In the latest episode of Tax Intelligence with TaxOps, Marc Gordon shares how Colorado’s 2025-2026 taxbills reshape QBI, sales tax on software, and worldwide combined reporting.

Colorado Tax Law Changes: A 2026 SALT Guide

When Congress passed the One Big Beautiful Bill in July 2025, it did more than rewrite the federal code. It set off a chain reaction in every state that automatically follows federal law. Colorado, a rolling conformity state, watched its own tax revenue shrink alongside the federal base, and the state moved fast to close the gap.

This podcast breaks down the Colorado tax law changes that came out of a 2025 special session and the 2026 regular session, and what each one means for multi-state tax compliance. CFOs, controllers, and business owners who need to know what is already on their 2025 return and what to plan for through 2027 will gain insight by listening.

The analysis comes from Marc Gordon, State and Local Tax Senior Manager at TaxOps, who walks through the mechanics of each bill and the planning window they create.

What You’ll Learn

● Why Colorado’s rolling conformity forced the state to act after the One Big Beautiful Bill
● The five special-session bills already in effect for the 2025 and 2026 tax years
● How the QBI add back became permanent and who it hits
● What the new sales tax on software means for buyers and sellers
● Why worldwide combined reporting could help or hurt corporate taxpayers
● The SALT parity election that is still available for 2025 and beyond

Why Colorado Had to Respond to OBBBA Tax Provisions

Colorado is a rolling conformity state, which means state law automatically follows federal income tax changes unless the legislature decouples from a specific provision. When the One Big Beautiful Bill expanded a range of federal deductions, Colorado’s revenue was set to fall right along with it.

The projected damage was severe. Early estimates put the revenue loss as high as $1.2 billion, later revised down to $783 million. Either figure represented a serious budget deficit, so the governor called a special session. In this episode of Tax Intelligence, Marc Gordon highlights all of the ways Colorado has looked to offset this deficit.

The QBI Add Back Becomes Permanent

Federally, Section 199A lets owners of pass-through entities, S-corporations, partnerships, and LLCs deduct up to 20% of their qualified business income. The One Big Beautiful Bill made that deduction permanent.

Since the 2021 tax year, Colorado has required certain high-income taxpayers to add that deduction back on their state return. The add back was always temporary, scheduled to sunset after 2025, and many owners planned around its expiration. House Bill 25B-1001 removed the sunset date and made the add back permanent, mirroring the federal move on Section 199A. If you are a sole proprietor, operate a single-member LLC, receive flow-through income, or hold business-income assets in a trust, this one lands on your return.

Elimination of the Colorado Vendor Fee Allowance (Sales Tax)

For years, Colorado let retailers keep a small slice of the state sales tax they collected as compensation for collecting and remitting on the state’s behalf. This vendor fee was historically 4% of collections, capped at $1,000 per filing period. House Bill 25B-1005 eliminated it beginning January 1, 2026.

Elimination of Sales Tax Exemption for Intangibly Accessed Software (Sales Tax)

The bigger shift comes from House Bill 26-1223, signed in early June 2026 and effective January 1, 2027. It removes the exemption for computer software delivered by any means other than tangible, physical media. Colorado defines computer software as coded instructions designed to make a device perform a task and delivered by any means, including download or remote access, and even flags mobile applications.

Businesses making significant software outlays will feel it immediately. Software expenditures could see a roughly 8% increase for buyers not already paying sales tax in a home rule jurisdiction. Marc Gordon’s guidance is to move early: “no one likes to be blindsided by a price hike on an invoice, especially due to sales tax.” Start the conversations with vendors and customers now.

Worldwide Combined Reporting (Corporate Income Tax)

Colorado now joins the few states that default to combined worldwide reporting rather than following the federal consolidated group of domestic affiliates. An optional Water’s Edge election is available, but it binds the taxpayer for 10 years and renews automatically unless formally withdrawn.

The default is not automatically bad. Foreign affiliates operating at a loss can offset the U.S. tax base, and affiliates with no U.S. sales can dilute the apportionment factor. Flip those facts and the same method raises your Colorado tax. Modeling both scenarios matters, especially where pro forma federal returns, apportionment data, and intercompany eliminations all need rework.

The SALT Parity Election Is Still on the Table (Partnership / Individual Income Tax)

The One Big Beautiful Bill kept the federal SALT deduction cap alive, raising it to $40,000 and setting a January 1, 2030 sunset back to $10,000. In response to the original cap, Colorado enacted the SALT Parity Act, letting a flow-through entity pay the tax on behalf of its partners and pass through the full deduction.

Those provisions contain no sunset language, so the parity election remains available for 2026 and beyond. If you have not used it, the election can still be made for the 2025 tax year, either by filing Colorado form DR-1705 or by checking the box on the DR-0106 and paying the tax with the return.

Listen to the Full Episode

“At TaxOps, absorbing that complexity on behalf of business owners and finance executives is precisely the work we do,” Gordon said. If any of these Colorado changes raise questions for your business, listen to the full episode of Tax Intelligence and reach out to the SALT team at https://taxops.com/contact.

About the Host

Marc Gordon

State and Local Tax Senior Manager Marc Gordon brings over a decade of specialized experience in state and local tax to mid-market businesses across the country. With deep expertise in both income tax and sales and use tax, Marc serves as an outsourced SALT resource for CFOs, controllers and business owners who need a knowledgeable, hands-on partner to manager their most complex and pressing state and local tax challenges.

Marc’s technical range spans the full spectrum of state and local tax needs: income tax compliance, sales and use tax support, nexus and taxability analysis, exposure modeling, voluntary disclosure and amnesty programs, and audit and notice defense. He works across all industries, recognizing that businesses of every kind accumulate state and local tax exposure — and that finding it, resolving it, and charting a clear path forward is where he delivers the most value.

Listen to the full conversation now on Tax Intelligence, or watch on YouTube.

Tax Intelligence with TaxOps

This is the podcast where experienced tax professionals share clear, practical insight on today’s most complex tax issues–from SALT and federal tax strategy to ASC 740, tax minimization, and investment fun considerations. Each month, our experts break down what matters, what’s changing, and how to think strategically about tax–so you can make informed decisions with confidence. Listen today!

About TaxOps

At TaxOps, business tax is all we do. Our teams have the knowledge and focus to solve tax problems with practical tax answers. By hiring our Big Four-veteran leaders and experienced teams, you get tax strategists on your side supporting your strategy wherever business takes you. We deliver the strength, experience, and resources of a national tax brand with the hands-on client engagement of a boutique firm in federal, corporate, state and local and international tax as well as tax minimization strategies for businesses. For an introductory call, visit TaxOps.com/contact.

Read more

• Colorado Tax Law Changes: A 2026 SALT Guide
• Multistate Partnerships: Navigating Various State Taxation Rules of Corporate Partners
• IPO Tax Due Diligence: Identifying Risks, Managing Compliance, and ASC 740 Readiness
• Internal Revenue Service R&D Credit War Stories: Vol 2
• Internal Revenue Service R&D Credit War Stories: Vol 1

The post Colorado Tax Law Changes: A 2026 SALT Guide first appeared on TaxOps.

TaxOps State and Local Tax Senior Manager Marc Gordon and Senior Tax Manager Benjamin Wirth will provide a detailed and practical guide to critical state tax issues and trends impacting partners owning shares of multistate partnerships

Multistate Partnerships: Navigating Various State Taxation Rules of Corporate Partners

Business vs. Non-business Income Characterization, Aggregate vs. Entity Determination, and More

Online Only | 2.0 Credits

Tuesday, September 1st | 11:00 AM MT, 1:00 PM ET

Multistate Partnerships: Navigating Various State Taxation Rules of Corporate Partners

TaxOps State and Local Tax Senior Manager Marc Gordon and Senior Tax Advisor Benjamin Wirth will provide businesses and their tax advisers and professionals with a detailed and practical guide to critical state tax issues and trends impacting partners owning shares of multistate partnerships. They will discuss critical questions such as whether the character of pass-through income is determined at the partner or partnership level and whether the pass-through income must be considered on an “aggregate” basis or an “entity” basis.

Description

Corporate partners in multistate partnerships can’t escape nexus. Among the significant tax challenges these partnerships face is determining whether a partnership creates nexus for a nonresident partner. Nexus may materially impact filing obligations, including combined reporting and P.L. 86-272 positions and throwout and throwback rules.

The character of partnership income, e.g., business or non-business, also must be determined at the partnership level or the partner level. Very few states have issued any guidance on where to make the income determination, and those states that have addressed the question have mixed results.

Because business income must be apportioned, while non-business income must be allocated to the source state, taxation of partnership income varies from state to state. Additional complexities arise depending on whether a state has adopted the “aggregate” or “entity” approach to the apportionment of partnership income. These determinations may materially impact the computation of state blended rates for provision calculations and whether the corporation must remit payment to a particular state.

Likewise, various states have adopted different reporting regimes regarding withholding or composite return obligations. Corporate tax professionals must know the complex rules to avoid adverse tax consequences in multistate partnership scenarios.

Listen as our experienced tax experts offers a comprehensive view of states’ approaches to taxing corporations on multistate partnership income.

After the presentation, there will be a live question and answer session with participants to answer your questions about these important issues directly.

Instructors:

Marc Gordon
State and Local Tax Senior Manager

Marc Gordon brings over a decade of specialized experience in state and local tax to mid-market businesses across the country. With deep expertise in both income tax and sales and use tax, Marc serves as an outsourced SALT resource for CFOs, controllers and business owners who need a knowledgeable, hands-on partner to manager their most complex and pressing state and local tax challenges.

Marc’s technical range spans the full spectrum of state and local tax needs: income tax compliance, sales and use tax support, nexus and taxability analysis, exposure modeling, voluntary disclosure and amnesty programs, and audit and notice defense. He works across all industries, recognizing that businesses of every kind accumulate state and local tax exposure — and that finding it, resolving it, and charting a clear path forward is where he delivers the most value.

Benjamin Wirth
Senior Tax Manager

Ben Wirth is a senior tax manager with over 12 years of public and private experience in partnership and corporation tax issues. He manages the delivery of tax consulting services to a wide range of clients, focusing on flow-through entities, entity structure, and transaction planning.  Ben has prior experience with corporate compliance and income tax reporting under ASC 740. 

Ben provides strategic tax consulting services to businesses at all stages of the business life cycle, from start-up to liquidation, assisting with the analysis of taxable and non-taxable acquisitions, restructuring, monetizing events, and interpreting tax sections in partnership operating agreements.

More Tax News

• Colorado Tax Law Changes: A 2026 SALT Guide
• Multistate Partnerships: Navigating Various State Taxation Rules of Corporate Partners
• IPO Tax Due Diligence: Identifying Risks, Managing Compliance, and ASC 740 Readiness
• Internal Revenue Service R&D Credit War Stories: Vol 2
• Internal Revenue Service R&D Credit War Stories: Vol 1

The post Multistate Partnerships: Navigating Various State Taxation Rules of Corporate Partners first appeared on TaxOps.

TaxOps Partner Lindsay Haskell and Corporate Tax Advisor and Co-Founder Dan DeLau examine critical tax due diligence to prepare for an Initial Public Offering.

IPO Tax Due Diligence

Online Only | 2.0 Credits

Tuesday, August 4 | 11:00 AM MT, 1:00 PM ET

IPO Tax Due Diligence: Identifying Risks, Managing Compliance, and ASC 740 Readiness

TaxOps Corporate Tax Partner Lindsay Haskell and Corporate Tax Advisor and Co-Founder Dan DeLau will provide businesses and their tax advisers with a practical discussion of the critical tax due diligence and reporting considerations companies must address when preparing for an initial public offering (IPO). Register to learn the scope of tax diligence across federal, state, and international jurisdictions for businesses considering an IPO as well as their tax advisers.

Description

Effective IPO readiness requires coordinated planning across tax, finance, legal, and executive functions. Determining practical strategies for establishing and documenting internal controls, ensuring ASC 740 readiness, and supporting complex tax positions are key to facilitating a smooth transition to operating as a public company. Identifying state and local tax exposure, international tax issues, and other potential risk areas early can mitigate future complications.

The panel will cover these and other critical issues:

• Scope and execution of IPO tax due diligence across federal, state, and international jurisdictions
• Identification and remediation of common tax risks, including nexus, indirect tax exposure, and equity compensation issues
• ASC 740 readiness, including tax provision processes, valuation allowances, and financial reporting implications
• Public company requirements for SEC reporting, internal controls, and documentation
• Practical readiness strategies, including cross-functional coordination and implementation of IPO tax checklists

After the presentation, there will be a live question and answer session with participants to answer your questions about these important issues directly.

Instructors:

Lindsay Haskell
Partner, Corporate Tax

Lindsay Haskell has more than 15 years of experience in both public and private accounting, with a focus on corporate income tax provision and compliance, as well as international and state and local tax. She serves as a primary point of contact for clients, leading workflows and managing relationships for dynamic companies worldwide. Lindsay is known for her energy, tenacity, and commitment to delivering practical, client-focused solutions.

Dan DeLau
Partner, TaxOps Minimization

Daniel DeLau is a co-founder of TaxOps and a boomerang to our business tax advisory mission here at TaxOps. Following a promotion to partner at Ernst & Young, Dan co-founded TaxOps to bring all the best of the big firm knowledge to businesses without the bureaucracy. TaxOps today continues to offer the strength, experience, and resources of a national tax brand with the hands-on client engagement of a boutique firm.

More Tax News

• Colorado Tax Law Changes: A 2026 SALT Guide
• Multistate Partnerships: Navigating Various State Taxation Rules of Corporate Partners
• IPO Tax Due Diligence: Identifying Risks, Managing Compliance, and ASC 740 Readiness
• Internal Revenue Service R&D Credit War Stories: Vol 2
• Internal Revenue Service R&D Credit War Stories: Vol 1

The post IPO Tax Due Diligence: Identifying Risks, Managing Compliance, and ASC 740 Readiness first appeared on TaxOps.

In this episode of Tax Intelligence with TaxOps, Mark Dunning and Sean Espy continue their conversation from the front lines of the IRS R&D credit controversy.

When the IRS Thinks It Owns Your R&D Credit

For ten years, one software company waited. Not for a product launch or a market shift, but for the IRS to stop insisting that its externally facing, customer-used software was “internal use software.” The government itself was a paying customer on the platform. The examination still dragged on for a decade, accruing a decade of interest along the way. That story, and several others like it, anchors the second volume of the TaxOps conversation on R&D credit war stories with the IRS.

In this episode, TaxOps professionals Mark Dunning and Sean Espy trade hard-won field notes on what it actually takes to claim and defend the research credit. The through line is uncomfortable but useful for any CFO, controller, or VP of tax: the law is broad, the credit is legitimate, and the fight to keep it is often less about the code than about who is sitting across the table from you.

Guardians of the Treasury, or Gatekeepers of the Law

Dunning’s ten-year software examination captures a mindset that tax leaders will recognize. When his team pushed back on a full disallowance, the response from the agency was that they were “the guardians of the treasury for the government.” His rebuttal reframed the entire premise.

“We also are Americans,” Dunning recounts telling them. “And you are not allowing the law to be what it should be and allowing the treasury funds to be where they should be.”

The point is not anti-government. It is that the R&D credit exists by design. Congress built it to incentivize companies to keep engineers in the United States. When an examiner stalls, delays, or disallows reflexively because “it’s your money,” they are not protecting the treasury. They are ignoring the intent of the statute. As Dunning puts it: “It’s not your money. It’s the government’s money. It’s the treasury money. It’s America’s money.”

Aggressive Versus Conservative Is Not a Marketing Slogan

Much of the conversation turns on a distinction that gets blurred in sales pitches: the difference between a firm doing a more complete job and a firm simply taking a more aggressive position.

Espy, who has worked inside two of the Big Four, a large firm, and now a boutique, walks through where that aggressiveness actually lives. It shows up in fee structures, where the Ridgely v. Commissioner case created a narrow, fact-specific opening for contingent fees after Sarbanes-Oxley effectively killed them in 2002. It shows up in how firms read the software regulations, including the two competing 2001 rule sets that the IRS once let taxpayers choose between, and the later regulations that freed much software from the internal use software three-part test. And it shows up in engineering and construction, where the “prototype” argument, borrowed from fields like aerospace, gets stretched to cover a first-of-its-kind building.

The problem, Dunning notes, is that VPs of tax and tax directors rely on their advisors to tell them the truth about risk. An aggressive firm reframes caution as incompetence:

“Oh, you’ve got a small firm like TaxOps doing it. What do they know? We’re a big four firm. We can double the credit.”

In one case, a new VP of tax “was drinking the Kool-Aid” of a Big Four firm that promised to double a long-standing, fully documented credit, without even reviewing the existing study. TaxOps had time-reporting systems and a full listing of every credentialed engineer and technician in the company. “There is no way they could double the credit,” Dunning says. Two simultaneous IRS examination teams began comparing notes, and the agents signaled they found the conservative, well-supported study reasonable. TaxOps still got removed from the engagement before the outcome played out. The lesson for tax leaders is blunt: listen to everyone, and learn to spot who is aggressive and who is not.

The States Are Their Own Battlefield

If the IRS feels inconsistent, the states are a genuinely mixed bag, and budgets often drive behavior more than the technical merits.

● California’s Franchise Tax Board is described as aggressive, on par with the IRS, chasing high-dollar credits even in cases the IRS had already reviewed and passed on.
● Texas has swung from disallowing software, statistical samples, and anything that was not a tangible product, toward revised regulations that now allow more to qualify.
● Ohio stood up an R&D task force to review claims and began disallowing more credits against its CAT tax.
● Arizona long refused the alternative simplified credit despite conforming language, until cases forced the issue and it was finally codified. Utah traveled a similar road years earlier.

Then there is Iowa. A refundable credit meant the state paid taxpayers back even when they owed no tax. When Google built server farms in the state, companies with almost no Iowa headcount suddenly generated large lease computer cost credits, because that is where the developmental work was physically running. Iowa pushed back, then changed its law to disallow leasehold computer costs entirely. As Espy’s broader point makes clear, “you have to really stay up to date with the states, and understand that they may change their positioning for various reasons.”

Reserve the Gray, Fight for the Clean

The most practical takeaway is a strategy Espy used on a cement company audit. The team identified roughly 25 percent of the credit as sitting in the more aggressive bucket and reserved for it. During the exam, they answered the IRS information document requests as expected, defended the clearly qualifying activities, and let the agency focus on the gray. The audit settled at 75 percent, exactly what the reserve anticipated.

The philosophy: do not play the audit lottery. Build the study as if the IRS will show up, because “more likely than not” is a standard you meet up front, not later. And know what you are paying for. If your provider does not identify and organize your work by business component, you are exposed. As Dunning notes, the first IRS information document request for an R&D credit is organized by business component. “If your study is not being done by business component, you didn’t pay for anything.”

Why This Conversation Matters

The credit is real. It belongs to companies that do qualifying work, and the gray areas of Section 41 are worth claiming when the law supports them. But hiding under the cloak of a big-name firm does not insulate a taxpayer. Preparer penalties can bust the provider, and the taxpayer still absorbs the consequences, including years of continuous audit. The durable advantage is trust built with the IRS by doing the right thing, then outlasting an agency that acts as if it has unlimited time.

Listen to the Full Episode

Mark Dunning and Sean Espy cover far more ground than any summary can hold, from Circular 230 obligations to deliverable timing and the real cost of overhead you never see. Listen to the full episode of TaxOps at tax-intelligence.captivate.fm/listen and bring sharper questions to your next R&D credit conversation.Visit https://taxops.com/ to learn more.

About the Hosts

Mark Dunning — Partner, Tax Ops Minimization. Mark Dunning is the managing partner of TaxOps Minimization, where he leads an experienced team in implementing tax-saving projects. He has developed deep technical knowledge of the research credit across all industries, including automotive, engineering, medical, manufacturing and software. Mark is an accomplished negotiator with the Internal Revenue Service and state tax authorities, and has built a positive rapport with field agents across the country. He managed four of the 23 Pre-Filing Agreement projects granted and closed by the IRS in the research credit area. He has also consulted and closed on several IRS and state audit and appeals cases, including the successful completion of two IRS research credit record-keeping agreement projects.

Sean Espy — Sean is a Partner at TaxOps Minimization, bringing more than 25 years of consulting experience spanning public accounting, legal, and industry settings to complex tax minimization engagements. With his experience at top tier public accounting firms, Sean brings a rare combination of technical depth and practical insight to research credit studies. In addition to his consulting, Sean has represented clients before the IRS and state tax authorities in California, Colorado, Kansas, Kentucky, Minnesota, Montana, Ohio, Texas and Utah.

Listen to the full conversation now on Tax Intelligence, or watch on YouTube.

Tax Intelligence with TaxOps

This is the podcast where experienced tax professionals share clear, practical insight on today’s most complex tax issues–from SALT and federal tax strategy to ASC 740, tax minimization, and investment fun considerations. Each month, our experts break down what matters, what’s changing, and how to think strategically about tax–so you can make informed decisions with confidence. Listen today!

About TaxOps

At TaxOps, business tax is all we do. Our teams have the knowledge and focus to solve tax problems with practical tax answers. By hiring our Big Four-veteran leaders and experienced teams, you get tax strategists on your side supporting your strategy wherever business takes you. We deliver the strength, experience, and resources of a national tax brand with the hands-on client engagement of a boutique firm in federal, corporate, state and local and international tax as well as tax minimization strategies for businesses. For an introductory call, visit TaxOps.com/contact.

Read more

• Colorado Tax Law Changes: A 2026 SALT Guide
• Multistate Partnerships: Navigating Various State Taxation Rules of Corporate Partners
• IPO Tax Due Diligence: Identifying Risks, Managing Compliance, and ASC 740 Readiness
• Internal Revenue Service R&D Credit War Stories: Vol 2
• Internal Revenue Service R&D Credit War Stories: Vol 1

The post Internal Revenue Service R&D Credit War Stories: Vol 2 first appeared on TaxOps.

In this episode of Tax Intelligence with TaxOps, Mark Dunning and Sean Espy trade hard-won stories from the front lines of IRS R&D credit controversy.

Inside the IRS R&D Credit Wars: Lessons From the Audit Room

For tax professionals who claim the research and development credit, an audit is rarely a clean transaction. It can become a war of attrition. Engineers rotate off cases. Opening positions start at zero. Interviews stretch for hours. And the company that did the actual innovating often has to prove, line by line, that its work was real. In Episode 4 of the TaxOps podcast, Mark Dunning and Sean Espy of TaxOps trade hard-won lessons from inside that fight, and the picture they paint is both sobering and, in its own way, hopeful.

This is not a complaint session. It is a field guide. Between the two of them, Dunning and Espy carry decades of experience across Big Four firms and now TaxOps, and the patterns they describe will be familiar to any CFO, controller, or tax director who has watched a legitimate credit get challenged for reasons that have little to do with the law.

A History Written in Cycles

Espy frames the conversation around a simple truth: IRS enforcement of the R&D credit moves in waves. With more than 26 years in the field, he has watched the agency swing from reasonable to aggressive and back again.

One low point came in the late 2000s, when the agency’s effective opening position on many exams was that essentially nothing a taxpayer claimed qualified for the credit at all. That pressure eventually produced reform, including the ASC 730 safe harbor tied to a later IRS industry directive. By the early 2010s, the agency had rebranded itself as the “kinder, gentler IRS,” and practitioners exhaled.

Then it turned again. In recent years, the IRS retired a large share of its specialized engineering corps — once numbering in the hundreds — and replaced them with newer hires, often pulled directly from industry. That churn created problems, including potential conflicts of interest when examiners are assigned to companies they recently worked for. Newer engineers were frequently trained on positions that did not reflect the actual law, defaulting to the idea that there is no research credit unless you are “creating the wheel.”

The encouraging note: Espy believes the cycle is turning back. More recently, he says, examiners are learning that the reflexive zero position simply isn’t sustainable.

The Long Game

Some of the most instructive lessons come from audits that drag on for years, moving from exam into appeals and through round after round of technical interviews. A recurring theme: examiners may try to reframe genuine design uncertainty as routine work — “you knew what you were going to do; there was no uncertainty there.” The defense team’s job is to interrupt, correct the record, and get the company’s own engineers to affirm that technical uncertainty on the record, since uncertainty is one of the four parts of the credit’s qualification test.

Protecting the record matters. Lengthy technical interviews — sometimes captured by a stenographer — become the evidence that a credit was earned. Procedural discipline shapes outcomes, and cases that look stuck at exam can shift dramatically once they reach appeals.

Bring the Adults to the Room

If there is one tactical takeaway both men return to, it is escalation. Espy calls it “bringing the adults to the room” — going past a line engineer to case managers, territory managers, engineering managers, and higher when a single examiner refuses to engage.

Dunning has lived the same reality. Even in processes designed to be collaborative, practitioners sometimes encounter examiners who treat disallowance as a default and resist any movement. The right move, Dunning says, is not to waste another minute: go straight up the chain.

He adds a note of finesse on the human dynamics. Practitioners often present highly credentialed company engineers — people with patents and advanced degrees — but the trick is doing so without humiliating the examiner. “You can’t offend,” he says, “but you have to sit there and say, hey, this is amazing stuff.”

Turnover, Fast Track, and a Stretched Agency

A recurring villain in these stories is churn. Cases can cycle through many engineers over several years, often leaving a single examiner dug into a zero position with little memory of what came before.

That same understaffing is reshaping strategy. Both men long avoided fast track, wary of being held to an unsupported low percentage. But mass hiring followed by mass attrition has left the agency overloaded, with case inventory running hot. More recently, higher-ups have signaled a push to settle simply because inventory is so high. Fast track still has limits — conflicting facts in a file can lead an appeals officer to kick a case out — but the leverage has shifted.

Documentation Is the Whole Game

Underneath the war stories sits a quieter discipline: the study itself. Espy is blunt that weak work — guesstimating a credit and failing to document it — produces bad cases that hurt everyone. The TaxOps standard, Dunning explains, is building “audit ready” files organized by business component, without over-engineering work a client may never need.

And one rule has held for decades, passed down from a former IRS attorney: never simply hand over all of your binders at once. Do that, and examiners will reissue requests for the same information, then distort the details or fill in the gaps.

The Bigger Picture

For all the friction, both advocates keep returning to purpose. The credit exists, Espy insists, to encourage companies “to go where no one has gone before” — to keep innovation and jobs in the United States. The goal of any audit, Dunning argues, should be the right answer, not a reflexive zero.

For tax leaders, the message is clear: keep standing, document relentlessly, and escalate when an examiner refuses to engage.

Listen to the Full Episode

Listen to Volume 1 of IRS R&D credit war stories, including the case where a company’s own acquisition wiped out a seven-figure credit before the audit even mattered. Visit https://taxops.com/ to learn more.

About the Hosts

Mark Dunning — Partner, Tax Ops Minimization. Mark Dunning is the managing partner of TaxOps Minimization, where he leads an experienced team in implementing tax-saving projects. He has developed deep technical knowledge of the research credit across all industries, including automotive, engineering, medical, manufacturing and software. Mark is an accomplished negotiator with the Internal Revenue Service and state tax authorities, and has built a positive rapport with field agents across the country. He managed four of the 23 Pre-Filing Agreement projects granted and closed by the IRS in the research credit area. He has also consulted and closed on several IRS and state audit and appeals cases, including the successful completion of two IRS research credit record-keeping agreement projects.

Sean Espy — Sean is a Partner at TaxOps Minimization, bringing more than 25 years of consulting experience spanning public accounting, legal, and industry settings to complex tax minimization engagements. With his experience at top tier public accounting firms, Sean brings a rare combination of technical depth and practical insight to research credit studies. In addition to his consulting, Sean has represented clients before the IRS and state tax authorities in California, Colorado, Kansas, Kentucky, Minnesota, Montana, Ohio, Texas and Utah.

Listen to the full conversation now on Tax Intelligence, or watch on YouTube.

Tax Intelligence with TaxOps

This is the podcast where experienced tax professionals share clear, practical insight on today’s most complex tax issues–from SALT and federal tax strategy to ASC 740, tax minimization, and investment fun considerations. Each month, our experts break down what matters, what’s changing, and how to think strategically about tax–so you can make informed decisions with confidence. Listen today!

About TaxOps

At TaxOps, business tax is all we do. Our teams have the knowledge and focus to solve tax problems with practical tax answers. By hiring our Big Four-veteran leaders and experienced teams, you get tax strategists on your side supporting your strategy wherever business takes you. We deliver the strength, experience, and resources of a national tax brand with the hands-on client engagement of a boutique firm in federal, corporate, state and local and international tax as well as tax minimization strategies for businesses. For an introductory call, visit TaxOps.com/contact.

Read more

• Colorado Tax Law Changes: A 2026 SALT Guide
• Multistate Partnerships: Navigating Various State Taxation Rules of Corporate Partners
• IPO Tax Due Diligence: Identifying Risks, Managing Compliance, and ASC 740 Readiness
• Internal Revenue Service R&D Credit War Stories: Vol 2
• Internal Revenue Service R&D Credit War Stories: Vol 1

The post Internal Revenue Service R&D Credit War Stories: Vol 1 first appeared on TaxOps.

TaxOps Partner Lindsay Haskell and Corporate Tax Advisor Dan DeLau discuss what CFOs and Controllers Should Be Asking About Audited Financial Statements

Auditor Independence in the Age of Private Equity Roll-Ups

A CFO sits across from a longtime audit partner. The engagement letter on the table bundles audit, tax provision work, and a 401(k) audit into a single fee. It looks efficient. It feels reasonable. And it quietly hands a piece of management’s own responsibility back to the firm that is supposed to be checking the work. That scenario, increasingly common in private and private-equity-backed companies, is exactly the kind of arrangement Lindsay Haskell and Dan DeLau, partners at TaxOps, want finance leaders to interrogate.

In a recent episode of Tax Intelligence with TaxOps, Haskell and DeLau took on auditor independence: what it means, why it eroded, and why the rise of private equity inside the CPA industry itself is forcing CFOs to ask harder questions than they have in two decades.

A Brief History: Why Sarbanes-Oxley Still Matters

Auditor independence is not an abstraction. It was forged in scandal. Enron, WorldCom, and Tyco produced the Sarbanes-Oxley Act of 2002 and, with it, hard limits on what an audit firm could do for its public-company clients. The central principle was simple: an auditor cannot audit its own work.

Before SOX, the same firm routinely prepared a company’s tax provision and then audited the financial statements that contained it. As DeLau described from personal experience, “the audit team would come in, and from what I saw to a large extent, it was like, well, we already had the professionals that are familiar with this, the tax team, they’ve already prepared it. So we’re just going to incorporate those numbers into the financial statements.”

SOX put a hard stop to that for public companies. For a stretch of years, many private companies voluntarily held themselves to similar standards, particularly those positioning for an IPO. “IPO readiness” became shorthand for adopting public-company discipline regardless of current filing status.

Then the market shifted.

The Private Equity Shift And Why It Changed The Conversation

As private equity has rolled up companies across nearly every sector, the IPO-readiness mindset has faded. Fewer private companies are preparing themselves to live under SEC scrutiny, and the implicit pressure to mirror public-company controls has weakened. Haskell put it plainly: the conversation about auditor independence “doesn’t feel like it’s talked about during the audit process itself, even.”

That drift might be tolerable if the audit industry itself were standing still. It is not.

Private equity has now moved into the CPA profession. Because audit practices must remain CPA-owned, firms have restructured: the audit business stays under licensed ownership, while non-audit lines such as tax, advisory, and consulting absorb the private equity capital. Baker Tilly’s acquisition of Moss Adams, backed in part by private equity, is one widely reported example. DeLau noted that he recently received an email from a partner at a firm taking on private equity funding, and the signature line identified the company as “not a CPA firm.”

The implications deserve attention. Private equity exists to generate returns. When an audit firm’s adjacent service lines are owned by investors whose primary mandate is profit, the question DeLau raised is unavoidable: “Are they really looking out for my best interest in everything that happens?”

The Tax Provision Problem

This is where the conversation gets concrete and where finance leaders most often miss the risk.

The income tax provision is a footnote to the audited financial statements. Preparing it, including the journal entries, the rate reconciliation, and the footnote itself, is management’s responsibility. The audit firm’s job is to audit that work, not perform it.

And yet Haskell described a pattern she is seeing repeatedly: companies switching audit firms to reduce cost, and the new firm bundling tax provision work, tax compliance, and even 401(k) audits into a single engagement. “They bundled all the fees together,” she said, “and basically said, here’s the fee for your audit, which included tax, 401k audit.”

On the surface, it reads as a cost win. Underneath, the company has just agreed to let its auditor prepare a material component of its own financial statements, then audit it. For a public company, that arrangement is prohibited. For a private company, it is permitted but it is still management’s responsibility, and the risk has not gone away.

Haskell described one CFO who saw it instantly. New to his role, he reviewed the proposed engagement letter, struck the tax provision scope, and told the firm he would sign for the audit only. He took the tax work elsewhere. That instinct, Haskell and DeLau argue, should be more common than it is.

ASU 2023-09: Why The Footnote Just Got More Visible

The stakes around the provision are about to rise. FASB’s ASU 2023-09 took effect for public companies in 2025 and applies to private companies in 2026. The standard requires expanded income tax disclosures, including a more granular rate reconciliation in both dollars and percentages, and detail on income taxes paid by jurisdiction.

Critically, it puts public and private companies on roughly the same disclosure footing. Private companies that historically published thinner tax footnotes will now disclose information they may never have surfaced before. The underlying calculations should already exist inside a well-run provision. The footnote simply makes more of that work visible to readers, lenders, investors, and acquirers.

That visibility is one more reason management should own the provision rather than outsource it to the firm auditing it.

What CFOs And Controllers Should Be Asking Now

Haskell and DeLau are not declaring that every bundled engagement is improper. They are arguing that finance leaders should be asking questions that, for the most part, have stopped being asked. Among them:

● Is our audit firm independent in fact, not just in form?

● Who actually prepares our tax provision, and who reviews it?

● If our audit firm is private-equity-backed on the non-audit side, how does that influence the services they recommend?

● Are bundled fee proposals genuinely cost-saving, or are they trading independence for convenience?

● Do we have the internal capability, or an independent third party, to own the provision as management is required to?

As DeLau put it, “What does that relationship look like? What do I want it to look like? And what is in the best interest of the company that I’m serving?”

Those are the questions Sarbanes-Oxley forced into boardrooms a generation ago. They are worth asking again.

Listen to the Full Episode

Hear the full conversation between Lindsay Haskell and Dan DeLau on Tax Intelligence with TaxOps for a deeper look at auditor independence, the private equity shift inside the CPA profession, and what ASU 2023-09 means for your next provision cycle. Visit https://taxops.com/ to listen and to explore how TaxOps supports CFOs, controllers, and tax leaders with independent provision and advisory work.

About the Hosts

Lindsay Haskell — Partner, Corporate Tax. Lindsay Haskell has more than 15 years of experience in both public and private accounting, with a focus on corporate income tax provision and compliance, as well as international and state and local tax. She serves as a primary point of contact for clients,  leading workflows and managing relationships for dynamic companies worldwide. 

Dan DeLau — Corporate Tax Adviser. Daniel DeLau is a co-founder of TaxOps and a boomerang to the business tax advisory mission at TaxOps. Following a promotion to partner at Ernst & Young, Dan co-founded TaxOps to bring all the best of the big firm knowledge to businesses without the bureaucracy. Dan gained significant experience in international and domestic accounting and tax transactions within a U.S. corporate environment working for international accounting firms, and as tax director of multiple public and private companies, each with extensive and complex operations throughout the United States and internationally. 

Listen to the full conversation on Tax Intelligence, available now.

Tax Intelligence with TaxOps

This is the podcast where experienced tax professionals share clear, practical insight on today’s most complex tax issues–from SALT and federal tax strategy to ASC 740, tax minimization, and investment fun considerations. Each month, our experts break down what matters, what’s changing, and how to think strategically about tax–so you can make informed decisions with confidence. Listen today!

About TaxOps

At TaxOps, business tax is all we do. Our teams have the knowledge and focus to solve tax problems with practical tax answers. By hiring our Big Four-veteran leaders and experienced teams, you get tax strategists on your side supporting your strategy wherever business takes you. We deliver the strength, experience, and resources of a national tax brand with the hands-on client engagement of a boutique firm in federal, corporate, state and local and international tax as well as tax minimization strategies for businesses. For an introductory call, visit TaxOps.com/contact.

Read more

• Colorado Tax Law Changes: A 2026 SALT Guide
• Multistate Partnerships: Navigating Various State Taxation Rules of Corporate Partners
• IPO Tax Due Diligence: Identifying Risks, Managing Compliance, and ASC 740 Readiness
• Internal Revenue Service R&D Credit War Stories: Vol 2
• Internal Revenue Service R&D Credit War Stories: Vol 1

The post Auditor Independence in the Age of Private Equity: What CFOs Need to Know first appeared on TaxOps.

TaxOps Partners Jamie Overberg and Sean Espy share their expertise on R&D Credits for Software Companies in this live webinar.

R&D Credits for Software Companies

Online Only | 2.0 Credits

Tuesday, June 9 | 11:00 AM MT, 1:00 PM ET

Big Changes for Software Developers: Navigating R&D Credits in the OBBBA Era

TaxOps Partners Jamie Overberg and Sean Espy will provide businesses and their tax advisers with a practical discussion of how the R&D tax credit applies to software development activities. Topics covered include Section 41 criteria for R&D credits, credit requirements for non-internal-use software vs. internal-use software (IUS), and review new Section 174 considerations for software companies in light of the OBBBA (One Big Beautiful Bill Act).

Description

The R&D credit offers valuable benefits to all companies; however, software developers must meet specific requirements to qualify. All software must satisfy a four-part test to be eligible for the R&D credit under IRC Section 41. In addition to the four-part test for software, IUS must also satisfy a three-part high-threshold innovation test under Treasury Regulation Section 1.41-4(c)(6). For IUS, a taxpayer must establish that:

(1) The software is innovative;

(2) The software development involves significant economic risk; and

(3) The software is not commercially available for use by the taxpayer in that the software cannot be purchased, leased, or licensed and used for the intended purpose without modifications… .

Tax practitioners and software companies must also consider the OBBBA revisions to Section 174 expenses. Formerly, TCJA removed the ability to expense R&D costs and required amortization of these expenditures. Most software companies, having historically expensed these costs, were significantly impacted by this legislation. Recently, the OBBBA restored the ability to expense R&D costs. However, transitioning from the old rules to the new requirements can be complicated. Recouping these lost deductions requires deducting prior unamortized costs over 1-2 years, amending tax returns, or expensing these deductions retroactively.

Additionally, many states have decoupled from OBBBA, adding another layer of complexity to these determinations. Software developers and their tax advisers need to understand the nuances of the R&D credit and Section 174 changes to take advantage of these tax-saving opportunities. 

Listen as our knowledgeable federal tax experts breaks down the requirements for the R&D credit and Section 174 expenses for software developers and their advisers.

They will cover these and other critical issues:

• The impact of OBBBA on Section 174 deductions
• Software development activities that qualify for the R&D credit
• R&D tax credit computation methods: what to consider and the history of each approach
• Preparing and collecting documentation for audit readiness

After the presentation, there will be a live question and answer session with participants to answer your questions about these important issues directly.

Instructors:

Jamie Overberg
Partner, TaxOps Minimization

With over 20 years of Research & Development (R&D) credit experience, Jamie specializes in executing and managing all aspects of the R&D tax credit as well as a wide range of tax minimization strategies and financial reporting requirements under ASC 730, ASC 740 and Fin 48. Jamie also works with Section 263A and Section 382 analysis, calculations, and reporting. She works primarily with clients in the automotive, engineering, manufacturing, software, biotech and oil and gas sectors, and has worked on numerous R&D tax controversy engagements.

Sean Espy
Partner, TaxOps Minimization

Sean brings more than 25 years of consulting experience spanning public accounting, legal, and industry settings to complex tax minimization engagements. With his experience at top tier public accounting firms, Sean brings a rare combination of technical depth and practical insight to research credit studies.

Sean specializes in the identification and implementation of Research Credit Consulting. He has successfully implemented studies across a wide range of industries, including software, manufacturing, financial services, aerospace, software, food sciences, mining, medical devices, oil and gas refining, restaurant and retail, and renewal energies.

More Tax News

• Colorado Tax Law Changes: A 2026 SALT Guide
• Multistate Partnerships: Navigating Various State Taxation Rules of Corporate Partners
• IPO Tax Due Diligence: Identifying Risks, Managing Compliance, and ASC 740 Readiness
• Internal Revenue Service R&D Credit War Stories: Vol 2
• Internal Revenue Service R&D Credit War Stories: Vol 1

The post R&D Credits for Software Companies: Scrum Teams, Qualifiers, and Section 174 After OBBBA first appeared on TaxOps.

TaxOps Partners Jamie Overberg and Sean Espy navigate the State By State Decoupling from Federal Section 174 Capitalization Rules

Section 174 Decoupling: What Every Tax Professional Needs to Know

If you are filing state tax returns this spring and assuming the rules around Section 174 capitalization are settled, think again. The landscape is shifting so fast that even state departments of revenue cannot keep up. That is the central warning from a new episode of the TaxOps podcast, where partners Jamie Overberg and Sean Espy unpack the state-by-state chaos surrounding 174 decoupling.

The result is a candid, deeply informed conversation that every tax professional, CFO, and controller navigating multi-state compliance needs to hear.

The Research Problem No One Is Talking About

Here is the uncomfortable truth: no two sources agree on how many states have decoupled from federal Section 174 capitalization rules. Jamie Overberg puts it bluntly during the episode: “Google, GPT will tell you one answer. I’ve listened to a presentation from Deloitte and they had a map. I’ve seen a map of states that have decoupled from PwC and it doesn’t match what we had.”

The count hovers somewhere between 20 and 30 states, but the number keeps moving. States have been issuing guidance late, reversing positions, and in some cases, their own departments of revenue lack clarity on where things stand. “We’ve found sometimes if you contact the DOR that says, ‘Are you guys doing this?’ They don’t even know,” Overberg notes.

For practitioners filing returns right now, this means the only reliable approach is going directly to each state’s website for the most current guidance, and even then, exercising extreme caution.

The District of Columbia Standoff

Perhaps the most dramatic example of the current volatility involves the District of Columbia. DC passed a law decoupling from both individual and corporate provisions under OBBA, a move that hit particularly hard given its concentration of tipped and overtime workers. The federal government responded by telling DC it could not opt out of OBBA. DC fired back with a lawsuit.

“I honestly don’t even know where that stands,” Overberg admits. It is a telling moment: when a seasoned tax professional cannot pin down the status of a major jurisdiction’s conformity, you know the terrain is genuinely unstable.

Arizona: A Case Study in Legislative Whiplash

Arizona offers a textbook example of how quickly things can change. The governor initially issued an executive order decoupling from both individual and corporate provisions. The legislature then wrote a bill to conform. The governor vetoed it. Negotiations followed, resulting in a compromise: decouple from corporate provisions, but conform on the individual side.

This kind of back-and-forth is playing out across the country, and it underscores why tax professionals cannot rely on a single snapshot in time.

Why States Are Decoupling (and Why Some Are Not)

The pattern is largely fiscal. “It’s kind of been the states that have the worst budget crunches that are the ones that are decoupling,” Overberg explains. States need revenue, and requiring companies to capitalize research expenditures at the state level, even when federal rules no longer demand it, generates taxable income.

Colorado offers a notable exception. Despite facing a billion-dollar budget shortfall, the state chose not to decouple. Overberg attributes this to the governor’s centrist approach and willingness to ease the burden on taxpayers, particularly lower-wage earners affected by tip and overtime taxation.

The 174 Compliance Trap

Sean Espy raises a critical point that many companies overlook: Section 174 applies wherever technical uncertainty exists, which can be anywhere. Unlike the R&D tax credit, which requires qualified research expenditures in a specific state, 174 captures a broader universe of costs, especially after 174A expanded the definition to include all software development expenses.

“The states are certainly allowing, or requiring rather, any activities outside of the state to be included in your 174,” Espy explains. For companies with operations spanning multiple jurisdictions, this creates a compliance obligation that cannot be ignored simply because they would prefer not to claim R&D.

The silver lining: now that federal capitalization is no longer required, companies are more willing to embrace R&D claims. As Overberg observes, “If they only have a 5% apportionment in Arizona, it’s not going to hurt them as much.”

State Credit Changes Worth Watching

Beyond 174 decoupling, the episode covers several significant state-level credit changes:

● California has finally adopted the Alternative Simplified Credit, though at lower rates (3% with a three-year base, 1.3% without). One catch: switching back to the regular credit method requires a formal methods change, unlike the federal election which can shift year to year.

● Michigan has restored its research credit, but with tight deadlines (April 1 this year, moving to March 15 next year) and a calendar-year-only requirement that creates complications for fiscal year filers. The state’s $100 million budget will be divided proportionally among applicants.

● Oklahoma has launched a “research rebate” that appears to be refundable, with a budget of approximately $30 million and a first-come, first-served application window of just one week.

● Texas has increased its credit rate from 5% to 8.6% and eliminated the outdated discovery test, updating its static conformity date to January 1, 2025.

● Minnesota now offers a partially refundable credit, creating potential cash benefits for companies with losses.

● Iowa has re-included supplies and lease computer costs in its credit, but now requires pre-application and certification before claiming.

The International Wrinkle

As the conversation wraps up, Espy delivers one final reminder that is easy to overlook amid the domestic chaos: Section 174 capitalization for international R&D activities still applies. Companies conducting research overseas must still account for those costs on their returns, regardless of what has changed domestically.

What This Means for Your Filing Strategy

The message from Overberg and Espy is clear: do your research, verify it against the most current state guidance, and have your numbers ready. Modeling calculations across multiple scenarios, particularly when considering interactions with AMT, FDII, and NOL limitations, is not optional. It is essential.

“We live in a wild, wild west era right now,” Overberg says. She is not exaggerating.

Listen to the full episode of the TaxOps podcast for the complete conversation between partners Jamie Overberg and Sean Espy, including detailed examples and practical guidance for navigating this unprecedented compliance landscape.

About the Hosts

Jamie Overberg — Partner, TaxOps Minimization. Jamie has more than 20 years of R&D tax credit experience, with deep expertise in credit execution, tax minimization strategies, and ASC 730/740 and FIN 48 reporting. She previously spent 13 years at Ernst & Young, including a national role in E&Y’s Washington, D.C. R&D practice.

Sean Espy — Partner, TaxOps Minimization. Sean brings more than 25 years of consulting experience across public accounting, legal, and industry, specializing in Research Credit consulting. He has represented clients before the IRS and state tax authorities in nine states and is admitted to the U.S. Tax Court and the Supreme Court of the United States.

Listen to the full conversation on Tax Intelligence, available now.

Tax Intelligence with TaxOps

This is the podcast where experienced tax professionals share clear, practical insight on today’s most complex tax issues–from SALT and federal tax strategy to ASC 740, tax minimization, and investment fun considerations. Each month, our experts break down what matters, what’s changing, and how to think strategically about tax–so you can make informed decisions with confidence. Listen today!

About TaxOps

At TaxOps, business tax is all we do. Our teams have the knowledge and focus to solve tax problems with practical tax answers. By hiring our Big Four-veteran leaders and experienced teams, you get tax strategists on your side supporting your strategy wherever business takes you. We deliver the strength, experience, and resources of a national tax brand with the hands-on client engagement of a boutique firm in federal, corporate, state and local and international tax as well as tax minimization strategies for businesses. For an introductory call, visit TaxOps.com/contact.

Read more

• Colorado Tax Law Changes: A 2026 SALT Guide
• Multistate Partnerships: Navigating Various State Taxation Rules of Corporate Partners
• IPO Tax Due Diligence: Identifying Risks, Managing Compliance, and ASC 740 Readiness
• Internal Revenue Service R&D Credit War Stories: Vol 2
• Internal Revenue Service R&D Credit War Stories: Vol 1

The post Section 174 Decoupling: What Tax Pros Need To Know State By State first appeared on TaxOps.

TaxOps welcomes Sean Espy as Partner in Tax Minimization

We are pleased to announce that Sean Espy has joined TaxOps Minimization as Partner. Sean brings more than 25 years of consulting experience spanning public accounting, legal, and industry settings — including Big Four public accounting and in-house tax department leadership — giving him a rare ability to understand and navigate complex tax challenges from both sides of the table.

Sean specializes in Research Credit Consulting, having successfully guided hundreds of clients — large, small, and mid-size — across a wide range of industries, including software, manufacturing, financial services, aerospace, food sciences, mining, medical devices, oil and gas refining, restaurant and retail, and renewable energies. His work has generated hundreds of millions of dollars in savings for clients throughout the U.S.

As Partner, Sean will lead firm operations, manage strategic growth, and develop our team. He will drive business development while upholding the standard of service TaxOps clients expect. Known for building relationships that endure long beyond individual engagements, Sean welcomes the opportunity to be of service.

About TaxOps

At TaxOps, business tax is all we do. Our teams have the knowledge and focus to solve tax problems with practical answers. By hiring Big Four-veteran leaders and experienced teams, you get tax strategists on your side — wherever business takes you. We deliver the strength, experience, and resources of a national tax brand with the hands-on client engagement of a boutique firm, across federal, corporate, state and local, and international tax, as well as tax minimization strategies for businesses. For an introductory call, visit TaxOps.com/contact.

Read more

• Colorado Tax Law Changes: A 2026 SALT Guide
• Multistate Partnerships: Navigating Various State Taxation Rules of Corporate Partners
• IPO Tax Due Diligence: Identifying Risks, Managing Compliance, and ASC 740 Readiness
• Internal Revenue Service R&D Credit War Stories: Vol 2
• Internal Revenue Service R&D Credit War Stories: Vol 1

The post TaxOps Welcomes Sean Espy as Partner, Tax Minimization first appeared on TaxOps.

A conversation with Marc Gordon, Head of State and Local Tax, and Lindsay Haskell, Partner at TaxOps

There’s a question that keeps CFOs up at night more than a surprise audit: “Do we have nexus somewhere we don’t know about?“

If you’re not sure of the answer, you’re not alone. In the inaugural podcast episode of “Tax Intelligence with TaxOps” Marc Gordon and Lindsay Haskell walk through everything finance leaders need to understand about state nexus — from the basics of what creates it, to managing prior-year exposure, to when a Voluntary Disclosure Agreement is the right strategic move.

Here’s a summary of the conversation.

What Is Nexus, Exactly?

Nexus is a business’s connection to a state — and it’s the threshold a state must clear before it can legally assert tax on your business. There are two kinds.

1. “Physical Nexus” is the more intuitive category. If you have property, payroll, or employees performing activities in a state, you almost certainly have physical nexus — and that triggers both income tax and sales tax obligations. The dollar amounts don’t matter much here; presence is presence.

One important nuance: a federal law called Public Law 86-272 can protect sellers of tangible personal property from income tax nexus even when they have some physical activity in a state. But this protection has been steadily eroding. Recent guidance has found that certain website cookies can eliminate PL 86-272 protection entirely, so sellers relying on this shield need to understand how their website activity might be undercutting it.

2. “Economic Nexus” emerged as a response to the rise of e-commerce. As online retailers grew without physical stores, state sales tax revenues declined sharply. States pushed back, and the issue landed at the Supreme Court.

The landmark South Dakota v. Wayfair decision in 2018 changed everything. It established that a business can have nexus in a state based purely on economic activity — no physical presence required. The bright-line test: $100,000 in sales or 200 separate transactions in a state. Today, every state that has a sales tax has an economic nexus threshold based on this standard.

(Quick memory trick for the five states with no sales tax: “Oh DAMN, No Sales Tax” — Oregon, Delaware, Alaska, Montana, New Hampshire.)

On the income tax side, economic nexus is more complex. The Wayfair ruling doesn’t directly translate to income taxes. Many states rely on a vague “doing business” standard — essentially, are you building and maintaining a market of customers in their state? About 15 states have adopted clearer bright-line tests based on apportionment factors (property, payroll, and sales), which makes analysis much cleaner in those jurisdictions.

The Remote Work Factor

Post-COVID, many companies have a significantly larger tax footprint than they realize. A single remote employee in a new state creates physical nexus — and that exposure doesn’t disappear because management wasn’t aware of it.

A real-world example: one client had an employee relocate to California without telling management. The employee updated their profile in ADP, so California payroll withholding was being paid on $3,000 of wages. California identified the business, and despite having no sales in the state whatsoever, the company still faced an $800 minimum tax filing obligation. For $800, the state came calling.

The lesson: states share data. The Department of Revenue, the Secretary of State, and the employment security department may all be talking to each other. “How will they know?” is not a reliable compliance strategy.

We Think We Have Prior-Year Exposure. Now What?

This is one of the most common questions the TaxOps team hears. The answer starts with data gathering: where are your property, payroll, and sales? How have those changed over time? What’s the apportionment picture for income tax purposes?

From there, the process resembles building a state tax exposure model — running state income tax calculations for the states where nexus may exist, layering in sales tax exposure, and developing a clear picture of the liability across all relevant periods.

One critical point: if you’ve had nexus in a state but haven’t filed, the statute of limitations has never started running. That means exposure can theoretically go back 10 or more years. This is why the look-back analysis matters so much — and why understanding your options before taking any action is essential.

As a practical starting point, TaxOps generally recommends modeling a three-year look-back, while keeping in mind that longer periods may be relevant depending on the facts.

What Is a Voluntary Disclosure Agreement (VDA), and Should You Use One?

A Voluntary Disclosure Agreement is a formal program offered by most states that lets a business proactively come forward, acknowledge prior noncompliance, and resolve the issue under structured terms. The key benefits:

• Penalty abatement. Penalties typically run 25–50% of the underlying tax liability. On a large sales tax exposure, that’s significant. The larger the liability, the more valuable this benefit becomes.
• Limited look-back period. Instead of facing 10 years of exposure, a VDA typically limits the look-back to three or four years — sometimes fewer. That can dramatically reduce the total exposure.
• Anonymity (in many cases). Most VDA programs allow a business to approach a state anonymously through a representative, getting preliminary buy-in on the terms before formally disclosing who they are.
• A clean slate going forward. Completing a VDA gets all the administrative setup done — account IDs, registration — so you can hit the ground running on prospective compliance.

The most important caveat: a VDA must be initiated before the state contacts you. If you’ve already received a nexus questionnaire, a notice, or have proactively registered in the state, you typically can no longer participate. This also means that if you’re planning to start filing prospectively, be prepared for the possibility that a state may ask when you started doing business there — and understand what that answer means for your options.

VDA or Just File Prospectively? How to Think About the Decision

The right answer depends on the specific circumstances — and it doesn’t have to be the same answer for every state.

Factors pointing toward a VDA:

• Large or uncertain prior-year exposure
• An M&A transaction is pending or anticipated (buyers want clean books)
• The business is growing and expanding its state footprint
• You want certainty and a formal resolution

Factors pointing toward prospective-only filing:

• Exposure is small and the cost/benefit doesn’t support a formal VDA process
• The business is winding down and risk tolerance is higher
• The look-back period is manageable without a formal agreement

The key is to make the decision intentionally, with a clear picture of the exposure. Doing nothing — or hoping states won’t notice — is a strategy that typically ends badly, especially as companies scale, get acquired, or face increased audit activity.

Key Takeaways

1. Your nexus footprint is probably larger than you think. Physical presence and economic nexus have both expanded significantly in recent years.

2. Remote employees create immediate nexus — regardless of whether management is aware of it.

3. The statute of limitations doesn’t run until you file. Prior-year exposure can go back a decade or more.

4. VDAs offer meaningful benefits — penalty abatement, limited look-back, and often anonymity — but must be initiated before a state contacts you.

5. There’s no one-size-fits-all answer. The right strategy depends on your exposure profile, your growth plans, and your risk appetite.

If today’s post prompted a closer look at your state tax footprint, start by mapping your property, payroll, and sales by state. Then reach out to your tax advisor — or contact the TaxOps team directly at taxops.com/contact — to model the exposure and determine the best path forward.

Listen to the full conversation on Tax Intelligence, available now.

Tax Intelligence with TaxOps

This is the podcast where experienced tax professionals share clear, practical insight on today’s most complex tax issues–from SALT and federal tax strategy to ASC 740, tax minimization, and investment fun considerations. Each month, our experts break down what matters, what’s changing, and how to think strategically about tax–so you can make informed decisions with confidence. Listen today!

About TaxOps

At TaxOps, business tax is all we do. Our teams have the knowledge and focus to solve tax problems with practical tax answers. By hiring our Big Four-veteran leaders and experienced teams, you get tax strategists on your side supporting your strategy wherever business takes you. We deliver the strength, experience, and resources of a national tax brand with the hands-on client engagement of a boutique firm in federal, corporate, state and local and international tax as well as tax minimization strategies for businesses. For an introductory call, visit TaxOps.com/contact.

Read more

• Colorado Tax Law Changes: A 2026 SALT Guide
• Multistate Partnerships: Navigating Various State Taxation Rules of Corporate Partners
• IPO Tax Due Diligence: Identifying Risks, Managing Compliance, and ASC 740 Readiness
• Internal Revenue Service R&D Credit War Stories: Vol 2
• Internal Revenue Service R&D Credit War Stories: Vol 1

The post Your Tax Footprint Is Probably Bigger Than You Think: What Finance Leaders Need to Know About State Nexus first appeared on TaxOps.