Key Takeaways
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Senior IRS division leaders placed on leave for "alleged conduct against Republicans."
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IRS hiring contact reps.
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Unbanked weed businesses brace for loss of refund checks.
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Tariff flurry: Brazil, Korea, India.
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Travelers face more customs duties.
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Highest tariff levels since the Depression.
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National Mutt Day.
A Really Big Show! Our National Tax Office has a webinar tomorrow, "New Tax Legislation: What Leaders Need to Know About the Changes to the R&D Tax Credit and Capitalization of R&D Expenses under Section 174", 10:00 a.m. Central time. Register now! One hour CPE.
IRS Leadership Shakeup Adds to Turmoil Among Slashed Workforce - Erin Schilling, Bloomberg ($):
Longtime IRS staffers Holly Paz and Elizabeth Kastenberg are being investigated for their alleged conduct against Republicans, a person familiar with the situation said. The absences will likely worry workers already roiled by deep staff cuts and buyouts and hinder the functions of the compliance divisions just as new IRS Commissioner Billy Long takes over, tax professionals said.
Paz is commissioner of the Large Business and International Division and Kastenberg is acting director of the Office of Professional Responsibility.
IRS Posts Thousands of Customer Service Jobs After Downsizing - Erin Schilling, Bloomberg ($):
There are also 150 open positions for tax examining technicians, who review returns and secure tax payments, according to USAJOBS.
The IRS Taxpayer Services Division lost 22% of its 42,134 workers after the Trump administration’s initiatives to downsize the federal government. National Taxpayer Advocate Erin Collins said in her mid-year report that the agency needed to quickly hire thousands of customer service employees to prepare for next year’s filing season.
Small Business, Trusts Brace for Phaseout of Paper Tax Refunds - Cole Reynolds, Bloomberg ($):
The abrupt switch to direct deposit for all tax refunds also could catch less-obvious taxpayers by surprise. Real estate trusts can’t submit banking information on current tax forms unless they are expecting a refund of over $1 million, meaning smaller trusts can’t tell the IRS where to send a direct deposit. Banks also hesitate to service high-risk small businesses—like those in the marijuana industry—leaving them without a means to receive a direct deposit.
Tariff Flurry Ahead of August 1 'Deadline'
Trump’s Tariff Authority Is Tested in Court as Deadline on Trade Deals Looms - Louise Radnofsky and Brian Schwartz, Wall Street Journal:
Trump in April outlined what he described as his “Liberation Day” tariff regime, which included a global baseline tariff of 10% on imports from virtually all nations and steeper levies on nations the administration considers to be bad actors on trade. The 10% duties went into effect soon after the announcement, but Trump had paused the higher, so-called reciprocal tariffs until the end of this week to make room for negotiations on trade deals. The talks have intensified in the final days before the Aug. 1 deadline.
Both elements of the Liberation Day tariffs were underpinned by a 1970s law, the International Emergency Economic Powers Act. Typically, tariffs are imposed using targeted authority delegated to the president by Congress. Trump’s team invoked the little-used emergency authority to impose the bulk of his wide-ranging second-term tariffs more quickly.
On Eve of Tariff Deadline, Trump’s Trade War Faces Key Court Test - Tony Romm, New York Times. "In the end, the courts could uphold or strike down not only Mr. Trump’s tariffs but possibly his trade deals, which in many cases would reduce, but not eliminate, the levies he has imposed on major trading partners."
Trump Ends Tariff Break for Low-Value Goods in Blow to Online Retailers - Jennifer Dlouhy and Josh Wingrove, Bloomberg via MSN:
The move, made in an executive order, will become effective on Aug. 29 and apply to all goods valued at or under $800 that previously qualified for the tax-free treatment, according to a White House fact sheet.
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The administration is maintaining exemptions allowing US travelers to bring back as much as $200 in personal items and permitting individuals to continue receiving “bona fide gifts” valued at $100 or less duty-free.
Coffee Tariffs
Trouble Brewing: Why a Brazilian Tariff Might Cause Coffee Prices to Soar - Kirk Maltais, Wall Street Journal:
Brazilian arabica beans are the source for roughly 35% to 40% of the coffee consumed in the U.S. A levy on imports starting Aug. 6 would increase the price of coffee in cafes and grocery stores alike.
Brazil is by far the leading producer of coffee worldwide. It is expected to produce a total of 65 million bags of beans in the 2025-26 marketing year—more than double the next-largest producer, Vietnam—the Department of Agriculture estimates.
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Copper Tariffs
Trump Spares Copper Market From Worst With 50% Duty on Products - Joe Deaux, Bloomberg:
Prices of the metal fell as much as 20%, after Trump on Wednesday issued a proclamation setting fresh copper duties, the biggest intraday drop since at least 1988. That signaled the global market dramatically readjusted its prior expectations on the scope of Trump’s plan.
The new rates become effective Aug. 1, according to a White House fact sheet.
India, Korea Tariffs
Donald Trump announces 25% tariffs on India, then says talks continuing - Chris Kay, Jyotsna Singh and Aime Williams, Financial Times:
But Trump later on Wednesday told reporters that Washington was currently negotiating with New Delhi, adding: “We’ll see what happens.”
US Sets Korea Tariff Rate at 15% in Deal With Key Supplier - Heesu Lee, Soo-Hyang Choi and Jennifer Dlouhy, Bloomberg via MSN. "The US reached a trade agreement with South Korea that will impose a 15% tariff on imports, including autos, and sets up major investment in American energy and shipbuilding."
Tariff fallout
Ford Takes $800 Million Tariff Hit, Posts First Loss Since 2023 - Sharon Terlep, Wall Street Journal:
The tariff bill came from parts imported from outside of the country as well as from fees on steel and aluminum. The hit helped wipe out the company’s net profit, leading to its first quarterly loss since 2023.
Donald Trump’s tariff blitz brings US levies to highest levels since 1930s - Aime Williams, Alan Smith, Jonathan Vincent and Emily Herbert, Financial Times:
The figure, incorporating the latest deal agreed with the EU at the weekend, brings the total US levies close to the 20 per cent last seen during the widespread tariff increases in the years after the 1930 Smoot-Hawley Act.
Trump Income Tax Policy
White House Outlines Digital Asset Tax Policy Strategy - Alexander Rifaat, Tax Notes ($):
The administration also called for Congress to enact legislation that formally recognizes digital assets as a new asset class and makes them subject to the wash sale rule, which prohibits investors from reducing their tax liability by selling a losing security and purchasing a similar one within 30 days. However, the administration recommended the wash sale rule not apply to payment stablecoins or de minimis losses.
Who Gets ‘No Tax on Overtime’? It’s Messy. - Richard Rubin, Wall Street Journal:
That definition excludes overtime paid to airline employees, railroad workers and other transportation laborers covered by separate overtime laws. It doesn’t include some payments under agreements outside FLSA or workers specifically exempted from FLSA. And it excludes payments required under state laws like California’s, where overtime starts after eight hours daily instead of 40 hours weekly.
Related: One Big Beautiful Bill Overtime Pay & Tips Q&A
Tax Overhaul Is Mixed Bag For Interest Expense Deductions - Natalie Olivo, Law360 Tax Authority ($). "Companies that are eager to increase their interest expense deductions under the new federal tax overhaul may end up with a smaller tax break than expected due to how the law factors their foreign income into the deduction calculation."
Related: Eide Bailly International Tax Services
Blogs and Bits
13 sales tax holidays are scheduled for August - Kay Bell, Don't Mess With Taxes. "As with tax filing, dates matter. While an event might be advertised as a weekend tax holiday, it could be in effect on just Saturday and Sunday, or Friday could make it a long weekend."
Tax News & Views International Weekly: The Substance of the Matter - Alex Parker, Eide Bailly. "The economic substance doctrine was only codified into law in 2010, but it has existed as a judicial principle since a 1935 court case. The idea may seem simple--if a tax structure or transaction doesn't reflect real economics, the IRS can disregard it and look to the substance beneath the legal form. But decades of practice have shown that it's anything but clear, as interpreting what is or isn't “real” can often be a subjective determination."
Reflecting On IRS Cuts - Should You Still Be Compliant? - Peter Reilly, Forbes. " If I were engaging in tax shenanigan's my nightmare would be thousands of masked ICE agents being transferred to the IRS Criminal Investigation Division."
Don't Count on Bipartisanship To Prevent Unfair and Unsound Budget Actions - Eugene Steuerle, The Government We Deserve. "First, it remains impossible to reestablish a rational budget process as long as Congress can enact eternal giveaways—that is, spending increases and tax cuts that require no future annual appropriations, while neglecting the takeaways necessary to cover the costs. "
If it takes forever
Lenexa tax preparer sentenced to prison - IRS (Defendant name omitted, emphasis added):
According to court documents, Defendant, of Lenexa, pleaded guilty to one count of aiding and assisting in fraud and false statements.
From 2018 through 2022, Defendant used his tax preparation business to file fraudulent tax returns on behalf of his clients. He either inflated legitimate business expenses or claimed losses related to fake businesses. Defendant also falsely reported negative income on clients’ returns. As a result, their incomes were significantly underreported to the IRS, which either reduced the amount of taxes clients owed or led them to receive refunds to which they were not entitled.
But that's his problem, not the clients, right? Unfortunately for his customers, preparer fraud gives the IRS forever to assess taxes on the fraudulently-prepared returns.
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