May 2026

Tax Considerations for Data Center Projects in the Age of AI

Tax Considerations for Data Center Projects

Artificial intelligence is driving an unprecedented surge in data center construction. Developers, private equity sponsors and their tax advisors are navigating a complicated web of questions that touch everything from ownership structure to site selection to power sourcing. Get the early decisions wrong and the tax consequences can follow a project for years.

Why REITs Have Become the Structure of Choice

Private equity has increasingly turned to real estate investment trusts when backing data center projects. Structure a REIT correctly, and you sidestep corporate-level taxation entirely. Foreign investors get an even better deal. Sovereign wealth funds and foreign pension funds can participate without any obligation to file U.S. tax returns. Data centers, with their heavy real estate footprint, slot into the REIT framework more naturally than many other asset classes.

That said, the fit is not seamless. Related party rent rules create traps for the unwary. Public pension funds and sovereign wealth funds need to confirm they do not hold stakes in both a data center REIT and its tenant. Another wrinkle involves equipment. Data centers demand significant upfront investment in personal property that may not count as qualifying REIT assets. The tax code requires that 75 percent of a REIT’s total asset value consist of real estate, cash, and government securities at each quarter’s close. Developers often must segregate personal property until the REIT builds up enough good assets to clear that hurdle.

The Power and Water Challenge

Reliable power and water access have become one of the toughest operational problems in the industry. Demand is so intense that many developers are generating their own electricity on-site. The tax treatment of these co-located power facilities depends heavily on the energy source and delivery method. Get it wrong, and the generation asset may not qualify for REIT treatment.

Solar photovoltaic systems sit on relatively solid ground under existing guidance. Nuclear and natural gas, which many see as the next wave of data center power, do not. Current rules leave significant uncertainty around whether these sources can work within a REIT structure.

Legislative and Executive Developments

The IRS priority guidance plan for 2025 and 2026 contains no projects aimed squarely at data centers. Regulation section 1.856-10(g), finalized in 2016, includes an example analyzing customized electrical and telecommunications systems in a data center context, but practitioners continue pushing for clearer rules on alternative energy.

Congress may offer relief on the waterfront. In April 2025, Representative Darin LaHood of Illinois proposed a new section 48F that would provide a 30 percent credit for qualifying water reuse projects, including on-site recycling systems at data centers. With U.S. data centers projected to consume 33 billion gallons of water by 2028, the bill attracted 21 cosponsors and bipartisan support.

The White House has made its priorities clear as well. The Trump administration’s July 2025 AI action plan established a goal of achieving global dominance in artificial intelligence, with infrastructure as one of three pillars. An executive order, issued July 23, 2025, focused specifically on reducing federal regulatory obstacles to data center construction.

Conclusion and OBBBA Incentives Worth Watching

Several provisions in the One Big Beautiful Bill Act benefit data center projects, even though lawmakers did not design them with that sector in mind. The return of 100 percent bonus depreciation under section 168(k) matters enormously for an industry requiring massive capital outlays.

Rural Opportunity Zones sweeten the economics further. Investments in qualified rural opportunity funds now qualify for a 30 percent basis step-up after five years, triple the 10 percent available in standard zones. A special rule targeting improvements to existing structures in rural areas cuts the substantial improvement threshold to 50 percent of adjusted basis, compared to more than 100 percent for non-rural funds.

Developers and investors evaluating new projects will find that entity structure, site selection, and the shifting regulatory environment all interact in ways that directly affect the bottom line. Getting the tax picture right from the start remains essential.

Understanding the EV/2P Ratio

What are the EV/2P Ratio

3 min read

When it comes to raw materials, especially for fossil fuels, it’s essential to evaluate existing and potential production capabilities for such companies. Using the EV/2P Ratio is a powerful tool when evaluating fossil fuel-related companies.

Defining the Ratio

This ratio is calculated by dividing a business’ enterprise value into the company’s reserves. It provides financial analysts, investors and internal business stakeholders with a snapshot of a company’s reserves and the business’ likelihood of preserving operation growth. This standardizes valuations, thereby allowing analysts to compare company-to-company financials.

How to Calculate EV/2P

Enterprise Value (EV) / Total 2P Reserves

Defined as: Enterprise Value = Equity (open market price) + Debt (open market price) – Cash and Cash Equivalents

2P = Proven and Probable Reserves

Illustrating the Calculation

If a company’s capitalization is $300 million and debt consisting of $225 million, along with $30 million for proven reserve value, $20 million in probable reserves, and $25 million in possible reserves, the company’s resulting enterprise value becomes:

$300 million + $225 million = $525 million

The 2P reserves is:

$30 million + $20 million = $50 million

Plugging the numbers into the original formula, it’s: $525 million / $50 million = 10.5x (multiple)

Based on the resulting 10.5 multiple, this ratio provides a current valuation that translates to for every $1 in 2P reserves equals $10.50 of a market valuation.

Reserves are how internal/external stakeholders value the production/growth potential of oil/gas companies. It’s broken down into two categories:

1.) P1 are proven reserves, which are the highest caliber reserves. There’s at least a 9 in 10 percent likelihood (or more) of recoverable reserves. It’s also known as P90.

2.) Probable reserve (also known as P50) has an even chance of either non-recoverability or realized recoverability. This is the next best, but a lesser grade than P1.

These two resource categories are referred to as 2P.

Putting it in Perspective

Depending on the company’s calculated EV/2P Ratio, the business owner or investor can determine a course of action to take.

If it’s higher, it’s more highly valued than its competitors based on the same level of 2P reserves; therefore, the company’s shares are more expensive against its peers. This can give investors pause because other undervalued stocks are more attractive due to a higher likelihood they’ll appreciate.

However, if a company is valued higher, but the company is more efficient or a higher performer, investors also may be interested because its production and earnings justify the higher valuation. That’s why looking at the metric in a silo is not effective.

Debt Concerns

When it comes to debt and analyzing this ratio, fossil fuel businesses are often highly levered since they use massive sums of debt for research and development and continued operations.

Since the EV value looks at debt and equity concurrently, analyzing a company’s capital structure is essential when comparing companies’ valuations. Essentially, if a company has too much debt and if interest rates suddenly increase or it can’t service debt if the price of crude plummets, it may run into debt servicing issues.

While this ratio is effective in providing a level playing field for analytical uses, it’s important to remember that it needs to be used in conjunction with comprehensive financial analysis.

Version 6

What to Expect with an IRS Audit

4 min read

If the IRS sends notice that you’re being audited, you’re likely to become anxious. However, not all audits mean you did something wrong. In most cases, it is simply a matter of verifying information on a tax return or perhaps correcting a minor error. Knowing what to expect – and how to respond – can help alleviate stress and make the audit more manageable.

An IRS audit (also referred to as an examination) is a review of your records to confirm that the information on your tax return was reported accurately and follows tax law. The best way to prepare for an audit is to respond on time, present organized and complete records, be cooperative, and communicate professionally.

Technically, most audits are triggered via an automated scoring system referred to as the DIF, which stands for Discriminant Information Function. The system flags something on your tax return that stood out. This could be inconsistencies, missing income, unusually high deductions, or inputs that don’t match information the IRS already has. Here are three key facts about IRS timing for audits:

The IRS generally looks back three years based on the statute of limitations
Most audits are related to returns filed within the past two years
In cases of substantial errors, audits can extend up to the last six years, especially in cases where it is believed that more than 25 percent of gross income was omitted from the filing
There is no statute of limitations in cases of fraud or failure to file

The Audit Process

Almost all IRS audits start with a letter stating that your return has been selected for examination. This notice will be sent by mail – not a phone call, text, or email. The letter will include the name of your assigned reviewer, his or her IRS identification number, and phone number. You should call the IRS directly to verify this information, as scammers are known to impersonate the IRS to steal money or personal data.

You may be asked to provide a variety of specific documents based on what issue(s) triggered the audit. Be sure to provide copies, not originals. Depending on your situation, the requested documents could include:

Income records
Investment statements
Bank forms
Receipts and bills
Canceled checks
Legal documents (such as divorce or custody agreements)
Loan agreements and settlement statements
Travel logs, diaries, or ticket stubs
Medical and dental records
Theft or loss of documentation (insurance claims, photos, police reports)
Employment records
Schedule K-1 forms for partnerships or S corporations

The following are the three types of IRS Audits:

Correspondence Audit – These are the least complex and are conducted entirely by mail. Sometimes the IRS simply identifies a math error or missing income and asks for payment or clarification. You can either pay the amount due or respond with documentation if you believe the IRS is incorrect.

Office Audit – An office audit requires you to visit an IRS office with the requested records. You will receive an Information Document Request (IDR) form detailing what to bring. Showing up with organized records can help resolve these audits quickly.

Field Audit – The field audit is the most extensive. An IRS agent will come to your home or business to review records. Although you will receive an IDR in advance, the agent may decide to escalate the review if he notices any “large, unusual or questionable” (LUQ) items.

The key points to remember are that poor recordkeeping and/or lack of cooperation tend to trigger a more detailed and time-consuming audit.

Once the Audit Is Complete

After the audit, the IRS will issue a report describing its findings. It may determine that no changes are necessary to your return; that you owe additional tax; or that you may be owed a refund. Should you disagree with the findings, you have options:

Request to meet with an IRS manager
Use mediation or alternative dispute resolution
File an appeal with the IRS
Take the case to court if necessary

If you agree with the audit findings, you’ll need to sign the examination report and choose from various payment options if you owe any taxes.

6 Tips for Your Mid-Year Check In

3 min read

It might be hard to believe, but yes, it’s almost the middle of the year and the perfect time to take a look at how you’re doing financially: are you fiscally fit or do you need a few adjustments? Whether it’s saving more, paying down debt, or prepping for retirement, you still have time to effect change. Here are a few ways to get started.

Review Your 2026 Financial Goals

Kind of a no-brainer, but ask yourself:

Have I saved as much as I planned?
How’s my progress at paying off debt?
Have my priorities changed since the new year?

In addition to these things, other important goals might include building your emergency fund (broken dishwasher, for instance); saving for a vacation; and finally, the certainty no one can escape – tax preparation.

Go Over Your budget and Spending

Your habits might have shifted over the past few months, so places to put a lens on might be:

Where have I increased spending?
Do I really need all those subscriptions?
Can I pay a little more on debt?

In the second half of the year, other things to consider include insurance renewals, back-to-school expenses, and year-end medical costs.

Revisit Your Retirement Contributions

This might be far away or near soon. No matter, it’s critical to keep an eye on the following things:

Your 401(k) or employer retirement plan contributions
Employer match opportunities
IRA contributions

If you can increase funding for any of these, now’s the time to do so. Retirement comes along more quickly than you think.

Give Your Employee Benefits a Looksee

Take time to go over:

HSA or FSA contributions
Health insurance
Life insurance and disability coverage

You might have other benefits, of course, to review. And while many people wait until open enrollment to give these a think, you don’t have to be one of them. Take action now to amend them so you’ll be better prepared for the rest of the year.

Start Your Taxes for Next Year

Between now and July, you can get a jumpstart by planning ahead – and you won’t be stressed when it’s actually tax time. Taking a look now can help you:

Estimate your taxes
Find ways to reduce your taxable income
Plan retirement contributions before year-end.

Recalibrate Your Plan for the Rest of 2026

So now that you’ve taken inventory of your finances, you can adjust for the remaining months. Your new plan might include:

Setting up an automatic transfer to savings – it’s so easy, and you’ll never miss it
Increase retirement contributions – even 2 percent makes a difference
Concentrate on one debt to pay off.

The idea is not to change everything all at once. Your goal should be to take small steps so you can move forward with confidence and finish the year strong. All it takes is a little time. And as we know, time is money. Make the last six months of 2026 count!

Sources

https://www.benefitandfinancial.com/blog/mid-year-financial-review-are-you-on-track-for-2026

The ROI of Autonomy: Measuring the Business Value of Agentic AI Workflows

Measuring the Business Value of Agentic AI Workflows

4 min read

Businesses are moving beyond basic automation into a new era of intelligent, self-directed systems. While automation helps with streamlining repetitive tasks, agentic AI workflows enable systems to make decisions, take action, and continuously improve with minimal human oversight.

Most businesses adopting agentic AI have no structured way to prove it is working. Although they can feel the difference, they can’t measure it. Without measurement, return on investment (ROI) conversations stall, budgets get cut, and genuinely transformative tools get shelved.

What Makes Agentic AI Workflows Different

Agentic AI workflows are designed to operate with a degree of independence. Unlike traditional automation, which follows predefined rules, agentic systems are goal-oriented.

Once given an objective, they plan, execute, adjust, and complete tasks across multiple steps, tools, and decisions without requiring human intervention. For example, an agentic workflow may pull data from multiple systems, analyze it, draft a report, flag anomalies, and email a summary.

Another example is a supply chain AI agent that not only highlights anomalies but can also reorder stock, renegotiate pricing thresholds, and even reroute logistics as these actions fall within predefined objectives.

Agentic AI can also improve efficiency and productivity by identifying inefficiencies in workflows and adjusting them in real time.

For businesses facing rising labor costs and increasing demand for speed and personalization, this evolution is more than a technological advancement. It offers a strategic advantage.

Why ROI Measurement Is Different for Agentic AI

Traditional ROI models are rather straightforward as they compare the cost of a system to the output generated. ROI on projects using traditional models is measured based on cost savings, headcount reduction and cycle-time compression. However, agentic AI is more dynamic because the systems improve over time. This means the output isn’t static – rather, it compounds. These systems also reduce the need for ongoing supervision, operate continuously, and often uncover efficiencies that were not initially anticipated.

As a result, the ROI of agentic AI is not just immediate cost savings but also includes long-term gains. These gains include improved decision-making, faster execution, higher productivity, strategic agility and the ability to scale operations without a proportional increase in cost. Measuring this kind of value requires a broader, more forward-looking approach.

Key ROI Drivers of Agentic AI workflows

Operational efficiency – unlike conventional automation that is vulnerable to dynamic environments due to fixed rules, agentic AI responds to changes automatically. These systems continuously learn and optimize, delivering ongoing improvements without additional manual effort.
Real-time responsiveness – customers expect real-time interaction. Agentic workflows enable this through systems that are always on and context-aware.
Scalability – businesses can handle increased demand without a corresponding increase in operational costs or headcount, allowing more efficient growth.
Cross-departmental reach – Agentic AI agents can seamlessly connect workflows across different departments like HR, IT, and finance. This reduces operational friction between teams and enhances overall efficiency.
Productivity gains – Agentic AI can operate 24/7, completing tasks faster and with greater consistency than human teams. This allows employees to focus on higher-value work, increasing overall organizational productivity.
Cost reduction – by automating complex workflows, businesses can reduce reliance on manual labor, minimize errors, and eliminate inefficiencies. This can translate into significant savings.
Revenue growth – Agentic AI enables faster go-to-market strategies and more personalized customer experiences. This can directly impact conversion rates and revenue.
Improved decision quality – With access to real-time data and advanced analytics, agentic AI systems can make quick, informed decisions. This reduces human bias and enhances accuracy in areas like forecasting, inventory management, and customer engagement.

Strategies for Evaluating Agentic AI ROI

To measure agentic AI ROI, businesses need a structured approach that connects AI deployment to business outcomes.

Identify high-impact workflows – repetitive, resource-heavy processes like IT support, sales operations, or compliance.
Establish baseline measurements by documenting current costs, completion times, error rates, and headcount before deployment.
Compare pre- and post-implementation performance by checking utilization rates, tasks completed, and infrastructure costs to confirm operational sustainability.
Estimate agentic impact by projecting improvements in speed, cost, throughput, and quality.
If implementing agentic AI in phases, use control groups to isolate its impact from other organizational changes.
Measure real business outcomes, including cost reductions, revenue growth, and productivity gains.

Conclusion

Traditional automation delivered value by reducing manual effort. Agentic AI, on the other hand, reduces decision latency, operational friction, and coordination costs. Therefore, AI agents’ ROI is not defined by savings alone. Its real value lies in the ability to generate compounding returns across multiple dimensions of a business. By adopting a broader view of ROI, organizations can better assess impact, build stronger adoption cases, and identify new opportunities for optimization.

Stalemates in Voting Rights and ICE Legislation; Small Business Funding Expanded

4 min read

Safeguard American Voter Eligibility Act (S 1383) – Also known as the SAVE America Act, this bill passed in the House on Feb. 11 but stalled in the Senate due to the Democrat filibuster. The bill would require states to verify documentary proof of citizenship and current residential address when Americans apply for federal voter registration. The easiest documentation would be a birth certificate or passport that confirms their current legal name (most women change their last name after marriage, so they require additional documentation, such as a marriage certificate). However, research from the Bipartisan Policy Center found that nearly 1 in 10 registered voters do not have access to their birth certificate, and 52 percent do not have an unexpired passport with their current legal name. Note that these registration requirements kick in any time current voters update their registration, such as for an address change or to switch political party affiliation. The bill also requires a specific type of photo ID to cast a ballot. A driver’s license is acceptable, but not student IDs or a tribal ID that lacks an expiration date (which tribal IDs do not contain). The president is also insistent that the legislation include unrelated restrictions for transgender Americans. The debate over this bill continues in the Senate.

Department of Homeland Security Appropriations Act, 2026 (HR 7744) – This is the bill that has held up appropriations for the Department of Homeland Security (DHS) for the fiscal year ending Sept. 30, 2026. The bill was introduced by Rep. Tom Cole (R-OK) on March 2 and passed in the House on March 5. However, it triggered a partial government shutdown and is under heated debate in the Senate. Republicans insist on passing the complete bill with increased funding for national security and border protection. The legislation also includes provisions prohibiting funds for Diversity, Equity, and Inclusion and Critical Theory programs, as well as abortions and gender-affirming care for ICE detainees. Senate Democrats are seeking to include guardrails that would prohibit ICE agents from wearing masks or entering homes, schools, hospitals, etc., without a judicial warrant. Currently at a stalemate, Republicans will likely try to pass funding for the Department of Homeland Security (DHS), more money for ICE, and components of the Save America Act through a budget reconciliation bill.

Small Business Innovation and Economic Security Act (S 3971) – On March 3, Sen. Joni Ernst (R-IA) introduced this bipartisan bill to reauthorize the Small Business Innovation Research and Small Business Technology Transfer (SBIR/STTR) programs. These programs, also known as America’s Seed Fund, expired last September. The new bill enables certain agencies to award a portion of their funds to larger projects focused on technology transition, rather than incremental R&D. These agencies, which include the Departments of Defense, Energy and Homeland Security, the Environmental Protection Agency and the National Aeronautics and Space Administration, may award up to $30 million to small business projects that prioritize national security, customer demand and undercapitalized technology areas. The bill passed in the Senate on March 3, the House on March 17, and was signed into law by the president on April 13.

Tyler’s Law (S 921) – The purpose of this bill is to issue guidance for hospital emergency departments to implement fentanyl testing as a routine procedure for patients experiencing an overdose. The current standard procedure tests for marijuana, cocaine, amphetamines, PCP, and natural and semisynthetic opioids, but not synthetic opioids like fentanyl – something many ER practitioners are unaware of. The bill is named for Tyler Shamash, a California teenager who died of an overdose after he passed a drug test in an emergency room that did not include fentanyl. The bipartisan bill was introduced by Sen. Jim Banks (R-IN) on March 10, 2025. It passed in the Senate on March 23, 2026, and is currently awaiting a vote in the House.

To require the Secretary of Homeland Security to designate Haiti for Temporary Protected Status (HR 1689) – This bill was introduced on Feb. 27, 2025, and passed in the House on April 16, 2026. Amid rampant immigration enforcement, this bill is designed to extend temporary protected status for Haitian migrants through 2029. TPS is intended to provide a safe haven for foreign nationals whose home countries are experiencing temporary unsafe conditions, such as from a natural disaster or civil unrest, for which Haitians continue to qualify. This largely partisan legislation faces an uphill battle in the Senate, as well as a likely veto by the president. In February, the president revoked TPS status for approximately 330,000 Haitians in the United States. However, enforcement of that order is currently halted, and its constitutionality is under consideration by the U.S. Supreme Court.