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January Tax Law Updates: Key IRS Changes Affecting Your Business

by | Jan 28, 2025 | Blog |

Recent updates from the Internal Revenue Service (IRS) have introduced some significant changes to tax law, impacting how businesses classify workers and handle certain tax-related procedures. In this article, we delve into these changes and discuss a relevant tax court case, providing insights on how these developments could affect your business operations.

Expanded Definition of “Employee” and Implications for Safe Harbor Relief

The IRS has recently updated the Safe Harbor Relief guidelines under Rev Proc 2025-10, expanding the definition of “employee” to include a broader range of roles:

  • Officers of a corporation
  • Common law employees
  • Agent-drivers and commission-drivers
  • Full-time insurance salespersons
  • Home workers, traveling salespersons
  • Individuals under IRC §§ 218 or 218A agreements
  • Employees of state or District of Columbia governments

This clarification outlines:

  1. Who may be included in safe harbor relief.
  2. What “filing all required federal tax returns” entails.
  3. How an employer’s treatment of a worker could be deemed compliant.
  4. The criteria for meeting reporting consistency, substantive consistency, and reasonable basis requirements.

Understanding these guidelines is important because they directly affect how your business classifies workers, which in turn can influence your eligibility for tax benefits and reduce the risk of costly disputes with the IRS. These changes mark a significant shift in how the IRS views employer-employee relationships, making it vital for business owners to stay informed and compliant.

This updated guidance modifies and supersedes the previously established Rev Proc 85-18.

IRS Independent Office of Appeals & Federal Tax Controversies

Significant developments have also been made in the resolution of federal tax controversies. The IRS Independent Office of Appeals has adopted final regulations that provide guidance on the limits and exceptions applicable to its considerations. These updates, effective as of January 15, 2025, are critical for businesses involved in disputes with the IRS, offering a clearer pathway for appeals and greater predictability in outcomes.

Case Study: IRS Deficiency Notice Correctly Challenged

In a significant legal victory, a defunct California used car dealership successfully challenged the IRS over its method for reconstructing the company’s income, leading to an erroneous deficiency notice. The Tax Court found in favor of the taxpayer, ruling that the IRS had incorrectly applied methods that did not accurately reflect the business’s actual income and deductions. This case underscores the importance of accurate and fair tax assessments and highlights the potential for judicial relief when errors are made by the IRS.

Corporate Separations, Reorganizations, and Reporting Requirements

In a major regulatory update, the IRS has proposed new regulations under subchapter C that specifically address corporate separations, incorporations, and reorganizations. These regulations aim to fulfill the compliance, certainty, and transaction facilitation objectives outlined in Notice 2024-38. They are designed to streamline the processes for all corporate mergers and acquisitions transactions, reflecting a focus on multi-year corporate separations. The IRS is currently seeking public comments on these proposed regulations and the draft of the new Form 7216, Multi-Year Transaction Reporting, to gather feedback before finalizing the guidelines.

Partnership Transactions and Basis Shifting

The IRS has finalized rules that identify related party basis shifting partnership transactions as transactions of interest (TOIs) subject to the rules for reportable transactions. The final regulations include:

  • The reporting threshold for a TOI basis has increased from $5M to $25M for tax years before 2025 and $10M for tax years thereafter.
  • Reporting is limited to open tax years that fall within a 6-year lookback window, defined as the 72 months prior to the first month of a taxpayer’s most recent tax year beginning before the publication of the final regulations.
  • Taxpayers have an additional 90 days from the final rules’ January 14, 2025, publication date to file disclosure statements for TOIs in open tax years when return has already been filed and falls within the six-year lookback window. Material advisors have an additional 90 days to file their disclosure statements for tax statements made before the final regulations.
  • The final regulations exclude many owners of publicly traded partnerships from the disclosure rules.

These updates are designed to enhance transparency and compliance, ensuring that transactions are reported accurately and within a reasonable timeframe.

Conclusion: How Kundra & Associates Can Help

Navigating the complexities of IRS regulations demands an expert tax defense lawyer, especially with the constant updates that can significantly impact your business. Kundra & Associates specializes in providing strong legal representation and tax law guidance across Maryland, Virginia, Washington, D.C., and internationally. If you need assistance with the latest IRS changes or require a skilled defender in tax disputes, contact us today. Our experienced team is committed to protecting your interests and ensuring compliance with evolving tax laws, wherever you do business.

 

tax law