Episode 21: Hot Topics for Tax Methods
Welcome back to “Tackling Tax,” where we’ll bring you the latest on tax policy and strategies—in an easy-to-understand format. Whether you’re looking to learn more about tax bills, global tax implications, or planning insights for your business, you’re in the right place.
Listen every other week for more from our guests, which include everyone from university scholars to industry professionals to the firm’s experienced leaders.
On this episode, we’ll explore topics ranging from bonus depreciation to the timing of methods during a transaction with Nathan Clark and Brittany Cummings on our tax methods team.
If you have any questions or need any assistance, please reach out to a professional at Forvis Mazars.
Transcript
IRIS LAWS
On this episode, we talk to our Tax Methods team to understand some trending hot topics in the space. We welcome Nathan Clark and Brittany Cummings, who will go through everything from bonus depreciation to timing of methods during a transaction. From your one stop for tax updates and analysis, I'm Iris.
DEVIN TENNEY
And I'm Devin.
IRIS LAWS
It's Tuesday, March 10th, and this is “Tackling Tax.”
DEVIN TENNEY
Before we get started with our much-anticipated guests, we like to start our show with the four stories that we think might be most impactful to you. So, let's jump right into these “Fast Four” stories of the week.
IRIS LAWS
The Court of International Trade has issued an order basically implying that refunds for IEEPA tariffs should occur whether or not those imports have been liquidated or not. Of course, Devin, liquidated means the tariff is finalized and assessed. So, without explicitly stating the term refund really, in this order, in the hearing, the judge did say that he was not in favor of seeing individual cases.
I think he mentioned there's about 2,000 individual cases and also mentioned that there should be some space for technology to play in this refund process to make it less burdensome. On Friday, following that hearing on Wednesday, the court is expected to hear a conference where they will talk about how to handle importers that have entries that have already been liquidated but no suit has been filed yet.
So, there's still more to come here. I think the big expectation is that this order will be appealed and it will go to the appeals court for the Federal Circuit. So, even though this order has happened and they've essentially said that everyone is sort of owed a refund, given the SCOTUS decision to overturn tariffs issued by IEEPA, there's still a big question on timing and how that's going to happen, so stay tuned.
DEVIN TENNEY
Treasury and the IRS recently released proposed regulations that update how digital asset transactions are reported to taxpayers, focusing on how brokers deliver the new form 1099 DA for digital asset. The proposal would let brokers provide these tax statements electronically by default, reflecting the fact that digital asset activity already happens almost entirely online while reducing the need to mail paper forms.
Now, while the rules don't change who must report digital asset transactions, they show the IRS is trying to make the system more practical as reporting ramps up. The proposal is part of a broader effort to bring cryptocurrency and similar assets into the regular tax reporting framework ahead of full compliance taking effect in the next few years.
IRIS LAWS
Shifting from digital assets to partnerships, Treasury and the IRS also issued proposed regulations that would unwind recently released guidance targeting certain partnership-basis transactions. Those rules would have required partnerships and their advisors to disclose a broad range of related-party basis adjustments, treating many routine and longstanding transactions as potentially abusive and subject to special reporting. After significant criticism over the scope, retroactive application, and compliance burden, the proposed regulations would formally pull back that framework and waive penalties tied to the abandoned disclosure regime.
While the proposal provides real relief from new reporting obligations, it does not represent a broader retreat from partnership-basis enforcement. The government has emphasized that it will continue to scrutinize basis shifting strategies through audits and existing anti-abuse tools, rather than through blanket disclosure rules. In short, partnerships get breathing room from the aggressive reporting regime, but the IRS attention to how basis is created and used remains firmly in place.
DEVIN TENNEY
Senate Finance Committee leaders Mike Crapo and Ron Wyden have introduced a bipartisan package aimed at modernizing how the IRS operates and interacts with taxpayers. The proposal, known as the Taxpayer Assistance and Service Act, pulls together a series of administrative reforms focused on improving customer service, speeding up refunds, expanding digital tools, and strengthening taxpayer rights. It also includes provisions to raise standards for paid tax preparers and give taxpayers clearer, more timely information when dealing with the IRS.
Rather than changing tax rates or policy, the bill targets how the system functions day-to-day. Supporters describe it as a practical effort to reduce frustration, increase transparency, and make compliance easier, while still protecting taxpayers from misconduct and delays. If enacted, the package would represent one of the more significant bipartisan attempts in recent years to overhaul the IRS administration, rather than the tax code itself.
IRIS LAWS
And next, we welcome Nathan and Brittany to discuss tax methods.
On this edition of “Planning Insights,” we welcome Nathan Clark and Brittany Cummings from our Methods team to go through some hot topics in their world at the moment. Nathan has been with the firm since 2017 as the leader of our Forvis Mazars Methods team. Back in the day, he also hosted a show internal to the firm called “The Mid-Day Show,” so he's clearly a natural at this whole podcast thing. So, we're excited he's here. He's joined by Brittany, who also sits in Charlotte, North Carolina, alongside Nathan. So, welcome to “Tackling Tax,” you guys.
BRITTANY CUMMINGS
Thank you.
NATHAN CLARK
Thank you so much. Happy to be here.
IRIS LAWS
So, first can we set the stage just a little bit for everyone. I'm not sure everyone listening necessarily understands what kinds of things the Methods team does. I guess said plainly, you know, what are methods and what kinds of things do you work with clients on?
NATHAN CLARK
So, we work with a lot of our business taxpayers. Primarily what we like to do, what we enjoy doing, is helping clients with tax savings opportunities. So, we look for opportunities to typically defer revenue, accelerate deductions. But in other instances, we work with a lot of clients that are going through some type of M&A activity to mitigate risks. Or, if they're under an IRS exam, are there options or things we can do to minimize risk related to the timing of either deductions or recognition of income?
DEVIN TENNEY
Thanks, Nathan. So, that's actually quite helpful. Now, I know we had a list of four hot topics that you've been noticing in the world, and I want to jump into those at this point. And I want to start with modeling. It feels like OB3 passed a little while ago now and probably most listeners have started to think about their returns, but what role does modeling have this tax season?
BRITTANY CUMMINGS
I think modeling is going to be essential because we have permanent tax rules. We have a lot of favorable rules. And I think in some instances, companies are saying, hey, let's take all the deductions that we can. And in taking all those deductions, it may not always prepare them for what's coming in the future. As in; in 2 to 3 years, I've taken all my deductions, now what will I have to offset income later? From that perspective.
IRIS LAWS
So, you know, that's kind of the first hot topic, I think, right? We're saying although maybe the temptation is to take all of the deductions now that we can, maybe that's not the best answer down the road, right Brittany?
If we move on to our second sort of hot topic, next we have bonus depreciation, something I know a lot of our listeners have probably taken advantage of at some point. This is not a new concept. On the surface, right, it seems straightforward. You get a deduction equal to 100% of the asset’s basis in the year that you place it in service. To make it on your list, though, as a hot topic, there are probably all kinds of funky stuff to consider would be my guess. What kinds of things are you talking to clients about on this front now?
NATHAN CLARK
With respect to bonus depreciation, we what we're talking about is an accelerated deduction of depreciation in the year. So, currently the One Big Beautiful Bill made a bunch of changes to bonus depreciation. It was scheduled to phase down from, it started at 100, then it went to 80, then 60, then 40. And then it was set to expire. But the One Big Beautiful Bill reset it back to 100%.
So, for the purchase of eligible assets—typically it was furniture, fixtures, and equipment-type assets, personal property—you could deduct the full cost of eligible property when purchased. But there's a lot of nuance that comes into play with the types of property and how it's acquired. Because, you know, the acquisition date matters. So, we have an effective or a cutoff date that applies.
But then there are other issues. It's like, well, what if I signed a contract prior to One Big Beautiful Bill, which I'm just going to shorten to OB3, that, you know, was signed before the One Big Beautiful Bill, OB3. But then we took possession of the property after. There's a set of rules that govern when this property acquired, when it's subject to a written binding contract.
So, it’s important to understand the terms of those contracts because that could push you into claiming 40% bonus depreciation versus 100%. Secondarily, you know, with respect to what we call self-constructed property. So, that's either, maybe a new production line that was constructed by a taxpayer or for a taxpayer, which includes, you know, if you had it built for your business, then, you know, you can potentially fall into the self-constructed property rules.
And we've seen that apply to purchases of like large, expensive assets. You know, it could be a production line, it could be an airplane, it could be a big piece of machinery. It varies, but you want to understand what are the terms of that acquisition and the contracts around it. And when was it built? You know, what was the time period over which that took place?
And you may think, well, it's clear cut. You know, maybe we signed a contract before, but, you know, some construction started in advance of the effective date. But that's not always the case. There are certainly many instances where you can still claim 100% bonus depreciation with the right facts. And then the last thing I want to talk about, and this was one of the really big changes to bonus depreciation, OB3 instituted a new law that said for qualified production activity property, which generally we're talking about assets used in a manufacturing or production-type business.
You can claim bonus depreciation on real property. Typically, like a new facility, a new production facility would be depreciated over 39 years. But for the qualifying aspects of like the production space, we can deduct the full cost of that upfront when incurred. And that's a huge deduction and we're seeing lots of businesses that are contemplating either buying or building a building for production purposes. That is big enough of a deduction that it really comes into play in terms of the financing and how they maybe buy the building or the structuring for it. You know, maybe we don't need as much of a cash outlay because we're going to get a 20%, I'm using rough numbers here, tax savings because of the acceleration of that deduction. So, it's, if you're making large purchases, talk to a tax provider about making sure you're getting the most amount of bonus depreciation you're eligible for.
DEVIN TENNEY
Well, it sounds like OB3 was very beneficial from the bonus depreciation standpoint. Another topic that OB3 had impacted was the completed contract method for residential contractors. Can you walk us through this one? Was it also a beneficial change? What's going on here? What's this method, who's eligible for it, etc.
BRITTANY CUMMINGS
Pre-OB3, residential contractors were limited to, you were required to use the percentage of completion method. And that was mainly for residential contractors with less than four dwelling units. Post-OB3, residential contractors’ eligibility, or the definition of a residential contractor has expanded and allows for those contractors who were building multiple dwelling units without that four limitation to be eligible to use the completed contract method. And where the completed contract method comes in and is favorable to taxpayers versus PCM or percentage of completion is under percentage of completion, you're recognizing revenue as costs are incurred.
Also, maybe before cash is received and with the completed contract method, you're able to defer revenue until that contract is completed. So, favorable to large developers with multiyear projects. I think the one thing to keep in mind is the timing of when to adopt that method. It's eligible for contracts in 2026, but it is what we say in the accounting method world a “non-automatic change.” And that means for our calendar-year taxpayers, if you would like to be able to use the completed contract method on your 2026 contracts in your 2026 tax return, that should be filed by 12/31 of 2026. Without that, you'll kind of have to keep rolling until you actually file that non-automatic in the year of change in order to be eligible to use completed contract method.
IRIS LAWS
And when you say file by that date, it's a 3115? Or what's the form you have to use?
BRITTANY CUMMINGS
Yeah, you're going to be filing a form 3115. And with that being a non-automatic method, it'll have a little more scrutiny with the IRS. The one thing I'll say is we haven't received any additional guidance. Those rules could change later if we do receive guidance on how to adopt that completed contract method for the expanded residential contractors.
IRIS LAWS
So, given we don't have guidance, are y'all sort of saying pause, let's wait before we jump the gun? Or are y'all filing method changes now?
BRITTANY CUMMINGS
Yeah, we're having conversations with clients and teams now to go ahead and prepare and file those method changes. Historically, a change from what is called a long-term contracting method, which would be percentage of completion method or the completed contract method, has always been a non-automatic change. And so with that, we don't, anything's possible, right?
But it's not a high likelihood that we'll see, we're not sure if we're actually going to see guidance that makes that an automatic change, or an election, or easier to adopt. So, go ahead and do it now, that way you can start planning accordingly from a cash flow perspective. Now, and especially with the turnaround time for consent given, we want to make sure we get those in early.
IRIS LAWS
Perfect. Well, rounding out our conversation for today, Nathan, let's turn to something I always trip up on in deals and that's methods with transactions. So, things like when you file a method pre- or post-acquisition or potential purchase price adjustments and things like that, it gets complicated, right? So, make it make sense, Nathan, please.
NATHAN CLARK
In a brief amount of time, I will attempt to make it make sense. But accounting methods become very relevant in M&A type transactions because let's say, for example, a business is being acquired or sold and there's an impermissible method of accounting. And it could be for any number of things. But you know, your inventory method, your revenue recognition, depreciation, you know, accrued expenses, you name it.
Typically, in an M&A-type transaction, there's a due diligence exercise where someone will look through all of the tax accounting methods that are being used. And if there is an impermissible method, that poses potentially additional tax risk to the buyer or seller of the, you know, the owner of that business. And so, before a transaction a buyer wants these things resolved, or in some cases before taking a business to market, the seller wants those things resolved for different reasons.
For a seller, it could result in adjustments to, you know, working capital or earnout payments after the fact. Or to the buyer, you know, if this becomes an IRS exam issue, they're on the hook potentially for the tax. So, you know, the buyer may want the seller to pay for the tax to remediate this issue. So, we see lots of these things addressed around a transaction.
And there are mechanisms using, like Brittany was talking about before, accounting other changes to remove that risk. And there's also mechanisms to say we're going to put the adjustment maybe in the pre-acquisition tax return so the seller pays the tax. Or we can, you know, put it into the post-acquisition and then the buyer pays the tax.
But maybe it's already been taken into account into the purchase price. So, there's a lot of things to navigate and a lot of the context I've talked about so far is with respect to just tax risk. Well, maybe before you sell the business or go through some kind of transaction, maybe there are favorable tax savings that we want to harvest before we sell the business.
So, it really matters on what type of transaction it is when it's happening. And so, I think just as you're considering entering into a transaction to buy or sell a business, talk to someone about these matters and, you know, you have options. That's what buyers and sellers should know. And typically let's just get them out on the table and we'll talk about it.
And then, you know, buyers and sellers can kind of work out how do we navigate this. So, it's a way to provide real value to both buyer and seller, but it lets them also just reach an amicable deal, you know? So, there's no surprises to anybody.
IRIS LAWS
Makes a ton of sense. I'm going to ask you a bonus question that we hadn't talked about before, but something that I've been talking with clients about recently, and that's tariffs and refunds. I don't know, have y'all thought through or had any conversations about, you know, the timing for when clients are trying to recognize those refunds? Just any thoughts on the timing of that?
NATHAN CLARK
Typically, those are going to fall into the principles for, in the case of an accrual-basis taxpayer, when do you recognize revenue? And so, typically I mean there's a set of rules we kind of to have to walk through. So, you know, when is that refund due or earned or received? You know, we kind of have to navigate those things.
So, that's maybe a little more complicated for an accrual basis taxpayer. For a cash-basis taxpayer, it's going to be, you know, when received. Those are the typical general rules.
IRIS LAWS
Great. Well, thank you guys for the clarifications. You know there's really some great opportunities that you guys can walk through. Your clients and especially if they're going through a transaction, lots to think through. So, thanks for hopping on. We hope you'll come back. And, until next time, you guys.
Each episode we’ll bring you what we call a “Focused FORsight of the Week,” an article or webinar that might be of interest to you. Given all the action with tariffs, this week's Focused FORsight is an article that is meant to help importers navigate tariff refunds. It's titled “Refunds and Next Steps: IEEPA Tariffs Overturned” and goes through some options for your business as we wait to see what comes out of the CIT and appeals process.
And that's our show. Thanks for joining. Remember to subscribe and listen in for the next episode of the podcast. Until next time.
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