Client Alert
Worrisome Messages Subtly Delivered Via Recent Tax Developments
Tax professionals are inundated with tax developments from all branches of the government and from all levels of government on a daily basis. Our technical tax knowledge expands weekly. Given the immensity of tax law changes in P.L. 119-21 (July 4, 2025), informally named the One Big Beautiful Bill Act (OBBBA), and the guidance we’ll continue to get over the next few years along with non-OBBBA updates, we might run out of time and bandwidth to step back and ask what additional relevance this guidance, as well as various reports issued by the government every day, mean for the well-being of our tax system. This article unpacks select tax law changes and government documents to offer four subtle messages within them. Generally, the messages don’t bode well for an effective tax and revenue system. The article ends with some suggestions on what can help improve our tax system.
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Sirius Solutions and the S Corp or Partnership Choice
The Fifth Circuit Court of Appeals opinion in Sirius Solutions L.L.L.P. v. Commissioner may change our views of entity choice. If the decision holds up, partnerships will be able to effectively make the portion of limited partner income subject to self-employment tax whatever they want, including zero. This contrasts with the IRS position upheld by the Tax Court in Soroban Capital that treated all of the income of limited partners who were active in the business as self-employment income.
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What Happens If You Can’t Use All Your Clean Energy Tax Credits This Year?
Clean energy tax credits have a lot going for them. Clients buy them at a discount, apply them dollar-for-dollar against federal tax liability, and walk away paying less to the IRS. That alone makes them worth a serious look. But here’s what often gets overlooked and what makes these investments genuinely remarkable compared to almost anything else in your tax planning toolkit: the flexibility built into how and when the credits can be used. Can’t absorb the full credit this year? Carry it back up to three years and trigger refunds on taxes your client already paid. Think about that for a second. There are very few places in the tax code where you can go back in time and rewrite last year’s tax bill. This is one of them. Still have excess after the carryback? Carry it forward for up to 22 years. That’s not a typo. Two decades of runway to put those credits to work as your client’s passive income grows. And if circumstances change and the credits simply aren’t needed? An emerging secondary market means there may even be an option to sell them. No other common tax planning strategy offers this combination a guaranteed discount on purchase, dollar-for-dollar offset of tax liability, the ability to look backward and forward, and a potential exit if plans change. Understanding how each of these features works is what separates a good credit investment from a great one.
Perspectives on IRS Scrutiny of Captive Insurance Elections
The Internal Revenue Service has made no secret of its increased scrutiny of captive insurance arrangements, particularly those involving the small insurance company election. For taxpayers and their advisors, this has created understandable concern and, in some cases, hesitation about whether captive insurance remains a viable risk management and tax planning tool. Yet heightened scrutiny does not mean prohibition. The Internal Revenue Code continues to recognize captive insurance, Congress has refined it, and courts evaluate it based on well-established insurance principles. The real issue is not whether captives are allowed, but whether a specific taxpayer has a legitimate business need for insurance, has structured the arrangement properly, and has implemented it in a manner consistent with both tax law and insurance fundamentals. Understanding where scrutiny arises, how elections function, and what separates compliant captives from problematic ones is critical for CPAs advising closely held businesses today.
Strict Substantiation: Why Being Right Without Proof Can Cost You Your Charitable Deduction
Reilly’s Sixteenth Law of Tax Planning – Being right without substantiation can be as bad as being wrong – is particularly apt when it comes to charitable contributions. The case law makes it clear that there is not much wiggle room in rules relating to substantiation and reporting of charitable contributions. We’ll dig into the rules here.
