Aligning Sources of Philanthropic Capital with Client Needs
Tax efficiency is a go-to when a family has a liquidity event. There’s often a rush to set up a Private Foundation (PF) and/or a Donor Advised Fund (DAF) and park some of the capital there while the family gets up to speed on how to steward the dollars.
Identifying a source before establishing the process can be a landmine. Fundamental questions like, “What do you want your legacy to be?” and “Who is sitting at the table making decisions?” are key to identifying sources that align with the family’s future needs.
If you’re thinking that most people don’t ask, much less know the answers to these questions in year one, you’re right. Attorneys who take the time to help clients parse these issues add value by eliminating confusion and aiding family cohesion.
Savvy families often have multiple sources of philanthropic capital and clearly defined uses. Mom and Dad may have a DAF for personal giving, the family may give strategically through a PF, and there may be a lead or remainder trust used for a specific time-bound portfolio of giving. There may also be endowments at hospitals and universities.
What follows are common sources (there are others) and ways to think about what might be right for your clients.
Private Foundations (PFs)
Private foundations, with a requirement to distribute 5% of the fair market value, are often used as legacy vehicles to maintain philanthropic capital in perpetuity. The foundation board is the fiduciary so clarity and communications about processes are critical. Tax returns and grants are public. Running costs can seem high, considering the excise tax, filings, and administration. Clients who benefit from PFs want to:
Engage family members across generations and sometimes across family lines
Build generational legacy
Maintain fiduciary control
Donor Advised Funds (DAFs)
There are three types of DAF sponsors: Institutional, Community Foundation, and Special Interest.
Institutional DAFs are supported by wealth management orgs such asFidelity Charitable and Schwab, which are among the largest
Community Foundations are regional re-grantors that have expanded their geographic scope to align with the interests of their donors
Special Interest DAFs are found at universities, faith-based organizations, and hospitals
The DAF sponsor is the fiduciary; the donor is an advisor in the relationship. As the fiduciary, sponsors have the right to determine if they’ll make a particular type of grant. Special Interest DAFs may aggressively solicit contributions. Understanding the communications process, the fee structure, and any specific rules for grantmaking that the sponsoring organization has, is critical to having success with a DAF.
The costs for DAFs are significantly less than those of a private foundation. There are no minimum distribution rules. The National Philanthropic Trust reported a 24% payout from DAF funds in 2023, so it’s clear that DAFs don’t have the same goal of preserving capital in perpetuity as often perceived in PFs.
Clients who benefit from DAFs:
Have the option to be anonymous
Do not retain fiduciary control therefore have lower risk and cost
Are backed up by diligence done by the sponsoring organization
Charitable Trusts
Lead and Remainder Trusts allow for distribution to family members and charities. Capital is released in a controlled way. They create both a cushion for individual family members and an incentive to be philanthropic. These are great tools to help stack availability of capital over time, sometimes skipping a generation. Their payout timelines provide another way to be intentional about planning.
Takeaways before setting up a source of philanthropic capital
Gauge your client’s appetite for engagement
Identify internal intent and who will be involved in decision-making
Understand goals of giving to align the right source or even stack sources
You can find The National Philanthropic Trust DAF Report here.
Full Cost Recovery Proposed for Application Fees Under Australia’s Mandatory Merger Clearance Regime
In Brief
The Australian Treasury and the Australian Competition and Consumer Commission (ACCC) has released a consultation paper in which it proposes a full cost recovery regime for application fees under Australian’s new mandatory merger clearance regime.
The Australian Government is consulting briefly about the proposed fee structure prior to finalising its position and publishing a fees legislative instrument (which it expects to do before 30 June 2025).
The 2025/26 fees for the main substantive assessment are proposed to be as follows:
Phase 1 assessment: AU$56,800
Phase 2 assessment: AU$952,000
Additional detail about the proposed fees across all types of applications is set out below.
The Government considers that its approach “reflects the resources required by the ACCC to efficiently carry out an assessment, and will ensure businesses that propose mergers for assessment, rather than taxpayers, bear the cost they impose on the community to assess that risk”, and stated that “the fees will also ensure the ACCC is adequately resourced to undertake its expert administrative decision-making role and can efficiently administer the new system.”
The Approach Taken by the Government
The Government noted that under the present informal clearance regime, the operational cost of merger control incurred by the ACCC is funded through consolidated revenue by taxpayers generally and is not imposed on the merger parties based on cost recovery principles.
In its consideration for the 2024/25 Budget, the Government made the decision to change this approach to a full cost-recovery model. The model will impose separate fees for each type of review, in order that they are scaled to the complexity, and in all likelihood competition law risk, associated with each type of review.
The approach taken has been based on five design principles aimed at “appropriately captur[ing] the costs to deliver the ACCC’s key regulatory merger activities while ensuring the overall fees system is efficient, equitable and transparent for parties and the ACCC to navigate.” In brief, the design principles are:
To align costs with fees: the fee structure will be based on the complexity of review to ensure that it is the merger parties, not the public, that bear the cost of assessment – particularly intensive assessment;
To promote equity and competition: the fee structure will be based on complexity of review while providing for exemptions in appropriate instances (e.g. for small businesses), in order that the fees are not a barrier to merger activity;
To promote efficiency and effectiveness: the fees will be set at a level that reflects the minimum and efficient resourcing necessary for the ACCC to carry out the assessment;
To minimise regulatory and administrative burden: clarity will be provided to parties about the fee rates and reasons for them; and
To ensure transparency and accountability: the ACCC will report on the operation of the regime (including the numbers of applications, waivers, Phase 1 and 2 determinations, timeline extensions etc), and will carry out annual reviews/consultations regarding fees.
The Proposed Fee Structure
The full set of fees are set below and in the consultation paper as follows:
Type of Review
Fee in 2025‑26
Description of Activity
Notification Waiver Application
AU$8,300(50)
An application that seeks a waiver from the requirement to notify a merger to the ACCC.
Notification (Phase 1 Assessment)
AU$56,800(201)
The review of all notified mergers commences in Phase 1 and incurs a fee.
Phase 2 Assessment
AU$952,000(8.5)
An additional fee will be charged for mergers that proceed to Phase 2.
The ACCC anticipates that only a small number of mergers will proceed to a more in-depth consideration of the competition issues in a Phase 2 assessment.
Public Benefits Application
AU$401,000(1.5)
Notifying parties may also seek ACCC approval of an acquisition on public benefit grounds.
If a notifying party makes an application for a public benefits review, an additional fee will be payable, reflecting the further assessment undertaken by the ACCC to determine whether the acquisition should be approved because the likely public benefits will outweigh the likely public detriments.
Interestingly, the consultation paper also sets out the “estimated volume of applications” expected by Treasury and the ACCC in the 2025/26 year – which are the numbers we have inserted in brackets in the above table.
Time will tell how realistic these numbers will prove to be – noting that they account for the ‘voluntary’ period for making applications from 1 July 2025 and the first six months of operation of the mandatory regime.
The quite high costs associated with the Phase 2 and Public Benefit Reviews (which Treasury and the ACCC expect to be in single digits in terms of numbers of applications) reflect the likely complexity of these matters and the likely use of:
The ACCC’s compulsory document and information gathering powers under section 155 of the Competition and Consumer Act, as well as the potential use of oral examinations under this power;
The potential need to use quantitative analysis to inform the ACCC’s assessment, and the need for the ACCC to source data from multiple sources to undertake that analysis (again potentially via compulsory notices);
The likely need to use both internal and external economic (including expert economists), industry and legal advisers to inform the ACCC’s assessment of the proposed acquisition – including any remedies proposed by the merger parties; and
In the case of public benefit reviews, the likely need by the ACCC to undertake consumer, industry and economic engagement to ‘test’ the veracity of the public benefit claims – over and above the ‘pure’ competition analysis.
Exemptions, Future Changes (Indexation) and Reviews
As per the design principles, a fee exemption will be available for acquisitions made by small businesses so that fees are “not a disproportionate burden for those businesses” – small businesses having an aggregated turnover of less than AU$10 million.
Once the fees are set mid-year, they will then be indexed annually at the beginning of each financial year. The ACCC will also review its processes and costs estimate and the fees will be adjusted if required, so that that the charges reflect the cost of providing activities.
The Government finally noted that the costs associated with reviews of ACCC determinations under the mandatory merger clearance regime by the Australian Competition Tribunal will be subject to a separate Government consultation and decision.
The Government’s consultation paper can be found here.
Proposed Retaliatory US Taxes Would Impact Cross-Border Transactions
Executive Summary
Retaliatory tax provisions contained in H.R. 1, the “One Big Beautiful Bill Act” that recently passed the US House of Representatives, if enacted, would drastically impact common cross-border transactions, including US operations of foreign multinational groups and inbound investments.
New Code Section 8991 targets “applicable persons” with respect to countries that have adopted “unfair foreign taxes,” defined to include the undertaxed profits rule tax under the Organisation for Economic Co-operation and Development’s (OECD) Pillar 2, digital services taxes, diverted profits taxes, and other taxes identified by the US secretary of the treasury.
Applicable persons would initially see their US tax rates increase by five percentage points, and these rates would increase by an additional five percentage points annually until they reach 20 percentage points higher than applicable statutory rates.
US subsidiaries of applicable persons would be subject to a modified version of the base erosion and anti-abuse tax (BEAT) in Code Section 59A, referred to as the “Super BEAT.”
Common cross-border transactions would be drastically impacted by this new Code section if it were enacted.
This alert describes the persons who would be subject to the changes contained in Code Section 899, the consequences of being subject to this proposed new Code section, and some of the impacts this provision would have on certain cross-border transactions.
Summary of Code Section 899
Applicability
Code Section 899 imposes retaliatory taxes on “applicable persons” resident in “discriminatory foreign countries,” which are defined as countries that impose unfair foreign taxes (UFTs). A list of discriminatory foreign countries would be published quarterly by the US Department of the Treasury. The “applicable persons” subject to increased taxes include individuals and corporations resident in discriminatory foreign countries, as well as foreign corporations more than 50% (by vote or value) owned directly or indirectly by such applicable persons (unless such majority-owned corporations are publicly held). Subsidiaries of US-parented multinational groups would generally not be applicable persons.
Three categories of taxes are identified as “per se” UFTs: undertaxed profits rule taxes imposed pursuant to the OECD’s Pillar 2, digital service taxes, and diverted profits taxes. The following countries have adopted these taxes:
Undertaxed Profits Rule Taxes
Australia, Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Indonesia, Ireland, Italy, Japan, Lichtenstein, Luxembourg, Macedonia, Netherlands, New Zealand, Poland, Portugal, Romania, Slovenia, South Korea, Spain, Sweden, Thailand, Turkey, and the United Kingdom.2
Digital Service Taxes
Austria, Canada, France, Guinea, Italy, Nepal, Rwanda, Sierra Leone, Spain, Tunisia, Turkey, Uganda, the United Kingdom, and Zimbabwe.3
Diverted Profits Taxes
Australia and the United Kingdom.4
In addition to the foregoing categories of per se UFTs, the US secretary of the treasury may identify as UFTs other taxes that are “discriminatory,” “extraterritorial,” or “enacted with a public or stated purpose indicating the tax will be economically borne, directly or indirectly, disproportionately by US persons.” However, certain categories of taxes, including value-added taxes, goods and services taxes, and sales taxes, are exempted from being classified as UFTs. When a country repeals all of its UFTs, it generally will cease to be a discriminatory foreign country, and persons associated with that country generally will cease to be applicable persons.
Retaliatory Tax Provisions
The retaliatory tax provisions in Code Section 899 mainly fall into two categories: (1) increased rates of US tax on applicable persons, and (2) a more stringent version of the BEAT currently contained in Code Section 59A, referred to as the “Super BEAT.”
Increased Rates of US Tax on Applicable Persons
The rates of US tax to which applicable persons are subject would be increased five percentage points each year, most likely beginning in 2026, until the rates reach a maximum of 20 percentage points above the current statutory rates (determined without regard to any treaty). The applicable US tax rates that would be subject to increase include (1) the 30% withholding tax on passive US-source income (e.g., dividends, interest, rent, and royalties), (2) the 21% corporate income tax, and (3) the 30% branch profits tax imposed on the nonreinvested earnings of a US trade or business conducted by a foreign corporation. Income tax rates applicable to individual applicable persons would also increase, but only for dispositions of US real property interests that are treated as US trade or business income under the US “FIRPTA” rules.
Income that is currently statutorily exempt from US tax—such as US-source interest income that qualifies for the “portfolio interest” exemption—would, generally speaking, remain exempt from US tax; however, Code Section 899 expressly overrides the US tax exemption for sovereign wealth funds and other foreign governmental entities contained in Code Section 892.
In the case of applicable persons that qualify for a zero or reduced rate of tax pursuant to an income tax treaty, the increased tax rate to which the applicable person is subject would initially be five percentage points above the applicable treaty rate, although the rate would climb five percentage points each year until it reached 20 percentage points above the maximum statutory rate (determined without regard to a treaty). Importantly, Code Section 899 would apply to income that is currently subject to a reduced rate under a treaty, thereby treating domestic statutory exemptions (like the portfolio interest exemption, mentioned above) different from reductions in an applicable tax rate pursuant to a treaty.5
The Super BEAT
In addition to the current BEAT in Code Section 59A, which was adopted as part of the 2017 Tax Cuts and Jobs Act, Code Section 899 would impose a modified “Super BEAT” on US corporations that are more than 50% owned (by vote or value, directly or indirectly) by applicable persons.
Several aspects of the Super BEAT would make it more likely for targeted companies to be liable for the BEAT. First, certain thresholds that limit the applicability of the regular BEAT would be removed. The current BEAT only applies to US subsidiaries (1) of multinational groups with gross receipts of at least US$500 million, and (2) whose “base erosion” payments—i.e., deductible payments to related foreign persons—exceed 3% of total deductions (or 2% in the case of certain financial firms). These thresholds would not apply under the Super BEAT, potentially subjecting US companies to the Super BEAT despite not being part of large multinational groups or making significant related-party payments.
Second, the Super BEAT would include several other modifications to the current BEAT:
An increase in the BEAT tax rate from 10% to 12.5%;
An additional limitation on using credits to offset BEAT liability;
An expansion of the definition of base erosion payments to include payments on which US tax was already imposed or withheld as well as certain payments that would be base erosion payments but for the fact that they are required to be capitalized; and
An elimination of the exception under the standard BEAT for intercompany payments using the “service cost method.”6
The new Super BEAT would potentially both increase the tax liability of current BEAT taxpayers and subject additional US companies to the BEAT.
Application to Common Cross-Border Transactions
Direct Operation in the United States
A non-US company that operates directly or through a flow-through entity or branch in the United States (Non-US Opco) generally earns income effectively connected with a US trade or business (ECI) and may also be subject to the branch profits tax on that income (subject to the provisions of an applicable tax treaty). See Figure 1.
Under Code Section 899, if Non-US Opco is an applicable person, the rate of US federal income tax to which it is subject would potentially increase over four years to as high as 41% (based on the current federal 21% statutory rate of income tax), and the rate of US branch profits tax to which its earnings are subject would potentially increase to as high as 50% (based on the current 30% statutory rate of the branch profits tax). Non-US Opco’s new combined US federal tax rate resulting from the interaction of US corporate income tax and the branch profits tax would potentially be as high as 70.5%, up from 44.7% under current law.
Operations in the United States Through a Corporate Subsidiary
A domestic corporate subsidiary of a multinational group (US Sub) is generally subject to US corporate income tax on its worldwide income and, if the gross receipts and base erosion thresholds are satisfied, may also currently be subject to the BEAT. See Figure 2. The removal of the gross receipts and base erosion thresholds may cause US Sub to become subject to the Super BEAT when it otherwise would not have been subject to the current BEAT. In addition, the rate of tax imposed under the Super BEAT will increase from 10% to 12.5%, an increase over the regular BEAT tax rate.
Further, dividends that US Sub pays to a non-US parent will be subject to an increased rate of US withholding tax if the parent is an applicable person. Even though the dividends may currently qualify for a reduced (or zero) rate under an applicable tax treaty, the maximum applicable US withholding tax rate would potentially increase to as high as 50% (based on the current 30% statutory rate).
Passive Investment in the United States
A non-US person that passively invests in the United States (Non-US Investor) generally earns passive US-source income (e.g., dividends, interest, rent, or royalties) that is subject to a US federal withholding tax of 30% (subject to reduction under an applicable tax treaty). See Figure 3. If Non-US Investor is an applicable person, the rate of US federal withholding tax to which it is subject under Code Section 899 would potentially increase the withholding tax rate to as high as 50% (based on the current 30% statutory rate). If Non-US Investor currently benefits from a reduced (or zero) treaty rate, the increased rate will begin at five percentage points above the treaty rate. If Non-US Investor is a foreign governmental entity that currently benefits from the Code Section 892 exemption, the new US tax rates to which Non-US Investor will be subject will be determined without regard to that exemption.
It is more likely that a US blocker corporation through which Non-US Investor holds (directly or indirectly) ECI-generating investments (US Blocker Corporation) will be subject to the new Super BEAT than the current BEAT. However, proceeds from the liquidation of a US blocker corporation received by Non-US Investor should generally remain exempt from US tax.
Financing Investment in the United States
A non-US company that lends to a US resident borrower (Non-US Lender) generally earns US-source interest income that may be (1) ECI (potentially also subject to the branch profits tax), (2) subject to a statutory 30% US withholding tax, (3) eligible for a reduced rate of withholding provided by an applicable tax treaty, or (4) eligible for an exemption from withholding under the portfolio interest exemption, depending on the nature and extent of its US activities. See Figure 4. As discussed above, if Non-US Lender is an applicable person and treats the interest income as ECI, it could potentially be subject to US corporate income tax at rates as high as 41%, with an additional branch profits tax as high as 50%. If the interest income of Non-US Lender is not otherwise ECI, the rate of US federal withholding tax to which it is subject would potentially increase to as high as 50% (based on the current 30% statutory rate), although the portfolio interest exemption would potentially still be available. Importantly, the portfolio interest exemption is not available to banks extending credit in the ordinary course of business, so the differential impact of Code Section 899 on treaty-based reductions or exemptions from US withholding tax on interest may impact bank lenders more than unrelated nonbank lenders that may be eligible for the portfolio interest exemption.
In response to these increased tax rates, Non-US Lender likely would consider increasing the rate of interest it charges US borrowers in order to maintain the margin it makes above its own borrowing costs, or request to be grossed up by the relevant US borrower for the increased taxes under the rationale that Code Section 899 is a change in applicable law. A US borrower may argue that the impact of Code Section 899 is expected at the time a new loan agreement is entered into and depends on Non-US Lender’s jurisdiction of organization (and on laws, rules, or practices implemented by the government of such jurisdiction), which is outside of the borrower’s control, but that argument may result in Non-US Lender pricing in a risk that is out of the control of both parties.
Conclusion
The retaliatory tax provisions in Code Section 899, if enacted, would have a significant and potentially negative impact on a wide variety of cross-border transactions, including US operations of foreign multinational groups (whether conducted directly or through a domestic subsidiary) and ordinary course inbound investments. The proposal is now under consideration in the US Senate, where changes to the H.R. 1 are likely. Regarding Code Section 899 in particular, the US Senate is expected to balance concerns about the impact of Code Section 899 on foreign direct investment, the value of the US dollar, and interest rates, against the possibility that the proposed Code provision could help US companies by persuading countries with UFTs to modify or repeal those taxes.
There is still an opportunity for interested stakeholders to help shape this discussion and the outcome of the proposal. Please contact any of the authors of this alert for further information about Code Section 899 and how you can impact the policy debate in Congress.
Footnotes
1 Section 899 is not currently a section of the Internal Revenue Code of 1986, as amended (the Code). References to Code Section 899 herein are to such section as proposed in the House-passed version of H.R.
2 Bloomberg Tax: OECD Pillar Two GloBE Rules – Status and Effective Dates Roadmap, as of 6 June 2025.
3 Bloomberg Tax: Digital Service Taxes and Other Unilateral Measures Roadmap, as of 5 June 2025. This list does not include countries that have adopted similar taxes such as “significant economic presence” or “SEP” taxes, which the US secretary of the treasury could deem discriminatory under Code Section 899.
4 Tax Foundation, International Tax Competitiveness Index 2024, as of 21 October 2024.
5 The application of Code Section 899 may be different where an applicable income tax treaty provides that interest income be taxed only in the lender’s jurisdiction, as opposed to providing for a reduced withholding tax rate.
6 H.R. 1 would make several changes to the regular BEAT, including reducing the applicable rate (which was set to increase to 12.5%) to 10.1%.
Understanding the Impact of the One Big Beautiful Bill Act on Renewable Energy
Key Takeaways
Significant changes to tax credits could directly impact the financial planning and operational strategies of the solar and renewable energy industries.
The new legislation introduces complexities around FEOCs, requiring careful review to ensure compliance and mitigate potential risks.
Solar developers must closely examine the updated Safe Harbor provisions to take advantage of opportunities while navigating associated challenges.
Advanced manufacturing tax credits face potential reductions, which could disrupt innovation and expansion within the renewable energy sector.
Despite uncertainties, the evolving renewable energy legislation also presents opportunities for growth and strategic adaptation.
The U.S. Senate is currently reviewing the “One Big Beautiful Bill Act”, which passed through the U.S. House of Representatives on May 22, 2025. If the Bill remains unchanged, the sweeping legislation will drastically reshape how the renewable energy industry approaches tax credits and supply chain planning. Womble Bond Dickinson has previously explored recent federal changes to Biden’s Inflation Reduction Act (IRA). Now, we look into the latest effort to repeal and restrict aspects of the IRA.
There are three key provisions that we are watching: § 45X – the Advanced Manufacturing Production Tax Credit, § 48E – the Clean Electricity Investment Credit, and § 45Y – the Clean Electricity Production Tax Credit. Each of these tax credits have been a large factor in the onshoring and growth of U.S. solar manufacturing, and each will be severely restricted under new legislation if the Senate does not make changes.
Although the Bill passed by the House kept § 45X largely intact, the House included an onerous and confusing Foreign Entities of Concern (FEOC) provision that could dramatically constrain use of the § 45X Advanced Manufacturing Production Tax Credit. The House version of the Bill also includes a similarly deeply granular FEOC provision for § 48E and § 45Y, coupled with a 60-day cut off to “commence construction” in order to maintain eligibility or the tax credits. Together, these changes could cause deep disruptions to the sector.
Within its relevant FEOC provisions, the Bill includes two categories of Prohibited Foreign Entities rules. These rules are generating concern within the industry over potential supply chain disruptions and, should these rules create a barrier to claiming the tax credit, stranded investments. Under the Bill, entities may be categorized as Specified Foreign Entities (SFEs) or Foreign-Influences Entities (FIEs). Too much involvement with either category could render a taxpayer ineligible for the tax credit in certain tax years.
SFEs are owned, controlled by or subject to the jurisdiction of a “foreign entity of concern,” described in 15 U.S.C. § 465. They could also be entities specifically enumerated as threats to national security by federal agencies, as well as entities “controlled by” the above FEOCs. The prohibition goes into effect in the tax year after enactment of the legislation.
FIEs are based on the taxable year and are defined as entities where an SFE can appoint a covered officer, an SFE owns more than 10%, or one or more SFEs own 25% or hold 25% of debt in the aggregate. FIEs also include entities that, during the previous taxable year, made a payment to an SFE of 10% (5% for § 45X) of total payments, or knowingly makes such payments to more than one SFE of 25% of the total payments (15% for § 45X). FIE restrictions are effective for tax years beginning two years after enactment.
At the component level, there are also prohibitions if a taxpayer received “material assistance from a prohibited foreign entity,” holds a licensing agreement with an SFE or FIE, or if the taxpayer makes certain payments other than for goods, which can all eliminate eligibility for the tax incentives.
Should these provisions be retained in the final Bill, they will naturally create ambiguity in what entities will be listed as FIEs and muddy stakeholders’ planning.
The uncertainty created by the Bill is compounded by the Internal Revenue Service rulemaking process that will follow the Bill’s enactment. Even if the Bill passes both chambers of Congress and is signed into law by President Trump in July, we may not see clear guidance until the second quarter of 2026. The U.S. Department of the Treasury will need to clarify several provisions of the Bill through revising current guidance and issuing new rules. The IRS rulemaking process typically takes twelve months after new tax legislation has been enacted, forcing stakeholders to wait until next year to see exactly how the IRS will enforce the Bill’s provisions.
Perhaps as an acknowledgement of the potential industry disruption it creates, the current draft of the Bill includes safe harbor provisions under § 48E and § 45Y. However, the safe harbor is quite narrow.
Safe harbor provisions in new federal legislation often provide relief for developers who have commenced construction or spent 5% of total project costs. The Bill, however, implements extremely short timelines to keep projects qualified for tax credits. These short qualification windows undermine industry stakeholders’ financial plans that rely on specific projects to qualify for the credits. Under the Bill, Solar developers will need to commence construction of projects within 60 days of the Bill’s enactment and be “placed in service,” meaning delivering power, by the end of 2028 to remain qualified for the tax credits. The Bill’s emphasis on construction commencement means early-stage projects will likely struggle the most to meet the safe harbor deadlines.
While the Bill does not alter the transferability of § 48E or § 45Y tax credits, it does restrict the transferability of the § 45X tax credit by cutting off eligibility for components sold after December 31, 2027. The limitation on transferability adds another layer to disrupted financial planning, project development and business growth opportunities.
The expanded and confusing definition of FEOCs, narrowed safe harbor provisions and limitations on transferability in the Bill put the solar industry at risk of losing tax credits that have been critical to manufacturing, project financing and planning. The Senate is expected to move fast with a deadline of July 4th. It remains to be seen how the Senate will modify the House version. With an expedited Senate process, clean energy manufacturers, developers, and financiers must be ready to act fast and understand the impacts this new legislation will have on their business.
Domestic manufacturers and developers should closely examine their current supply chains and project timelines and prepare contingency plans to react to the upcoming legislation. If the proposed FEOC provisions are passed in current form, taxpayers sourcing materials and components from covered nations will need to ensure they have an intimate understanding of their supply chain to ensure compliance with the FEOC rules.
IRS Roundup May 15 – June 2, 2025
Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for May 15, 2025 – June 2, 2025.
IRS GUIDANCE
May 15, 2025: The IRS issued Notice 2025-29, providing guidance on the corporate bond monthly yield curve, corresponding spot segment rates under Internal Revenue Code (Code) § 417(e)(3), and the 24-month average segment rates under Code § 430(h)(2). The notice also provides guidance on the interest rate for 30-year Treasury securities under Code § 417(e)(3)(A)(ii)(II) (for plan years in effect before 2008) and the 30-year Treasury weighted average rate under Code § 431(c)(6)(E)(ii)(I).
May 15, 2025: The IRS issued Revenue Ruling 2025-12, providing prescribed rates for federal income tax purposes for June 2025, including, but not limited to:
Short-, mid-, and long-term applicable federal rates for June 2025 for purposes of Code § 1274(d)
Short-, mid-, and long-term adjusted applicable federal rates for June 2025 for purposes of Code § 1288(b)
The adjusted federal long-term rate and the long-term tax-exempt rate, as described in Code § 382(f)
The federal rate for determining the present value of an annuity, an interest for life, or for a term of years, or a remainder or a reversionary interest for purposes of Code § 7520.
May 19, 2025: The IRS released Internal Revenue Bulletin 2025-21. It includes Revenue Procedure 2025-19, which provides the 2026 inflation adjusted amounts for Health Savings Accounts (HSAs) as determined under Code § 223, as well as the maximum amount that may be made newly available for excepted benefit health reimbursement arrangements under Code § 54.9831-1(c)(3)(viii). Revenue Procedure 2025-19 is effective for HSAs for the 2026 calendar year and for excepted benefit health reimbursement arrangements beginning in 2026.
May 22, 2025: The IRS issued a notice to US taxpayers living or working abroad, encouraging them to file their 2024 federal income tax returns by June 16, 2025.
June 2, 2025: The IRS issued Notice 2025-27, providing interim guidance on the application of the corporate alternative minimum tax (CAMT), as well as relief from certain additions to tax for a corporation’s underpayment of estimated tax under Code § 6655. Among other things, this notice also provides an optional simplified method for determining applicable corporation status and waives certain additions to tax under Code § 6655 concerning a corporation’s CAMT liability under Code § 55. The US Department of the Treasury (Treasury) and the IRS also plan on issuing a notice of proposed rulemaking, revising the CAMT proposed regulations in § 2.02(2) of this notice to include a method for determining applicable corporation status.
The IRS also released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums, and Chief Counsel Advice).
TAX CONTROVERSY DEVELOPMENTS
On May 22, 2025, the US Tax Court issued its opinion in Facebook Inc. v. Commissioner.
THE “BIG, BEAUTIFUL BILL”
The “Big, Beautiful Bill” passed the US House of Representatives on May 22, 2025, and is now being deliberated in the US Senate. Changes are expected to be made, as adjustments to the tax-focused reconciliation bill is a key focus of senators.
Recent Changes to Washington State Tax Laws Will Increase Taxes for Many Taxpayers
In May 2025, Washington Governor Bob Ferguson signed into law several bills that will impact both individual and business taxpayers. Although the changes are likely to increase many taxpayers’ Washington tax bills, some taxpayers may be able to reduce the potential impacts of some of the changes with careful tax planning. Affected taxpayers should review these changes carefully with their tax advisors.
Business and Occupation Tax
Several bills made significant changes to Washington’s business and occupation (B&O) tax, including by increasing tax rates and limiting or eliminating deductions and certain tax preferences.
Tax Rates and Surcharges
HB 2081 made a number of changes to B&O tax rates and surcharges, effectively increasing tax rates on various activities. For example, the tax rate applicable to business income under the “service and other activities” classification will increase to 2.1% for gross income over US$5 million starting 1 October 2025. Starting 1 January 2026, the bill also imposes a 0.5% surcharge on Washington taxable income over US$250 million. The surcharge is in addition to other B&O taxes, effectively increasing the overall B&O tax rate for businesses exceeding the income threshold. The bill provides several exemptions from this surcharge, including for certain manufacturing activities and income already subject to other surcharges such as the advanced computing surcharge. However, starting 1 January 2026, the same bill also increases the advanced computing surcharge from 1.22% to 7.5%. Beginning 1 January 2027, the bill also increases tax rates applicable to several other B&O classifications, including certain manufacturing, retailing, and wholesaling classifications, to 0.5% from current rates of 0.471% (for retailing) and 0.484% (for manufacturing and wholesaling).
Effective 1 January 2026, SB 2020 creates a new B&O classification applicable to certain payment processors and imposes tax on such businesses at a rate of 3.1%. The bill also allows a payment processor subject to B&O tax under the new classification to deduct certain interchange fees, network fees, and fees retained by other payment processors.
The above changes not only increase overall tax rates on many businesses but also add complexity by creating new classifications, exclusions, and definitions. Because a taxpayer’s B&O tax rate is typically determined by the tax classification applicable to its activities, taxpayers should review these changes carefully to ensure that they are properly classifying their activities and will not be overpaying B&O taxes under an incorrect classification.
Investment Income Deduction
Effective 1 January 2026, HB 2081 also seeks to provide some guidance around the Washington Supreme Court’s recent decision in Antio, LLC v. Dep’t of Revenue, which held that investment income that is not incidental to a taxpayer’s main business purposes does not qualify for the investment income deduction. The bill generally allows a deduction from B&O tax for investment income if a person’s total worldwide gross income derived from investments is less than 5% of the person’s total worldwide income annually. The bill also permits certain nonprofit organizations, collective investment vehicles such as mutual funds, retirement accounts, and family investment vehicles to claim an investment income deduction even if they exceed the 5% threshold. The bill provides that amounts received by individuals from personal investments are generally not subject to B&O tax but does not specify whether other investment activities also are not subject to B&O tax. The bill leaves unanswered other questions related to investment income, including how such income should be apportioned for B&O tax purposes.
The legislature also directed the Department of Revenue to implement an expanded voluntary disclosure program during the 2025-2027 fiscal biennium for entities engaged in investment activities that are not banking, lending, or securities businesses. SB 5167 allows such entities that are not under audit as of 1 July 2025 to voluntarily disclose liabilities in exchange for waiver of penalties and interest.
Taxpayers receiving income from investment activities should review these legislative changes and the Antio case carefully. If a taxpayer has historical B&O tax liabilities from investment activities, participation in the temporary voluntary disclosure program could provide meaningful penalty and interest savings.
Tax Preferences
SB 5794 repeals several tax preferences effective 1 January 2026, including a credit for certain light and power businesses and gas distribution businesses and a credit related to new employment in certain international service activities.
Sales and Use Tax
Other bills made significant changes to Washington’s sales and use tax. These bills sought to expand the sales and use tax base as well as increase rates on certain property and services.
Effective 1 October 2025, SB 5814 expands the sales and use tax to apply to additional services, including certain information technology services, custom website development services, investigation and security services, temporary staffing services, data processing services, advertising services, and live presentations. The bill also removes several statutory exclusions from the definition of taxable digital automated services, including exclusions for services that primarily involve the application of human effort, data processing services, and advertising services.
SB 5801 makes other changes with respect to sales and use taxes imposed on certain transactions involving motor vehicles and private aircraft. The bill imposes an additional 10% luxury tax on the sale of certain noncommercial aircraft with a selling price over US$500,000 effective 1 April 2026. Effective 1 January 2026, the bill imposes an additional 8% luxury tax on sales or leases of certain passenger motor vehicles with a selling price over US$100,000. The bill also increases the retail car rental tax rate and, effective 1 January 2027, imposes the increased rate on certain peer-to-peer car sharing transactions.
These changes are likely to subject certain businesses to Washington sales and use tax obligations for the first time and impose tax on some transactions that have not previously been taxed. Businesses required to begin collecting and remitting sales taxes on previously nontaxable services will need to be prepared to adjust invoicing practices, set up other internal systems, and turn on internal and external compliance processes by the relevant effective date.
Capital Gains Tax
Beginning 1 January 2025, SB 5813 imposes an additional 2.9% tax rate on capital gains exceeding US$1 million. Combined with the current 7% tax rate, Washington capital gains exceeding US$1 million will effectively be subject to a 9.9% tax rate.
Proposed Changes to Interest Rate Tax Treatment for RICs
The One Big Beautiful Bill Act (the “OBBBA“), passed by the U.S. House of Representatives (the “House“) on May 22, 2025, is a comprehensive legislative package that seeks to implement sweeping reforms in tax policy, immigration, healthcare, and infrastructure as part of the federal budget reconciliation process. Among other things, the OBBBA would significantly enhance the Section 199A deduction under the Internal Revenue Code (the “Code“) for individuals and other noncorporate taxpayers by extending its applicability to certain dividends issued by qualifying business development companies, or “BDCs.” Specifically, the OBBBA provides for a 23% deduction for recipients of “qualified BDC interest dividends,”[1] expanding the scope and rate of the current deduction available for qualified REIT dividends.
Key Tax Benefit
The OBBBA, as passed by the House, provides for a 23% deduction under Section 199A of the Code for individuals and other noncorporate taxpayers (e.g., trusts and estates) that receive qualified BDC interest dividends (the “Proposed Deduction“). A qualified BDC interest dividend is any dividend from an electing BDC[2] received during the taxable year that is attributable to net interest income of the BDC that is properly allocable to a “qualified trade or business” of the BDC. Given that most existing BDCs tend to engage in loan origination activities, we believe that investors in many existing BDCs could potentially benefit from the Proposed Deduction, assuming that it remains included in the final version of the OBBBA that becomes law.
In particular, the Proposed Deduction would effectively reduce the 37% highest marginal rate (40.8% taking into account the net investment income tax) to 28.49% (32.29% taking into account the net investment income tax), a reduction of 8.51%. The 8.51% reduction corresponds to an increase of 14.375% in the after-tax yield, potentially enhancing the attractiveness of BDC investments for taxable investors compared to other loan fund structures, including both private funds and registered closed-end funds, such as interval funds.
Currently, the Section 199A deduction is only 20% and is available exclusively for “qualified REIT dividends,” thus excluding BDCs from its coverage.
Pass-through Eligibility
The Proposed Deduction would be pass-through eligible, meaning that partners in a partnership that in turn owns an electing BDC may claim the Proposed Deduction on their share of qualified BDC interest dividends. Therefore, the general partner that receives carry from a partnership that owns a BDC could also benefit from the Proposed Deduction, as could investors in a private feeder fund or fund of funds that in turn invests in a BDC.
Potential Implications
The Proposed Deduction, as presently included in the OBBBA, would significantly enhance the potential after-tax returns for individual and noncorporate investors, potentially making BDCs a more attractive vehicle for income-focused portfolios. To the extent the Proposed Deduction remains included in the final version of the OBBBA that becomes law, we would expect a renewed focus on BDCs, including private BDCs, to maximize the tax efficiencies that could be gained by taking advantage of the Proposed Deduction. To that end, asset management platforms with existing BDCs may wish to evaluate the positive benefits of the Proposed Deduction on their existing BDC vehicles. Similarly, asset managers with registered closed-end funds that invest in credit instruments may want to explore the viability and potential benefits of conversion to a BDC structure, to the extent the nature and type of underlying investments would fit within the requirements for the Proposed Deduction. In addition, going forward, private credit managers may want to consider the viability and benefits of incorporating a BDC within future private credit fund structures as a means of maximizing tax efficiencies for certain types of investors. Finally, feeder funds and fund of funds that invest in BDCs should assess how the deduction can be passed through to partners and investors, including general partners receiving carried interest.
OBBBA Status
While the OBBBA has passed in the House, a corresponding version remains under discussion in the U.S. Senate (the “Senate“), and the final version of the Senate bill, including whether it will contain the Proposed Deduction, currently remains uncertain. Once the Senate has approved its own version of the OBBBA, the bill will be subject to the Congressional reconciliation process, where further revisions could be made to the OBBBA before it ultimately is approved in final form by both the House and Senate and is signed into law by the President. While there is significant pressure on the Senate to pass its own version of the OBBBA, if the Proposed Deduction is omitted from the Senate version, it is less likely to be included in the final version of the OBBBA given the necessary reconciliation process between the House and Senate versions of the OBBBA. Conversely, if it remains in the version of the bill that ultimately passes the Senate, there is a greater likelihood of the Proposed Deduction surviving and becoming part of the final version of the OBBBA. In either case, the omnibus nature of the OBBBA and the number of topics it attempts to address necessarily make any predictions on its timing, including whether or even if a final version will pass, challenging.
Takeaways
The OBBBA, if passed into law in its current form, would increase the Section 199A deduction from 20% to 23% for qualifying investment income, and extend the deduction to qualified BDC interest dividends.
For top-bracket taxpayers, the Proposed Deduction reduces the effective tax rate on qualifying BDC interest income from 40.8% to 32.29%, an 8.51% reduction.
The tax cut translates to a 14.375% increase in after-tax yield, making BDCs more attractive to taxable investors.
Only net interest income from a BDC’s qualified trade or business (e.g., lending) qualifies for purposes of the Proposed Deduction, meaning that direct lending BDCs will likely see a greater benefit from the Proposed Deduction.
To qualify, the BDC must be an “electing BDC” (i.e., a BDC regulated under the Investment Company Act of 1940 that elects RIC treatment under Section 851 of the Code).
The benefit of the Proposed Deduction can be passed through to partners in partnerships that in turn own BDCs, including general partners receiving carried interest and investors in private feeder funds and fund of funds.
This change better aligns BDCs with REITs, which already benefit from the 199A deduction, potentially leveling the playing field for income-focused investment vehicles.
Fund managers, tax advisors, and investors should evaluate how to structure ownership and distributions to maximize eligibility for the deduction.
Footnotes
[1] “Qualified BDC interest dividend” is any dividend from an electing business development company (“BDC“) received during the taxable year that is attributable to net interest income of the BDC that is properly allocable to a “qualified trade or business” of the BDC. Accordingly, only net interest income of a BDC qualifies for the deduction. We believe that lending is a qualified trade or business for this purpose.
[2] An “electing BDC” is a “business development company” (as defined in section 2(a) of the Investment Company Act of 1940) that has an election in effect under Section 851 of the Code to be treated as a regulated investment company (“RIC“).
Customs Fraud Makes the Big Leagues: DOJ’s New White-Collar Priorities Confirm Heightened Risk
Last month, the Department of Justice put trade, customs, and tariff fraud squarely in the spotlight. This isn’t just another line item on the compliance checklist, it’s a loud-and-clear signal that import-related enforcement is no longer just an administrative concern. It’s now a front-and-center DOJ priority.
On May 12, DOJ Criminal Division Chief Matthew Galeotti announced 10 high-impact white-collar enforcement priorities. Sitting alongside health care fraud, corporate recidivism, and national-security-linked corruption was something you would not have seen from prior administrations: customs and trade fraud, including tariff evasion.
It’s not a surprising move — at least not to us. Back in March, our International Trade team at Foley predicted this turn in two separate publications:
Criminal Enforcement of Trade, Import, and Tariff Rules: A Growing Risk for Businesses
The Rising Risk of Customs False Claims Act Actions in the Trump Administration
We noted then that customs enforcement was moving out of the regulatory shadows and toward the aggressive tactics historically reserved for FCPA, health care, and financial crimes. With this new DOJ announcement, that evolution is now official policy.
What’s Driving the DOJ’s Shift?
This enforcement focus is no accident. It reflects the broader “America First” priorities of the Trump administration, a strategy aimed at reshaping global trade in favor of U.S. interests, as well as a means of collecting additional revenue. From sweeping tariffs to heightened scrutiny of Chinese imports, the administration is using every tool at its disposal — civil, criminal, and regulatory — to protect domestic industry, to close perceived trade loopholes, and to ensure collection of all tariffs. As Galeotti summarized the DOJ’s new approach, “[t]rade and customs fraudsters, including those who commit tariff evasion, seek to circumvent the rules and regulations that protect American consumers and undermine the Administration’s efforts to create jobs and increase investment in the United States. Prosecuting such frauds will ensure that American businesses are competing on a level playing field in global trade and commerce.” For companies that import goods, the message is clear: Compliance with trade laws is no longer just a regulatory obligation, it’s a frontline national priority.
What In-House Counsel Should Do Now: A Practical Framework
In response, manufacturers should elevate trade compliance to the same level of urgency as anti-corruption or sanctions compliance. Drawing from our comprehensive white paper, Managing Import and Tariff Risks During a Trade War, here’s a practical framework for GCs and compliance officers:
Identify Your Risks
Retrieve and analyze your company’s ACE (Automated Commercial Environment) import data.
Conduct a customs risk audit, focusing particularly on ensuring that HTS classifications and countries of origin are accurately (and consistently) reported to Customs for all imports.
Map supply chain and broker relationships.
Plan for Disruption
Diversify sourcing and build supply chain flexibility.
Collaborate with finance to model tariff impact scenarios.
Establish rapid-response strategies for emerging duties or bans.
Manage Contractual Exposure
Build tariff pass-through mechanisms into commercial agreements.
Include change-in-law clauses that allow flexibility in sourcing.
Clearly define responsibility for customs classifications and compliance.
Minimize Legal Exposure
Review and correct import declarations regularly.
Confirm compliance with UFLPA and other partner agency rules.
Implement internal controls around broker instructions and tariff engineering.
Identify Cost-Saving Opportunities
Explore bonded warehouses, FTZs, and drawback programs.
Assess opportunities for tariff engineering and preferential treatment under trade agreements like USMCA.
Consider use of temporary importation bonds (TIBs) where appropriate.
Strengthen Supply Chain Integrity
Perform due diligence on upstream suppliers.
Map materials and origin to avoid forced labor violations.
Implement traceability protocols and audit programs.
This isn’t just a customs compliance issue anymore, it’s a corporate integrity and reputational risk issue. The whistleblower incentives are real, especially under the False Claims Act. The penalties are large. And the prosecutorial appetite is growing.
The Takeaway
We’ve said it before, and we’ll say it again: Customs fraud has moved from the margins to the mainstream of DOJ enforcement.
If your company imports goods, trade compliance should be a priority. DOJ is not waiting for egregious cases; it is actively looking for systemic vulnerabilities, misclassifications, and tariff evasion strategies dressed up as “logistical creativity.”
The time for general counsel to engage is now. Audit. Adjust. Contract. Train. Fix. Because enhanced enforcement is not coming someday — it’s already here.
Court Of International Trade Halts Trump’s “Liberation Day” Tariffs As Administration Appeals Ruling; What Is The Court Of International Trade?
On May 28, the U.S. Court of International Trade (“CIT”) blocked President Trump’s tariffs enacted under the International Emergency Economic Powers Act (“IEEPA”).[1] The CIT held that the IEEPA does not authorize presidential tariffs for trafficking or for worldwide/retaliatory purposes.[2] A day later, the U.S. District Court for the District of Columbia issued a preliminary injunction staying the same tariffs on the same grounds.[3]
In response to the adverse CIT ruling, the Trump administration filed an appeal with the U.S. Court of Appeals for the Federal Circuit. The Federal Circuit, which reviews CIT rulings on appeal, granted an immediate injunction preventing the ruling from taking effect while the case proceeds through the appellate process. However, if the CIT’s decision is affirmed, it would eliminate the tariffs imposed on April 2, 2025 as part of the Trump administration’s “Liberation Day” trade initiative.
While the appeal is being decided, this post will explain the specialized role and jurisdiction of the CIT, which many readers may not be familiar with.
The CIT operates as a federal court with exclusive jurisdiction over the nation’s international trade disputes. Seated in New York City, the CIT functions with the same legal authority as a U.S. district court but focuses exclusively on international trade matters. The court’s jurisdiction extends to any civil action brought against the United States, its officers, or agencies involving international trade law.[4] This broad mandate includes cases arising from:
U.S. Customs and Border Protection decisions regarding import disputes
Antidumping and Countervailing Duties determinations[5]
U.S. government actions to recover import-related penalties
The CIT’s evolution reflects the increasing complexity of international trade in the United States. Originally established as the Board of General Appraisers in 1890, it became the U.S. Customs Court in 1926 before taking its current form in 1980 under the Customs Courts Act. This legislation aimed to provide the international trade community, domestic interests, consumer groups, labor organizations, and concerned citizens with an improved judicial forum for reviewing government import-related actions.[6]
The CIT is composed of nine life-tenured judges, appointed by the president and confirmed by the Senate. Importantly, no more than five judges may belong to the same political party, with a goal of ensuring balanced representation in international trade dispute adjudication.[7] The case that struck down President Trump’s IEEPA tariffs was decided by a three-judge panel, appointed by Presidents Reagan, Obama, and Trump.[8]
The CIT’s chief judge typically assigns cases to a single judge, unless a case involves the constitutionality of a congressional act, presidential proclamation, executive order, or an issue with significant implications for customs laws. In such cases, the chief judge may assign a three-judge panel, as here.[9]
The Federal Circuit’s eventual decision will likely establish important precedent for future presidential trade actions. If the CIT’s interpretation of IEEPA is upheld, it could constrain how presidents utilize emergency powers to achieve trade policy objectives.
[1] The International Emergency Economic Powers Act (IEEPA) provides the president authority in some circumstances to regulate a variety of economic transactions following a declaration of national emergency. President Trump declared a national emergency under the IEEPA on April 2, 2025 as part of his administration’s “Liberation Day” trade initiative. See 50 U.S.C. § 1702; see generally https://www.congress.gov/crs-product/R45618; https://www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-president-donald-j-trump-declares-national-emergency-to-increase-our-competitive-edge-protect-our-sovereignty-and-strengthen-our-national-and-economic-security/
[2] V.O.S. Selections, Inc. v. United States, No. 25-66, slip op. at 29, (Ct. Int’l Trade May 28, 2025).
[3] Learning Resources, Inc. v. Trump, No. CV 25-1248 (RC), 2025 WL 1525376 (D.D.C. May 29, 2025).
[4] See 28 U.S.C. §§ 1581-1584.
[5] “Antidumping” and “Countervailing Duties” issues address unfair trade practices that provide relief to U.S. industries and workers that are injured due to imports. This can be from like products sold in the U.S. market at less than fair value (antidumping) or subsidized by a foreign government or public entity (countervailing duties). https://www.congress.gov/bill/114th-congress/house-bill/644/text
[6] https://www.cit.uscourts.gov/about-court
[7] 28 U.S.C. § 251.
[8] https://www.cit.uscourts.gov/judges-united-states-court-international-trade
[9] 28 U.S.C. §§ 253-255.
Beltway Buzz, June 6, 2025
The Beltway Buzz™ is a weekly update summarizing labor and employment news from inside the Beltway and clarifying how what’s happening in Washington, D.C., could impact your business.
Senate Republicans Want Legislative Priorities Passed in June. All eyes are on the U.S. Congress this week as Republicans in the U.S. Senate roll up their sleeves and get down to working on their version of the One Big Beautiful Bill Act. President Donald Trump has stated that he wants to sign the bill by July 4, which gives Senate Republicans roughly four weeks to pass the bill—an ambitious timetable. As a reminder, because Republicans are using the reconciliation legislative process, they can pass this bill on their own in the Senate, without the need to convince Democrats to vote in favor of the bill.
Buzz readers know that we are watching closely the status of the “no tax on tips and overtime” provisions in the House-passed reconciliation bill, particularly since the Senate passed the No Tax on Tips Act (S.129). Already at least one Republican senator has expressed concern over the U.S. House of Representatives version’s language on tips, because it would benefit certain workers over others, even when they earn the same amount of money. The Buzz is also watching to see if the Regulations from the Executive in Need of Scrutiny (REINS) Act, which was included in the House bill, will survive the reconciliation process in the Senate. The REINS Act is, in a way, the opposite of the Congressional Review Act (CRA), which we’ve often examined: while the CRA allows Congress to disapprove regulations after they’ve been finalized, the REINS Act would require Congress to affirmatively approve of regulations before they can be finalized.
SCOTUS Rejects Heightened Evidentiary Standard for Majority Group Plaintiffs. In a unanimous decision this week, the Supreme Court of the United States ruled that a plaintiff from a majority group does not have to demonstrate additional “‘background circumstances” at the initial phase of his or her case. Aaron Warshaw has the details, including how the decision may play out amidst the administration’s current scrutiny of diversity, equity, and inclusion programs.
President Trump Issues Travel Ban. On June 4, 2025, President Trump issued a proclamation entitled, “Restricting The Entry of Foreign Nationals to Protect the United States from Foreign Terrorists and Other National Security and Public Safety Threats.” Effective June 9, 2025, the proclamation “fully restrict[s] and limit[s] the entry of nationals” from the following twelve countries:
Afghanistan,
Burma,
Chad,
Republic of the Congo,
Equatorial Guinea,
Eritrea,
Haiti,
Iran,
Libya,
Somalia,
Sudan, and
Yemen.
The proclamation further institutes partial limitations and restrictions on the entry of nationals from the following seven countries:
Burundi,
Cuba,
Laos,
Sierra Leone,
Togo,
Turkmenistan, and
Venezuela.
These restrictions apply to both immigrant and nonimmigrant visas and “only to foreign nationals of the designated countries who:
are outside the United States on the applicable effective date of this proclamation; and
do not have a valid visa on the applicable effective date of this proclamation.”
A variety of exceptions are provided, including for lawful permanent residents of the United States, international athletes, immediate family immigrant visas, adoptions, and others. Whitney Brownlow and Ashley Urquijo have the details.
SCOTUS Allows CHNV Rescission to Proceed. On May 30, 2025, the Supreme Court of the United States stayed a ruling by the U.S. District Court for the District of Massachusetts to block the Trump administration’s rescission of the Cuba, Haiti, Nicaragua, and Venezuela (CHNV) humanitarian parole program. The ruling removes parole protections and work authorization for approximately 532,000 individuals while the legal challenge to the administration’s termination decision continues to work its way through the courts. In dissent, Justice Ketanji Brown Jackson (who was joined by Justice Sonia Sotomayor) wrote that the Court’s ruling “undervalues the devastating consequences of allowing the Government to precipitously upend the lives and livelihoods of nearly half a million noncitizens while their legal claims are pending.” Whitney Brownlow and Derek J. Maka have the details. Evan B. Gordon and Daniel J. Ruemenapp wrote previously about what the removal of work authorization for covered individuals means for employers.
DOL Launches New Opinion Letter Landing Page. This week the U.S. Department of Labor (DOL) announced the launch of its opinion letter program. The program will provide compliance assistance to stakeholders with questions regarding federal laws overseen by the Wage and Hour Division, the Occupational Safety and Health Administration, the Employee Benefits Security Administration, the Veterans’ Employment and Training Service, and the Mine Safety and Health Administration (which will also “provide compliance assistance resources through its new MSHA Information Hub, a centralized platform offering guidance, regulatory updates, training materials and technical support”). According to the announcement,
Opinion letters provide official written interpretations from the department’s enforcement agencies, explaining how laws apply to specific factual circumstances presented by individuals or organizations. By addressing real-world questions, they promote clarity, consistency, and transparency in the application of federal labor standards.
The DOL’s new opinion letter landing page is here. Opinion letters were a longstanding practice of the agency until the Obama administration, which replaced them with “Administrator’s Interpretations.” The program was resuscitated during President Trump’s first administration but used sparingly during the Biden administration. John D. Surma has the details on Deputy Secretary of Labor Keith Sonderling’s announcement of the program.
Budget Time! It is the time of year when the administration offers its budget to Congress in anticipation of the 2026 fiscal year (FY), which commences on October 1, 2026. Agency budget justifications are aspirational in nature, but can help guide Congress towards some final numbers, particularly in the current political climate, where Republicans control Congress and the White House.
Department of Labor. The DOL is requesting a FY 2026 budget of $8.6 billion, about $5 billion less than enacted in the current fiscal year. The budget proposes to completely shut down the remaining functions of the Office of Federal Contract Compliance Programs, transferring enforcement of the Vietnam Era Veterans’ Readjustment Assistance Act to Veterans’ Employment and Training Service, and enforcement of Section 503 of the Rehabilitation Act of 1973 to the U.S. Equal Employment Opportunity Commission (EEOC). T. Scott Kelly, Christopher J. Near, and Zachary V. Zagger have the details on the Trump administration’s proposal to eliminate OFCCP.
EEOC. The Commission is requesting $435 million in FY 2026, about $20 million less than enacted in the current fiscal year. As part of the “Chair’s Message” section of the budget submission, Acting Chair Andrea Lucas makes the EEOC’s FY 2026 priorities clear:
the agency substantively will focus on relentlessly attacking all forms of race discrimination, including rooting out unlawful race discrimination arising from DEI programs, policies, and practices; protecting American workers from unlawful national origin discrimination involving preferences for foreign workers; defending women’s sex-based rights at work; and supporting religious liberty by protecting workers from religious bias and harassment and protecting their rights to religious accommodations at work.
National Labor Relations Board. The Board is requesting $285.2 million in FY 2026, about $14 million below the FY 2025 enacted budget of $299.2 million. The anticipated savings largely come from “staff attrition” of ninety-nine employees, which would bring the NLRB staff to 1,152.
Remember that this is all just the administration’s ask. Ultimately, Congress retains the power of the purse and will set agency spending levels (and would have to authorize the transfer of Section 503 responsibility to the EEOC).
“Our Next Item Up for Bid … IRS Commissioner.” The Senate Committee on Finance has advanced the nomination of Billy Long to be Internal Revenue Service (IRS) commissioner. Long, a Republican, represented Missouri’s 7th congressional district from 2011 to 2023. Prior to his career in politics, Long was an auctioneer and owned his own auction company. He was no slouch, either. Long was named “Best Auctioneer in the Ozarks” for seven years in a row and is a member of the National Auctioneers Association Hall of Fame. During a congressional hearing in 2018, Long famously employed a mock auction chant to drown out a protestor until she was escorted out. Assuming he gets confirmed by the Senate, maybe Long can use his fast-talking skills to speed up those IRS audits.
Texas Extends R&D Credit and Implements Other Tax Changes in 89th Legislative Session
The 89th Texas legislative session—which ran from Jan. 14 through June 2—resulted in significant tax changes. One of the most important changes was the extension of Texas’ Research and Development Credit (R&D Credit). In addition, the session resulted in property tax relief for Texas homeowners and changes to the administrative deference provided by Texas courts.
Texas R&D Credit
Senate Bill 2206, which the governor signed on June 1, extends the R&D credit. The final bill that passed largely mirrors earlier proposals, providing for an extended credit that: (1) keeps the credit alive by extending its current expiration date; (2) repeals the sales tax exemption portions of the R&D Credit (the sales tax and franchise tax R&D Credits were previously mutually exclusive, and taxpayers had to choose one or the other); (3) follows the federal R&D credit more closely; and (4) increases the taxpayer’s allowable research and development expenditures from 5% to 8.722% for franchise tax credit purposes (See prior GT Alert on Texas R&D legislation).
Property Tax Relief
The legislature also approved a property relief package that increases the state’s homestead exemption from $100,000 to $140,000 (and $200,000 for individuals over 65 years of age). In addition, the legislature approved House Bill 9, which provides for an increase in the state’s business personal property tax exemption from $2,500 to $125,000.
Data Processing Changes
Efforts to update Texas’s data processing statutory provisions were stalled. Instead, the Texas comptroller formally amended the data processing regulation (the latest amendments became effective on April 2, 2025).
The amended rule expands the definition of data processing by incorporating an exhaustive list of examples regarding what constitutes “data processing.” The amended rule also replaces the longstanding “essence of the transaction test” with a broader ancillary requirement, which will result in additional taxable activities under the data processing umbrella. It is unclear how Texas courts—who have given their stamp of approval by applying the essence of the transaction test—will view these changes.
Agency Deference
One final bill of note is Senate Bill 14, which eliminates the requirement that Texas courts “give deference to a state agency’s legal determination regarding the construction, validity, or applicability of the law or a rule adopted by the state agency responsible for the rule’s administration, implementation, or other enforcement.” The Texas comptroller is subject to the changes in Senate Bill 14, which will take effect Sept. 1, 2025. Considering the comptroller’s changes to the data processing regulation regarding the essence of the transaction test, Senate Bill 14 may be front and center sooner rather than later.
GT Insights
These changes may bring new developments and incentivize business in the state. While the property tax and franchise tax regimes might see some relief, the comptroller’s updated data processing rule is an expansion of the sales tax base. It remains to be seen how these developments are incorporated.
House Advances Tax Legislation: Implications for Tax-Exempt Organizations
On May 22, the US House of Representatives passed H.R. 1, the “One Big Beautiful Bill Act.” This alert highlights the provisions in the Bill that could impact tax-exempt organizations.
As passed by the House, the Bill reflects significant changes from the version reported by the House and Ways and Means Committee (Committee version) covered in our previous alert.
The Bill now moves to the US Senate for consideration. Further changes are likely to occur in the Senate, and the revised version of the legislation would then need to be approved by the House before sending it to the president’s desk.
The Bill does not include the following provisions included in the Committee version:
Unrelated Business Taxable Income From Name and Logo Royalties: The Bill does not include the proposed modification to the royalty exception for unrelated business taxable income that would exclude income derived from any sale or licensing of a tax-exempt organization’s name and logo.
Termination of Tax-Exempt Status for Terrorist Supporting Organizations: The Bill does not include the proposed modification to Section 501(p) of the Internal Revenue Code, which would have added a definition of “terrorist supporting organizations” to Section 501(p) and provided the Secretary of the Treasury with the authority to designate an organization as a terrorist supporting organization without consulting with the Secretary of State and the Attorney General.
The Bill modifies the Committee version in several key respects:
Excise Tax on Net Investment Income of Private Foundations: Like the Committee version, the Bill replaces the flat 1.39% excise tax rate with a four-tiered structure based on the foundation’s total assets:
Foundations with assets below $50 million: 1.39%.
Foundations with assets between $50 million and $250 million: 2.78%.
Foundations with assets between $250 million and $5 billion: 5%.
Foundations with assets above $5 billion: 10%.
However, Section 112022 of the Bill expands the Committee version’s aggregation rules for purposes of the private foundation excise tax not only to include the assets of certain related organizations in determining the applicable rate of tax, but also to include the net investment income of those related organizations to determine the net investment income subject to the tax.
A related organization for these purposes is any organization that controls or is controlled by the private foundation or is controlled by one or more persons that also control the private foundation. As drafted in the Bill, this provision would include any related organization regardless of its tax status. It excludes, however, assets and net investment income from related organizations that are not controlled by the private foundation if the assets and investment income are not intended or available for the use or benefit of the private foundation. When assets are “not intended or available for the use or benefit of the private foundation” is not defined.
Executive Compensation Excise Tax: Like the Committee version, Section 112020 of the Bill expands the application of the excess compensation excise tax to include any employee or former employee of the organization regardless of whether they are (or were) one of the five highest compensated employees and regardless of whether they are (or were) an employee of an “applicable tax-exempt organization.” However, the Bill modifies the definition of “covered employee” for purposes of the executive compensation excise tax to exclude related persons or government entities.
The Bill retains the following provisions from the Committee version without further modification:
Section 112023 (Certain purchases of employee-owned stock disregarded for purposes of foundation tax on excess business holdings).
Section 112024 (Unrelated business taxable income increased by amount of certain fringe benefit expenses for which deduction is disallowed).
Section 112025 (Exclusive of research income limited to publicly available research).
Section 112021 (Modification of excise tax on investment income of certain private colleges and universities).
Section 110112 (Reinstatement of partial deduction for charitable contributions of individuals who do not elect to itemize).
Section 112027 (1% floor on deduction of charitable contributions made by corporations).