I am pleased to announce that the 85th Institute on Federal Taxation (IFT) will take place in New York City from November 15–20, 2026.

This year marks an exciting new chapter for the Institute. Rather than hosting separate programs in New York and California, the IFT is becoming a single, high-impact annual event that will alternate each year between these two states. The new format kicks off fittingly in New York City as we celebrate the Institute’s 85th anniversary.

At this year’s Institute, I will present my new white paper, “Another Look at the Single Class of Stock Requirement Under Subchapter S,” where I uncover why the single-class-of-stock rules are far more intricate than they appear on the surface. While the basic rule that an S corporation can only have one class of stock seems straightforward, its application can be surprisingly complex. I plan to explore the nuances of the requirement, identify some of the traps for the unwary and discuss potential remedies if a problem arises.

My presentation is part of the Closely Held Businesses segment of the Institute, chaired by my longtime friend and esteemed colleague Jerald David August, which will be held on Thursday, November 19. I am honored to once again contribute to the IFT and to join an extraordinary group of leading tax professionals for this landmark event.

Registration for the IFT is now open! Having served as an IFT speaker for more than a decade, the Institute continues to be an invaluable opportunity to connect with and give back to the tax community. I always enjoy having a chance to exchange ideas with fellow tax professionals from across the nation and provide practical guidance through the NYU School of Professional Studies’ leading continuing education platform.

I hope you will join us in New York City for this special 85th anniversary program. I look forward to reconnecting with colleagues, meeting new members of the tax community and participating in another terrific week of learning and discussion.

Background

The IRS Office of Professional Responsibility (“OPR”) is responsible for interpreting and applying the Treasury Regulations governing practice before the Internal Revenue Service (commonly known as “Circular 230”).  It has exclusive responsibility for overseeing practitioner conduct and implementing discipline.  For this purpose, practitioners include attorneys, certified public accountants, enrolled agents, enrolled actuaries, appraisers, and all other persons representing taxpayers before the Internal Revenue Service.

In essence, Circular 230 sets forth the “rules of the road” for tax practice before the Service.  Circular 230 cases generally revolve around a practitioner’s fitness to practice. The OPR’s mission is to “interpret and apply the standards of practice for tax professionals in a fair and equitable manner.”

We have not seen many significant developments coming out of the OPR or arising from Circular 230 in the past few years.  As a result, I have not written about either the OPR or Circular 230 in some time.

Alert 2026-19

On June 24, 2026, the OPR issued Alert 2026-19, Introductory Guidelines for Responsible AI Use in Federal Tax Practice.  All tax practitioners and others governed by Circular 230 should take note of this alert.  It provides basic guidelines that tax practitioners need to understand and follow when using artificial intelligence (“AI”) in providing services to clients.  

While many tax practitioners have been using AI (and perhaps without even realizing it) for some time in research products such as LexisNexis and Thomson Reuters’ Westlaw Edge, the technology is rapidly developing in an application called Generative AI (“GAI”).  GAI, combined with open-source programs, creates original content.  The OPR acknowledges that the use of GAI in the tax profession is quickly evolving.  It can provide rapid analysis of complex tax matters, resulting in significant time/cost savings.  While GAI may have these advantages, the OPR warns practitioners of its limitations. 

“Yet, it has limitations—such as fabricated outputs (or, as commonly termed, “Hallucinations”), bias, and lack of transparency, and these pose serious ethical and legal risks.  As a result, the use of GAI presents concerns involving privacy, confidentiality, and data protection.  For example, client privacy can be compromised when data generated for one client is repurposed by the program to respond to an inquiry concerning another client, or data compiled for a particular issue is spilled over into an algorithm and combined with a related tax issue involving a different client.  As such, it is incumbent on any tax professional using GAI to carefully review all documents crafted by the technology.”

The OPR warns of the dangers of improper use of GAI resulting in fake citations and other hallucinations appearing in tax practitioners’ work product, including court filings.  We have all read about attorneys being sanctioned by courts for improper use of GAI, as well as regulatory body disciplinary proceedings and malpractice lawsuits against these practitioners.   The OPR alerts tax practitioners of the importance of “diligent human oversight” when using AI tools.  Put differently, tax practitioners cannot blindly rely on AI.

The OPR references a real-world example of the improper use of AI.  The Australian government engaged Deloitte Australia to perform services.  Deloitte Australia produced a 230-page report that the government published on its website in July 2025.  The report contained quotes attributable to a judge that were invented, references to sources that do not exist and books ascribed to the wrong author.  It turns out the report was produced (at least in part) by GAI.   

Circular 230 and the Intersection of AI

Section 10.22

Section 10.22 of Circular 230 requires practitioners to exercise due diligence in the preparation of (or assistance in the preparation of), approving or filing tax returns and documents relating to matters with the IRS.  This requirement extends to oral or written statements made to the Department of Treasury or clients with respect to any matter administered by the IRS.   

With respect to the requirements of Section 10.22, the OPR advises practitioners to thoroughly review all AI-created material before incorporating it into any document or statement presented to the IRS or a client.  All facts, citations, calculations and conclusions produced by AI must be verified.

“[H]uman scrutiny and editing are essential to ensure correctness and compliance with IRS expectations.”

Section 10.27(a)

Section 10.27(a) of Circular 230 provides that a practitioner may not charge an unconscionable fee in connection with any matter before the IRS.  The OPR acknowledges that AI can reduce the time it takes to research tax matters and draft documents.  However, it warns practitioners that not passing on these savings to clients may result in a violation of Section 10.27(a) of Circular 230.  

Section 10.35

Section 10.35 of Circular 230 requires a practitioner to possess the necessary competence to practice before the IRS. In the context of AI, the OPR declares that tax practitioners must understand how AI develops content and recognize the vulnerability for bias and errors if they intend to use AI in their practices.

Section 10.36

Section 10.36 of Circular 230 requires that people overseeing a firm’s tax practice are responsible for adequate procedures being in effect to ensure Circular 230 compliance by members and staff of the firm.   The OPR warns that Section 10.36 extends to the use of AI. Accordingly, firms need to deploy written internal policies for compliance with Circular 230 in the AI space, including comprehensive training of all staff and members relative to using AI tools; establishing protocols for data handling, and accuracy monitoring; and the vetting of outside vendors of AI tools.  

Section 10.37

Section 10.37 of Circular 230 sets forth the requirements under which a practitioner may give written advice concerning federal tax matters. The requirements include basing written advice on reasonable factual and legal assumptions, reasonably considering all of the facts and circumstances, using reasonable efforts to identify and ascertain applicable facts, and refraining from relying upon statements or documents unless reliance is reasonable.  Based upon Section 10.37, the OPR concludes that practitioners should only use AI as a starting point, subject to thorough review before providing a written product to the IRS or a client. If a practitioner uses GAI to draft written advice, the practitioner needs to independently authenticate all factual and legal information.

“Blind reliance on what AI yields, especially when the underlying logic or sources are unclear, may constitute unreasonable reliance.”     

Section 10.51(a)(15)

Section 10.51(a)(15) of Circular 230 prohibits the willful disclosure or use of tax return information in an unauthorized manner.   Further, Code Sections 6713 and 7216(a) provide that civil and criminal penalties may be imposed for unauthorized use or disclosure of tax return information.  The OPR warns practitioners that GAI platforms may pose the risk of unauthorized disclosure of taxpayer information.  Consequently, practitioners should ensure they only use secure AI tools.

State Law

The OPR advises tax practitioners that many states, including California, Colorado, Illinois and Utah, have enacted legislation governing the use of AI.  Additionally, state bar associations and boards of accountancy have or may adopt rules relating to the use of AI. Practitioners must be aware of these rules.

Best Practices       

The OPR offers best practices that tax practitioners should follow to ensure responsible use of AI:

• Identify and remain current on relevant federal and state AI laws and regulations.
• Establishing secure data handling protocols and access controls.
• Document AI usage and verification processes.
• Foster transparency and accountability in all AI practices.
• Adopt clear procedures for handling breaches or errors.
• Provide training for anyone within the firm who may use AI.
• Vet third-party AI offerings before purchasing or using them.
• Never upload sensitive data to unsecured sites.
• Consider all AI-generated documents as a first draft that requires thorough human review for factual and legal accuracy (checking citations and for bias).

Conclusion

While AI may improve efficiency for tax practitioners in the delivery of services, it is not a substitute for professional care and judgment.  Practitioners must remain vigilant when working with AI.  The risk of Circular 230 noncompliance, as well as ethical and professional standards, and applicable AI or privacy laws, is too great.

If you were wondering why it has been some time since I authored a new post on the blog, it is because I was writing a new article on Subchapter S for publication in both Corporate Taxation and Practical Tax Strategies.  The article, “Another Look at the Single Class of Stock Requirement Under Subchapter S,” was published in the May/June edition of Corporate Taxation and the June edition of Practical Tax Strategies. 

In this comprehensive article on the single-class-of-stock rules, my hypothesis is that the rules are far more intricate than they appear on the surface.  The content of the article should serve tax practitioners as a handy desk reference guide on the topic.

The basic rule is that an S corporation can only have one class of stock.  For this purpose, voting stock and non-voting stock are permitted.  The key to having just one class of stock is generally to make sure that all shares have identical rights to distribution and liquidation proceeds.  While seemingly simple in concept, it can be extremely complex in application.   The mystery that often comes into play is whether shares have identical rights to distribution and liquidation proceeds.  The article explores that issue in detail.

This prohibition, for decades, has caused enormous concern for tax practitioners and business owners alike. In numerous instances, it has been an insurmountable hurdle to attaining S corporation status. In other cases, it has triggered the termination of an otherwise valid S election.

My hope is that this article clarifies the basic rules and eliminates some of the mystery surrounding the single-class-of-stock requirement, including alerting tax practitioners and taxpayers to the many traps that exist for the unwary.

Thank you to the editorial team at Thomson Reuters, and particularly Dan Feld, for their efforts in featuring this article and their continued leadership in covering meaningful developments affecting the tax and accounting world.

Download the full articles published in Corporate Taxation (May/June 2026) and Practical Tax Strategies (June 2026), Thomson Reuters publications.

As Ralph Waldo Emerson is quoted as saying:

“The only way to write is to write.”

Stay tuned for future tax blog posts.  I intend to keep writing about new developments and interesting tax issues. 

Senate Bill 1507 (“SB 1507”), which aims to disconnect Oregon’s state tax laws from a few provisions of the Internal Revenue Code (the “IRC” or the “Code”), was recently passed by the Oregon Senate and the Oregon House of Representatives.  There is no sign that Governor Tina Kotek intends to veto the legislation.  Consequently,  in accordance with Section 49 of SB 1507, it will take effect on the 91st day after the date on which the 2026 regular session of the 83rd legislative assembly adjourns sine die.  If my math is accurate, SB 1507 will be effective around June 8, 2026.   

The revenue impact of SB 1507, as reported by the Oregon Legislative Revenue Office, is a savings for the state of approximately $300 million during the 2025-2027 biennium.  The question that follows is how SB 1507 creates the huge revenue savings.

SB 1507 partially decouples Oregon from the IRC, meaning that Oregon will not recognize certain provisions of the Code.  The legislation was passed with fanfare that it would only impact the use of provisions of the Code that “mainly benefit the wealthy.”  I am not sure that statement is accurate.  My take is that the provisions in question are aimed at helping closely held businesses – not simply the wealthy.

SB 1507 decouples Oregon law from two key provisions of the Code: IRC Section 1202 and IRC Section 168(k).  Both are important provisions that often benefit small, closely held businesses. 

IRC Section 1202 

As previously reported, Code Section 1202 has a rich history.  It was originally enacted by federal lawmakers more than three decades ago as part of the Revenue Reconciliation Act of 1993.  Code Section 1202 was one of many provisions of that legislation aimed at stimulating investment in closely held businesses. 

In a nutshell, Code Section 1202 allows shareholders of certain closely held businesses to potentially exclude some of the gain from the sale of the shares.  To qualify for the exclusion, however, several rigid requirements must be met.  For one, the corporation that issues stock must be a “qualified small business” and must meet an active business test for substantially all the taxpayer’s holding period of the corporation’s stock.  For that purpose, a “qualified small business” is defined as:  a business with aggregate gross assets (cash and the adjusted basis of its assets) of $50 million or less at all times between August 10, 1993, and immediately after the stock issuance.  Further, at least 80% of the corporation’s assets (by value) must be used in the active conduct of a trade or business during substantially all of the taxpayer’s holding period of the stock.  Lastly, the corporation cannot be engaged in providing health, law, consulting, accounting, finance, farming, mining or hospitality services.

The United States Congress tinkered with Code Section 1202 over the years, enhancing the benefits it offered small business owners.  In 2009, as part of the American Recovery and Reinvestment Act of 2009, Congress temporarily increased the amount of gain exclusion offered under this provision.  The next year, as part of the Small Business Jobs Act of 2010, Congress temporarily increased the gain exclusion in limited circumstances to 100%.  Impetus for that amendment to Code Section 1202 (increasing the benefit to 100%) was recognition by lawmakers that many taxpayers who otherwise qualified for gain exclusion under Code Section 1202 could not take advantage of it due to other provisions of the Code, including the individual alternative minimum tax (“AMT”).  The 100% exclusion, however, enhanced the benefit so that taxpayers subject to the AMT would see some benefit from the application of Code Section 1202.  Accordingly, as part of the Protecting Americans from Tax Hikes Act of 2015, Congress made the 100% exclusion permanent. 

The One Big Beautiful Bill Act (the “OBBBA”), signed into law by President Trump on July 4, 2025, made several significant changes to the existing framework for the exclusion of capital gains from the sale of qualified small business stock (“QSBS”) under Code Section 1202.

Prior to the OBBBA, Code Section 1202 allowed noncorporate taxpayers holding QSBS for more than five years to exclude from gross income certain eligible gain realized upon the taxable sale or other disposition of the stock.  The percentage of the gain allowed to be excluded was 50%, 75% or 100%, depending on when the stock was acquired.  The OBBBA enhanced Code Section 1202 in many respects, including eliminating the provision of the Code that subjected excluded gain to the AMT.  Of course, the excluded gain may still be subject to the 3.8% net investment income tax under IRC Section 1411.

As stated above, to qualify for the Code Section 1202 exclusion, rigid requirements must be met.  Again, the issuing corporation must be a “qualified small business” and meet an active business test for substantially all of the taxpayer’s holding period of the stock.  Further, at least 80% of the corporation’s assets (by value) must be used in the active conduct of a trade or business during substantially all of the taxpayer’s holding period of the stock.  Lastly, the corporation cannot be engaged in providing health, law, consulting, accounting, finance, farming, mining or hospitality services.

SB 1507 decouples Oregon tax law from Section 1202 of the Code.  Accordingly, for Oregon residents who meet these rigid hurdles, a hefty Oregon income tax liability could result from the sale of their stock in a qualified small business. 

The decoupling of IRC Section 1202 from Oregon tax laws may provide more impetus for residents who would otherwise qualify for the IRC Section 1202 exclusion, to consider changing their residence to a more tax-friendly state before the sale of the QSBS occurs.  Those states still include Arizona, Florida, Nevada, Tennessee and Texas.  Whether SB 1507 in regard to Code Section 1202 will add to the existing impetus for Oregon business owners to leave the state is yet to be seen.  At any rate, it is undeniably another factor motivating taxpayers to leave Oregon.    

IRC Section 168(k)

As previously reported, in accordance with the Tax Cuts and Jobs Act of 2017 (“TCJA”), businesses were permitted to immediately deduct (or expense) 100% of the cost of certain qualifying property placed into service during the taxable year instead of depreciating the property over several years.  The deduction, commonly referred to as bonus depreciation, was scheduled to phase down by 20% each year starting in 2023 and be fully eliminated by the end of 2026. 

The concept of bonus depreciation is not new to our tax laws.  Various iterations of the concept have been in the Code for decades.  In general, the impetus for bonus depreciation is twofold, namely: (i) to stimulate business investment in qualified property such as machinery and equipment; and (ii) to enhance the cash flow of businesses, allowing greater investment in operations, including expanding the workforce. 

Under Code Section 168(k), to qualify for the TCJA’s bonus depreciation, property acquired by the taxpayer must constitute “qualified property.”  Subject to specified exceptions, qualified property under the TCJA includes property that the Code assigns a depreciation recovery period of 20 years or less.

Section 70301 of the OBBBA made this provision of the TCJA a so-called permanent provision of the Code and recalibrated it at a fixed level of 100%.  Consequently, because of the OBBBA, 100% bonus depreciation is a continuing feature of the Code that will not be allowed to sunset at the end of 2026, unless lawmakers decide to revisit the issue. 

SB 1507 decouples Oregon tax law from Section 168(k).  Accordingly, Oregon businesses that are otherwise eligible for bonus depreciation under Code Section 168(k) will have to add back the depreciation for Oregon income tax purposes and use the other allowable depreciation methods contained in the IRC.  The result is that most businesses will likely end up spreading the cost of machinery, equipment and other qualified property over five to seven years.  The businesses that will be most adversely impacted by SB 1507 will be those Oregon businesses that routinely make a substantial investment in machinery and equipment, including agriculture, construction, manufacturing and transportation businesses. 

Whether the decoupling of IRC Section 168(k) from Oregon tax laws will disincentivize investment in equipment, machinery and other qualified property by Oregon businesses, and/or put Oregon at a competitive disadvantage in attracting new businesses to the state (or motivate existing Oregon businesses to leave), is yet to be seen.

Some Good News

SB 1507 is not all bad news for Oregon businesses.  It creates a new $1,000 non-refundable income tax credit for employers for each new job created during the tax year that pays at least 150% of the minimum wage (i.e., $22.58 or more per hour).  The credit, however, maxes out at ten jobs per taxpayer (i.e., $10,000).

Concluding Thoughts

Oregon lawmakers could have used a more precise tool to scale back both Code Section 1202 and Code Section 168(k) by placing more stringent eligibility requirements on taxpayers in order to use these provisions for Oregon income tax purposes.  For example, in the case of IRC Section 1202, the legislature could have reduced the gross asset limitation (e.g., from $50 million to $25 million) or reduced the deduction (e.g., from 100% to 75%).  Likewise, in the case of bonus depreciation under Code Section 168(k), Oregon lawmakers could have added a limit on the amount of bonus depreciation that may be taken in a taxable year (e.g., $10 million) or limited its use to businesses with taxable income (before bonus deprecation) of a specified dollar amount (e.g., under $25 million).  Instead, Oregon lawmakers used a blunt instrument, eliminating Oregon taxpayers’ access to two Code provisions otherwise available to businesses in most states.    

Some lawmakers who were opposed to SB 1507 have announced plans for a referendum to overturn the bill.  If successful, it would allow Oregon voters in November 2026 to have the last say on whether SB 1507 will become law.  A successful referendum, however, is likely a long shot.  Time will tell!  

As reported last week, Senate Bill 1510 (“SB 1510”) was passed by the Oregon Senate on February 24, 2026.  It was passed by the Oregon House of Representatives on March 4, 2026.  Now, it sits on Governor Tina Kotek’s desk awaiting her signature.

One of our readers asked me a simple question: “What happens next in the legislative process?”  As I commenced to answer that question, with his assistance, I quickly realized that taxpayers and tax practitioners do have something to worry about.  That worry relates to how SB 1510 was drafted. 

In accordance with Section 15b of Article V of the Oregon Constitution, after a bill passes both the House and the Senate, before it becomes law, it is presented to the Governor for action. The Governor can take one of three actions:  (i) she may sign the bill into law, (ii) she may allow a bill to become law without signature, or (iii) she may return the bill to the legislature or the Oregon Secretary of State with objections.

The general rule is that a bill that is not objected to by the governor automatically becomes law if it is not signed by the governor within five days (excepting Saturdays and Sundays) after being presented to the governor.  However, if adjournment of the legislative session prevents the governor from returning a bill to the legislature with objections (as is the case with SB 1510), it becomes law without the governor’s signature unless the governor, after giving the public five days’ advance notice, files objections with the Oregon Secretary of State.  The objections must be filed within 30 days (excepting Saturdays and Sundays) following adjournment of the legislative session.      

The next question is: “Once a bill becomes law, when does it become effective?” Section 171.022 of the Oregon Revised Statutes provides:

“Except as otherwise provided in the Act, an Act of the Legislative Assembly takes effect on January 1 of the year after passage of the Act.” 

In this case, the legislation provides an exception to this rule.  Section 19 of SB 1510 provides:

“This 2026 Act takes effect on the 91st day after the date on which the 2026 regular session of the Eighty-third Legislative Assembly adjourns sine die.”

So, assuming Governor Kotek signs SB 1510 into law or fails to notify the public of any objections by April 12 and fails to file objections with the Oregon Secretary of State by April 17 (thirty days from the date the bill was presented to the governor (excepting Saturdays and Sundays)), the bill will become law.

In accordance with SB 1510, it becomes effective on the 91st day after its passage by the legislature. If my math is somewhat accurate, assuming no timely objections by the governor, that means SB 1510 would be effective around June 8, 2026.   

Regardless of my math, the time for the governor to file objections and the delayed effective date of SB 1510 create practical problems for taxpayers and tax practitioners.  In Oregon, pass-through entity estimated tax payments are due, provided the tax liability is $1,000 or more, in four installments (April 15, June 15, September 15 and January 15).  Failure to make timely estimates may expose a taxpayer to penalties. 

We suspect Governor Kotek will not object to SB 1510.  Consequently, the issue becomes whether the Oregon Department of Revenue will accept estimated tax payments from eligible pass-through entities before the extension of the Oregon SALT workaround becomes effective in June 2026.

My hope is that the Oregon Department of Revenue will accept estimated pass-through entity tax payments before the legislation’s actual effective date. SB 1510 clearly states that it extends the SALT workaround for tax years beginning before January 1, 2028.  It would have been nice had lawmakers made the bill effective before April 15, 2026, so that tax practitioners would not have one more thing to worry about during this tax season.  

It appears that the Oregon Department of Revenue is aware of the issue.  It posted the following on its website yesterday:

“Senate Bill 1510, which will extend the Pass-Through Entity Elective (PTE-E) Tax program, has passed the Legislature and is awaiting the Governor’s signature. The program will extend to tax years beginning before January 1, 2028.

More details will be available on this webpage after Senate Bill 1510 is signed.”

Let’s hope practicality will prevail in this matter.  My guess is that most practitioners will recommend that eligible pass-through entities make timely estimated tax payments regardless of the effective date of SB 1510. 

In an informal communication between the Oregon Department of Revenue and the Oregon Society of Certified Public Accountants (“OSCPA”) earlier this week, the department indicated that it would work with taxpayers and their advisers.  It further advised the OSCPA that, provided an eligible pass-through entity is registered with the department for the pass-through election, it will accept tax estimated payments due on April 15 and apply them to the entity’s pass-through election account.  Additionally, the department stated that it will not penalize taxpayers who do not make the first-quarter estimated payment, provided they make it up with the second-quarter estimated tax payment.  While this informal communication is not binding on the Oregon Department of Revenue, it is a good sign that the tax authorities will work with taxpayers and tax practitioners on this issue.

As reported earlier, Senate Bill 1510 (“SB 1510”), if passed and signed into law by Governor Tina Kotek, would extend the life of the Oregon state and local tax (“SALT”) workaround for eligible pass-through entities for two more tax years (i.e., through the 2027 tax year). 

SB 1510 was passed by the Oregon Senate on February 24, 2026.  That same day, it was introduced in the Oregon House of Representatives (“House”).  Yesterday, March 4, 2026, it received unanimous approval by members of the House (52 “yea” votes, with eight representatives absent).  Now, SB 1510 will be delivered to Governor Kotek for signing.  She is expected to sign SB 1510 into law.[1]

SB 1510 gives the Oregon SALT workaround a new life.  However, unless the law is again extended, that life is scheduled to end at the close of the 2027 tax year.  Additionally, as previously reported, SB 1510 allows eligible pass-through entities using the workaround to apply any overpayments they made during a tax year to estimated payments for the following tax year.

It appears that the Oregon SALT workaround, like a cat, has more than one life.  SB 1510 was passed in the Oregon legislature with only a few days left in the short 2026 session.  Once Governor Kotek signs the bill into law, owners of eligible pass-through entities and their accountants will be able to take a sigh of relief.

————

[1] At the time of publication, the bill is awaiting Governor Kotek’s signature.

Two of our readers alerted me yesterday afternoon that Oregon lawmakers are attempting to keep the Oregon SALT workaround alive and well. 

Senate Bill 1510 (“SB 1510”) was introduced in the Oregon Senate on February 24 (hours after I put my pencil down from writing the last blog article and awaiting its publication).  The bill has been passed by the Senate and is currently waiting to be voted on by members of the House of Representatives.    

Unlike Senate Bill 211 (“SB 211”), which was introduced in the Oregon legislature during the 2025 session, SB 1510 is not a standalone bill solely focusing on extending the life of the Oregon SALT workaround.   Rather, a provision to extend the SALT workaround is sandwiched between three other provisions, namely a provision extending a property tax exemption for cargo containers, the repeal of a tribal tax exemption and a requirement that the board of tax practitioners register enrolled agents.

SB 1510, with respect to the SALT workaround, is interesting.  First, the bill only extends the workaround through 2027.  I am not sure why the legislature would not extend it indefinitely (i.e., for as long as the federal SALT cap is in place).  Second, SB 1510 (like SB 211) contains a provision that allows eligible pass-through entities to apply overpayments from one tax year to the subsequent tax year.  That is a welcome addition to the SALT workaround.

A few (hopefully minor) hurdles could impact the passage of SB 1510.  First, as mentioned already, the bill contains three other provisions, leaving the legislation open for a debate that very well could be totally unrelated to the workaround.  Second, the 2026 Oregon legislative session is a short session, and lawmakers have been presented with a large number of important bills, including a proposal to update the Oregon estate tax (Senate Bill 1511) and the transportation bill (Senate Bill 1599).

Hopefully, the other provisions of SB 1510 and the large volume of proposed legislation this short session will not create obstacles for getting the workaround extension approved by lawmakers. 

I will keep a keen eye on SB 1510 and report back to you soon.

Background

Prior to the Tax Cuts and Jobs Act (“TCJA”), there was no direct limitation on an individual taxpayer’s deduction of his or her state and local taxes (“SALT”) on the federal individual income tax return.  Of course, for high-income taxpayers, the SALT deduction often triggered the alternative minimum tax.

The TCJA

As of 2018, the TCJA capped the SALT deduction for individuals at $10,000 per year for both single and married taxpayers filing jointly ($5,000 for married taxpayers filing separately).  Hence, the SALT cap contains an inherent “marriage penalty.” 

The OBBBA

The SALT cap, which was part of a compromise among lawmakers for an increase in the standard deduction under the TCJA, was scheduled to sunset at the end of 2025.  However, as previously reported, the One Big Beautiful Bill Act (“OBBBA”) amended and extended the SALT cap. 

The following are the key elements of the SALT cap, as extended under the OBBBA: 

1. The OBBBA amendment to the SALT cap applies to taxable years beginning after 2024.
2. The cap is now $40,000 ($20,000 in the case of a married taxpayer filing separately).  It increases by 1% each year but reverts to $10,000 ($5,000 in the case of a married taxpayer filing separately) in 2030.  The cap, as reduced in 2030 to $10,000 ($5,000 in the case of a married taxpayer filing separately), does not appear to sunset.  So, it becomes a so-called permanent provision of the Internal Revenue Code.  
3. Under the OBBBA, the cap is reduced by 30% of a taxpayer’s modified adjusted gross income to the extent it exceeds the threshold amount ($500,000 for married taxpayers filing jointly and single taxpayers, and $250,000 in the case of a married taxpayer filing separately).  However, the SALT cap cannot be reduced below $10,000 ($5,000 in the case of a married taxpayer filing separately).

After the SALT cap was introduced as part of the TCJA, the Internal Revenue Service announced in IRS Notice 2020-75, with respect to pass-through entities (LLCs or other entities taxed as partnerships or S corporations), that, if state law allows or requires the entity itself to pay state and local taxes (which normally pass through and are paid by the ultimate owners of the entity), the entity will not be subject to the $10,000 SALT cap.  As a consequence, many state legislatures passed so-called SALT cap workarounds for pass-through entities.  Oregon was among those states.

The Oregon SALT Cap Workaround

As previously reported, on February 4, 2021, Senate Bill 727 (“SB 727”) was introduced in the Oregon Legislature.  SB 727 was Oregon’s response to IRS Notice 2020-75.

On June 17, 2021, after some amendments, SB 727 was passed by the Oregon Senate and referred to the Oregon House.  Nine days later, the House passed the legislation without changes.  On June 19, 2021, then Oregon Governor Kate Brown signed SB 727 into law, effective September 25, 2021.  Interestingly, SB 727 was scheduled to sunset at the end of 2023. 

However, in 2023, House Bill 2083 was passed by the Oregon legislature.  It extended the SALT cap workaround for eligible pass-through entities through 2025. 

On January 13, 2025, Senate Bill 211 (“SB 211”) was introduced in the Oregon legislature to extend the workaround until December 31, 2027.  Additionally, SB 211, if passed, would have also provided eligible taxpayers who used the workaround to apply any overpayment of tax to subsequent tax years (after the law expired). 

Based upon a review of the legislative history, it appears, that SB 211 had no opponents in either the Oregon House or the Oregon Senate, but it died in the Senate (like a lot of bills do) due to the session ending before it was passed and sent to the Governor for signature.  The bill was supported by members of the Oregon House Revenue Committee and the Oregon Senate Finance and Revenue Committee.  It even passed the Senate on a third reading (June 17, 2025), but it was never voted on in the House.  Accordingly, it died when the legislative session ended.

On February 13, 2026, Senate Bill 1507 was introduced in the Oregon Senate to update the tie or connection between the Internal Revenue Code and Oregon tax laws.  From a review of the 50-page bill, I found no provision that relates to the SALT workaround.  Rather, that bill (Senate Bill 1507) is focused on disconnecting Oregon’s tax laws from many of the provisions of the TCJA and the OBBBA considered by lawmakers to be “tax breaks” for businesses and wealthy individuals.  

I also cursorily reviewed the 100+ bills introduced in the Oregon Senate and Oregon House this year to determine if any legislative proposal extends the Oregon SALT workaround.  Unfortunately, I found no bill has been introduced during the 2026 short session to extend the workaround.  Accordingly, unless legislation is introduced and passed by the Oregon legislature and signed into law by Governor Kotek, the Oregon SALT workaround for eligible pass-through entities will be dead.

Conclusion

Tax advisers and owners of Oregon pass-through entities need to be aware of this issue.  The owners of entities that historically used the Oregon SALT workaround likely need to make Oregon estimated income tax payments for 2026 and later tax years in order to avoid penalties, should the legislature fail to ultimately attend to this issue.  Additionally, the pass-through entities themselves should not be making Oregon estimated income tax payments under the SALT workaround, as that law has expired.   

It is mind-boggling.  The Oregon SALT workaround (other than some modest administrative burden) costs Oregon nothing.  Without it, pass-through business owners will be stuck with the SALT cap as modified by the OBBBA.  Time will tell whether Oregon lawmakers will come to the rescue. Taxpayers and tax advisers need to keep a keen eye of the issue.

It seems like New Year’s Day 2025 was just a few weeks ago.  As I watch 2025 quickly come to an end, it is clear that time passed this year at lightning speed.

2025 was, in many respects, a terrific year, complete with new opportunities and many challenging tax projects.  I continue to be extremely grateful for the unwavering support of family, friends, clients and law colleagues!

During 2025, I was able to greatly expand my white paper, A Continuing Magical Mystery Tour Through Subchapter S – With a Stop at Many of the Obscure Destinations Along the Way.  It is now more than 220 single-spaced pages.  I recently presented it at New York University’s 84th Institute on Federal Taxation in both New York City and San Francisco.  This paper provides tax practitioners with a thorough overview of the current state of Subchapter S and the traps that still linger within this tax regime for unwary taxpayers and their advisers.

I was fortunate to have the opportunity to provide content and review and edit the Thomson Reuters treatise Subchapter S Taxation.  Working with the Thomson Reuters editorial team was a terrific experience and a truly gratifying way to contribute to the tax community.  

Additionally, I was pleased to be able to give back to the tax profession by authoring more than 27 substantive tax law blog posts, including 10 articles in my multi-part series dealing with the major tax provisions of the One Big Beautiful Bill Act, H.R. 1 – 119th Congress (2025-2026); four articles in my continuing series on Subchapter S; seven articles on the Corporate Transparency Act; and six articles on state and local taxes.  A sincere thank-you goes to my colleagues who contributed to some of my blog posts this past year.

One Big Beautiful Bill Act, H.R. 1 – 119th Congress (2025-2026)

• Part I – The SALT Deduction
• Part II – Estate and Gift Tax
• Part III – Gambling / Code Section 165(d)
• Part IV – The Qualified Business Income Deduction / Code Section 199A
• Part V – Qualified Small Business Stock Exclusion / Code Section 1202
• Part VI – Corporate Charitable Deductions / A Floor Has Been Added to Code Section 170(b)(2)(A)
• Part VII – The Rules Relating to the Deductibility of Individual Charitable Contributions Have Changed
• Part VIII – Worker Moving Expenses
• Part IX – Deductibility of Automobile Loan Interest
• Part X – One Hundred Percent Expensing Lives On

A Journey Through Subchapter S / A Review of the Not So Obvious & the Many Traps That Exist for the Unwary

• Part XIV – An S Corporation Is Not Always a Mere Extension of Its Shareholders
• Part XV – Being an Active Participant in the Trade or Business of an S Corporation Has Its Advantages
• Part XVI – Changes in Ownership During the Taxable Year
• Part XVII – A Brief Stop at an Important Destination – Code Section 1361(b)(1)(D)

Corporate Transparency Act

• The Drama Surrounding the Corporate Transparency Act Has Now Reached the U.S. Supreme Court
• The Crazy Rollercoaster Ride of the Corporate Transparency Act Continues – FinCEN Issues a Reporting Update
• Oh Geez! The Corporate Transparency Act’s Turbulent Rollercoaster Ride Continues
• FinCEN Delivers Some Good News About Its Enforcement of the Corporate Transparency Act
• Updates to the Corporate Transparency Act Are Coming in at a Rapid Fire – Treasury Issued a Huge Change in the Trajectory of the New Law
• The Corporate Transparency Act May Be on Life Support, But It Is Not Dead
• March Madness Is Usually All About College Basketball, But It Turns Out That the Corporate Transparency Act Is Taking Center Stage This Month

State and Local Taxes

• Hobby Loss Rules Revisited
• Taxes in Washington State May Be Rising
• The State and Local Tax Deduction Is in Peril – The Cavalry Does Not Appear to Be on Its Way to Rescue It
• An Interesting New Law Passed by the Oregon Legislature Impacts the State Taxation of Lottery Winnings
• It Is Raining Tax Increases in Washington State – When It Rains It Pours
• The House Passes a Tax Bill Containing a SALT Cap Compromise That Is Slightly Better Than Its Prior Proposal

Mark Twain is credited with offering the following guidance to authors about writing articles:

“The time to begin writing an article is when you have finished it to your satisfaction. By that time you begin to clearly and logically perceive what it is you really want to say.”

I strive to incorporate Mr. Twain’s approach in writing my tax blog articles.  In addition to simplifying complex topics, I work hard to add humor and practical guidance.   

During the year, I received emails and telephone calls from several readers, thanking me for the commentary, offering ideas for future blog posts and providing tremendous feedback.  I look forward to continuing the tax blog next year, covering timely topics.      

One of my now-retired law colleagues used to drop by my office at the end of every year (before the days of remote working).  He would start the conversation with the same opening statement: “Wow, we worked hard this year.  Somehow, we got that huge boulder from the bottom of the mountain to the peak.  On January 1, we will start that trek all over again.”  He would end the conversation asking the question: “Can we do it again next year?”  My answer to that question was always a resounding, “Yes, we can do it!”

I am looking forward to getting started in 2026 with more opportunities and challenging tax projects.  I intend to continue authoring insightful tax blog articles.  Additionally, I will complete an article on the single class of stock requirements under Subchapter S for publication early next year in Corporate Taxation, a Thomson Reuters journal.   Lastly, I plan to speak at New York University’s 85th Institute on Federal Taxation in November 2026 in New York City.  New York University is planning a special celebration for this 85-year milestone.  I hope you will join us.      

Thank you for your readership and support!  Wishing everyone a wonderful and safe holiday season, as well as a terrific 2026!

Mark Twain is also credited with saying:

“The secret of getting ahead is getting started.”

I look forward to getting started in 2026.

Larry

I am pleased to share that the 84th Institute on Federal Taxation (IFT) will be held in New York City on October 19-24, 2025, and in San Francisco, California, on November 16-21, 2025.

At this year’s Institute, I will be presenting the latest version of my white paper, A Continuing Magical Mystery Tour Through Subchapter S, which is now well over 220 pages and contains a close look at several of the obscure aspects of Subchapter S.

During our session, we will embark on a journey through many of the not-so-obvious provisions of the Code and regulations that impact Subchapter S corporations and their shareholders, including some of the magical provisions of the Code and regulations.  We will round off our voyage by examining the key takeaways from notable cases and rulings that shape this highly nuanced area of tax law.

I am truly honored to once again have the chance to contribute to IFT, joining an extraordinary assembly of the nation’s leading tax professionals. My presentation will be part of the Closely Held Businesses program, chaired by my longtime friend and esteemed colleague, Jerald David August, on October 23 (New York City) and November 20 (San Francisco). I am excited to kick off the program on both days as we gear up for a full day of learning.

Links to explore the full agenda and to register are below:

• Institute on Federal Taxation (New York) – October 23
• Institute on Federal Taxation (California) – November 20

Having served as an IFT speaker for well over a decade, I continue to find the Institute to be an incredible opportunity to connect with the broader tax community and contribute to the NYU School of Professional Studies’ longstanding tradition of excellence in continuing legal education. The 84th IFT will cover a broad range of critical federal tax topics, including tax controversies, executive compensation and employee benefits, international and corporate taxation, real estate and partnership taxation, closely held businesses, trusts and estates, and ethics.

I hope you will consider joining us for this one-of-a-kind program full of timely updates, thoughtful analysis and practical insights that you can apply to your practice. I look forward to connecting with you in New York City or San Francisco!