Key Takeaways
- Thoughts on getting ready to file your return.
- IRS faces biggest budget cuts so far this century.
- ACA extended tax credit fight likely to settle this week.
- California billionaire tax proposal spooks Google founders.
- Tax Obscura: the personal holding company tax.
- National Hot Tea Day.
Webinar Alert! Join us on Friday this week for a Tax Update Webinar. This session will feature Alex Parker, our man in D.C., on the current situation in Washington. Also participating are firm experts in accounting methods, international tax, transfer pricing, and information reporting. January 16, 10:30 - 12:30 Central Time. No charge, 2 hours CPE available. Register here.
Tax Season Opens in Less Than Three Weeks - Ashlea Ebeling, Wall Street Journal:
Tax advisers are expecting a rush of early filers because refunds are expected to be higher for many people this year. That’s in part because of last summer’s tax law which added new tax deductions for seniors and people with tip and overtime income.
Many people who live in high-tax states, especially those with home mortgage interest, will see bigger refunds because of a new, higher cap for the state and local tax deduction known as SALT.
If you are planning to file early, a few tips to make things go more smoothly for you and your tax preparer:
- Watch your mail carefully for tax documents, like your 1099s, W-2s, and K-1s. You need all of them before you file. Don't try using pay stubs, bank statements, and the like as "good enough" substitutes.
- Many employers issue W-2s through an online portal. Look there. Same with some other information returns.
- Double-check your estimated payments. "I made all the payments you told me to make" is one of the least reliable statements a taxpayer can make to a preparer. If you don't have one already, get a personal IRS online account, where you can double check what payments the IRS has received in your name.
- Fill out your client organizer, especially the checklist questions. Pay special attention to questions about new investments, cryptocurrency, and foreign accounts.
IRS "Dodges Steep Budget Cuts" But the Cuts Are Still "Biggest Since at Least 2000."
IRS Dodges Steep Budget Cuts in Bipartisan Funding Proposal - Zach Cohen, Bloomberg ($):
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The tax collection agency had faced the threat of steeper reductions under President Donald Trump’s budget request and House Republicans’ initial version of the funding bill. But Senate Republicans argued for a more modest curtailment across the federal government, including at the IRS.
New Budget Bill Would Inflict Biggest Cut on IRS Since at Least 2000 - Doug Sword, Tax Notes ($):
The bill cuts the IRS annual budget to $11.2 billion, 9 percent less than the $12.3 billion agency budget for fiscal 2025. That would be the largest cut to annual appropriations for the agency since at least 2000.
As for the IRS’s divisions: the bill rejects the House’s proposal to flatline spending on taxpayer services, instead boosting that account by $256 million; it rejects the House’s proposal to slash enforcement spending by 45 percent but still cuts that segment by $439 million, or 8 percent; and it abides by both chambers’ wish to cut operations support, reducing that category by $941 million, or 23 percent.
Will This Week Decide the Future of ACA Extended Tax Credits?
Congress braces for decisive week as shutdown nears - Burgess Everett, Semafor:
The recent House passage of a three-year subsidies extension puts pressure on Senate negotiators to seal the deal soon so it could be ready to potentially attach to a must-pass bill (like government funding).
Moderate Republicans Inch Closer to Obamacare Tax Credit Deal - Erin Durkin and Maeve Sheehey, Bloomberg ($):
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Lawmakers will still have to get past a particularly thorny issue as part of negotiations: abortion restrictions. Members coming out of the meeting noted the ACA already has language prohibiting federal funds from going to abortion services, including making insurers collect a separate premium and holding separate accounts for such services.
Capitol Hill Recap: Health Tax Credit Crossovers - Alex Parker, Eide Bailly:
So why hasn’t the agreement happened yet? One hurdle is President Trump. Lawmakers can be hesitant if they’re not sure the president would back them when they’re out on a limb.
But Thursday’s vote showed that many Republicans, though certainly not a majority, are eager to act on this issue regardless of what Trump or the Republican leadership want. They will need to do something quickly to pass a bill before Jan. 15, when open enrollment ends for many of the state exchanges and more complications will arise.
Google "Abandoning California Residency"
Google Guys Say Bye to California - Ryan Mac, Theodore Schleifer and Heather Knight, New York Times:
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In the 10 days before Christmas, an entity connected to Mr. Brin, 52, terminated or moved 15 California limited liability companies that oversee some of his business interests and investments out of the state, according to documents seen by The New York Times. Seven of the companies — including those that appear to manage one of Mr. Brin’s superyachts and his interest in a private air terminal at San Jose’s international airport — were converted into Nevada entities.
Mr. Brin is joining Mr. Page, 52, in reducing his California presence. More than 45 California limited liability companies associated with Mr. Page filed documents last month to either become inactive or move out of the state, according to state records.
California’s divisive plan to tax billionaires - Christopher Grimes, Financial Times:
The prospect of a billionaire tax has shaken up Silicon Valley since it was proposed in late October by the Service Employees International Union-United Healthcare Workers West, a union representing more than 120,000 healthcare workers and patients in California. It is designed as a one-time, 5 per cent wealth tax on individuals in California with a net worth of $1bn or more.
State Tax Insights for the New Year: Key Trends and Strategies for the Year Ahead - Melissa Menter and Colette Sutton, Eide Bailly. "We survived 2025’s whirlwind of tax changes, and we're ready to do it all over again in 2026. While we can't promise fewer surprises, we can promise to keep sharing state tax trends, key developments, and practical tips—and maybe even embrace what this new year has in store."
Related: Eide Bailly State and Local Tax Services.
401(k) Surprises; Trump Account Registration; Taxes and Your Office Computer
Older Americans Making Catch-Up 401(k) Contributions Set for Tax Hit - Anne Tergesen, Wall Street Journal:
“It’s going to materially affect this group of people,” said Matthew Petersen, executive director of the National Association of Government Defined Contribution Administrators. Yet he said few employees know it’s happening.
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The change affects older workers who earned more than $150,000 last year, including retirement contributions.
How to register your child for a Trump account while filing your taxes - Addy Bink, The Hill:
The form requires your information – name, Social Security number, and address – which will establish you as the “responsible party for the Trump account.” Then you’ll need the same information for your child. There is space on the form for two children.
As Tax Season Opens, Be Aware: Your Workplace Devices Aren’t Private - Kelly Phillips Erb, Forbes. "With the tax filing season set to open on January 26th, and more and more do-it-yourself tax filers using online versions of Intuit’s TurboTax, it’s a good time to review the risks of using workplace devices for personal matters—be it taxes, health data, or simply personal emails."
Blogs and Bits
IRS’ Free File program opens Jan. 9; full 2026 tax season officially starts Jan. 26 - Kay Bell, Don't Mess With Taxes. "Business filers, however, must wait a bit longer for official word from Uncle Sam as to when his tax collector will take your filings."
Can a Gambling Session Last a Year? - Russ Fox, Taxable Talk. "We’re left with an inescapable conclusion: Session-based accounting, and keeping good records thereof, is the only way to minimize the damage of the new 90% loss limitation. Using year-long establishment-based results will not work."
Court denies bad-debt and NOL deductions after taxpayer fails to prove loans or timing - Tax Coda. " Filing delays and informal arrangements invite penalties."
Tax Obscura: The Personal Holding Company Tax
In the 1970s it was all the rage to put farmland in C corporations. Changes in the tax law in the 1980s undid most of the reasons for that, but many farmers didn’t get the memo.
Somewhere along the line, their heirs find the price of farmland too attractive, so they sell. But there’s a catch: if they liquidate the corporation, there is another tax on the liquidation gains. So the corporation keeps the cash and hires an investment adviser. The corporation earns investment income at lower corporate tax rates, and everyone lives happily ever after.
Until the IRS assesses the Personal Holding Company Tax.
This Depression-era tax relic was enacted to prevent the use of “incorporated pocketbooks” to shelter investment income at lower corporate tax rates. If a corporation is owned more than 50% by five or fewer individuals, and too much of its income is from interest, dividends, rents, or royalties, “undistributed personal holding company income” is taxed at an additional 20% rate.
In determining whether the 50% ownership test is met, attribution rules treat shareholders as owning shares directly owned by spouses, siblings, ancestors, and descendants. The rules also attribute shares owned by corporations, trusts, and partnerships to their owners.
This tax is often missed by unsophisticated tax preparers and their clients, leading to substantial back taxes, penalties, and interest when the IRS notices. It can be erased by distributing the income to owners, but then they have to pay tax on the dividends or liquidation gains.
The moral? The double-tax trap is a built-in problem for C corporation owners. An S corporation conversion at least five years in advance of an asset sale can greatly ease the ability to liquidate the corporation without a double-tax problem. Planning for the post-sale life of a corporation is a key part of planning for a business sale.
Link: Form 1120, Schedule PH
Additional reading: Beware the personal holding company tax
Related: Eide Bailly Transaction Advisory Services.
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