Business

Tax Breaks: The Welcome To The Not-So-Usual 2025 Tax Season Edition

January 26, 2025

Tax season could be unpredictable.

getty

Most years, the rush to open tax season has the same energy–like a kid on the first day of school.

Not this year.

Even though tax season opens on Monday, January 27, 2025, there are very few headlines talking about it–and the IRS news website, normally a flurry of activity in the run-up to the open, hasn’t been updated in over a week. It’s clear that things are changing, and this tax season could be very different–and difficult.

And yes, I realize this is the exact opposite of what I’ve been saying. I didn’t think there would be any immediate impact on the tax filing season following the change in administration from the Biden to the Trump administration. We knew there would be a change in tax policy (including a likely pullback in enforcement efforts), but I didn’t expect any real changes that would impact this tax season. That turned out to be wrong.

As a refresher, late last week, IRS Commissioner Werfel announced that his last day at the agency would be Monday, January 20, 2025. This week, Trump officially nominated Congressman Billy Long, who has no training in tax, accounting or law, to take his place (you can read more about Long here.) (☆)

While taxpayers await the outcome of Long’s confirmation hearing, Deputy IRS Commissioner Douglas O’Donnell stepped in as Acting IRS Commissioner (O’Donnell has served as Deputy since early 2024). We expected to see some kind of welcome or other introductory message from O’Donnell but that hasn’t happened yet.

It may have been that the agency was a little distracted. President Donald Trump signed dozens of executive actions on his first day in office, including some that could impact the IRS–and your taxes. Two executive orders focused on federal employees, including the imposition of a hiring freeze and a requirement that federal government employees return to the office.

Trump signed an executive order (☆) requiring federal employees to return to work “as soon as practicable” on a full-time basis. The federal government is the nation’s largest employer, with over two million civilian employees. Of those jobs, 109,268 employees work under the Department of the Treasury. The IRS is the largest agency in the department, with 82,990 full-time equivalent (FTE) positions in fiscal year 2023.

The move to force a return to office could send federal workers, including IRS employees, scurrying for the door.

Trump also issued an order freezing hiring for most federal agencies. (The hiring freeze does not apply to the military or “immigration enforcement, national security, or public safety.”)

The freeze is intended to be temporary—except for the IRS. Under the executive order, within 90 days, the Director of the Office of Management and Budget (OMB), in consultation with OPM and DOGE, must submit a plan to reduce the size of the government’s workforce. Once the plan is submitted, the freeze will expire for all agencies other than the IRS. With respect to the tax agency, the hiring freeze will remain in place until the Secretary of the Treasury, in consultation with OMB and DOGE, “determines that it is in the national interest to lift the freeze.”

Before the announcement, with funding from the Inflation Reduction Act, the IRS had been actively hiring. With the IRS planning to open tax season next week, a hiring freeze could have an immediate impact. Taxpayers may feel the pinch—it’s likely that with reduced staff, tax returns could take longer to process, and taxpayers may have to wait to see their refunds.

Tax policy was also a hot topic this week. Trump signed a presidential memorandum (☆) directing members of his administration to notify the Organisation for Economic Co-operation and Development (OECD) that any commitments made by the prior administration relating to the global tax deal were no longer valid.

Here’s what he was referring to. The OECD, which includes the U.S., is made up of 38 member countries. It believes that the current system gives multinational companies—those that can easily move their operations and property across borders—an unfair advantage over domestic businesses. The OECD also believes that when taxpayers see multinational corporations avoiding paying taxes, even if it is done legally, it undermines all voluntary compliance.

For years, these challenges have been broken down into two sets of talking points, referred to as Pillars One and Two. Pillar One focuses on where tax should be paid, while Pillar Two examines the amount of tax to be paid.

Today, 140 countries have reached agreements on these issues—until recently, that included the U.S.

As part of the Pillar One agreement, large multinational companies must pay taxes in the countries where they operate, not just where they have their headquarters. This would prevent companies from opening headquarters in lower-tax countries simply to shift profits.

The Pillar Two agreement would establish a global minimum corporate tax rate of 15%. The current corporate tax in the U.S. is 21%. In contrast, Ireland’s current corporate tax—where many U.S. companies like Apple had previously established headquarters—is just 12.5%.

Despite the order, there’s no immediate change here, but it does signal a shift in U.S. sentiment. Since the U.S. is a big player in the global economic scene, this could cause real problems for the OECD—and U.S. foreign relations—moving forward.

A second presidential memorandum calls for implementing an “America First trade policy.” In this (much lengthier) directive, Trump directs his advisors to take action to establish “a robust and reinvigorated trade policy.” Among other things, this included directing the Secretary of the Treasury to investigate the causes of trade deficits, recommend solutions, and examine the creation of a new agency—the External Revenue Service (ERS). The ERS would collect tariffs, duties, and other foreign trade-related revenues.

The same also requires the Secretary of the Treasury to investigate whether any foreign country subjects U.S. citizens or corporations to discriminatory or extraterritorial taxes. If so, section 891 of the tax code allows the President to double U.S. tax rates due by citizens and corporations of those countries, subject to certain thresholds.

Another executive order declared the end of birthright citizenship in circumstances where an individual is born within the U.S., but neither of the parents are lawful permanent residents or U.S. citizens. That order has far-reaching implications, including from a tax and estate planning perspective since the tax code’s treatment of U.S. citizens and permanent residents versus non-U.S citizens and non-permanent residents is quite significant. Legal challenges have already been filed to halt implication–but you can bet that tax and estate planners will be watching this one closely.

If that feels like a lot of news, you’re right. But at the end of the week, advisors and businesses got even more news: the Supreme Court has ruled—for now—on the Corporate Transparency Act (CTA), granting the government’s application (☆) for a stay of a Texas ruling that had blocked the beneficial ownership interest (BOI) reporting requirements.

But that wasn’t all. While the High Court was considering the request, another Texas court got into the act (with a different result). On January 7, 2025, a U.S. District Judge in Texas granted a preliminary injunction and stay that would prohibit FinCEN from enforcing the new law. In that case, Smith v. U.S., Judge Jeremy D. Kernodle enjoined the government from enforcing the CTA against the Plaintiffs and their related entities while the lawsuit continues.

The ruling, however, was bigger than that—the injunction purports to apply nationwide. In Smith, the plaintiffs moved for a stay (there’s that word again) of the reporting rule. Judge Kernodle granted that motion, staying (temporarily stopping) the effective date of the reporting rule (the BOI rules found at 31 C.F.R. § 1010.380) while the lawsuit is pending.

FinCEN acknowledged the Smith ruling on Friday, posting on its website that a “separate nationwide order issued by a different federal judge in Texas (Smith v. U.S. Department of the Treasury) still remains in place” which means that “reporting companies are not currently required to file beneficial ownership information with FinCEN despite the Supreme Court’s action in Texas Top Cop Shop.”

Bottom line: The legal drama continues, but businesses don’t need to rush to file just yet.

(Just before the ruling, an episode of Tax Notes Talk focused on where the CTA stands in light of the recent litigation regarding its constitutionality. The transcript is here.)

And speaking of podcasts, I have some news: Beginning next week, our Tax Breaks podcast will launch. It will have the tax news and info you’ve come to expect from the newsletter, plus some special guests and value adds. I’ll pass along the details as soon as I have them.

Until then, enjoy your weekend,

Kelly Phillips Erb (Senior Writer, Tax)

Articles marked with (☆) are premium content and require you to log-in with your Forbes membership credentials. Not a subscriber yet? Click here to sign up.

Questions

This week, a reader asked:

How do I claim voluntary child support I’ve paid on my taxes?

Child support payments are tax-neutral. That means there are no federal income tax consequences for making or receiving child support payments—no tax deduction for paying child support and no reportable income for receiving child support.

Alimony, however, is a bit different. For decades, alimony was tax deductible. However, as a result of 2017 tax reform, alimony is no longer tax deductible for agreements and orders signed on or after January 1, 2019—that also means that it will not be taxable to the recipient. If you have an older agreement, the tax treatment stays as is unless you modify the agreement after January 1, 2019, by explicitly referencing the 2017 law.

—

Do you have a tax question or matter that you think we should cover in the next newsletter? We’d love to help if we can. Check out our guidelines and submit a question here.

Statistics, Charts, And Maps (Oh My!)

The IRS has announced that tax season will open on Monday, January 27, 2025.

The date marks when the IRS will begin accepting paper and electronic tax returns. The agency expects more than 140 million individual tax returns to be filed by Tax Day, April 15, 2025. More than half of all tax returns are expected to be filed this year with the help of a tax professional.

Last year, the IRS received 15,318,000 individual tax returns in the first week of processing, nearly a 20% drop from the same time period in the previous year. You can see what the opening week of tax season has looked like year over year here:

Tax filing statistics by year.

Kelly Phillips Erb

(Note that 2021 was something of an anomaly. Due to the pandemic, the IRS tax filing season opened later than usual, which means that taxpayers who hoped to file earlier had to hold their returns.)

I’ll be following and sharing the filing stats for 2025–including average refund amounts and e-filed returns–throughout the season.

A Deeper Dive

Final regulations clarify (to a certain extent) the tax implications for U.S. persons receiving certain gifts and bequests from former U.S. citizens and long-term resident green card holders.

getty

Seventeen years after Congress enacted section 2801 of the tax code, the IRS has (finally) released final regulations. The regulations clarify (to a certain extent) the tax implications for U.S. persons receiving certain gifts and bequests from former U.S. citizens and long-term resident green card holders.

Section 2801 imposes a transfer tax (currently at the rate of 40%) on the value of “covered gifts” and “covered bequests” received by U.S. persons (citizens or residents) from “covered expatriates.” Covered expatriates are individuals who meet certain criteria and who renounce U.S. citizenship or abandon long-term resident status. For green card holders, a tax expatriation can happen inadvertently when challenged at the border about meeting requirements for continued U.S. permanent residence.

If a U.S. citizen or resident received a gift or bequest from a foreign person after June 17, 2008, they may be required to file Form 708 and pay the section 2801 transfer tax. If that sounds unfamiliar, it’s because it’s a new form–the IRS has not yet made Form 708 available.

The burden of determining whether the transfer is subject to the transfer tax under section 2801 falls on the U.S. recipient. With that in mind, U.S. persons receiving gifts or inheritances from foreign persons should consult with tax professionals to navigate these rules. Failure to plan properly could result in unintended tax burdens.

Tax Filings And Deadlines

📅 January 27, 2025. Tax season opens! The IRS will begin accepting paper and electronic tax returns (for individual taxpayers).

📅 February 3, 2025. Due date for individuals and businesses affected by Hurricanes Beryl and Debby (more info here (☆) and here (☆)), those in South Dakota affected by severe storms, straight-line winds and flooding that began on June 16, 2024, taxpayers in Puerto Rico affected by Tropical Storm Ernesto, and those individuals and businesses in Connecticut and New York affected by severe storms and flooding from torrential rainfalls that began on August 18, 2024.

📅 April 15, 2025. Due date for most taxpayers to file an individual tax return—or apply for an extension.

📅 May 1, 2025. Due date for individuals and businesses in the entire states of Alabama, Georgia, North Carolina, and South Carolina and parts of Florida, Tennessee, and Virginia affected by severe storms and flooding from Hurricane Helene (☆) and Hurricane Milton.

📅 September 30, 2025. Due date for individuals and businesses impacted by terrorist attacks in Israel.

📅 October 15, 2025. Due date for individuals and businesses affected by wildfires and straight-line winds in southern California that began on January 7, 2025. Currently, individuals and households that reside or have a business in Los Angeles County qualify for tax relief. The same relief will be available to any other counties added later to the disaster area.

Tax Conferences And Events

📅 February 19-21, 2025. ABA Tax Section 2025 Midyear Tax Meeting. JW Marriott Los Angeles L.A. Registration required.

📅 May 13-14, 2025. National Association of Enrolled Agents 2025 Capitol Hill Fly-In, Washington, DC. Registration required (NAEA members only).

📅 July 21-23, 2025. National Association of Tax Professionals Taxposium 2025, Caesars Palace, Las Vegas. Registration required.

Trivia

In what year did the IRS first accept e-filed returns?

A. 1981

B. 1986

C. 1992

D. 1997

Find the answer at the bottom of this newsletter.

Positions And Guidance

The IRS has published Internal Revenue Bulletin: 2025-4.

The American Bar Association (ABA) Section of Tax has submitted written comments to the IRS concerning the Corporate Alternative Minimum Tax under sections 55(b)(2)(A), 56A, 59(k), and 59(l). The comments are in response to guidance issued by IRS, including technical corrections to the Proposed Regulations published on December 26, 2024. The Section made recommendations focused on corporations and consolidated groups, bankrupt and insolvent companies, international taxation, financial products, insurance companies, and certain deferral and exclusion provisions. (The Section intends to submit a separate comment letter addressing recommendations relating to partnerships and tax accounting issues.)

Noteworthy

KPMG announced that Scott Flynn will become the firm’s Global Head of Audit on April 1, 2025. Flynn has been Head of Audit, KPMG, in the U.S. since 2020.

Skadden welcomed Patrick O’Gara as a partner in their Tax Group in the London office. O’Gara was previously a partner at another global law firm in the corporate tax practice, where he focused on U.K. and international tax planning and defense matters for multinational groups and private equity investors. He will also lead Skadden’s Tax Controversy Group in London.

Inflexion, a European mid-market private equity firm, announced that it has agreed on a minority investment in Baker Tilly Netherlands, a leading accountancy and advisory firm. The investment is being made by Partnership Capital III, Inflexion’s dedicated minority fund. (For more on private equity in accounting, see this previous article. (☆))

KPMG hopes to expand into legal services. KPMG Law US, a subsidiary of KPMG US, applied to the Arizona Supreme Court to operate as an alternative business structure. Arizona is the first state in the country to do away with rules barring non-lawyers from co-owning law firms.

Confidence among accountants and chief financial officers (CFOs) has fallen sharply, according to the Global Economic Conditions Survey (GECS), the largest regular economic survey of accountants around the world. The survey of over 1,800 accountancy and finance professionals is carried out jointly by ACCA (the Association of Chartered Certified Accountants) and IMA (Institute of Management Accountants). The confidence level is now at its lowest since the second quarter of 2020.

A bill that phases out the state income tax over a decade has passed the Mississippi House of Representatives. House Bill 1 now goes to the Senate for consideration.

—

If you have career or industry news, submit it for consideration here or email me directly.

In Case You Missed It

Here’s what readers clicked through most often last week:

You can find the entire newsletter here.

Trivia Answer

The answer is (B).

Workers at the Internal Revenue Service office in Ogden enter data from tax forms in computers. (Photo by © Roger Ressmeyer/CORBIS/VCG via Getty Images)

Corbis/VCG via Getty Images

In 1986, an IRS pilot program accepted 25,000 e-filed tax returns. Only five tax preparers in three metropolitan areas—Cincinnati, Raleigh-Durham, and Phoenix—agreed to participate. At the time, the system could only process returns that were due refunds.

By 2011, 100 million returns were e-filed in one filing season, with the cumulative total exceeding one billion returns. That year, approximately three out of every four individual tax returns were filed electronically.