Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of January 13, 2025 – January 17, 2025.
TAX CONTROVERSY-RELATED DEVELOPMENTS
January 15, 2025: The US Department of the Treasury (Treasury) and the IRS published final regulations, providing guidance on the resolution of federal tax controversies by the IRS Independent Office of Appeals (IRS Appeals). These final regulations are applicable to requests for IRS Appeals consideration made on or after February 14, 2025.
The Taxpayer First Act of 2019 (TFA) codified IRS Appeals and prescribed that its consideration should be “generally available to all taxpayers” who wished to resolve their federal tax controversies. Proposed regulations published on September 13, 2022, identified 24 exceptions to the term “federal tax controversy.” These exceptions preclude IRS Appeals from considering taxpayer challenges to the constitutionality of statutes and the validity of regulations, as well as the procedural validity of notices and revenue procedures. During the comment period for the proposed regulations, the exceptions regarding statutory/regulatory challenges were the focus of most public comments by far. However, the exceptions were left almost entirely unchanged in the final version of the regulations.
Practice Point: Because the TFA prescribes that IRS Appeals consideration should be “generally available to all taxpayers,” we expect judicial challenges to the validity of the final regulations on Administrative Procedure Act and substantive grounds. In the interim taxpayers should continue asserting their arguments challenging the validity of deficient guidance on constitutional or other grounds.
- Relatedly, the IRS issued Announcement 2025-6, which describes three pilot initiatives that will test changes to existing Alternative Dispute Resolution programs. These programs are designed to help taxpayers resolve tax disputes earlier and more efficiently. The pilots focus on Fast Track Settlement, a program that allows IRS Appeals to mediate disputes between a taxpayer and the IRS while the case is still within the jurisdiction of the examination function, and Post-Appeals Mediation, a program in which a mediator helps foster a settlement between IRS Appeals and the taxpayer.
CLEAN ENERGY-RELATED DEVELOPMENTS
January 14, 2025: The Treasury and the IRS published final regulations regarding the clean electricity production credit under Internal Revenue Code (Code) Section 45Y and the clean electricity investment credit under Code Section 48E, established by the Inflation Reduction Act of 2022 (IRA). These final regulations provide rules for determining greenhouse gas emissions rates resulting from the production of electricity, petitioning for provisional emissions rates, and determining eligibility for these credits in various circumstances. The final regulations affect all taxpayers who claim the clean electricity production credit with respect to a qualified facility or the clean electricity investment credit with respect to a qualified facility or energy storage technology, as applicable, that is placed in service after 2024.
January 15, 2025: The IRS issued Notice 2025-9, which provides a safe harbor for the incremental cost of certain qualified commercial clean vehicles placed in service in calendar year 2025 for purposes of the credit pursuant to Code Section 45W.
January 15, 2025: The IRS issued Revenue Procedure 2025-14, which contains the annual table that sets forth the greenhouse gas emissions rates for certain types or categories of facilities. Taxpayers must use this annual table when determining their eligibility for a clean electricity production credit or a clean electricity investment tax credit for any facility that is of a type or category described in the annual table.
January 17, 2025: The IRS updated its frequently asked questions for the Energy Efficient Home Improvement Credit and the Residential Clean Energy Property Credit.
TAX RETURN FILING SEASON DEVELOPMENTS
January 14, 2025: The IRS and the Coalition Against Scam and Scheme Threats released changes for the 2025 filing season designed to help protect taxpayers from becoming victims of a scam or scheme and prevent tax professionals from having their credentials compromised. The changes include a new form involving the Fuel Tax Credit that’s designed to make it harder for well-meaning taxpayers to be misled into claiming the credit by promoters.
January 15, 2025: The IRS reminded employers that the deadline to submit wage statements and certain information returns to the government is January 31, 2025.
OTHER FINAL REGULATIONS
January 14, 2025: The Treasury and the IRS published the following final regulations:
- Treasury Decision 10026, regarding certain disregarded payments that give rise to deductions for foreign tax purposes and avoid application of the dual consolidated loss (DCL) rules. The final regulations affect domestic corporate owners who make or receive such payments. The Treasury decision also announces additional transition relief for the application of the DCL rules to certain foreign taxes that are intended to ensure that multinational enterprises pay a minimum level of tax.
- Treasury Decision 10027, containing guidance on the application of a tax on US citizens and residents, as well as certain trusts, that receive, directly or indirectly, gifts or bequests from certain individuals who relinquished US citizenship or ceased to be lawful permanent residents of the United States. The final regulations also provide guidance on the method of reporting and paying this tax.
- Treasury Decision 10029, containing final regulations that identify transactions that are the same as, or substantially similar to, certain micro-captive transactions as “listed transactions” (a type of reportable transaction), and certain other micro-captive transactions as “transactions of interest” (another type of reportable transaction). Material advisors and certain participants in these listed transactions and transactions of interest are required to file disclosures with the IRS and are subject to penalties for failure to do so. The final regulations affect participants in these transactions as well as material advisors.
PROPOSED REGULATIONS
January 14, 2025: The IRS published the following proposed regulations:
- REG-107895-24, regarding the base erosion and anti-abuse tax under Code Section 59A, which is imposed on certain large corporate taxpayers with respect to certain payments made to foreign related parties. The proposed regulations relate to how qualified derivative payments with respect to securities lending transactions are determined and reported. The proposed regulations would affect corporations with substantial gross receipts that make payments to foreign related parties.
- REG-107420-24, setting forth guidance on determining the source of income from cloud transactions for purposes of Code international provisions. These proposed rules would generally affect taxpayers who earn gross income from engaging in cloud transactions.
- REG-123525-23, providing guidance on the qualified commercial clean vehicle credit under Code Section 45W, enacted by the IRA. These proposed regulations would affect eligible taxpayers who place a qualified commercial clean vehicle in service during a taxable year. The proposed regulations would also affect manufacturers of qualified commercial clean vehicles.
January 16, 2025: The IRS published the following proposed regulations:
- REG-112261-24, regarding certain matters related to corporate separations, incorporations, and reorganizations qualifying, in whole or in part, for nonrecognition of gain or loss. These matters include distributions and retentions of controlled corporation stock; assumptions of liabilities by controlled corporations; exchanges of property between distributing corporations and controlled corporations; and distributions and transfers of consideration to distributing corporation shareholders and creditors. The proposed regulations would affect corporations, their shareholders, and security holders.
- REG-116085-23, requiring multiyear tax reporting for corporate separations and related transactions. The information to be reported under these proposed regulations would establish the taxpayer’s position that the corporate separation and related transactions qualify for nonrecognition treatment.
- REG-118988-22, limiting under Code Section 162(m) the deduction for certain employee remuneration exceeding $1 million for federal income tax purposes. These proposed regulations implement the amendments made to Code Section 162(m) by the American Rescue Plan Act of 2021. The proposed regulations would affect publicly held corporations.
OTHER GUIDANCE
January 13, 2025: The IRS issued Announcement 2025-5, which shares that the US provided formal notice to the Republic of Belarus on December 17, 2024, to suspend the operation of paragraph 1, subparagraph (g), of Article III of the 1973 Convention between the United States of America and the Union of Soviet Socialist Republics on Matters of Taxation, as it relates to Belarus.
January 13, 2025: The IRS issued Revenue Procedure 2025-13, which provides a streamlined procedure for taxpayers who have elected the application of the alternative tax for certain insurance companies under Code Section 831(b) to obtain automatic consent to revoke such election.
January 14, 2025: The IRS issued Notice 2025-12, which provides the percentage increase for calculating the qualifying payment amounts for items and services furnished during 2025 for purposes of Code Sections 9816 and 9817 (relating to emergency medical bills) and other statutes. These provisions provide protections against surprise medical bills in certain circumstances.
January 15, 2025: The IRS issued Notice 2025-13, which provides updated guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Section 417(e)(3), the 24-month average segment rates used under Section 430(h)(2), the interest rate on 30-year Treasury securities under Section 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008, and the 30-year Treasury weighted average rate under Section 431(c)(6)(E)(ii)(I) of the Code.
January 15, 2025: The IRS issued Revenue Ruling 2025-4, which provides guidance on the income and employment tax treatment of contributions and benefits paid in certain situations under a state or District of Columbia paid family and medical leave program, as well as the related reporting requirements. The guidance clarifies the federal tax treatment of such paid leave programs that help pay employees who can’t work because of nonoccupational injuries to themselves or family members, as well as sickness and disabilities.
January 15, 2025: The IRS issued Revenue Ruling 2025-5, which provides the February 2025 applicable federal rates for purposes of Code Section 1274(d) and relates to the determination of issue price in the case of certain instruments issued for property.
January 15, 2025: The IRS announced that it had withdrawn a notice of proposed rulemaking that appeared in the Federal Register on October 28, 2024, regarding coverage of certain preventive services under the Affordable Care Act.
January 16, 2025: The IRS issued Notice 2025-8, which provides an updated elective safe harbor for the domestic content bonus credit (First Updated Elective Safe Harbor) that modifies the safe harbor provided in IRS Notice 2024-41. Notice 2025-8 discusses five ways in which the previous notice was modified. The notice affects taxpayers who make clean-energy payments that are described in Code Section 6417.
- Relatedly, the IRS also issued Revenue Procedure 2025-6, which provides the exclusive procedures for certain applicable entities as defined in Code Section 6417(d)(1)(A). These entities are those that are not required to file either a federal income tax return under Section 60112 or an annual information return under Section 6033(a) but previously filed a Form 990-T solely to make an elective payment election under Section 6417 to change their annual accounting period.
