Key Takeaways
- IRS makes a stealth change to tip deduction instructions.
- No guidance yet for those who filed already relying on the old version.
- IRS CEO testifies before Congress today.
- Senators propose IRS bypass Congress to index capital gains.
- Bernie's Billionaire Tax.
- Pastors with shiny things.
- Holi and Benjamin Harrison Day.
IRS Quietly Changes Tips Deduction Calculation Mid-Season - Thomas Gorczynski, Tom Talks Taxes:
The IRS previously interpreted that provision to mean that the net Schedule C income was the limit on the tips deduction; this is a pro-taxpayer interpretation...
The 2025 Form 1040 instructions, revised on February 25, 2026, now completely change their original position and state the following on page 104:
"Qualified tips from a trade or business can’t be more than the gross income from the trade or business in which the qualified tips were received minus the total of all deductions allocable to that trade or business, including the deductible part of self-employment tax; the deduction for contributions to self-employed SEP, SIMPLE, and qualified plans; and the self-employed health insurance deduction, but not including the deduction for qualified tips. [emphasis added]"
The IRS has not provided guidance to taxpayers who have already filed using the first set of instructions.
The IRS Mid-Tax Season: Bessent Timing Out, "CEO" Goes To Congress
Bessent Nears Vacancies Act Limit as IRS Commissioner - Benjamin Valdez, Tax Notes ($):
...
Complicating application of the Vacancies Act to Bessent is Frank Bisignano, who was appointed IRS CEO shortly after Bessent took over as IRS commissioner. Bisignano also leads the Social Security Administration.
IRS CEO to Face House Panel as Tax Season Ramps Up: Explained - Erin Slowey, Bloomberg ($):
...
The mid-filing season House Ways and Means Committee hearing typically features the commissioner, but Bisignano has taken over many of those responsibilities as CEO. The former chair and CEO of Fiserv reshaped the leadership team on Jan. 20, creating new positions and putting faces friendly to the Trump administration in key roles. He also is co-leading the compliance division at the IRS at a time when critics fear a drop in enforcement of tax laws—especially on the wealthy and big business.
IRS Investigators Are Fighting Mission Drift Alongside Criminals - Don Fort, Bloomberg ($). "Today, CI’s mission faces unprecedented pressure. Recent Department of Justice and IRS reorganization efforts and shifting white collar crime enforcement priorities threaten to take the focus off that mission."
Capital Gain Indexing is Having a Moment
GOP Duo Renews Call for Treasury to Index Capital Gains - Cady Stanton, Tax Notes ($):
The letter revives a long-standing debate over the proposal that began in 1992 when the Treasury and Justice departments under the George H.W. Bush administration considered, then scrapped, a proposal to index capital gains through Treasury regulation.
...
The senators also argue that the change wouldn’t require congressional approval.
Ted Cruz asks Treasury to approve $200 billion tax cut without Congress - Jeff Stein, Washington Post:
...
The proposal, however, faces significant legal and political headwinds. A 1992 opinion by the Justice Department’s Office of Legal Counsel concluded that Treasury does not have the authority to make such a change unilaterally — and that it would require an act of Congress. Any executive action along these lines would likely face immediate legal challenges.
Critics also argue that the benefits would flow overwhelmingly to the wealthy. The Penn Wharton Budget Model found during Trump’s first term that the top 1 percent of income earners would receive roughly 86 percent of the benefits from indexing capital gains to inflation, while the bottom 80 percent of earners would receive just 1 percent.
There is logic to the argument that capital gain taxation should be adjusted to account for inflation. That same logic, though, applies to other income. Deferred compensation and interest are obvious examples.
Also, long-term capital gains are by definition deferred. That means the taxes paid on them are paid with dollars depreciated by inflation. Interest income, by contrast, is taxed right away, including the part eaten by inflation. Indexing might perversely make it easier to justify a tax on unrealized gains.
Indexing capital gains also makes tax more complicated, and that's not something the tax law really needs.
There are decent economic arguments for not taxing capital gains at all. But until that day comes, the current regime of deferral and reduced rates on capital gains is likely a good-enough proxy for indexing.
What About Housing Capital Gains?
Conservatives build their case on housing tax cut - Bernie Becker, Politico:
The 40 conservative activists are backing bipartisan legislation that would double the current capital gains exclusion for the sale of a house, which Congress hasn’t changed in almost three decades.
...
Those who owe capital gains taxes on a house sale are generally quite well off. But there’s one group in this matter that policymakers and the media have taken a particular interest in: empty nesters who are hesitant to downsize and sell their house to a younger family because of a potentially large tax bill.
Unfortunately, it’s tough to know just how many of those cases actually exist.
The tax law currently excludes home sale gains of up to $250,000 for single filers and $500,000 on joint returns.
Should All Gains on Home Sales Be Tax Free? - Annette Nellen, 21st Century Taxation. "I don't think the lack of inflation adjustment justifies this possible tax change because the exclusion amounts were already quite high in 1997 - particularly given that 29 years later the median home price is roughly $414,000 (making a $500,000 gain impossible)."
Taxing Other People Remains Popular
Sanders And Khanna Push National 5% Annual Billionaire Wealth Tax - Kelly Phillips Erb, Forbes:
...
Despite the projected revenue windfall, the legislation is unlikely to pass. Republicans control the House and Senate and generally oppose major tax increases. Even some moderate Democrats have expressed caution, particularly after recent tax-and-spending proposals stalled.
There are also constitutional concerns. A true wealth tax—one imposed on net worth rather than income—has never been enacted at the federal level. And notably, the Constitution limits direct taxes unless apportioned among the states by population.
Confiscating US billionaires’ wealth would run the US government about 8 months - Tom Kertscher, PolitiFact:
Tapping the billionaires’ $5 trillion would pay for about 263 days of federal government spending — or more than eight months.
How I am protecting my human capital - Allison Schrager, Known Unknowns:
People keep asking why there is no political appetite to care about the debt. I’ll tell you why: everyone has been told someone else will pay for all this spending and all the new stuff they want too.
The Obscure Court of Tariff Refunds
The Tiny Court at the Center of a Massive Scramble to Get Tariff Money Back - Lydia Wheeler and Louise Radnofsky, Wall Street Journal:
...
Its docket changed when President Trump claimed emergency powers to impose tariffs on nearly every nation.
The trade court last year ruled that the president didn’t have that authority. The Supreme Court in a blockbuster ruling last month agreed, but said nothing about what should happen next. Now there are more than 2,000 lawsuits on the trade court’s doorstep from businesses suing to recoup what they paid. More are expected.
Taxes Are a Thing, But They Aren't Everything
They Went to Dubai for Sun and Low Taxes. They Wound Up in a War Zone - James Hookway, Wall Street Journal. "For more than two decades, Dubai has sold itself as an expat paradise, a global crossroads between East and West known for its low taxes, high salaries and luxury lifestyle."
Blogs and Bits
4 tax moves to consider this March - Kay Bell, Don't Mess With Taxes. "1. Establish or add to your IRA. f you have an IRA, Roth or traditional, and didn’t max out your contributions last year, do so now. That money can count as 2025 tax year contributions"
Tariffs Increased Retail Prices of Imports by 7 Percentage Points Prior to Supreme Court Ruling - Alex Durante, Tax Policy Blog. "The Court’s decision eliminates nearly three-quarters of the tariffs Trump imposed in 2025, but what happens to retail prices next will depend on the extent to which those unlawful tariffs are replaced with new levies."
Targeting this $2.8 trillion tax shelter could solve a big U.S. problem - Scott Hodge, Washington Post. "Many “charities” have become big businesses. While numerous benevolent charities do wonderful work, the industry is dominated by some of the top companies in America operating largely free from the tax obligations that burden their for-profit competitors."
Related: Eide Bailly Exempt Organization Tax Services.
IRS Updates Auto Depreciation Limits for 2026 - Eide Bailly. "The tax law has special depreciation limits for motor vehicles - often incongruously called the 'luxury auto' rules. The IRS has released (Rev. Proc. 2025-16) the updated limits, which apply to vehicles far below the Rolls-Royce level."
Beware Pastors With Shiny Things
Former pastor sentenced for embezzling from a local church - IRS (Defendant name omitted, emphasis added):
United States District Judge Liles C. Burke sentenced Defendant to 60 months in prison. In October 2025, Defendant pleaded guilty to wire fraud and filing a false tax return.
According to the information and plea agreement, Defendant was the pastor at All Nations Worship Assembly (the “Church”) in Huntsville. From 2018 to 2020, Defendant used his position as pastor to embezzle approximately $434,339 from the Church. For example, in 2018, Defendant used $30,920 in Church funds to purchase an Audi A7. In 2019, Defendant used $45,982 in Church funds to purchase a 2016 GMC Yukon. He also used Church funds to make 41 payments totaling $117,000 to satisfy the balance of his personal American Express card. Purchases that Defendant made on this card included luxury items totaling $4,970.15 at Louis Vuitton and $5,300.00 at Flight Club, a shoe store in New York. In 2020, Defendant used Church funds to pay a balance of $18,530 on a credit card that he had used to purchase jewelry. He also made additional payments from Church funds to his personal American Express card that totaled over $151,000. Items purchased that were paid with Church funds included a $29,900 purchase from Hublot, a $28,000 purchase from Peter Marco, and a $6,022.50 purchase from Louis Vuitton. None of these payments or purchases were authorized or approved by the Church.
You may not be surprised that the good Reverend failed to render unto Caesar by including these items in taxable income.
A lifestyle beyond an employee's apparent means might be an occasion to revisit your accounting controls.
Related: Eide Bailly Fraud Prevention and Detection Services.
What day is it?
Today is Holi, the festival of colors. If you are in the mood for something less colorful, it's also Benjamin Harrison Day.
Make a habit of sustained success.
