it anticipates costs to be $500 million to $600 million, up from $400 million to $500 million.
As a result, Caterpillar expects its full-year adjusted operating profit margin will be near the bottom of the target range it gave previously. The new tariff costs aren’t expected to weigh on its sales outlook.
E.U. to Scrap Duties on U.S. Industrial Goods as It Scrambles to Soften Auto Tariff Blow - Joshua Kirby, Wall Street Journal. "The European Union will move to eliminate all tariffs on U.S. industrial imports and expand access for American farm products, part of an effort to shield European automakers from steeper duties on their exports to the U.S."
Resources for Teaching Tariffs - Alex Tabarrok, Marginal Revolution. "Trump has put tariffs on the economics agenda in a way that hasn’t been true for decades. As a new semester of principles of economics begins, here are some resources for teaching tariffs."
These are also excellent resources for learning about tariffs.
Stateside
Colorado’s Gov. Polis Signs Five Tax Revenue-Raising Bills - Michael Bologna, Bloomberg ($):
- HB25B-1003, which repeals a provision of state law that allowed some insurance companies to cut their insurance premium tax rate.
- HB25B-1004, which permits the state to sell $125 million worth of tax credit certificates during fiscal year 2026 and allows businesses to pay off their tax liabilities at a discounted rate.
- HB25B-1005, which eliminates a special fee extended to retailers to compensate them for collecting and remitting sales tax on behalf of the state.
Blogs and Bits
IRS is issuing CP59 notices. What to do if you get one. Kay Bell, Don't Mess With Taxes. "It’s always disconcerting to see an envelope with the IRS return address in your mailbox. But don’t panic. In most cases, the official communications can be handled relatively quickly by providing the tax agency with the information it is seeking."
IRS Relaxes Reporting Burden on Sales and Exchanges of Certain Partnership Interests - Parker Tax Pro Library. "Under Code Sec. 751(a), the amount of any money, or the fair market value of any property, received by a transferor partner in exchange for all or a part of the transferor partner's interest in the partnership attributable to (1) unrealized receivables of the partnership, or (2) inventory items of the partnership, is considered an amount realized from the sale or exchange of property other than a capital asset."
Related: Eide Bailly Passthrough Entity Consulting.
Inflation Can Increase Capital Gains Tax Rate to Infinity - Adam Michel, Liberty Taxed. "Because the capital gains tax is assessed on nominal price appreciation, the tax can apply mostly, or entirely, to inflationary gains during periods of high inflation and low real growth."
Happy Birthday, CBO! You're A Great Role Model! - Leonard Burman, TaxVox. "CBO is a remarkable institution that set the standard for nonpartisan expert analysis of federal budget and tax programs."
Tax Shelters at the Turn of the Century, and Now
Well-Funded IRS Bagged Biggest Tax Crime Case Ever — 20 Years Ago - Doug Sword, Tax Notes ($):
So what happens when the emphasis is on defunding tax enforcement?
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Brackney’s partner at Kostelanetz, Bryan C. Skarlatos, doesn’t see the growth or recession of abusive tax shelters as a conspiracy so much as something that occurs through a process.
“When the IRS doesn’t have sufficient resources, taxpayers may take more aggressive positions, and if they’re not challenged, that may continue,” Skarlatos said in an August 28 interview. Then those positions can “proliferate around the tax system,” he added.
Remember, this too shall pass, likely while the statute of limitations remains open.
What day is it?
As the long weekend and College Football gets going, it's College Colors Day. Whether you are a true alumni or "Walmart alum," go team! And have a great weekend. See you Tuesday.
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