Tax Breaks: The New Chapter Is Beginning At The IRS Edition

Forbes

a day ago

It's a new chapter at the IRS.
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The traditional individual tax filing season ended two months ago (those of us on extension still have a few months to go), but the IRS is still in the news. Most notably, the Senate has confirmed Billy Long as the new commissioner of the IRS (you can read more about that in a bit as part of our Deeper Dive below).
How Long's tenure might impact the future of the IRS and tax administration is still a question, but far from the only one. Still to be determined? What the tax picture might look like during the next filing season for millions of taxpayers.
The One Big Beautiful Bill Act (OBBBA) passed the House in May and moved to the Senate, where the White House hoped for a quick approval. Nearly a month later, there's been no real movement. A vote hasn't yet been scheduled, and it's looking very unlikely that the bill will be signed into law by July 4, President Trump's target date (a fact that Trump recently acknowledged).
The biggest obstacle in the Senate may not be Senate Minority Leader Chuck Schumer (D-N.Y.) or stalwart deficit hawk Rand Paul (R-Ky.), but rather Elizabeth MacDonough. The name may not ring a bell, but MacDonough has been a fixture in the Senate for over a decade, serving as the Senate Parliamentarian. The Parliamentarian advises on procedural matters and guides precedent. That includes sorting out what's allowed during the debate, amendment, and voting processes.
That matters here because reconciliation bills (like OBBBA) are subject to special rules in the Senate. Since those rules can be tricky, the Parliamentarian helps determine what is—and isn't—allowed, especially when it comes to interpreting the Byrd Rule, which imposes limits on what can be in reconciliation bills. If the Parliamentarian determines a provision in a bill violates the Byrd Rule, the provision must be removed from the bill unless the Senators vote to waive the rule—that requires 60 votes, instead of the lower 51 vote majority allowed for reconciliation.
As currently written, OBBBA would deliver an average tax cut of almost $80,000 next year to those in the top one percent. That's 40 times the tax relief going to middle-income families who struggle with the costs of housing, food, and raising children. This windfall for the wealthy would be paid for through cuts to health insurance, Pell grants, and food aid for millions of lower income American families.
The bill is far from finalized. Elaine Maag writes that the Senate still has time to deliver on the pro-family promises made by many Republican leaders by amending the budget bill to provide economic relief for all families. Key senators, she notes, including Josh Hawley (R-Mo.) have already put forward plans that would do so.
One OBBBA provision targeted to families is the creation of the Trump Accounts. If the bill passes, these savings accounts will be funded by the federal government and will provide each baby born between January 1, 2025, and December 31, 2028, with $1,000. The initial set of rules associated with the accounts is complicated–getting it right is crucial if the accounts are to be successful.
Not all of the work in Congress this week focused on future budgets – the House of Representatives voted to rescind $9.4 billion in funding for the National Public Radio (NPR), the Public Broadcasting Service (PBS), and the United States Agency for International Development (USAID). The bill, proposed by President Trump, does not focus on approving new dollars, but instead targets a clawback of previously approved funds, a move known as rescission.
Not all deal-making was happening in Congress: U.S. District Court Judge Claudia Wilken has approved a settlement between the NCAA and lawyers representing college athletes. While the details are nuanced, the key takeaway is that schools can now begin paying athletes directly. While this is the first time that college athletes can receive direct payments from their schools, athletes have been receiving millions of dollars through name, image, and likeness (NIL) payments and endorsements in recent years. While these significant cash flows for the college athletes can be financially beneficial, they also carry tremendous tax burdens.
College athletes aren't the only sports figures to navigate tricky wins. The U.S. Open continues to represent one of golf's biggest prizes. While any golfer would give whatever it takes to take home this year's trophy (the first-place prize is expected to be $4.3 million), there is an extra layer of incentive this year that makes it even more beneficial relative to future years: taxes. Athletes must pay state and local income taxes in the jurisdictions where they earn the money–sometimes referred to as a jock tax. This year, the U.S. Open will be held at Oakmont Country Club, located in the suburbs of Pittsburgh, Pennsylvania. Luckily for those golfers, my own state of Pennsylvania boasts one of the lowest state income tax rates in the country, with a flat rate of 3.07% for 2025. This means that, absent any other deductions, the winner of the $4.3 million prize will only pay approximately $132,010 in state income taxes on the winnings. That's not a bad take-home pay for a few days' work.
The U.S. Open kicks off this weekend–hopefully, the weather holds. There are a few other key happenings over the next few days, including a notable birthday (Happy birthday, Mom!).
Enjoy your weekend,
Kelly Phillips Erb (Senior Writer, Tax)
Is the price you pay the price you can claim as a deduction when donating clothes to charity? It's complicated.
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This week, a taxpayer asked:
I love to shop. Sometimes, when I'm in the store, I'll pick up something on clearance to donate to the local women's shelter. I get some excellent deals. I've always thought that I could deduct the value of the item (Coach is still Coach even if it's on sale), but my daughter says that I can only deduct what I paid. Who is right?
Normally, it's true that if you contribute property to charity, the amount of your deduction is generally the fair market value (FMV) of the property at the time of the contribution. FMV is the price a willing buyer would pay a willing seller for the item in its current condition in the marketplace. In this case, the clothing is new, so the key is whether you paid a genuinely discounted price—or whether the item was actually worth the lower price that you paid.
Here's an example. Let's say you bought a coat that sells for $200, but you paid $50. If the coat normally sells for $200 and is brand new, and this was a one-time sale, the FMV may be close to $200. However, if the coat is available for sale for $50 in many stores, or if it's out of style or out of season, then $50 may be the true FMV.
But remember that if it sounds too good to be true, it probably is. There's even a Tax Court case on this issue. In Grainger. v. Commissioner, Estelle Grainger was a grandmother who also liked to shop—especially at Talbots. She purchased hundreds of items on sale, often using her Talbots discount points. She then donated those clothes to charity and claimed the retail price, not the price she paid. Those deductions were significant: $18,288 in 2010, $32,672 in 2011, and $34,401 in 2012.
The IRS challenged the value of the deductions, and Grainger took the matter to Tax Court.
For contributions of property, like clothing, you must be able to provide reliable written records that include the name and address of the donee, the date and location of the contribution, and a description of the property. You must also keep records to establish 'the fair market value of the property at the time the contribution was made' as well as the method used to determine the value.
Grainger had receipts from Talbots and from the charity where she donated the items. The receipts included some pertinent info: date, location, and the type of gift.
Depending on the value of the property, a written appraisal may also be required. Specifically, the tax rules require taxpayers who donate 'similar items of property' with a value exceeding $5,000 to obtain an appraisal to determine the FMV. Grainger didn't do that. So, the IRS allowed her a total deduction of just $6,117 for all three years, the amount she actually paid for clothing she donated to charity.
But don't get too excited. The Tax Court noted that even with the appraisal, it wouldn't have helped because, applying the willing buyer and willing seller test, no 'rational buyer' would have paid more for the clothes than what Talbots was charging.
There was one more problem with Grainger's deduction scheme. As the Tax Court noted in a footnote, even if Grainger had been able to prove that the clothing was worth more than what she paid, it would not have helped her. Under section 170(e)(1)(A) of the tax code, you must reduce any allowable charitable deduction by "the amount of gain which would not have been long-term capital gain * * * if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution)." Since Grainger donated all or most of the items shortly after purchasing them, she would have realized short-term capital gain if she had sold them instead.
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The IRS uses a variety of resources to identify fraudulent returns, including those filed by identity thieves, and to prevent the issuance of refunds associated with those returns. According to a recent report from the Treasury Inspector General for Tax Administration (TIGTA), those efforts are paying off–most fraudulent tax returns are stopped before the refund is paid.
As of February 22, 2025, the IRS has stopped over $900 million in fraudulent refunds. That number was nearly double from the same time in 2024.
The IRS says it is stopping more fraudulent tax returns.
Kelly Phillips Erb
The IRS attempts to proactively prevent identity theft by issuing Identity Protection Personal Identification Numbers (IP PIN). An identity protection PIN (IP PIN) is a six-digit number issued by the IRS that adds an extra layer of prevention. Think of it like a password – since the IP PIN is only known to you and the IRS, no one else can file your electronic or paper tax return without triggering a warning.
The IRS also uses identity theft filters to identify tax returns with characteristics indicative of confirmed identity theft, including amounts claimed for income and withholding, filing requirements, prisoner status, taxpayer age, and filing history. For the 2025 filing season, the IRS used 295 filters to detect potential identity theft tax returns and prevent the issuance of fraudulent refunds. That's more than the 282 filters used in the 2024 Filing Season.
Tax returns identified by these filters are held during processing until the IRS can verify the taxpayer's identity, usually with a Notice 5071C. Taxpayers can use their IRS online account or a dedicated toll-free telephone number to verify their identity (here's more information on answering Notice 5071C).
The IRS aims to process tax returns and issue refunds within nine weeks after a successful identity verification. If the individual's identity cannot be confirmed, the IRS removes the tax return from processing to prevent the issuance of a fraudulent refund.
Depending on when a return is flagged as potentially fraudulent, the IRS may be able to prevent the tax return and associated refund from being paid. If the fraud isn't identified until after the refund is paid, the IRS may pull the return for post-refund compliance processes.
The data was published in the Interim Results of the 2025 Filing Season report published by TIGTA in June 2025. The report presents the results of TIGTA's review to evaluate the processing of individual income tax returns for the 2025 Filing Season.
WASHINGTON, DC - MAY 20: Former Rep. Billy Long (R-MO), U.S. President Donald Trump's nominee to be Internal Revenue Service Commissioner, departs after a Senate Finance Committee nomination hearing on Capitol Hill on May 20, 2025 in Washington, DC. The IRS has had four acting commissioners since U.S. President Donald Trump took office in January. (Photo by)
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The Senate has confirmed former U.S. Representative Billy Long of Missouri as the next commissioner of the Internal Revenue Service (IRS). The vote was 53-44 along party lines, with all Republicans in the Senate voting yes—all of the no votes came from Democrats.
The vote puts a period on a process that had grown contentious at times. President Donald Trump announced Long's nomination in December of 2024, even though Danny Werfel was then serving a term as IRS Commissioner that would normally run until late in 2027.
Werfel subsequently announced his resignation, effective January 20, 2025. Since Long had not yet been confirmed at that time, Werfel was replaced by Doug O'Donnell, who served as Acting Commissioner following Werfel's departure. O'Donnell left his position on February 28, 2025, and was replaced by then IRS Chief Operating Officer Melanie Krause. Krause announced her departure in April 2025, following the tax agency's agreement to share immigrant tax data with Immigration and Customs Enforcement (ICE). Michael Faulkender joined the revolving doors at the IRS as the Acting Commissioner on April 18, 2025—he has been in the position since that time.
Long will now officially take the reins at the tax agency. (You can read more about Long here.)
Former IRS Commissioners Lawrence Gibbs, John Koskinen, Charles Rettig, and Daniel Werfel shared lessons learned from their tenures and predictions for the agency's future with Tax Analysts President and CEO Cara Griffith. The discussion spanned two hours and covered many of the big questions plaguing the IRS. Tax Notes curated a selection of the former commissioners' responses (but if you'd like to hear the whole discussion, you can find the link in the show notes).
📅 June 16, 2025. Due date for individuals living and working abroad to file their 2024 federal income tax return and pay any tax due.
📅 September 30, 2025. Due date for individuals and businesses impacted by recent terrorist attacks in Israel.
📅 October 15, 2025. Due date for individuals and businesses affected by wildfires and straight-line winds in southern California that began on January 7, 2025.
📅 November 3, 2025. Due date for individuals and businesses affected by storms in Arkansas and Tennessee that began on April 2, 2025.
📅 June 16-19, 2025. Latino Tax Fest. MGM Grand Hotel & Casino, Las Vegas, Nevada. Registration required.
📅 June 18, 2025 at 12 p.m. ET. Taxes In The Political Crosshairs: How To Prepare For One Big Beautiful Bill. Members only webinar featuring Forbes editor Janet Novack, Forbes senior writer and tax attorney Kelly Phillips Erb, National Managing Director of alliantgroup and former senior counsel and tax counsel to the U.S. Senate Committee on Finance Dean Zerbe, and PwC Senior Policy Advisor and former Chairman of the Committee on Ways and Means Dave Camp. Registration required.
📅 June 18, 2025. Avalara CRUSH on Tour. Bridgeport Art Center (Skyline Loft), 1200 W. 35th Street, Chicago, IL 60609. Registration required.
📅 June 26, 2025. Avalara CRUSH on Tour. Iron23 (Flatiron District), 29 West 23rd Street, New York, NY 10010. Registration required.
📅 July 1-September 16 (various dates), 2025. IRS Nationwide Tax Forum in Chicago, New Orleans, Orlando, Baltimore and San Diego. Registration required (discounts available for some partner groups).
📅 July 18-19, 2025. Tax Retreat "Anti Conference." Denver, Colorado. Registration required.
📅 July 21-23, 2025. National Association of Tax Professionals Taxposium 2025. Caesars Palace, Las Vegas, Nevada. Registration required.
📅 July 22-24, 2025. Bridging the Gap Conference. Denver Marriott Tech Center, 4900 S. Syracuse Street, Denver, Colorado. Registration required.
📅 July 28-30, 2025. Tax Summit 2025. Grand America Hotel, Salt Lake City. Registration required.
Charitable giving comes in various forms. Which woman launched a reading program in 1995 to provide young children with a free book each month?
(A) Dolly Parton
(B) J.K. Rowling
(C) Oprah Winfrey
(D) Reese Witherspoon
Find the answer at the bottom of this newsletter.
The U.S. Department of the Treasury and the IRS issued Notice 2025-33, extending and modifying earlier transition relief for brokers required to file Form 1099-DA to report certain digital asset sale and exchange transactions by customers. Specifically, Notice 2025-33 extends the transition relief from backup withholding tax liability and associated penalties for any broker that fails to withhold and pay the backup withholding tax for any digital asset sale or exchange transaction effected during calendar year 2026.
The IRS published Internal Revenue Bulletin 2025-25.
The American Institute of CPAs (AICPA) submitted comments to the IRS containing 183 recommendations regarding the 2025-2026 Priority Guidance Plan. The AICPA's recommendations come from the organization's Tax Technical Resource Panels (TRP), which cover the following areas: Corporations and Shareholders; Employee Benefits; Exempt Organizations; Individual and Self-Employed; International; IRS Advocacy & Relations; Partnerships; S Corporations; Tax Methods and Periods; and Trust, Estate and Gift Tax.
The American Institute of CPAs (AICPA) released an exposure draft for the Proposed Criteria for Controls Supporting Token Operations: Specific to Asset-Backed Fiat-Pegged Tokens, with comments sought from the public through Aug.11, 2025. The draft provides a framework for controls over stablecoins, the fiat currency-backed digital asset that is currently a key focus of regulatory activity in the United States.
Tax attorneys Zhanna A. Ziering and Aaron M. Esman have founded Ziering & Esman PLLC, a tax law firm in New York. Ziering & Esman PLLC focuses on tax controversy, providing representation to individuals and businesses involved in disputes with the IRS and state tax authorities.
KPMG announced the Americas Board of Directors has elected Will Williams as the next Chair of KPMG's Americas Region, beginning July 1, 2025. Williams will succeed Paul Knopp, who has held the position since 2020.
Georgia lawmakers are exploring ​​raising the tax on cigarettes. Currently, only Missouri charges a lower tax than Georgia for a pack of 20 cigarettes. Raising the tax by a dollar to $1.37 would generate between $400 million and $500 million. The cigarette tax currently generates about $115 million a year, and Georgia is spending about $850 million a year on Medicaid costs attributable to smoking.
The gas tax in Mississippi will increase by 3 cents per gallon, effective July 1, 2025, as part of a 9-cent boost phased in over three years. The state's gas tax has been 18 cents per gallon since 1987. According to the Tax Foundation, Mississippi's 18-cent gas tax is the second-lowest in the U.S.—only Alaska's is lower at 8.95 cents per gallon.
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If you have tax and accounting career or industry news, submit it for consideration here or email me directly.
Here's what readers clicked through most often in the newsletter last week:
You can find the entire newsletter here.
The answer is (A) Dolly Parton.
American singer, songwriter and actress Dolly Parton, performs with a guitar, 1976. (Photo by David Redfern/Redferns)
Redferns
In 1995, Dolly Parton created Dolly Parton's Imagination Library to benefit children in East Tennessee, USA. The first book order totaled just over 1,700. Today, Dolly Parton's Imagination Library sends more than one million books per month to children around the world.
How did we do? We'd love your feedback. If you have a suggestion for making the newsletter better, submit it here or email me directly.