Monthly US Tax Bulletin - February 2026

Key highlights:

Federal taxes

• The OECD’s 5 January 2026 package introduces the new Side‑by‑Side arrangement, providing U.S. multinational enterprises with exemptions from both the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR). The package also includes important safe harbours and additional guidance aimed at simplifying Pillar Two compliance and enhancing global coordination.
• IRS Notice 2026‑11 provides interim guidance on key Section 168(k) bonus‑depreciation elections, introduces alternative 40% or 60% options, expands eligible property, and offers greater flexibility for taxpayers until final regulations are issued.
• The IRS’s updated FAQs in Fact Sheet 2025‑09 clarify the amended Section 163(j) rules by reinstating the Adjusted Taxable Income (ATI) addbacks for depreciation, amortisation, and depletion, and expanding floor plan financing interest to cover trailer and camper financing.
• The IRS has launched a 90‑day public comment period on proposed updates to the Voluntary Disclosure Practice, introducing a streamlined penalty framework and requiring taxpayers to file all delinquent returns, pay all liabilities within three months of conditional approval, and comply with a six‑year disclosure period to avoid potential civil or criminal penalties.
• The One Big Beautiful Bill Act (OBBBA) repeals the Section 898(c)(2) one‑month deferral election, requiring affected foreign corporations to align their year‑end with that of their majority U.S. shareholders. Notice 2025‑72 sets out how taxpayers must allocate foreign income taxes to the resulting short transition year following the repeal, including the applicable Section 987 transition rules.
• The OBBBA updates §162(m) will apply the USD 1 million executive‑compensation deduction cap on a consolidated controlled‑group basis, treating all group entities as a single employer to prevent avoidance through compensation shifting.

State taxes

• Maryland has decoupled from the OBBBA provisions by retaining 60-month Research and Experimental (R&E) amortisation, requiring the recomputation of §163(j) interest limits, and disallowing special depreciation for qualified production property beginning in 2025.
• Texas will start applying current federal tax rules, except for certain items that continue to reference the 2007 Internal Revenue Code when calculating the franchise tax, beginning in 2026. At the same time, the state will align its Cost Of Goods Sold (COGS) depreciation and gross receipts’ computations with the amounts reported on the federal return.
• The California State Controller’s Office (SCO) is encouraging businesses with past‑due unclaimed property obligations to participate in the Voluntary Compliance Programme (VCP). This programme provides eligible holders with a 12% interest waiver, provided they meet the programme’s requirements and submit all necessary VCP documentation within the prescribed deadlines.
• Pennsylvania’s Act 45 of 2025 decouples the Corporate Net Income Tax (CNIT) from the key OBBBA provisions by requiring the five-year amortisation of all R&E costs, disallowing federal §168(n) Qualified Production Property (QPP) expensing, and applying pre-2025 Section 163(j) interest‑limitation rules through proforma federal reporting.

Monthly US Tax Bulletin - February 2026

The February 2026 edition of the Grant Thornton Bharat Monthly US Tax Bulletin provides a concise summary of recent key developments in federal and state taxes in the US.

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