Minnesota Legislature Meets this Week with Hopes of Clarity on MN PTE Guidance
The Minnesota legislative session began its proceedings on February 17, and a topic that remains uncertain is the handling of Minnesota’s pass-through entity tax (PTE) for the 2026 tax year. Minnesota’s pass-through entity tax SALT election expired on December 31, 2025, creating a potential federal tax disadvantage for partnerships and S corporations relative to C corporations, which continue to deduct state taxes at the entity level. The expiration particularly affects service-based small businesses that rely on pass-through structures. Although the PTE election will remain available for tax year 2025, unless the Minnesota Legislature takes action during the 2026 session, PTE will not be available for the 2026 tax year. Unlike some states, Minnesota does not automatically conform to federal law changes, so legislative approval is required to extend or reinstate PTE beyond 2025. The tax savings implications for Minnesota taxpayers and business owners would be monumental. According to the Minnesota Department of Revenue, reinstating the PTE tax election would generate an estimated $400 million in federal tax savings for Minnesota taxpayers, with no cost to the state.
The PTE election was originally enacted to mitigate the impact of the federal limitation on state and local tax (SALT) deductions. Although the federal SALT cap increased for tax year 2025 to $40,000 for joint filers and $20,000 for married taxpayers filing separately (up from $10,000 and $5,000, respectively), the limitation remains a concern for many business owners. The cap is scheduled to increase by 1% annually from 2026 through 2029 before reverting to $10,000 in 2030.
Senate File 3405 and House File 3127 are bills proposed for the Minnesota Legislature to address that would extend the Minnesota PTE election through tax year 2027. The proposal is viewed as a straightforward measure to provide clarity during the current filing season. While there has been no final guidelines or a confirmation on if the Minnesota Legislature has come to a decision on extending or reinstating the PTE election, we will be monitoring these developments closely and provide you with updates once immediately available, as legislative action could affect entity-level planning strategies for this year and beyond.
IRS Highlights New Deductions for 2026 Filing Season
The IRS recently released Tax Tip 2026-12 as a reminder of several new above-the-line deductions available to individual taxpayers for the 2026 filing season. Among the new provisions are an additional $6,000 deduction for seniors age 65 and older, a deduction of up to $25,000 for qualified tip income earned by tipped workers, up to $12,500 ($25,000 for joint filers) for qualified overtime compensation, and up to $10,000 for interest paid on qualified passenger vehicle loans. Notably, these deductions are available to both itemizing and non-itemizing taxpayers, though each is subject to income-based phaseouts and specific eligibility requirements.
In the same guidance, the IRS reiterated the standard deduction amounts for the 2025 tax year: $15,750 for single filers and married individuals filing separately, $31,500 for married taxpayers filing jointly and qualifying surviving spouses, and $23,625 for heads of household.
For more information: https://bit.ly/3ZIqmLn
Treasury Launches Whistleblower Program to Combat Fraud and Sanctions Violations
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has unveiled a new online portal designed to confidentially receive whistleblower reports involving fraud, money laundering, and sanctions violations. Announced by Treasury Secretary Scott Bessent, the initiative is part of a broader enforcement strategy aimed at addressing schemes that result in significant losses to taxpayers each year. Individuals who submit qualifying information that leads to a successful enforcement action may be eligible for a monetary award.
The program encompasses potential violations of the Bank Secrecy Act, U.S. sanctions programs, and other related federal laws. In a parallel development, the IRS is establishing a specialized task force to address alleged misuse of funds by certain 501(c)(3) tax-exempt organizations. The Treasury encourages whistleblowers to provide detailed submissions through FinCEN’s newly launched reporting webpage at www.fincen.gov/whistleblower
Treasury and IRS Detail Foreign Entity Rules for Clean Energy Credits
The Department of the Treasury and the IRS have issued interim guidance addressing new limitations on certain clean energy tax incentives when a project receives material assistance from a prohibited foreign entity (PFE). These restrictions, enacted under the One Big Beautiful Bill Act (OBBBA), apply to the clean electricity production credit under IRC Section 45Y, the clean electricity investment credit under IRC Section 48E, and the advanced manufacturing production credit under IRC Section 45X.
Notice 2026-15 outlines the framework for determining eligibility under the new rules, including safe harbor provisions and detailed guidance for calculating the “material assistance cost ratio.” The notice may be relied upon for facilities qualifying under Sections 45Y or 48E for which construction begins after December 31, 2025, and for Section 45X components sold in taxable years beginning after July 4, 2025.
The Treasury and the IRS have indicated that more comprehensive proposed regulations are forthcoming. In the interim, taxpayers engaged in clean energy development or advanced manufacturing should carefully evaluate supply chains, ownership structures, and sourcing arrangements to assess potential PFE exposure. Public comments on Notice 2026-15 are requested by March 30, 2026, providing stakeholders with an opportunity to influence the forthcoming regulatory framework.
