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R&D Regs, Minimum Tax Changes Top Corporate 2024 Watch List


Quotes from Dean Zerbe, Former Senior Counsel to the U.S. Senate Finance Committee; alliantgroup National Managing Director

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Corporate tax advisers are gearing up clients for 2024 tax code changes to research and development expenses, an election year that could determine the fate of some high-profile laws, and corporate minimum taxes, among other regulatory actions from the IRS and Treasury Department.

Innovations in tax and accounting technology—driven in part by acute CPA shortages—also will mean companies must get their data houses in order.

Here’s what’s ahead in corporate tax changes for 2024.

R&D Section 174

Among the most likely changes to the tax code next year is repeal or alteration of Section 174, requiring companies to amortize research and development expenses over a number of years, rather than expense them all at once.

Almost everyone, including both political parties, agrees that it needs fixing.

Dean Zerbe, former senior counsel to the US Senate Finance Committee and current alliantgroup national Managing Director, said small- and medium-sized firms especially are hit hard by Section 174.
The small to mediums, they’re writing a check, and it’s tough to get loans right now,” he said. “The employee retention credit is held up. It’s just a perfect storm, the enormous impact it’s having, and the only way around it is to get a fix.

Democrats have pushed to include child tax credit provisions in any bill fixing the provision in the 2017 Republican Tax Cuts and Jobs Act.

Zerbe said both sides realize the importance of the issue and that talks aim to have something done next year.

“The problem is, the sooner you do it, it’s meaningful for the business, but for those that care about the child credit, it’s imperative it gets done in January for it to be done for the previous year,” he said. “It’d be a real mess come March.”

Election Distraction

Many provisions in the 2017 tax bill are set to sunset by 2025, potentially leading to massive changes in the tax code if Congress decides not to extend them. The business breaks atop the corporate wish list include reviving full research and development expensing, more robust interest expense deductions, and full bonus depreciation.

PKF O’Connor Davies Partner Thomas Riggs said many people assume if Republicans take the White House and Congress, they will extend most of those provisions, and if Democrats win, they’ll let them expire.

“So how do you counsel clients?” he said. “You have to keep your eye on the political winds. The election’s a year off. It’s a hard environment to counsel people in.”

Corporate Minimum Taxes

For taxpayers with bigger incomes, the new year also is slated to see the implementation of both the corporate alternative minimum tax, or CAMT—established by the Inflation Reduction Act to set a 15% floor on taxes for companies making at least $1 billion a year in income—and Pillar Two, an agreement between countries in the Organization for Economic Cooperation and Development setting a similar minimum corporate tax and prevent the creation of tax havens.

Both taxes could mean huge bills for large companies, but little is known about how the US plans to implement them.

“The corporate minimum tax we know is not Pillar Two compliant, so that leaves businesses to consider the impact of the minimum tax outside the impact of Pillar Two around the world,” said Matt Becker, BDO national managing principal of tax. “It creates a level of complexity that’s really hard for taxpayers to manage.”

A large package of proposed regulations on CAMT is expected early in the new year, despite the IRS’s initial plans to drop the proposed regs before the end of 2023.

The IRS did drop a notice Dec. 15 that “confirms that distributions of previously taxed amounts, such as amounts included under the TCJA’s mandatory repatriation provision, generally should not be subject to tax again under CAMT,” giving companies some clarity ahead of a filing deadline, Colleen O’Neill, EY US national tax department leader, international tax and transactions services, told Bloomberg Tax.

Enforcement Boost

The IRS is boosting audits and enforcement using billions of new dollars from the Inflation Reduction Act of 2022. Included in that boost is funding for a new IRS unit to audit partnerships and other pass-through companies.

The agency announced the unit in September and said it will kick off next year as a part of the IRS’s Large Business & International Division with a mandate to pursue companies such as S Corps and partnerships that the agency says are being used to avoid taxes by “passing through” their income to partners.

Hiring and training employees for the division will take time, though. The IRS has said that the new unit will be staffed by many of the 3,700 workers the agency plans to hire using IRA funding.

“It’s really ambitious,” Mary McNulty, a partner at Holland & Knight LLP, said in an interview in October. “It can only work if the applicant pool is there and the training is done. So it will take time.”

Rise of AI

Since the launch of ChatGPT, AI has been the hot topic in tech, and while many big tax and accounting firms are already years into investing and integrating the tools, the public attention to AI tech has accelerated their rollout.

But for AI to work, the data it’s ingesting must be good, and companies have to start thinking about the quality and consistency of the data they have before they start inputting it into AI platforms.

EY Americas Tax Technology and Transformation Leader Daren Campbell said many companies don’t have a solid data foundation, their data sets often are fragmented in silos across the organization, and that data sometimes can lack consistency needed for greater integration and analysis.

“While there’s a lot of data, it gets trapped in individual applications or spreadsheets or in different parts of an organization,” he said in an interview. “For AI to really be transformative, we really have to untrap the data. Organizations need to be more data-centric.”

Featured Leadership

Dean Zerbe is alliantgroup’s National Managing Director based in the firm’s Washington D.C. office. Prior to joining alliantgroup, Mr. Zerbe was Senior Counsel and Tax Counsel to the U.S. Senate Committee on Finance. He worked closely with then-Chairman and current Ranking Member of the Finance Committee, Senator Charles Grassley (R-IA), on tax legislation. During his tenure on the Finance Committee, Mr. Zerbe was intimately involved with nearly every major piece of tax legislation that was signed into law – including the 2001 and 2003 tax reconciliation bills, the JOBS bill in 2004 (corporate tax reform), and the Pension Protection Act. Mr. Zerbe is a frequent speaker and author on the outlook for short-term and long-term changes in tax policy, as well as ways accounting firms can help their clients lower their tax bill.