2025: A Year of Reckoning for Taxpayers and the IRS – Navigating a Shifting Landscape
The year 2024 laid the groundwork for significant changes in the relationship between government regulatory bodies and the entities they oversee. The landmark Supreme Court decision in Loper Bright Enterprises v. Raimondo, effectively curtailing the Chevron deference doctrine, has sent ripples through the legal landscape, promising to reshape how agencies like the IRS interpret and enforce regulations. As the new year unfolds, businesses, individuals, and legal professionals are bracing for a period of adjustment and uncertainty as the implications of this decision, and other regulatory shifts, begin to manifest.
The demise of Chevron deference, while not a complete revocation of agency authority, empowers courts to exercise their own judgment in interpreting statutes, rather than automatically deferring to agency interpretations. This shift has profound implications for the IRS, potentially impacting everything from guidance on complex tax issues to the agency’s approach to audits and litigation. Anticipating increased judicial scrutiny, the IRS and other agencies are likely to adopt a more cautious approach to regulatory guidance, potentially leading to a dearth of clarity on critical tax matters. This cautious approach could create a challenging environment for taxpayers, particularly those operating in emerging sectors like digital assets and blockchain technology, who rely on clear guidance to navigate complex tax regulations.
The ripple effects of Loper Bright extend beyond just agency guidance. Tax litigation, both by and against the IRS, is expected to surge. The Supreme Court decision has emboldened taxpayers to challenge IRS interpretations, sensing an opportunity to overturn long-standing practices and potentially secure favorable outcomes. This is evidenced by ongoing legal battles concerning the economic substance doctrine and the powers of bankruptcy trustees regarding tax payments, both of which are poised for appellate court decisions in 2025. These cases, alongside others, will further define the contours of the post-Chevron landscape and will have far-reaching consequences for taxpayers and the IRS alike.
The IRS, armed with significant funding from the Inflation Reduction Act (IRA), is simultaneously preparing for a more assertive enforcement stance. While a portion of the IRA funding remains tied up in Congress, the agency has already begun directing resources towards increased scrutiny of partnerships, corporations, and high-net-worth individuals. The establishment of a new pass-through field unit, specifically tasked with examining partnerships, S-corporations, and trusts, signals the IRS’s intent to focus on areas it perceives as historically under-scrutinized. This, coupled with the potential for additional Congressional funding, promises a more rigorous and potentially more adversarial relationship between the IRS and taxpayers in 2025.
The increased scrutiny is not merely about the quantity of audits; it also signifies a potential shift in the IRS’s approach to enforcement. The agency is expected to adopt more aggressive legal positions, potentially pushing the boundaries of existing tax law. Recent examples, like the inclusion of unasserted penalties in Tax Court proceedings (as seen in Otay Project LP, et al. v. Comm’r), suggest a willingness to test the limits of its authority. This more assertive posture, combined with increased resources, will likely lead to more protracted and costly legal battles, putting even greater pressure on taxpayers to defend their positions.
While the changes on the horizon present significant challenges, they also offer an opportunity to refine and improve the tax system. The increased scrutiny and potential for litigation will expose ambiguities in tax law, forcing courts to provide much-needed clarity. This, in turn, could lead to a more predictable and equitable tax system, ultimately benefiting both taxpayers and the government. However, the path to this improved system will undoubtedly be marked by uncertainty and contention. The year 2025 promises to be a pivotal one, a year of reckoning for taxpayers and the IRS, as they navigate the complexities of a shifting regulatory and legal landscape. The outcome of this period of transition will significantly shape the future of tax enforcement and compliance in the years to come.
