Worldwide: Tax

Recent court rulings are reshaping how the IRS applies the economic substance doctrine to challenge tax transactions, but conflicting judicial interpretations of the relevancy threshold are creating uncertainty for businesses. The Tenth Circuit's decision in Liberty Global and the Tax Court's ruling in Patel reveal divergent approaches to determining when this doctrine applies, leaving taxpayers to navigate inconsistent standards across different jurisdictions.

The U.S. Treasury and IRS have issued proposed regulations addressing a new category of income excluded from deduction eligible income under section 250(b)(3)(A)(i)(VII), which was introduced by the One Big Beautiful Bill Act. These regulations clarify how income from sales of intangible property and certain depreciable assets will be treated under the foreign-derived deduction eligible income regime, with significant implications for software transactions and related party transfers.

The One Big Beautiful Bill Act introduces Section 25F of the Internal Revenue Code, establishing a federal tax credit of up to $1,700 annually for individual taxpayers who contribute to eligible Scholarship Granting Organizations beginning in 2027. States must voluntarily elect to participate and identify qualifying SGOs, which face federal requirements for scholarship distributions, student eligibility verification, accounting practices, audits and reporting obligations. As the U.S. Department of the Treas