Articles

December 30th, 2025

December Federal Tax Update

Posted in: Tax Law    Tagged: David S. De Jong

Author: David S. De Jong

INDIVIDUALS

Final Regulations under Code Section 139E provide guidance on general welfare benefits received by Native Americans pursuant to a Tribal Government program, excluding payments from income if they do not discriminate in favor of the governing body and are not lavish or extravagant and not compensation for services (other than for participation in cultural or ceremonial activities).

Proposed Regulations under Code Section 163 clarify that the $10,000 above the line deduction for interest paid on new personal vehicles is on a per return basis (such that marrieds filing separately can get up to $20,000), that there must be greater than 50 percent personal use, that the deduction can be claimed for more than one eligible vehicle and that leased vehicles qualify only if they are akin to a purchase under both federal tax law and state law.

In Reynolds v. United States, 136 AFTR2d 2025 -___, a New York Federal District Court rejected the claim of the owner of an 8-year old golden retriever that the dog could be claimed as a dependent, rejecting claims of violation of equal protection and due process.

In Barney v. Commissioner, TC Memo 2025-133, where five for profit colleges were transferred to a nonprofit, allegedly at less than fair market value, the Tax Court determined the value of the donation of the excess at $33 million and not $181 million.

RETIREMENT AND ESTATE PLANNING

In Estate of Spenlinhauser v. Commissioner, TC Memo 2025-134  the Tax Court imposed personal liability where the Executor closed out the estate by not filing the required estate tax return and distributing to the beneficiaries.

Notice 2025-68 provides a general overview of how Trump Accounts will work including various sources of contributions, rollovers and eligible investments which are limited to mutual funds or other exchange traded funds that track an index of primarily US companies.

BUSINESS

Final Regulations under Code Section 7701 provide that entities that are wholly owned by Indian tribes and incorporated under their laws are not generally recognized as separate entities for federal income tax purposes but are recognized for employment tax purposes.

In National Small Business United v. Department of Treasury, 136 AFTR2d 2025 -__, the Eleventh Circuit Court of Appeals lifted a stay imposed by an Alabama Federal District Court which had blocked enforcement of the Corporate Transparency Act against members of the National Small Business Association(the Act is being enforced under current policy only in regard to foreign citizens and foreign companies).

In Temnorod v. Commissioner, TC Memo 2025-127, the Tax Court stated that payments of a preceding owner’s obligations by a purchaser are capital in nature and that the capitalization rules override those regarding deductions.

In Letter Ruling 202549015 IRS denied 501(c) (3) status as an educational organization to a group of female attorneys devoted to improvement of the law, the legal system and the administration of justice by supporting female judges and civil litigators as these activities were found to serve the private interest rather than the public interest.

PROCEDURE

Proposed Regulations Under Code Section 6015affecting Innocent Spouse claims were withdrawn without clarity as to the full effects; the Proposed Regulations offered procedural guidance for the three types of relief, the application of credits and refunds, the ties to community property laws and the 2-year rule for claiming equitable relief from the date of the first targeted collection activity.

In Chernomordikov v. Commissioner, TC Memo 25-129, the Tax Court concluded that an immigrant with a high school education owed over $9 million in taxes for three years from his online electronic sales; however, the Court declined to impose a civil fraud penalty due to his lack of education and the failure of the Government to obtain trial testimony of the accountant.

In Riddle Aggregates v. Commissioner, 165 TC No. 12, the Tax Court held that a jury trial is not required to sustain civil fraud penalties as the Seventh Amendment “does not apply to suits against the sovereign”;

In Jenner v. Commissioner, 136 AFTR2d 2025 -___, the Eleventh Circuit Court of Appeals agreed with the Tax Court that an FBAR penalty is not subject to Tax Court review in a Collection Due Process (CDP) hearing as FBAR penalties are not taxes and thus litigation must be in Federal District Court or in the US Court of Claims.

In Hilton v. United States, 136 AFTR2d 2025 -___, a New York Federal District Court backed up the IRS dismissal of a claim for refund that was put together on incorrect lines and did not specifically request a refund or an amendment to the original tax liability, the Court saying that a refund claim must allow IRS to understand and examine the merits to be “duly filed” for the Government to waive sovereign immunity.

In Kwong v. United States, 136 AFTR2d 2025 -6609, the Court of Federal Claims ruled that the two-year statute of limitations for refund claims is computed from the extended filing deadlines that applied during the COVID pandemic.

In United States v. Madison, 136 AFTR2d 2025 -__, the Florida Federal District Court ruled that employees of a tax preparation group that allegedly enhanced refunds of their clients were not entitled to a jury trial under the Seventh Amendment in a disgorgement claim as the claim is equitable and not legal in nature.

In Mission Organic Center v. Commissioner, 165 TC No 13, in a decision reviewed by the full bench and supported by a 16-3 majority, the Tax Court determined that the IRS rejection of an Offer in Compromise from a cannabis business based on reasonable collection potential that disregarded all expenses except cost of goods sold was within the discretion of the IRS.

In Brown v. Commissioner, TC Memo 2025-126, the Tax Court ruled that the statute deeming an Offer in Compromise to be accepted if not rejected within 24 months does not apply to a submission that is returned as not processable.

In Information Release 2025-124, IRS announced and requested public comments on changes to its voluntary disclosure program including a requirement of admitting to specific acts of fraud (the reaction from practitioners has been totally negative).