Accounting Archives - Midia Drummond

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Brazil’s Tax Reform has entered a new phase of implementation. Following the enactment of Constitutional Amendment No. 132/2023 and the publication of Complementary Law No. 214/2025, companies are already preparing for a transition period that will fundamentally transform how consumption taxes are assessed, reported, and collected. Although many of the changes will be implemented gradually […]

/ By Marcos Ferreira

Although many of the changes will be implemented gradually through 2033, several strategic decisions need to be made now. For Brazilian companies expanding internationally and foreign groups operating in Brazil, the Tax Reform represents much more than a legislative change: it requires a review of processes, corporate structure, technology, compliance, and tax planning.

In this article, we explain the key updates introduced by Brazil’s Tax Reform and how they impact companies operating globally.

What Changed Under Brazil’s Tax Reform?

The main objective of the reform is to simplify Brazil’s consumption tax system by replacing several existing taxes with a model similar to the Value-Added Tax (VAT) used in many countries.

The main changes include:

the gradual replacement of PIS, Cofins, ICMS, ISS, and part of IPI;
the creation of the Contribution on Goods and Services (CBS), a federal tax;
the creation of the Tax on Goods and Services (IBS), administered by states and municipalities;
the introduction of the Selective Tax (IS), levied on products considered harmful to health or the environment;
the adoption of destination-based taxation, reducing tax disputes between states.

For multinational companies, this new model brings Brazil closer to international tax practices, but it also requires adjustments to new tax assessment and compliance rules.

Implementation Timeline: What Happens Over the Next Few Years?

The reform will be implemented gradually.

Key milestones include:

2026: Testing Begins

Companies will enter a testing period for CBS and IBS, allowing them to make operational adjustments before effective collection begins.

2027: CBS Takes Effect

CBS begins replacing PIS and Cofins, requiring adjustments to systems, billing processes, and internal controls.

2029 to 2032: ICMS and ISS Transition

IBS will gradually replace state and municipal taxes, progressively reducing the application of ICMS and ISS.

2033: New System Fully Implemented

At the end of the transition period, CBS and IBS will form the core of Brazil’s new consumption tax system.

How Does the Tax Reform Impact International Companies?

Foreign companies often focus on corporate and labor considerations when entering Brazil. However, indirect taxation can represent one of the biggest operational challenges.

Under the reform, several changes deserve particular attention.

Greater Alignment With International Standards

Companies accustomed to operating in countries that use VAT-based systems will encounter a system that is more closely aligned with international practices.

This could facilitate:

integration of global processes;
accounting consolidation;
comparison of financial indicators;
international tax planning.

Supply Chain Review

Destination-based taxation changes the dynamics of many commercial operations.

Companies will need to review:

distribution centers;
interstate operations;
logistics agreements;
pricing strategies.

This analysis may generate significant operational efficiency gains.

Technology Adaptation

The reform will require updates to ERP systems, tax platforms, and tax document issuance systems.

Companies operating across multiple countries will need to ensure that their systems can simultaneously comply with Brazilian requirements and international reporting standards.

New Compliance Requirements

The transition will temporarily increase operational complexity.

For several years, companies will need to manage two tax regimes simultaneously.

This will require:

robust internal controls;
ongoing monitoring of legislation;
employee training;
integration among tax, accounting, finance, and legal teams.

The Impact on Brazilian Companies Going International

Brazil’s Tax Reform also affects Brazilian companies planning to expand their operations abroad.

International investors tend to assess factors such as:

tax predictability;
quality of corporate governance;
operational efficiency;
regulatory risks.

Companies that begin adapting to the new model now may demonstrate greater management maturity during due diligence processes, fundraising, and international expansion.

How Does the Tax Reform Affect M&A Transactions?

Mergers and acquisitions will also require additional analysis.

During due diligence processes, it will become increasingly important to assess:

tax contingencies related to the transition period;
adaptation of tax systems;
existing tax credits;
contractual impacts resulting from the change in tax regime.

Companies that anticipate this planning may reduce risks during future negotiations.

Technology Will Be a Competitive Advantage

The implementation of the reform reinforces the importance of digital transformation in tax management.

Tax automation tools, artificial intelligence, and data integration will play an increasingly strategic role in tax management.

Key benefits include:

reduced operational errors;
greater data traceability;
automated generation of ancillary tax obligations;
continuous monitoring of legislative changes;
improved corporate governance.

For multinational groups, integration between Brazilian systems and global platforms will be a decisive factor in ensuring compliance.

How Drummond Advisors Can Support Your Company

The Tax Reform requires a multidisciplinary approach that goes beyond interpreting legislation.

Domestic and international companies will need to align tax, corporate, accounting, technology, and regulatory considerations to navigate the transition safely.

Drummond Advisors provides integrated support to organizations operating in Brazil and the United States, assisting clients with areas such as:

assessing the impacts of the Tax Reform;
reviewing corporate and tax structures;
planning for international operations;
adapting accounting and tax processes;
tax compliance;
support for international expansion projects;
advisory services for M&A transactions and corporate reorganizations.

This integrated approach allows companies to transform a complex regulatory change into an opportunity to increase efficiency, reduce risks, and strengthen their global competitiveness.

Conclusion

Brazil’s Tax Reform represents one of the most significant transformations of the country’s business environment in recent decades. Although implementation will be gradual, its effects are already influencing strategic decisions related to international expansion, investments, corporate governance, and tax planning.

Companies that begin preparing now will be better positioned to take advantage of the new system, reduce compliance risks, and increase their competitiveness in an increasingly globalized market.

For organizations operating between Brazil and the United States, or planning to internationalize their businesses, understanding the changes brought by the Tax Reform is no longer simply a tax matter: it has become a strategic advantage.

Written by Marcos Ferreira*, Content Analyst at Drummond Advisors*

Sources

Tax Reform – Constitutional Amendment No. 132/2023: Planalto
Complementary Law No. 214/2025: Planalto
Brazilian Federal Revenue Service – Consumption Tax Reform: Receita Federal
IBS Management Committee – Information on Tax Reform implementation: IBS Management Committee
Ministry of Finance – Tax Reform: Ministry of Finance

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Filing a tax return accurately is one of the most effective ways to stay compliant with the Internal Revenue Service (IRS). Although the word “audit” often causes concern, being selected for an IRS examination does not necessarily mean that a taxpayer has done something wrong. In many cases, the agency simply needs additional information to […]

/ By Paola Atzingen

Understanding how IRS audits work and adopting good tax compliance practices can help individuals and businesses reduce the likelihood of facing unnecessary scrutiny.

What Is an IRS Audit?

An IRS audit, officially referred to as an examination, is a review of an individual’s or business’s financial records to determine whether the information reported on a tax return is accurate and complies with federal tax laws. Depending on the circumstances, the IRS may request documentation to verify income, deductions, credits, or other reported items.

In most cases, the IRS begins the audit process by sending an official notice through the U.S. mail. While an IRS representative may contact a taxpayer later in the process, the agency does not initiate audits through phone calls, emails, text messages, or social media.

What Can Trigger an IRS Audit?

Although some tax returns are selected randomly, most audits result from inconsistencies or reporting patterns that require further review. Common factors include unreported income, mathematical errors, deductions or tax credits that appear disproportionate to a taxpayer’s income, and discrepancies between the information reported on a return and records received by the IRS from employers, financial institutions, or other third parties.

Taxpayers with foreign financial reporting obligations who fail to disclose required accounts or assets may also attract additional scrutiny. Likewise, individuals and businesses with higher levels of income are statistically more likely to be audited than the average taxpayer.

The IRS generally conducts three types of audits. A Correspondence Audit is handled by mail and usually involves requests for specific documents. An Office Audit requires the taxpayer to meet with an IRS representative at a local office, while a Field Audit is the most comprehensive, taking place at the taxpayer’s home, business, or accountant’s office.

Best Practices to Reduce Your Risk

While no strategy can completely eliminate the possibility of an audit, maintaining organized financial records and preparing tax returns carefully can significantly reduce the risk.

Keeping receipts, invoices, bank statements, and other supporting documentation makes it easier to substantiate the information reported on a return. Reviewing tax forms before filing helps identify calculation mistakes and inconsistencies, while reporting all sources of income ensures that IRS records match the taxpayer’s return.

It’s equally important to claim only deductions and tax credits that are properly documented and supported by applicable tax rules. If the IRS requests additional information, responding promptly and accurately can help resolve the matter more efficiently.

For companies and investors operating across borders, another critical factor is having the right international structure in place from the beginning. A well-designed cross-border structure helps ensure compliance with U.S. reporting obligations while minimizing reporting gaps and inconsistencies that may attract IRS scrutiny.

International operations involving foreign corporations, partnerships, trusts, financial accounts, or related-party transactions often trigger specific reporting requirements, including Forms 5471, 5472, 8865, 8938, 3520, as well as the FBAR (FinCEN Form 114). Failing to identify and meet these obligations—even unintentionally—can lead to significant penalties and increase the likelihood of an IRS examination.

Proper planning goes beyond tax efficiency. When an international structure is established with clear entity classifications, ownership mapping, and well-documented intercompany transactions, businesses are better positioned to meet their reporting obligations, maintain consistent documentation, and respond confidently to IRS inquiries. In this sense, sound international structuring serves as a key compliance strategy, helping reduce audit risks while supporting long-term cross-border operations.

For businesses, foreign investors, and individuals with more complex tax situations, working with experienced tax professionals provides an additional layer of confidence. Professional guidance helps ensure compliance with current regulations, minimizes reporting errors, and prepares taxpayers to respond effectively if questions arise.

An IRS audit is not necessarily an indication of wrongdoing, but rather a process designed to verify the accuracy of tax filings. By maintaining complete records, reporting information consistently, and seeking professional tax guidance when needed, taxpayers can significantly reduce the likelihood of an examination and navigate the U.S. tax system with greater confidence.

Avoid costly tax mistakes before they happen. Whether you’re an individual taxpayer, a foreign investor, or a company with international operations, Drummond Advisors helps clients navigate U.S. tax obligations, strengthen compliance, and build the right international structure to minimize audit risks. Contact our team to learn how we can support your business.

Written by Paola Von Atzingen and Maikon Luiz

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Tax Season 2026 is in full swing, and with it comes increased pressure on individuals, business owners, and companies to ensure accurate, consistent filings in full compliance with the Internal Revenue Service (IRS). With advances in tax automation, data matching, and stricter enforcement, errors that once went unnoticed can now trigger audits, penalties, and significant […]

/ By Marcos Ferreira

With advances in tax automation, data matching, and stricter enforcement, errors that once went unnoticed can now trigger audits, penalties, and significant refund delays.

If you are a foreign individual with U.S. operations, own a U.S. company, or invest in the country, this guide outlines how to avoid the most common mistakes during Tax Season 2026 and protect your tax structure.

Tax Season 2026: What’s at Stake

The U.S. tax system is highly structured, but also complex.

During Tax Season, the IRS cross-checks data from multiple sources:

Employers (Form W-2)
Banks and financial institutions (Form 1099)
Digital platforms and marketplaces
International records (in some cases)

This means any inconsistency can be quickly identified.

Common Tax Season 2026 Mistakes (and How to Avoid Them)

1. Underreporting Income

This is the most common and one of the most serious errors.

It includes:

Freelancers and contractors (1099)
Investment income
Business revenue (LLCs, partnerships)
Global income (for U.S. tax residents)

How to avoid it:
Reconcile all forms received (W-2, 1099, K-1) before filing.

2. Incorrect Income Classification

In the U.S., how income is classified directly impacts taxation.

Common mistakes:

Treating active income as passive
Confusing distributions with salary
Errors in income sourcing (U.S. vs. foreign source)

How to avoid it:
Ensure each type of income is properly categorized under IRS rules.

3. Errors in Business Filings (LLC, C-Corp, S-Corp)

Foreign companies with a U.S. presence often make mistakes such as:

Improper reporting of LLC activities
Ignoring partnership obligations
Misalignment between entity structure and tax filing

How to avoid it:
Ensure your legal structure aligns with your tax treatment and reporting requirements.

4. Failure to Report Foreign Accounts and Assets

Depending on your tax status, you may be required to report:

Foreign bank accounts (FBAR)
Foreign financial assets (FATCA)

Errors here can lead to extremely high penalties.

How to avoid it:
Properly assess your international filing obligations (FBAR, Form 8938, among others).

5. Improper or Poorly Documented Deductions

Deductions are a legitimate opportunity for tax savings, but also a major risk area.

Common issues:

Personal expenses treated as business expenses
Lack of documentation
Excessive deductions inconsistent with income

How to avoid it:
Maintain robust documentation and follow strict eligibility criteria.

6. Missing Deadlines or Ignoring Extensions

Key Tax Season 2026 deadlines:

April 15, 2026: general deadline for individuals
March 15, 2026: partnerships and S-Corps
Extension available until October (Form 4868), but does not extend tax payment

How to avoid it:
Plan ahead and use extensions strategically if needed.

7. Lack of Consistency with Prior Filings

The IRS analyzes patterns over time.

Common red flags:

Sudden income fluctuations
Unexplained changes in assets
Discrepancies between corporate and personal filings

How to avoid it:
Ensure historical consistency and properly document any significant changes.

Filing as a Foreign Individual: Where the Biggest Risks Lie

Non-residents and foreign companies face additional challenges:

Correctly determining Effectively Connected Income (ECI)
Avoiding improper or double taxation
Meeting filing requirements even without physical presence in the U.S.
Understanding applicable tax treaties

Mistakes at this stage can lead to:

Incorrect taxation
Penalties
Future issues with immigration or investments

How to Structure a Secure Tax Filing in the U.S.

Centralize all tax forms
W-2, 1099, K-1, among others
Perform full financial reconciliation
Ensure reported figures reflect actual financial activity
Review your entity structure
Especially if you operate with:

LLCs
Holdings
International structures

Assess international obligations
FBAR, FATCA, and global reporting are critical
Leverage technology and automation
Integrated systems reduce errors and increase efficiency
Work with specialized advisors
Especially for cross-border structures

Global Tax Compliance: The New Standard

Tax Season 2026 reinforces a clear trend:

👉 Tax compliance is no longer local, it is global.

Business owners and investors must ensure alignment between:

U.S. tax filings
Obligations in their home countries
International corporate structures

Without this alignment, the risk of inconsistencies and penalties increases exponentially.

Conclusion

Avoiding errors during Tax Season 2026 in the United States is a matter of precision, strategy, and proactive planning.

With increased IRS enforcement and advanced technology, even small mistakes can have significant consequences.

For individuals and companies with international operations, the complexity is even greater and requires an integrated approach.

Drummond Advisors supports global clients in preparing and reviewing U.S. tax filings, ensuring compliance, tax efficiency, and legal certainty.

If you want to reduce risks and structure your operations strategically, the best time to act is before the filing deadline. Contact us through the available chat or via email at info@drummondadvisors.com.

Written by Marcos Ferreira, Content Analyst at Drummond Advisors

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What is OECD Pillar Two OECD Pillar Two is part of the global tax reform under the OECD/G20 Inclusive Framework on BEPS, aimed at ensuring that large multinational enterprise (MNE) groups are subject to a global minimum effective tax rate (ETR) of 15%, regardless of where they operate. The core objective is to reduce incentives […]

/ By Marcos Ferreira

What is OECD Pillar Two

OECD Pillar Two is part of the global tax reform under the OECD/G20 Inclusive Framework on BEPS, aimed at ensuring that large multinational enterprise (MNE) groups are subject to a global minimum effective tax rate (ETR) of 15%, regardless of where they operate. The core objective is to reduce incentives for profit shifting to low-tax jurisdictions and to establish a more level international tax playing field.

Pillar Two introduces a coordinated set of rules, collectively referred to as the Global Anti-Base Erosion (GloBE) Rules, that determine whether an MNE has paid at least the minimum 15% effective tax in each jurisdiction. These include:

Income Inclusion Rule (IIR): Allows the parent entity to collect a “top-up tax” when a subsidiary is taxed below 15%.
Undertaxed Payments Rule (UTPR): Acts as a backstop to the IIR, allocating top-up tax to other jurisdictions when the IIR cannot be applied.
Qualified Domestic Minimum Top-Up Tax (QDMTT): Allows countries to impose their own domestic top-up tax to ensure local profits reach the 15% rate before foreign jurisdictions apply the IIR or UTPR.
Extensive compliance and reporting requirements, including country-by-country calculations of income, taxes, and adjustments.

Pillar Two generally applies to multinational groups with global consolidated revenues of at least EUR 750 million.

Brazil adopted a Qualified Domestic Minimum Top-up Tax (QDMTT) under Law No. 15,079/2024. The QDMTT is imposed as an additional rate of 15% on the Social Contribution on Net Profit (CSLL) and its law aligns closely with the OECD GloBE (Global Anti-Base Erosion) rules. Hence, the company must calculate the GloBE profit and, if the minimum taxation is not met, the additional CSLL rate applies.

A new global landscape for transfer pricing

The implementation of OECD Pillar Two is profoundly transforming the international tax environment. For multinational companies, the impacts go far beyond tax calculations: they affect transfer pricing policies, tax governance, corporate structure, and operational transparency.

While the goal is to curb aggressive tax planning, the rules directly affect transfer pricing because:

– The allocation of profits across jurisdictions now directly affects the Effective Tax Rate (ETR).

– Structures located in low-tax jurisdictions may trigger top-up taxes.

– Local tax incentives may no longer provide the same benefit to multinational groups.

– Substance and economic presence requirements become more decisive.

As a result, transfer pricing policies — traditionally focused on margins and methods — now operate within a new global regulatory framework.

Key Impacts of Pillar Two on Transfer Pricing

1. Review of TP margins and methods

Structures using very low margins for subsidiaries in low-tax countries may create:

ETR below 15 percent,
need for top-up tax payments,
increased exposure to stricter audits.

Companies will need to reassess:

traditional TP methods (CUP, Cost Plus, TNMM),
internal cost-allocation policies,
impacts on jurisdictional profitability.

2. Increased transparency and documentation requirements

Pillar Two reinforces the importance of consistent and standardized reporting, including:

– Country-by-Country Reporting (CbCR),

– financial statements adjusted to GloBE Income,

– mandatory reconciliations between accounting and tax data.

Inconsistencies between TP documentation and GloBE calculations may result in significant risks, penalties, and reclassifications.

3. Need to evaluate tax incentives and special regimes

Tax incentives — such as Special Zones, state tax credits, and innovation regimes — may affect the ETR and trigger top-up tax.

Analysis must consider:

compatibility of local incentives with GloBE rules,
risk of a tax benefit being neutralized by top-up tax,
impact on the company’s global strategy.

4. Restructuring of global value chains and business functions

Compliance with the global minimum tax may require:

– relocation of risk-taking and decision-making functions,

– revision of intercompany agreements,

– changes to IP (intellectual property) ownership location,

– adjustments to principal entity models.

Alignment between function, risk, and economic substance becomes even more critical.

What Global Companies Should Prepare Now

1. Diagnose the global ETR and identify critical jurisdictions

Priority actions include mapping:

ETR by country,
jurisdictions at risk of top-up tax,
impacts on subsidiaries under special tax regimes.

2. Review Transfer Pricing policies

It is essential to review:

applied margins,
economic justification,
available documentation,
impacts on taxable income.

3. Align accounting and tax functions

GloBE calculations require a standardized set of financial data.

Without strong integration between departments, the risk of inconsistencies increases significantly.

4. Strengthen governance for intercompany decisions

With more dynamic audits and simultaneous demands from multiple jurisdictions, companies must enhance:

internal controls,
formal TP policies,
global compliance calendars,
continuous ETR monitoring.

5. Develop long-term strategic planning

Implementation of Pillar Two is not just an operational adjustment — it is a global shift requiring strategic vision.

Critical questions include:

Do our corporate structures still make sense?
Will tax incentives remain effective?
Is the global allocation of functions aligned with the new environment?

How Drummond Advisors Can Support Your Company

Drummond Advisors works alongside multinational groups, offering comprehensive support in:

– Transfer Pricing,

– ETR modeling and diagnostics under Pillar Two,

– adjustments to transfer pricing policies,

– compliance, documentation, and multilateral reporting,

– corporate reorganization and global restructuring,

– tax–accounting integration to meet GloBE requirements.

Our team is prepared to guide your company through adaptation to the new international landscape and ensure compliance, efficiency, and legal security.

Conclusion

The introduction of OECD Pillar Two represents one of the most significant regulatory milestones in international taxation, and its impact on transfer pricing is substantial. Companies that act early – adjusting policies, reviewing structures, and strengthening tax governance – will be better positioned to operate safely in the global environment emerging from 2025 onward.

Written by Marcos Ferreira, Content Analyst at Drummond Advisors, and Hanna Lauar, Associate Attorney at Drummond Advisors

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Global fiscal closing under new rules As the fiscal year draws to a close, multinational companies face a decisive moment: ensuring cross-border tax compliance and preparing reports that meet the requirements of multiple jurisdictions simultaneously.In today’s regulatory environment — marked by the implementation of initiatives such as the OECD Pillar Two, increased tax data integration, […]

/ By Marcos Ferreira

Global fiscal closing under new rules

As the fiscal year draws to a close, multinational companies face a decisive moment: ensuring cross-border tax compliance and preparing reports that meet the requirements of multiple jurisdictions simultaneously.
In today’s regulatory environment — marked by the implementation of initiatives such as the OECD Pillar Two, increased tax data integration, and digital audits — year-end closing is no longer just an accounting process. It has become a strategic stage that defines risk, efficiency, and the credibility of international operations.
In this article, the Drummond Advisors team highlights the main points of attention for globally structured companies and shares best practices for a secure and efficient fiscal year-end closing.

1. Reviewing international structures and double taxation risks

Before closing the books, it is essential to review the company’s legal and operational structure. With the new global minimum tax rules and differing Transfer Pricing interpretations across countries, the risk of double taxation or loss of tax credits has increased.
Best practices include:
• Assessing double taxation treaties and identifying tax relief opportunities;
• Reviewing the allocation of revenues and costs between headquarters and subsidiaries;
• Verifying whether entities in low-tax jurisdictions have sufficient economic substance;
• Updating Transfer Pricing policies according the IRS and the foreign jurisdictions

An annual tax diagnostic helps anticipate adjustments and prevent liabilities that may arise in future audits.

2. Meeting deadlines and local tax obligations

Each jurisdiction follows its own tax calendar. In the United States, for instance, the IRS requires filing of forms such as 5471, 1120-F, and FBAR for foreign companies, while in Brazil, filings such as ECF, ECD, and the CBE (Declaração de Capitais Brasileiros no Exterior) are essential.
For the 2025 year-end, global companies should pay attention to:
• U.S. federal and state obligations (including Sales Tax Nexus and State Returns);
• Reporting for controlled foreign corporations (CFCs) and affiliates;
• Updates to local registrations and licenses;
• Financial statements under IFRS or US GAAP;
• Compliance requirements for special-purpose entities (SPEs) and international holdings.
Centralizing this information within a unified tax governance structure facilitates monitoring and reduces the risk of inconsistencies.

3. Documentation and audit: transparency as a priority

Global pressure for tax transparency and traceability has grown significantly. Organizations such as the OECD and the IRS have intensified data sharing and reporting requirements for international financial flows.
Companies should ensure that:
• Country-by-Country (CbC) Reports are up to date and consistent with financial statements;
• Supporting documentation exists for intercompany transactions;
• Accounting and tax records are aligned with local Accounting and Tax requirements, where the company is based;
• Internal policies include compliance reviews and preventive audits.
A lack of robust documentation can lead to tax reclassifications and significant penalties.

4. Accounting consolidation and data reconciliation

For corporations with multiple subsidiaries across different countries, consolidating financial data can be challenging. Differences in time zones, currencies, and accounting standards require careful reconciliation — especially when reports are used for tax and international audit purposes.
To ensure consistency:
• Standardize chart of accounts across entities;
• Use integrated ERP systems and cloud platforms;
• Automate intercompany balance reconciliations;
• Maintain well-documented and traceable internal controls.
Integration between accounting and tax is the foundation of a successful global closing.

5. Tax planning for 2026: a strategic outlook

Year-end closing is not only the end of a cycle but the beginning of planning for the next one. Global companies should take this opportunity to:
• Identify opportunities for tax efficiency;
• Assess the impact of legislative changes, such as the One Big Beautiful Bill and Revenue Procedure 2025-28
• Review profit repatriation policies;
• Restructure supply chains and intercompany pricing models to match new regulatory realities.
A well-structured annual tax plan strengthens governance and promotes the long-term sustainability of global operations.

Conclusion: preparation is the key to international compliance

Cross-border tax compliance has become a competitive advantage. Companies that plan ahead, maintain strong governance, and follow international accounting and tax standards are better protected against fiscal risks, audits, and penalties.
At Drummond Advisors, our multidisciplinary team — composed of experts in accounting, tax law, and international structuring — supports companies in every aspect of cross-border tax compliance, from planning to year-end closing.
If your company operates globally, now is the time to review your practices and ensure full compliance.

Contact our specialists via the chat or email info@drummondadvisors.com to learn how we can help your organization close the year with confidence and tax efficiency.

Written by Marcos Ferreira, Content Analyst at Drummond Advisors, and Maikon Luiz, USA Coordinator at Drummond Advisors

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Why this topic matters for global companies With the approval of the tax package known as the One Big Beautiful Bill (OBBB), significant changes were introduced regarding research and experimental (R&E) expenses and accounting adjustments permitted under Revenue Procedure 2025-28 to align with the new §174 and §174A rules. If your Brazilian company operates in […]

/ By Marcos Ferreira

Why this topic matters for global companies

With the approval of the tax package known as the One Big Beautiful Bill (OBBB), significant changes were introduced regarding research and experimental (R&E) expenses and accounting adjustments permitted under Revenue Procedure 2025-28 to align with the new §174 and §174A rules.

If your Brazilian company operates in the U.S. or holds investments that involve R&E expenses, understanding and correctly applying these new guidelines is essential to avoid tax inconsistencies, penalties, or misstatements of expenses.

In this article, we will explore:

What Revenue Procedure 2025-28 is and its connection with the OBBB
Which accounting and tax elections are allowed
How companies should adjust their accounting methods
Key compliance risks
Practical steps for adaptation

What is Revenue Procedure 2025-28 (Rev. Proc. 2025-28)?

Issued by the IRS on August 28, 2025, the Rev. Proc. 2025-28 provides specific guidance on how taxpayers can make accounting elections and adjustments to comply with the OBBB’s amendments to research and experimental (R&E) expenses under §§174 and 174A.

Key highlights include:

Allows automatic accounting method changes (§446) to transition between historical and new R&E treatments.
Provides guidance on electing immediate expensing or amortization for domestic R&E expenses for tax years beginning after December 31, 2024.
Establishes transitional rules for foreign R&E expenses (which continue to be amortized over 15 years under the new §174).
Enables eligible small businesses to make retroactive elections for tax years 2022–2024.
Details procedures for attaching statements and filing Form 3115 (Application for Change in Accounting Method) when formal approval is required.

This Revenue Procedure fills gaps left after the OBBB enactment, offering clarity on how to treat expenses capitalized under the old regime.

Relationship between the OBBB and §174 / §174A

The One Big Beautiful Bill changed how research and experimental (R&E) expenses are treated:

Introduced §174A, allowing taxpayers to immediately deduct domestic R&E expenses instead of amortizing them over several years.
Maintains the 15-year amortization period for foreign R&E expenses under §174.
Adjusts related rules, such as §280C, to prevent double or abusive deductions.
Recognizes the need for accounting method changes and allows automatic transitions under Rev. Proc. 2025-28 in many cases.

In practical terms, companies that have historically capitalized their R&E expenses must now decide whether to:

Apply immediate deduction (when eligible),
Continue amortizing (if more advantageous), or
Use hybrid methods as permitted by the IRS.

Accounting Adjustments and Permitted Elections under Rev. Proc. 2025-28

Permitted elections and procedures

Most accounting method changes under Rev. Proc. 2025-28 qualify for automatic consent, requiring no prior IRS approval.
Non-automatic changes require filing Form 3115 with detailed justifications and financial information.
Eligible small businesses may apply retroactive elections for 2022–2024 to reflect R&E expenses under §174A.
Transition procedures are defined for short tax periods between January 1, 2025, and the law’s enactment date.

Practical examples of application

A company that capitalized R&E expenses prior to 2025 may elect to deduct the entire unamortized balance in the first year after 2024 (cut-off treatment).
Alternatively, it may choose to amortize the remaining balance proportionally over two years, as outlined in Rev. Proc. 2025-28.

Accounting and tax impacts

Immediate expensing may provide short-term cash flow and tax relief.
However, it can also introduce future result volatility and require reassessment of tax forecasts.
The decision between immediate deduction and amortization should be guided by cash flow simulations and aggregate tax impact analysis.

⚠️ Risks of Incorrect Elections

Failing to follow required procedures when changing accounting methods can result in incorrect adjustments and potential penalties.
Misapplying deductions or amortizations may create inconsistencies between tax filings and financial statements.
Insufficient documentation can weaken IRS audit defenses.
Ignoring available retroactive options for small businesses may lead to missed tax benefits.

Practical Roadmap for Adaptation

Step	Recommended Action
1	Map historical R&E expenses capitalized under §174
2	Simulate the impact of immediate deduction vs. amortization
3	Check small business eligibility for retroactive elections
4	Prepare attachments and statements for Form 3115 as required by Rev. Proc. 2025-28
5	Adjust tax and financial forecasts (US GAAP / ASC 740)
6	Document method changes and justifications clearly
7	Engage specialized advisory support for compliance and review

Conclusion

Revenue Procedure 2025-28 and the changes introduced by the One Big Beautiful Bill redefine the tax treatment of R&E expenses for U.S. companies — including subsidiaries and affiliates of Brazilian groups. For global businesses, properly adopting these accounting and tax elections is critical to maintaining compliance, optimizing tax outcomes, and avoiding inconsistencies.

At Drummond Advisors, we help Brazilian companies operating in the U.S. understand and apply these changes, structuring accounting and tax choices aligned with international best practices.

👉 Want to align your R&E planning with the new regulations seamlessly? Contact us via our live chat or email info@drummondadvisors.com for a personalized strategic analysis.

Written by Marcos Ferreira, Content Analyst at Drummond Advisors

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As organizações sem fins lucrativos exercem papel fundamental na promoção do bem-estar social, na defesa de direitos e no desenvolvimento de projetos de interesse público no Brasil. Diferentemente das sociedades empresárias, essas entidades não têm como objetivo gerar lucro para distribuição entre seus membros, mas sim realizar atividades voltadas ao interesse coletivo. Todo o eventual […]

/ By Drummond Advisors

Entre as formas jurídicas mais comuns para estruturar tais entidades estão as Associações e as Fundações Privadas, ambas reguladas pelo Código Civil (Lei nº 10.406/2002), com características e regimes jurídicos distintos.

Associações Privadas

As associações são constituídas pela união de, no mínimo, duas pessoas — físicas ou jurídicas, nacionais ou estrangeiras — que se organizam em torno de um objetivo comum não econômico. Suas finalidades podem ser diversas, tais como culturais, educacionais, ambientais, filantrópicas, esportivas ou sociais.

A constituição de uma associação exige a elaboração e o registro de seu Estatuto Social, da Ata de Assembleia de Constituição e dos Termos de Posse dos diretores perante o Registro Civil de Pessoas Jurídicas competente. Somente após esse registro a associação adquire personalidade jurídica.

A estrutura de governança pode variar, mas normalmente compreende:

Associados, que participam das deliberações e definem os rumos da entidade;
Diretoria, responsável pela gestão e representação legal;
Conselho Fiscal, encarregado da fiscalização financeira e administrativa.

No campo tributário, as associações podem ter acesso a imunidades e isenções tributárias previstas em lei. A Constituição Federal assegura imunidade tributária às entidades que atuem em educação ou assistência social, desde que atendam aos requisitos legais.
Além disso, há certificações específicas — como a OSCIP (Organização da Sociedade Civil de Interesse Público) e o CEBAS (Certificação de Entidade Beneficente de Assistência Social) — que ampliam benefícios e possibilitam a celebração de parcerias com o poder público.

Fundações Privadas

As fundações, por sua vez, não resultam da união de pessoas, mas da destinação de um patrimônio a uma finalidade específica de interesse público, de forma permanente. Sua existência é ligada aos bens doados e não à pessoa do instituidor.

O instituidor, que pode ser pessoa física ou jurídica, deve destinar bens livres (como dinheiro, imóveis ou participações societárias) por meio de escritura pública ou testamento, especificando as finalidades da fundação e a forma de sua administração. A propriedade desses bens deve ser transferida permanentemente para a fundação.

Embora a lei não estabeleça um valor mínimo de patrimônio, este deve ser suficiente e compatível com as finalidades pretendidas pela entidade, sob pena de indeferimento pelo Ministério Público, que exerce fiscalização obrigatória sobre as fundações.

O regime jurídico das fundações é mais rígido que o das associações. O Ministério Público Estadual (ou o Federal, quando a fundação tiver atuação nacional) acompanha e fiscaliza tanto a constituição quanto qualquer alteração estatutária. Além disso, a fundação deve prestar contas anualmente ao Ministério Público.

Em caso de extinção, o patrimônio da fundação deve ser destinado a outra fundação com fins semelhantes, salvo disposição diversa prevista em seu Estatuto.

Assim como as associações, as fundações, também podem se beneficiar de imunidades e isenções tributárias, desde que atendam aos requisitos legais específicos.

Principais Diferenças entre Associações e Fundações

Embora ambas sejam organizações sem fins lucrativos, há diferenças relevantes entre esses dois tipos jurídicos:

• Origem: a associação nasce da união de pessoas; a fundação, da destinação de um patrimônio a um fim específico.

• Flexibilidade: a associação possui maior autonomia para definir e alterar suas regras; a fundação é mais rígida, com alterações sujeitas à fiscalização do Ministério Público.

• Finalidade: as associações podem atuar em qualquer atividade lícita e não lucrativa; já as fundações só podem ter as finalidades listadas no artigo 62 do Código Civil (educação, saúde, cultura, pesquisa, assistência social, entre outras).

• Fiscalização: nas associações, o controle é exercido pelos próprios associados; nas fundações, há fiscalização obrigatória do Ministério Público, para garantir que o patrimônio seja utilizado corretamente.

Em termos práticos, a associação é indicada quando o objetivo é reunir pessoas em torno de um propósito comum, com maior flexibilidade de governança e facilidade de adaptação.
A fundação, por outro lado, é recomendada quando se deseja vincular um patrimônio a uma causa pública de forma estável, duradoura e sujeita à fiscalização externa, garantindo maior segurança quanto à preservação de suas finalidades originais.

Por: Caroline Gomes, Advogada Associada da Drummond Advisors

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Why is estate planning essential for Brazilian entrepreneurs living in the United States?Many Brazilian entrepreneurs who expand their businesses to the U.S. focus primarily on growth, corporate structure, and tax compliance. However, one crucial aspect often overlooked is estate planning. Issues related to inheritance, wills, and asset structuring are fundamental to protecting both the business […]

/ By Marcos Ferreira

Why is estate planning essential for Brazilian entrepreneurs living in the United States?
Many Brazilian entrepreneurs who expand their businesses to the U.S. focus primarily on growth, corporate structure, and tax compliance. However, one crucial aspect often overlooked is estate planning. Issues related to inheritance, wills, and asset structuring are fundamental to protecting both the business and the family in the event of death or incapacity.

Differences between Brazil and the United States

The estate system in the U.S. differs significantly from Brazil’s. Key differences include:

Will: In the U.S., wills are widely used to determine asset distribution, while in Brazil, the law imposes restrictions (such as forced heirship).
Estate tax: State tax can significantly impact the assets transferred.
Trusts: A tool widely used in the U.S. but still underutilized by Brazilians, trusts offer flexibility and asset protection.

Benefits of estate planning for Brazilian entrepreneurs in the U.S.

A well-structured estate plan can ensure:

Business continuity without prolonged court delays.
Reduction of costs related to taxes and probate fees.
Asset protection for heirs and business partners.
Clear guidelines for asset distribution, helping to avoid family disputes.

Strategic steps for Brazilian entrepreneurs in the U.S.

Review of assets: Map out wealth in both Brazil and the U.S.
Drafting a valid U.S. will: Ensure compliance with state and federal law.
Consider using trusts: As a tool for protection and succession.
International tax planning: Align strategies to prevent double taxation.
Specialized legal counsel: Work with professionals who understand both the American and Brazilian systems.

Conclusion

For Brazilian entrepreneurs in the U.S., estate planning goes beyond family matters—it is a strategic approach to protecting international businesses and assets. Proactively preparing wills, trusts, and tax planning strategies can prevent risks, high costs, and uncertainty for heirs and business partners.

👉 The Drummond Advisors team is ready to assist Brazilian entrepreneurs in the U.S. at every stage of the estate planning process, ensuring legal security and tax efficiency.

Written by Marcos Ferreira, Content Analyst at Drummond Advisors

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The revenue recognition is an accounting principle that asserts that revenue must be recognized as it is earned. The focus is on recognizing revenue at the time goods or services are delivered to customers, as opposed to when payment is made. The principle is regulated by similar standards in both the U.S. and internationally. For […]

/ By Paola Atzingen

For SaaS companies and service providers expanding between the United States and Brazil, revenue recognition can quickly become a complex topic. While U.S. GAAP (ASC 606) and Brazilian GAAP (CPC 47/IFRS 15) are built on the same five-step framework, the way the rules play out in practice isn’t always identical. Understanding these nuances is critical for finance leaders, controllers, and founders navigating cross-border operations.

One of the biggest areas of difference lies in implementation costs. Under U.S. GAAP, many cloud implementation expenses can be capitalized and amortized over the contract term. By contrast, Brazilian and IFRS rules usually require these costs to be expensed immediately—unless they result in a separable intangible asset.

Another key consideration is how to classify SaaS versus software licenses. SaaS arrangements are almost always recognized over time, reflecting the ongoing nature of service delivery. Licenses, however, can fall into two categories: point-in-time recognition (when control of the software transfers) or over-time recognition (when updates or access rights significantly affect utility). In Brazil, auditors will pay particular attention to documentation to ensure the classification supports both accounting and tax treatments.

Finally, Brazilian taxes add an extra layer of complexity. Levies such as PIS, COFINS, ISS, and withholdings (IRRF/CSRF) directly impact revenue presentation and cash flow. Companies must make sure their contracts clearly define whether values are gross or net, as this affects how revenue is reported and how cash is collected.

Despite these differences, the core principles remain the same. Both standards require identifying the contract and performance obligations, determining the transaction price, allocating it appropriately, and recognizing revenue either over time or at a point in time. Setup or activation fees are rarely recognized upfront and are generally deferred.

ASC 606 and CPC 47 usually result in similar revenue timing, but companies must carefully manage cost treatment, tax rules, and documentation to ensure compliance in both jurisdictions. For SaaS and service businesses aiming to scale internationally, having clear policies and audit-ready documentation is not just good practice—it’s a strategic necessity.

To know more about the differences in revenue recognition, and other aspects of business’ accounting, contact our specialists at Drummond Advisors! #LetsDoItTogether!

Written by Paola Von Atzingen, from the Drummond Advisors team

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Initial Concepts In the United States, non-profit organizations are primarily characterized by their ability to raise funds to support specific causes. All funds raised are reinvested into the organization’s institutional purposes, and profit distribution among members is strictly prohibited. In this context, the central focus of non-profits lies in allocating resources toward activities aligned with […]

/ By Drummond Advisors

Initial Concepts

In the United States, non-profit organizations are primarily characterized by their ability to raise funds to support specific causes. All funds raised are reinvested into the organization’s institutional purposes, and profit distribution among members is strictly prohibited.

In this context, the central focus of non-profits lies in allocating resources toward activities aligned with their social objectives, rather than distributing profits among members, as occurs in traditional business models. This distinction underscores the community-oriented nature of non-profits, aimed at promoting direct or indirect benefits to society.

Because of this community purpose, non-profits may qualify for tax incentives. When legally organized as tax-exempt entities, the Internal Revenue Code (IRC) provides for federal tax exemption—a topic to be further addressed in a separate section.

Structural Model

The organizational structure of non-profits closely resembles that of corporations. However, despite these similarities, non-profits have unique characteristics that reflect their institutional nature and absence of profit-making objectives.

In general, forming a non-profit requires drafting basic corporate documents such as the Articles of Incorporation—the certificate that establishes the organization’s legal existence with the state—and the Bylaws, which govern the entity’s internal operations, division of responsibilities, and governance standards.

A non-profit is managed by a Board of Directors, responsible for defining the entity’s strategic direction and ensuring compliance with its mission. In addition, Officers (such as President, Secretary, Treasurer, and others appointed as needed) oversee day-to-day operations and coordinate activities.

These executive positions are also present in corporations, as are the Articles of Incorporation and Bylaws. Thus, certain organizational similarities exist between a non-profit and a corporation.

The main distinction, however, lies in shareholder presence. Corporations have shareholders who own stock and are entitled to profit and dividend distribution. Non-profits, on the other hand, have no shareholders. In some states, non-profits may have members, but these members do not hold equity interests and cannot receive profit distributions.

All financial surplus must be fully reinvested into the organization in line with its charitable and social purposes. Compensation to Directors and Officers may be provided for services rendered, but this is not considered profit distribution—rather, it is treated as pro rata compensation.

Tax Benefits

As mentioned, non-profits with philanthropic objectives may qualify for federal tax benefits. To do so, they must meet the requirements under Section 501(c)(3) or 501(c)(4) of the IRC, along with additional criteria imposed by the Internal Revenue Service (IRS), including restrictions on political activity and limitations on private benefit distribution.

These two categories represent the most common forms of tax-exempt organizations, each with distinct purposes and criteria. Both are considered tax-exempt entities, meaning they are exempt from paying federal income tax, provided applicable legal requirements are met.

Section 501(c)(3) covers organizations operated exclusively for charitable, religious, educational, scientific, or literary purposes, among others. In addition to tax exemption, this status allows donations to be tax-deductible for donors—an important incentive for fundraising.
Section 501(c)(4) includes entities organized to promote social welfare, such as civic leagues, community organizations, and advocacy groups. Unlike 501(c)(3), these organizations enjoy greater freedom in political engagement, including lobbying and certain limited political activities.

Choosing between 501(c)(3) and 501(c)(4) depends on the organization’s purpose and the degree of political activity it intends to pursue. Both provide relevant tax advantages and serve as critical tools for advancing public-interest initiatives in the U.S.

Non-profits may generate revenue by offering products or services related to their mission, and such income is typically tax-exempt. However, a portion of their activities may fall outside exempt purposes, in which case the organization becomes liable for taxes on Unrelated Business Income (UBI), as outlined in IRC Sections 511–515 and Treasury Reg. Sec. 1.501(c)(3)-1(e)(2).

UBI is generally defined as income from regularly conducted trade or business activities not substantially related to the organization’s exempt purposes, and which compete with for-profit businesses.

Both the IRS and federal courts have held that when non-exempt revenues exceed a certain threshold, a non-profit may lose its tax-exempt status.

Obtaining 501(c)(3) Status

After registering with the state via Articles of Incorporation, a non-profit seeking federal tax exemption under Section 501(c)(3) must file an application with the IRS.

Eligible small organizations may use Form 1023-EZ, a streamlined version of the traditional application designed for entities with simpler operations and limited revenue.
Larger or more complex organizations must file Form 1023, which provides detailed information about governance, finances, and activities (e.g., hospitals, universities, and research institutions).

Once recognized as tax-exempt under 501(c)(3), the organization’s income is generally free from federal tax, donors may deduct contributions, and mission-related revenue is exempt.

This exemption, however, does not extend to individuals working for the organization. Employees, Officers, Directors, and service providers must report compensation as taxable income under IRS rules.

Obtaining 501(c)(4) Status

Non-profits primarily dedicated to promoting social welfare may seek tax exemption under Section 501(c)(4) of the IRC. Unlike 501(c)(3), they are not limited to charitable, educational, or religious purposes but must be organized exclusively to advance public welfare and civic engagement.

To obtain 501(c)(4) status, organizations must file Form 1024-A, which requires detailed information about governance, funding, operations, and planned activities. Unlike 501(c)(3), there is no simplified version of this form.

Once approved, revenues related to the mission are exempt from federal tax. However, unlike 501(c)(3), donations to 501(c)(4) entities are not tax-deductible for donors, except in rare cases.

Retroactive Effect of Tax-Exempt Status

When an organization files its application, the IRS reviews it and, if approved, issues a Determination Letter granting tax-exempt status.

Processing times vary: about 90 days for Form 1023-EZ and up to 180 days for Form 1023.
Approval is retroactive to the filing date, meaning donations made while the application was pending may still qualify as deductible once exemption is granted.

During review, the organization must comply with all federal and state filing obligations, reinforcing the importance of accounting oversight from the outset.

Transfer of U.S. Non-Profit Funds to NGOs in Brazil

Private non-operating foundations are often used to distribute funds to other organizations that will conduct charitable activities. These U.S. foundations may transfer funds to foreign entities, including Brazilian NGOs, provided they comply with IRS rules to avoid excise taxes under IRC Sections 4942 and 4945.

A foreign organization may seek recognition as a 501(c)(3) charity by obtaining an IRS Determination Letter, qualifying it to receive tax-deductible contributions. If no determination exists, the U.S. foundation must either:

Make a good-faith equivalency determination (Revenue Procedure 2017-53), certified by a qualified tax professional (attorney, CPA, or enrolled agent), valid for two tax years; or
Exercise expenditure responsibility, requiring oversight of how grants are used, collection of detailed reports, and compliance reporting to the IRS.

Failure to comply results in taxable expenditures, subjecting both the foundation and its managers to excise taxes under IRC Section 4945(a) and (b).

Case Study

The case of Memorial Hermann Accountable Care Organization (MHACO), a Texas-based non-profit, illustrates challenges under Section 501(c)(4). The U.S. Court of Appeals for the Fifth Circuit denied MHACO’s request for exemption, ruling that its activities primarily benefited private health insurers rather than the community at large.

The Court applied the stricter Substantial Nonexempt Purpose Test rather than the Primary Purpose Test, holding that even one substantial non-exempt activity is sufficient to disqualify an organization.

MHACO argued that federal courts should defer to agency interpretations under the Chevron Deference doctrine. However, following the Supreme Court’s recent ruling in Loper Bright Enterprises v. Raimondo, which overturned Chevron, the Court of Appeals exercised independent judgment, rejecting MHACO’s position.

This shift increases judicial discretion and legal uncertainty, as courts may now apply varying interpretations of what constitutes “primarily” social welfare activity under Section 501(c)(4).

The ruling underscores the need for non-profits to carefully structure operations to ensure all significant activities—not just their primary purpose—align with statutory requirements for tax exemption.

Written by Marina Saraiva, Corporate Team Intern at Drummond Advisors, and Flavia Sobral, Deputy Leader at Drummond Advisors