Key Takeaways
- IRS to end partnership basis-shifting regs.
- Trump administration threatens tax exempt statuses.
- IRS workforce shrinking.
- Trump administration to end IRS direct file.
- Hobby losses in the courts.
- National exercise day!
In Notice 2025-23, the IRS said it will formally propose rules that would end enforcement of the anti-abuse regulations, which flag partnership basis-shifting as a transaction of interest that warrants extra scrutiny and have been in effect since Jan. 14. The upcoming new proposal is the U.S. Treasury Department and IRS' response to President Donald Trump's February deregulatory executive order for agencies to review final regulations for removal.
Will Treasury and IRS Be Forced to Disown Regs Under Trump Memo? - Kristen A. Parillo and Alexander Rifaar, Tax Notes ($):
It’s unclear what regs the administration may be targeting, but any revocation will likely be retroactive to support the claim of facial invalidity, Jackel said. That will have significant consequences if any reg that gets repealed is being relied on by the IRS or the Justice Department in audit or litigation, he said.
In deciding which regs to target for repeal, Treasury and the IRS may have to wrestle with an ethical dilemma, Jackel said. “Will the IRS executives cut the legs out from under their own chief counsel lawyers by choosing a regulation that the agency relies on?” he asked. “Or will it work in reverse — that is, the regulation won’t be chosen because the IRS executives want to protect their litigating position, regardless of whether the regulation is unlawful or not under the directive?”
In deciding which regs to target for repeal, Treasury and the IRS may have to wrestle with an ethical dilemma, Jackel said. “Will the IRS executives cut the legs out from under their own chief counsel lawyers by choosing a regulation that the agency relies on?” he asked. “Or will it work in reverse — that is, the regulation won’t be chosen because the IRS executives want to protect their litigating position, regardless of whether the regulation is unlawful or not under the directive?”
Tax Exempt Statuses Threatened
3 Ways Losing Tax-Exempt Status Could Cost Harvard University Billions - Nathan Goldman, Forbes:
A recent Bloomberg News article estimates that Harvard losing its status as a 501(c)(3) organization would cost the university over $465 million annually. Using this estimate, it would only take a little more than two years for Harvard to pay $1 billion in taxes (nearly $2 billion over the course of Trump’s second term) that it would otherwise not have to pay as a 501(c)(3) organization. These expenses ultimately come at a steep cost to its students and faculty as it leaves fewer funds available for scholarships, grants, and support. These expenses would also come at an inopportune time when the Trump administration has already frozen over $2 billion in federal funds to Harvard.
After Harvard, Liberal Donors and Groups Fear New Scrutiny From Trump - Theodore Schliefer and Lisa Friedman, New York Times:
In an impromptu news conference in the Oval Office, Mr. Trump confirmed that he was potentially seeking to pull Harvard’s tax-exempt status, in an apparent act of retaliation for the university’s refusal to bow to a long list of demands. And he said there “could be” others, suggesting that the Internal Revenue Service could also take action against organizations that support immigrants or the environment.
Happening at the IRS
Cuts, Compliance, and Confidence: What’s At Risk For The IRS And Taxpayers? - Renu Zaretsky, Tax Policy Center:
Panel moderator and TPC Senior Fellow Janet Holtzblatt opened the discussion by laying out the numbers. Since February, the IRS has lost more than 10 percent of its workforce, including key leaders, through layoffs and buyouts. And as of Tax Day, another 20,000 employees are reportedly accepting buyouts. Add to that Congress’s decision to roll back over $40 billion in Inflation Reduction Act enforcement funding, and the result is a severe pressure on an already strained agency with dwindling resources and deepening uncertainty.
Trump administration plans to end the IRS Direct File program for free tax filing, AP sources say - Fatima Hussein, AP News:
The Trump administration plans to eliminate the IRS’ Direct File program, an electronic system for filing tax returns directly to the agency for free, according to two people familiar with the decision.
...
The program had been in limbo since the start of the Trump administration as Elon Musk and the Department of Government Efficiency have slashed their way through the federal government. Musk posted in February on his social media site, X, that he had “deleted” 18F, a government agency that worked on technology projects such as Direct File.
...
The program had been in limbo since the start of the Trump administration as Elon Musk and the Department of Government Efficiency have slashed their way through the federal government. Musk posted in February on his social media site, X, that he had “deleted” 18F, a government agency that worked on technology projects such as Direct File.
Blogs and Bits
IRS encourages taxpayers to check withholding now for next year - IRS:
The IRS Tax Withholding Estimator is a free online tool that helps workers, independent contractors and retirees determine if they are having the right amount of federal income tax withheld from their paychecks. Using it can prevent taxpayers from having an unexpectedly large tax bill or a substantial refund when they file in 2026.
Tax Day is done. Now what? Plenty! - Kay Bell, Don't Mess with Taxes:
Check your return status. If you filed electronically on April 15, you now can use the IRS’ online tracking tool to see when you’ll get your refund. The tax agency says that your data should be in its Where’s My Refund? database 24 hours after you e-file. If you mailed in a paper return this week, you’ll have a longer wait. The IRS says it generally takes four weeks for your data to be entered into the IRS.gov tracking system.
What You Need To Know Before You File—Or Toss —Your Tax Returns - Kelly Phillips Erb, Forbes:
In addition to records showing that you filed, you'll want to keep supporting documentation like confirmation of charitable contributions or medical receipts (assuming you claimed those deductions).
If you make an adjustment on a tax return—for example, correcting a reporting error due to the new form 1099-K threshold—keep records to support the change. That would include the form that was issued, any related correspondence if you contacted the issuer, and, importantly, information about the underlying transactions.
You may also need to keep documentation to support transactions that will be reported on future tax returns. For example, you may want to consider retaining your IRA records—including Roth contributions—until you withdraw the money from your account.
If you make an adjustment on a tax return—for example, correcting a reporting error due to the new form 1099-K threshold—keep records to support the change. That would include the form that was issued, any related correspondence if you contacted the issuer, and, importantly, information about the underlying transactions.
You may also need to keep documentation to support transactions that will be reported on future tax returns. For example, you may want to consider retaining your IRA records—including Roth contributions—until you withdraw the money from your account.
In the Courts
Hobby Loss and Failure to File: A Deep Dive into Himmel v. Commissioner - Ed Zollars, Current Federal Tax Developments:
The Tax Court concluded that the Himmels did not engage in their horse activity with a genuine profit objective within the meaning of § 183 and were liable for the additions to tax under § 6651(a)(1) for the late filing of their income tax returns.
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The Himmel v. Commissioner decision serves as a stark reminder of the scrutiny applied to activities with a history of losses and the taxpayer’s burden of proving a genuine profit objective to deduct related expenses. It also underscores the strict requirements for establishing reasonable cause for failing to file tax returns on time. Tax practitioners should leverage the court’s detailed analysis in this case to better advise clients and ensure compliance with federal tax law.
...
The Himmel v. Commissioner decision serves as a stark reminder of the scrutiny applied to activities with a history of losses and the taxpayer’s burden of proving a genuine profit objective to deduct related expenses. It also underscores the strict requirements for establishing reasonable cause for failing to file tax returns on time. Tax practitioners should leverage the court’s detailed analysis in this case to better advise clients and ensure compliance with federal tax law.
Tax Trouble
Yuma man pleads guilty to tax evasion - IRS (defendant name omitted):
Defendant, the owner of a water company in Yuma, admitted that between 2017 and 2021, he deducted $395,250 from his employees’ paychecks for taxes that he failed to pay to the IRS.
A conviction for Failure to Pay Employment Tax carries a maximum penalty of 5 years imprisonment and a $250,000 fine.
A conviction for Failure to Pay Employment Tax carries a maximum penalty of 5 years imprisonment and a $250,000 fine.
What day is it?
It's National Exercise Day!
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