October 2nd, 2025
September Federal Tax Update
Posted in: Tax Law Tagged: David S. De Jong
Author: David S. De Jong
INDIVIDUALS
Proposed Regulations under Code Section 2024 list the occupations that qualify for the deduction for tips but clarify that mandatory service charges or gratuities on a bill disqualify the deduction unless the customer is given the option of adjusting or removing them; broad categories of types of workers who qualify include those in beverage and food service, entertainment and events, home services, personal services, personal appearance and wellness, recreation and instruction as well as transportation and delivery.
In Buckelew Farm v. Commissioner, 136 AFTR2d 2025 – 5760, the Eleventh Circuit Court of Appeals agreed with the Tax Court that the value of the conservation easement claimed by former Atlanta Braves players Ryan Klesko and John Smoltz was $4.6 million rather than the $47.6 million claimed, rejecting arguments that a residential community could have been built on the property after rezoning; in Jackson Stone South v. Commissioner, TC Memo 2025-96, the Tax Court found that the value of a conservation easement as to 541 acres was limited to $460,000 and not the $19 million that was claimed, adding that the taxpayer partnerships did not demonstrate the claimed presence of rare or threatened species on the property.
The Department of Justice Tax Division per the Senate Finance Committee has notified at least one public corporation and multiple promoters who have been selling nonexistent “sovereign tribal tax credits” that they are under criminal investigation.
RETIREMENT AND ESTATE PLANNING
Final Regulations Under Code Section 401(k) per SECURE 2.0 Act will become effective January 1, 2026, requiring all “catch up” contributions to 401(k) plans for those over age 50 to be made to a Roth as after-tax contributions.
BUSINESS
Proposed Regulations Under Code Section 355 were withdrawn by IRS related to corporate divisions (making advisable a letter ruling before proceeding with a split with guidance set forth in Revenue Procedure 2025-30).
In Savage v. Commissioner, 165 TC No. 5, the Tax Court determined that the QBID deduction based on total wages paid could not include amounts for cannabis businesses disregarded under Code section 280E which disallows deductions for such businesses except for cost of goods sold.
In Young v. Commissioner, TC Memo 2025-95, the Tax Court found, despite substantiation of all examined expenses, that an Oklahoma pecan farm later used for horse training, roping and as an events venue was not an activity engaged in for profit based largely on the lack of an evaluation as to whether a meaningful profit could be made; the couple did not track expenses as to the multiple functions of the form including their personal living expenses.
In Gil v. United States, 136 AFTR2d 2025 -____ , a Pennsylvania Federal District Court concluded that a Wells Fargo Financial adviser was an employee and not an independent contractor despite work flexibility as he was subject to “at will” termination, reviews, policies, supervision, performance goals and mandatory education.
In Revenue Procedure 2025 – 28, IRS explained the choice of a deduction in 2025 or amortization over two years for unamortized domestic research and development costs and set forth the procedures of small businesses filing amending returns back to 2022 in order to deduct expenses which were previously amortized.
In Notice 2025-46, IRS indicated that it would revise regulations on the corporate alternative minimum tax for simplification of the distinction between book income and taxable income.
In Letter Ruling 202539014, IRS denied exempt states under Section 501(c) (4) as a social welfare organization to a company formed to educate the public on how to navigate the tax law and employing attorneys and CPAs, as most of its income came from servicing paying customers.
PROCEDURE
In Gottesman v. Commissioner, TC Memo 2025-94, the Tax Court found that a physician was liable for the civil fraud penalty based on his failure to file returns, failure to cooperate, holding assets in the names of others and submission of false returns.
In Hitchcock v. Brody, 136 AFTR2d 2025 – ___, an Ohio Federal District Court held that an IRS tax lien under state law did not attach to property sold in a foreclosure sale to a third party but where the seller continued to live in and maintain the property, noting the lack of an equitable interest in the absence of future ownership.
In United States v. Phillips, 136 AFTR2d 2025 -___, a New York Federal District Court held that an IRS tax lien has priority over a county’s subsequent property tax lien pursuant to the Federal Debt Collection Procedures Act (FDCPA).
In United States v. Griggers, 136 AFTR2d 2025 – ___, a Georgia Federal District Court allowed IRS to foreclose on a principal residence of an individual who owed almost $1 million in back taxes and additions.
In Notice 2025-53, IRS extended certain filing and other deadlines due to be performed subsequent to September 30, 2025 until no sooner than September 30, 2026 for those residing in or whose business is situated in Israel, the West Bank or Gaza.
