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The “One Big, Beautiful Bill” (OB3), passed by Republican lawmakers, contains numerous provisions impacting tax planning and liabilities for organizations, including the extension of some of the 2017 Tax Cuts and Jobs Act aspects like 100% bonus depreciation on property and equipment investments, and new provisions like the elimination of tax on tips and overtime. Companies are advised to assess the potential impact of these new provisions and plan accordingly, but the lack of regulatory guidance or specifics on the legislation from the IRS is causing uncertainty. The OB3 allows corporations to immediately deduct all research and development (R&D) expenses, a rollback from the pre-2017 Tax Cuts and Jobs Act era, and some businesses can amend their previous returns and “catch up” in tax year 2025 by deducting the rest.
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Understanding OB3: A Closer Look at the Latest Tax Legislation
The introduction of OB3, short for One Big Beautiful Bill (OBBBA), has prompted numerous conversations in the corporate world. This landmark tax legislation, passed by Republican lawmakers this summer, includes potential changes that could significantly impact business tax planning and liabilities.
Key Provisions in the OB3 Legislation
The OB3 tax law introduces multiple provisions and extends some major components of the 2017 Tax Cuts and Jobs Act (TCJA), such as 100% bonus depreciation on property and equipment investments. It also introduces new elements, such as the removal of tax on tips and overtime. Navigating this comprehensive and consequential legislation has been seen as a daunting task, prompting CFO Brew to engage tax experts to help businesses understand the essential parts of the bill and help them prepare for the upcoming business year.
Anticipating IRS Regulatory Guidance
Among the concerns that businesses have about the OB3 legislation is the lack of clear tax guidance from the IRS. Jennifer Acuña, co-leader of the federal legislative and regulatory services group of KPMG’s Washington national tax practice, highlights that businesses are eagerly awaiting detailed IRS guidelines on the legislation. She notes that while President Donald Trump signed the OB3 into law on July 4, the law was not in its final form, leading to a need for the IRS to provide further clarifications.
Acuña emphasizes the importance of businesses conducting modeling to assess the potential implications of the new provisions and to make targeted requests for the inclusion of specific clarifications in the released guidance package. She suggests that this should be the top priority as it could be the difference between making an assumption and taking a position that could have been more advantageous.
Modeling: A Crucial Step
Acuña insists on the importance of businesses undertaking modeling to avoid unexpected interactions of the provisions. The new tax law’s potential interaction with the corporate alternative minimum tax (CAMT), a 15% tax floor on the adjusted financial statement income (AFSI) of large corporations, should be seriously considered in the modeling process. This consideration is critical as lowering regular taxable income could inadvertently increase CAMT exposure, leading to a possible disadvantage to businesses.
Major Changes to R&D Expenses Deductions
The OB3 legislation rolls back the clock to the pre-TCJA era, allowing corporations to once again immediately deduct all research and development (R&D) expenses on their returns. However, the requirement to amortize foreign R&D expenses over 15 years remains in effect. The legislation also allows businesses to amend their previous returns and “catch up” in tax year 2025 by deducting the rest, or they can choose to take those deductions over 2025 and 2026, according to Kyle Kmiec, a principal at accounting firm SVA. Yet, he cautions that the best option depends on each company’s situation and warns that the IRS could take up to 18 months to process the amended return.
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