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IRS Roundup May 15 – June 2, 2025

by , , , and | Jun 5, 2025 | , ,

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for May 15, 2025 – June 2, 2025.

IRS GUIDANCE

May 15, 2025: The IRS issued Notice 2025-29, providing guidance on the corporate bond monthly yield curve, corresponding spot segment rates under Internal Revenue Code (Code) § 417(e)(3), and the 24-month average segment rates under Code § 430(h)(2). The notice also provides guidance on the interest rate for 30-year Treasury securities under Code § 417(e)(3)(A)(ii)(II) (for plan years in effect before 2008) and the 30-year Treasury weighted average rate under Code § 431(c)(6)(E)(ii)(I).

May 15, 2025: The IRS issued Revenue Ruling 2025-12, providing prescribed rates for federal income tax purposes for June 2025, including, but not limited to:

  1. Short-, mid-, and long-term applicable federal rates for June 2025 for purposes of Code § 1274(d)
  2. Short-, mid-, and long-term adjusted applicable federal rates for June 2025 for purposes of Code § 1288(b)
  3. The adjusted federal long-term rate and the long-term tax-exempt rate, as described in Code § 382(f)
  4. The federal rate for determining the present value of an annuity, an interest for life, or for a term of years, or a remainder or a reversionary interest for purposes of Code § 7520.

May 19, 2025: The IRS released Internal Revenue Bulletin 2025-21. It includes Revenue Procedure 2025-19, which provides the 2026 inflation adjusted amounts for Health Savings Accounts (HSAs) as determined under Code § 223, as well as the maximum amount that may be made newly available for excepted benefit health reimbursement arrangements under Code § 54.9831-1(c)(3)(viii). Revenue Procedure 2025-19 is effective for HSAs for the 2026 calendar year and for excepted benefit health reimbursement arrangements beginning in 2026.

May 22, 2025: The IRS issued a notice to US taxpayers living or working abroad, encouraging them to file their 2024 federal income tax returns by June 16, 2025.

June 2, 2025: The IRS issued Notice 2025-27, providing interim guidance on the application of the corporate alternative minimum tax (CAMT), as well as relief from certain additions to tax for a corporation’s underpayment of estimated tax under Code § 6655. Among other things, this notice also provides an optional simplified method for determining applicable corporation status and waives certain additions to tax under Code § 6655 concerning a corporation’s CAMT liability under Code § 55. The US Department of the Treasury (Treasury) and the IRS also plan on issuing a notice of proposed rulemaking, revising the CAMT proposed regulations in § 2.02(2) of this notice to include a method for determining applicable corporation status.

The IRS also released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums, and Chief Counsel Advice).

TAX CONTROVERSY DEVELOPMENTS

On May 22, 2025, the US Tax Court issued its opinion in Facebook Inc. v. Commissioner.

THE “BIG, BEAUTIFUL BILL”

The “
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“Big, Beautiful Bill”: Federal Tax Bill Would Restrict the Employee Retention Credit

by , and | May 20, 2025 |

A sweeping federal tax bill that is currently under consideration in the US House of Representatives contains provisions that would significantly change the administration and enforcement of the Employee Retention Credit (ERC).

The ERC was enacted in 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide financial relief to businesses affected by the COVID-19 pandemic by incentivizing employers to retain employees on payroll and rehire displaced workers. The ERC allowed employers that experienced significant disruptions due to government orders or a substantial decline in gross receipts to claim a tax credit equal to a percentage of qualified wages paid to employees. Millions of employers have filed refund claims seeking ERC for periods in 2020 and 2021. Since the enactment of the CARES Act, the Internal Revenue Service (IRS) has issued roughly $250 billion in ERC. More than 500,000 claims remained pending as of April 2025.

The federal tax bill, dubbed the “Big, Beautiful Bill” by US President Donald Trump, would prevent the IRS from allowing ERC that was claimed by a taxpayer on or before January 31, 2024. The deadline to claim ERC for taxable quarters in 2020 was April 15, 2024, and the deadline to claim ERC for taxable quarters in 2021 was April 15, 2025. The tax bill would thus appear to render ineligible all pending claims that were made after January 31, 2024, which are likely to be considerable in number. The bill is ambiguous as to whether taxpayers who have already been allowed ERC would need to repay those amounts to the extent their claims were made after January 31, 2024.

The tax bill would also extend the statute of limitations on the IRS’s ability to assess amounts attributable to ERC. Presently, the IRS has three years to assess amounts associated with ERC for all periods in 2020 and for Q1 and Q2 of 2021. The IRS has five years to assess amounts associated with ERC for Q3 and Q4 of 2021. The proposed legislation would extend both of these limitations periods to six years. This change would be significant, especially because the IRS is authorized to assess and collect erroneously allowed ERC by notice and demand.

Practice Point: Taxpayers with pending ERC claims should be alert to ongoing legislative developments – as this area continues to be a prominent focus of federal tax policy – and prepare now to defend ERC claims (even those filed after the potentially new deadline of January 31, 2024). Enactment of the changes proposed in the tax bill could dramatically restrict the amount of ERC currently eligible to be paid or credited and may empower the IRS to recapture a greater amount of claims already allowed. But considerable uncertainties remain as to the scope of the changes proposed in the bill. In the face of this uncertainty, taxpayers should consult experienced counsel who can assist them in preparing to defend ERC claims to which they are entitled.



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IRS Roundup May 2 – May 13, 2025

by , , , and | May 19, 2025 | ,

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for May 2, 2025 – May 13, 2025.

IRS GUIDANCE

May 2, 2025: The IRS issued Revenue Procedure 2025-20, providing guidance on the domestic asset/liability percentages and domestic investment yields used by foreign life insurance companies and foreign property and liability insurance companies to compute their minimum effectively connected net investment income under Section 842(b) of the Internal Revenue Code (Code) for taxable years beginning after December 31, 2023.

May 5, 2025: The IRS released Internal Revenue Bulletin 2025-19, which includes Revenue Ruling 2025-10 and Revenue Procedure 2025-18.

Revenue Ruling 2025-10 provides various prescribed rates for federal income tax purposes for May 2025, including:

  • The short-, mid-, and long-term applicable federal rates for purposes of Code Section 1274(d).
  • The short-, mid-, and long-term adjusted applicable federal rates for purposes of Code Section 1288(b).
  • The adjusted federal long-term rate and the long-term tax-exempt rate from Code Section 382(f).
  • The appropriate percentages for determining the low-income housing credit from Code Section 42(b)(1) (but only for buildings placed in service during May 2025).
  • The federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Code Section 752.

Revenue Procedure 2025-18 provides issuers of qualified mortgage bonds (defined in Code Section 143(a)) and mortgage credit certificates (defined in Code Section 25(c)) with guidance related to nationwide purchase prices for residences, as well as the average area purchase price for residences located in statistical areas in each US state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands, and Guam.

May 6, 2025: The IRS issued Revenue Procedure 2025-21, modifying Section 12 of Revenue Procedure 2024-32.

Executive Order 14219, issued through the Department of Government Efficiency’s deregulatory initiative, directed agencies to initiate a review process for identification and removal of certain regulations and guidance. Pursuant to Executive Order 14219, the US Department of the Treasury and the IRS identified Section 12 of Revenue Procedure 2024-32 as a regulation needing modification.

Revenue Procedure 2024-32 specifies the procedure by which the sponsor of a defined benefit plan, which is subject to the funding requirements of Code Section 430, may request approval from the IRS for the use of plan-specific substitute mortality tables. Section 12.02 of Revenue Procedure 2024-32 specifies that if a plan sponsor wishes to use plan-specific mortality tables, it must develop and request approval for the use of new plan-specific mortality tables for plan years beginning on or after January 1, 2026. Revenue Procedure 2025-21 provides immediate relief for some of those plan sponsors by narrowing the category of plan sponsors that must request approval of new plan-specific substitute mortality tables.

May 12, 2025: The IRS issued Revenue Ruling 2025-11, determining the interest rates [...]

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IRS Roundup April 1 – April 17, 2025

by , , , and | May 1, 2025 | ,

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for April 1, 2025 – April 17, 2025.

April 4, 2025: The IRS issued Notice 2025-19, inviting the public to submit recommendations for items to include in the IRS’s 2025-2026 Priority Guidance Plan. The IRS uses the Priority Guidance Plan to identify and prioritize the tax issues that should be addressed via regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance. A list of factors the IRS considers when selecting projects for inclusion is outlined in the notice.

April 9, 2025: The US Department of the Treasury (Treasury), along with the IRS and the Financial Crimes Enforcement Network, eliminated 15 rules and guidance materials, in addition to two rules already rescinded by the Office of the Comptroller of the Currency. The stated purpose of these actions was to remove rules that the government says are now obsolete and hamper the growth of US small businesses. These actions were some of the many that the Treasury says it will take over the next several months to eliminate unnecessary IRS rules and to “unleash the regulated banking sector.”

April 10, 2025: US President Donald Trump signed legislation blocking an IRS reporting rule that would have required decentralized digital asset platforms to report statistics showing customers’ gross sales on their platforms.

April 11, 2025: The IRS issued Notice 2025-24, providing penalty relief under Section 6707A(a) of the Internal Revenue Code to participants in micro-captive reportable transactions that fail to timely file (i.e., by April 14, 2025) certain disclosure statements as required under Section 6011; Treas. Reg. §§ 1.6011-10(h)(2) or 1.6011-11(h)(2); Section 6111; and Treas. Reg. §§ 1.6011-10(h)(3) or 1.6011-11(h)(3)). Participants will only qualify for relief if they file the required disclosure statement with the Office of Tax Shelter Analysis by July 31, 2025.

April 14, 2025: The IRS issued Notice 2025-22, providing for the elimination of extraneous and unnecessary Internal Revenue Bulletin guidance. This notice was prompted by the issuance of Executive Order 14219 on February 19, 2025. The purpose of Executive Order 14219 is to focus the IRS’s limited enforcement resources on regulations “squarely authorized by constitutional Federal statutes” while eliminating “overbearing and burdensome” regulations and “ending Federal overreach.” In Notice 2025-22, the IRS eliminated several current sources of guidance and stated that it anticipates revoking or obsoleting hundreds of similar guidance documents in the near future.

April 15, 2025: The IRS issued Notice 2025-21, providing updates on the corporate bond monthly yield curve, spot segment rates used under § 417(e)(3), and the 24-month average segment rates under § 430(h)(2) of the Code. This notice also provides guidance on the interest rates for 30-year Treasury securities and the 30-year Treasury weighted average for plan years beginning before 2008.

April 17, 2025: The IRS issued Notice 2025-23, announcing its intent to publish a notice of proposed rulemaking, proposing [...]

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The Employee Retention Credit: IRS’s “Risking” Model Faces Legal Challenge

by , and | Apr 24, 2025 | , ,

Case: ERC Today LLC et al. v. John McInelly et al., No. 2:24-cv-03178 (D. Ariz.)

In an April 2025 order, the US District Court for the District of Arizona denied a motion for a preliminary injunction filed by two tax preparation firms. The firms sought to halt the Internal Revenue Service’s (IRS) use of an automated “risk assessment model” that the IRS used to evaluate and disallow claims for the Employee Retention Credit (ERC), seeking to restore individualized review of ERC claims.

BACKGROUND ON THE ERC

The ERC was enacted in 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide financial relief to businesses affected by COVID-19 by incentivizing employers to retain employees and rehire displaced workers. The ERC allowed employers that experienced significant disruptions due to government orders or a substantial decline in gross receipts to claim a tax credit equal to a percentage of qualified wages paid to employees. Millions of employers have filed amended employment tax returns (Form 941-X) claiming the credit for periods in 2020 and 2021. Since the enactment of the CARES Act, the IRS has issued roughly $250 billion in ERC.

THE IRS’S MORATORIUM AND AUTOMATED RISK ASSESSMENT MODEL

In September 2023, the IRS instituted a moratorium on processing ERC claims to review its procedures, reduce the backlog of claims, and identify potential fraud. Before the moratorium, all ERC claims received individualized review. During the moratorium, the IRS developed an automated “risk assessment model” to facilitate the processing of claims. This model, which is alternatively known as “risking,” utilizes taxpayer-submitted data and publicly available information to predict the likelihood that a taxpayer’s claim is valid or invalid. Claims deemed to be “high risk” by the system are excluded from review by an IRS employee and instead are designated for immediate disallowance. In August 2024, the IRS lifted its ERC processing moratorium and began issuing thousands of disallowance notices to taxpayers. Notwithstanding these actions, the number of pending ERC claims remained above one million as of November 2024.

THE COURT CHALLENGE TO THE IRS’S “RISKING” MODEL

In their motion for a preliminary injunction, filed January 7, 2025, the plaintiffs (the tax preparation firms) sought a court order compelling the IRS to, among other things, stop the use of “risking” and restore individualized employee review of ERC claims. The plaintiffs claimed to be injured by the “risking” model because they were unable to collect contingency fees from clients when claims were disallowed.

In support of their motion, the plaintiffs pointed to having received on behalf of their clients many boilerplate rejections immediately following the end of the moratorium. The plaintiffs alleged that these summary disallowances were arbitrary and capricious, thus violating the Administrative Procedure Act (APA), because the “risking” model precluded the IRS from acquiring information necessary to properly evaluate the claims.[1] The plaintiffs also contended that the disallowances reflected a shift in IRS policy to disfavor ERC, with the result being that several legitimate claims were being [...]

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The Employee Retention Credit: How to Litigate and Resolve Claims

by , and | Apr 10, 2025 |

The Employee Retention Credit (ERC) was designed to help employers keep their employees on payroll during the COVID-19 pandemic by offering a refundable tax credit against certain employment taxes. Despite the Internal Revenue Service (IRS) issuing more than $242 billion in ERC as of early 2025, the processing and payment of these claims have faced significant delays and scrutiny.

In a recent Bloomberg Tax article, McDermott’s tax controversy and litigation team shared a broad overview of the stages of ERC claims and potential ways in which taxpayers can resolve them. Key takeaways include:

  • ERC claims can be in one of four stages: no IRS action, IRS examination, formal disallowance, or IRS recapture. Understanding the implications of each stage can be crucial for maximizing taxpayers’ chances of receiving and keeping ERC.
  • Thousands of ERC claims remain stagnated in the IRS’s administrative review process. Litigation can be a powerful tool to expedite the payment of ERC claims.
  • Taxpayers must be highly vigilant about the applicable statutes of limitations concerning ERC refund claims. Not understanding these deadlines can undermine the potential for a successful ERC claim.
  • The IRS is capable of recapturing ERC that it believes was erroneously allowed. However, the mechanisms for recapture may be susceptible to legal challenge, and taxpayers should be aware of their litigation options.

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IRS Roundup March 15 – March 28, 2025

by , , , , and | Apr 7, 2025 | , ,

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for March 15, 2025 – March 28, 2025.

IRS GUIDANCE

March 17, 2025: The IRS issued Revenue Ruling 2025-8, providing the April 2025 short-, mid-, and long-term applicable federal rates for purposes of Internal Revenue Code Section 1274(d), as well as other provisions.

March 21, 2025: The IRS released Announcement 2025-8, which displays a copy of the competent authority arrangement entered into by the United States and Switzerland under paragraph 3 of Article 25 of the Convention Between the United States of America and the Swiss Confederation for the Avoidance of Double Taxation. The agreement details US and Swiss pension and retirement arrangements, including individual retirement savings plans that may be eligible for benefits.

March 21, 2025: The IRS issued Private Letter Ruling 202512002, concluding that a trust was properly classified as a “liquidating trust” for federal tax purposes, despite several extensions of the trust’s term. Pursuant to Revenue Procedure 94-45, a trust instrument must contain a fixed or determinable termination date, which is usually not more than five years from the date of the trust’s creation. However, Revenue Procedure 94-45 also provides that, if warranted by the facts and circumstances, a trust’s term may be extended for a finite time, subject to the approval of the bankruptcy court with jurisdiction over the case.

The IRS also released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums, and Chief Counsel Advice).

TRANSFER PRICING

March 27, 2025: The IRS released its annual report on advance pricing agreements (APAs) for 2024 as part of its Advance Pricing and Mutual Agreement Program. The report summarized key APA trends and statistics, including the number of applications filed, pending APAs, and executed APAs. The report also details APA trends and statistics executed by country and by industry and provides a breakdown of the types of transactions covered by APAs, the transfer pricing methods used, and other APA characteristics from 2024.



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Upcoming Webinar: Navigating IRS Tax Refunds

by , and | Mar 31, 2025 |

On April 9, 2025, join McDermott’s Tax Controversy & Litigation Group for an insightful webinar on the intricacies of claiming and collecting Internal Revenue Service (IRS) tax refunds. This session is designed for tax professionals, legal practitioners, and anyone interested in understanding the complexities of the IRS refund claims process and what to watch out for.

What You Will Learn:

  • Step-by-step guidance on filing IRS refund claims
  • Key legal considerations, insights, and traps surrounding refund claims
  • Strategies for effectively collecting refunds from the IRS
  • When and how to litigate refund claims

Click here for details and to register.



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IRS Roundup February 17 – March 14, 2025

by , , and | Mar 14, 2025 |

Check out our summary of recent Internal Revenue Service (IRS) guidance for February 17, 2025 – March 14, 2025.

Editors’ note: With the change in presidential administrations, the IRS has undergone significant transition in recent weeks and issued significantly less guidance than normal. We did not publish the IRS Roundup regularly during these weeks as we awaited new guidance from the agency.

February 19, 2025: The IRS issued Revenue Ruling 2025-6, providing the March 2025 short-, mid-, and long-term applicable federal rates for purposes of Section 1274(d) of the Internal Revenue Code (Code), as well as other provisions.

February 21, 2025: The IRS issued Notice 2025-15, providing guidance on the alternative method for furnishing health insurance coverage statements to individuals, as required by Code Sections 6055 and 6056. This alternative method allows entities to post a clear and conspicuous notice on their websites, informing individuals that they can request a copy of their health coverage statement. This notice must be posted by the due date for furnishing the statements and retained through October 15, 2026. The guidance applies to statements for calendar years after 2023.

March 5, 2025: The IRS issued Revenue Procedure 2025-17, providing guidance for individuals who failed to meet the eligibility requirements of Code Section 911(d)(1) (foreign earned income exclusion) for 2024 because of adverse conditions in certain foreign countries. The revenue procedure lists specific countries, including Ukraine, Iraq, Haiti, and Bangladesh, where war, civil unrest, or similar conditions precluded normal business conduct. Individuals who left these countries on or after specified dates in 2024 may still qualify for the foreign earned income exclusion if they can demonstrate that they would have met the eligibility requirements but for these adverse conditions.

March 5, 2025: The IRS issued Notice 2025-16, providing adjustments to the limitation on housing expenses for 2025 under Code Section 911. These adjustments account for geographic differences in housing costs relative to those in the United States. The notice includes a detailed table listing the adjusted housing expense limitations for locations worldwide. It also allows taxpayers to apply the 2025 adjusted limitations to their 2024 taxable year if the new limits are higher.

March 6, 2025: The IRS issued Revenue Ruling 2025-7, providing interest rates for tax overpayments and underpayments for the second quarter of 2025 in accordance with Code Section 6621.

March 11, 2025: The IRS issued Notice 2025-17, providing updates on the corporate bond monthly yield curve, spot segment rates, and 24-month average segment rates used under Code Sections 417(e)(3) and 430(h)(2). The notice includes the interest rate on 30-year Treasury securities and the 30-year Treasury weighted average rate for plan years beginning before 2008. It also specifies the minimum funding requirements for single-employer plans, the methodology for determining monthly corporate bond yield curves, and the adjusted 24-month average segment rates for March 2025. Additionally, the notice outlines the permissible range of rates for calculating current liability for multiemployer plans.



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IRS Roundup February 10 – 14, 2025

by , , and | Feb 25, 2025 | ,

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of February 10, 2025 – February 14, 2025.

TAX-CONTROVERSY-RELATED DEVELOPMENTS

The previous IRS Roundup provided general coverage of the proposed Taxpayer Assistance and Service (TAS) Act. This post highlights Section 310 of the TAS Act, which would give the US Tax Court authority to hear general refund suits similar to those currently heard in the US district courts and the US Court of Federal Claims.

Historically, taxpayers could only contest their tax liability by first paying the tax and then suing for a refund in a district court or the Court of Federal Claims. The Board of Tax Appeals (BTA), the forerunner to the Tax Court, was created in 1924 to give taxpayers a prepayment forum in which to dispute their tax liability. The BTA was initially proposed to have general refund suit jurisdiction, but Congress limited its jurisdiction to cases brought in response to a notice of deficiency. Several proposals have been made over the years to expand the jurisdiction of the BTA and (now) the Tax Court to include general refund suits, which they would share with the district courts and the Court of Federal Claims. Recent support for this approach has come from National Taxpayer Advocates Nina Olson and Erin Collins. As one commentator noted, the proposed expansion to the Tax Court’s jurisdiction has the potential to improve access to justice for taxpayers and reduce the burden on district courts and the Court of Federal Claims.

IRS GUIDANCE

February 12, 2025: The IRS issued Revenue Procedure 2015-16, which provides depreciation deduction limitations for “passenger automobiles” (including trucks and vans) placed in service during 2025 and income inclusion amounts for lessees of such vehicles. The revenue procedure also includes two tables detailing depreciation limits based on whether the Internal Revenue Code (Code) § 168(k) additional first-year depreciation deduction applies. Additionally, the revenue procedure outlines the inflation adjustment calculation for these limits and provides a table for determining income inclusions for leased passenger automobiles. The tables reflect the automobile price inflation adjustments required by Code § 280F(d)(7).

February 12, 2025: The IRS released Notice 2025-14, which provides guidance on the corporate bond monthly yield curve, spot segment rates under Code § 417(e)(3), and 24-month average segment rates under Code § 430(h)(2). The notice also provides guidance as to the interest rate on 30-year Treasury securities under Code § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code § 431(c)(6)(E)(ii)(I).

February 13, 2025: The IRS issued Revenue Procedure 2025-15, which provides discount factors for the 2024 accident year for insurance companies to use when computing discounted unpaid losses under Code § 846 and discounted estimated salvage recoverable under Code § 832. The revenue procedure includes tables with discount factors for various lines of business (both short- and long-tail) and addresses the use of [...]

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