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Columns at the Delaware County Court of Common Pleas, Media, Pennsylvania

From the Hill: January 21, 2025

Recent activities on the Hill include IRS Commissioner Daniel Werfel stepping down.

Here’s a look at recent tax-related happenings on the Hill, including the IRS commissioner’s departure and President Donald Trump’s proposal to establish an “External Revenue Service.”

Lately on the Hill

IRS Commissioner Daniel Werfel stepped down on January 20, 2025 in response to the new administration’s desire to replace him. Deputy Commissioner Douglas O’Donnell will be acting commissioner pending the confirmation of the president’s pick for the post, Billy Long.

A Discussion on Tariffs 

A tariff is a tax imposed on imported goods, typically calculated as a fixed percentage of an item’s value. Tariffs on goods entering the U.S. are paid by the importer of record, or the individual who ordered the goods. These tariffs are collected by the U.S. Customs and Border Protection agency at ports of entry across the country.

The president has repeatedly stated his intention to impose various tariffs on imported goods, but rather than impose heavy tariffs immediately upon taking office, Trump’s economic team has discussed the possibility of a tariff ramp. This would involve a schedule of graduated tariffs increasing at a rate of 2–5% per month, relying on executive authority under the International Emergency Economic Powers Act.

The president recently proposed to establish an “External Revenue Service”. The External Revenue Service would be responsible for collecting tariffs, duties, and other taxes imposed on goods and services imported from foreign jurisdictions.

The Judicial Report

The U.S. Supreme Court has agreed to review the decision of the U.S. Tax Court in Commissioner v. Zuch, offering an opportunity to set the tone regarding the powers granted to the IRS to collect a taxpayer’s debts.

The case involved a dispute between a taxpayer and the IRS regarding the allocation of estimated tax payments and their application to a tax liability. After the tax court dismissed the case at the IRS’ request, the U.S. Court of Appeals for the Third Circuit ruled that a taxpayer’s challenge to a tax liability could not be rendered moot by unilateral action of the IRS.

From the Treasury & IRS

The IRS released Final Regulations (T.D. 10030) to clarify that while the appeals resolution process through the IRS Independent Office of Appeals (Appeals) is generally available to all taxpayers who seek to resolve federal tax controversies, certain exceptions apply to limit consideration by Appeals. In addition, the Final Regulations explain certain procedural and timing rules required in the Appeals process. The Final Regulations are effective January 14, 2025 and apply to all requests for consideration by Appeals received on or after 30 days from the effective date of the Final Regulations (February 14, 2025).

The IRS issued Proposed Regulations (REG-116085-23) to require taxpayers who engage in corporate separations and related transactions under Section 355 to report certain information to ensure that requirements for nonrecognition treatment are met. Each covered filer as defined in the Proposed Regulations would be required to file Form 7216, Multi-Year Reporting Related to Section 355 Transactions, in the taxable year in which the transaction occurred and the five taxable years thereafter.

Proposed Regulations (REG 112261-24) contain guidance for taxpayers who engage in certain corporate transactions under §355 and §368, and the associated provisions in §357 and §361. The Proposed Regulations address matters concerning distributions and retentions of corporate stock, assumption of liabilities, exchanges of property, and distributions and transfers of consideration in connection with nonrecognition corporate separations, incorporations, and reorganizations.

The IRS has requested comments on the proposed regulations for corporate separations and reorganizations listed above in IR-2025-11 by March 17, 2025.

Proposed Regulations (REG-118988-22) institute amendments made to §162(m) by the American Rescue Plan Act of 2021 to limit the deduction for certain employee compensation in excess of $1 million for federal income tax purposes.

The IRS modified Revenue Procedure (Rev. Proc.) 85-18 with Rev. Proc. 2025-10 to provide updated guidance regarding classification of employees under §530 of the Revenue Act of 1978. The guidance includes clarification on the definition of an employee, the filing of required returns, and the reasonable basis safe harbor rules.

The IRS announced three pilot programs to test changes to the Alternative Dispute Resolution programs in IR-2025-14. The pilot programs are part of the IRS’ overall Strategic Operating Plan and aim to assist taxpayers in resolving disputes more efficiently. The IRS encourages taxpayers to submit commits on the pilot programs via the Federal eRulemaking Portal or by mail in Announcement 2025-6.

This newsletter features developing content that is subject to change at any time. It does not constitute legal or tax advice. Consult your professional advisors prior to acting on the information set forth herein. 

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