Category: Guest Article of the Month

Part 2

In this second part of our two-part series on the One Big Beautiful Bill Act (OBBBA), we examine the legislation’s impact on businesses, trusts, and estates. In addition, we will look at its overall economic impact.

Estate Tax Changes

The federal estate tax exemption receives a significant boost under OBBBA. Previously set to go back to pre-TCJA levels at the end of 2025, the exemption is now permanent. For 2026, the exclusion is $15 million per person, adjusted for inflation annually. This represents a substantial increase from the 2025 exemption of $13.99 million per person.

Business Tax Benefits

OBBBA extends several key business tax provisions that were set to expire, ensuring continued tax relief for various business structures.

Pass-Through Entities benefit significantly from the permanent extension of the Section 199A deduction. This 20 percent deduction on business income that applies to LLCs, S corporations, and sole proprietorships was scheduled to expire at the end of 2025. The House’s proposed increase to 23 percent didn’t make the final cut.

Depreciation rules become more favorable permanently. The 100 percent bonus depreciation provision, which was phasing out, is now permanent. Additionally, the Section 179 expensing limit jumps to $2.5 million and begins to get phased out at $4 million.

Research and Development expenses can now be fully expensed for domestic R&D activities, replacing the previous requirement to amortize costs.

Employee Retention Credit Reforms

The pandemic-era Employee Retention Credit faces significant restrictions. Unpaid claims submitted after Jan. 31, 2024, are prohibited from receiving refunds. The legislation also introduces penalties for ERC mill promoters and extends the statute of limitations to six years.

Conclusion

This legislation represents a significant commitment to extending business-friendly tax policies while substantially increasing the federal debt burden. For businesses and high net-worth individuals, OBBBA provides long-term tax planning certainty by making temporary provisions permanent.

The Trump Administration announced it will no longer apply the beneficial ownership information (BOI) requirements of the Corporate Transparency Act (CTA) to domestic companies. This declaration came first via social media, marking a significant shift in policy.

Under this new directive, U.S. businesses are exempt from the BOI reporting requirements of the CTA. The Treasury Department made the initial announcement on social media, followed by an official press release and a Truth Social post from President Donald Trump, who described the requirement as “outrageous and invasive.”

The bipartisan CTA was originally designed to combat illegal activities like drug trafficking and money laundering by limiting the use of anonymous shell companies. While the ownership information would have been available to law enforcement agencies, it would not have been publicly accessible.

In its March 3 website statement, the Treasury Department clarified that it will not enforce penalties or fines related to the BOI reporting rule under current regulatory deadlines established during the Biden Administration. Furthermore, it will not impose penalties against U.S. citizens, domestic reporting companies or their beneficial owners after new rule changes are implemented.

Treasury’s proposed rules will limit required reporting to foreign companies only, though the precise scope remains unclear – whether this applies exclusively to foreign companies registered in the United States or extends to U.S. companies with foreign ownership.

Previously, reporting requirements covered all businesses formed in the United States and foreign companies registered to operate in any U.S. state or tribal territory.

The Financial Crimes Enforcement Network (FinCEN), which oversees CTA enforcement, appears to have been surprised by this policy change. Days earlier, following court decisions that permitted BOI reporting requirements to proceed, FinCEN had announced plans to extend reporting deadlines to March 21. As of the most recent update, FinCEN’s website has not reflected the Treasury’s announcement, and requests for comment went unanswered.

What Happens Now?

This unexpected announcement has created uncertainty for businesses, particularly regarding already-submitted data.

The law required detailed information from “beneficial owners,” including names, birthdates, addresses, and identification documents. Similar information was required from company applicants – typically individuals who helped establish the company.

Millions of companies had already complied before this announcement, raising questions about the handling of submitted information. Inquiries to FinCEN about the fate of this data have not received responses.

The status of pending legal cases also remains uncertain. Cases continue through at least four federal appellate courts, and additional litigation may emerge to compel administration compliance with the law.

Crucially, the Corporate Transparency Act itself remains valid legislation. Despite the Treasury’s position, the executive branch cannot overturn the laws passed by Congress. It can, however, choose selective enforcement – similar to approaches seen with cannabis legislation. This creates potential complications, as future administrations could reinstate full enforcement.

The Social Security Fairness Act of 2023, formally known as H.R. 82, aimed at ending two provisions in the Social Security system that affect public sector employees who have earned pensions from jobs not covered by Social Security. These provisions are the Windfall Elimination Provision and the Government Pension Offset, both of which reduce or eliminate Social Security benefits for workers who have worked in both public-sector and private-sector jobs.

The Problem: WEP and GPO

The Windfall Elimination Provision and the Government Pension Offset were originally designed to prevent public sector workers from receiving larger Social Security benefits than they would have been entitled to had they worked in jobs covered by Social Security for their entire careers. However, critics argue that these provisions disproportionately harm workers who have spent a significant portion of their careers in public service, such as teachers, police officers, firefighters, and other state and local government employees.

Windfall Elimination Provision (WEP):

The WEP reduces the Social Security benefits of individuals who have worked in both the private sector (where they paid into Social Security) and the public sector (where they often did not contribute to Social Security). Typically, Social Security benefits are based on an individual’s 35 highest-earning years. The WEP alters the formula used to calculate benefits for individuals with fewer than 30 years of substantial earnings in Social Security-covered employment, leading to a lower Social Security benefit than they would otherwise be entitled to. For many, this results in a significant reduction in the monthly payment they would have received under the standard Social Security formula.

Government Pension Offset (GPO):

The GPO affects spouses and widows/widowers of Social Security beneficiaries. Under this provision, individuals who receive a government pension from work that was not covered by Social Security (such as state or local government employees) see a reduction in their spousal or survivor benefits from Social Security. The offset is calculated by reducing the spousal or survivor benefit by an amount equal to two-thirds of the government pension. This can leave many public employees with little to no spousal or survivor benefits despite their spouse having paid into Social Security.

What H.R. 82 Seeks to Accomplish

By eliminating both the WEP and GPO, the bill aims to ensure that public sector workers who have earned Social Security benefits through their work in the private sector are not penalized by reductions in those benefits. It also seeks to provide fairer treatment for the spouses and survivors of government employees who may otherwise see their Social Security benefits reduced or eliminated entirely.

The bill has garnered bipartisan support, as lawmakers from both sides of the aisle recognize the fairness of eliminating these provisions, which many see as an unjust penalty against those who have dedicated their careers to public service. H.R. 82, if passed, would provide much-needed relief to millions of retirees, many of who are struggling with the financial impacts of these provisions.

Conclusion:

The introduction of H.R. 82, the Social Security Fairness Act of 2023, marks a crucial point in the ongoing debate over Social Security benefits for public sector workers. By eliminating the Windfall Elimination Provision and the Government Pension Offset, the bill would restore fairness and equity for millions of public employees who have spent their careers in service to their communities. As this bill progresses, it will likely remain a significant issue in discussions surrounding Social Security reform and the treatment of public sector employees.

President Joe Biden signed H.R. 82, the Social Security Fairness Act, into law on Sunday, January 5, 2025, at 3:00 p.m. Central Time Zone.

The coming shakeup of the executive branch, along with Republican control of both houses of Congress, means tax changes are highly likely in 2025 and beyond. Positioning for new and amended tax provisions is already off to the races.

Regardless of the political landscape, on rare occasions, some measures have broad bipartisan support. One such bill is called the Methane Reduction and Economic Growth Act. It proposes adding a new credit for sequestering “qualified” methane from mining activities.

Looking Ahead To 2025

Proponents of the Methane Reduction and Economic Growth Act hope the tax credit will have a beneficial economic impact and create jobs. The idea is to capture and utilize the methane for productive industrial uses or as an alternative for heating buildings. The methane emitted by mines that qualify have long lifespans, with some abandoned mines emitting methane for up to 100 years. The long lifespan of the methane source is hoped to support the significant capital investment required to get the process up and running.

There is also significant potential for job creation in areas most impacted by the shutdown of coal-fired power plants, which in turn devastated the coal mining industry. The concept of using mine methane as an energy source could support rural American jobs.

Landscape and Potential for the Credit

There is a lot of mine methane to capture, with most not currently being captured. The U.S. government estimates abandoned coal mines produce about 237,000 metric tons annually. This methane has many potential uses, including hydrogen production.

Details on the New Subsection

The new section of 45Q credits would be based on the quantity of qualified methane that is sequestered. The captured methane must then be sent to the pipeline and used for producing heat or electricity. To be considered “qualified methane,” it must be captured from certain types of mines, including closed, abandoned, and surface mines. Finally, the methane captured must have otherwise been sent into the atmosphere if it had not been for the capture equipment activity.

Only qualified facilities may obtain the credit. Among other factors, the taxpayer needs to capture a minimum of 2,500 metric tons of methane each year to qualify. There are a lot more technical regulatory requirements related to the specific nature of methane capture, but those are beyond the scope of this article.

Conclusion

Typically, tax bills are split down the aisle based on political partisanship. This makes the passage of tax legislation difficult at best due to competing interests and a divided government. The tax credits related to methane capture, however, appear to be unusually bipartisan in nature. This is due to the unique intersection of democratic support from an environmental and climate perspective, meeting with Republican interest to support economic development in rural coal mining areas where the industry has been devastated. Put these two interests together, and you have the makings for a widely supported bipartisan bill that is very likely to pass.

Every year, the IRS announces annual inflation adjustments related to tax rate schedules, deductions, cost-of-living adjustments, etc. What many taxpayers do not realize is that they also adjust the cost of fines and penalties as well. This means that the penalties for late filings and missing tax forms are getting more expensive. In this article, we will look at the penalties for failing to file various types of tax returns as well as failing to file certain types of forms.

Failure to File Penalties

There is simply no way around it: skipping out on filing a tax return is going to cost you. Each type of return has its own penalty associated with it. For returns to be filed in 2024, the failure to file penalties is as follows.

Income Tax Returns

Failure to file within 60 days of the due date, the minimum penalty is $510 (up from $485 in 2023) and can increase depending on the circumstances – up to 100 percent of the taxes on the return.

Partnership Return

Failure to file a partnership tax return incurs a $245 penalty (up from $235 in 2023).

S-Corporation Return

Failure to file an S-Corporation return incurs a $245 penalty (up from $235 in 2023).

Beyond these simple financial penalties, things can get serious depending on the length of time a return has not been filed and the amount of past due taxes. This includes liens, levies, and passport restrictions.

Passport Revocation or Denial

In cases of serious tax delinquency, defined as a tax debt of $62,000 or more in 2024, your application for a new passport can be revoked or denied renewal.

Liens

If a taxpayer fails to pay a properly assessed tax bill, the IRS can file a Notice of Federal Tax Lien. This type of lien puts creditors on notice that the federal government has a legitimate claim over your property. This means that when you sell any of your property or assets, you can be forced to send the proceeds to the IRS.

Levies

Levies are the legal seizure of your property. Typically, any property can be levied to fulfill a tax obligation. There are exceptions for certain small amounts of personal property, such as provisions, furniture, and other household personal effects, and business property needed to carry on a trade or business, but these are negligible thresholds (less than $12,000). Further, wages can be levied and are subject to a formula that calculates a maximum weekly amount.

In any case, a levy is the last resort of the IRS but is obviously something you want to avoid.

Conclusion

Paying penalties is no fun, and no one wants to pay them. You may feel overwhelmed due to personal or business circumstances or other reasons, but the absolute worst thing you can do is to ignore your tax filing obligations. Even if you are late, the sooner you file versus burying your head like an ostrich, the better – as it’s “better late than never” when it comes to the IRS.

The main lesson is that ignoring things won’t make them better.