OBBBA Updates 2026: Key Changes, Impacts, and What Businesses Need to Know

The landscape of international tax compliance is changing rapidly, and the 2026 updates to the Outbound Base Erosion and Anti-Abuse (OBBBA) rules represent a major regulatory shift for U.S. multinational companies. Often referred to alongside the One Big Beautiful Bill Act (OBBBA) — the sweeping U.S. tax reform legislation passed in late 2025 — these changes touch everything from corporate tax rates to small business deductions. In this article, we break down the most important changes coming in 2026, outline how businesses can prepare, and answer some of the most common questions about OBBBA compliance.

 

 

What is OBBBA?

OBBBA, or Outbound Base Erosion and Anti-Abuse, is a set of tax rules designed to prevent profit-shifting and tax base erosion by U.S. multinational corporations. The regulations primarily target outbound payments that could erode the U.S. tax base, ensuring that profits are taxed appropriately.

The 2026 OBBBA updates are part of the broader One Big Beautiful Bill Act, a landmark piece of tax legislation that Congress passed to overhaul key sections of the Internal Revenue Code. The Act addresses everything from individual tax brackets and standard deductions to corporate tax incentives and international reporting obligations. For business owners, understanding how the OBBBA provisions fit within this larger legislative framework is essential to maximizing deductions and avoiding costly penalties.

The original base erosion and anti-abuse tax (BEAT) was introduced under the Tax Cuts and Jobs Act (TCJA) in 2017. The 2026 OBBBA updates refine and expand these provisions, reflecting the government’s continued focus on closing loopholes that allow multinational corporations to shift profits offshore. However, the One Big Beautiful Bill Act also introduces several pro-business provisions — including enhanced depreciation schedules, expanded Section 199A deductions, and new credits for domestic investment — that can offset these compliance burdens for qualifying businesses.

The One Big Beautiful Bill Act: What Business Owners Should Know

The One Big Beautiful Bill Act (OBBBA) is one of the most significant pieces of tax legislation since the TCJA. Signed into law in late 2025 with key provisions taking effect in 2026, the Act aims to simplify certain areas of the tax code while strengthening enforcement in others. Here are the major pillars of the legislation that affect businesses:

• Extended and Enhanced Section 199A Deduction: The qualified business income (QBI) deduction for pass-through entities has been made permanent and expanded, allowing eligible sole proprietors, partnerships, and S-corporations to deduct up to 23% of qualified business income.
• Accelerated Depreciation: 100% bonus depreciation has been reinstated for qualified property placed in service during 2026 and 2027, reversing the phase-down that began in 2023.
• R&D Expense Treatment: The requirement to amortize research and experimental expenditures over 5 years (domestic) or 15 years (foreign) has been repealed — businesses can once again immediately expense R&D costs.
• Interest Deduction Limitations: The Section 163(j) business interest limitation has been modified to use EBITDA rather than EBIT as the basis for the 30% threshold, providing relief for capital-intensive businesses.
• Strengthened International Enforcement: The OBBBA base erosion provisions described in this article are part of the Act’s international enforcement arm, designed to ensure that domestic tax benefits are not offset by aggressive profit-shifting.

Overview of 2026 OBBBA Updates

• Increased Reporting Requirements: New Form 8990-S introduced for 2026 filings.
• Lower Base Erosion Threshold: The base erosion percentage drops from 3% to 2.5% for large corporations.
• Expanded Scope: Passive investment income now included in base erosion calculations.
• Stricter Penalties: Late or inaccurate disclosures subject to a minimum $50,000 fine.
• Revised Safe Harbor Rules: The 2026 update expands criteria, but narrows eligibility toward businesses with domestic reinvestment.

Detailed Breakdown of Each Major Change

1. New Form 8990-S Reporting Requirements

The introduction of Form 8990-S is one of the most operationally significant changes in the 2026 update. This supplemental form requires businesses to provide a granular breakdown of all outbound payments to related foreign entities, categorized by payment type (services, royalties, interest, rent, and passive income). Unlike the existing Form 8990, the new form requires quarterly data points even though it is filed annually. This means businesses need to track and categorize payments throughout the year rather than reconstructing data at filing time.

The form also introduces a new transfer pricing documentation attachment requirement. Businesses must include a summary of their transfer pricing methodology for any related-party transaction exceeding $500,000 in aggregate annual value. This is a significant step toward aligning U.S. reporting with OECD Base Erosion and Profit Shifting (BEPS) standards.

2. Lower Base Erosion Threshold (3% to 2.5%)

The reduction of the base erosion percentage from 3% to 2.5% may seem modest, but it has the potential to pull thousands of additional companies into OBBBA compliance. A company with $200 million in total deductions would now trigger the threshold at $5 million in base erosion payments rather than $6 million — a difference that could catch mid-market companies that previously fell below the radar.

For businesses near the threshold, this change makes proactive tax planning more important than ever. Restructuring certain intercompany transactions or reclassifying payment types could mean the difference between falling inside or outside the OBBBA net.

3. Passive Investment Income Inclusion

Previously, passive investment income — such as dividends, interest from foreign subsidiaries, and certain rental income — was excluded from base erosion calculations. Under the 2026 rules, these income streams are now included. This change particularly impacts companies with holding company structures or those that use foreign entities to manage investment portfolios.

The practical effect is that businesses with foreign investment income may see their base erosion percentage increase significantly, even if their operational outbound payments have not changed. This makes it critical to review all foreign entity relationships, not just those involving operational transactions.

4. Stricter Penalty Structure

The jump from a maximum $20,000 penalty to a minimum $50,000 penalty represents a fundamental shift in the IRS’s enforcement posture. Under the old rules, penalties were often seen as a manageable cost of doing business. The new minimum makes non-compliance genuinely expensive, and the penalty scales upward based on the size of the underreported base erosion payments — potentially reaching $250,000 or more for significant omissions.

Additionally, the 2026 rules introduce a willful negligence multiplier that can double penalties when the IRS determines that a company knowingly failed to report or materially misrepresented its base erosion calculations. This places a premium on accurate, well-documented compliance processes.

5. Revised Safe Harbor Rules

The safe harbor provisions have been restructured to reward companies that invest domestically. Under the new rules, businesses that can demonstrate that at least 70% of their capital expenditures are directed toward U.S.-based operations may qualify for an elevated safe harbor threshold. This means eligible companies would need to reach a higher base erosion percentage before OBBBA applies, effectively reducing their compliance burden.

However, the eligibility criteria are narrower: companies must maintain detailed records of their capital expenditure allocations and submit supporting documentation with their annual filing. For businesses with significant domestic reinvestment plans, this presents an opportunity to reduce exposure — but it requires advance planning and meticulous record-keeping.

Key Impacts on Multinational Businesses

These changes require significant adjustments in compliance, data tracking, and subsidiary reporting. Multinationals with complex offshore structures are particularly affected by the inclusion of passive income and the lower threshold for base erosion payments.

Example: Impact Table for a U.S. Corporation

2025 (Current) Rules	2026 Updates
Base Erosion %: 3%	Base Erosion %: 2.5%
No requirement for passive income inclusion	Passive income included
No Form 8990-S	Form 8990-S mandatory

Practical Impact on Small Businesses

While the OBBBA base erosion provisions primarily target large multinational corporations, the broader One Big Beautiful Bill Act has far-reaching implications for small businesses. Here is how typical small business owners may be affected:

Scenario 1: Sole Proprietor With $250,000 Net Income

A sole proprietor earning $250,000 in qualified business income can now deduct up to 23% ($57,500) under the enhanced Section 199A provision, compared to the previous 20% ($50,000). This translates to approximately $1,750 in additional tax savings at the 24% marginal rate. Combined with reinstated bonus depreciation on equipment purchases, a small business owner who invests $50,000 in new equipment could see total tax savings exceeding $20,000.

Scenario 2: S-Corp With Foreign Contractors

An S-corporation that pays $150,000 annually to foreign contractors for software development should be aware of the expanded OBBBA scope. While this amount likely falls below the base erosion threshold, the reporting landscape is changing. Businesses that work with foreign vendors should begin tracking these payments more carefully, as thresholds could continue to tighten in future updates.

Scenario 3: LLC With Commercial Real Estate

A real estate LLC placing a $1.2 million commercial property into service in 2026 can take advantage of reinstated 100% bonus depreciation on qualifying improvements and personal property components. Using cost segregation studies, the owner could accelerate hundreds of thousands of dollars in deductions into the first year, dramatically reducing taxable income.

2026 Compliance Timeline

Staying ahead of the OBBBA compliance deadlines is critical. Here is the key timeline for the 2026 filing season:

Date	Action Required
January 1, 2026	New OBBBA rules take effect. Begin tracking quarterly outbound payment data.
March 15, 2026	S-Corp and partnership returns due (Form 1120-S / 1065). Early OBBBA assessment recommended.
April 15, 2026	Individual and C-Corp filing deadline. First quarterly estimated tax payment due under new rates.
June 15, 2026	Second quarterly estimated payment. Mid-year OBBBA threshold review recommended.
September 15, 2026	Extended S-Corp/partnership deadline. Third quarterly estimated payment.
October 15, 2026	Extended individual return deadline. Form 8990-S must be attached if applicable.
December 31, 2026	Final date to make qualifying capital expenditures for safe harbor eligibility and bonus depreciation.

Comprehensive Comparison: Old Rules vs. 2026 OBBBA Updates

The following table provides a side-by-side comparison of the most significant regulatory changes under the 2026 OBBBA updates and the broader One Big Beautiful Bill Act:

Provision	Previous Rule (2025)	2026 OBBBA Update
Base Erosion Threshold	3%	2.5%
Passive Income in Calculations	Excluded	Included
Supplemental Reporting Form	Not required	Form 8990-S mandatory
Penalty for Non-Compliance	Up to $20,000	Minimum $50,000 (up to $250,000+)
Transfer Pricing Documentation	Optional attachment	Required for transactions over $500K
Safe Harbor Eligibility	Broad criteria	Narrowed to 70%+ domestic CapEx
Section 199A QBI Deduction	20% (set to expire)	23% (made permanent)
Bonus Depreciation	60% (phase-down)	100% reinstated through 2027
R&D Expense Treatment	Amortized over 5/15 years	Immediate expensing restored
Section 163(j) Interest Limitation	30% of EBIT	30% of EBITDA

How Can Businesses Prepare?

• Start Reviewing Payment Flows: Identify all outbound payments to related foreign entities, especially those classified as passive income.
• Update Record Systems: Ensure accounting systems can adapt to the new reporting fields on Form 8990-S.
• Consult With Tax Advisors: Engage with an international tax expert to assess exposure and redesign your tax planning strategies.
• Staff Training: Train relevant teams regarding the interpretation and completion of new forms and compliance obligations.
• Evaluate Bonus Depreciation Opportunities: Identify assets that qualify for reinstated 100% bonus depreciation and consider accelerating purchases into 2026.
• Revisit Entity Structure: With the enhanced QBI deduction, consult with your tax advisor about whether your current entity structure still provides optimal tax treatment.
• Document Domestic Capital Expenditures: If you may qualify for the revised safe harbor, begin tracking and documenting all U.S.-based capital expenditures immediately.

Frequently Asked Questions About OBBBA 2026

What transactions are subject to OBBBA in 2026?

Any outbound payment to a foreign affiliate or related party, including those for services, royalties, and passive investments, where the total meets or exceeds the new threshold. Under the 2026 rules, passive investment income is now included in these calculations, broadening the scope of transactions that must be evaluated.

What is the penalty for late Form 8990-S submission?

There is a minimum $50,000 penalty for late or inaccurate filings effective for 2026 returns. Penalties can escalate to $250,000 or more for significant omissions, and a willful negligence multiplier can double the amount if the IRS determines intentional non-compliance.

How does the threshold change impact eligibility?

With a lower threshold (2.5% down from 3%), more companies will be exposed to OBBBA compliance. Conduct a base erosion percentage calculation early in the year. A company with $200 million in total deductions would now trigger the threshold at $5 million in base erosion payments rather than $6 million.

Does the update affect small businesses?

Most OBBBA base erosion changes target large multinational corporations, but companies near the new threshold should be vigilant. More importantly, the broader One Big Beautiful Bill Act contains significant benefits for small businesses, including the enhanced 23% QBI deduction, reinstated 100% bonus depreciation, and restored immediate R&D expensing. Small business owners should consult with a qualified tax professional to take full advantage of these provisions.

Where can I access Form 8990-S instructions?

The IRS provides updated guidance: IRS Form 8990-S Instructions. It is recommended to review these instructions early in the filing season and work with your tax advisor to ensure all required data points are captured throughout the year.

What is the One Big Beautiful Bill Act and how does it relate to OBBBA?

The One Big Beautiful Bill Act is a comprehensive U.S. tax reform law passed in late 2025. The OBBBA base erosion provisions are part of the Act’s international enforcement section. However, the Act also includes numerous pro-business provisions such as an enhanced QBI deduction, reinstated bonus depreciation, and restored immediate R&D expensing. Together, these provisions represent both new compliance obligations and new savings opportunities for businesses.

How can I qualify for the revised safe harbor rules?

To qualify for the 2026 safe harbor provisions, businesses must demonstrate that at least 70% of their capital expenditures are directed toward U.S.-based operations. This requires maintaining detailed records of capital expenditure allocations and submitting supporting documentation with your annual tax filing. Companies that meet this threshold may benefit from a higher base erosion percentage trigger, effectively reducing their OBBBA compliance burden.

Should I change my business entity structure in response to the 2026 changes?

The enhanced Section 199A deduction (now 23% and permanent) makes pass-through entity structures more attractive for many business owners. However, entity structure decisions involve numerous factors beyond tax rates, including liability protection, state tax implications, and ownership flexibility. Work with a qualified tax professional to evaluate whether a restructuring makes sense for your specific situation.

What happens if my business exceeds the new base erosion threshold unexpectedly?

If your business crosses the 2.5% base erosion threshold, you will be required to file Form 8990-S and may be subject to the base erosion and anti-abuse tax (BEAT). The BEAT functions as a minimum tax, requiring affected companies to pay the higher of their regular tax liability or the BEAT amount. This is why mid-year threshold assessments are strongly recommended — catching a potential threshold breach early allows time to restructure payments or take corrective action before year-end.

Practical Checklist for the 2026 Filing Season

• Assess base erosion risk and calculate new applicable thresholds.
• Review payments for previously excluded passive income.
• Audit subsidiary and affiliate payment structures.
• Align compliance teams and external advisors for 2026 changes.
• Test electronic filing systems with the new IRS forms.
• Evaluate equipment and property purchases for 100% bonus depreciation eligibility.
• Calculate your updated QBI deduction under the enhanced 23% rate.
• Review R&D spending for immediate expensing opportunities.
• Document domestic capital expenditures for potential safe harbor qualification.

Resources and Further Reading

• OBBBA Compliance Guide 2026
• International Tax Basics
• IRS International Businesses Resource
• U.S. Treasury Department Tax Policy
• 2026 Tax Update Checklist
• Tax Foundation: Base Erosion in the U.S.
• Uncle Kam Tax Planning Services
• Cost Segregation Studies

Summary Table: 2026 OBBBA Major Changes

Change	Old Rule	2026 Update
Base Erosion Threshold	3%	2.5%
Passive Income	Excluded	Included
Form 8990-S	Not required	Required
Penalties	Up to $20,000	Minimum $50,000

Conclusion

OBBBA updates for 2026 represent significant changes for U.S.-based multinational corporations. Early preparation, clear communication with tax professionals, and leveraging updated guidance will be critical to staying compliant. At the same time, the broader One Big Beautiful Bill Act offers substantial opportunities for small and mid-sized businesses to reduce their tax burden through enhanced deductions, reinstated bonus depreciation, and restored R&D expensing.

Whether you are a multinational navigating new base erosion thresholds or a small business owner looking to maximize the new deduction opportunities, proactive planning is the key to success. For tailored advice, visit our International Tax Help page or contact Uncle Kam to schedule a consultation with a qualified tax advisor.