• The new tax bill introduces a graded holding period for QSBS, with gain exclusions based on how long shares are held.

• The fixed gain exclusion under Section 1202 increases from $10 million to $15 million for qualifying shares issued after July 4, 2025.

• The asset cap for calculating the 10X adjusted basis exclusion rises from $50 million to $75 million, expanding potential gain exclusions for shareholders.

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The One Big Beautiful Bill Act, signed into law July 4, 2025, makes three significant changes to Section 1202. These changes affect the five-year holding period required and the amounts of gain exclusion under the law.

Here are answers to frequently asked questions about these changes:

How was the holding period requirement revised?

Under prior law — and for qualified small business stock (QSBS) shares prior to the Act taxpayers must hold QSBS shares for five years from the date of issue for any gain exclusion which is 100%.

For QSBS shares issued after the date of the new law, there is a so-called “graded” holding period. Thus, if you hold shares for three years from the date of issue, the gain exclusion is 50%. If four years from the date of issue, the gain exclusion is 75%. If shares are held for five years, which is consistent with prior law, the gain exclusion is the longstanding 100%.

This change affects both the holding period and the amount of gain excluded depending on the applicable holding period achieved.

Has the gain exclusion increased under the new law?

Yes, Section 1202 gain exclusion is based upon the greater of (a) $10 million (the “fixed” amount) or (b) 10 times adjusted basis in the qualifying QSBS shares (the “10X” amount). The new law makes changes to both elements of this gain exclusion calculation.

What is the change to the $10 million exclusion?

For qualifying shares issued after the enactment date of the new law, the “fixed” gain exclusion amount is now $15 million. Further, this $15 million amount is indexed for inflation for years beginning after 2026.

What is the change to the 10X adjusted basis gain exclusion?

The 10X exclusion provision involves the fair market value of the QSBS corporation’s assets at the time it issues qualifying shares. If the assets at this date are valued at, hypothetically, $27 million, then the 10X adjusted basis element yields an aggregate gain exclusion of $270 million for all shareholders.

Existing law was based on an asset cap of $50 million. The new law increases that cap to $75 million. Thus, hypothetically, if a corporation had an asset valuation upon conversion after the passage of the new law of $69 million, the aggregate gain exclusion for shareholders would be $690 million. This example reflects an increase in total gain exclusion by $190M over the prior maximum exclusion of $500M.

Like the $15 million element of gain exclusion, this asset provision is also indexed for inflation for years after 2026.

What New Section 1202 Changes Mean for You

These increases in gain exclusion expand the number of eligible entities that may consider a 1202 conversion. The increases also offer a significant expansion of the basic gain exclusion and continued adjustment upwards due to inflation indexing.

These are positive changes for development stage enterprises, the capital allocation flowing to them, and the entrepreneurs and investors involved in such businesses.

How MGO Can Help

Understanding the new Section 1202 rules is key to accessing available tax benefits — especially as you plan for growth, fundraising, or a future exit. Our tax professionals can help you assess eligibility under the revised law, develop documentation strategies, and prepare for investor reviews, audits, or transactions. Contact us today to learn how we can support your goals.

The post New Tax Act Changes to Qualified Small Business Stock Under Section 1202 appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Beginning in 2025, domestic R&D expenses under Section 174 will once again be immediately deductible, offering potential cash flow benefits.

• Companies that previously amortized R&D costs may be able to file Form 3115 and adjust past filings to recapture deductions.

• With IRS scrutiny rising and state tax rules varying, proactive planning and clear documentation are critical to maximizing benefits and minimizing risk.

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The return of immediate research and development (R&D) expenses under Section 174 is one of the most consequential shifts in the 2025 tax landscape — yet many mid-market companies have not updated their plans to reflect the change. From documentation of risk to transition-year amendments, these are the most common questions we’re hearing from finance and tax leaders:

What exactly is changing with Section 174 in 2025?

Beginning in tax year 2025, domestic R&D expenditures will once again be immediately deductible in the year incurred. This change reverses the five-year amortization requirement introduced under the Tax Cuts and Jobs Act (TCJA). However, current IRS guidance shows that amortization will still apply to certain foreign R&D expenses unless more legislative or regulatory relief is provided. Businesses should evaluate both domestic and international R&D classifications in preparation for the shift.

Will this improve our 2025 cash flow position?

It may — provided the new expensing rules are properly integrated into your financial and tax forecasting. Immediate expensing of domestic R&D reduces taxable income in the same year the costs are incurred, lowering overall tax liability. Companies that have not yet adjusted their estimated tax payments or quarterly modeling may be overstating liabilities and missing near-term cash flow efficiencies.

Can we amend our 2022–2024 returns based on this update?

In some cases, yes. Companies that previously amortized Section 174 expenses may be eligible to file Form 3115 to change their accounting method and apply a Section 481(a) adjustment. This could allow for partial or full deduction of deferred R&D costs in 2025. However, the benefits and eligibility vary depending on your current method, the types of R&D involved (domestic versus foreign), and whether returns were previously extended, filed, or audited. A review of your filing history and applicable IRS guidance is necessary before proceeding.

Currently, there is uncertainty as to whether Form 3115 will be required to change the method from capitalization to expensing of these costs. The IRS needs to provide guidance in this area and whether or not small businesses that have average annual gross receipts of under $31 million that have not filed their 2024 tax return yet will need to capitalize their R&D costs on the 2024 tax return and then file an amended return to expense these costs.

Should we still separate costs that qualify for the R&D tax credit?

Yes — and this distinction is critical. While Section 174 requires capitalization (or expensing, beginning in 2025) of all R&D costs, the R&D tax credit under Section 41 applies to a narrower subset of those costs. Documentation should clearly delineate which expenditures qualify for credit versus which are deducted under Section 174. Maintaining separate records supports credit claims and mitigates examination risk.

Will this affect our state tax filings?

It may. Some states conform to federal Section 174 treatment automatically, while others decouple and apply their own rules. This can create differences in how R&D is deducted at the state level. For companies working in multiple states, it’s important to review each jurisdiction’s treatment of R&D expenses and track how decoupling may affect apportionment, deductions, and compliance requirements.

What are CFOs and tax leads overlooking most frequently?

In our recent tax reform webinar polling, we asked CFOs and tax leaders how Section 174 has impacted their company’s R&D and tax planning. Their responses:

• 17% said Section 174 changes had a significant impact

• 24% said they made some adjustments

• Over 50% indicated the impact was minimal or unclear

This suggests a gap between policy changes and planning execution. Many companies have not yet updated forecasts or examined whether transition-year filings could improve cash position. As a result, opportunities to unlock deductions or perfect quarterly payments may be unrealized.

What actions should we be taking now? 

Section 174 expensing should be addressed proactively during 2024 planning and Q3-Q4 reviews. Start by reviewing how R&D is treated in your current financial models and incorporate the updated expense rules into your 2025–2026 forecasts. If you amortized expenses in prior years, evaluate whether filing a method change (Form 3115) could allow you to recapture deductions, depending on what guidance is issued by the IRS from a procedural standpoint.

It’s also essential to keep clear and contemporaneous documentation — especially if you’re claiming R&D credit or have international R&D exposure. The IRS has increased scrutiny around improper claims and substantiation. Additionally, continue checking IRS guidance related to foreign R&D and coordinate any tax position changes with your broader strategy and compliance obligations.

Strategic Considerations

Section 174 expensing brings welcome relief for businesses investing in innovation, but it also introduces complexity — especially for companies with multi-year R&D planning or global footprints. By updating forecasts, assessing historical filings, and aligning documentation now, CFOs and tax leaders can better prepare for the 2025 transition and minimize risk. Early action supports stronger compliance, cash management, and credit positioning in an evolving regulatory environment.

How MGO Can Help

Our tax professionals have deep experience navigating the complexities of Section 174 and R&D credits. Whether you need help modeling the impact of immediate expensing, evaluating a method change, or separating costs for credit eligibility, we can guide you through every step. Contact us today to align your R&D strategy with the latest tax reforms and uncover potential savings.

The post Answers to Your FAQs About Section 174 R&D Expensing appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• The IRS has prioritized ERC enforcement — focusing on eligibility, substantiation, and promoter-prepared claims.

• Many mid-market companies are under review or unclear on their ERC position, especially for Q3 2021 (a red flag for audits).

• CFOs should proactively review ERC filings, gather documentation, and consult with advisors to manage risk and avoid penalties.

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For most companies that claimed the Employee Retention Credit (ERC), the checks have long since cleared. But now the IRS is focusing on next steps — eligibility, substantiation, and calculation accuracy. Enforcement is no longer theoretical; it’s already happening.

Thanks to extended statutes of limitations, expanded audit budgets, and a public crackdown on abuse, ERC compliance has become one of the IRS’s highest priority areas.

Why the IRS Is Taking Aim

At its peak, the ERC offered up to $26,000 per employee, making it among the most generous pandemic-era incentives. But rapid rule change, shifting eligibility rules, and aggressive third-party promoters left many claims vulnerable to scrutiny. 

This environment led the IRS to flag ERC as a “high-risk” credit and, in turn, prompted significant congressional attention. Every ERC claim from 2020–2021 — valid or not — is now within the audit scope.

The Impact of the OBBA

The One Big Beautiful Bill Act (OBBBA) has reshaped the IRS’s enforcement strategy around the ERC. Enacted on July 4, 2025, the OBBBA:

• Disallows pending ERC claims for Q3 and Q4 of 2021 if they were submitted after January 31, 2024

• Preserves eligibility for taxpayers who filed prior to that date or already received refunds

• Extends the IRS statute of limitations for ERC audits from three years to six years

• Introduces new penalties, including a 20% penalty on erroneous refund claims — a provision previously only applied to income tax

• Adds due diligence standards for ERC promoters, requiring them to substantiate eligibility and amounts or face a $1,000 penalty per failure to comply 

Importantly, professional employer organizations (PEOs) are excluded from these due diligence penalty rules. 

With these expanded enforcement tools and clear audit triggers tied to filing dates, the IRS has a more defined roadmap for which claims to prioritize — and Q3/Q4 2021 claims will likely be at the front of the line.

Where Your Peers Stand

During a recent MGO-hosted webinar with mid-market tax and finance leaders:

• ~60% said they are undergoing ERC review (internal or external)

• ~10% expect a formal audit

• ~30% reported being unsure of their current ERC status

This uncertainty is what the IRS is targeting — and it’s why companies need to revisit their filings now before the IRS does.

What the IRS Is Looking At

In early audits and soft letters, we’re seeing recurring red flags:

• Eligibility assumptions based on vague shutdowns or indirect disruptions

• Wage overlaps with Paycheck Protection Program (PPP) forgiveness, resulting in double-dipping

• Missing or incomplete documentation (e.g., health orders, employee schedules)

• Claims prepared by outsourced firms without backup or compliance support

Even if your claim is technically sound, a lack of documentation can lead to disallowance or penalties.

What Should CFOs and Tax Leaders Do Now?

Rather than waiting for an IRS inquiry, take proactive steps:

• Conduct a thorough review of ERC claims — with focus on Q3 2021

• Compile all supporting documentation (eligibility rationale, employee records, payroll data)

• Request full backup from any third-party preparers, especially if a legal review wasn’t performed

• Monitor for IRS soft letters or information documents requests (IDRs), which often precede formal audits

• Rescind your claim: If you have not received your ERC refunds or you have received your refunds and have not cashed them yet, and you are skeptical or uncomfortable with claiming the ERC, the IRS will allow you to rescind your claim for those quarters. Doing so may help you avoid penalties and interest.

Readiness isn’t just about paperwork. It’s about building a defendable position with confidence.

How MGO Can Support Your ERC Readiness

As enforcement ramps up, companies that take initial action will be best positioned to respond. Our ERC advisory professionals help clients evaluate risk exposure, gather proper documentation, and — when necessary — prepare for audit response or voluntary corrections. We work alongside CFOs, controllers, and tax teams to bring clarity and control to a complex compliance landscape.

Contact us today to schedule your ERC audit readiness review.

The post ERC Audits Are Escalating: What CFOs Need to Know appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• The One Big Beautiful Bill Act restores 100% bonus depreciation for qualified property placed in service after January 19, 2025.

• A new provision allows 100% expensing of qualified production property used directly in U.S.-based manufacturing, with strict eligibility criteria.

• Manufacturers should begin planning now to align construction timelines and tax strategy.

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The One Big Beautiful Bill Act (OBBBA) contains wide-reaching tax provisions that could reshape capital investment decisions for manufacturers and distributors. Two potentially impactful provisions are the return of 100% bonus depreciation and the introduction of a new incentive for qualified production property (QPP). For asset-intensive businesses, the new rules present significant planning opportunities.

This article outlines the OBBBA’s key bonus depreciation and QPP provisions, and how they apply to your manufacturing or distribution business.

100% Bonus Depreciation Returns in 2025

Bonus depreciation allows your business to immediately deduct a significant portion of the cost of qualifying property in the year it’s placed in service, rather than depreciating it over several years. Under prior law, bonus depreciation was gradually phasing down from 100% to 0% by 2027.

OBBBA resets that clock: For qualified property placed in service after January 19, 2025, 100% bonus depreciation is restored and made permanent. This applies to a wide range of capital investments — including machinery, equipment, and certain improvements to nonresidential real property.

However, for 2025, it’s crucial to keep the placed-in-service date in mind. Property placed in service on or before January 19, 2025, remains subject to the prior phase-down schedule (40% for 2025).

Bonus depreciation is generally automatic, meaning you need to elect out of it if you don’t want to take it. It’s available for both new and used property.

New: 100% Expensing for Qualified Production Property

In addition to bonus depreciation, OBBBA introduces a new, separate provision for 100% expensing of QPP with unique eligibility rules and timelines.

This is a major development if your manufacturing business is planning new facility construction, as bonus depreciation generally doesn’t apply to buildings (although it does apply to certain qualified improvements).

What Is Qualified Production Property?

Qualified production property includes a portion of nonresidential real property that is:

• Newly constructed in the United States

• Used as an integral part of manufacturing activities

• With construction beginning after January 19, 2025, and before January 1, 2029

• Placed in service before January 1, 2031

To qualify, the space must be used directly in the manufacturing process. The provision doesn’t apply to any square footage used for administrative offices, research and development, sales, or other ancillary functions.

Crucially, there is no de minimis exception — meaning there’s no threshold below which non-manufacturing space can be ignored. So even small areas used for offices or other non-manufacturing functions must be identified and excluded from the QPP calculation. This will likely drive demand for more detailed cost segregation studies to allocate building costs appropriately.

It’s also important to note that, unlike bonus depreciation, QPP expensing is not automatic. Taxpayers must affirmatively elect into this deduction. Final regulations will clarify how and when taxpayers must make the election and whether a single election applies across multi-year construction projects.

Who Qualifies?

This provision applies specifically to manufacturing businesses engaged in the production of tangible property involving “substantial transformation”. The IRS will issue regulations to define this standard more precisely, but the intent is to reward activities that significantly alter raw materials or components into finished goods.

Some exclusions apply. Lessors of the property and businesses preparing food and beverages on-site (such as a deli in a grocery store) are not eligible. Additionally, property subject to the alternative depreciation system (ADS) does not qualify.

A Word on Recapture

There’s also a 10-year recapture provision. If the use of the property changes during that period — such as converting a manufacturing area into administrative offices — the taxpayer may have to recapture the expensed depreciation as ordinary income under Section 1245.

Section 179: Increased Limits, but Strategic Considerations

OBBBA also raises Section 179 expensing limits. For 2025, your business can expense up to $1 million in qualifying property — with the deduction phasing out once total equipment placed in service exceeds $2.5 million. For assets placed in service after December 31, 2025, the expense limit increases to $2.5 million — with the deduction phasing out if total fixed assets placed in service exceed $4 million.

While small and mid-sized businesses often use Section 179 to write off qualifying property, it can be more limited in application than bonus depreciation (if available) since Section 179 is (a) limited to the amount of business taxable income; and (b) only available for assets used 50% or more for business purposes.

However, it may still be worth considering when bonus depreciation isn’t available or when coordination with taxable income limitations makes Section 179 more beneficial. There also may be benefits at the state level, as some states conform with the federal 179 expensing provisions while decoupling from federal bonus depreciation rules.

Taxpayers should discuss their fixed asset strategy with their advisors to decide how and when to leverage bonus depreciation, Section 179, and QPP expensing.

Implications for Manufacturing and Distribution

The manufacturing sector can benefit from these provisions with careful planning and implementation. Here are some decisions and considerations to discuss with your tax advisor:

1. Facility construction and expansions: The QPP rules reward businesses that start new construction after January 19, 2025, but before January 1, 2029. Companies on the fence may want to move quickly to meet the deadline and qualify for 100% expensing.

2. Cost segregation studies: Because only certain portions of a facility count as “qualified production property”, taxpayers will need cost breakdowns to support their deductions if any part of the building is used for non-qualified activities.

3. State conformity is uncertain: Some states may decouple from the federal rules, particularly for QPP expensing, given its potentially large impact on revenue. Businesses with operations in multiple jurisdictions will need to monitor state responses.

4. Private equity and tax-exempt complications: The use of ADS, especially when tax-exempt entities are involved, could disqualify certain projects from QPP expensing. Additional analysis will be required in joint ownership scenarios.

5. Recapture risk: Planning should also account for potential changes in facility use within the 10-year recapture window.

Looking Ahead

Bonus depreciation has been part of the tax code in various forms since 2001, but this is the first time it’s been made permanent. Meanwhile, the addition of a new QPP expensing provision clearly shows that the federal government wants to incentivize domestic manufacturing investment.

As with any major tax law, the details matter — and many remain forthcoming. We expect the U.S. Treasury Department and the IRS to release additional regulations clarifying key definitions, election mechanics, and compliance requirements.

In the meantime, manufacturers and distributors should begin evaluating capital plans for the next five years — especially if you are contemplating large-scale facility construction.

How MGO Can Help

At MGO, we help manufacturing and distribution companies identify opportunities and understand the potential tax outcomes. From evaluating capital investments to coordinating cost segregation studies and modeling the effects of federal and state tax treatment, we work alongside clients to support informed decision-making.

If you’re planning to expand or modernize your operations, our team can help you assess how these provisions apply to your business and align your plans with the latest tax laws. Contact us today to start the conversation.

The post Bonus Depreciation and Qualified Production Property: What Manufacturers Need to Know appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Misclassifying workers as independent contractors instead of employees can lead to serious tax liabilities, penalties, and legal issues for your rental company. 

• Understanding how behavioral control, financial control, and the nature of the relationship factor into classification decisions is key to staying compliant. 

• Taking proactive steps — like consulting a tax advisor or using IRS programs — can help you correct misclassifications and protect your business going forward. 

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If you own or operate a rental company — whether you specialize in party supplies, heavy equipment, or anything in between — you likely rely on a mix of full-time workers, part-time help, and seasonal labor. It’s easy to lump some of these workers into the “contractor” category and move on. But doing so without a solid understanding of classification rules can lead to financial and legal consequences.

Misclassifying an employee as an independent contractor is a common and costly mistake many small- and mid-size businesses make. Here’s what you need to know — and why it matters to your rental business.

Why This Question Matters for You

At first glance, the difference between a contractor and an employee might not seem like a big deal. You may think: “They only work weekends” or “I don’t tell them how to do the job.” But the IRS and state labor agencies see things differently.

Getting the classification wrong can lead to unpaid payroll taxes, penalties, interest, and even legal disputes. That’s because employees and contractors are treated differently under tax and labor laws.

What’s the Difference?

Let’s break it down simply. An employee is someone whose work you control — how, when, and where it’s done. You likely provide tools, set schedules, and expect ongoing availability. An independent contractor, on the other hand, typically:

• Works with little or no supervision
• Provides their own tools and equipment
• Is paid per job rather than by the hour
• Can work for multiple clients at once
• Controls how and when the work is done

Rental companies sometimes rely on contractors for specialized services — like repairing equipment or hauling inventory. But if you’re bringing someone in regularly, assigning shifts, and overseeing their work like you would an employee, that person might not qualify as a contractor — even if that’s how you’re paying them.

Why Rental Companies Get Caught Off Guard

The rental industry’s fast-paced, seasonal nature can make worker classification tricky. You might:

• Hire workers just for peak seasons
• Bring on a friend or family member casually
• Pay someone under the table
• Assume “1099” is a safe shortcut for part-time help

But informal arrangements won’t protect you if the IRS or your state agency audits your business.

Many rental business owners simply aren’t aware of the rules. Others might think they’re saving money by avoiding payroll taxes and benefit costs. Unfortunately, those short-term savings can become long-term liabilities.

The Financial Risks of Misclassification

If the IRS or your state determines you’ve misclassified an employee, here’s what you could be on the hook for:

• Back pay for unpaid wages, overtime, and breaks
• Employment taxes you should have paid (Social Security, Medicare, unemployment)
• Interest and penalties on those taxes
• Potential liability for workers’ compensation, disability, or unemployment claims

You may also face legal action if a worker files a claim or complaint.

How to Determine the Right Classification

There’s no one-size-fits-all test, but the IRS uses three key categories to evaluate worker status:

• Behavioral control: Do you direct how the work gets done?
• Financial control: Do you set the pay rate, reimburse expenses, or provide supplies?
• Relationship type: Is there a written contract? Are you offering benefits? Is the relationship ongoing?

These aren’t checkboxes — they’re part of a broader analysis. You’ll need to consider the entire relationship. And when in doubt, document everything.

For example, if you hire a technician who sets their own hours, uses their own tools, and invoices you per job, they may qualify as a contractor. But if you expect that technician to show up at 8 a.m., wear your branded shirt, and follow your procedures, they may very well be an employee.

What If You’re Still Unsure?

If you’re uncertain about a worker’s status, you have options:

• File IRS Form SS-8 to request an official determination (note: this can take months).
• Consult a tax advisor who understands the rental industry and employment law.
• Use the IRS’s Voluntary Classification Settlement Program (VCSP) to reclassify workers prospectively with reduced penalties (if you qualify).

Getting It Right Today Can Save You Tomorrow

Correct classification isn’t just about avoiding penalties — it’s about protecting your business. When your workers are classified correctly:

• You reduce your audit risk
• You avoid unexpected tax bills
• You support fair labor practices
• You can build a more stable, compliant workforce

Even if you’ve unintentionally misclassified workers in the past, it’s not too late to correct course.

How We Can Help

Understanding classification rules isn’t easy — especially when your focus is running a busy rental company. We can help your rental business evaluate worker roles, document compliance, and avoid costly mistakes. If you’re not sure where to start, reach out to our team today to talk through your situation. The sooner you get clarity, the stronger your business will be.

The post Employee or Contractor? Why Your Rental Company Needs to Get It Right appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Energy tax credits like §45W and §30C face 2025/2026 phaseouts, placing urgency on electric vehicle (EV) and charging station timelines for businesses planning capital expenditures.

• Many mid-market companies haven’t aligned project timelines with placed-in-service deadlines, risking partial or lost clean energy credits.

• Wage rules, documentation, and foreign-sourcing bans can disqualify credits — early compliance checks help preserve full tax benefit.

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For many businesses, the Inflation Reduction Act (IRA) was a green light to pursue electric vehicles, charging infrastructure, and other sustainable projects — backed by strong federal tax incentives. But in 2025, the rules have changed. And companies that haven’t adapted to new deadlines and eligibility requirements may leave valuable credits behind.

Tax provisions like §45W and §30C — which offer up to $7,500/$40,000 per EV and $100,000 per charging port — remain available. But with stricter placed-in-service timelines, prevailing wage requirements, and supply chain sourcing restrictions now in effect, the process has grown more complex.

At MGO, we’ve seen a growing sense of urgency among tax leaders and CFOs looking to retain the full value of these incentives. The common thread? It’s not enough to start building — you need to verify that your timeline, documentation, and sourcing all meet current standards.

What’s Changing — and Why It Matters

Businesses investing in clean energy may qualify for:

• §45W Commercial Clean Vehicle Credit: Up to $7,500 per eligible EV under 14,000 pounds (cars, vans, trucks, etc.) and up to $40,000 per eligible EV over 14,000 pounds (school buses, semi-trucks, etc.)

• §30C Alternative Fuel Infrastructure Credit: Up to $100,000 per qualified charging port

• § 48 (Pre-2025) Investment Tax Credit for Energy Property/§ 48E Clean Electricity Investment Tax Credit: 6% of qualified investment increased to 30% if a taxpayer meets prevailing wage and apprenticeship requirements or exceptions. Eligible to be transferred to an unrelated taxpayer.

But, beginning in 2025, these credits are affected by key IRS updates. Most notably:

• Credits are tied more strictly to placed-in-service deadlines

• For EVs, the deadline to place in service is September 30, 2025

• For charging ports, the deadline to place in service is June 30, 2026

• For wind and solar, allowed to be placed in service in four calendar years if construction occurs prior to June 30, 2026; if not, then deadline is December 31, 2027

• Bonus credits now require detailed compliance with wage and apprenticeship standards

• The foreign entity of concern rule may limit credit access based on component sourcing, particularly for EV batteries

In short, technical compliance now carries real financial consequences. Projects that would have qualified two years ago may fall short today — even if the investment itself hasn’t changed.

Where CFOs Stand on Readiness

During a recent MGO webinar, we asked mid-market tax leaders how ready they felt for the upcoming shift. Their responses reflected a common trend:

• 40% said they were not prepared

• 30% were somewhat prepared

• Only 5% were fully prepared

• 25% said it was not applicable to their business

This signals a significant planning gap. Despite rising investment in electric fleets and infrastructure, many companies haven’t realigned their tax strategy to fit the changing requirements. Without that alignment, even well-intentioned efforts can lose value.

Key Areas Where Companies Face Risk

Several issues have emerged as common barriers to full credit access:

• Project delays that affect placed-in-service eligibility

• Inconsistent wage documentation that disrupts bonus credit calculations

• Foreign-sourced components that invalidate certain credits

• Disconnection between tax and operations, leading to missed planning windows

As these rules evolve, companies that aren’t regularly reviewing their compliance posture may struggle to capture the full benefits — or may face clawbacks if later audited.

Planning Priorities for 2025

To prepare for the upcoming changes and protect your tax position, MGO recommends focusing on four core actions:

1. Check Placed-in-Service Schedules 

Review your project timelines to confirm that EVs, chargers, or facilities will be operational before IRS deadlines. Delays — even short ones — can affect eligibility. 

2. Coordinate with Tax Early

Bring your tax team into capital expenditure planning discussions to evaluate credit exposure and prioritize projects with the most favorable timelines and tax treatment.

3. Review Wage and Sourcing Documentation

Work closely with contractors and procurement teams to track wage compliance and verify sourcing for battery or component parts.

4. Run Credit Risk Scenarios 

Model potential loss of credits based on current projections, and adjust project sequencing or vendors accordingly to maintain incentive value.

How MGO Supports Clean Energy Credit Planning

MGO works with businesses across industries to evaluate, strengthen, and align your approach to energy tax incentives. Our teams help assess eligibility, document compliance, and provide the analysis you need to make informed decisions — especially as 2025/2026 deadlines draw closer.

If your organization is investing in EVs, charging stations, or energy property, now is the time to revisit how those projects connect to your tax strategy. Reach out to our Tax Credits and Incentives team today for support.

The post Clean Energy Tax Credits: 2025 Deadlines and Strategy appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Immediate R&D expensing may return in 2025, but many companies haven’t modeled the impact or updated their budgets to reflect the change.

• Heightened IRS scrutiny of the Employee Retention Credit is prompting CFOs to audit past claims and tighten documentation to avoid penalties.

• Accelerated clean energy credit deadlines are forcing businesses to fast-track investments and project timelines to maximize available incentives.

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The 2025 tax landscape is shifting dramatically — and mid-market CFOs and tax leaders are being forced to rethink their planning in real time. In a recent webinar hosted by MGO, hundreds of finance professionals weighed in on how three major areas are impacting their strategy: Section 174 research and development (R&D) treatment, IRS enforcement around the Employee Retention Credit (ERC), and the accelerated rollback of clean energy tax credits.

Here’s what your peers are saying — and what you should be doing now to stay ahead:

Key Insight #1: Section 174 Relief Is Coming — But Not Everyone Is Ready

Takeaway:

The upcoming allowance for immediate expensing of domestic R&D starting in 2025 offers cash flow relief. Yet many companies still haven’t modeled the impact — or taken advantage of transition-year elections.

Action items:

• Model multi-year R&D tax savings now

• Explore amending 2022–2024 returns under new rules

• Build R&D forecasting into 2025–2026 budgeting

Key Insight #2: ERC Enforcement Concerns Are Rising

Takeaway:
With expanded penalties, longer statutes of limitation, and uncapped promoter fines, the IRS is sending a clear message: ERC compliance is a top audit priority.

Action items:

• Conduct an internal audit of any ERC claims

• Review Q3 2021 filings for risk exposure

• Tighten documentation — especially for eligibility support

• Monitor communications from IRS for pre-audit activity

Key Insight #3: Clean Energy Credit Deadlines Require Immediate Action

Takeaway:
New end dates for §45W and §30C credits create urgency around construction, delivery, and placed-in-service deadlines. Many companies still haven’t adjusted timelines to capture full benefits.

Action items:

• Accelerate capital expenditure for EVs and charging infrastructure

• Confirm placed-in-service dates for Q3 and Q4 2025

• Consider design changes to meet prevailing wage rules

• Review supply chain for prohibited foreign entity risks

Proactive Beats Reactive in a Shifting Tax Environment

The 2025 tax landscape is a moving target, but that doesn’t mean you need to wait in limbo. CFOs and tax leaders who act early — by reassessing R&D strategies, auditing ERC positions, and accelerating energy investments — stand to gain the most. With cash flow, compliance, and credit all on the line, now is the moment to turn insights into action. Whether you’re facing uncertainty or opportunity, a proactive approach will help you lead with confidence and clarity in the year ahead.

How MGO Can Help

Our Credits and Incentives team is here to guide you through the complexities of today’s evolving tax environment. We can help your organization identify, model, and unlock tax-saving opportunities across R&D, clean energy, and other federal and state credit programs. Reach out to our team today to see how we can support your success in 2025 and beyond.

The post R&D, ERC, and Energy Credits: What 2025 Tax Reform Means for You appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• IRS downsizing is causing backlogs, misapplied payments, and delayed tax determinations. 

• Fewer auditors mean more correspondence exams, and an increased taxpayer burden on you. 

• Appeals and Advocate Services are overwhelmed, requiring professional tax support. 

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Recent IRS downsizing efforts have posed challenges for taxpayers attempting to resolve issues with the agency. Over recent months, thousands of IRS employees have left the IRS through the administration’s deferred resignation programs, comprehensive layoffs of probationary employees, and retirements. Reductions not only affect processing and service centers but also impact personnel who are part of the IRS’s Taxpayer Experience Office, Taxpayer Advocate Service, IRS Office of Appeals, and IT modernization staff — all departments that exist to assist taxpayers with navigating complex U.S. tax compliance issues and IRS controversies. As of the current date, it remains unclear whether the IRS will be safe from further staffing cuts. What’s more, IRS employees are voluntarily resigning, often as a result of increasing uncertainty within the agency.  

While the ultimate goal of the downsizing is to enhance the IRS’s efficiency through automation and streamlined operations, taxpayers should be prepared to encounter administrative and logistical challenges when dealing with the agency as it settles into new processes with fewer personnel. These challenges include: 

•     Processing backlogs  

•     Unapplied tax payments 

•     More correspondence exams 

•     Appeals resolution issues 

•     Delayed determination letters 

•     Taxpayer Advocate Service delays 

Routine processing backlogs.

 Processing of routine tax filings such as original and amended returns, refund claims, and requests for appeals consideration may be delayed due to fewer IRS staff. These backlogs may also lead to delays in the IRS issuing much needed tax refunds to taxpayers.  

Longer processing times may also expose certain taxpayers to operational disruptions. The IRS may, for example, delay the processing of a business taxpayer’s request to change its legal entity name by several months. As a result, the taxpayer’s customers and vendors might be reluctant to remit payment to the newly named entity because its entity name for legal purposes does not match IRS records. 

Unapplied tax payments and payments made by consolidated subsidiaries. 

In certain cases, the IRS is failing to apply or is misapplying taxpayers’ payments. A taxpayer may, for example, remit payment to the IRS to offset its 2024 income tax liability, then later determine the IRS never withdrew the funds from its account or applied the payment to the wrong year. The IRS may fail to apply or misapply a taxpayer’s payment without notification to the taxpayer, causing late payment penalties and interest to accrue without the taxpayer’s knowledge.   

Recently, tax payments made by a consolidated subsidiary on behalf of its parent corporation have triggered automatic notices from the IRS demanding the associated tax return. In these cases, the IRS apparently has not associated the payment with the parent’s consolidated return, even though the subsidiary and the payment are properly reported on Form 851. As a result, consolidated filers must dedicate resources to clearing IRS requests for income tax returns from subsidiaries with no filing requirements. 

More correspondence exams. 

As part of the agency’s recent downsizing, the IRS has lost approximately one-third of its auditors. Although fewer auditors may lead to fewer in-person audits, it also may mean more audits are conducted entirely via computer system and by mail, with taxpayers unable to speak directly to a live revenue agent. This type of audit, known as a correspondence exam, often leads to a lack of clarity for the taxpayer and the IRS incorrectly adjusting items on a taxpayer’s return even when the taxpayer has the relevant documentation to support the return as filed. In these cases, the only resolution may be for the taxpayer to file a petition with the Tax Court, which is expensive and often more costly than the tax adjustment itself. 

Appeals resolution issues. 

The IRS Office of Appeals has lost hundreds of employees in the downsizing, all while dealing with an increasingly complex workload. The number of Appeals cases is expected to further increase due to errors and disputes resulting from the loss of qualified personnel in other areas of the IRS.  

As a result, taxpayers can anticipate the Appeals process will take longer. Unfortunately, this may result in more taxpayers taking issues to litigation, thus burdening the federal court system. Taxpayers that need to take issues to Appeals should consider the benefits of engaging a professional advisor to assist and advocate for them throughout the Appeals process. 

Delayed determination letters

Entities applying for tax-exempt status may have to wait longer periods to receive their IRS determination letters. These entities, which are required to electronically file Form 990, will not be able to properly file Forms 990 until the determination letter is issued, resulting in IRS-assessed late filing penalties.   

Contacting the Taxpayer Advocate Service. The Taxpayer Advocate Service (TAS) is also dealing with the separation of hundreds of employees. TAS is an independent office within the IRS that helps taxpayers resolve errors the IRS processing centers cannot or will not resolve on their own. An increase in errors made by the IRS due to the downsizing has also led to an increase in taxpayer assistance requests of TAS. Although traditionally effective at expediting the resolution of errors, TAS representatives may become increasingly difficult to reach due to the recent reduction in qualified personnel along with the increase in requests for assistance. This may mean issues require more time to resolve or even go unaddressed, with taxpayers potentially requiring assistance from professional advisors to reach a resolution.  

Written by Todd Simmens, Kate Pascuzzi and Nicolas Read. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com 

Proactive Support for a Changing IRS Landscape 

At MGO, we help clients proactively manage the evolving IRS landscape. As taxpayer services become slower and more complex, our tax advisors offer strategic guidance and hands-on support to resolve IRS disputes, appeal unfavorable outcomes, and minimize compliance risks. Whether you’re facing delays, audits, or misapplied payments, we advocate on your behalf to bring clarity and resolution. With deep experience navigating federal tax bureaucracy, we ensure your case is handled efficiently — even as IRS resources shrink. Contact us to learn more.

The post The IRS is Downsizing — What Taxpayers Can Expect  appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• Delaware Statutory Trusts (DSTs) are eligible for 1031 exchanges, offering an alternative when searching for like-kind property. 1031 exchange investors can roll proceeds into multiple investments at the exact amounts needed to satisfy the like-kind replacement requirement.

• The fractional ownership of DSTs gives solo investors access to commercial-grade real estate assets similar to those owned by institutional investors, insurance companies, pension funds, and real estate investment trusts (REITs).

• Investors receive passive income without the responsibilities of managing tenants, handling maintenance, or searching for financing.

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A Delaware Statutory Trust (DST) is a relatively new but compelling alternative for real estate owners who are ready to step back from hands-on management but still want to stay invested in income-producing property.

Whether you’re eyeing a 1031 exchange or exploring options to simplify your portfolio, DSTs offer a structure that blends the tax benefits of real estate ownership with the ease of a professionally managed investment.

DSTs have become more popular recently because they resemble the structure of a real estate partnership or LLC. However, instead of managing properties directly, investors receive regular income distributions while a third-party sponsor — usually a professional real estate company — oversees the operations, financing, and maintenance of the property or portfolio.

In this article, we break down how DSTs compare to traditional real estate investments and why they are gaining traction among investors who want flexibility and long-term strategy.

What Is a DST?

A DST is a legal entity created under Delaware trust law. These special business trusts were created in 1988 with the passing of the Delaware Business Trust Act, which was renamed the Delaware Statutory Trust Act (DST) in 2002.

DST investors don’t actually own physical real estate; they own shares of the trust that was formed to be the legal owner of the underlying properties held within the trust. Each investor is treated as an owner of the trust — commonly referred to as a “grantor trust” — and the income and expenses are reported directly on their individual income tax returns.

These special business trusts create a legally secure and clearly defined entity that establishes legal separation between the trust and its beneficiaries. However, since the Internal Revenue Service (IRS) treats each investor’s beneficial interests as direct property ownership, DSTs are eligible for 1031 exchanges both upfront and upon exit.

DSTs are typically formed by real estate companies called “sponsors”, who identify and acquire the assets that are placed under trust using their own capital. DST sponsors engage a registered broker-dealer to open an offering period, and individual investors purchase fractional shares of the DST. Although they provide equity capital, DST beneficiaries are passive investors.

DST sponsors control the day-to-day operations of the assets held under trust. Sponsors are also responsible for distributing monthly cash flow distributions, quarterly reporting, tax reporting, and performance reviews of the assets under their management.

Sponsors vary greatly in management experience, and a thorough vetting process should be undertaken before investing in a DST.

Types of Properties Held in a Delaware Statutory Trust

A DST can hold nearly all types of commercial real estate properties across the U.S., including:

• Student housing

• Senior housing

• Medical offices

• Self-storage facilities

• Distribution centers

• Corporate headquarters

• Multifamily housing

These assets are often unattainable for individual investors due to the hefty purchase price (usually anywhere from $30 million to $100 million), but they’re accessible through the DST’s fractional ownership model.

How DSTs Work in a 1031 Exchange

One powerful feature of a DST is its compatibility with Internal Revenue Code Section 1031, which allows investors to defer capital gains taxes when exchanging one real estate asset for another. Traditionally, this has locked investors into actively managing replacement properties — but DSTs offer an alternative path forward.

DST interests are sold as securities, so investors must work with a registered broker-dealer or registered investment advisor to invest in a DST.

Two critical requirements in a delayed exchange are (1) that the replacement property must be properly identified within the identification period, and (2) acquired before the end of the exchange period. Failure to identify a replacement property within the 45-day period will disqualify the 1031 exchange.

DSTs are also a potential backup replacement property when an investor can’t identify a replacement property for a 1031 exchange within the allowable timeline (45 days), because most DST sponsors have already identified the underlying properties.

Case Study: From Active Owner to Passive Investor

One of our clients, a long-time real estate owner, personally managed an apartment building he owned for decades. He was nearing retirement age, and the burdens of maintenance and tenant management were becoming increasingly difficult. However, he wanted to preserve his real estate portfolio as an income stream during his lifetime and as an asset to leave for his children.

Rather than selling the property and paying capital gains taxes on the profits, the client took advantage of a 1031 exchange to trade the apartment building for a DST portfolio of properties. As a result, he continued to receive monthly income without the need to actively manage the real estate and had a potentially appreciating asset to pass down to his heirs. The DST structure also made it easier to divide assets among beneficiaries compared to physical property.

Considerations and Risks

As with all real estate investments, DSTs involve risk. Market fluctuations can affect property values, and fractional ownership means you don’t have direct control over operations or decision-making. Plus, investing in properties located across multiple states may introduce new state-level income tax filing requirements.

While it’s crucial to be aware of these factors, many investors find the benefits outweigh the limitations — particularly when they want to simplify portfolio management, diversify their investments, and continue to invest in real estate.

Whether you want to reduce active involvement in your real estate holdings or are looking for replacement property for a 1031 exchange, a DST could be an option.

How MGO Can Help

If you currently own investment property and are considering selling, consult with a qualified professional before initiating any transaction. MGO’s team of tax professionals can help you estimate your potential gain and potential tax liabilities, evaluate replacement options, and align your strategy with your long-term goals.

A DST isn’t the right fit for every investor, but in the right circumstances, it may provide the clarity and peace of mind you’re looking for.

Ready to explore your options? Contact MGO to discuss how a DST might support your real estate and legacy goals.

This article is for informational purposes only and should not be construed as financial or legal advice. Please seek guidance specific to your situation from qualified advisors in your jurisdiction.

The post Delaware Statutory Trusts: An Alternative for Real Estate Investment appeared first on MGO CPA | Tax, Audit, and Consulting Services.

• IRS Form 7217 introduces new tax reporting requirements for investors in private equity, hedge funds, investment partnerships, or any other partnership.  

• Partners receiving in-kind distributions must file Form7217 for each distribution and report basis of the distributed property, including any basis adjustments to such property.  

• Fund managers should prepare for investor questions and compliance impacts as the IRS increases scrutiny of partnership transactions and basis shifting.  

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New Filing Obligations for In-Kind Distributions 

Beginning with tax years starting in 2024, the IRS now requires partners in partnerships to report in-kind distributions of property using a newly released form — Form 7217: Partner’s Report of Property Distributed by a Partnership. This rule applies broadly across the investment fund landscape, including private equity, venture capital, hedge funds, and fund-of-funds that receive securities or other property distributions not classified as cash. 

If your fund structure allows for non-cash distributions — especially in restructuring scenarios or when forming continuation funds — your investors may now be required to attach Form 7217 to their tax returns for each distribution event. Making sure you’re compliant and clearly communicative with your investors will be critical.  

When Does Form 7217 Apply? 

Form 7217 applies when a partner receives a distribution of property other than cash or marketable securities treated as cash. Investment partnerships meeting certain criteria can distribute marketable securities tax-free, allowing partners to defer income recognition until those securities are sold. But this deferral still comes with added compliance: every qualifying distribution event now requires its own Form 7217. 

Reporting includes: 

• Date of each distribution 

• Basis of distributed property 

• Any basis adjustments related to the transaction 

Importantly, a separate form is required for each distribution date. That means multiple distributions throughout the year will result in multiple Form 7217 attachments— raising complexity and potential audit exposure for recipients. 

Why This Matters: IRS Focus on Partnership Scrutiny 

This change is part of a larger trend: increased IRS scrutiny of basis-shifting and partnership transactions. Form 7217 represents another step in the agency’s efforts to monitor and track partnership activity more closely, especially in areas involving deferred tax treatment and in-kind distributions. 

Fund managers should anticipate an uptick in questions and document requests from LPs and investor tax advisors as we quickly approach the 2024 tax season extended deadline. Being proactive now can reduce filing risk and streamline communication. 

How Fund Managers Can Prepare 

To help investors meet their compliance obligations and avoid downstream tax issues, your firm should consider the following steps: 

1. Update Tax Reporting Workflows 

Integrate Form 7217 requirements into your fund’s year-end tax packages and document handoffs. 

2. Communicate Early with Investors 

Inform LPs of their obligations under the new rules, especially if your fund strategy involves in-kind distributions. 

3. Consult with Tax Advisors 

Work with partnership tax professionals to ensure accurate tracking and address any gray areas involving property classification. 

The post What Fund Managers Need to Know About New IRS Reporting Rules  appeared first on MGO CPA | Tax, Audit, and Consulting Services.