Tax News & Views Unauthorized Groundhog Disclosure Roundup

Trump sues IRS and Treasury for $10 billion over leaked tax info - Fatima Hussein, Associated Press:

President Donald Trump is suing the IRS and Treasury Department for $10 billion, as he accuses the federal agencies of a failure to prevent a leak of the president’s tax information to news outlets between 2018 and 2020.

The suit, filed in a Florida federal court Thursday, includes the president’s sons Eric Trump and, Donald Trump Jr. and the Trump organization as plaintiffs.

The filing alleges that the leak of Trump and the Trump Organization’s confidential tax records caused “reputational and financial harm, public embarrassment, unfairly tarnished their business reputations, portrayed them in a false light, and negatively affected President Trump, and the other Plaintiffs’ public standing.”

Donald Trump was President, and therefore in charge of the IRS and Treasury, at the time of the leaks.

Trump Lawsuit Against IRS Puts Him on Both Sides of the Same Case - Richard Rubin, Ryan Barber and Annie Linskey, Wall Street Journal:

Trump is simultaneously supervising the private attorneys demanding at least $10 billion in damages over the past disclosure of his tax records, while also overseeing the senior Justice Department attorneys with authority to settle the case and authorize a payment.

The unusual dynamics are intensified by Trump’s expansive view of executive authority and his history of leveraging the presidency’s unique powers to secure settlements from private parties, said Peter Keisler, who served as acting attorney general in the George W. Bush administration.

“This creates the risk of the most collusive lawsuit of all time, because it is ultimately the president suing a defendant whom he says has to do whatever he directs,” Keisler said.

Trump’s Lawsuit Against I.R.S. Creates ‘Enormous Conflict of Interest’ - Andrew Duehren, New York Times:

Mr. Trump, who brought the suit along with two of his sons and his family business, is not without merit, legal experts said. But its success would hinge on genuine legal questions that the Justice Department, which would represent the I.R.S., may or may not contest in court.

“It’s not a crazy lawsuit,” said Michael Eric Herz, a professor at Cardozo Law School. “It should be taken seriously and if it was anyone other than the president bringing the lawsuit you would say, ‘I can understand this.’”

The Politics of the Lawsuit

Trump’s $10 Billion Lawsuit Against the IRS Provokes Backlash - Tyrah Burris, Tax Notes ($):

Senate Finance Committee ranking member Ron Wyden, D-Ore., and House Ways and Means Committee ranking member Richard E. Neal, D-Mass., slammed Trump for seeking to enrich himself on the backs of taxpayers.

...

“While Trump is weaponizing taxpayer privacy laws for his own benefit, his Treasury Department is flouting those exact same laws to send tens of thousands of individual tax records to his anti-immigrant henchmen at ICE. It is the height of hypocrisy for Trump to pretend he cares one bit about taxpayer privacy,” Wyden said in his statement.

Senate Republican says his ‘preference’ is for IRS to investigate who leaked Trump’s tax returns instead of lawsuit - Max Rego, The Hill:

Republican Sen. Ron Johnson (Wis.) said Sunday that he would prefer the Internal Revenue Service (IRS) undertake a “robust” investigation into the leak of President Trump’s tax returns, days after the president sued the agency for $10 billion over the disclosure.

“I don’t doubt the federal government deserves to be sued. The problem is, we don’t have $10 billion. My preference would be to do a robust investigation, find out who leaked those tax returns,” Johnson told host Dana Bash on CNN’s “State of the Union.”

Done and done.

Democrats Pressure IRS for More Info on ICE Taxpayer Requests - Erin Slowey, Bloomberg ($):

Senate Democrats are calling for more details on the Trump administration’s controversial sharing of taxpayer data with immigration officials, in a letter to the IRS this week.

...

“These arrangements raise serious questions about the IRS’s compliance with the confidentiality rules in Internal Revenue Code,” the letter said.

The Slow-Motion Shutdown and the IRS

Today could be bumpy in the House - Jake Sherman and John Bresnahan, Punchbowl News:

The federal government has been partially shut down since Friday night. As of right now — Monday morning — the Senate-passed, White House-negotiated government funding package doesn’t have an easy path through the House to President Donald Trump’s desk.

The Senate on Friday night passed both the five-bill funding package and a separate two-week Homeland Security stopgap funding bill. Senate Minority Leader Chuck Schumer cut a deal with the White House to pass the short-term DHS stopgap so Congress can work on an ICE-reform package through Feb. 13.

House Minority Leader Hakeem Jeffries wasn’t a party to that deal. That means Speaker Mike Johnson may be forced to try to pass the funding package with just GOP votes, something that hasn’t gone very well this Congress.

IRS will stay fully staffed for first five 5 days of shutdown - Martha Waggoner, The Tax Adviser:

The IRS will stay fully staffed for the first five working days of a possible Saturday shutdown, a lapsed appropriations contingency plan posted late Friday shows — temporarily easing concerns that the IRS would furlough employees during tax filing season.

The IRS will use money from the Inflation Reduction Act of 2022, P.L. 117-169, to remain fully staffed from Saturday through Feb. 7, the plan said. The plan also includes totals of staff who are designated as exempt and would be retained in case of a lapse shutdown.

Divided House stretches shutdown - Eleanor Mueller, Semafor:

Though Speaker Mike Johnson had initially hoped to pass the legislation with the help of Democrats, Minority Leader Hakeem Jeffries told Johnson on Saturday that minority-party leaders would not lend their support due to concerns about greenlighting funding for immigration enforcement before enacting new restrictions. “We’ve got to pass a rule and probably do this mostly on our own,” Johnson told NBC. That raises the stakes for GOP leaders’ ongoing efforts to appease conservative hardliners, whose demands include attaching legislation requiring voters to provide proof of citizenship. Johnson will have some bipartisan support: Some Democrats indicated on a caucus call Sunday that they planned to vote “yes” (and urged colleagues to do the same).

Capitol Hill Recap: Hope for Healthcare Credit Enhancements - Alex Parker, Eide Bailly:

Ongoing negotiations between key members of both parties seemed to hit a standstill, and after the Jan. 15 end of open enrollment for most plans came and went the issue seemed to recede into the background.

But there were some signs of life this week, after Sen. Bernie Moreno, R-Ohio, outlined what he said was a proposal to the other side that he thought could bridge the divide.

Filing Season, One Week In.

Tax Breaks: The Tax Filing Season, But Throw In A Shutdown Edition - Kelly Phillips Erb, Forbes:

Every tax season, taxpayers go looking for a shortcut—a trick to file faster, get a bigger refund, or beat the system—but as you can see, this year is not the year to experiment. Between sweeping changes under OBBBA and an IRS that’s understaffed and buried in backlogs, even small mistakes can turn into long delays. The reality, as former IRS insider Terry Lemons puts it, is that the safest path is also the least exciting: Don’t rush before you have all your paperwork, take time to understand the new rules, ignore social media “hacks,” be cautious about relying on AI, and get qualified help if things get complicated. With refunds likely bigger, but fixes harder, accuracy—not speed—is what actually gets you across the finish line.

Why This Tax Season Is Likely to be Slow and Agonizing for All - Russ Fox, Taxable Talk:

Staffing at the Taxpayer Advocate Service is down by over 25%. TAS is where taxpayers (and practitioners) go when problems at the IRS cannot be resolved through normal methods. We’re seeing more and more such issues, yet due to staffing cuts (a) all TAS submissions must be done in writing (using IRS Form 911)–phone calls are no longer accepted, (b) because of the cuts it’s clear that TAS will take fewer cases (with a result I’m going to note below), and (c) such cases will take far longer to be resolved.

What’s the result going to be from this? Fewer taxpayers are going to get cases resolved, more taxpayers will need to go to Congressional liaisons (which will also decrease normal TAS cases), and both taxpayers and practitioners will be frustrated.

Tax season will likely be fine if you file a return with no mistakes. Any mistakes or discrepancies could send your tax refund into the abyss. Some tips to help things go smoothly:

- Don't rush. Make sure you have all of your W-2s, 1099s, K-1s, 1098s, and other information returns before filing.

- Make sure your return has your current banking information. If you don't have banking information, you set back your refund by at least six weeks. If you have the wrong banking information, your return goes into the abyss.

- If you have been claiming dependents on your return, be sure that they aren't filing their own returns as non-dependents. The e-filing system will catch this and delay the processing of your return.

- E-file. The IRS struggles with paper and the postal system's reliability isn't great either.

- Double-check your estimated tax payments. An individual online account is a great tool for this.

The Filing Season: How to Get Assistance - Erin Collins, NTA Blog:

Creating an online account for individuals and/or Business Tax Account can save time and reduce the need to call the IRS during filing season as you prepare to file your tax return. Filing season is the busiest season for the IRS, with calls to IRS service lines reaching the highest volumes of the year. With an online account, you may find the information you need 24/7 without having to call the IRS. For example, using online accounts, you can view tax records including certain information returns, make and view payments, and individuals can create payment plans.

The Minnesota - Montana Car Plate Caper

Minnesota Auto Dealer Allegedly Used Montana LLCs to Evade Taxes - Michael Bologna, Bloomberg ($):

One of the largest automotive dealers in Minnesota was charged with criminal tax evasion under a scheme that routed sales of high-end vehicles through Montana shell companies to avoid the motor vehicle excise tax.

...

Vehicle registrations facilitated through the so-called Montana loophole have become a major tax avoidance problem for revenue departments in many other states. Montana has no statewide sales tax and very low vehicle registration and renewal fees, attracting thousands of non-Montana residents and out-of-state dealers to plate vehicles in the Big Sky state each year.

Avoiding vehicle taxes though the use of Montana LLCs is a focus area for non-Montana revenue departments, with some states enacting special rules to attach Montana registration of in-state vehicles.

Non-paywalled coverage here.

Claims Court Snuffs Cannabis Dealer's ERC Bid

Claims Court Harshes Pot Shop’s Employee Retention Credit Refund - Nathan Richman, Tax Notes ($):

The refundable portion of a cannabis business’s claimed employee retention credit is barred by the statutory prohibition on credits and deductions for businesses trafficking in controlled substances, a federal court concluded.

In her January 30 opinion dismissing Gravenstein 116 LLC v. United States, Judge Eleni M. Roumel of the Court of Federal Claims wrote that the ERC — including its refundable portion — is unambiguously a tax credit under the Internal Revenue Code. “The Code unequivocally labels the ERC as ‘a credit.’ . . . The Code describes the refundable portion of the ERC as one part of this ‘credit,’” she wrote.

Blogs and Bits

Don't overlook the EITC, a valuable tax credit that could get you a tax refund - Kay Bell, Don't Mess With Taxes. "The tax credit was created to help taxpayers who work, but don’t make a lot. That means you must have a job, but your wages or salary can’t be too much. If you have children, they must meet EITC eligibility requirements. There also are age limits."

Your Overtime Deduction Questions Answered - Thomas Gorczynski, Tom Talks Taxes. "In addition, the deduction amount is only the premium portion, which is the amount exceeding the regular rate of pay (i.e., the “half” in “time-and-a-half)."

Fifth Circuit Reverses Tax Court; Rejects Self-Employment Tax "Passive Investor" Rule - Parker Tax Pro Library. "In so holding, it rejected the IRS's "passive investor" rule that requires a functional analysis of a limited partner's role in the partnership, and which the Tax Court previously approved in Soroban Capital Partners LP v. Comm'r, 161 T.C. No. 12 (2023)."

IRS Under Bisignano: Is More Aggressive Offshore Enforcement Coming? - Virginia La Torre Jeker, Forbes. "For U.S. citizens and green-card holders living overseas, U.S. tax obligations are complicated. They follow the taxpayer, regardless of residence."

When Financial Plans Go Awry

Financial planner who did not file tax returns or pay income tax on nearly $1,500,000 in income sentenced to federal prison - IRS (Defendant name omitted, emphasis added):

A financial planner who failed to file income tax returns for eight years after failing to do so for seven earlier years was sentenced today to three months in federal prison.

Defendant, from Marion, Iowa, received the prison term after a July 22, 2025, guilty plea to two counts of failure to file a tax return.

In a plea agreement, Defendant admitted that he did not file a tax return from 2006 to 2012. After being contacted by tax authorities in 2013, Defendant filed delinquent returns for those years and a tax return for 2013. However, he did not pay the income tax he owed for 2008 through 2013.

That wasn't a great idea, but he had worse ones:

After filing a tax return in 2013, Defendant stopped filing tax returns. He did not file a tax return for any year between 2014 and 2021. During those years, Defendant had gross income of nearly $1,500,000 from his work as a financial planner. He paid no income tax on those earnings during those years. Defendant should have paid more than $250,000 in federal income tax for that income.

The first rule of holes is to stop digging.

As a result of his failure to pay income taxes for 2008 to 2013, the IRS placed two liens on a piece of property Defendant had agreed to purchase. Defendant did not go through with the purchase but did not have the liens removed from the property. When the property owner tried to sell the property to someone else, the owner discovered the IRS liens in Defendant’s name. To get the liens off the property, Defendant filed false lien releases with the Linn County Recorder’s Office. He prepared the lien releases to look like they came from the IRS. Defendant was convicted of forgery in state court for filing the false lien releases.

For a financial planner, this seems like poor planning. I hope his planning worked out better for his clients.

What day is it?

It's Groundhog Day, of course, but if you choose to observe National Tater Tot Day instead, I understand.

Tax News & Views Unauthorized Groundhog Disclosure Roundup

Make a habit of sustained success.

Joe B. Kristan, CPA