Articles & Alerts
2024 Tax Update: Key Changes and Implications for U.S. Businesses and Individuals
As we approach the midpoint of 2025, U.S. taxpayers are navigating the effects of several international tax developments that took hold in late 2024. Below is a summary of key updates, including expanded state tax bases, international tax compliance adjustments, and significant court rulings that could impact planning and reporting obligations.
- Expanded State Sales Taxes and E-Commerce Compliance
Many states are broadening their sales tax bases to cover digital goods, services, and environmental taxes, while also introducing new delivery fees on motor vehicle-delivered goods. Nearly 30 states are compensating for reduced income taxes by increasing sales tax rates, making compliance more complex for multistate sellers.
Impact: Businesses selling digital products or offering deliveries may see increased tax obligations across jurisdictions. Compliance tools may be needed to manage variations in state tax rates, delivery fees, and home-rule provisions.
- Foreign Tax Credit (FTC) and Global Minimum Tax Compliance
Stricter FTC regulations require more detailed justification for credits, meanwhile the Organisation for Economic Co-operation and Development’s (OECD) 15% global minimum tax (Pillar Two) is now in effect for large multinational groups, impacting tax obligations across jurisdictions.
Impact: U.S. taxpayers with international operations may face double taxation on foreign income if FTC requirements are unmet. Taxpayers with earnings in low-tax jurisdictions should monitor effective tax rates to prevent exposure to additional “top-up” taxes. Planning is essential to meet these complex criteria and minimize tax burdens.
- IRS Ends Automatic Foreign Gift Reporting Penalties
A major administrative relief comes from the IRS’s decision to end the automatic assessment of penalties for late-filed Form 3520 (Part IV), which reports foreign gifts. On October 24, 2024, IRS Commissioner Danny Werfel announced that the agency would stop this automatic process. Instead, the IRS will now review “reasonable cause” statements attached to late-filed forms before deciding whether to assess a penalty.
Impact: While the obligation to report foreign gifts remains, taxpayers now have an opportunity to explain their circumstances and avoid harsh penalties for inadvertent errors. This is particularly beneficial for individuals who received foreign gifts without clear guidance or notice of the filing requirement.
- Dual Consolidated Loss (DCL) Rule Changes
Proposed regulations limit the ability to use the same loss to offset income in both the U.S. and abroad, aiming to prevent “double-dipping.”
Impact: U.S. businesses with cross-border operations and losses should assess these new DCL rules, as they may reduce certain benefits and increase overall tax obligations.
- Transfer Pricing Adjustments for Simplified Compliance (OECD Pillar One – Amount B)
The OECD’s Pillar One Amount B introduces a streamlined method for pricing low-complexity distribution activities. This optional method will take effect in 2025, but each country can choose whether to adopt it.
Impact: U.S.-based companies with operations abroad should monitor whether relevant jurisdictions have agreed to use this method, which could ease compliance.
- Final Foreign Investment in Real Property Tax Act (FIRPTA) Regulations on Qualified Investment Entities (QIEs)
The IRS finalized rules defining “domestic corporation look-through” requirements for QIEs with over 50% foreign ownership, offering a 10-year transition period for QIEs in existence as of April 25, 2024.
Impact: Real estate investors, especially those using REITs, should evaluate their investment structures under these new rules. The look-through provision impacts how domestic control is determined, potentially affecting FIRPTA tax exposure for foreign-owned U.S. real estate.
- Stricter Treatment of Repatriated Intangible Property (IP) under Section 367(d)
The IRS finalized rules for IP transfers, requiring tax on unrealized gains when IP is repatriated to the U.S.
Impact: U.S. multinationals planning to bring intangible assets, such as patents or trademarks, back to the U.S. may face tax on the gain. This change underscores the need for careful valuation and planning to manage potential tax impacts.
- Foreign Tax Redetermination (FTR) Simplification
The IRS’s Large Business and International (LB&I) Division allows foreign tax redeterminations to be consolidated during audit years, potentially reducing the need for multiple amended returns.
Impact: This streamlining may reduce administrative burdens for U.S.-based multinational companies under audit. These companies can now adjust foreign tax payments within the open audit years, simplifying compliance.
Key Court Rulings in 2024
- Loper Bright Enterprises v. Raimondo
What Happened: A group of fishing businesses challenged rules set by the U.S. Department of Commerce that required them to follow certain practices. They argued that these requirements went beyond what the law actually allowed.
Why It Matters: This case looked at how much authority government agencies, like the IRS, have to interpret laws when they aren’t crystal clear. The court decided that agency interpretations shouldn’t always be followed automatically, especially if they go beyond the original law. For the IRS, this could mean that their interpretations of complex or vague tax laws may be more open to challenges in court, particularly if taxpayers believe the IRS is overstepping its authority. In the future, taxpayers might have a stronger basis for pushing back against IRS rules that don’t seem to align closely with what’s in the tax code.
- Moore v. United States
What Happened: This case dealt with a tax on foreign income from overseas business interests, even if that income wasn’t directly paid out to U.S. shareholders. Some shareholders felt it was unfair to be taxed on income they hadn’t actually received in cash.
Why It Matters: The court decided that it’s constitutional for the U.S. to tax this kind of foreign income, even if it’s not “realized” (i.e., not paid out yet). This ruling is important for U.S. citizens with overseas business interests because it confirms that foreign earnings can be taxed even if they haven’t been brought back to the U.S.
Final Thoughts
The current landscape reflects both regulatory tightening and practical relief. U.S. taxpayers with international exposure should stay proactive with planning and consult qualified advisors to navigate compliance risks and leverage new opportunities.
For assistance with international tax matters, contact Gwayne Lai or Kevin Brown from Anchin’s International Tax Group, or your Anchin Relationship Partner.
