Advisory — Tax-Benefit Areas to Investigate¶

Purpose: Surface under-utilized tax opportunities beyond what's already listed in tax/2025-filing-prep.md and tax/tax-strategies-reference.md. Ordered by leverage for Austin's specific fact pattern: single owner, disregarded US stack, $3.43M NOL already on the books, two foreign corporations, real estate heavy.

Lens: Every item here needs Pearce Bevill's confirmation before action. Several interact with each other and with the check-the-box question that's still open on RHG and GK. A few are "free" (documentation-only); a few require meaningful setup.

Written: 2026-04-20. Not tax advice.

Framing: optimize for NOL preservation + basis stacking, not current tax¶

The 2024 return generated a $3,429,659 NOL carryforward. Current federal tax is already $0. Strategy inversion: the goal is not to reduce this year's tax bill (can't go below zero), it is to grow and protect the NOL stack so it absorbs future ordinary income efficiently. This reframes many conventional tax moves:

Accelerated depreciation: still good, but extends NOL duration rather than producing a current refund.
§1031 exchanges: less attractive — a taxable sale with NOL absorption is often simpler.
Income timing: defer when you can; the NOL needs time to grow, not to be consumed early.
Basis tracking: critical. When the NOL eventually runs out (liquidity event), basis is the next-line defense.

With that in mind, the items below are organized by "what kind of benefit does this produce?"

Category A — Items that directly stack additional NOL¶

A1. Cost segregation on Casa Moksha¶

Already noted in tax-strategies-reference.md. Expanding here with the specifics.

Fact pattern: RHG owns Casa Moksha. ~$1.5–2M estimated building basis (confirm from CFDI + JME records). 2025 had substantial capex: palapa (Don Sebastian $30K+), water system enclosure (Paola Maria), drain well (Geodrilling), generator (Eran $38K+), HVAC (Frigotek), biodigestor, security cameras (Nelsy $47K+). If capitalized properly (see accounting/advisory-best-practices.md §3), 2025 capex could total $200K+ on top of building basis.

Benefit magnitude: A cost-seg study typically reclassifies 20-35% of building basis from 27.5/39-year to 5/7/15-year life. Applied to RHG's building + 2025 improvements: - $1.5M building × 25% reclass × 5-yr bonus (or current bonus phase-down) = ~$375K front-loaded depreciation - Plus any reclassification of the 2025 capex — additional $50K+ front-loaded

Contingencies: 1. Check-the-box answer required first. If RHG is per-se corporation (default), cost seg happens inside RHG's Mexican books under Mexican depreciation rules — different animal, marginal US benefit. If disregarded via 8832 election, cost seg flows through to Austin's 1040 and stacks against NOL. 2. Mexican depreciation rules on Casa Moksha assets may not mirror US MACRS, creating a US/Mexico book difference. Not fatal but needs JME coordination. 3. Cost-seg firm cost: typically $8-15K for a hotel-scale study. Engagement memo should specify US + Mexican output.

Action: Pearce call on CTB answer → if disregarded, engage cost-seg firm with hospitality + Mexican property experience.

A2. Cost segregation on Mita Garden Hills¶

Fact pattern: GK owns Mita. Basis is provisional — original sales-contract base ¥760M (~$5M-ish), but Austin made property changes during build-out and the actual amount paid is higher. Numbers below are placeholders until the Special Changes Addendum + wires are reconciled. See context/entities.md § "Mita Garden Hills 1009 — acquisition story". Appreciated to ~$14.5M; basis for depreciation is cost, not fair value. High-end new-construction Tokyo condo.

Benefit magnitude (illustrative, basis TBD): Same 20-35% reclassification principle. ~$5M × 25% × bonus = ~$1.25M front-loaded — re-run once true basis lands. Interacts with Japanese depreciation rules (different recovery periods, different base-vs-improvement allocation).

Contingencies: 1. Check-the-box answer required first. If per-se corporation, benefit sits in GK's Japanese books. 2. Larger issue — PFIC. If GK is PFIC, depreciation treatment is downstream of the PFIC regime (QEF vs. MTM vs. Excess Distribution). Until PFIC is resolved, cost seg decisions on Mita are premature. 3. Closing-document basis allocation between land and building hasn't been pulled yet (Mita closing statement pending upload). Japan may report these differently from US norms; Pearce will need a reallocation.

Action: This is downstream of Pearce's PFIC analysis and CTB answer. Sequence: (1) PFIC, (2) CTB, (3) basis reallocation, (4) cost seg evaluation.

A3. Short-term rental loophole — Casa Moksha and Oceana 433¶

Already in tax-strategies-reference.md. Two points to sharpen:

Casa Moksha: - Average-stay test: Airbnb/VRBO/Booking.com booking exports will show this directly. Based on "retreat" framing and boutique-hotel positioning, avg stay ≤7 days is plausible. Need to confirm. - Material participation test is the hard one. Austin doesn't live in Tulum; Miroslava runs day-to-day. "More than 500 hours" is tough without on-site presence. Alternative test: "substantially all participation" — also tough with a full-time property manager. Most viable test: "more than 100 hours AND more than anyone else." 100 hours/year = ~2 hours/week of documented Casa Moksha work (travel, calls with JME and Miroslava, marketing decisions, booking-platform management, vendor negotiations). Plausible if Austin logs it. - Material participation requires contemporaneous log, not retrospective reconstruction. This is a forward-looking 2026+ play, not a 2025 retrofit.

Oceana 433: - Personally held via fideicomiso. Schedule E, simpler US tax path. No CFC overlay. - Same avg-stay + material-participation tests. Same logging requirement. - Smaller economic size (~$850K property) but cleaner execution.

Contingency: If CTB makes RHG disregarded, the CM STR play flows to Austin's 1040. If RHG stays per-se corp, STR loophole doesn't help Austin directly — the losses stay inside RHG.

Action: Begin participation hour log now (or by 2026-07-01 at the latest for a 2026 position) for both properties. Even if check-the-box is deferred, the hours can't be reconstructed later.

A4. §469©(7) real estate professional status — long shot¶

What: Normally rental real estate is passive. The §469©(7) election allows real estate professionals to treat rentals as non-passive, unlocking loss flow-through against ordinary income.

Requirements: 1. >50% of personal services performed in real property trades or businesses 2. >750 hours/year in real property trades or businesses in which the taxpayer materially participates

Fact pattern for Austin: - E.A. Renfroe & Company (RENFROE) is the day job — claims management, not real estate. The hours spent there don't count. - Time spent managing W 3101, Oceana 433, Casa Moksha (if material participation), Mita (if GK is disregarded), Five Points, marine properties does count. - 750 hours = ~14.5 hours/week. Possible if Austin's non-RENFROE time is concentrated on real estate. But the >50% test is probably the blocker — RENFROE is full-time.

Likelihood: Low, given RENFROE takes majority of Austin's time. But worth a Pearce conversation — there may be a year where RENFROE scales down or Austin re-orients and this becomes available.

If achievable: Unlocks losses from W 3101, Oceana 433, Casa Moksha (if disregarded), and Mita (if disregarded) without STR-loophole gymnastics. (Five Points BHM is pre-revenue commercial — no rental losses to unlock yet; relevant if/when it begins generating leasing income.)

A5. Red Farm §165(g) — book the loss correctly¶

Already flagged in tax/2025-filing-prep.md item #8. Two points of emphasis:

$120,833 loss character matters. Ordinary (under §1244 small business stock) vs. capital. §1244 requires specific corporate election at issuance — check whether Red Farm qualified.
When did it become worthless? Formal dissolution, final distribution, abandonment — each has a different trigger date. If 2026, not 2025, this is a 2026-return item. Austin should gather the dissolution paperwork to pin the date.

Category B — Items that generate current deductions without NOL entanglement¶

B1. §199A QBI deduction¶

What: 20% deduction on qualified business income from passthroughs, subject to phase-outs for specified service trades or businesses (SSTBs) above $191,950/$383,900 (2024 thresholds, indexed).

Fact pattern: - RFH + sub-LLCs are all disregarded. Their income flows to Austin's Schedule C / Schedule E. - RENFROE (S-corp) is out of scope but relevant — it may be an SSTB (consulting/claims management often is). - Casa Moksha revenue (if RHG is disregarded) would be QBI-eligible as a hospitality trade or business. - STR rental activities, if they rise to §162 trade-or-business level, could be QBI-eligible.

Why this is underemphasized currently: §199A gives a current deduction that doesn't stack into NOL mechanics the same way depreciation does. It reduces AGI at the marginal rate — useful even in an NOL year if other income sources exist (e.g., interest income on Treasury, any Austin-personal wages from RENFROE).

Action: Ask Pearce to model §199A treatment for: - Casa Moksha revenue (contingent on CTB) - Each STR-qualifying rental (contingent on §162 trade-or-business framing) - RENFROE S-corp wages/distributions (contingent on SSTB determination)

B2. Augusta rule — start earlier in 2026 and document richer¶

Already covered in strategies reference and tax/2025-filing-prep.md item #16. Underappreciated:

14 days × $1,500/day = $21,000/year tax-free personally + $21K deduction at RENFROE. At 32% marginal (effective, counting state NIIT etc.), the deduction is worth ~$6,700/year at RENFROE. Austin's personal receipt is 100% tax-exempt.
Rate support matters. A one-page market rate study (three W Austin comparable short-term rentals at 3BR+ event-space rates) is the audit defense. Cheap to produce; protects the $21K.
Documentation matters more. Agenda + minutes + attendees + business purpose per each of the 14 days. A recurring calendar + template approach makes this painless.
Interaction with W 3603 homestead: Texas homestead protection covers the primary residence; Augusta rule use is consistent with homestead (not a commercial conversion). Confirm with Texas counsel if any doubt.
Don't stack: 14 days × $1,500 is a known safe framing. Pushing to 20+ days or $5K+/day rates invites scrutiny without changing the magnitude much.

Action: Draft the rental agreement (see legal/advisory-contract-gaps.md). Do the market rate study once. Set recurring calendar for the 14 meeting days. Document each one.

B3. §179 expensing + §1.263(a)(1)(f) de minimis safe harbor¶

What: - §179: allows expensing of qualifying tangible personal property up to $1.22M (2024), phased out at $3.05M+ acquisitions. Applies to business-use property. - De minimis safe harbor: allows expensing of items ≤$2,500 per invoice/item (or $5,000 with AFS, which Austin doesn't have as a non-public-filer) without capitalization analysis.

Fact pattern: - Casa Moksha has many small equipment purchases — mattresses, small appliances, furniture, tools. Under $2,500 per invoice = expensed under de minimis, no capex/depreciation question. - W 3603 renovation (DW Residential $75K in Mar 2026): primary-residence, so NOT business use, not §179-eligible. But individual items within the renovation if segmentable and installed in a business-use portion... unlikely here. - Marine slip equipment (if any): §179-eligible. - Home-office if RFH uses part of Austin's W 3603 — small but additive.

Action: 1. JME should be applying de minimis safe harbor uniformly. Confirm this is on their standard treatment. 2. For any 2026 Casa Moksha equipment purchase >$2,500 but ≤$25K, consider §179 vs. bonus depreciation timing (bonus is phasing down: 40% in 2025, 20% in 2026, 0% thereafter under current law). §179 can be better than bonus in low-income years.

B4. Home-office deduction (modest, but underclaimed)¶

What: If RFH or RENFROE uses a portion of Austin's W 3603 as a regular, exclusive office, that portion of the home's expenses can be allocated as business expense (actual method) or claimed via simplified method ($5/sqft up to 300 sqft = $1,500 max).

Fact pattern: W 3603 has ample space; Austin works on family-office matters from there. If a dedicated room is used exclusively for RFH or RENFROE business, the allocation is defensible.

Note: Augusta rule and home-office deduction CAN coexist — Augusta is for discrete meeting days; home office is for the daily-use dedicated space. Different provisions, different documentation, both can apply.

Benefit: Modest ($1,500 simplified, $5-15K actual method). But "free" once the space is designated and documented.

Category C — State / local / international tax¶

C1. Texas Franchise Tax (small but not zero)¶

What: Texas levies a franchise tax on entities doing business in Texas. Threshold for full reporting in 2026 is $2.47M in total revenue; below that, entities file a "no tax due" report. Above the threshold, rate is 0.375% (retail/wholesale) or 0.75% (most others).

Fact pattern: - RFH — Texas LLC. Files franchise tax report annually. Below revenue threshold likely (RFH itself is a holding company, limited direct revenue). - W 3101 Holdings, ATX Marine, Austin Marine, Renfroe Marine — all Texas LLCs. All file annually, most likely "no tax due." - Franchise tax filings are often missed when entities are first formed, leading to "forfeited" status — costly to reinstate. Confirm all active TX LLCs are in good standing on the Texas Comptroller portal.

Action: 30-second check on the Texas Comptroller's public lookup for each of the 4 TX LLCs. Reinstate any forfeited ones before they become problems.

C2. Alabama nexus and filings — Five Points BHM¶

What: Five Points BHM owns real property in Alabama. Alabama requires LLC filings regardless of income. Alabama also has franchise tax (Business Privilege Tax, $100 min).

Fact pattern: Austin has Alabama-sourced income (eventually, once Five Points is revenue-generating — currently pre-revenue). Schedule E allocation, Alabama nonresident return for Austin personally. Pearce is an Alabama firm, so this is well-covered.

Underemphasized: if RFH holds Five Points as a sub-LLC, the Alabama Business Privilege Tax + Annual Report filings for Five Points are RFH-level compliance items. Even pre-revenue, these must be filed.

C3. Federal Opportunity Zone for Five Points (investigate)¶

What: IRC §1400Z-2. Property in designated Opportunity Zones qualifies for deferred gain recognition on rolled-in capital gains + step-up after 10-year hold.

Fact pattern: 1006 20th St S in Birmingham may be in an Opportunity Zone. Austin should verify: 1. Pull the U.S. Census Bureau OZ map for the 1006 20th St S address (simple geolookup). 2. If yes: future substantial rehab of the building could qualify for OZ benefits on any capital gains rolled into the project from elsewhere (e.g., a future sale of W 3101 or other appreciated asset). 3. The program requires specific Qualified Opportunity Fund (QOF) structure — you can't just hold property in an OZ. Usually this means structuring the rehab investment through a QOF that then holds the property.

Current status: pre-revenue, so this is forward-looking. But if Austin plans $500K-1M of rehab spend, and has appreciated assets elsewhere (Mita, for example, appreciated ~$10M since purchase), an OZ rollover structure could defer that gain entirely.

Action: (a) Address lookup. (b) If in OZ, get an Alabama OZ specialist to scope a QOF structure before any rehab capital is committed.

C4. Historic Tax Credits — Alabama HTC (long shot for Five Points)¶

What: Alabama offers a state historic tax credit (up to 25% of qualified rehabilitation expenditures) for certified historic structure rehabs, stackable with the 20% federal historic tax credit. Requires listing on National Register or eligibility for listing, and certified rehab plan.

Fact pattern: 1006 20th St S in Birmingham is in a central-district area where HTC-eligible buildings are common. Depends on building's age, historical character, and whether it's listed/listable.

Likelihood: Low to moderate. Worth a 30-minute Birmingham preservation consultant call — cheap discovery, potentially 20-45% of rehab costs as credits.

Action: Informal check-in with a Birmingham historic-preservation consultant when rehab planning starts.

C5. Mexican IVA recoverability discipline¶

What: Mexico's 16% VAT is recoverable on qualifying business inputs for Mexican-resident entities. For RHG (a Mexican resident), recoverability depends on proper CFDI invoicing and timely filing.

Fact pattern: - vendor-mappings.md already flags IVA on bank fees as a separate COA line (6920) for recoverability. - Many RHG expenses are captured from Santander MXN with IVA embedded in the total. - Casa Moksha Ops Brex payments to Mexican vendors are often NOT collected with CFDI — Brex-paid Mexican vendors may not issue Mexican tax invoices, foregoing the IVA recovery.

Underemphasized: every Mexican-vendor Brex payment where no CFDI was issued is lost IVA recovery. If $500K/yr in Mexican vendor spend, and half lacks CFDI, that's potentially $40K/yr of unrecovered IVA (16% × $250K).

Action: JME audit of Brex-paid Mexican vendors (Megamak, Edy Daniel, Olas Tulum, Jorge Eduardo Jag, etc.) — which have CFDI on file, which don't? Implement "CFDI required to get paid" policy going forward. Quantify the 2024-2025 unrecovered IVA and see whether amendment/refund claims are feasible under Mexican SAT rules.

C6. Foreign tax credit on Japanese GK taxes¶

Already flagged in tax/2025-filing-prep.md item #18.

Underemphasized element: Japanese corporate income tax creditability on Austin's 1040 depends on how GK is treated: - If GK is disregarded (via CTB election), Japanese corporate tax flows to Austin as an FTC on his 1040 — useful but limited by FTC ceiling. - If GK is per-se corporation, Japanese tax is inside GK and can't be credited on Austin's 1040 directly. Foreign tax credit would only apply to distributions/deemed distributions (subpart F, GILTI) when those are included in Austin's income. - Interaction with PFIC: if PFIC applies, Japanese tax becomes much less useful because the tax regime overlays.

Action: Sequence depends on PFIC and CTB answers. This is downstream.

C7. Mexican RESICO / PTU consideration for RHG employees¶

What: - RESICO (Régimen Simplificado de Confianza): a simplified small-business Mexican tax regime. Income limits apply. May or may not fit RHG. - PTU (Participación de los Trabajadores en las Utilidades): Mexican statutory profit-sharing — 10% of taxable profit distributed to employees. Due annually.

Fact pattern: RHG is employing Alfredo, Rosi, Lucila (formerly Nano through Jul 2025). PTU obligations apply. If JME isn't flagging this on annual deliverable, it's a compliance gap.

Action: Confirm with JME that annual PTU calculations are being done and paid correctly. If RHG has been running losses, PTU is $0 — but the filing still happens.

Category D — Entity structuring and timing plays¶

D1. QSBS (§1202) clock on personally-held VC investments¶

What: §1202 excludes up to $10M of gain on sale of qualified small business stock held >5 years. Requires C-corp issuer with ≤$50M assets at issuance, active business, original issuance (not secondary purchase).

Fact pattern: Austin personally holds (committed amounts per context/entities.md): ATP ($60K), Untapped I ($100K), Untapped II ($150K), Crosslink VIII ($1,100), Garuda ($195K), Overwater I ($25K), Recharge ($50K), Westerly ($103K), HyperRealms ($500K), Bluestone ($150K), LexSet.ai note ($150K), Inbanx note ($25K), Plotr note ($75K), TLFM note ($200K). Plus Red Farm ($121K, already worthless). Capital-call cash that's flowed through RFH this period (different from total commitments above) is restated as distributions per the 2026-04-20 decision.

Key points: - Fund LP interests are NOT direct QSBS holdings — the LP stake flows QSBS treatment through, but the fund itself must elect and hold qualifying C-corp stock at the partnership level. Each fund's LPA will address this; most VC funds explicitly structure for QSBS. - Convertible notes are not yet QSBS — only become QSBS upon conversion to stock, and the 5-year clock restarts at conversion. - Direct investments: HyperRealms ($500K) and Bluestone ($150K) — verify these are C-corps, not LLCs, for QSBS eligibility. If LLCs, QSBS is unavailable.

Underemphasized: this is a personal-return item, but it interacts with how Austin takes liquidity. If a personally-held portfolio company exits in 2028+ and qualifies, the exclusion is up to $10M per issuer — very valuable.

Action: 1. For each fund position, confirm from the LPA or fund counsel: "does the fund structure for §1202 QSBS pass-through?" 2. For direct C-corp investments (HyperRealms, Bluestone, any others): confirm C-corp status and 5-year clock start date. 3. Maintain a QSBS tracker spreadsheet (not needed in Xero; Monarch or a standalone file). Columns: issuer, investment date, amount, entity form, QSBS eligible? 5-year clock maturity date.

D2. Installment sale planning for eventual exits¶

What: §453 allows deferral of gain on sales with payments received over multiple years, recognizing gain proportionally as cash is received. Useful for large gains when NOL runs out and rate management matters.

Applicability: Long-dated. When Austin eventually sells W 3101 ($3.5M basis, $3.5M mortgage — thin on gain today), Mita (basis TBD — placeholder ~$5M, ~$14.5M value → ~$9.5M built-in gain on the placeholder; rerun once true basis is reconciled), or parts of the portfolio, installment structuring can spread gain recognition.

Underemphasized: the NOL absorbs ordinary gain on sale but not capital gain recharacterization. Depreciation recapture (§1250) is ordinary — NOL absorbs. But §1231 gain is capital — NOL doesn't help beyond the 20% cap. Planning the sale structure 5+ years out matters.

Action: Long-dated. Revisit when any major disposition is contemplated.

D3. Opportunity Zone rollover for Mita gain (if applicable)¶

Connects D2 + C3. If Mita is sold in the future (not planned, but hypothetical), the gain (currently ~$9.5M unrealized) is large. Rolling all or part into a QOF project (e.g., the Five Points BHM rehab if in an OZ) would defer the gain and potentially step up basis after 10 years.

Long-dated play. Requires (a) Five Points or another OZ investment exists, (b) Mita sale happens, © 180-day rollover window executed correctly.

D4. Retirement plan — Solo 401(k) through RENFROE or new vehicle¶

What: A small-business S-corp or sole-prop can sponsor a Solo 401(k) with employee deferral ($23,000 + $7,500 catch-up age 50+ in 2024) + employer match (up to 25% of compensation, total cap $69,000 / $76,500 catch-up).

Fact pattern: - Austin already has an E.A. Renfroe 401(k) (~$133K balance). Suggests a plan exists at RENFROE. - Question: is the plan being maxed? If Austin's comp at RENFROE is $200K+ and he's currently deferring $15K, there's $54K+ of unused space annually.

Underemphasized interaction with NOL: 401(k) deferrals reduce current wages (W-2 box 1), which reduces ordinary income for the current year. NOL doesn't apply to wages — wages are reported gross on 1040, NOL offsets AGI. So pre-tax deferral reduces AGI before NOL even applies → saves current-year tax dollar-for-dollar at marginal rate.

Action: 1. Confirm with Pearce: is the RENFROE 401(k) being maxed annually? If not, why not? 2. If Austin has other earned income (consulting, board seats, etc.) outside RENFROE, a SEP-IRA or Solo-401(k) at a second entity (maybe Renfroe Innovation, if it ever generates service income) could stack. 3. Consider cash balance plan as a companion to 401(k) — allows $100-300K+ annual contributions for older owners. Costs more to administer (~$3-5K/yr) but the deduction is large.

D5. Charitable giving with DAF + appreciated positions¶

What: Donate appreciated long-held positions to a Donor Advised Fund (DAF). Full FMV deduction, no capital gain recognition.

Fact pattern: - Austin has meaningful appreciated positions (HyperRealms if up, some VC fund positions if marked up, potentially appreciated public securities in the trust structures). - DAF gives deduction in year of contribution, granting flexibility over years.

Underemphasized: with the NOL at $3.43M and growing, charitable deduction in a current NOL year has subtle interaction: the deduction is limited to 60% of AGI (cash) or 30% (appreciated property, public) or 20% (non-public appreciated). Excess carries forward 5 years.

Whether to give now vs. later depends on when Austin expects NOL to run out. If NOL absorbs all income through 2030, charitable deductions in those years are stacked on top of the NOL (they reduce taxable income further, extending NOL or generating further carryforward). If Austin plans to monetize meaningfully in 2028, donating in 2028 is more efficient than donating today.

Action: Defer large charitable moves until NOL-absorption timeline is clearer. Small charitable giving (non-appreciated) can continue normally.

D6. §121 primary-residence exclusion on eventual W 3603 sale¶

What: $250K (single) / $500K (joint) gain exclusion on primary residence if held ≥2 years and used as primary residence ≥2 of last 5 years.

Fact pattern: W 3603 is Austin's primary residence and being renovated ($75K+ Mar 2026 to DW Residential). Basis grows with capital improvements.

Underemphasized: 1. Track all W 3603 capital-improvement spending meticulously. Every dollar of capex increases basis, reduces future gain. $500K of renovations = $500K less gain at sale. 2. Keep receipts (not just bank records — actual vendor receipts) for the lifetime of ownership. Audit defense. 3. DO NOT convert W 3603 to rental without understanding the §121 interaction. The exclusion requires 2 of last 5 years as primary residence; converting to rental clock starts affecting eligibility. 4. Augusta rule does NOT disqualify §121. Up to 14 days of rental per year is a de minimis commercial use that doesn't reset the primary-residence status.

Action: Capital-improvement tracking discipline for W 3603 — treat this like a basis log, same as the contribution ledger recommended in best-practices memo §5.

Category E — Compliance reframing (may save money but primarily avoid cost)¶

E1. FBAR historical compliance review¶

Already covered in tax/fbar-analysis.md. Underemphasized:

Streamlined Foreign Offshore Procedures if any prior years had unreported foreign accounts. Non-willful penalty is $0 under streamlined (vs. $10K+/yr non-streamlined). Pearce should evaluate.
Signature authority scope: Austin's signature authority on GK's Tokyo Star Bank, on RHG's Santander accounts, possibly on any other entity accounts → all triggering. Confirm scope.
Signature authority of others: does Miroslava have signature authority on any Santander MXN account? If yes, she's personally an FBAR filer (she's not a US person, so probably N/A, but worth confirming she's not a green-card holder or US resident).

Action: Pearce's FBAR review on 2025 + prior years. Streamlined if any gaps.

E2. Form 8938 Statement of Specified Foreign Financial Assets¶

What: Separate from FBAR. Filed with the 1040. Threshold: $50K/year-end or $75K/anytime (single US, domestic), or higher thresholds for international residents.

Fact pattern: Austin is a US resident. His specified foreign financial assets: interests in RHG and GK, foreign bank accounts. Thresholds easily met.

Underemphasized: 8938 and FBAR are separate filings with separate penalties. Non-filing of 8938 is $10K per failure + up to $50K additional for continued failure. Pearce handles this; confirm 2024 + 2025 filings.

What: - §6038: 5471/5472 reporting for ownership and transactions with foreign-related parties. Covered by the GK + RHG 5471s. - §6038A: 5472 for 25%+ foreign-owned US entities. Doesn't apply here — RFH is Austin-owned (US person), not foreign-owned.

But: If Austin's Jana (mother) $350K contribution to GK is actually a loan from a US person to GK, that's a 5471 Schedule M item + potentially a 1099-INT obligation from GK to Jana. And if Jana has partial equity in GK (contested — per Austin, she doesn't), Category ¾ 5471 filer analysis changes. Resolve Jana memo ambiguity — has downstream tax-form consequences.

E4. Red Farm §165(g) loss — character mapping to NOL mechanics¶

What: Ordinary loss under §165(g)(1) or capital loss under §165(g)(2)? §1244 small business stock gives ordinary treatment up to $100K (joint) / $50K (single).

Why this matters: Ordinary loss flows into NOL. Capital loss is subject to $3K annual limit against ordinary income (plus capital-gains offset). A $120K ordinary loss → $120K added to NOL stack. A $120K capital loss → $3K/yr against ordinary + capital-gain offset if any, remainder carries forward as capital.

Action: Pearce to determine character. If §1244 qualifies, the first $50K is ordinary and the remainder is capital — partial optimization. Review original subscription docs.

E5. §163(j) business interest limitation — watch GK¶

What: §163(j) caps business interest deduction at 30% of ATI. Small businesses (≤$30M avg gross receipts) are exempt.

Fact pattern: GK has Tokyo Star Bank mortgage interest. As a non-small entity (may or may not cross the $30M three-year gross receipts threshold given Mita rent revenue), §163(j) could bite if PFIC + CTB-to-disregarded makes the interest flow into Austin's 1040.

Likelihood: Probably not triggered at current scale. But worth Pearce's attention once GK financials are in hand.

What: §267 disallows interest deductions on loans from related parties in certain circumstances. Timing-only rule usually (accrued but not paid → not deductible until paid). Applies to the AFR loan.

Action: - Ensure the interest on the AFR loan is actually paid to Austin's parents each year (not just accrued), to preserve deductibility. If it's being accrued without cash payment, Five Points can't deduct. - Make sure parents receive a 1099-INT each year and report the interest as income on their 1040. - Both sides are matched = clean; mismatch = SSTS/audit risk.

See legal/advisory-contract-gaps.md §3 for related agreement-level action.

Category F — Things to NOT do (or defer)¶

F1. Don't rush check-the-box elections without modeling¶

Pearce will have a view. But premature 8832 elections are hard to reverse (5-year lockout), and the "right" answer depends on: - Current tax rate vs. future tax rate - Exit liquidity timing (do you want CFC/Subpart F income now or dividend later?) - PFIC sequence (CTB-to-disregarded on GK may sidestep PFIC entirely; CTB-to-disregarded on RHG changes STR-loophole availability)

Action: Let Pearce model both scenarios for each entity. Document the decision. Don't default-elect just to simplify paperwork.

F2. Don't aggressively gift-plan yet¶

Estate/gift planning is important but premature given Austin's age, stage, and liquidity posture. Meaningful estate-freeze techniques (FLPs, GRATs, IDGTs, SLATs) depend on having valuable assets and clear family structure (spouse, children, planned giving recipients).

Flag for when that picture firms up: (a) lifetime exemption (~$13.6M in 2024) is a sunsetting provision — will drop to ~$7M in 2026 without Congressional action. Watch this closely.

F3. Don't §1031 exchange existing real estate prematurely¶

With the NOL running, a straight taxable sale + NOL absorption is often cleaner than a §1031 exchange that defers gain into a future property. The deferred gain also carries forward basis issues and limits future flexibility.

Action: Explicitly compare "sell + NOL absorb" vs. "§1031" at each future disposition. The NOL changes the default answer.

Priority action list (for Pearce agenda)¶

Re-sequenced from the above, by "what unblocks the most":

CTB answer on RHG — unlocks cost seg (A1), STR (A3), QBI (B1). Highest leverage single decision.
CTB answer + PFIC analysis on GK — unlocks cost seg (A2), FTC (C6), §163(j) (E5).
Red Farm character — confirms NOL stacking (E4) or partial-ordinary treatment.
AFR interest documentation — preserves deductibility (E6) and parent-side 1099-INT compliance.
FBAR + 8938 historical confirmation — closes compliance exposure (E1, E2).
401(k) max-out confirmation at RENFROE — D4, potentially $50K+/yr deduction currently on the table.
QSBS tracker for personal positions — D1, $10M exclusion matters long-term.
Texas franchise / Alabama BPT compliance audit — C1, C2, "free" if current.
Begin material-participation log for Casa Moksha + Oceana 433 — A3, must be contemporaneous.
Mexican IVA recovery audit with JME — C5, potentially large unrecovered balance.

tax/tax-strategies-reference.md — the primary strategy reference this memo builds on
tax/2025-filing-prep.md — 19-item Pearce agenda (this memo adds to several)
tax/fbar-analysis.md — FBAR daily-balance workup
accounting/advisory-best-practices.md — operational/documentation posture
legal/advisory-contract-gaps.md — contracts that would support several items here
decisions/log.md — where outcomes of the above will be logged