Tax News & Views Black Cat Crosses Tariff and Shutdown Path Roundup

Shutdown hardens: SNAP crisis looms, Senate eyes narrow relief bills - Jake Sherman and Andrew Desiderio, Punchbowl News:

Yet the political calculus is slowly changing. The fallout from the shutdown is growing worse by the day. The risk for Democrats is that these impacts begin to overshadow the health-care issues they’re trying to fix. For the GOP, it looks like they can’t govern.

Hundreds of thousands of federal workers missed a full paycheck last week, causing hardship for them and their families. Air traffic controllers, already dealing with staffing shortages leading to delays at major hubs, will miss a paycheck this week. More on this in a bit.

...

Now that SNAP benefits are slated to run dry Nov. 1 — and the White House doesn’t believe it can do anything to stop that — the shutdown is truly breaking through in local media.

ObamaCare sticker shock begins as open enrollment meets shutdown deadlock - Nathaniel Weixel, The Hill:

If somehow there is a deal done ahead of Nov.1, which looks unlikely, states and the federal government may still have time to incorporate the enhanced subsidies into their prices. But Republicans have made it clear that there will need to be changes to the tax credits before they even entertain an extension.

And any policy changes will only increase the headaches for state-level ObamaCare administrators, said Jessica Altman, executive director of Covered California.

Largest federal workers union calls for an end to the shutdown, putting pressure on Democrats - Monica Alba, NBC News:

“Both political parties have made their point, and still there is no clear end in sight,” American Federation of Government Employees President Everett Kelley wrote in a statement first shared with NBC News. “It’s time to pass a clean continuing resolution and end this shutdown today. No half measures, and no gamesmanship.”

Tantrum Tariffs

Trump Says He Will Raise Tariffs on Canada by 10% Over Ontario Ad - Gavin Bade, Vipal Monga and Natalie Andrews, Wall Street Journal:

The U.S. will impose an additional 10% tariff on Canada, President Trump said on Saturday, a punitive measure in response to an ad campaign that he said misrepresented comments by former President Ronald Reagan.

“Because of their serious misrepresentation of the facts, and hostile act, I am increasing the Tariff on Canada by 10% over and above what they are paying now,” Trump posted on his Truth Social platform on Saturday.

The ad campaign, released by the Canadian province of Ontario, uses audio from a 1987 radio address delivered by Reagan, in which he explains that despite putting tariffs on Japanese semiconductors that year, he was committed to free-trade policies. While tariffs can look patriotic, Reagan said, “over the long run such trade barriers hurt every American worker and consumer,” lead to “fierce trade wars” and result in lost jobs.

Why is Trump mad about Ontario’s Ronald Reagan tariffs ad? - Surina Venkat, The Hill:

“They only did this to interfere with the decision of the U.S. Supreme Court, and other courts,” Trump wrote on Thursday.

In another Truth Social post, Trump said Canada was “trying to illegally influence the United States Supreme Court in one of the most important rulings in the history of our Country.”

Did Ronald Reagan ‘love tariffs’ as Trump claims? - James Politi, Financial Times:

Trump protested that Reagan “loved tariffs”, just as he does, and vowed to increase levies on imports from the US’s northern neighbour over what he claimed was a deceptive campaign.

But Reagan, who served as president between 1981 and 1989, was a devout champion of open trade who used tariffs sparingly and reluctantly. In contrast, Trump has put these trade measures at the heart of his economic policy.

Wait until he hears what Reagan thought of immigration.

Tariffs Head To Supreme Court

Former Judges Tell Justices To Strike Down Trump's Tariffs - Dylan Moroses, Law360 Tax Authority ($). "Former federal judges and government officials, joined by scholars, economists, businesses and interest groups, told the U.S. Supreme Court this week that President Donald Trump's emergency tariffs should be struck down because the law the president has utilized does not give him power to impose those measures."

Wall Street Bets on Tariff Refunds If Court Rules Against Trump - Laura Curtis, Todd Gillespie, Katherine Doherty and Reshmi Basu, Bloomberg via MSN.

In the trades, the importing companies essentially sell to investors any future rights to claim refunds on their tariff bills, which could come if the nation’s top court sides with an ongoing legal challenge to Trump’s tariffs. The companies sell at a discount to their expected refunds, meaning investors would reap the upside in a ruling favorable to them. The banks arranging the deals take a cut.

...

The Supreme Court on Nov. 5 is set to hear arguments against tariffs imposed under Trump’s use of the International Economic Emergency Powers Act. If his country-based tariffs are ruled illegal, the government could owe back to companies the bulk of the net $195 billion in customs revenue resulting from the tariff hikes in fiscal 2025.

New Law Guidance and Planning: 1099Ks and SALT

Capitol Hill Recap: Treasury Not Stopping Amid Shutdown - Alex Parker, Eide Bailly. "The current government shutdown, now nearing a full month, has caused furloughs of thousands of employees across all federal agencies. But it hasn’t stopped the Department of the Treasury and the Internal Revenue Service from issuing guidance, including for the implementation of the One Big Beautiful Bill Act."

Early OBBBA International Tax Guidance Still on Track - Jonathan Curry, Tax Notes ($):

A batch of notices implementing certain international tax provisions of the new tax law should still see the light of the day before year-end, despite the government shutdown, according to a Treasury official.

Treasury officials had indicated at the end of September that they planned to issue four notices implementing international tax-related provisions of the One Big Beautiful Bill Act (P.L. 119-21) that are effective in 2025. That plan remains intact, Deputy Assistant Secretary for Tax Policy Kevin Salinger confirmed to Tax Notes October 22.

IRS issues FAQs on Form 1099-K threshold under the One, Big, Beautiful Bill; dollar limit reverts to $20,000 - IRS. "The OBBB retroactively reinstated the reporting threshold in effect prior to the passage of the American Rescue Plan Act of 2021 (ARPA) so that third party settlement organizations are not required to file Forms 1099-K unless the gross amount of reportable payment transactions to a payee exceeds $20,000 and the number of transactions exceeds 200."

How to Squeeze the Most From the New SALT Cap - Richard Rubin and Ashlea Ebeling, Wall Street Journal:

The full $40,000 deduction is available to taxpayers with adjusted gross incomes below $500,000. AGI is income after pretax subtractions, such as 401(k) contributions and payroll deductions for health insurance.

Because SALT is an itemized deduction, it is generally worth taking only if all your deductions exceed the standard deduction. For the 2025 tax year, the standard deduction is $15,750 for individuals and $31,500 for married couples filing jointly.

Many taxpayers who pay more than $10,000 in state and local taxes will still be better off taking the standard deduction because they don’t have enough mortgage interest, charitable donations and other deductions to make itemizing worthwhile.

Tax Administration: Constituent Tax Intervention Hobbled

Capitol Hill Offices Facing Hurdles on Constituents’ IRS Cases - Cady Stanton, Tax Notes ($):

The furlough of Taxpayer Advocate Service employees during the government shutdown has delayed work on constituents’ IRS cases in some congressional offices, according to Capitol Hill staff.

Spokespeople for multiple taxwriters told Tax Notes that the furlough of TAS employees during the shutdown has meant constituent casework with the IRS through the service has slowed or even ceased. And while numbers on year-over-year caseloads and constituent calls to congressional offices related to the IRS vary, Democratic taxwriters’ offices said they’ve fielded reports of slower response times and challenges contacting the agency since the beginning of the year.

...

Elyse Katz of Eide Bailly LLP said the shutdown has slowed progress on cases that were already seeing delays from understaffing at TAS.

“I have cases that are years old that are now stalled again because TAS is closed, and cases can’t be settled,” Katz said in an email. “Between the decimation of employees and limited resources, it’s going to be impossible to catch up from this.”

IRS Takes in 164 Million Tax Returns in 2025 Amid Agency Tumult - Erin Slowey, Bloomberg ($):

The IRS received almost 164 million individual income tax returns for 2025—roughly the same number as the last half-decade of tax seasons.

Some in the tax industry worried that the steep exodus of workers and leadership turnover would hamper the success of filing season and discourage taxpayers from filing their returns.

...

“With the approaching filing season, the IRS reminds taxpayers who file for refunds to choose direct deposit; it’s faster and safer than waiting for a paper check,” the agency said.

The New Exam Environment for Tax-Exempts

Justice Memo on DEI May Point to Path for Revoking Exemptions - Kelsey Brooks, Tax Notes ($):

Exempt organizations’ practices related to diversity, equality, and inclusion could be subject to the illegality doctrine under changing federal policy, according to one tax professional.

Use of the doctrine, which denies exempt status to organizations engaged in substantial illegal activities, may be indicated by a February 5 Justice Department memo, James P. Joseph of Arnold & Porter Kaye Scholar LLP said on an October 24 American Law Institute Continuing Legal Education webcast.

The memo, from Attorney General Pam Bondi, directs the Justice Department to “investigate, eliminate, and penalize illegal DEI and [diversity, equity, inclusion, and accessibility] preferences, mandates, policies, programs, and activities in the private sector and in educational institutions that receive federal funds,” and followed two executive orders from President Trump targeting DEI initiatives.

Fresh Look at Exempt Orgs Could Be Good, Former CI Employee Says - Nathan Richman, Tax Notes ($):

Justin Cole of First Pitch Communication, former head of IRS CI’s public affairs office, said that the division regularly shifts its investigative priorities over the years, and a fresh look into tax-exempt organizations might be a good thing. But he added that a blanket political direction without first examining the numbers doesn’t pass the smell test.

A recent report that the Trump administration wants to exert more control over CI’s priorities to the point of directing investigations into left-leaning groups has raised concerns.

...

Former Justice Department Tax Division head Karen E. Kelly, now with Kostelanetz LLP, said it’s appropriate for the IRS to investigate section 501(c)(3) tax-exempt organizations for the truthfulness of their filings, like all taxpayers. But selecting investigation targets based on what they say or who they associate with raises constitutional questions, she said.

Blogs and Bits

Social Security taxable wage base goes to $184,500 in 2026 - Kay Bell, Don't Mess With Taxes. "Let’s start with this year, since we’re still paying tax on our 2025 earnings. If you make up to or more than $176,100, your annual Social Security out-of-pocket, or more precisely out-of-paycheck, tax amount will be $10,918. The math calculation is $176,100 X 6.2 percent (and I did round down the 0.20 portion per IRS protocol)."

IRS Issues Annual Per-Diem Guidance for 2025-2026 - Parker Tax Pro Library. "The IRS announced the special per diem rates effective October 1, 2025, which taxpayers may use to substantiate the amount of expenses for lodging, meals, and incidental expenses when traveling away from home."

Why did the colonists hate taxes so much? - Tyler Cowen, Marginal Revolution, quoting Money and the Making of the American Revolution, by Andrew David Edwards. "The evidence becomes overwhelming that Americans opposed seemingly light taxes, not because they were paranoid, but because the taxes were charged in silver bullion, a money few colonists used on a regular basis and most never had."

When Transferring A Lawsuit Claim Can Trigger Taxes - Robert Wood, Forbes. "Sales or transfers of legal claims are becoming more common, and they can involve a variety of legal issues. The types of claims that can be transferred are relevant, as are the needed legal formalities. There may be tax considerations too. If you are paid something when you make the sale or assignment, is that payment taxable? Usually the answer is yes, unless you fit within narrow exceptions."

Popular TaxProf Blog Returns After Shutdown - Tracey Read, Law360 Tax Authority ($). "On Thursday, the Washington, D.C.-based Association of American Law Schools announced that AALS is the new platform for TaxProf Blog via a partnership with Caron that will allow him to blog once a week or so while multiple guest editors will take turns on the other days once they get up to speed."

You can find the revived TaxProf Blog at https://taxprofblog.aals.org/

The Pastor Wears Prada

Church Loses Tax-Exempt Status Over Lavish Spending - Trevor Sykes, Tax Notes ($):

The IRS rightfully revoked the tax-exempt status of a church because the founding pastor and his family used its tithes and offerings to pay for their expensive lifestyles, a federal court ruled.

“There is no genuine issue of material fact; [Community Worship Fellowship] is not entitled to tax-exempt status, and the government is entitled to summary judgment,” Judge Molly R. Silfen of the U.S. Court of Federal Claims wrote in an October 23 opinion in Community Worship Fellowship v. United States.

From the opinion (my emphasis):

Community Worship Fellowship (CWF) challenges the IRS's decision revoking its tax-exempt status as a 501(c)(3) charitable organization and as a church for the period from 2013 to 2016. CWF asks the court to reverse the IRS's decision and declare that the organization is tax exempt.

The government moves for summary judgment, arguing that during those tax years, CWF operated for the financial benefit of its members, primarily a single family, and did not meet the qualifications of a tax-exempt organization or a church under the tax code.

In that period, CWF's disbursements overwhelmingly went to one family. CWF paid family members unsubstantiated salaries. It also paid for family members' Prada handbags, jewelry, furs, Chanel fragrances, and private boat payments; paid for cruises and trips to Disneyland, Hawaii, and Paris; paid for golf outings, spa visits, dining out, and event tickets; paid for home improvements for family members; and disbursed money to family members as “gifts,” “reimbursements,” “loans,” checks for “taxes,” and “benevolence.” There is no genuine issue of material fact; CWF is not entitled to tax-exempt status, and the government is entitled to summary judgment.

While I haven't seen a minister's tax return recently, I don't believe Prada handbags are a standard feature of church compensation packages.

What day is it?

It's National Black Cat Day! You never know what will cross your path.

Tax News & Views Black Cat Crosses Tariff and Shutdown Path Roundup

Make a habit of sustained success.

Joe B. Kristan, CPA