End-of-Year Legal Challenges Set Stage for 2025 Tax Season
The close of 2024 brought two significant legal challenges that could reshape the 2025 tax landscape. The first involves the IRS’s final regulations on information reporting for Decentralized Finance (DeFi) participants. A lawsuit filed in Texas alleges violations of the Administrative Procedures Act and the Constitution, arguing that the regulations infringe on privacy and due process rights while exceeding the IRS’s authority. This legal action was anticipated, as the regulations seemingly attempted to preempt challenges based on the Supreme Court’s Loper Bright decision, which restricts judicial deference to federal agencies’ statutory interpretations.
The second challenge escalates the ongoing drama surrounding beneficial ownership information (BOI) reporting mandated by the Corporate Transparency Act (CTA). The Department of Justice filed an application with the Supreme Court to stay a nationwide preliminary injunction blocking enforcement of the CTA. The DOJ argues that acts of Congress should generally remain in effect pending a final court decision, echoing arguments previously made to the Fifth Circuit. The Supreme Court’s decision regarding this stay will significantly impact the future of BOI reporting and the CTA’s enforcement.
Tax Season Preparations and Assistance Programs
As 2025 begins, tax season approaches, and taxpayers should expect to receive tax forms, including Form 1099s. The IRS matches these forms to Social Security numbers, enabling them to easily identify unreported income and issue tax bills. Taxpayers are urged to remember eligible tax credits and deductions, as many under-deduct and leave money on the table. The IRS has identified significant gaps in claiming the Earned Income Tax Credit (EITC), the child tax credit (CTC), and education credits. In particular, education credits represent a substantial $6.3 billion estimated credit gap across six million taxpayers, highlighting a need for increased awareness and utilization.
To assist taxpayers, the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs are actively recruiting volunteers. These programs provide free tax preparation assistance to low-to-moderate-income taxpayers, seniors, individuals with disabilities, those with limited English proficiency, and Native Americans. The IRS provides free training, and volunteers can serve in various roles, including interpreters, greeters, and computer specialists. During the 2024 filing season, VITA/TCE programs supported over 9,000 sites with more than 72,000 volunteers, preparing and filing over 2.7 million federal tax returns nationwide.
Reflecting on 2024’s Top Tax and Accounting Stories
The year 2024 was eventful in the tax and accounting world. Beyond the late-year legal battles, numerous significant developments unfolded, from a pivotal Supreme Court tax case to the increasing influence of private equity in the accounting industry. Tax Notes reporters have highlighted memorable stories, ranging from "pig butchering" scams to unusual late-filing excuses.
Looking ahead to 2025, significant changes are anticipated as several provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire. With a new administration and Congress, the future of these expiring provisions remains uncertain. However, statements from President-elect Trump and Republican leaders offer some clues about potential tax policy directions in the coming year. The confluence of these factors suggests an atypical and potentially transformative tax year ahead.
Form 1099-K Reporting Threshold Changes and Clarifications
The IRS has announced adjustments to the reporting requirements for Form 1099-K, which pertains to third-party network transactions. Initial estimates projected a significant increase in the number of forms issued, but delayed implementation of the $600 reporting threshold, initially enacted under the American Rescue Plan of 2021, has reduced that number. Previously, Form 1099-K reporting was triggered by payments exceeding $20,000 and over 200 transactions. However, the IRS has designated 2024 as a transition year, requiring reporting only for taxpayers receiving over $5,000, regardless of the number of transactions. This threshold will be lowered to $2,500 in 2025 before finally reaching the $600 level in 2026. This phased approach aims to smooth the transition and provide taxpayers time to adjust to the new reporting requirements.
A common question arises regarding the deductibility of paid-off tax debts. While resolving a significant tax debt is commendable, the payments themselves are not deductible on federal income tax returns. Federal income taxes are generally not deductible. However, delinquent state and local taxes paid during the year may be deductible on Schedule A for itemizers, subject to a combined limit of $10,000 ($5,000 if married filing separately). This limit is scheduled to sunset at the end of 2025, potentially leading to future changes in deductibility rules.
Upcoming Tax Deadlines, Conferences, and Professional Updates
Several key tax deadlines are approaching, including extended deadlines for taxpayers affected by natural disasters such as Hurricanes Beryl, Debby, Helene, and Milton, as well as severe storms and flooding in various states. Additionally, an extended deadline applies to those affected by recent terrorist attacks in Israel. The IRS provides detailed information and guidance on these specific disaster-related tax relief provisions.
Various tax conferences and events are scheduled for the coming months, offering opportunities for professional development and networking. These include the ABA Tax Section 2025 Midyear Tax Meeting, the National Association of Enrolled Agents 2025 Capitol Hill Fly-In, and the National Association of Tax Professionals Taxposium 2025.
In industry news, BeachFleischman PLLC, Arizona’s largest locally-owned public accounting firm, has announced the promotion of Mikaela J. Knutson, CPA, to Principal. Knutson specializes in construction industry and employee benefit plans and plays a key role in the firm’s strategic initiatives. The IRS has also issued proposed regulations updating the rules for tax professionals practicing before the IRS, as outlined in Treasury Department Circular 230. These updates aim to clarify and modernize the professional standards for tax practitioners.
