In This Issue

1. IRS Issues Guidance on Domestic R&E Costs Under OBBBA- Important Updates for Small Business Clients (by Misa Thai)
2. Tax Tips – IRS Online Tools to Simplify Tax Season (By Tiffany Costigan)
3. Do you have stacks of IRS Notices in your desk drawer? (By Krish (PK) Perinkulam)

Article 1: IRS Issues Guidance on Domestic R&E Costs Under OBBBA- Action is required!

Summary: On August 28, the IRS released 61 pages of guidance clarifying the treatment of domestic research or experimentation (R&E) costs under the newly enacted OBBBA law. This guidance offers welcome relief to taxpayers who are engaged in R&E activities.

Under the Tax Cuts and Jobs Act (TCJA) of 2017, both domestic and foreign R&E expenditures were required to be capitalized and amortized over 5 and 15 years, respectively.  This rule is applicable for tax years beginning January 1, 2022, through December 31, 2024. However, the OBBBA modifies this requirement by allowing domestic R&E costs to be fully deductible for tax year beginning January 1, 2025, and after. The guidance also provides transition relief for eligible small businesses to make retroactive election to deduct the 2022-2024 capitalized expenses (via amended returns) and mean for all other taxpayers to accelerate the remaining unamortized R&E cost incurred between 2022-2004 tax years.

Small Businesses Eligibility Criteria: An eligible small business is defined as one with average annual gross receipts of less than $25 million over the prior three years (adjusted for inflation). For tax years beginning in 2025, the inflation-adjusted threshold is $31 million.

Key Elections for Small Businesses Outlined in the Guidance:

1. Amend Prior Year Returns (2022–2024) to claim for refunds: Eligible small businesses may amend their federal income tax returns for 2022, 2023, and 2024 to claim deductions or refunds for previously capitalized R&E expenditures. Deadline for amended return is July 6, 2026, or earlier.
2. Deemed Election – Deduct R&E on 2024 Return: If the 2024 return has not yet been filed, eligible small businesses may elect to fully deduct R&E expenses. Note: This election requires amended tax return for tax year 2022 and 2023 as well.
3. Prospective Elections (Available to All Taxpayers, including Small Businesses): Taxpayers may elect to deduct domestic R&E expenditure on the 2025 tax return. They may also recover remaining unamortized R&E costs from 2022–2024 by electing to: (a) Deduct the remaining balance in full on the 2025 return, or (b) Amortize it ratably over 2025 and 2026. See Rev-Proc 2025-28, Section 7.02(5) for descriptions and statements.
4. Continue Capitalization and Amortization: Taxpayers may elect to continue capitalizing and amortizing domestic R&E expenditures over a minimum 60-month period. This is also an automatic accounting method change with a cut-off basis, thus a statement in lieu of a form 3115 must be filed with the original timely file tax return for tax year starting on January 1, 2025, for it to take effect.

Important Considerations: Small businesses should work with their tax advisor to model out which of these elections work best for the company.  Once made, these elections are binding and cannot be revoked without IRS consent. Interaction with Section 280C and the R&D credit may require additional planning, especially for late or revoked elections.

While this guidance is not intended to correct prior noncompliance, it offers an opportunity to address past errors or mis-elections related to R&E treatment. Taxpayers who previously applied incorrect methods or failed to adopt required treatments under prior law may now align their accounting methods with the revised OBBBA rules. The procedure outlines steps for adopting the new method and, where applicable, retroactively applying the revised treatment in a manner that is both administratively efficient and IRS-compliant.

About the author:

Ms. Misa Thai is an Enrolled Agent with over 20 years of specialized experience in federal and state Research Tax Credits. Her contact details and additional information can be found in the Credits & Contact Information section below.

Article 2: IRS Online Tools to Simplify Tax Season

Staying on top of your tax obligations is crucial for financial health and compliance. The IRS offers a variety of tools and resources to help taxpayers manage their accounts effectively. This is a great resource for you to know and have access to your tax information. One of the most valuable tools is the IRS Online Account, which provides a range of features to simplify tax management for individuals and businesses.

Below are some key tips and tools to help you prepare for tax season and stay organized throughout the year.

1. Tools for Individuals

Creating an account through the IRS website at https://www.irs.gov/payments/online-account- for-individual can make managing your taxes much easier. Here’s what you can do with it:

• View IRS Letters and Notices: Access most letters and notices issued to you by the IRS.
• Access Tax Transcripts: View transcripts that include tax return (if filed), and wage and income information reported under your Social Security number.
• Manage Payments:
  • View your account balance.
  • Make and edit payments.
  • Set up or modify payment plans.
• Identity Protection PIN (IP PIN):
  • Retrieve your new IP PIN annually.
  • Request an IP PIN if you need or want one.
• Sign Tax Forms: Electronically sign certain forms, such as the power of attorney or tax information authorizations.

2. Tools for Businesses

If you own a business, the IRS also offers a Business Tax Account at https://www.irs.gov/businesses/business-tax-account with features tailored to business needs. This account allows you to manage your business tax obligations efficiently. Depending on your business structure, a variety of tools are available.

3. Additional IRS Resources to Prepare for Tax Season

The IRS offers a wide range of tools and guidance to help both individuals and businesses stay informed and organized throughout the tax year:

• IRS Business Resources
  Access tailored tools and guidance for business taxpayers at the IRS Business Resources page, https://www.irs.gov/businesses. This includes information on deductions, credits, and compliance requirements.
• IRS Newsroom
  Stay up to date with key updates and essential tips for the upcoming tax season by visiting the IRS Newsroom at https://www.irs.gov/newsroom/prepare-to-file-in-2025-get- ready-for-tax-season-with-key-updates-essential-tips. This resource provides timely announcements, filing reminders, and policy changes.

4. Why Use These Tools?

By leveraging the IRS online account and other resources, you can:

• Stay organized and avoid missing important deadlines.
• Access critical tax information anytime, anywhere.
• Simplify the process of managing payments and resolving issues.
• Protect your identity with an IP PIN.

Take advantage of these tools and resources to make tax season less stressful and more manageable.

About the author:

Ms. Tiffany Costigan is an Enrolled Agent who has been preparing taxes professionally since 2012. She serves individuals, small businesses, and corporations across a wide range of industries. Tiffany specializes in tax planning and compliance for S-corporations, helping business owners navigate entity structures, optimize tax strategies, and stay compliant with IRS regulations. Her contact details and additional information can be found in the Credits & Contact Information section below.

Article 3: Do you have stacks of IRS Notices in your desk drawer?

By Krish (PK) Perinkulam, EA, MST, USTCP

Recently a client called my office stating that she got a letter saying that the US Department of State has been notified that she was certified as seriously delinquent, and that the US Department of State will deny her application for a passport or passport renewal. She had some international travel coming up, so she was particularly worried that she would be stopped at the airport and prevented from flying. She kept insisting that she “had always filed her returns on time and did not know how the IRS can take such a drastic step of notifying the US Department of State regarding her passport without telling her”. I patiently listened and then set up an appointment for the next day considering the urgency of the situation. I asked her to bring that letter as well as any other IRS letters she might have received in the past few months.

She came to my office on time the next day holding a big stack with almost 30 unopened envelopes from the IRS. I was expecting about 4-5 letters but did not expect about 30 of them.

I opened the letters, sorted them by tax year, and then by date – most recent to the oldest, and then came up with a game plan on how to proceed.

She was correct in stating that she had filed all her returns on time with the IRS. So, what really happened? How did she end up getting a letter that she had been certified as seriously delinquent?

She had filed her returns on time, but the filings generally had an average of $30,000+ balance owed to the IRS. This had gone on for over 3 years, and her total balance including penalties and interest was closer to $230,000+. Of this, almost $75,000 was the Failure to Pay Penalty, and Interest was about $65,000.

But how come she never realized that she had run up her tax balance to almost $250,000+? And how does the IRS even have the authority to talk to the US Department of State to certify her as seriously delinquent? Why did the IRS not give her any due process?

Well, the letters are the first clue. Many people do not realize that most of the IRS notices are legal notices. IRS is required by law to send many of these notices to you. For example, when a tax return is filed with a balance, IRS sends out an innocent looking CP14 notice notifying the taxpayer filed their return with a balance and that they have 10 days to pay the balance. However, this is a very powerful notice that sets off a long chain of events in the IRS collection cycle. This is a Notice of Tax Due and Demand for Payment letter – a Legal notice required to be sent by the IRS. This letter kicks off a chain of events – it puts the taxpayer on notice regarding the payment, and if payment is not made after such a demand is made, a silent lien arises in favor of the United States upon ALL property and ALL rights to property, whether real or personal, belonging to such person. Simply put, IRS now has a lien against all your existing property (real property as in house or buildings you currently own), or any property you purchase in the future. The lien remains in effect until the IRS balance is satisfied. This letter also starts the IRS collection cycle. This letter is also the main pre-requisite for filing a formal lien at your County Recorder’s office, and for issuing levy against your property (wages, etc.)

Other notices include CP501, CP503, and CP504 (sent via certified mail which allows IRS to start taking your state tax refunds to offset your IRS tax balance).

If the taxpayer ignores these notices, the next escalation by the IRS is to start the levy process. Before the IRS can formally levy a taxpayer’s property (such as wages etc.) the IRS needs to give the taxpayer 30 days to file a Collection Due Process hearing. This is conveyed through a Letter 1058/LT11 notice. If there is no response from the taxpayer, the IRS proceeds with a levy action, and the serious delinquency certification.

Upon reviewing my client’s letters, it was very clear that she had ignored all these notices. There is a general myth with many taxpayers – if a notice is not opened, it “does not count”. The other myth is that if I do not live at the address that the IRS has mailed the letters to, then it “does not count”. This is far from the truth. If the IRS mails the letter to your “Last Known Address” (which is generally the address used on your last filed tax return), that letter is considered to be delivered to you (though you have moved from that address years ago).

Being an ostrich and sticking your head in the sand and not opening the notices is the worst thing you can do with an IRS notice. If the client had contacted me when she had received the first set of notices, it would have been a lot easier to fix the issue and would have cost a lot less. Now, the situation had escalated and ended up a lot costlier to fix. I was able to fortunately intervene and get the certification reversed.

So, the next time you get an IRS notice, please open it and read what is inside. If it was sent via certified mail that requires you to sign for it, please accept it and read the notice, and contact professional tax help early from a nearby Enrolled Agent. Otherwise, you may be depriving yourself of the rights given to you.

About the author:

Mr. Krish Perinkulam (PK) is the President of North Phoenix Tax Relief based in Phoenix, Arizona. He has a Master of Science degree in Taxation from Golden Gate University, and an MBA with a specialization in Finance. He is an Enrolled Agent, an NTPI Fellow®, a Certified Tax Resolution Specialist, and a Certifying Acceptance Agent for ITINs.

He is also one of the 300+ or so United States Tax Court Practitioners nationwide, admitted to practice before the United States Tax Court as a Non-Attorney.

His current practice includes Audit representation, Tax resolution, Non-Filers, and Income Tax preparation for ex-pats and visa holders. He can be reached at [email protected], or through http://www.NorthPhoenixTaxRelief.com.

Credits & Contact Info

Special thanks to the following contributors for making this collection of tax briefs possible. Their contact information is provided below.

Misa Thai, EA, R&D Tax Specialist | Misathai, LLC 📞 (626) 755-5753 📧 [email protected] 🌐 www.misathai.com
Tiffany J. Costigan, EA Taxes by Tiffany, LLC 📞 (307) 212-2732 📧 [email protected]
Krish Perinkulam (PK), EA, MST, USTCP North Phoenix Tax Relief 📞 (480) 442-7063 📧 [email protected] 🌐 www.NorthPhoenixTaxRelief.com