Grant Thornton tax specialists examined a wave of recent federal tax, trade, and administrative developments during a September 22 webinar, stressing that for many companies the harder work lies in the planning and financial reporting consequences rather than the rules themselves.
Tariffs and financial reporting
Kelly Libhart, a partner in Grant Thornton’s corporate tax solutions group who moderated the session, set the theme at the outset. For tax accounting teams, she said, the challenge “isn’t just understanding the rule changes” but understanding where they create “balance sheet forecasting and some compliance implications.”
That tension surfaced quickly in the trade updates. Danielle Donley, a director in the corporate tax solutions team, walked through the July 23 expiration of the prior 10% global tariff regime under Section 122 and its replacement with new Section 301 tariffs ranging from 10% to 12.5%. Litigation is already underway, including an August 3 lawsuit by 25 states, and Donley noted that a May 2026 ruling striking down the Section 122 tariffs “raised the possibility of a future refund scenario.”
Her central caution, though, was a reporting one. Because tariffs are not income taxes, Donley said, they fall outside ASC 740 and are instead capitalized to inventory or expensed above the line, correcting what she called “a genuinely common misconception.” She urged companies to review supply chains and import classifications, confirm whether products qualify for available exemptions, and keep supporting documentation.
Automatic penalty relief
Donley also detailed the IRS’ new Automatic Exemption from Penalty program, announced July 8, which automatically waives certain penalties for eligible taxpayers with a strong three-year compliance history and replaces the First-Time Abate program for returns due on or after January 1, 2027. The program “is expected to reduce administrative burdens, improve consistency in penalty administration, and allow taxpayers and practitioners to really focus on the more complex compliance issues,” she said.
In practice, Donley said, the change “could look like the IRS sending a notice confirming relief was granted for an eligible taxpayer without ever having assessed the penalty in the first place.” Even so, she cautioned that reasonable cause relief and other abatement strategies “will remain important tools” for taxpayers who do not qualify, warning against assuming any particular form is covered given the steep penalties many international filings carry.
On energy credits, Donley pointed to Notice 2026-50, issued in August, which expanded and extended a temporary safe harbor for substantiating IRC § 45Q carbon capture credit claims amid uncertainty over EPA reporting requirements. The guidance gives taxpayers “a practical path” to keep claiming the credits now, she said, recommending that claimants review whether they rely on Subpart RR-based substantiation methods.
State conformity
Turning to the states, Libhart said accelerating federal change is producing sharp divergence, leaving tax accountants “increasingly managing 50 different answers to what looks like a single question.”
Joe Spallone, a director in the firm’s state and local tax team, said conformity to the One Big Beautiful Bill Act is splitting along familiar lines, with rolling-conformity states generally adopting new provisions automatically while static and selective-conformity states pick and choose.
He pointed to Arizona, which largely conformed to the new research and experimental (R&E) expensing and business interest rules while decoupling from bonus depreciation, and to North Carolina and Washington, D.C., both of which moved to decouple from full domestic R&E expensing under IRC § 174A.
Full expensing is not always the best result, Spallone added. For a company “in a loss scenario,” first-year expensing “isn’t the greatest answer,” and continuing to amortize under a state’s decoupled regime could prove preferable.
Spallone also flagged two rulings. In California, the Office of Tax Appeals held in In re NextEra Energy Capital Holdings Inc. , No. 20096580, that related entities formed a single unitary business, tying the result to the taxpayer’s failure to meet its burden of proof on intercompany transactions.
In Massachusetts, the Appellate Tax Board found in Smithfield Packaged Meats Corp. v. Commissioner of Revenue, No. C344811, that the state’s Finnigan sourcing rule “usurped the protection” of P.L. 86-272. Spallone advised affected businesses to weigh protective amended returns.
According to Libhart, state tax accounting is “becoming less about knowing one rule and more about” maintaining a process able to “keep pace with dozens of evolving state-specific provisions.”
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