Key Takeaways
- Worries over more IRS budget cuts.
- IRS IT overhaul set to finish by 2028.
- Delaware's inactive brokerage account grabbing.
- Capital gain deferral changes spur interest in C corporations.
- Bessent: tariff refunds no problem.
- Paying like the Danes.
- National Rubber Ducky Day.
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Proposed IRS Funding Cut Draws Concern From Tax Watchers - Cady Stanton and Benjamin Valdez, Tax Notes ($):
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Specifically, the proposal threatens to reduce the IRS’s annual enforcement budget by $439 million and the operations support budget by $941 million. While the IRS was granted extra enforcement funds under the Inflation Reduction Act, most of it was clawed back by Congress.
The budget cuts would also follow a year of deep staff reductions at the IRS, which has lost about a quarter of its workforce since January 2025.
IRS Has Money in the Bank to Cushion $1.1 Billion Proposed Cut - Doug Sword, Tax Notes ($):
More than 80 percent of the IRS cut would be to the newly created technology and operations unit, which appropriators agreed to form by merging the OS [operations support] and business systems modernization (BSM) segments. The combined unit would be cut by $941 million, or 23 percent.
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The impact of the proposed cuts — particularly for the technology and operations account — is unclear since 94 percent of the remaining $21.7 billion in unspent funds from the Inflation Reduction Act’s $80 billion in 10-year IRS funding is earmarked for OS and BSM. As of September 30, 2025, there was $18.6 billion in the OS fund and $1.9 billion in the BSM fund.
IRS IT overhaul set to finish by 2028, former official says - Martha Waggoner, The Tax Adviser:
When asked how close the IRS was to modernization of its computer systems, Faulkender replied:
“I will give you the same line that I gave a number of times when I was acting commissioner. For 35 years, the IRS was five years away from its IT modernization. We will not say that in the 36th year. The plan was to get it done by the end of this term, so by 2028.”
This item is interesting:
Think of the savings on purchases of COBOL for Dummies.
Brokerage Account Disappeared? Look in Delaware
If Your Investment Mode Is 'Buy and Hold,' Beware of Delaware - William Hoke, Tax Notes ($):
Something similar happened to Walter Schramm’s Amazon shares, which the Italian resident bought in the 1990s for $6,000. Delaware liquidated them two years later for $8,000. Schramm now claims he’s out almost $100,000 as a result. Rene Borquez, a resident of Chile who died in 2006, held a smorgasbord of securities that the state confiscated and sold for $2.5 million, far less than their value when his estate eventually learned about the sale.
What’s going on here? Delaware, which incorporates businesses like Monaco grants tax residency to the rich, has led the recent charge of revenue-hungry U.S. states to amend their unclaimed property laws to escheat brokerage accounts that they deem to be “inactive.” That controversial designation, together with shorter dormancy periods, marks a sharp departure from the long-standing “returned mail” requirement that most states previously observed before taking custody of property they deem abandoned.
Related: Eide Bailly Global Mobility Services.
Sec. 1202: Catalyst for a C Corporation Revival?
Expanded Tax Break in GOP Law Has Startups Talking Restructuring - Erin Schilling, Bloomberg ($):
The Section 1202 qualified small business stock gain exclusion allows founders and early investors to avoid capital gains taxes on sales of certain stock. The 2025 Republican tax-and-spending law allows taxpayers to reap some of that benefit if the stock is held for at least three years, instead of more than five.
The new law also allows for larger businesses to qualify—those with $75 million or less in gross assets, up from $50 million—and increased the cap on the break from $10 million to $15 million. The changes apply to stock issued or acquired after July 4. 2025, the date President Donald Trump signed the law.
The article notes that service businesses are ineligible for the Sec. 1202 break. Also excluded are businesses in farming, finance businesses, mining, and hospitality.
Tariffs: Hello, Iran. Bessent Says They Can Do Refunds.
U.S. to Impose 25% Tariff on Countries Doing Business With Iran, Trump Says - Gavin Bade and Lynn Cook, Wall Street Journal:
The president called the order “final and conclusive” but didn’t detail which legal authority would underpin the tariffs, and no executive actions on the matter were immediately posted on the White House website.
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It remains unclear whether the 25% tariff would be added to existing duties paid by Iran’s economic partners.
Bessent: Covering tariff refunds wouldn’t be a ‘problem’ for Treasury - Ryan Mancini, The Hill:
The Treasury has $774 billion on hand, more than enough to cover any possible refunds, the outlet reported. Bessent noted that the refunds would go [out] over some time if the court rules against the tariffs.
“We’re not talking about the money all goes out in a day,” Bessent said. “Probably over weeks, months, may take over a year, right?”
Don't try that schedule when you owe money to the Treasury.
Tariffs: Who Pays; Price Effects
Who Pays Tariffs? Mostly Consumers, But That Wasn’t Always True - Joseph Thorndike, Forbes:
By October 2025 things were looking different. “Importers now bore only 27 percent of the tariff cost — less than half the estimate for June,” Steil wrote. A slightly higher 18 percent was now borne by exporters, and a much higher 55 percent was being passed on to consumers. The trend seems likely to continue, Steil noted, with consumers eventually shouldering about 67 percent of the tariff burden.
Again, tariffs and inflation - Erica York, Supernormal Returns. "A price level adjustment depends on monetary policy, not the tariff itself, but the adjustment channel does not change the primary effect of tariffs, which is a reduction in real, after-tax income."
How Scandinavia Pays
How Scandinavian Countries Pay for Their Government Spending - Cristina Enache, Daniel Bunn, Sean Bray, Joost Haddinga, Tax Policy Blog:
Scandinavian countries tend to levy top personal income tax rates on (upper) middle-class earners, not just high-income taxpayers. For example, Denmark’s top statutory personal income tax rate of 55.9 percent applies to all income over 1.3 times the average income. From a US perspective, this means that all income over $91,800 (1.3 times the average US income of about $70,630) would be taxed at 55.9 percent.
Transfer Pricing and the Unpriced Transaction
Unpriced Intercompany Relationships: the Audit Dog That Didn't Bark - Chad Martin, Eide Bailly:
Blogs and Bits
Pay your 4th estimated tax amount by Jan. 15 - Kay Bell, Don't Mess With Taxes. "If you must make this January estimated tax payment, the last one for the 2025 tax year, and haven’t yet made arrangements to do so, get to it!"
Kay wisely uses EFTPS, the Electronic Federal Tax Payment System, to make her payment. If you don't have EFTPS, get an Individual Online Account or use one of the other online payment options. Unless, of course, you have a childlike faith in the postal service.
How U.S. Individual Taxpayers Prepare Their Income Tax Returns - James Maule, Mauled Again:
51 percent – paid preparers
42 percent – commercial software
3 percent – filed on paper
2 percent – Free File
1 percent – VITA (Volunteer Income Tax Assistance Program)
1 percent – TCE (Tax Counseling for the Elderly)
0.2 percent – FFFF (Free File Fillable Forms)
0.2 percent – Direct File
Court bars Texas tax preparer from filing returns during 2026 season - Tax Coda. "When a tax preparer repeatedly claims fake credits and deductions and ignores prior IRS penalties, a court can step in and shut the business down, at least temporarily, to protect the tax system."
Remember, too, that preparer fraud can leave the IRS statute of limitations open forever for the clients whose returns were fraudulently prepared.
Maybe he missed the ethics training.
Former IRS Employee Sentenced to Federal Prison for Preparing False Tax Returns - US Department of Justice (defendant name omitted, emphasis added):
According to court documents, Defendant, 63, of San Antonio, owned and operated a tax return preparation business, where he aided and assisted in the preparation of 61 false tax returns on behalf of 13 taxpayer-clients and one undercover agent for tax years 2016 through 2021. Defying IRS regulations, Defendant did not sign any of the returns as a paid preparer. Additionally, the 61 tax returns prepared by Defendant contained false Schedule C losses, unbeknownst to the 13 taxpayer-clients. The 61 violations amounted to a tax loss of $579,682.
Defendant had been employed by the IRS until 1996, when he was arrested and charged with fraud in the Eastern District of California. He pleaded guilty to conspiracy and collusion with another person to defraud the United States and was sentenced on Nov. 6, 2000, to two months in prison.
We can draw some lessons.
First, don't use "ghost preparers" who won't sign your return - no matter how big the refund.
Second, as mentioned above, preparer fraud gives the IRS forever to assess the client returns, even if the client didn't know about the fraud.
Finally, beware the preparer who always gets refunds.
What day is it?
It's National Rubber Ducky Day! The hero we need.
Make a habit of sustained success.
