On Dec. 20, 2024, the Treasury Department and the IRS released proposed regulations (REG-116610-20) to update Circular 230, which governs practice before the IRS. These amendments, if finalized, would have a substantial impact on attorneys, CPAs, enrolled agents, and other tax professionals who practice before the IRS. Understanding these proposed amendments is essential for tax practitioners to prepare for potential changes ahead.

Many Americans faced overreaching tax changes with the Tax Cuts and Jobs Act of 2017. Taxpayers’ attention went to items like the Qualified Business Income Deduction, Net Operating Losses, and sweeping tax rate changes across the board. However, an often overlooked change was a revision to Section 174 and the introduction of a new definition for specified research or experimental (SRE) expenditures. This change was not slated to go into effect until the 2022 tax year, and once it arrived, it came with endless taxpayer questions and a lack of federal guidance on implementation.

In Loper Bright Enterprises et al. v. Raimundo, 544 F. Supp. 3d 82, 103-04 (2021), the U.S. Supreme Court overturned the Chevron doctrine, a policy of deferring court discretion to federal agency regulations. Chief Justice Roberts authored the majority (6-3) opinion. 

At the end of October 2024, the IRS announced that it will no longer automatically assess penalties for late reporting of large foreign gifts. Before assessing a penalty, the IRS will now review reasonable cause statements submitted with late-filed Form 3520, which reports gifts or bequests from foreign persons, to determine whether a penalty should be imposed.

Estate of Fields v. Commissioner, T.C. Memo. 2024-90 (Sept. 26, 2024) (Copeland, J.), provides a textbook example of a “bad facts” family limited partnership (FLP) that caused estate tax inclusion of the property transferred to the FLP under both sections 2036(a)(1) and (2) with loss of discounts for lack of control and lack of marketability. In doing so, the court applied the Tax Court’s 2017 holding in Estate of Powell v. Commissioner, 148 T.C. 392 (2017)—that the ability of the decedent as a limited partner to join together with other partners to liquidate the FLP constitutes a section 2036(a)(2) estate tax trigger—and raises the specter of accuracy-related penalties that may loom where section 2036 applies.

In Moore v. U.S. (36 F. 4th 930), the U.S. Supreme Court ruled on a constitutional challenge of IRC section 965, the mandatory repatriation tax (MRT). The MRT is a one-time repatriation tax (or “deemed dividend”) that passes through undistributed accumulated income of U.S.-controlled foreign corporations (CFCs). Section 965 is part of the 2017 Tax Cuts and Jobs Act (P.L. 115-97), which addresses foreign business earnings, including CFCs, inversions and the GILTI tax. The Act generally taxes U.S. shareholders owning 10% or more of a foreign corporation on otherwise tax-deferred foreign earnings.