Tax News & Views Paczki and Data Leak Roundup

Heads Up: HLB Group, Eide Bailly's worldwide accounting network affiliation, hosts a virtual webinar next week. Tariffs Update: Current State, Outlook, Success Stories and Mitigation Strategies, will take place a week next Wednesday. Tune in at 11:00 Central February 18. Registration at the link.

Confidential Tax Info Illegally Sent to ICE

IRS improperly disclosed confidential immigrant tax data to DHS - Jacob Bogage, Jeff Stein and Perry Stein, Washington Post:

The erroneous disclosure was only recently discovered, the people said. The IRS is working with officials from the Treasury Department, Justice Department and Department of Homeland Security on the administration’s response.

The IRS confirmed The Washington Post’s reporting in a court filing Wednesday afternoon. Dottie Romo, the tax agency’s chief risk and control officer, wrote in a sworn declaration that the IRS provided confidential taxpayer information even when DHS officials could not provide sufficient data to positively identify a specific individual.

Federal law mandates strict protections of the identities of taxpayers, including the sharing of data within the federal government. Undocumented immigrants have for years paid taxes with assurances from the federal government that doing so would not result in them being targeted by immigration enforcement.

IRS Erroneously Shared Taxpayer Info With ICE - Trevor Sikes, Tax Notes ($):

After an investigation, the IRS found that it had shared the taxpayers’ last known addresses based on some requests that included incomplete or no address information for them, the declaration said.

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Under the memorandum of understanding and implementation agreement for the sharing of taxpayer information between the IRS and ICE, ICE requests must comply with section 6103(i)(2)(B), which says each request must include, among other information, the name and address of the taxpayer for whom the information is being sought.

IRS Mistakenly Shares Data on Thousands of Immigrants With ICE - Erin Schilling and Erin Slowey, Bloomberg ($):

The IRS was only able to verify 47,289 individuals of the 1.28 million that the Immigration and Customs Enforcement requested, according to the legal filing.

But for less than 5% of those individuals, the IRS gave ICE additional address information, IRS Chief Risk and Control Officer Dottie Romo said in a declaration with the US District Court for the District of Columbia dated Wednesday.

President Trump is suing the IRS for $10 billion for improper disclosure of his returns. The annual IRS budget is approximately $11.2 billion, for comparison.

House Votes to End Tariff "Emergency" by Margin Too Small to Override Expected Veto

GOP-Led House Rejects Trump’s Tariffs on Canada - Gavin Bade and Olivia Beavers, Wall Street Journal:

The House voted 219-211 to approve a Democratic resolution that would invalidate the emergency declaration that underpins Trump’s tariffs on Canada. Six Republicans broke ranks with their party in voting for the measure, another setback for House Speaker Mike Johnson (R., La.), who couldn’t keep his conference united in support of the president.

Passage of the antitariff resolution sends it to the Senate, which must vote on the issue again despite approving a similar one on a narrow, bipartisan basis last year. If it passes the Senate—where it can advance on a simple majority vote, not the 60 usually required—the measure would move to Trump, who would almost certainly veto it.

The Republicans who voted with most Democrats to end the tariffs were Reps. Don Bacon of Nebraska, Kevin Kiley of California, Thomas Massie of Kentucky, Dan Newhouse of Washington, Brian Fitzpatrick of Pennsylvania and Jeff Hurd of Colorado. One Democrat, Rep. Jared Golden of Maine, a centrist, sided with most Republicans.

House Votes to Cancel Trump’s Canada Tariffs - Robert Jimison, New York Times:

Last February, Mr. Trump invoked the International Emergency Economic Powers Act to declare a national security emergency and impose tariffs of 25 percent on all imports from Canada and Mexico, as well as 10 percent on products from China. He cited border security failures tied to drug trafficking and illegal migration.

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But while fentanyl has flooded North America’s drug supply over the past decade, killing tens of thousands of people in the United States and Canada, less than 0.1 percent of the fentanyl arriving in the United States in 2023 came from Canada, according to data from U.S. Customs and Border Protection.

US House of Representatives votes to overturn Donald Trump’s tariffs on Canada - Lauren Fedor and Aime Williams, Financial Times:

The six Republicans voted to overturn levies on Canada despite Trump appearing to threaten lawmakers in a Truth Social post on Wednesday evening. “Any Republican, in the House or the Senate, that votes against TARIFFS will seriously suffer the consequences come Election time, and that includes Primaries!” he posted.

“TARIFFS have given us Economic and National Security, and no Republican should be responsible for destroying this privilege,” he added.

So much for fentanyl.

Trump Tariffs Threaten to Offset Much of the “Big Beautiful Bill” Tax Cuts - Erica York and Alex Durante, Tax Policy Blog:

Because the combination of the OBBBA’s tax provisions and Trump’s tariffs significantly reduces federal taxes, it results in net tax cuts on average. But the effects are not the same across the income spectrum.

The tariffs offset a larger portion of the tax cuts for lower- and middle-income taxpayers than for higher-income taxpayers. Because several of the OBBBA’s tax provisions expire at the end of 2028, by 2034, the bottom quintile will actually see a net reduction in after-tax income under the OBBBA on a conventional basis, which would be exacerbated by the tariffs if they remain in place in 2034. Note also that these estimates do not include the distribution effects of the spending cuts, which would further reduce after-tax income for the bottom quintile.

CBO Reports U.S. Fiscal Situation Getting Even Worse

CBO Warns of Ballooning Deficits in Latest Fiscal Report - Dominik Lett, The Debt Dispatch:

The Congressional Budget Office (CBO) just released its latest Budget and Economic Outlook for 2026 to 2035. Rising interest costs and unchecked entitlement spending are driving federal debt to unprecedented levels. Despite revenues exceeding their historical average, the government continues to spend far more than it takes in.

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In 2025, federal spending totaled $7 trillion, or 23.1 percent of GDP, exceeding the 50-year average of 21.2 percent. By 2036, spending reaches $11.4 trillion, or 24.4 percent of GDP. Autopilot mandatory spending—interest costs and mammoth programs like Social Security and Medicare—is almost entirely responsible for this growth. By 2036, Social Security, Medicare, Medicaid, and interest costs will account for 73 percent of total federal spending, consuming nearly 100 percent of all federal revenue.

Chart showing entitlement spending taking over budget.

US Budget Deficit Projected To Hit $3.1T By 2036 - Jack McLoone, Law360 Tax Authority ($):

The federal debt held by the public as a percentage of gross domestic product is expected to grow from where it stood at the end of 2025 — 99% — to 120% in 2036. By 2030, it will pass the "historical high" of 106% of GDP, which was set just after World War II, the CBO said.

"Our budget projections continue to indicate that the fiscal trajectory is not sustainable," CBO Director Phillip L. Swagel said in a statement released alongside the report.

New Report: National Debt Outlook Gets Worse as Interest Costs Exceed $1 Trillion Annually - Peter G. Peterson Foundation:

Driven by an aging population and rising healthcare costs, federal spending on Medicare is projected to increase from 3.4 percent of GDP in 2027 to 4.2 percent in 2036. Spending for Social Security would also rise over that period, from 5.3 percent of GDP in 2027 to 5.9 percent in 2036. By 2036, Medicare and Social Security will comprise 17.3 percent and 24.1 percent of all federal outlays, respectively. That growth in part reflects ongoing demographic challenges. CBO’s most recent population estimates reflect declining growth in the labor force due to reduced immigration and fertility rates. Those forces combine to reduce future expected economic growth and increase pressure on health and retirement programs for an aging society.

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According to CBO’s report, Social Security’s OASI Trust Fund depletion date has been moved up, from 2033 to 2032. Accordingly, Senators elected this year will have to address the problem during their upcoming term. Medicare’s Hospital Insurance Trust Fund, however, will remain solvent through the 10-year projection window.

International Taxes: Substance and the Perfect Man

Tax News & Views International Weekly: Taxing on Substance - Alex Parker, Eide Bailly:

When the Organization for Economic Cooperation and Development released the details from the “side-by-side” agreement with the United States last month, it became clear that they were doubling down on a new tax regime based on measurements of “substance.”

The regime, the Pillar Two 15% global minimum tax, is now moving forward with the U.S. impasse resolved. Since the beginning, its design has relied on economic substance, such as jobs in a country or "hard" assets. Factors such as payroll and the value of tangible assets were used not only for the measurement of taxable income, but to determine how it was distributed in some cases. The final agreement goes further, using similar metrics when evaluating which government tax incentives are exempt, and which can cause a company to ultimately pay more in Pillar Two tax.

If that's not your thing, Alex's Public Domain Superhero this week features the "World's Most Perfect Man," in case you want to set a standard.

State of the States: Conformity, Digital Ad Taxes.

States Say No Thanks to Trump Tax Cuts, Drawing Republican Fire - Andrew Duehren, New York Times:

In statehouses across the country, policymakers are grappling with the changes Republicans made last year to the federal income tax. The law created or revived a slew of expensive tax breaks for both business and individuals, including versions of President Trump’s campaign promises to not tax tips or overtime pay

Many of those changes cut taxes by reducing the amount of income subject to taxation in the first place. Most states use federal definitions of income as the starting point for their own income taxes, and so the federal tax breaks can also reduce the amount of money states can tax.

That means the tax law passed in Congress is hitting state revenues, prompting some states to proactively exclude the new federal tax cuts from their tax codes.

Michigan Governor Proposes New Digital Ad, Sports Betting Taxes - Michael Bologna, Bloomberg ($):

Michigan Gov. Gretchen Whitmer (D) proposed more than $800 million in new taxes next year to help stabilize the state’s Medicaid program, including new levies on digital advertising, smoking, and gambling.

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The proposed revenue raisers include a 4.7% excise tax on digital advertising revenue, levied on the portion of advertising receipts attributed to Michigan. Certain exclusions would be available for broadcast and news organizations. The proposal is expected to generate $282 million during the next fiscal year, which begins Oct. 1.

Taxes on digital advertising are rare, and states that have imposed them are mired in litigation.

Blogs and Bits

Super Bowl LX’s super tax windfall for California is most extreme jock tax example - Kay Bell, Don't Mess With Taxes:

It’s a different tax story for Seahawks QB Sam Darnold, who is on the other side of both the NFL championship and earnings scale. He has an annual base salary of $12.3 million, as well as an additional $4 million in bonuses for reaching performance goals this season.

Per Walzack’s calculator, Darnold’s California tax bill is $202,102. So, Darnold’s Super Bowl winning bonus of $188,000 will go to cover most of that amount.

IRS passport ban upheld for $1.6M tax debt - Tax Coda. "The Tax Court upheld the IRS’s certification of a seriously delinquent tax debt, allowing the State Department to deny or restrict the taxpayer’s passport."

Deferring Tax Payments from the Sale of Farmland - Kristine Tidgren, Ag Docket. "The One Big Beautiful Bill Act (OBBBA), Public Law 119-21, 139 Stat. 72 (July 4, 2025), created a new election through which qualifying sellers of farmland can choose to pay their taxes on the gain in four equal installments, instead of all in the year after the sale."

Who Wants to go to Prior Lake?

Minnesota man indicted for filing and conspiring to file false tax returns requesting hundreds of millions of dollars in undeserved tax refunds from the IRS - IRS (Defendant name omitted, emphasis added):

Defendant made his initial appearance in U.S. District Court on Thursday, in response to an indictment charging him with conspiracy to file false claims for tax refunds, filing a false claim for a tax refund, money laundering, and bank fraud from 2022 to 2023. He was released subject to conditions on an unsecured bond pending disposition of the case.

The indictment alleges that the defendant’s tax returns falsely requested refunds of more than $ 90 million and that he conspired in the filing of additional false tax returns requesting tax refunds totaling more than $ 210 million. Defendant’s fraudulent claims allegedly totaled more than $ 350 million and resulted in the United States Treasury paying out more than $ 19 million in undeserved tax refunds. Defendant also allegedly used his fraudulent proceeds to purchase a $ 2.6 million house in Prior Lake, to invest in cryptocurrency and other projects, and for personal expenses.

During the course of the conspiracy, Defendant allegedly advised a group of sovereign citizens regarding trusts and taxes. He also provided them with tax forms and documents for tax filings. Sovereign citizens wrongly believe that certain laws, such as the federal income tax, do not apply to a person’s sovereign persona.

Spoiler: Those laws do apply, regardless of your "sovereign persona."

It speaks poorly of IRS procedures that $19 million of refunds were issued based on garbage tax protester filings. Fortunately the IRS blocked over 90 percent of the claims. It will be hard to recover all of that taxpayer money - though the Prior Lake house may show up on the IRS auction site sometime if you are looking for a nice new home.

The IRS will be going after those who received the refunds, plus interest and penalties. This is another tax scam that worked, until suddenly and spectacularly it didn't.

What day is it?

It's Paczki Day! "Similar to a donut, Paczki are a sugary pastry that combines glossy doughs with a delicious fruit filling. They’re known as a dessert that gets more-or-less splurged around lent, but Paczki Day isn’t just about the pastries alone." Perhaps, but they are enough for me.

Tax News & Views Paczki and Data Leak Roundup

Make a habit of sustained success.

Joe B. Kristan, CPA