Key Takeaways
- Math error notice reform bill goes to President.
- Requires "plain language" in notices.
- IRS issues FAQ on ERC changes in new law.
- Tax Policy chief promises timely OB3 guidance despite shutdown.
- Tariffs make festive decor more expensive.
- Tax Court warns against trusting AI.
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Oh, that income? It was a... a loan! That's the ticket!
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National Boston Cream Pie Day.
No Roundup Tomorrow. Tax News & Views will be taking a rare Friday off. Alex Parker will be here with a Capitol Hill Recap, so check in for the latest from D.C. Normal programming resumes Monday.
Congress passes bill requiring IRS to clarify math error notices - Martha Waggoner, The Tax Advisor:
Other changes in the bill include that the IRS send a notice related to an abatement of taxes assessed due to a math or clerical error; provide procedures for requesting such an abatement; and implement a pilot program for sending notices of a math or clerical error.
The bill, which the House approved earlier this year, now goes to President Donald Trump to be signed into law.
Senate Sends IRS Clerical Error Correction Bill To Trump - Asha Glover, Law360 Tax Authority ($):
The proposal also would require the IRS to send notices of math or clerical errors to taxpayers' last known address, describe the errors in plain language and set out procedures for requesting abatement. It would additionally require the U.S. Department of the Treasury and the National Taxpayer Advocate to conduct a study on the effectiveness of certified or registered mail with e-signature confirmation of receipt and report the results to Congress.
Ben Peeler, head of the Eide Bailly Tax Controversy Team, says "Hopefully it will clear a more direct path to make these corrections instead of all the indirect requests and filings that must be made to the IRS to get these changes completed."
Elyse Katz, also with the Eide Bailly Tax Controversy Team, has doubts:
On the flip side, how will they allow taxpayers to adjust assessments based on math or clerical errors- what is that even defined? Most amended returns could be considered a “clerical error” It seems to me that would be a huge grey area that would be very difficult to define - and again, given the IRS has a lack of resources to do this will be moving mountains at this point.
Related: Eide Bailly IRS Dispute Resolution and Collection Services.
IRS Explains New Law on ERC Refunds
IRS Issues Guidance On How Controversial ERC Refunds Will Be Treated Under New Tax Law - Kelly Phillips Erb, Forbes:
Specifically, the law (under section 70605(d) of OBBBA) prevents the IRS from allowing or refunding ERCs after July 4, 2025, for the third and fourth quarters of 2021 if those claims were filed after January 31, 2024, even if you otherwise met eligibility requirements.
Other parts of the bill strengthen compliance enforcement by imposing penalties on certain promoters of the ERC who fail to meet due diligence requirements when assisting with certain credit claims.
Link: IRS FAQ.
IRS Criminal Division Shake-up Alarms Dems
Democrats warn Trump team against ‘weaponizing’ the IRS - Jacob Bogage, Washington Post:
Shutdown Drags On, Now 2nd Longest. Treasury Says It Won't Delay New Law Guidance.
US Government Shutdown Is Now Second Longest in History - Erik Wasson, Bloomberg via MSN. "With President Donald Trump expected to leave later this week for a trip to Asia, lawmakers and congressional aides say they see a real possibility the closure could extend into November and surpass the 35-day shutdown of Trump’s first term."
Lawmakers See Pressure to End Shutdown Building Around Nov. 1 - Jack Fitzpatrick, Bloomberg ($). "Funding shortfalls and other deadlines for health care, military pay, and nutrition benefits will collide on or around the first of next month, potentially creating new bipartisan urgency for lawmakers to end the shutdown set to enter its fourth week on Wednesday."
OBBBA Guidance Will Be on Time Despite Furloughs, Kies Says - Benjamin Valdez, Tax Notes ($):
“Do not believe what you’re reading in most newspapers about the IRS and its preparations for the filing season,” Kies told attendees of the Council for Electronic Revenue Communication Advancement fall conference on October 22.
...
During the shutdown, the IRS is halting the processing of paper returns and correspondence but will process payments and remittances.
AICPA seeks IRS guidance on tip, overtime tax deductions for 2025 - Martha Waggoner, The Tax Adviser:
This leaves employers and payers uncertain about how to meet the required information-reporting standards for the deductions, said Scott Klein, CPA, senior manager–Tax Policy & Advocacy for the AICPA.
“Additionally, tax return preparers and individuals preparing their own tax returns are unsure which type of alternative documentation they can rely on to support the deductions for qualified tips and qualified overtime compensation,” Klein said in a news release issued Tuesday.
Tariffs: Grinchiness, Beefiness.
Holiday decor will cost more and could run out thanks to tariffs - Jaclyn Peiser, Washington Post:
Meanwhile, consumers should expect to pay as much as 18 percent more on such items compared to last year, company leaders said.
Trump defends tariffs to cattle ranchers, calls for lower prices - Brett Samuels, The Hill:
“The Cattle Ranchers, who I love, don’t understand that the only reason they are doing so well, for the first time in decades, is because I put Tariffs on cattle coming into the United States, including a 50% Tariff on Brazil,” Trump posted on Truth Social. “If it weren’t for me, they would be doing just as they’ve done for the past 20 years — Terrible!”
“It would be nice if they would understand that, but they also have to get their prices down, because the consumer is a very big factor in my thinking, also!” he added.
Artificial Intelligence, Real Hallucinations
Tax Court Judge Warns Against Unchecked AI Use In Filings - Kat Lucero, Law360 Tax Authority ($):
The court has found practitioners who have presented filings with "citations that were obviously the product of AI hallucinations," Judge Courtney Jones said, referring to a term commonly used to describe an AI platform's results that contain false or misleading information presented as facts.
The Tax Court has apparently encountered AI hallucinations in filings:
"We've tried to be gentle with practitioners who have transgressed our rules in this way, but I offer that for your careful attention," she said.
"Practitioners." So, not just pro se litigants. Not good.
Blogs and Bits
Alternative Minimum Tax changes, thanks to 2026 inflation adjustments and One Big Bill tweaks - Kay Bell on Substack:
However, tax changes in another Republican tax bill, the One Big Beautiful Bill Act (OBBBA) that became law on July 4, could force more taxpayers to again deal with the AMT.
Tax News & Views International Weekly: Retreat on Carbon Tax? - Alex Parker, Eide Bailly. "In another apparent foreign policy victory for the Trump administration, the United Nations International Marine Organization delayed a vote last week on a proposed carbon emissions taxation system for global shipping—strongly opposed by the U.S. and other oil-rich nations—for at least the next 12 months."
Federal Tax System Remains Highly Progressive After the OBBBA - Garrett Watson, Tax Policy Blog. "The share of taxes paid rises steeply with income, reflecting both the progressivity of the tax system (effective tax rates rise with income) and the unequal distribution of income in the underlying economy. Under both prior law and the OBBBA, over 70 percent of the federal tax burden is paid by the top 20 percent of earners, while the bottom 40 percent pay less than 5 percent of federal taxes collected"
Residence-Based Taxation: Social Security, Pensions And 30% Withholding - Virginia La Torre Jeker, US Tax Talk:
Related: Eide Bailly Global Mobility Services.
Oh, that income? It was a loan! That's the ticket!
Construction Co. Owner Hid Income, Tax Court Says - Anna Scott Farrell, Tax Notes ($). "A man who said he was a former officer of a California construction company was actually a 50% shareholder and failed to report income for 2016, including money diverted from a client to the purchase of a motor home, the U.S. Tax Court found."
This case in fact highlights a number of things that don't work. Excerpts below are from the Tax Court opinion, with taxpayer names omitted (emphasis mine).
- Ignoring a K-1 issued in your name:
- Claiming that a payment you received is a loan, rather than income:
PCR's 2016 Form 1120S does not report a loan to Three B's on its balance sheet for the beginning of the tax year. Had there been an outstanding loan, it should have been reported as a beginning of the year entry on PCR's 2016 Schedule L, Balance Sheets per Books. Petitioners thus did not establish that PCR and Three B's had a good-faith intent to establish a creditor-debtor relationship.
This also shows why getting the balance sheet right is an important part of tax return preparation.
- Having a customer buy things for you to keep income off the books. This involved having a customer pay a motor home vendor called Showhauler for an R.V. for the taxpayer:
Second, Husband testified that even if the $74,382 was PCR's income, it should be offset by costs PCR incurred in generating the income. Petitioners have not produced any admissible evidence substantiating these alleged costs.
This excerpt also highlights another important point for tax litigants: the judge wasn't born yesterday.
What day is it?
While it is apparently National Slap Your Coworker Day, we have no truck with workplace violence, even when a slap has been honestly earned. We choose instead to celebrate National Boston Cream Pie Day with coworkers everywhere.
Make a habit of sustained success.
