Tax Publication

Redefining the Starting Line - Q3 2026

Insight
5 minute read
October 06, 2026

Welcome to the third issue of Redefining the Starting Line, your quarterly guide to navigating the shifting terrain of state income tax compliance after the One Big Beautiful Bill Act (OBBBA). As we continue through 2025 compliance season and embark on the tax provision season for 2026, we will continue our examination of key changes post-OBBBA that can affect the state tax starting line. While our previous issues discussed certain of those changes (IRC Sections174/174A), this issue will focus on IRC Section 163(j) and in particular the effects conformity to that provision have on state taxable income. Finally, we will end with a discussion of IRC Section 59(e) – a provision that had relevance prior to the Tax Cuts and Jobs Act (TCJA), but that was largely dormant with respect to Section 174 in 2022 through 2024 when all R&E expenses were capitalized under the TCJA. Now, post–OBBBA, taxpayers are evaluating this election at the federal level and assessing the potential downstream impacts it may have on the state income tax starting line.

In this issue

“DA” importance of Section 163(j) conformity

History
State approaches
- Conscious decoupling to pre-TCJA/no limitation
- Decoupling to TCJA
- Modifications
Why does it matter?

A new view on an old provision—conformity to Section 59(e)