Tax News & Views Will Not Podcast the Shutdown Roundup

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IRS shutdown plan: Employees stay on the job for first 5 workdays - Martha Waggoner, The Tax Adviser:

All IRS staffers will work during the first five business days of a potential government shutdown, according to a lapsed appropriations contingency plan posted Monday.

The plan said that money from the Inflation Reduction Act of 2022, P.L. 117-169, will pay salaries. The IRS has more than 74,000 employees when adjusted for the deferred resignation plan, according to the contingency plan for fiscal year 2026. Federal employees who work during a shutdown are not paid until the shutdown ends.

The IRS’s original Inflation Reduction Act funding, $79.4 billion over 10 years, was reduced to $37.6 billion through congressional cuts as of March, according to an August report by the Treasury Inspector General for Tax Administration. As of March 31, the IRS had spent about $13.8 billion of that funding, the report said.

All IRS Staff Set to Work During Possible Shutdown - Benjamin Valdez, Tax Notes ($). "The fiscal 2026 plan, released September 29, says funding from the Inflation Reduction Act would buoy the retention of all 74,299 IRS employees through five business days following a lapse in appropriations. The plan doesn’t specify whether the agency would continue operating at full capacity beyond that time frame."

Government shutdown set to begin overnight as Congress hits impasse - Riley Beggin, Hannah Natanson, Theodoric Meyer and Marianna Sotomayor, Washington Post:

With less than 24 hours before funding expires, the disagreement has left the two parties no path to avoid a shutdown, as each side is holding out hope the other will fold. The Senate is expected to vote again Tuesday afternoon on the GOP-led funding extension. It would need 60 votes to pass, meaning some Democrats would have to back it.

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A meeting Monday afternoon between Thune, President Donald Trump, House Speaker Mike Johnson (R-Louisiana) and Democratic leaders Sen. Charles E. Schumer and Rep. Hakeem Jeffries of New York did not yield any breakthroughs.

Shutdown blame game - Jack Blanchard and Dasha Burns, Politico. "Barring an eleventh-hour miracle which nobody believes possible, the federal government will shut down at midnight tonight."

Shutdown: Where we are and what we’ve learned - Jake Sherman, Andrew Desiderio, John Bresnahan and Laura Weiss, Punchbowl News. "Shutdowns end when one side blinks. Schumer can’t blink because of internal party pressure. And do you think Trump wants to fold to Schumer? Based on this unhinged, offensive Trump tweet from Monday night, we’re in for a long shutdown."

New IRS Guidance: Spin-offs, Low-Income Housing Credits, Preparer Fees

Spin Guidance Goes Back to the Future - Chandra Wallace, Tax Notes ($):

The IRS and Treasury have withdrawn proposed regulations issued in January that would have set guidelines for spinoff transactions under section 355 and imposed multiyear reporting requirements.

The September 29 withdrawal removes proposed regs (REG-112261-24 and REG-116085-23) published days before the end of the Biden administration. The government also issued Rev. Proc. 2025-30, 2025-42 IRB 1, which supersedes a 2024 revenue procedure for spins.

These actions effectively turn back the clock on guidance for spins and other divisive reorganizations. They reinstate the rules in Rev. Proc. 2017-52, 2017-41 IRB 283, as modified by Rev. Proc. 2018-53, 2018-43 IRB 667, two revenue procedures issued during the first Trump administration.

IRS Retracts Proposed Rules on Companies’ Tax-Free Spinoffs - Michael Rapoport, Bloomberg ($):

The proposed regulations would have allowed companies to spin off a subsidiary into a new company without tax consequences if they meet certain criteria. But legal and business groups have argued that the proposed rules were too broad and could create barriers to legitimate business transactions.

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The New York State Bar Association’s tax section in March urged the IRS and Treasury to withdraw the rules and instead allow the law in the area to develop through administrative practice. The system of relying on private letter rulings—company-specific IRS pre-approvals of a company’s actions from a tax perspective—has “worked rather well” for spinoffs, the bar group said.

IRS Finalizes Income Rules For Housing Tax Credit Projects - Stephen Cooper, Law360 Tax Authority ($):

The U.S. Department of the Treasury and Internal Revenue Service plan to release finalized rules Tuesday for housing tax credit developers opting to use an average-income test to set rents for affordable housing projects, aiming to reduce the risk of disqualification if a unit falls out of compliance.

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Under the rules, if an owner discovers the rent on a unit in the reported group isn't compliant, they can file a corrected list of qualifying units within 180 days. If a state agency finds the problem, the owner must fix the list of reported units within 90 days, but states can allow more time if necessary. Agencies can determine the timing, format and number of the lists of rental units they will accept.

IRS trims PTIN fee as renewal season nears - Martha Waggoner, The Tax Adviser:

The IRS on Monday issued interim final regulations (T.D. 10035) and proposed regulations (REG-108673-25) that reduce the fee to apply for or renew a preparer tax identification number (PTIN) to $10 from $11.

With the addition of a third-party contractor fee of $8.75, the total annual fee to apply for or renew a PTIN will be $18.75.

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PTIN renewals begin mid-October each year for the following year. PTINs expire on Dec. 31 of the calendar year for which they are issued.

Inspector General Highlights IRS Collection Misbehavior

IRS Collection Misconduct Reporting Found in Need of Improvement - Tyrah Burris, Tax Notes ($):

Under the IRS Restructuring and Reform Act of 1998, the IRS is required to follow FTCP provisions similar to those in the Fair Debt Collection Practices Act that prohibit various collection abuses and harassment in the private sector. The restrictions didn’t apply to the federal government until the passage of the 1998 act, the report noted.

TIGTA said Congress believed it was appropriate to require the IRS to be as considerate to taxpayers as private creditors were required to be with their customers.

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Nine of the substantiated issues and four of the unsubstantiated issues involved bypassing a taxpayer’s representative — violations that should also have been considered FTCP violations, the report said.

Tariff Tuesday: Movies and More Furniture

Trump repeats threat to tax foreign films, suggests move on furniture imports - David Lynch, Washington Post:

In a pair of Truth Social posts, the president said he would impose new taxes on “any and all movies that are made outside of the United States” and would levy “substantial Tariffs on any Country that does not make its furniture in the United States.”

As is often the case with the president’s social media statements, he provided no additional details, and the White House did not respond immediately to a request for comment. It is unclear when any of the threatened tariffs would take effect, what specific goods they would apply to, and what legal authorities the president would rely upon in imposing them.

Trump to Keep Tariff Probes Running Through Government Shutdown - Gregory Korte, Bloomberg via MSN:

The Commerce Department in a shutdown contingency plan released Monday said it will continue “the necessary work to address the effect of imported articles on national security.” The contingency guidelines mark a subtle shift from the previous plan, which said investigations would continue with unexpired funds if Congress failed to approve additional spending by the end of the fiscal year on Sept. 30.

By claiming a national security rationale for the investigations, the administration can continue work on probes being conducted under Section 232 of the Trade Expansion Act. That provision allows for the imposition of tariffs on goods deemed critical to national security, an authority that President Donald Trump has turned to extensively as he levies import taxes on a number of economic sectors.

Trump’s soybean sacrifice - Grace Yarrow, Politico. "China’s move to stop buying U.S. soybeans underscores how Trump’s ambitions to use aggressive tariffs as a lever for better trade deals with Beijing have repeatedly backfired. The Chinese government has responded with counter-tariffs, an array of non-tariff trade retaliation tactics and export restrictions on critical minerals and has now slammed the brakes on a key U.S. agricultural export sector that faces potential ruin if Chinese buyers stay away."

As Tariffs Send Coffee Prices Soaring, Some In Congress Are Brewing Up A Solution - Kelly Phillips Erb, Forbes. "Currently, however, coffee is still subject to tariffs of up to 50%, as are other Brazilian imports, such as beef, sugar, soybeans, and oranges. Notably, while many countries targeted by the tariffs have a trade deficit with the US, Brazil does not."

Who Has the Authority to Levy Tariffs? - Alex Durante, Tax Policy Blog:

A Supreme Court decision permanently enjoining the IEEPA tariffs would provide immediate relief to businesses and consumers and would hamstring the President’s ability to impose tariffs this broad in scope.

However, the President still has too much power to unilaterally impose tariffs because of Congressional legislation granting this authority, and the statutes themselves could benefit from clearer definitions on exactly what constitutes a “national security threat” or a “serious injury” to industry. Altogether, Congress should wrest back its trade authority from the President and resume its role in in levying taxes such as tariffs, as outlined in the Constitution under Article I.

Taxed in the USA

Former IRS Chief Backs Expats’ Bid for Residency-Based Taxation - Jonathan Curry, Tax Notes ($):

Residency-based taxation has a new backer: the 49th commissioner of the IRS.

U.S. citizens living abroad face myriad headaches trying to comply with the United States’ nearly unique income tax requirements, according to former IRS Commissioner Charles P. Rettig and his former top aide, Tom Cullinan.

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U.S. citizens who live or travel extensively abroad are generally required to file U.S. income tax returns and report income even if they didn’t earn any U.S.-based income, although exclusions and credits are available. A taxpayer letter posted by Tax Fairness for Americans Abroad argues that it isn’t the tax burden itself so much as the reporting compliance that beleaguers nonresident citizens.

Modernizing our tax system: A matter of fairness for Americans abroad - Charles Rettig and Tom Cullinan, Tax Fairness For Americans Abroad:

The complexity of their lives is compounded by an additional obstacle: the Foreign Account Tax Compliance Act, or FATCA. Enacted in 2010 to combat offshore tax evasion, FATCA requires foreign banks to report information about U.S. account holders to the IRS. While well-intentioned, its implementation has had deeply unfair consequences for ordinary Americans abroad.

Since the enactment of FATCA, we’ve encountered many individuals who have been mostly unable to obtain common banking services in the country of their residence, which just happens to be outside the United States. It is not uncommon for foreign banks to decline to serve U.S. citizens, fearing penalties or regulatory headaches. U.S. citizens are often unable to open a savings account, take out a mortgage, or buy life insurance in the countries where they live and work. FATCA, meant to promote transparency, has ended up creating exclusion.

Love, Actually

Cross-Border Couples Must Learn to Navigate Tax Planning Traps - Sofia Larrea, Bloomberg ($):

While once uncommon, cross-border families now constitute a significant portion of cross-border tax filers. For tax practitioners, this translates into a growing need to reconcile US federal tax rules with foreign marital property systems—particularly where community property law collides with Section 879 of the tax code.

This comes down to one recurring dilemma: Should a US spouse report only half the couple’s earnings, leaving the other half to a non-US spouse?

In community property jurisdictions, the answer is yes. But the IRS’s answer, found in Section 879, is an emphatic no—and that “no” creates planning traps every practitioner must navigate.

OB3 and You

How the New Tax Law Can Drive Your Bill to $0 - Richard Rubin and Ashlea Ebeling, Wall Street Journal:

Favored groups, such as tipped workers, senior citizens and employees with overtime pay, will benefit in particular. They will receive new breaks on top of existing deductions and credits. No exotic tax planning necessary.

We are going to show you some plausible paths to zero, using examples of a married couple earning $100,000 with two children; a single waitress with one child; and a senior couple with several sources of income.

Because many changes are retroactive to Jan. 1, most taxpayers will see the benefits when they file their taxes in early 2026. Some people who expect to pay less in taxes may consider withholding less from their paychecks now to recognize the benefit earlier.

Blogs and Bits

Nigerian national gets 8 years for scheme to defraud elderly - Kay Bell on Substack. "One of the key lies told victims was that before they could receive their purported inheritance, they had to send money for delivery fees, taxes, and other payments to avoid questioning from government authorities."

Proposed Regs Provide Guidance on New Qualified Tips Deduction - Parker Tax Pro Library. " The proposed regulations provide that only occupations included in the List of Occupations that Receive Tips are eligible for the deduction under Code Sec. 224(a)."

OBBBA Update: Preliminary job list for the “no tax on tips” provision and the new Schedule 1-A - Jill Kenady, Tax School Blog. "Note: This exclusion applies to both employees and self-employed individuals in qualifying occupations."

Tax Obscura: Personal Holding Companies

Among the weird land mines buried in obscure corners of the tax law, the Personal Holding Company Tax is one that gets stepped on more than people realize.

The tax was enacted in the 1930s when individual tax rates far exceeded corporate rates, and when the current double-tax regime for corporate taxes (one tax when the income is earned, and a second when shareholders get dividends or sell shares) had yet to solidify.

The 20% PHC tax applies to C corporations when certain types of income - dividends, interest, and certain rents and royalties - exceed 60% of "adjusted ordinary gross income" of a closely-held corporation. It applies in addition to the regular 21% corporation income tax. A corporation is "closely held" for this purpose when five or fewer individuals own more than half the shares of the corporation, after applying family and controlled entity attribution rules. An exception covers banking and lending businesses.

In the modern tax world, it tends to apply accidentally. For example, a corporation may discontinue its business and invest in securities, rather than liquidate. It also shows up in farm country when C corporation farm land has been sold or converted to cash rental.

Weirdly, the PHC tax can apply if a closely-held consolidated return group has an otherwise inactive corporate subsidiary with investment income.

Arguably the PHC tax is a relic that no longer serves a useful purpose. Even so, it's still there, ready to trigger an unpleasant tax surprise.

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Tax News & Views Will Not Podcast the Shutdown Roundup

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Joe B. Kristan, CPA