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Tomorrow! Tune in for a 30-minute ACA Roundtable at 1:00 p.m. Central featuring Eide Bailly ACA gurus Tonya Rule and Breanna Nagel. "Whether you’re struggling with filing obligations, new and changing regulations, or incorrect completion of forms, there are many ways companies can leave themselves at risk for large penalties." No CPE for this one. Register here.

Who qualifies for ‘no tax on tips’ and what counts as a tip? Here are the new rules - Fatima Hussein, AP:

To qualify as a tip, the tips must be must be earned in an occupation on Treasury’s list of qualified occupations. Among the jobs exempted from tax on tips are sommeliers, cocktail waiters, pastry chefs, cake bakers, bingo workers, club dancers, DJs, clowns, podcasters, influencers, online video creators, ushers, maids, gardeners, electricians, house cleaners, tow truck drivers, wedding planners, personal care aides, tutors, au pairs, massage therapists, yoga instructors, skydiving pilots, ski instructors, parking garage attendants, delivery drivers and movers.

The tip must be voluntarily given, so mandatory tips or auto-gratuities would not qualify for the “no tax on tips” benefit. However, tip pools and similar arrangements qualify, so long as they are reported to the IRS and voluntary. The benefit is not available to married individuals who file their taxes separately.

The tip must be given in cash, check, debit card, gift card or any item exchangeable for a fixed amount of cash, unlike digital assets. And any amount received for illegal activity, prostitution services, or pornographic activity does not qualify as a tip, according to the Treasury Department.

Capitol Hill Recap: Tip of the Iceberg - Alex Parker, Eide Bailly:

With 68 occupations, many found Treasury's list to be unexpectedly broad—including not only obvious choices like bartender and barber, but also more nebulous categories such as "entertainer" and "digital content creator." The latter category opens up the benefit to a plethora of roles in the online economy, where influencers and podcasters often rely on financial support from fans.

Not every Internet personality will be eligible for the benefit, however. The law also blocks the deduction to those who are involved in a "specified service trade or business." That is a category borrowed from Sec. 199A, where it is used to restrict the 20% deduction available to pass-through entities like partnerships or sole proprietorships. The deduction was meant to put flow through businesses on equal footing with corporations, tax-wise, and the SSTB rules exclude service-based businesses from the benefit.

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The legal definition of a SSTB, however, includes "services performed in the field of performing arts," meaning the "performance of services by individuals who participate in the creation of performing arts, such as actors, singers, musicians, entertainers, directors, and similar professionals performing services in their capacity as such."

Treasury’s new guidance makes it clear that it views the SSTB rules as an additional restriction which applies on top of the list of eligible professions—so some in those roles may find that they cannot deduct tips if they operate in a specified service trade or business.

What occupations might bump up against the law's $25,000 tips deduction limit? - Andrew Lautz on X/Twitter. "New IRS data suggests: card dealers, waiters, bartenders, and digital content creators. The below chart shows 20 occupations where tips made up 30%+ of income among workers who reported tips."

Proposed Regs Map Out Qualified Tips and Jobs for Tax Deductions - Trevor Sikes and Alexander Rifaat, Tax Notes ($):

The proposed regs include an effort to combat the potential for abuse, which some tax professionals have suggested, by saying that a tip received by an employee who has an ownership interest in or is directly employed by the payer of the tip doesn’t count as a qualified tip.

However the proposed regs acknowledge that more steps may be needed to stop abuse. “Treasury and the IRS are concerned that taxpayers might misclassify income as tips and request comments on how to address this issue in the final regulations,” they said.

Congress Takes Week Off Ahead of Shutdown Deadline

Why a government shutdown looms as Congress splits town - Cameron Joseph, Christian Science Monitor.

Before leaving town, House Republicans passed a continuing resolution to keep the government open at current spending levels for seven weeks, until shortly before Thanksgiving. All but two House Republicans backed the bill; all but one House Democrat opposed it.

A short time later, the Senate voted on that measure and an alternate bill offered by Democrats that had a number of their health care policy priorities. Both failed to pass.

That leaves the Senate with just two workdays to avoid a shutdown when it returns.

Shutdown Fears Grow as Senate Rejects Two Stopgap Options - Cady Stanton, Tax Notes ($):

Lawmakers left for a weeklong recess at an impasse over government funding after two stopgap bill options failed to gain enough support for passage in the Senate, leaving only two scheduled legislative days for Congress to avoid a government shutdown.

The proposals considered in the House and the Senate September 19 would extend government funding at fiscal 2024 levels until at least the end of October, but neither was able to gain the bipartisan support necessary to pass in the Senate. Senators are now scheduled to recess until September 29 ahead of a September 30 government funding deadline, while the House isn’t set to return until October 1.

A Republican-led continuing resolution advanced through the House in a 217-212 vote in the morning but hit a wall in the Senate, where bipartisan support is required to overcome the filibuster. The measure failed to meet the required 60-vote threshold in a 44-48 vote.

IRS and Tax Administration

How the Trump Administration Could Target Nonprofits, Explained - Erin Schilling, Bloomberg ($):

The IRS must conduct an audit, which could take years and includes an appeal process, before revoking a group’s tax exemption.

But under Section 501(p) of the Internal Revenue Code, it’s easier to revoke the tax-exempt status of terrorist organizations. A terrorist organization can be designated by an executive order if a group is deemed to be “supporting or engaging in terrorist activity” or “supported terrorism,” as defined by the Immigration and Nationality and Foreign Relations Authorization acts.

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Organizations can’t challenge the suspension under 501(p). There are nine organizations that have had their status suspended under this code section, according to the IRS. Losing tax-exempt status means donations are no longer tax deductible.

White House vetting IRS federal advisory committee - Danny Nguyen, Politico:

It’s unclear how the panel, which has no policymaking power, drew the attention of the White House. The panel member noted that a panel subcommittee made a recommendation earlier this year for the IRS to “adhere to all regulatory and legal requirements when disclosing taxpayer information.”

But that recommendation, which came as the IRS announced it would share data with federal immigration enforcement to conduct deportations, died in a higher committee in the spring.

“We watered it down to make it feel benign enough to not be political in nature,” the panel member said.

Apparently recommending compliance with "regulatory and legal requirements when disclosing taxpayer information" is politically fraught now.

IRS Contract Documentation Woes Continue - Tyrah Burris, Tax Notes ($). "In a report released September 19, the Treasury Inspector General for Tax Administration sampled 28 non-IT Inflation Reduction Act contracts totaling $309 million and found that the preaward and postaward documentation of contracting officers and their representatives was incomplete for each contract. None of the contracts met quality standards, nor did they comply with Federal Acquisition Regulation requirements, TIGTA said."

Turning the Tariff Screw

Trump’s Tariffs Are Damaging America’s Biggest Foreign Source of Screws - Meaghan Tobin and Xinyun Wu, New York Times:

Taiwan is world famous for making semiconductors and electronics. Its factories have mastered the intricate work of etching circuits onto silicon, churning out most of the world’s supply of advanced computer chips.

The island is also a major source of another essential and often invisible component of everyday objects: screws. And most go to the United States, where they are used to build airports, backyard decks and bathroom cabinets.

Now, President Trump’s 50 percent tariffs on steel and aluminum, which took effect in June, have left Taiwanese screw makers wondering how their businesses will survive the next few months. For the United States, Taiwan has been the No. 1 source of screws and metal fasteners like nuts and bolts for more than three decades, with China gaining ground as the second largest.

Preserving Refunds As Tariffs Await Supreme Court Weigh-In - Catherine Karol, Jennifer Smith-Veluz and Mitchell Zajac, Law360 Tax Authority ($):

First, the courts might require U.S. Customs and Border Protection to set up a claims process, by which companies could submit claims for refunds of the tariffs that they have paid.

Second, and perhaps more likely, companies may have to submit post-summary corrections of unliquidated entries or protests of liquidated entries to claim refunds.

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Either way, importers should carefully keep records of imports on which they have had to pay IEEPA tariffs and carefully monitor the liquidation dates, so that they will be able to make the proper submissions.

Foreign Account Taxpayer Victory, For Now

U.S. Court Tosses FBAR Suit for Seventh Amendment Violation - Amanda Athanasiou, Tax Notes ($):

A federal district court has dismissed the government’s claims against a Kenyan native it assessed for willful foreign bank account reporting failures, finding that the government’s penalties violate the Seventh Amendment.

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The government filed its complaint in the action in November 2024 alleging that Sagoo held interests in accounts in England, India, and Kenya between 1996 and 2014 and that she concealed foreign accounts and related interest income from U.S. authorities and her accountant.

In December 2022 Sagoo was assessed a penalty of over $1 million for the 2011-2013 tax years, which Sagoo has failed to pay, the government said, adding that a recalculation of penalties may be required after the court determines Sagoo’s liability for willful penalties.

Expect the government to appeal, and perhaps win. Be careful with those foreign accounts in the meantime.

Blogs and Bits

IRS formally announces occupations eligible for no-tax-on-tips deduction - Kay Bell, Don't Mess With Taxes. "In addition to being ineligible for the no tax on tips provision, tax law also already restricts or prevents SSTBs from claiming the qualified business income (QBI) deduction and the state and local taxes (SALT) deduction."

When Asked For Your Social Security Number, Should You Provide It? - Robert Wood, Forbes ($). "If you want to be paid, refusing to hand over a W-9 may not make sense. The IRS says that anytime a payor thinks they may have to report a payment on an IRS Form 1099, they should ask for a Form W-9. If they fail to get one signed, they may have to withhold taxes on the payment, even if you are not an employee."

What Farm Tax Clients Need to Know About S Corporations and Self-Employment - Ashley Akin, Tax School Blog. "One common misconception is that S corporations eliminate self-employment tax."

IRS Ramps Up Puerto Rico Tax Shelter Crackdown With Subpoena of Baker McKenzie - Ronald Marini, The Tax Times. "The spotlight is on advice rendered by former Baker McKenzie partners who have a history of publishing and presenting on the tax advantages for Americans relocating to Puerto Rico."

Quotable

"Enquiring minds wish to know whether the $50,000 bag of cash was reported on Mr. Homan’s tax return." - Scott Sumner, The Pursuit of Happiness.

Senior Scams

Save our Seniors efforts results in eight arrests - IRS (Defendant names omitted, emphasis added):

Defendants, both of Kent, OH, are charged with wire fraud and conspiracy to commit wire fraud, and money laundering and conspiracy to commit money laundering, which carry a maximum penalty of 20 years in prison. According to the complaint against Defendants, they collected $40,000 from an elderly resident in the WDNY, who fell victim to a scam in which the perpetrators posed as Federal Trade Commission (FTC) agents; $38,000 from an 81-year-old resident of the WDNY, who fell victim to a scam in which the perpetrators posed as tech support (tech support scam); $19,500 from an elderly victim in the WDNY who fell victim to a tech support scam; and $28,000 from an elderly resident of the WDNY who fell victim to a tech support scam.

The scammers wear many hats. Don't believe anybody from "the government" who says you are in trouble by email, text or phone. Don't trust strangers bearing tech support.

Fighting scams is an IRS enforcement function. Hobbling IRS enforcement at some point means more grandmas get fleeced.

What day is it?

It's the Fall Equinox, where days and nights are the same length. For tax pros facing extension deadlines, the days seem both longer and shorter at the same time.

Tax News & Views Will Fall For Tips Roundup

Make a habit of sustained success.

Joe B. Kristan, CPA