What Another Trump Presidency Means for Tax Policy in 2025 and Beyond

Key Takeaways:

Potential 2025 tax changes may lower corporate rates and extend key business deductions, affecting planning and cash-flow strategies.

Trump’s policies may reduce clean energy incentives while maintaining fossil fuel preferences, impacting energy investments.

Estate tax exemption increases from the TCJA could be made permanent, with long-term implications for estate planning.

With President-elect Donald Trump winning a second term in the November 5 election, we have a clearer picture of what tax policies will be at the forefront of discussions as we head into 2025 and the scheduled expiration of many Tax Cuts and Jobs Act (TCJA) provisions. While Trump has not released a detailed tax plan, he has commented on several areas of tax law and policy, making it possible to get a good idea of the direction tax policy may take next year.

Republicans also gained control of the Senate and will have a small majority in the chamber in 2025. As of the date of publication of this article, control of the House has yet to be called. Even if Republicans retain control of the House, passing tax legislation may still be challenging. Unless the legislative filibuster is eliminated from Senate rules, any tax law changes will likely still have to be passed through the budget reconciliation process. If the Democrats manage to gain control of the House, passing tax legislation to advance Trump’s policies would become much more difficult and will require much more bipartisan negotiating.

Although it remains to be seen what specific legislative proposals will emerge, businesses and individuals should pay close attention to how Trump’s proposed policy preferences could alter their total tax liabilities.

The tables below outline current tax law and policy, as well as expected potential future tax policies under a Trump administration. Four separate tables cover provisions for business tax, international tax, individual tax, and estate, gift, and generation-skipping transfer (GST) tax. All data is based on information released or discussed by Trump as of November 8, 2024.

Business tax provisions

International tax

Individual tax

Estate, gift, and GST tax

How MGO can help:

MGO delivers comprehensive tax advisory and compliance services to guide you through an increasingly complex and evolving tax landscape. Leveraging deep industry insights and a proactive approach, we assist your business in managing tax liabilities efficiently while uncovering opportunities for growth.

Our team works diligently to provide tailored solutions that address unique challenges, from navigating shifting regulations to optimizing your overall tax strategy. Even in times of regulatory uncertainty, we are committed to helping your organization remain agile and well-positioned for long-term success.

Have questions? Reach out to our tax team today.

How to Secure Your Financial Future as a Professional Gamer

Key Takeaways:

Professional gaming careers can be lucrative but short-lived, making smart financial management crucial from the start.
Mastering the intricacies of contracts, taxes, and revenue streams is essential for pro gamers to maximize earnings and avoid costly pitfalls.
Building a sustainable financial future in esports demands a strategic balance between capitalizing on current opportunities and planning to achieve long-term goals.

The rise of electronic sports (esports) has been nothing short of phenomenal. According to Variety, esports viewership increased a whopping 92% from 2019 to 2023 — with viewers watching more than 2.5 billion hours of esports events last year. Major colleges and universities like Ohio State now offer esports degrees, and brands like Intel, Coca-Cola, and Mastercard are spending millions on esports sponsorships each year.

As a professional gamer, you’re part of this fast-growing industry. But with the thrill of competition and the allure of sponsorships comes the challenge of managing your earnings. Whether you’re streaming on Twitch, competing on the esports circuit, or signing a deal with a major brand, understanding how to manage and maximize your income is crucial.

Making the Right Deal: Stream Play Versus Team Play

As a pro gamer, you’ll likely face a key decision: Should you focus on building your own brand through streaming or join a team? Both options have their pros and cons, and your choice will impact your earnings significantly.

Streaming: Building Your Own Brand

Streaming offers you the opportunity to build a personal brand and connect directly with your audience. Platforms like Twitch and YouTube allow you to monetize your content through ads, subscriptions, and donations. However, it also means you’re responsible for managing your content, marketing yourself, and properly tracking and reporting your earnings.

An additional challenge with streaming is validating that you’re getting the right percentage from platforms like YouTube. Are you confident that your views and ad revenue are being reported accurately? This is where working with a financial advisor or a business manager can help. They can audit your earnings, verify you’re being paid fairly, and help you optimize your revenue streams.

Joining a Team: Stability with a Salary

Joining an esports team can provide a steady salary and the chance to compete at the highest levels. Teams often handle sponsorships, brand deals, and the logistics of competition, allowing you to focus solely on your gameplay. However, the trade-off is that you may have less control over your brand, and the team may take a cut of your earnings from sponsorships or tournament winnings.

Before signing with a team, it’s critical to have a lawyer review your contract. They can help you understand the terms, such as how much of your earnings the team will take, what happens if you leave the team, and what other obligations you may have. Remember, a contract that seems straightforward can contain clauses that significantly impact your income and career.

Navigating Taxes in Professional Gaming and Esports

As you start earning from your gaming career, taxes are one of the first challenges you’ll face. Your earnings — whether from streaming, sponsorships, or tournament winnings — are all taxable. It’s essential to understand how taxes work in both the country/locality where you live, as well as any jurisdictions where you earn money.

Domestic Taxes: Earning Income Across the U.S.

In the United States, professional gamers are often subject to what’s known as the “jock tax.” Originally designed for athletes, this tax rule applies to individuals who earn income in states where they do not reside. Today, the rule extends beyond athletes to include high-income earners like entertainers and competitive gamers. The tax is typically based on the number of “duty days” you spend in a state for income-generating activities.

For example, if you live in Illinois and come to California for a tournament, California can tax you on that income — even if you’re only there for a few days. Enforcement of the “jock tax” varies by state and locality, and whether you are taxed may depend on how much you earn (the more you make, the more likely you are to be taxed). Because of varying state and local tax rules, you may end up owing taxes in multiple states and localities depending on where you compete and earn income.

Additionally, if you’re selling merchandise or other products as part of your brand, you’ll also need to be aware of sales tax obligations. Depending on where your customers are located, you may be responsible for collecting and remitting sales tax to different states and localities. Each jurisdiction has its own rules, and failing to comply with them could result in penalties or back taxes.

International Taxes: Considerations for Global Gamers

With esports growing globally, you might earn pro-gaming income from multiple countries — each with its own tax rules. For example, if you win a tournament in South Korea or get sponsorship from a European company, you may owe taxes in those countries. You also need to report all foreign income to your home country, adding complexity to your taxes.

Here are some considerations to keep in mind when managing international taxes:

Double taxation: To avoid paying taxes in two countries on the same income, you can use options like exclusions or foreign tax credits (FTCs). Tax treaties between some countries can also reduce your tax burden. But not all countries have treaties, and claiming these credits can involve complex filings and detailed records. Knowing your options and understanding how to apply them can help you manage your taxes strategically and minimize what you owe across borders.
Withholding taxes: Various countries impose a withholding obligation on certain types of revenue streams. This means, before you receive your earnings, the country may withhold a portion of your taxes. The rate varies depending on the type of income and local tax laws.
Intellectual property (IP): Savvy professional gamers are cognizant of IP such as copyrights and trademarks, as well as name image and likeness (NIL). Whether revenue streams like photoshoots, appearances, speaking engagements, and even your social media presence are compensated as “services” or a “right of use” can influence taxation in various countries. Having clear contracts that appropriately define income classes can help you best manage taxation and protect your rights.

Given the complexity of both domestic and international tax laws, it’s wise to consult with a tax team familiar with the esports industry. They can help you navigate multistate and international tax rules, take advantage of deductions and credits, and structure your finances in a way that minimizes your tax burden across multiple jurisdictions.

5 Common Financial Pitfalls Pro Gamers Should Avoid

In the fast-paced world of esports and professional gaming, it’s easy to get caught up in the excitement and make decisions that could hurt your financial future. Here are a few pitfalls to watch out for:

1. Don’t Rush into Contracts

It’s tempting to sign the first deal that comes your way, especially when there’s a significant amount of money involved. But taking your time to understand the terms of the contract can save you from potential headaches down the line. Work with legal and financial advisors to review any offers before you sign.

2. Watch Out for Hidden Costs

Some deals come with hidden costs that can eat into your earnings. For example, if a team covers your living expenses but then deducts those costs from your winnings you could end up with much less than you expected. Always ask for a detailed breakdown of any expenses and how they will be handled.

3. Budget for the Long Haul

Esports careers can be short — a recent Washington Post headline read “Esports stars have shorter careers than NFL players” — with the peak years often occurring in your early 20s. This makes budgeting and saving for the future even more important.

4. Prioritize Needs Over Wants

When the money starts rolling in, it can be tempting to splurge on the latest gear or a luxury lifestyle. But remember, this income may not last forever. Prioritize saving and investing your money wisely. Work with a financial advisor to create a budget that accounts for your current needs and future goals.

5. Plan for a Sustainable Future

Consider how your current earnings can help you achieve your long-term goals. Whether you want to invest in a new business, save for retirement, or buy a home, planning ahead is key. This is where having a solid financial plan and the right advice can make all the difference.

Level Up Your Financial Strategy

Managing your finances as a pro gamer can be overwhelming, especially when you’re focused on winning and building your brand. That’s why having experienced professionals in your corner can make all the difference. Working with a team of advisors — whether it’s a tax professional, lawyer, or financial planner — can give you the peace of mind to focus on your game knowing your finances are in good hands.

How MGO Can Help

We know the unique challenges you face as a professional gamer. From reviewing contracts to navigating international taxes, we’re here to help you maximize your earnings and secure your financial future. Before you sign any deal or make a financial decision, talk to our Entertainment, Sports, and Media team.

Massachusetts Tax Amnesty: What You Need to Know

Key Takeaways:

Massachusetts Tax Amnesty 2024 offers penalty relief for unfiled returns or outstanding tax liabilities from periods before December 31, 2024.
Eligible taxpayers can request waivers on penalties for personal income, corporate excise, sales and use, and other taxes from November 1 through December 30, 2024.
MGO’s State and Local Tax team can help you determine eligibility, prepare returns, and file amnesty requests for the program.

If you are a Massachusetts taxpayer who missed filing a tax return, filed an amended return, has unpaid taxes, or is currently involved in an audit or appellate review, don’t miss this valuable limited-time opportunity to get penalty relief.

From November 1, 2024, to December 30, 2024, the Massachusetts Department of Revenue is offering a tax amnesty program. This program allows eligible taxpayers to request a waiver of penalties on outstanding tax liabilities for any filing periods with a return due date on or before December 31, 2024.

What Types of Taxes Are Covered?

This program includes a variety of tax types, such as:

Personal Income Tax
Corporate Excise Tax
Partnership Income Tax
Sales and Use Tax
Trusts and Estates
Marijuana Retail Tax
Room Occupancy Tax
Pass-Through Entity Withholding
And more (you can find a full list of eligible and ineligible tax types on the Massachusetts Department of Revenue website)

Who Is Eligible?

Taxpayers may qualify for amnesty if they have:

Unfiled returns, underreported income, or outstanding tax obligations.
Audits for periods with returns due on or before December 31, 2024.
Pending resolution or appellate tax board cases.
Open collection cases.

Who Is NOT Eligible?

Taxpayers are not eligible if they:

Received amnesty relief in 2015 or 2016 for the same tax type and period.
Are looking to waive penalties on taxes already paid.
Are requesting a refund or credit for overpayment.
Are under a tax-related criminal investigation or prosecution.
Are currently in bankruptcy.

Special Rules for Non-Filers

For eligible non-filers, the program offers a limited look-back period of three years. This means qualifying non-filers will only need to submit returns for the last three years (January 1, 2022 – December 31, 2024).

However, this limited look-back period does not apply to non-filers who have been contacted by the Massachusetts Department of Revenue about unfiled returns, taxpayers responsible for trustee taxes (such as sales and use, withholding, and marijuana retail taxes), or those filing estate tax returns.

How to Participate in the Amnesty Program

To participate in the Massachusetts tax amnesty program, you must:

Submit an amnesty request through MassTaxConnect.
Pay the full amount of tax and interest owed by December 30, 2024.
File all required returns (via MassTaxConnect or third-party software) by December 30, 2024.

How MGO Can Help

Navigating the Massachusetts tax amnesty program can be complex. Our State and Local Tax team is here to guide you every step of the way. We can help you:

Determine if you or your business have a Massachusetts filing obligation.
Analyze any nexus exposure and find potential liabilities.
Prepare and file the required returns accurately and on time.
Confirm your amnesty request is submitted properly in compliance with all state guidelines.

MGO has extensive experience helping clients with state and local tax matters, including amnesty programs. Our team is committed to helping you resolve outstanding tax issues, minimize penalties, and stay compliant with state tax regulations.

Don’t wait — reach out to our team today to find how we can help you save.

CFOs: Prepare Your Company for IRS Transfer Pricing Audits and Mitigate Risk

Key Takeaways:

Transfer pricing is an increasing area of focus for tax authorities, requiring CFOs to adopt more strategic audit preparation.
Proactive measures like pre-audit reviews, voluntary disclosures, and benchmarking are crucial for companies to defend transfer pricing policies and minimize risks.
Prioritizing high-value transactions, collaborating with tax professionals, and leveraging technology are essential to stay ahead of evolving transfer pricing regulations and potential audits.

In today’s global tax environment, transfer pricing has become a critical focus for tax authorities. With multinational companies operating across multiple jurisdictions, tax authorities are intensifying their efforts to scrutinize transfer pricing practices and confirm that profits are appropriately distributed and taxed in their jurisdictions. This growing focus requires chief financial officers (CFOs) and tax executives to shift from compliance alone to comprehensive audit preparation and strategic risk management.

From Compliance to Audit Readiness

While transfer pricing compliance has always been important, the increasing focus on audit enforcement is changing the landscape. It is no longer enough to simply have policies in place; your company needs to be prepared to defend them under rigorous examination. This shift highlights the importance of proactively managing transfer pricing risk and preparing for potential audits.

Risk management and audit preparation efforts include:

Pre-audit reviews — Conducting periodic pre-audit reviews is essential. These reviews offer an opportunity to examine your transfer pricing documentation and policies to confirm the pricing of all intercompany transactions is supported by clear agreements. It is important the documentation reflects an arm’s length standard and is presented in a way that would stand up to an audit. Showing gaps, inconsistencies, or potential weaknesses early on allows your company to address them before tax authorities intervene.
Voluntary disclosures — In cases where pre-audit reviews reveal potential issues, voluntary disclosures can be a valuable tool. If discrepancies are found, making voluntary disclosures to tax authorities can sometimes lead to more favorable outcomes as it shows good faith and a proactive approach to compliance. It also demonstrates your company has a level of sophistication in overall global financial hygiene. This strategy can help you avoid more severe penalties that may arise from issues discovered during an Internal Revenue Service (IRS) or foreign jurisdiction audit.
Benchmarking — Benchmarking and testing are also key components of audit preparedness. Your company should consistently review its transfer pricing policies and test them against current market conditions. This is particularly important when there are economic shifts or significant changes in business operations — such as the introduction of new products, services, or intangible assets. By regularly benchmarking intercompany pricing, your company can support alignment with the arm’s length principle and minimize risk during an audit.

The Role of CFOs in Managing Transfer Pricing Risk

For CFOs, transfer pricing audits are a significant financial risk. These audits can result in tax adjustments and penalties. They can also lead to reputational damage if issues are not handled properly and with sufficient expeditiousness. CFOs together with their tax advisors play a significant role in mitigating this risk by taking a strategic approach to audit readiness and documentation.

Key areas of focus for CFOs include:

High-value transactions — A top priority for CFOs should be focusing on high-value transactions. Not all intercompany transactions carry the same level of risk, and those involving intangible assets, intellectual property, or complex financial arrangements tend to receive the most scrutiny from tax authorities. It is important to thoroughly document and benchmark these transactions to avoid potential challenges during an audit.
Tax professionals — Another critical element of risk management is collaborating with tax professionals. Transfer pricing rules can vary significantly across jurisdictions, and tax advisors are well-versed in the specific requirements and regulations in various countries. Working closely with these advisors enables your company to adapt its transfer pricing policies to standards and minimize exposure to risk.
Voluntary compliance programs — In some cases, companies may receive help by entering voluntary compliance programs — such as advance pricing agreements (APAs). These agreements allow your company to gain certainty over transfer pricing arrangements by agreeing to terms with tax authorities in advance. For high-risk transactions or operations in high-risk jurisdictions, APAs can provide a level of protection from future audits and disputes.

Proactive Risk Management in Transfer Pricing

The global tax landscape continues to evolve as regulatory authorities refine their approaches to transfer pricing audits and enforcement. For mid-market companies with limited resources, it is particularly important to strike the right balance between compliance and cost-efficiency. This requires a proactive approach to transfer pricing risk management that combines audit readiness with strategic planning.

Steps for proactive risk management include:

Audit-ready documentation — The first step in proactive risk management is building audit-ready documentation. This includes keeping detailed records of all intercompany transactions, agreements, and financial data that support the arm’s length nature of pricing decisions. Regularly reviewing and updating this documentation helps your company stay prepared for potential audits.
Regular market testing — Beyond documentation, CFOs should incorporate benchmarking and market testing into risk management strategies. By continuously checking how your pricing compares to the market, your company can stay aligned with the arm’s length principle and minimize exposure to tax adjustments. Regular testing can also help you find potential discrepancies before they become audit issues.
Automated solutions — Finally, using technology to enhance efficiency and accuracy in transfer pricing documentation and analysis is essential. Automated solutions and data analytics offer the ability to quickly find risks, prioritize compliance efforts, and streamline the process of audit preparation.

Keeping Your Company Ahead of the Transfer Pricing Curve

In an era of increased scrutiny and regulatory pressure, transfer pricing compliance is a priority for multinational companies. For CFOs and tax executives, the challenge lies not just in keeping compliant but in preparing for audits and managing the associated risks. Proactive risk management, strategic audit readiness, and a careful focus on high-value transactions are critical components in navigating this complex landscape.

By focusing on audit preparedness, keeping documentation up-to-date, and collaborating with local tax professionals, you can position your company to minimize tax adjustments, penalties, and disputes. As transfer pricing rules continue to evolve, staying ahead of the curve with a forward-thinking strategy is essential for supporting compliance and reducing financial risks.

How MGO Can Help

Our International Tax team is here to help you navigate the new transfer pricing landscape. We can assist you in both broad and focused areas, providing guidance to meet your specific transfer pricing needs. Our services include:

IRS Pre CheckUP — We help you identify and rectify potential weaknesses in transfer pricing and international tax documentation and practices before facing an actual IRS audit.
Review of:
Cross-border agreements for U.S. tax updates
Benchmark data sets
Transfer pricing documentation
U.S. tax returns to confirm consistency with transfer pricing documentation and policies, as well as withholding practices

Protect your company from costly adjustments and penalties — reach out to our team today.

You’ve Pre-Filed for the Energy Tax Credit, Now What?

Key Takeaways:

Navigate the crucial “now what?” phase after pre-filing by focusing on cost allocation, credit computation, and timely return filing by November 15.
Tackle complexities like multiple credits, thorough documentation, and tight timelines to maximize your clean energy tax benefits.
Leverage professional guidance to optimize your credits and potentially secure substantial refunds for reinvestment in your community.

You’ve taken the first step towards benefiting from clean energy tax credits by completing your pre-filing registration. But what comes next? For state or local government entities, navigating the world of energy tax credits can be complex. Let’s break down the crucial next steps to help you maximize your benefits and meet the necessary deadlines.

Understanding the Timeline

After pre-filing registration, you’re now in the “now what?” phase. This critical period involves two main steps:

Cost allocation and credit computation, and
Filing of the return (due November 15).

It’s essential to maintain momentum during this phase to receive the full benefits of the tax credit.

Cost Allocation and Credit Computation: Key Considerations

As you prepare to file your return, keep these important factors in mind:

Multiple Credits and Projects

If your entity is filing for more than one credit or managing multiple projects, the process becomes more intricate. Each credit may require separate forms and documentation, and careful management is needed to avoid errors that could delay your refund.

Documentation and Support

Given that this is a relatively new process for many governmental entities, thorough documentation is essential. From initial project costs to ongoing expenses, every financial detail must be meticulously recorded. Proper documentation not only supports your credit claims but also protects your entity in the event of an audit.

Timeline Considerations

The timeline for filing is tight. After prefiling registration, you have a few months to complete cost allocation, credit computation, and the final tax return. Missing the November 15 deadline could result in forfeiting your refund for the year. Working with knowledgeable tax professionals can help you streamline this process and meet all necessary deadlines.

MKT000200-Youve-filed-you-preregistration-now-what

How Professional Guidance Can Help Your Government

Given the complexities involved, your government may benefit from tax credits and incentives professionals to help you navigate the intricacies of:

Proper assessment of eligible expenses
Gathering and organizing necessary documentation
Verifying compliance with all IRS requirements
Maximizing your potential benefits

Filing the Return: The Final Step

Once your cost allocations and credit computations are complete, you’ll move on to filing your tax return. For 2023 tax filings, this return is due by November 15, 2024. Meeting this deadline is crucial to secure your refund.

A few key notes on filing your return:

Your filing must include the registration number(s) provided after your pre-filing registration review.
This is where you will make the formal election for elective pay (also referred to as “direct pay”).
Complete and accurate filing will help you receive the full value of your eligible credits.

What If You Missed the Pre-Filing Registration?

If you haven’t completed your pre-filing registration yet, it’s crucial to act quickly. While the IRS recommended a July 15 deadline, it’s not a hard cutoff. However, delays from a late pre-filing could impact your ability to meet the November 15 filing deadline. Contact a professional as soon as possible to avoid missing out on potential opportunities.

Elective Pay: A Quick Refresher

Elective pay allows governmental entities to benefit from certain clean energy tax credits. The amount of the credit is treated as a payment of tax, and any overpayment results in a refund. This means you can receive the full value of your investment tax credit even if you don’t owe other federal income taxes.

For example, a Northern California city recently computed over $6 million in credits for a $28 million clean energy project. This city stands to receive a substantial refund, which can be reinvested in further sustainable initiatives or other community needs.

Unlock the Full Potential of Your Energy Tax Credits

By staying informed and proactive, you can navigate this process successfully and maximize the benefits of clean energy investments for your community. As you move forward, remember that you don’t have to go it alone — engaging with a tax credits and incentives professional can help you optimize your credits and create a smooth process from start to finish.

How MGO Can Help

Need assistance with your cost allocation and credit computation to meet the filing deadline, or just want to learn more about what energy incentives could be applicable for your entity? Visit our Renewable Energy Investments and Credits page or reach out to our Tax Credits and Incentives team today.

IRS Releases Dual Consolidated Loss Proposed Regulations

Key Takeaways:

The Treasury and IRS released new proposed regulations affecting how dual consolidated losses (DCLs) are calculated and their interaction with the Pillar Two global tax regime.

A new set of rules for disregarded payment losses (DPLs) has been introduced — these apply to disregarded payments deductible in foreign countries, but not included in U.S. taxable income.

The proposed regulations expand the definition of a separate unit and address how foreign tax rules (under Pillar Two) may trigger foreign use restrictions on DCLs.

The Department of the Treasury and the IRS on August 6 released proposed regulations on the dual consolidated loss (DCL) rules and their interaction with the Pillar Two global taxing regime. The proposed regulations also make several changes to how DCLs are calculated and introduce a new disregarded payment loss rule.

DCL Rules

The DCL rules apply to ordinary losses of a dual resident corporation (DRC) or a separate unit. A DRC is either (1) a domestic corporation that is subject to an income tax of a foreign country on its worldwide income or taxed as a resident under the law of that country; or (2) a foreign insurance company that elects to be taxed as a domestic corporation under Internal Revenue Code Section 953(d) and is a member of an affiliated group, even if not subject to tax in the foreign country. A separate unit for purposes of the DCL rules is a foreign branch or hybrid entity that is owned by a domestic corporation. S corporations are not subject to the DCL rules, and domestic corporations will be treated as indirectly owning a separate unit that is owned by a partnership or grantor trust.

Under Section 1503(d), a DCL of a DRC or separate unit generally cannot be used to offset U.S. taxable income of a domestic affiliate (no “domestic use”). This means that the DCL may be used only for U.S. federal income tax purposes against the income of the DRC or separate unit that incurred the DCL.

Some exceptions apply to the domestic use prohibition; for example, a U.S. taxpayer may file a domestic use election and agreement (DUE) certifying that there has not been and will not be any foreign use of the DCL. Foreign use is defined making a portion of the DCL available under a foreign country’s income tax laws to reduce the income of another entity (one that is classified as a foreign corporation for U.S. income tax purposes).

DCLs and Interaction with Pillar Two

The proposed regulations address the coordination between foreign use under the DCL rules and Pillar Two, including expanding the definition of a separate unit to include certain hybrid entities subject to an income inclusion regime (IIR) and foreign branches subject to a qualified domestic minimum top-up tax (QDMTT) or an IIR. More specifically, the proposed rules provide that an income tax for purposes of the DCL rules may include a tax that is a minimum tax computed based on financial accounting principles, such as an IIR or QDMTT. Subject to an exception under the duplicate loss arrangement rules when a double deduction is denied, foreign use could occur if a deduction or loss included in a DCL were used to calculate net GloBE income for an IIR or QDMTT or, alternatively, used to qualify for the transitional CbCR safe harbor. The result of a foreign use would be that no DUE would be permitted to be made to allow for the DCL to be used in the U.S. The proposed rules provide no guidance on the undertaxed profit rules (UTPR).

The proposed regulations also address the concept of “mirror legislation.” The mirror legislation rule under the current DCL rules essentially provides that if the foreign country has its own DCL-type rule that “mirrors” the U.S. rule and that foreign country’s DCL-type rule applies to the loss at issue, then for purposes of the U.S. DCL rules, a foreign use of the DCL will be deemed to occur. The proposed regulations clarify that foreign law, including the GloBE rules, that deny deductions due to the duplicate loss arrangement rules, does not constitute mirror legislation as long as the taxpayer is allowed a choice between domestic or foreign use.

To address legacy DCLs, the proposed regulations provide a transition rule that, subject to an anti-abuse rule, extends the relief given in Notice 2023-80 by treating DCLs incurred in tax years beginning before August 6, 2024, as legacy DCLs and allowing the DCL rules to apply without regard to Pillar Two taxes.

Inclusions Due to Stock Ownership

Under the current DCL rules, U.S. inclusions arising from a separate unit’s ownership in a foreign corporation (such as Subpart F or GILTI) are treated as income and attributable to that separate unit for purposes of determining the income or DCL of that separate unit. This rule also applies to other types of income, such as dividends (including section 1248) and gains from the sale of stock. Under the DCL proposed regulations, with limited exceptions, these types of income (as well as any deductions or losses, such as section 245A dividends received deductions (DRD), attributable to these income items) would be excluded for purposes of calculating a DRC’s or separate unit’s income or DCL.

New Disregarded Payment Loss Rules

The proposed regulations introduce a new set of disregarded payment loss (DPL) rules, which operate independently of the DCL rules. To address certain deduction/non-inclusion outcomes, the DPL rules would apply to some disregarded payments (interest, royalties, and structured payments) that are deductible in a foreign country but are not included in U.S. taxable income because the payments are disregarded.

The DPL rules would require a consenting domestic owner of a disregarded payment entity to include in U.S. taxable income the amount of the DPL of the disregarded payment entity, subject to certain calculation requirements, if one of the following triggering events occur within 60 months: (1) a foreign use of the disregarded payment loss; or (2) failure to comply with certification requirements during the 60-month certification period. A disregarded payment entity is generally a disregarded entity, DRC, or foreign branch.

Since no express statutory authority exists for the new DPL rules, under the proposed regulations, Treasury would implement the DPL rules in coordination with the entity classification election rules under Treas. Reg. §301.7701-3(c), which means that when a specified eligible entity either elects to be disregarded for U.S. tax purposes or defaults to a disregarded entity under the general rules of Treas. Reg. §301.7701-3(b), the domestic owner would be deemed to consent to the new DPL rules. A specified eligible entity is an eligible entity (whether foreign or domestic) that is a foreign tax resident or is owned by a domestic corporation that has a foreign branch. This deemed consent rule would also apply in a situation where a domestic corporation directly or indirectly acquires an interest in a preexisting disregarded entity, as well as a domestic corporation that owns an interest in a disregarded entity by reason of a conversion from a partnership.

The DPL consent rules would apply to new entity classification elections filed on or after the date the proposed DCL rules are finalized and existing entities starting 12 months after the date the proposed regulations are finalized, which would allow taxpayers to restructure their operations before the DPL rules enter into effect.

Intercompany Transactions

The Section 1502 consolidated return regulations provide rules for taking into account certain items of income, gain, deduction, and loss of members from intercompany transactions, essentially treating consolidated group members as separate entities for some purposes and single entities for other purposes. The purpose of the regulations is to provide rules to clearly reflect the taxable income (and tax liability) of the group as a whole by preventing intercompany transactions from creating, accelerating, avoiding, or deferring consolidated taxable income (or consolidated tax liability).

The proposed regulations modify the existing regulations and generally shift application of the regulations to separate-entity treatment. More specifically, if a member of a consolidated group is a DRC or a U.S. member that owns a separate unit, the proposed regulations state that despite Section 1503(d) requiring certain treatment of the member’s tax items, the counterparty consolidated group member’s income or gain on the intercompany transaction will not be deferred. For example, if one member has intercompany loan interest expense that the DCL rules prevent from being deducted, the counterparty member’s interest income would still be included in income.

Additionally, under the proposed regulations, the Section 1503(d) member has special status in applying the DCL rules, which means that if a Section 1503(d) member’s intercompany (or corresponding) loss would otherwise be taken into account in the current year, and if the DCL rules apply to limit the use of that loss (preventing it from being currently deductible), the intercompany transaction regulations would not redetermine that loss as not being subject to the limitation under Section 1503(d). A Section 1503(d) member is an affiliated DRC or an affiliated domestic owner acting through a separate unit.

Books and Records

Under Treas. Reg. Section 1.1503(d)-5, a separate unit’s income or DCL calculation is based generally on items reflected on the separate unit’s books and records as adjusted to conform to U.S. federal income tax principles. As a result, certain transactions, such as transactions between the separate unit and its U.S. owner, are disregarded for purposes of calculating a separate unit’s income or DCL. The proposed regulations clarify that items that are not (and will not be) on the books and records of the separate unit are not included in the separate unit’s income or DCL calculation. This clarification was provided, according to the Treasury, to address positions taxpayers have taken that allocate income on the books and records of the U.S. owner to the separate unit, although those items are not on the books and records of the separate unit.

Applicability

The proposed regulations would generally apply to tax years ending on or after August 6, 2024, except for the intercompany transaction regulations, which would apply to tax years for which the original U.S. income tax return is due without extensions after the date the final DCL regulations are published in the Federal Register. This means that if the final regulations are published by April 15, 2025, they would apply to calendar year 2024. Deemed consent under the DPL rules would apply to tax years ending on or after August 6, 2025.

Once the proposed regulations are finalized, taxpayers can choose to apply them retroactively to open tax years, subject to some consistency requirements.

Insights

The DCL proposed regulations are lengthy and complex and include significant changes that taxpayers should consider now, since many of the changes will apply retroactively to calendar year 2024 once the proposed regulations are finalized.

Taxpayers affected by the proposed regulations should consider the impact these rules may have on their DRCs or separate units, especially since the transitional Pillar Two relief is expected to end soon for many calendar-year and fiscal-year taxpayers.

Taxpayers may need to make adjustments to their DCL calculations going forward to take into account the new rules regarding removing items from the DCL calculation that are not on the separate unit’s books and records and U.S. inclusions, among others. The removal of these items could have a significant effect by unintentionally creating a DCL or increasing the amount of any existing DCL, among other possible upshots.

How MGO Can Help

If the Treasury and the IRS finalize these proposed regulations and you have a multinational company, you may lose the ability to take a U.S. deduction for losses incurred by foreign hybrid entities and foreign branches. If you are affected by the interaction of Pillar Two and the new proposed DCL rules, MGO’s team of experienced international tax advisors can discuss the potential of restructuring to minimize any negative tax consequences. We can also mockup OECD Pillar Two modeling and assist with planning for the overall minimization of your worldwide taxation with income or direct taxes. Our compliance services can help you with your foreign compliance calendars too. Trust us as we dive into the details and limit your global tax rate and overall exposure.

How to Master Cost Management for Your Winery

Key Takeaways:

Effective cost management involves proper inventory costing methods, accurate accounting of tasting room operations, and appropriate financial reporting practices.

Wineries of different sizes face unique challenges, from implementing GAAP-based inventory costing for small wineries to comprehensive risk management strategies for large wineries.

Understanding production costs, distribution expenses, and potential risks helps wineries make informed financial decisions and achieve sustainable growth.

As a winery owner, mastering cost management is crucial for profitability. Understanding your expenditures and employing the right strategies can improve your financial health and boost your operational efficiency.

Whether you are a small, medium, or large winery, here are some key factors to keep in mind:

Inventory Costing Methods

For small wineries — which make up 49% of the market — U.S. generally accepted accounting principles (GAAP) inventory costing methods are invaluable. These methods enable you to assign a monetary value to your inventory, providing the exact cost data capture you need to manage production and distribution expenses effectively. If you are a medium-sized (or larger) winery, you can benefit from more comprehensive financial models and robust accounting systems.

Tasting Room Operations

For wineries of all sizes, accurately accounting for tasting room activities is critical. This includes tracking your inventory, managing sample losses, and accounting for both owner and employee samples. Proper financial controls and expense categorization will provide you clear insights into profitability. Understanding these challenges, you should consider comprehensive solutions like inventory costing, financial modeling, and tax preparation to enhance your operational efficiency and profitability.

Audit Versus Review

As your winery grows, the need for independent Certified Public Accountant (CPA) audits or reviews becomes more important. This decision hinges on the level of assurance needed and the specific needs of lenders, investors, or creditors. While audits offer the highest level of assurance and can enhance credibility with stakeholders, they are also more costly. Reviews, on the other hand, are less expensive but provide more limited assurance. Tailored audit and review services can help meet the unique requirements of your winery, supporting accuracy and compliance in financial reporting.

Tax Return Considerations

Proper inventory valuation and tracking of production activities are essential for correct tax preparation. Formal inventory valuation methods — such as those adhering to U.S. GAAP — can aid in exact tax reporting and provide a reliable template for management. This appropriately accounts for all production costs, helping to minimize tax liabilities and avoid potential issues with tax authorities. Specialized tax preparation services tailored to the unique needs of your winery can help you meet compliance requirements and improve financial outcomes.

Small Wineries: Accurate Inventory Accounting

If your winery produces fewer than 1,000 cases annually and lacks extensive accounting resources, you may choose to keep books on a tax basis. However, implementing U.S. GAAP-based inventory costing — even if not needed — can offer valuable insights into your production costs and help you secure debt or equity financing. Accurate cost tracking allows you to make informed decisions about your operational efficiency and financial management, giving you a competitive edge in the crowded market.

Medium Wineries: Proactive Risk Management

For medium-sized wineries, effective risk management is crucial to safeguarding financial stability. Finding potential risks such as climate impacts or market fluctuations requires a proactive approach, including investing in insurance and strategic planning. Although these measures involve upfront costs, they can prevent substantial financial losses overall. Implementing robust risk management practices will help your winery keep consistent production quality and protect your financial health against unforeseen challenges, ultimately supporting sustainable growth and operational resilience.

Large Wineries: Strategic Risk Mitigation

Large wineries, with extensive operations and market reach, face significant risks from climate change and volatile market conditions. Investing in comprehensive risk management strategies, including climate-resilient infrastructure, diversified revenue streams, and market analysis tools, is essential. Upfront costs for insurance and strategic planning are necessary to mitigate these risks. By addressing potential vulnerabilities proactively, your winery can protect its substantial investments, maintain market stability, and set the table for long-term profitability despite external uncertainties. This approach will help you preserve your reputation and sustain growth in a competitive industry.

Distribution and Growth Considerations

For small wineries, distributing wine introduces challenges that require a clear understanding of both production and distribution costs. Increased production often involves significant investments in equipment and facilities, affecting the cost per case until production volumes grow sufficiently. Before entering any distribution channel, it is crucial to understand the full cost of production, develop a solid pricing strategy, and account for the costs involved in various sales channels to support profitability and growth.

Elevate Your Winery’s Profit Potential

Effective cost management is vital for wineries of all sizes to navigate the complexities of the market and achieve sustainable growth. By implementing robust financial practices, correct cost tracking, and comprehensive risk management strategies, your winery can enhance its operational efficiency and profitability.

How MGO Can Help

MGO’s tailored solutions can help you meet these challenges and thrive in this competitive industry. Reach out to our Vineyards and Wineries team today to learn how we can support you.

Transfer Pricing Compliance Checklist for Your Business

Key Takeaways:

Businesses operating internationally should regularly review transfer pricing practices — including documentation, benchmarking, and IRS reporting requirements.

Understanding the classification of inter-company transactions, learning from past audits, and considering Advance Pricing Agreements can improve tax compliance and strategy.

Regular assessment of transfer pricing practices can help maintain compliance, mitigate risks, and potentially reveal cost-saving opportunities.

For today’s global businesses, understanding and managing the complexities of international tax and transfer pricing can be a challenge. That’s why it is important to regularly review your practices against critical standards to maintain compliance and improve tax strategies.

To help you determine if your company is compliant or if consultation may be needed, use this straightforward checklist based on key questions about your operations:

Does your company need transfer pricing documentation? Transfer pricing documentation is essential to show your company’s pricing policies follow local and international arm’s length standards. This documentation should include detailed analyses of inter-company transactions, the methods used to set prices, and how these follow applicable tax laws. Having robust documentation can help you prevent disputes with tax authorities, avoid potential tax penalties, and make audits run smoother.

Do your inter-company transactions need to be benchmarked? Benchmarking is the process of comparing your inter-company transactions with those of similar transactions by unrelated parties to confirm the inter-company pricing is at arm’s length. This process involves gathering data from uncontrolled comparable companies and transactions to justify your pricing strategies. Effective benchmarking helps maintain compliance and supports your transfer pricing documentation.

Do your inter-company transactions need to be reported on an IRS form? Certain inter-company transactions must be reported to the IRS to follow regulations and avoid penalties. For instance, transactions with foreign affiliates often require filling out Form 5472. Regularly reviewing which forms are applicable and accurately reporting transactions can help you stay compliant and avoid fines. In addition, your company may have offshore investments that may require reporting on IRS Forms 5471 and/or 8621.

Are your inter-company transactions “regarded” or “disregarded”? (Consider if some are regarded and others are disregarded.) The tax treatment of inter-company transactions can vary, with some being regarded and others disregarded. Understanding which transactions fall into each category is vital for proper tax planning and compliance as it affects income allocations and taxable earnings calculations.

Have your inter-company transactions come under IRS or state audit in the last five years? If your transactions have been audited, it’s important to review the outcomes and learn from them. An audit history can show potential areas of risk in your transfer pricing practices. Reviewing and adjusting practices based on past audits can help reduce the likelihood of future audits and potential penalties.

Does your company have an Advance Pricing Agreement (APA) in place? An APA is an agreement between a taxpayer and tax authorities that pre-approves transfer pricing methods the taxpayer will apply for future inter-company transactions. Having an APA can reduce uncertainty in tax matters, prevent disputes, and provide clarity on how transactions will be treated. If you don’t have an APA, it might be time to consider whether it could help your operations.

Could your company benefit from a “health check” on its international tax or transfer pricing practices? A tax “health check” involves a comprehensive review of your company’s tax and transfer pricing practices to find areas for improvement and potential risks. This proactive approach can help your company improve its tax strategies, verify compliance, and potentially uncover cost-saving opportunities.

Is Your Business Meeting Transfer Pricing Compliance Standards?

By answering the questions above, you can identify areas where your company may need to improve its transfer pricing and international tax practices. Addressing these key areas will help you develop more effective strategies to mitigate your risks.

How MGO Can Help

We are committed to helping you navigate the complex world of international tax and transfer pricing. With our comprehensive approach, we address each area of potential concern — from correct documentation and effective benchmarking to navigating IRS reporting requirements and understanding the tax implications of every transaction.

Whether you are looking to set up an APA or simply need a thorough “health check” of your current practices, our team is here to provide the support and insights necessary to improve your tax strategies and enhance your operational efficiency. Reach out to our team today.

California: Applying Estimated Tax Payments to Passthrough Entity Elective Tax

Key Takeaways:

Detailed Steps Required: Follow CA FTB’s specific procedures for reapplying mistaken payments to meet compliance.

Avoid Penalties: Reapplying payments incorrectly can lead to penalties and interest; seek professional guidance.

Early Action Recommended: Submit requests before filing the entity’s return to streamline the correction process.

Good news for tax professionals who mistakenly made an estimated tax payment on behalf of the entity instead of a passthrough entity elective tax payment: These payments can be reapplied — but you must follow the detailed steps below.

Ordinarily, the passthrough entity elective tax payment would only be recognized if paid with Form 3893 via Web Pay as a “passthrough entity elective tax payment” or by electronic funds withdrawal when using tax software.

California Franchise Tax Board (CA FTB) Procedure:

All requests must be submitted in writing and sent to the following address:
- California Franchise Tax Board, PO Box 942857, Sacramento CA 94257-0500

The submission must include an acknowledgment from the business representative that reapplying the erroneous estimated payment to another liability may result in penalties and interest in the tax year where the payment was originally applied.

The requests can be submitted through a MyFTB account. Tax professionals may also contact the Tax Practitioner Hotline (916-845-7057) and speak with a representative to adjust the payment. However, a written request will still be required.

The written request to reapply the estimated tax payment should be done prior to the entity filing its return.

This process is available only for an erroneous estimated tax payment made by an entity. It is not available for erroneous estimated payments made on behalf of an individual owner since that involves two different taxpayers.

How MGO Can Help

We can assist you by offering detailed guidance on the tax payment reapplication process, confirming compliance with the CA FTB’s procedures, and helping to mitigate potential penalties. With MGO’s support, taxpayers can efficiently navigate the complexities of passthrough entity elective tax payments, leading to accurate filing and optimal tax outcomes. Reach out to our State and Local Tax team today.

Case Study: How MGO Helped an ISO-Certified Manufacturer Maximize the R&D Credit

Background:

Since Congress created the Research and Development (R&D) credit in the 1980s, it has been an essential tax strategy for companies investing in innovation — providing much-needed support to offset R&D expenses.

Prior to 2022, companies could deduct these expenses in the year paid or elect to amortize them over 60 months. However, a provision included in the Tax Cuts and Jobs Act of 2017 — that didn’t take effect until January 2022 — required businesses to capitalize and amortize these expenses.

This change has been devastating for businesses that invest heavily in innovation. No longer able to write off these expenses immediately, many organizations struggle to maintain cash flow. In some cases, it even threatens business continuity.

While congressional efforts are underway to reverse the requirement to amortize research and experimental expenses, businesses can claim the R&D tax credit to generate tax savings in the meantime.

Challenge:

An International Organization for Standardization (ISO) certified manufacturing company specializes in machining high-tolerance plastics and metals using computer numerical control (CNC) technology. With 96 employees and an annual revenue of $11 million, the company invests heavily in R&D and has incurred roughly $1 million in qualified research expenses.

This manufacturing company had a unique opportunity to claim the R&D tax credit because companies can claim the credit on costs related to implementing ISO to improve processes and quality in their businesses.

Approach:

MGO leveraged its extensive knowledge of R&D tax credits to thoroughly analyze the company’s R&D activities — including implementing continuous improvement and process improvements to streamline quality controls.

By accurately documenting all qualifying expenses and ensuring they align with the four-part test, MGO was able to help the client maximize their R&D credit benefit.

Value to Client:

With MGO’s help, this company successfully claimed the R&D credit — resulting in a net credit benefit of $90,000 in a single year, including federal and state tax credits.

This strengthened the company’s market position by enabling it to reinvest in research, maintain its ISO certification, and improve its ability to fund further innovation, contributing to its long-term competitiveness in the industry.

Your Trusted R&D Tax Credit Advisor

MGO’s tax professionals have more than 30 years of experience helping you document, file, and defend tax credit claims.

Contact MGO today for a complimentary R&D tax credit eligibility analysis to determine if this tax incentive can help fuel innovation and growth in your organization.