One Big Beautiful Bill Introduces Major Changes to Federal Tax Law

The Trump administration scrapped the “revenge tax” but has extended the implementation of additional tariffs on more than 50 countries until August 1.

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (the OBBB) into law, making permanent the reduced individual tax rates and brackets established by the Tax Cuts and Jobs Act of 2017 and modifying a number of important tax provisions affecting businesses.¹

This blog post highlights the changes to federal tax law and analyzes the defeat of the “revenge tax.”

Tax Law Changes

The modified tax provisions include:

• 100% bonus depreciation: Permanent restoration of 100% bonus depreciation for short-lived investments.
• R&D expensing: Permanent restoration of immediate expensing for domestic R&D expenses.
• QBI deduction: The qualified business income (QBI) deduction is now permanent along with additional changes to the phase-in of previously established limitations.
• Qualified structure expensing: Moving away from depreciation schedules, this modification temporarily provides 100% expensing of qualifying structures placed into service before January 1, 2031.
• 1% floor on corporate charitable deductions: A new 1% floor for the deduction of charitable contributions made by corporations means that only contributions exceeding 1% of a corporation’s taxable income are deductible.
• Elimination of miscellaneous itemized deductions including management fees: The disallowance of miscellaneous itemized deductions, including management fees paid by investors to many investment funds, is now permanent. This modification may limit the attractiveness of investment funds to high-net-worth individuals.
• Green/energy credits:
  • The clean electricity production credit (45Y) and investment credit (48E) for wind and solar projects placed in service after 2027 (with exceptions for certain projects that begin construction within 12 months of passage) are eliminated.
  • The clean fuel production credit (45Z) is extended through 2029, with expanded eligibility.
  • “Foreign entity of concern” (FEOC) restrictions are added to the clean electricity production credit (45Y), investment credit (48E), nuclear production credit (45U), clean fuel production credit (45Z), carbon oxide sequestration credit (45Q), and advanced manufacturing production credit (45X).

See our Client Alert to learn about how the OBBB disrupts clean energy investment.

• Publicly traded partnerships and green energy: Qualifying income is expanded to include income derived from (i) qualifying hydrogen storage and transportation; (ii) electricity production from qualifying nuclear, hydropower, and geothermal facilities; (iii) carbon capture facilities, including electricity production from qualifying facilities with sufficient carbon capture; and (iv) thermal energy from hydropower and geothermal facilities.
• CAMT: Intangible drilling and development costs are no longer required to be taken into account for the purposes of computing adjusted financial statement income for the Corporate Alternative Minimum Tax (CAMT).
• FTC haircut reduced: The foreign tax credit (FTC) haircut is reduced for foreign income taxes paid or accrued by a controlled foreign corporation (CFC) that are attributable to the CFC’s tested income from 20% to 10% starting in 2026.
• GILTI to NCTI: The Global Intangible Low-Taxed Income (GILTI) regime is renamed Net CFC Tested Income (NCTI) and modified such that the effective rate on NCTI for US corporations will increase from GILTI’s current 10.5% to 12.6% in 2026, instead of increasing to 13.125% under prior law.
  • The 10% FTC haircut will also be applied to any foreign income taxes paid or accrued with respect to a distribution of GILTI/NCTI previously taxed earnings and profits.
  • Only the Section 250 deduction and deductions directly allocable to the net CFC tested income will be allocated and apportioned to the NCTI foreign tax credit basket, generally providing a higher foreign tax credit limitation than under prior law.

• QBAI exclusion removed: Currently, the GILTI regime provides an exclusion for a CFC’s Qualified Business Asset Investment (QBAI)-deemed 10% return, referred to as the Net Deemed Tangible Income Return (NDTIR). Under prior GILTI rules, only the CFC’s net tested income in excess of the NDTIR would generally be subject to taxation. Beginning in 2026, the NDTIR exclusion is eliminated, causing US shareholders to be taxed on their pro rata share of their net CFC tested income.
• FDII to FDDEI: The Foreign-Derived Intangible Income (FDII) regime is renamed Foreign-Derived Deduction Eligible Income (FDDEI) in light of the elimination of the deemed return on tangible assets and other modifications. In 2026, the IRC Section 250 deduction will be reduced from 37.5% to 33.34% resulting in a 14% effective rate for FDDEI. The increase from the current 13.125% effective rate on FDII to a 14% effective rate on FDDEI is less than an increase to 16.4% in 2026, which is what prior law would have provided.
• BEAT increases: The Base Erosion and Anti-Abuse Tax (BEAT) rate is increased from 10% to 10.5% for 2026, preventing a larger increase to 12.5% under prior law.
• Downward attribution of stock restored: The limitation on downward attribution of stock ownership in applying the constructive ownership rules when determining CFC status is restored.

Tariffs Are IN (Still). The Revenge Tax Is OUT.

When the House passed its version of the OBBB on May 22, 2025, it included the Section 899 “revenge tax.”² This provision would have granted the executive branch the authority to temporarily increase taxes on countries perceived to impose discriminatory taxes on US taxpayers, such as digital services taxes or undertaxed profits rules.

Despite raising significant questions, the revenge tax was considered likely to be included in the final legislation due to its role as a revenue generator and Congress’s pursuit of tax reform through the budget reconciliation process. Additionally, the revenge tax was viewed as a potential new tool for the executive branch in trade negotiations, possibly shifting the administration’s focus away from ongoing tariff disputes. But that did not happen.

Instead, on June 26, 2025, Treasury Secretary Scott Bessent posted on the social platform X that a tentative agreement had been reached between the US and its G7 partners. Under the agreement, US companies would generally be excluded from OECD pillar 2 taxes in exchange for jettisoning the revenge tax.³

On July 7, 2025, three days after President Trump signed the OBBB into law, the administration quickly moved back to the business of tariffs by extending the implementation of additional tariffs on more than 50 countries (China excluded) until August 1 to allow more time for trade negotiations.⁴

1. One Big Beautiful Bill Act, Public Law 119-21, 119th Congress (2025). The OBBB’s tax provisions are generally located in Title VII, Subtitle A, Sections 70001 through 70607. 
2. See One Big Beautiful Bill Act, H.R. 1, 119th Congress, 1st Session (Reported in House on May 20, 2025). The revenge tax was generally modeled after Section 891, which allows for the doubling of tax rates on foreign citizens and companies where US citizens are subjected to discriminatory or extraterritorial taxes. See 26 U.S.C. § 891. Although enacted in 1934, Section 891 has never been used. 
3. See Jonathan Curry, Stephanie Soong, and Cady Stanton, Revenge Tax to Be Scrapped as Bessent Teases Pillar 2 Deal, Tax Notes, Vol. 118 at 2167, June 30, 2025. 
4. Exec. Order No. 14316, “Extending the Modification of the Reciprocal Tariff Rates,” 90 Fed. Reg. 30823 (July 7, 2025).