Tax and Accounting Research: Tax Updates September 2025 - May 2024
September 2025
Accounting
IRS Releases September 2025 Applicable Federal Rates: In Rev. Rul. 2025-17, the IRS issued the applicable federal rates for September 2025 for purposes of Code Sec. 1274(d), Code Sec. 1288(b), and Code Sec. 382(f). The ruling also contains the appropriate percentages for determining the low-income housing credit described in Code Sec. 42(b)(1) and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Code Sec. 7520.
Bankruptcy
Bankruptcy Trustee Cannot Compel Turnover of Tax Refund: In In re Garcia-Morales, 2025 PTC 286 (10th Cir. 2025), the Tenth Circuit held that a debtor in bankruptcy was not required turn over his federal income tax refund to a bankruptcy trustee to become part of the estate of assets payable to creditors. The Tenth Circuit affirmed a district court and held that refund was wholly exempt from being part of the bankruptcy estate under Colorado law because it was attributable to the refundable child tax credit.
Corporations
IRS Intends to Modify Rules on Transfers of U.S. Real Property Interests: In Notice 2025-45, the IRS announces that it intends to issue proposed regulations under Code Sec. 897(d) and (e) that modify the application of the rules for certain transactions involving the transfer of United States real property interests (USRPIs). The regulations will propose to revise the rules that apply to inbound asset reorganizations under Code Sec. 368(a)(1)(F) that constitute a "covered inbound F reorganization" as defined in Section 3.02 of Notice 2025-45.
Disregarded Payment Loss Rules to Be Removed: In Notice 2025-44, the IRS announces that it intends to issue proposed regulations that would remove (1) the disregarded payment loss rules under Reg. Sec. 1.1503(d)-1(d) and (2) recent modifications to the dual consolidated loss rules under Code Sec. 1503(d) relating to the deemed ordering rule under Reg. Sec. 1.1503(d)-3(c)(3). Additionally, the proposed regulations would extend the transition relief pertaining to the application of the dual consolidated loss rules under Code Sec. 1503(d) to certain types of taxes covered by the so-called "GloBE Model Rules" described in "Tax Challenges Arising from the Digitalisation of the Economy - Global Anti-Base Erosion Model Rules (Pillar Two).
Credits
IRS Clarifies Beginning of Construction Requirement for Wind and Solar Facilities: In Notice 2025-42, the IRS provides guidance regarding when construction of an applicable wind or solar facility has begun for purposes of determining whether such facility is subject to credit termination provisions added to Code Sec. 45Y and Code Sec. 48E by the One Big Beautiful Act (OBBBA) (Pub. L. 119-21). The OBBBA terminates the clean electricity production credit determined under Code Sec. 45Y and the clean electricity investment credit determined under Code Sec. 48E in the case of an applicable wind facility or applicable solar facility that is placed in service after December 31, 2027, and this termination date applies to applicable wind and solar facilities the construction of which begins after July 4, 2026.
Deductions
Eleventh Circuit Upholds Tax Court's Valuation of Conservation Easement: In Buckelew Farm, LLC v. Comm'r, 2025 PTC 304 (11th Cir. 2025), the Eleven Circuit affirmed the Tax Court and held that a taxpayer was entitled to claim a deduction under Code Sec. 170 for donating a conservation easement but grossly overstated the value of the easement. The court found that the IRS's valuation expert properly took into account the taxpayer's proposed development plan in valuing the property and rejected the taxpayer's arguments regarding the IRS's alleged violations of the Code Sec. 6103 privacy protections since an exception applies for disclosures of returns and return information when a person is a party to a tax proceeding that pertains to tax administration.
Taxpayer's Work-Related Travel Expenses Are Not Deductible: In Hussaini v. Comm'r, T.C. Memo. 2025-82, the Tax Court held that a taxpayer who traveled from his home in Iowa to Maryland and New Jersey to work onsite as computer engineer for his employer was not allowed to deduct his travel expenses under Code Sec. 162 as ordinary and necessary business expenses. The court noted that under Code Sec. 62(a)(1), deductions under Code Sec. 162 are allowed to an individual taxpayer only if his trade or business does not consist of the performance of services as an employee unless an exception under Code Sec. 62(a)(2) applies, and none applied because the taxpayer's expenses were not subject to an employer reimbursement arrangement and he was not a qualified performing artist, a government official or a Reservist.
Grocery Store Chain's Microcaptive Arrangement Did Not Qualify as Insurance: In CFM Insurance, Inc. v. Comm'r, T.C. Memo. 2025-83, the Tax Court held that a microcaptive insurer incorporated in Utah was not insurance under Code Sec. 831(b) because the captive's policies did not distribute risk and the arrangement did not meet the commonly accepted definition of insurance. The court rejected the taxpayer's argument that Utah law, rather than Code Sec. 831, governed whether the captive was an insurance company given that states are primarily responsible for regulating insurance under the McCarran-Ferguson Act (the Act); the court found that the Act prohibits federal regulation of the "business of insurance," i.e., the relationship between the purported captive insurer and insured taxpayer, but does not preclude the recharacterization of what a state may call "insurance."
Employee Benefits
Reserve for Post-Retirement Benefits Does Not Include Pre-Severance Benefit Costs: In CCA 202534004, the Office of Chief Counsel advised that the additional reserve for post-retirement medical benefits described in Code Sec. 419A(c)(2) does not include (1) the expected cost of providing medical benefits for periods of coverage before employees are expected to sever from employment, or (2) amounts funded over the working lives of employees to the extent that the working lives are defined as ending at a specified "retirement age" without regard to whether the employees are expected to sever from employment at that date. The Chief Counsel's Office stated that in order for contributions to a reserve to be deductible as within the account limit under Code Sec. 419A(b), those contributions must be intended actually to accumulate for the purpose of funding post-retirement benefits.
Monthly Corporate Yield Curve and Segment Rates Released: In Notice 2025-43, the IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).
Employment Taxes
IRS Announces No Changes to Info Returns and Withholding Tables for 2025: In an August 7, 2025 press release (IR-2025-82), the IRS announced that, as part of its phased implementation of the One Big Beautiful Bill Act (OBBBA), there will be no changes related to the OBBBA to the 2025 Forms W-2, 1099, 941, and other payroll return forms, and no updates to the federal income tax withholding tables for 2025. The IRS added that it is working on new guidance and updated forms for 2026, which will include changes to how tips and overtime pay are reported in order to reflect the new deductions for these items under the OBBBA.
Foreign
Court Upholds Ruling That FBAR Penalties Can't Be Assessed Against Surviving Spouse: In U.S. v. Leeds, 2025 PTC 295 (D. Idaho 2025), a district court declined the government's motion to reconsider the court's ruling that a judgment to enforce $2 million in FBAR penalties against a deceased taxpayer's surviving spouse personally violated the Eighth Amendment's excessive fines clause. The court rejected the government's contention that the court's ruling was an improper advisory opinion since the government did not seek any relief against the surviving spouse individually; the court noted that the government sought to enforce the FBAR penalties against the surviving spouse in both her individual and official capacities.
Gross Income
Stock Transferred to Former Employee Was Includable in Income: In Feige v. Comm'r, T.C. Memo. 2025-88, the Tax Court held that a taxpayer was required under Code Sec. 83 to include in income the value of stock she received in error from her former employer under a performance rights plan after she had separated from the company. The court found that the shares were property, were transferred in connection with the taxpayer's performance of services, and were not subject to a substantial risk of forfeiture because the taxpayer was not expected to perform any other services to receive the shares, the separation agreement did not include any conditions that would require her to return the shares, and the shares were transferable by the taxpayer.
Innocent Spouse Relief
Taxpayer's Innocent Spouse Relief Request Barred by Res Judicata: In Walsh v. Comm'r, T.C. Memo. 2205-91, the Tax Court held that a taxpayer's request for innocent spouse relief was barred by the doctrine of res judicata because the taxpayer was a petitioner in a prior deficiency case for the same tax years in which a final judgment was entered on the merits. The court found that the exception in Code Sec. 6015(g)(2), under which a taxpayer may avoid the preclusive effect of res judicata if certain conditions are met, did not apply because the taxpayer participated meaningfully in the prior proceeding because competent counsel acted on her behalf.
Procedure
Taxpayer Cannot Recover Damages for IRS Transfer of Tax Deposits to Estranged Spouse: In Winenger v. Lowry, 2025 PTC 296 (11th Cir. 2025), the Eleventh Circuit affirmed a district court and held that a taxpayer could not recover damages under Code Sec. 7431(a)(2) for an unauthorized inspection of tax return information based on the transfer of $54,000 in joint tax deposits to a taxpayer's ex-wife, who forged the taxpayer's signature to create a fraudulent power of attorney which she then used to persuade the IRS to transfer the joint tax deposits to her individual account. The court found that since the taxpayer was suing only his ex-wife, he needed to show that she somehow violated Code Sec. 6103, and the court found that Code Sec. 6103 prohibits the improper handling of tax returns by certain enumerated categories of people, none of which applied to the ex-wife.
Proposed Regs Allowing Return Disclosures to State Department Withdrawn: The IRS withdrew the proposed regulations issued in REG-129260-16 in March 2018 that would have added the State Department to the list of agencies whose officers and employees may disclose returns and return information to its contractors providing services in connection with the revocation or denial of passports under Code Sec. 7345. The IRS stated that the proposed regulations are unnecessary because the State Department is already authorized under Reg. Sec. 301.6103(n)-1(a)(2)(ii) to disclose returns and return information to its contractors providing services in connection with passport revocations and denials under Code Sec. 7345.
Limitations Period Exception for Fraud Does Not Require Taxpayer's Intent to Evade Tax: In Murrin v. Comm'r, 2025 PTC 281 (3d Cir. 2025), the Third Circuit held that, for purposes of the exception to the general three-year statute of limitations for assessments that applies when there is "a false or fraudulent return with the intent to evade tax" under Code Sec. 6501(c)(1), the taxpayer's intent is not required. Thus, the Third Circuit affirmed the Tax Court and held that a tax preparer's intent to evade taxes, even while the taxpayer herself did not have such intent, was sufficient under the statute for the exception to apply.
Tax Court Trials Do Not Violate the Constitutional Right to a Jury Trial: In Silver Moss Properties, LLC v. Comm'r, 165 T.C. No. 3 (2025), the Tax Court held that the Seventh Amendment to the U.S. Constitution, which guarantees a right to trial by jury, does not preclude the Tax Court from adjudicating civil fraud penalties under Code Sec. 6663(a) against a partnership in a TEFRA proceeding, even though jury trials are not available in the Tax Court. The court found that Congress provided a limited waiver from sovereign immunity in TEFRA partnership-level actions, but in doing so it did not assent to trial by jury in a district court, nor did it enable the Tax Court or the Court of Federal Claims to empanel juries.
IRS Lost Authority to Approve Credit Requests After Case Was Referred to DOJ: In JPM Restaurant, LLC v. U.S., 2025 PTC 263 (E.D. Tenn. 2025), a district court granted summary judgment for the government and dismissed a restaurant's action seeking a refund arising from the employee retention credit for six calendar quarters in 2020 and 2021, based on the IRS's approval of its claims for four of the six quarters. The court found that the IRS erroneously approved the claims because the taxpayer's case had been transferred to the Department of Justice and the IRS lost the authority to approve the claims after the case was transferred.
Interest Rates Unchanged for Fourth Quarter of 2025: In Rev. Rul. 2025-18, the IRS issued the rates for interest on tax underpayments and overpayments for the quarter beginning October 1, 2025. The rates for interest determined under Code Sec. 6621 for the calendar quarter beginning October 1, 2025, are unchanged from the rates for the third quarter of 2025 and will be 7 percent for overpayments (6 percent in the case of a corporation), 7 percent for underpayments, and 9 percent for large corporate underpayments, and the rate of interest paid on the portion of a corporate overpayment exceeding $10,000 will be 4.5 percent.
Whistleblowers
Court of Federal Claims Has No Jurisdiction Over Whistleblower Awards: In McCrory v. U.S., 2025 PTC 265 (Fed. Cir. 2025), the Federal Circuit affirmed the Court of Federal Claims' dismissal of a whistleblower's complaint seeking damages for underpayment of her whistleblower award under Code Sec. 7623(a). The Federal Circuit rejected the whistleblower's argument that the regulations in Reg. Sec. 301.37623-1 through -4 are "money mandating" and thus provided a basis for review of her award under the Tucker Act; the court found that Code Sec. 7623(a) and its implementing regulations are discretionary and thus there is no statutory entitlement to money damages under Code Sec. 7623(a).
IRS Properly Denied a Whistleblower Award for Publicly Available Information: In Whistleblower 20442-8W v. Comm'r, T.C. Memo. 2025-86, the Tax Court held that the IRS Whistleblower Office properly denied an award to a whistleblower under Code Sec. 7623(b) because the information he submitted did not substantially contribute to the actions taken by the IRS against the taxpayer identified by the whistleblower. The court found that the whistleblower's information, which consisted of publicly available SEC filings for multinational companies related to transfer pricing issues, was high-level information that was unlikely to be of great use to experienced IRS examiners auditing large multinational companies and was submitted after the IRS exam teams had already identified the transfer pricing issues.
August 2025
Accounting
IRS Releases August 2025 Applicable Federal Rates: In Rev. Rul. 2025-14, the IRS issued the applicable federal rates for August 2025 for purposes of Code Sec. 1274(d), Code Sec. 1288(b), and Code Sec. 382(f). The ruling also contains the appropriate percentages for determining the low-income housing credit described in Code Sec. 42(b)(1) and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Code Sec. 7520.
Corporations
IRS Provides Guidance Simplifying Application of Corporate AMT to Partnerships: In Notice 2025-28, the IRS informs taxpayers of the intent to partially withdraw the proposed regulations issued in REG-112129-23 and issued revised proposed regulations regarding the application of the corporate alternative minimum tax to applicable corporations with financial statement income attributable to investments in partnerships. In addition, the notice provides interim guidance primarily on simplified methods to determine an applicable corporation's adjusted financial statement income (AFSI) with respect to an investment in a partnership, reporting by partnerships of information needed to compute ASFI, and rules for partnership contributions and distributions.
Credits
IRS Provides 2026 Inflation Adjustments for Premium Tax Credit: In Rev. Proc. 2025-25, the IRS provides the applicable percentage table in Code Sec. 36B(b)(3)(A) for tax years beginning in 2026, which is used to calculate an individual's premium tax credit under Code Sec. 36B. The procedure also provides the indexing adjustment for the required contribution percentage in Code Sec. 36B(c)(2)(C)(i)(II) for plan years beginning in 2026, which is used to determine whether an individual is eligible for affordable employer-sponsored minimum essential coverage under Code Sec. 36B.
IRS Provides Inflation Adjustments for Clean Energy Production Credits: In Notice 2025-37, the IRS published the inflation adjustment factors and applicable amounts, as appropriate, for calendar year 2025 for the zero-emission nuclear power production credit, the credit for production of clean hydrogen, and the clean fuel production credit. These inflation adjustment factors and applicable amounts, as appropriate, are used to determine the corresponding credit amounts under Code Secs. 45U, 45V, and Code Sec. 45Z.
Deductions
S Corp's Captive Insurance Losses Disallowed, 40 Percent Penalty Applied: In Kadau v. Comm'r, T.C. Memo. 2025-81, the Tax Court held that an S corporation's expenses for purported insurance coverage through an arrangement with its affiliated captive insurance company were not deductible as ordinary and necessary business expenses and that the company was liable for a 40 percent penalty for a transaction lacking in economic substance. The court found that the arrangement was not insurance in the commonly accepted sense because there were an insufficient number of pooled risks to achieve the necessary risk distribution the captive's participation in a reinsurance pool did not perform the functions of a bona fide insurance company.
Employee Benefits
Indexing Adjustments Provided for Employer Shared Responsibility Payments: In Rev. Proc. 2025-26, the IRS provided indexing adjustments for the applicable dollar amounts under Code Sec. 4980H(c)(1) and (b)(1), which are used to calculate the employer shared responsibility payments under Code Sec. 4980H(a) and (b)(1), respectively. For calendar year 2026, the adjusted $2,000 amount under Code Sec. 4980H(c)(1) is $3,340, and the adjusted $3,000 amount under Code Sec. 4980H(b)(1) is $5,010.
Gross Income
Settlement Proceeds Not On Account of Personal Injuries Must Be Included in Income: In Mennemeyer v. Comm'r, T.C. Memo. 2025-80, the Tax Court held that arbitration settlement proceeds a taxpayer was awarded from her former employer could not be excluded from income under Code Sec. 104(a) because they were not on account of personal physical injuries. The court found that the settlement agreement unambiguously stated that the award was for defamation and economic damages and the court rejected the taxpayer's contention that the former employer was concerned about a potential second lawsuit related to her purported health ailments.
Procedure
Use of Wrong Form Dooms Taxpayer's Refund Lawsuit: In Nicholson v. U.S., 2025 PTC 249 (N.D. Fla. 2025), a district court dismissed a taxpayer's complaint for a refund after finding that she did not duly file the requisite refund claims with the IRS before filing suit. The court found that the taxpayer filed her refund claims with the IRS on Forms 843, Claim for Refund and Request for Abatement, instead of Form 1040X, Amended U.S. Individual Income Tax Return, as required for overpayments under Reg. Sec. 301.6402.3(a)(2) and the court determined that her Forms 843 did not qualify as informal refund claims because she never remedied her incorrect filings by filing the proper Form 1040X.
Prevailing Taxpayer In ACA Penalties Case Can't Recoup Attorney Fees: In Faulk Company, Inc. v. Becerra, 2025 PTC 241 (N.D. Tex. 2025), a district court held that a taxpayer who prevailed in litigation challenging employer shared responsibility penalties assessed by the IRS was not entitled to recover attorney's fees because the IRS's position was substantially justified. The court noted that the meaning of the phrase "certified ... under Section 1411" in Code Sec. 4980H was a matter of first impression that presented the court with interpretive challenges and concluded that the government's position had a reasonable basis in law and fact and its position was substantially justified.
July 2025
Accounting
IRS Releases July 2025 Applicable Federal Rates: In Rev. Rul. 2025-13, the IRS issued the applicable federal rates for July 2025 for purposes of Code Sec. 1274(d), Code Sec. 1288(b), and Code Sec. 382(f). The ruling also contains the appropriate percentages for determining the low-income housing credit described in Code Sec. 42(b)(1) and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Code Sec. 7520.
Corporations
IRS Withdraws Proposed Regulations Relating to Built-In Gain and Loss: In REG-125710-18, the IRS withdraws two notices of proposed rulemaking issued in 2019 and 2020 that would have modified the rules in Reg. Sec. 1.382-2 and Reg. Sec. 1.382-7 regarding the treatment of built-in items of income, gain, deduction, and loss taken into account by a loss corporation after an ownership change. The IRS stated that it received several comments critical of the proposed rules and that it expects to issue a revised notice of proposed rulemaking regarding such issues.
Credits
IRS Issues Energy Credit Community Bonus Annual Notice and Appendices: In Notice 2025-31, the IRS provides information that taxpayers may use to determine whether they meet certain requirements under the Statistical Area Category or the Coal Closure Category as described in Notice 2023-29 for purposes of qualifying for energy community bonus credit amounts or rates under Code Secs. 45, 45Y, 48, and Code Sec. 48E. The notice provides new Appendices 1, 2, 3, 4, and 5 to update relevant features of the Statistical Area Category eligibility, list additional counties that satisfy the Fossil Fuel Employment threshold, list counties that satisfy both the Fossil Fuel Employment and the unemployment rate criteria for eligibility as an energy community, and list additional census tracts that satisfy the Coal Closure Category for eligibility as an energy community.
Deductions
Tax Court Nixes Sports Arena Management Company's Bad-Debt Deduction: In Anaheim Arena Management, LLC v. Comm'r, T.C. Memo. 2025-68, the Tax Court held that a taxpayer was not entitled to take a bad-debt deduction under Code Sec. 166(a) for advances to fund the business operations of a sports-and-entertainment arena it managed. The court found that none of the 11 factors for determining whether there is a debt for federal income tax purposes set forth in A.R. Lantz Co. v. U.S., 424 F.2d 1330 (9th Cir. 1970), indicated that the advances were debt; however, the court found that the taxpayer had reasonable cause to abate the accuracy-related penalties because the taxpayer reasonably relied on the advice of its accountants when claiming the deduction on its return.
Employee Benefits
Updated Mortality Improvement Rates and Static Mortality Tables Released: In Notice 2025-40, the IRS issued guidance that (1) updates the mortality improvement rates and static mortality tables to be used for defined benefit pension plans under Code Sec. 430(h)(3)(A) and Section 303(h)(3)(A) of the Employee Retirement Income Security Act of 1974 (ERISA), and (2) provides a modified unisex version of the mortality tables for use in determining minimum present value under Code Sec. 417(e)(3) and Section 205(g)(3) of ERISA for distributions with annuity starting dates that occur during stability periods beginning in the 2026 calendar year. The updated mortality improvement rates and static mortality tables apply for purposes of determining present value and making any other computations under Code Sec. 430 for valuation dates occurring during the 2026 calendar year.
IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2025-39, the IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).
IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2025-35, the IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).
Micro-Captive Insurance Arrangements
Promoter of Micro-Captive Arrangements Settles With IRS, Agrees to Pay Penalties: In a June 16 press release (IR-2025-68), the IRS announced a settlement with Bruce Molnar, cofounder and majority owner of Alta Holdings, LLC (Alta), who in his role as an officer of Alta organized and sold a program using contracts their clients treated as insurance and creating new entities that they treated as captive insurance companies. In Syzygy Ins. Co., Inc. v. Comm'r, T.C. Memo. 2019-34, the Tax Court held that that Alta's program was not insurance for federal tax purposes; under the settlement, Molnar agreed to pay penalties under Code Sec. 6700 for promoting micro-captive insurance arrangements during 2005-2012.
Penalties
Business Owner Hit With Civil Fraud Penalties for Underreporting Income: In Belieu v. Comm'r, T.C. Memo. 2025-70, the Tax Court held that the owner of an information technology business was liable for civil fraud penalties under Code Sec. 6663 for deficiencies in tax years 2012-2014. The court found that, of the 11 badges of fraud identified in Schiff v. U.S., 919 F.2d 830 (2d Cir. 1990), nine were present; in particular, the court found that the taxpayer had a history of significantly underreporting income, kept inadequate records, gave implausible explanations considering her accounting background, concealed information during the audit, and had significant dealings in cash without sufficient explanation.
Procedure
IRS Eliminates 83 Items of Obsolete Internal Revenue Bulletin Guidance: In Notice 2025-36, the IRS obsoleted 83 Internal Revenue Bulletin guidance documents pursuant to President Trump's January 2025 executive order directing agencies to reduce the economic burden caused by regulation. The IRS stated that the documents no longer provide useful information and that clarifying their status as obsolete will streamline administration of the tax laws, reduce the volume of guidance that taxpayers and their advisors need to review for compliance with the tax laws, and increase clarity of the tax law.
No Notice Was Required for Summons Issued in Aid of Collection: In Goddard v. U.S., 2025 PTC 217 (9th Cir. 2025), the Ninth Circuit affirmed a district court and held that no notice was required to be given to a taxpayer whose bank records were summonsed by the IRS because the purpose of the summons was to aid in the collection of a $400,000 assessment against the taxpayer under Code Sec. 7609(c)(2)(D), not a liability determination. The court rejected the taxpayer's argument that the summons was issued in bad faith; the court found that the IRS met its "slight" burden of showing good faith by submitting an IRS agent's declaration that the summons was issued for the legitimate purpose of obtaining financial information related to the taxpayer's unpaid tax liabilities.
IRS Fails to Establish Proper Mailing of Notice of Deficiency: In Cano v. Comm'r, T.C. Memo. 2025-65, the Tax Court dismissed a taxpayer's petition for lack of jurisdiction after finding that the IRS failed to show that a valid notice of deficiency was mailed to the taxpayer. Although the IRS sought to have the case dismissed on account of the taxpayer's late filing of his petition, the court dismissed the case due to the IRS's mailing of the notice of deficiency to a nonexistent address; the court rejected the IRS's argument that the notice was deemed valid because the taxpayer attached a copy to his petition and said that a late-filed petition with a notice attached failed to show that the taxpayer received the notice with sufficient time to timely file a petition.
June 2025
Accounting
IRS Releases June 2025 Applicable Federal Rates: In Rev. Rul. 2025-12, the IRS issued the applicable federal rates for June 2025 for purposes of Code Sec. 1274(d), Code Sec. 1288(b), and Code Sec. 382(f). The ruling also contains the appropriate percentages for determining the low-income housing credit described in Code Sec. 42(b)(1) and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Code Sec. 7520.
Credits
IRS Provides Inflation Adjustment Factor for Renewable Electricity Production Credit: In 90 FR 22438, the IRS provides the 2025 inflation adjustment factors and reference price used for determining the availability of the credit for renewable electricity production under Code Sec. 45. The 2025 inflation adjustment factor and reference price apply to calendar year 2025 sales of kilowatt hours of electricity produced in the United States or a possession thereof from qualified energy resources.
Criminal
Third Circuit Remands for Resentencing in Payroll Tax Fraud Case: In U.S. v. Lucidonio, 2025 PTC 181 (3d Cir. 2025), the Third Circuit held that a district court erred by applying a sentencing enhancement with respect to a restaurant owner's conviction for conspiracy to defraud the IRS resulting from a payroll tax fraud scheme. According to the Third Circuit, the government failed to show that the individual encouraged non-conspirator employees to violate the Code or impede the IRS's collection of revenue; rather, the court found that the employees learned about the conspiracy during onboarding, knew that it would help them evade taxes, signed back paychecks to the restaurant in exchange for off-the-books cash, and filed false personal tax returns.
Deductions
Business Expenses Deductions Denied for Business Not Yet Commenced: In Root v. Comm'r, T.C. Memo. 2025-51, the Tax Court held that a married couple could not claim losses for 2014 under Code Sec. 165(c)(1) for a guest lodge because they did not engage in a trade or business involving the lodge by 2014. The court found that although the taxpayers did complete some construction on the lodge, it was never brought to a state in which guests could stay or tenants could rent it; the court found that even if it had been suitable for house guests, the taxpayers never opened the lodge up to potential guests, there was no website or booking portal for the lodge, and the kitchen did not have the necessary permitting to offer food to customers.
Ninth Circuit Affirms Tax Court; Doctor's Music Activity Was Not Engaged in for Profit: In Sherman v. Comm'r, 2025 PTC 187 (9th Cir. 2025), the Ninth Circuit affirmed the Tax Court and held that a physician's music production activity was not engaged in for profit and therefore, the taxpayer was not entitled to take deductions under Code Sec. 162(a) for expenses arising from the activity. The Ninth Circuit further held that the Tax Court did not err in sustaining an addition for failure to file a timely return under Code Sec. 6651(a)(1).
Employee Benefits
IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2025-29, the IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).
Estates, Gifts, and Trusts
Estate Tax Closing Letter Fee Reduced: In T.D. 10031 and REG-107459-24, the IRS issued proposed and interim final regulations that reduce the user fee from $67 to $56 for persons requesting the issuance of IRS Letter 627, also referred to as an estate tax closing letter, effective for requests received by the IRS after May 20, 2025. The text of the interim final regulations serves as the text of the proposed regulations.
Procedure
Interest Rates Unchanged for Third Quarter of 2025: In Rev. Rul. 2025-11, the IRS issued the rates for interest on tax underpayments and overpayments for the quarter beginning July 1, 2025. The rates for interest determined under Code Sec. 6621 for the calendar quarter beginning July 1, 2025, are unchanged from the rates for the second quarter of 2025 and will be 7 percent for overpayments (6 percent in the case of a corporation), 7 percent for underpayments, and 9 percent for large corporate underpayments, and the rate of interest paid on the portion of a corporate overpayment exceeding $10,000 will be 4.5 percent.
Court Upholds IRS Plan to Share Tax Info for Immigration Enforcement Purposes: In Cento de Trabajadores Unidos v. Bessent, et al., 2025 PTC 165 (D. D.C. 2025), a district court denied a request for preliminary injunctive relief by immigrant advocacy organizations seeking to enjoin the IRS from sharing personal tax information with Department of Homeland Security (DHS) for immigration enforcement purposes. The court disagreed with the organizations' argument that the information sharing agreement between the IRS and DHS violates the Administrative Procedure Act and found that under Code Sec. 6103(i)(2) the IRS must disclose limited taxpayer information to assist another agency in criminal investigations and proceedings, if the agency has satisfied the statutory prerequisites in a written request.
Court Declines to Reconsider Granting of Tax Gross-Up for Lump Sum Military Back Pay: In Attia v. U.S., 2025 PTC 162 (Fed. Cl. 2025), the Court of Federal Claims denied the government's motion to reconsider its March 2025 decision holding that a discharged servicemember was eligible for a tax gross-up for the additional federal taxes he owed as a result of receiving a lump-sum payment of back pay. The court rejected the government's arguments that the court lacked the power to grant equitable relief and found that the government failed to show that justice required revision its decision to grant a tax gross-up.
May 2025
Accounting
IRS Releases May 2025 Applicable Federal Rates: In Rev. Rul. 2025-10, the IRS issued the applicable federal rates for May 2025 for purposes of Code Sec. 1274(d), Code Sec. 1288(b), and Code Sec. 382(f). The ruling also contains the appropriate percentages for determining the low-income housing credit described in Code Sec. 42(b)(1) and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Code Sec. 7520.
Capital Gains and Losses
Hedge Fund Can't Defer Gains by Treating Barrier Contracts as Options: In GWA, LLC v. Comm'r, T.C. Memo. 2025-34, the Tax Court held that a hedge fund's barrier contract transactions were not call option contracts under Code Sec. 1234 and Code Sec. 1234A and therefore, the hedge fund was treated in substance as owning the underlying basket securities for federal income tax purposes. The court also found that (1) the taxpayer made an invalid mark-to-market election because it purported to cover only a subset of the securities trading activities in which the taxpayer engaged: (2) the IRS's adjustments to the taxpayer's income as a result of the determination that it owned the basket securities constituted a change in method of accounting that necessitated a Code Sec. 481 adjustment, and (3) the taxpayer was liable for penalties for treating the barrier contracts' proceeds as resulting from the exercise or termination of call options.
Credits
IRS Issues Nationwide Average Purchase Price for Residences: In Rev. Proc. 2025-18, the IRS provides issuers of qualified mortgage bonds, as defined in Code Sec. 143(a), and issuers of mortgage credit certificates, as defined in Code Sec. 25(c), with (1) the nationwide average purchase price for residences located in the United States, and (2) average area purchase price safe harbors for residences located in statistical areas in each state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands, and Guam. Generally, issuers must use the nationwide average purchase price limitation contained in the procedure for commitments to provide financing or issue mortgage credit certificates that are made, or (if the purchase precedes the commitment) for residences that are purchased, in the period that begins on April 16, 2025, and ends on the date when the nationwide average purchase price limitation is rendered obsolete by a new revenue procedure.
Employee Benefits
IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2025-21, the IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).
Procedure
Civil Assessment of Fraudulently Obtained Refunds Doesn't Bar Later Restitution Assessment: In U.S. v. Brown, 2025 PTC 140 (W.D. Wash. 2025), a district court granted summary judgment for the IRS and held that civil assessments requiring an individual to repay fraudulently obtained refunds did not preclude the IRS from reducing to judgment its assessment of a criminal restitution order relating to the same fraudulent conduct. The court rejected the argument that Code Sec. 6201(a)(4), which allows the IRS to assess restitution amounts "in the same manner as if such amount were a tax," rendered the criminal restitution assessment an invalid second assessment of the "same tax" the IRS assessed civilly and found that under Code Sec. 6501(c)(11), the IRS can assess a restitution order for failure to pay tax "at any time."
Court Dismisses Claims Against IRS Employees for Violations of Constitutional Rights: In Ray v. Priver, 2025 PTC 134 (D. D.C. 2025), a district court granted the government's motion to dismiss a taxpayer's lawsuit against two IRS employees in their individual capacities, alleging that they violated his constitutional rights in pursuing penalties against him. The court found that the taxpayer could not state a claim under Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics, 403 U.S. 388 (1971), because the claims presented a "new context" from previous claims recognized under Bivens and "special factors" counseled against allowing the claim; specifically, the court found that the Code itself provides a comprehensive remedial scheme and that Congress created the office of the Treasury Inspector General for Tax Administration (TIGTA) with the responsibility of investigation allegations of misconduct by IRS employees.
April 2025
ARCHIVED TAX BRIEFS
|
