IRS Announces Tax Relief For Eligible Taxpayers Affected By Ongoing Events In Israel.

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Due dates for eligible returns and payments postponed to September 30, 2026.

On September 30, 2025 the Internal Revenue Service (IRS) announced tax relief for individuals and businesses affected by the ongoing conflict in the State of Israel. These taxpayers now have until September 30, 2026, to file various federal returns, make tax payments and perform other time-sensitive tax-related actions.

This guidance follows up on prior guidance. Notice 2023-71 originally provided relief to taxpayers affected by the October 7, 2023 attacks in Israel, and Notice 2024-72 provided relief to taxpayers affected by terroristic action in Israel throughout 2023 and 2024.

The September 30, 2026, deadline will now apply to:

  • Individuals who had a valid extension to file their 2024 return due to run out on October 15, 2025. However, tax payments related to these 2024 returns that were due on April 15, 2025 are not eligible for this relief. Essentially, in these cases individuals just get more time to file.
  • Calendar-year corporations whose 2024 extensions run out on October 15, 2025. Similarly, these corporations have more time to file, but not to pay.
  • 2025 individual and business returns and payments normally due on March 16 and April 15, 2026. So, these individuals and businesses have both more time to file and more time to pay.
  • Quarterly estimated income tax payments normally due on January 15, April 15, June 15 and September 15, 2026.
  • Quarterly payroll and excise tax returns normally due on October 31, 2025, and January 31, April 30 and July 31, 2026.
  • Calendar-year tax-exempt organizations whose extensions run out on November 15, 2025.
  • Retirement plan contributions and rollovers.

Who Qualifies for Relief?

  • Any individual whose principal residence or business entity or sole proprietor whose principal place of business is in Israel, the West Bank or Gaza (the covered area).
  • Any individual, business or sole proprietor, or estate or trust whose books, records or tax preparer is located in the covered area.
  • Anyone killed, injured, or taken hostage due to the terrorist attacks.
  • Any individual affiliated with a recognized government or philanthropic organization and who is assisting in the covered area, such as a relief worker.

Importance To Preserve Records

Keep in mind that the IRS has up to three years to select a tax return for audit. The FTB has up to four years to select a tax return for audit. In some cases this period is extended to six years. When a taxpayer is selected for audit, the taxpayer has the burden of proof to show that expenses claimed are properly deductible. Having the evidence handy and organized makes meeting this burden of proof much easier.

Essential Records to Have for a Tax Audit

If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

We have seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Orange County or elsewhere can make sure that the documentation is complete and proper.  By submitting this to your tax attorney in advance of the audit, your tax attorney can review your documentation and determine if there are any gaps that need to be addressed before starting the dialogue with the IRS agent.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

  • Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
  • Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
  • Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
  • Written letters from charities confirming your monetary donations from the previous year.
  • Receipts for business expenses you claimed.
  • Mileage Logs for business use of vehicle.
  • Entertainment and Travel Logs for business

Tips On Reconstructing Records

Reconstructing records after a disaster is important for several reasons including insurance reimbursement and taxes. Most importantly, records can help people prove their disaster-related losses. More accurately estimated losses can help people get more recovery assistance like loans or grants.

Whether it’s personal or business property that has been lost or destroyed, here are some steps that can help people reconstruct important records.

Tax records

Get free tax return transcripts immediately using the Get Transcript on IRS.gov or through the IRS2Go app.  Tax return transcripts show line-by-line the entries made on your Federal income tax returns.  The most three recent tax years are available.

Financial statements

People can gather past statements from their credit card company or bank. These records may be available online. People can also contact their bank to get paper copies of these statements.

Property records

  • To get documents related to property, homeowners can contact the title company, escrow company or bank that handled the purchase of their home or other property.
  • Taxpayers who made home improvements can get in touch with the contractors who did the work and ask for statements to verify the work and cost. They can also get written descriptions from friends and relatives who saw the house before and after any improvements.
  • For inherited property, taxpayers can check court records for probate values. If a trust or estate existed, taxpayers can contact the attorney who handled the trust.
  • When no other records are available, people should check the county assessor’s office for old records that might address the value of the property.
  • Car owners can research the current fair-market value for most vehicles. Resources are available online and at most libraries. These include Kelley’s Blue Book, the National Automobile Dealers Association and Edmunds.

Develop And Implement Your Backup Plan

If you do get selected for audit and do not have all the records to support what was claimed on your tax returns, you should contact an experienced tax attorney who can argue the application of your facts and circumstances to pursue the least possible changes in an audit.

The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.  Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.

U.S. Tax Court Strikes Another Blow Against Cannabis Businesses

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The U.S. Tax Court’s recent decision in Ayla A. Savage v. Commissioner (165 T.C. No. 5, September 11, 2025) delivers a setback to cannabis businesses, by shutting them out of tax benefits available to other industries. The Tax Court’s ruling demonstrates how Section 280E’s restrictions limits cannabis operators’ access to newer tax advantages.

Internal Revenue Code Section 280E disallows all deductions or credits for any amount paid or incurred in carrying on any trade or business that consists of illegally trafficking in a Schedule I or II controlled substance within the meaning of the federal Controlled Substances Act.  This applies to businesses that sell cannabis, even if they operate in states that have legalized the sale of cannabis. Section 280E does not, however, prohibit a participant in the cannabis industry from reducing its gross receipts by its properly calculated cost of goods sold to determine its gross income.

In Savage, the Tax Court considered whether cannabis businesses can use their total W-2 wages, including wages that aren’t deductible under Section 280E, to calculate their qualified business income (QBI) deduction under Section 199A. This deduction allows eligible taxpayers to deduct up to 20% of their qualified business income, subject to various limitations including a cap based on W-2 wages paid. The taxpayers who are shareholders in three S corporations (two cannabis-related), argued they should be able to use all wages reported on W-2 forms when calculating their Section 199A wage limitation, even though Section 280E prevented them from deducting many of these wages for income tax purposes.

The Tax Court disagreed and ruled that only wages deductible after applying Section 280E can count toward the Section 199A calculation. The Tax Court relied and cited Section 199A (b)(4)(B), which states, “Section 199A(b)(4)(B) states that “W-2 wages” for purposes of the QBI deduction cannot include amounts that are “not properly allocable to qualified business income.” The Tax Court found that qualified business income is defined as the net amount of qualified items of income, gain, deduction, and loss; qualified items must be “included or allowed in determining taxable income; wages disallowed under Section 280E cannot be “qualified items” and therefore cannot be part of qualified business income; and non-qualifying wages cannot be “properly allocable” to qualified business income.

Planning Around The Limitations Of Section 280E.

 

With the limitations of Section 280E not going anywhere it is important for Cannabis businesses to consider careful entity structuring to separate business activities that might qualify for different treatment. Also, it is necessary to keep detailed record-keeping to maximize any wages that can be properly allocated to non-280E activities.

Further ways to possibly get around the Section 280E limitations would be to include the cost of goods sold with indirect expenses.

For cultivators and producers: These businesses have the most flexibility. Under the “full absorption” method of accounting, they can capitalize many indirect production costs into inventory. These costs are then recognized as cost of goods sold when the product is sold. Examples include:

  • Wages and salaries of employees involved in production, supervision, quality control, and inspection.
  • Rent and utilities for the cultivation and manufacturing facilities.
  • Repairs and maintenance of production equipment.

For dispensaries and retailers: These businesses face much tighter restrictions and are generally limited to including the direct cost of acquiring the product. In a retail environment, most operating expenses like rent, advertising, and sales salaries are not considered part of cost of goods sold and remain nondeductible under Section 280E.

Possible Legislative Or Executive Changes In The Application Of Section 280E

The Associated Press reported on April 30, 2024 that the Drug Enforcement Administration (“DEA”) will propose a rule to reschedule cannabis to Schedule III under the Controlled Substance Act. The proposed rule has since been reviewed by the Department Of Justice and on May 16, 2024 has been published in the Federal Register. Next the DEA will take public comment on the plan to move cannabis from its current classification as a Schedule I drug, alongside heroin and LSD. It moves pot to Schedule III, alongside ketamine and some anabolic steroids, following a recommendation from the federal Health and Human Services Department. After the public comment period and a review by an administrative judge, the agency would eventually publish the final rule in the Federal Register.

The IRS announced on June 28, 2024 that until a final federal rule is published, cannabis remains a Schedule I controlled substance and is subject to the limitations of Internal Revenue Code.  The law with respect to the schedule or classification of cannabis has not changed; therefore, taxpayers seeking a refund of taxes paid related to Internal Revenue Code Section 280E by filing amended returns are not entitled to a refund or payment.

Although the law has not changed, the IRS says that some taxpayers are filing amended returns. The IRS also says that while the grounds for filing such claims vary, these claims are not valid. The IRS says it will be taking steps to address these claims.

The Growing Trend In Legalizing Cannabis – Current Standings:

Medical cannabis is legal in 39 states.

The medical use of cannabis is legal (with a doctor’s recommendation) in 39 states and Washington DC. Those 39 states being Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Virginia, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Recreational cannabis is legal in 23 states and Washington DC.

Twenty-three states and Washington DC, have legalized cannabis for recreational use — no doctor’s letter required — for adults over the age of 21. Those 23 states being Alaska, Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, Vermont, Virginia and Washington and the territories of the Northern Mariana Islands and Guam.

Recreational cannabis is legal in 6 tribal nations.

Six Tribal nations have legalized cannabis for recreational use.  Those 6 tribes being the Flandreau Santee Sioux Tribe (South Dakota), Oglala Lakota Sioux Tribe (South Dakota), Suquamish Tribe (Washington state), Squaxin Island Tribe (Washington State), Eastern Band of Cherokee Indians (North Carolina) and St. Regis Mohawk Tribe (New York).

The New Rule If Approved Will Result In A Tax Regime Similar To What Non-Cannabis Businesses Face.

Currently, under Federal law (Controlled Substances Act 21 U.S.C. 801) cannabis is designated as a Schedule I controlled substance due to the historical belief that it has a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision.

Generally, businesses can deduct ordinary and necessary business expenses under I.R.C. §162. This includes wages, rent, supplies, etc. However, in 1982 Congress added I.R.C. §280E. Under §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is currently prohibited by Federal law. Cannabis, including medical cannabis, is a controlled substance. What this means is that dispensaries and other businesses trafficking in cannabis have to report all of their income and cannot deduct rent, wages, and other expenses, making their marginal tax rate substantially higher than most other businesses.  Therefore, under current law, the Internal Revenue Code which treats businesses in the cannabis industry differently resulting in such business paying at least 3-times as much in taxes as ordinary businesses.

The New Rule If Approved DOES NOT Change Reporting Of Cash Payments.

The Bank Secrecy Act of 1970 (“BSA”) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA requires any business receiving one or more related cash payments totaling more than $10,000 to file IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

The minimum penalty for failing to file EACH Form 8300 is $25,000 if the failure is due to an intentional or willful disregard of the cash reporting requirements. Penalties may also be imposed for causing, or attempting to cause, a trade or business to fail to file a required report; for causing, or attempting to cause, a trade or business to file a required report containing a material omission or misstatement of fact; or for structuring, or attempting to structure, transactions to avoid the reporting requirements. These violations may also be subject to criminal prosecution which, upon conviction, may result in imprisonment of up to 5 years or fines of up to $250,000 for individuals and $500,000 for corporations or both.

Cannabis-related businesses operate in an environment of cash transactions as many banks remain reluctant to do business with many in the cannabis industry. Like any cash-based business the IRS scrutinizes the amount of gross receipts to report and it is harder to prove to the IRS expenses paid in cash. So it is of most importance that the proper facilities and procedures be set up to maintain an adequate system of books and records.

How Do You Know Which Cannabis Tax Attorney Is Best For You?

While the Federal government is still considering whether to reschedule cannabis, it is premature to file any amended income tax returns before the rule to reschedule has been finalized.  Given that cannabis is still illegal under existing Federal law you need to protect yourself and your cannabis business from all challenges created by the U.S. government.  Additionally, assuming that this new rule is approved – ONLY LICENSED cannabis operators can benefit. So it is best to be proactive and engage an experienced cannabis tax attorney in your area who is highly skilled in the different legal and tax issues that cannabis businesses face.  Let the cannabis tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Inland Empire (Ontario and Palm Springs) and other California locations protect you and maximize your net profits.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

 

California Rolling Back Cannabis Taxes In 2025

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The California Department Of Tax And Fee Administration (CDTFA) which oversees the reporting and collection of taxes for the California cannabis, in consultation with the Department Of Finance, is required by law to adjust the cannabis excise tax rate for the 2025-26 fiscal year and every two years thereafter. The rate change reflects an additional percentage equivalent to the amount of cultivation tax that would have been collected if the cultivation tax had not ended (Revenue and Taxation Code section 34011.2).

Cannabis retailers are responsible for collecting the cannabis excise tax from their customers who purchase cannabis or cannabis products based on the gross receipts from the retail sale. Gross receipts generally include any amount the purchaser is required to pay to purchase the cannabis or cannabis products.

The excise tax rate is 15% through June 30, 2025.  This rate increased to 19% starting July 1, 2025.  The cannabis excise tax is applied to all cannabis and cannabis product purchases made by consumers.  Cannabis retailers are responsible for reporting their sales to us on their online cannabis excise tax return. For monthly filers, the new rate applies starting with the July 2025 returns. For quarterly filers, the new rate applies starting with the third-quarter 2025 returns (covering July 1, 2025 – September 30, 2025).

On September 22, 2025, Governor Gavin Newsom announced that he signed AB 564 which rolls back California’s cannabis excise tax to 15% effective October 1, 2025.  AB 564 reverses a 25% tax increase on California’s legal cannabis industry and sets the state’s cannabis excise tax rate at 15% until 2028, allowing legal businesses to remain competitive and promoting the industry’s long-term growth. Be aware that a cannabis business is also subject to excise taxes and other fees imposed by the local jurisdiction where the business is located.  Any change at the State level does not impact these local taxes and fees.

Invoice Requirements

Retailers are required to provide purchasers with a receipt or other similar document that includes the following statement – “The cannabis excise taxes are included in the total amount of this invoice.”

Recordkeeping

Every sale or transport of cannabis or cannabis products must be recorded on an invoice or receipt. Cannabis licensees are required to keep invoices for a minimum of seven years.

Distributors (or in some cases manufacturers) are responsible for collecting the cannabis cultivation and excise taxes, and the invoices they provide must include, among other specified requirements, the amount of tax collected.

Retailers, cultivators, and manufacturers must keep these invoices as verification that the appropriate tax was paid.

How This Impacts The Black Market

Legal California cannabis businesses have been complaining about taxes, which in parts of the state are among the highest in the nation. Many believe that these taxes on compliant cannabis operators while still mandating compliance with State and local regulations will widen the price disparity gap between cannabis products sold in the black market vs. cannabis products sold in the legal market. But with the State stepping up its enforcement efforts to uncover and prosecute illegal cannabis operators, the State is hoping to eliminate this discrepancy by eradicating non-compliant operators.

What Should You Do?

Start your cannabis business on the right track.  Protect yourself and your investment by engaging the cannabis tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles County and other California locations. We can come up with tax solutions and strategies and protect you and your business and to maximize your net profits. Also, if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

One Big Beautiful Bill Tax Act – How Can You Benefit?

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Focus: Deduction For Tips From Income Tax

On July 4, 2025 President Donald J. Trump signed into law H.R.1 – One Big Beautiful Bill Act (“OBBBA”).  OBBBA contains hundreds of provisions including permanently extending the individual tax rates Trump signed into law in 2017, which were originally set to expire at the end of 2025.

One of the provisions of the OBBBA provides federal income tax deductions for a portion of an eligible worker’s tips. This deduction is temporary and is set to expire after the 2028 tax year.

Prior Law

All income is subject to federal income taxes except as provided otherwise under the Internal Revenue Code.  There is no distinction from worker’s tips or overtime earnings.  In addition, worker’s tips and overtime earnings are subject to Social Security and Medicare taxes (as well as state and local taxes).

New Law – Deduction for tips

OBBBA creates a separate deduction for tipped workers, allowing them to deduct up to $25,000 of qualified tips earned. OBBBA also creates a temporary deduction from gross income for premium pay for overtime hours worked; however, the focus of this article is on further clarification on tips. For more information on the deduction for overtime pay, click here.

But beware on the deduction for tips …

Similarly to the overtime deduction, the allowable deduction for tipped earnings is reduced by $100 for each $1,000 by which the tipped worker’s gross income exceeds $150,000 (or $300,000, in the case of a joint return). Only tips that are paid voluntarily by the customer or client, not subject to negotiation, may be deducted as qualified tips. Tips received under tip-sharing arrangements also count as qualified tips; however, earnings from mandatory service charges assessed automatically to customers are not deductible as qualified tips.

Furthermore, the deduction is available only for tips earned in “traditionally and customarily tipped industries.” This means the hospitality industry (restaurants and hotels), and other businesses where tips are common (such as nail or hair salons). The Treasury Secretary has released a list of occupations that have customarily and regularly received tips on or prior to December 31, 2024.

List of occupations that qualify for the “No tax on tips” measure:

Beverage and food service

  • Bartenders
  • Wait staff
  • Food servers, nonrestaurant
  • Dining room and cafeteria attendants and bartender helpers
  • Chefs and cooks
  • Food preparation workers
  • Fast food and counter workers
  • Dishwashers
  • Host staff, restaurant, lounge, and coffee shop
  • Bakers
 Entertainment and events

  • Gambling dealers
  • Gambling change persons and booth cashiers
  • Gambling cage workers
  • Gambling and sportsbook writers and runners
  • Dancers
  • Musicians and singers
  • Disc jockeys (except radio)
  • Entertainers and performers
  • Digital content creators
  • Ushers, lobby attendants, and ticket takers
  • Locker room, coatroom and dressing room attendants
 Hospitality and guest services

  • Baggage porters and bellhops
  • Concierges
  • Hotel, motel and resort desk clerks
  • Maids and housekeeping cleaners
Home services

  • Home maintenance and repair workers
  • Home landscaping and groundskeeping workers
  • Home electricians
  • Home plumbers
  • Home heating/air conditioning mechanics and installers
  • Home appliance installers and repairers
  • Home cleaning service workers
  • Locksmiths
  • Roadside assistance workers
 Personal services

  • Personal care and service workers
  • Private event planners
  • Private event and portrait photographers
  • Private event videographers
  • Event officiants
  • Pet caretakers
  • Tutors
  • Nannies and babysitters
 Personal appearance and wellness

  • Skincare specialists
  • Massage therapists
  • Barbers, hairdressers, hairstylists, and cosmetologists
  • Shampooers
  • Manicurists and pedicurists
  • Eyebrow threading and waxing technicians
  • Makeup artists
  • Exercise trainers and group fitness instructors
  • Tattoo artists and piercers
  • Tailors
  • Shoe and leather workers and repairers
Recreation and instruction

  • Golf caddies
  • Self-enrichment teachers
  • Recreational and tour pilots
  • Tour guides and escorts
  • Travel guides
  • Sports and recreation instructors
 Transportation and delivery

  • Parking and valet attendants
  • Taxi and ride-hailing drivers and chauffeurs
  • Shuttle drivers
  • Goods delivery people
  • Personal vehicle and equipment cleaners
  • Private and charter bus drivers
  • Water taxi operators and charter boat workers
  • Rickshaw, pedicab, and carriage drivers
  • Home movers

OBBBA also includes an employer tax credit for Social Security taxes paid on all qualified tips which under prior law was applicable only to food or beverage service employees but now this credit extends to all employees that customarily receive tips in all industries such as in the industry of beauty services (i.e., hair care, nail care, and spa treatments).

This deduction also applies to individuals who are not statutory employees but who earn tips during a trade or business. The tip deduction only applies to the extent that the income from that trade or business (including tips) exceeds the full sum of allowable deductions (not counting the tip deduction) allocable to that trade or business.  In another words, to the extent that the tip deduction would result in a loss in your business, you would not be able to claim the full tip deduction amount.

Impact on employers

Starting with the 2025 tax year, employers are required to separately report on Form W-2 the portion of the employee’s pay that is For qualified overtime compensation and the employee’s qualifying tip-earning compensation. non-employees, businesses must publish a statement identifying the portion of payments made to the individual that are designated as cash tips, as well as the individual’s qualifying tip-earning occupation.

There is a transition rule for the 2025 tax year that permits employers to approximate a separate accounting of amounts designated as cash tips by any reasonable method specified by the IRS. Our office will be on the lookout for the IRS’ announcement on this and we will share this information when it becomes available.

If you are an employer using a payroll service, you should check with your service provider on what information they need to accurately report on the 2025 Form W-2 each employee’s qualified overtime compensation and qualifying tip-earning compensation.  Also, where the employer filed 2025 quarterly employment tax returns (Form 941) without claiming a tax credit for Social Security taxes paid qualified tips, amended employment tax returns should be prepared and filed to claim these overpaid amounts.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. It is advisable to consult with a tax professional to understand how these tips and overtime deduction changes might affect your specific tax situation, especially if your income relies on tips and/or overtime or you are an employer. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles, San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Yes, You Can Face Jail Time For Nonpayment Of Employment Taxes

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On August 27, 2025 the Treasury Inspector General for Tax Administration issued a report that looked at a lesser-known pandemic relief provision that allowed employers and self-employed individuals to defer Social Security tax payments during the pandemic.

That report stated that nearly 1.1 million employers opted to use the deferment which amounted to approximately $133 billion in Social Security taxes for Tax Year 2020.  An estimated $131 billion (98%) was paid. However, 167,373 employers had approximately $2 billion (2%) in unpaid deferrals. According to the IRS, as of May 2025, there were approximately 10,000 employers remaining who had not paid their deferral, and the IRS has assessed an estimated $591 million in penalties and interest on 403,711 tax accounts for employers who failed to timely pay their deferred Social Security taxes.  Those accounts are in Collections and subject to account enforcement.

Taxes withheld by employers account for nearly 72% of all revenue collected by the IRS, making noncompliance and cheating in this area one of the biggest problems for the nation’s tax system.

Criminal Penalties

When an employer willfully fails to pay over employment taxes, the Justice Department can pursue criminal prosecution under IRC Sec. 7202. Willful nonpayment of employment taxes is a felony under IRC Sec. 7202, punishable by a fine of up to $10,000, imprisonment up to 5 years, or both. When an employer withholds money from its employees’ paychecks and then does not pay it over to the Treasury, this act is considered embezzling money from the U.S. Treasury.

Civil Penalties

Even if the Federal government chooses not to pursue criminal prosecution, the civil penalties are still substantial.  The IRS will impose a 100% trust fund recovery penalty under IRC Sec. 6672 on “responsible persons” who were required to pay over the money or who controlled the funds that should have been deposited. Many people associated with a business may be found to be a responsible person, including corporate officers, treasurers, managers, and even bookkeepers, in certain circumstances.  These persons are held to be personally responsible for the taxes owed even when the business was conducted as a corporation or LLC.

Understanding Employment Taxes

Federal Income Tax – Employers generally must withhold federal income tax from employees’ wages with such withholding based on tables provided by IRS.

Social Security and Medicare Taxes – Employers generally must withhold part of social security and Medicare taxes from employees’ wages and you pay a matching amount yourself.

Additional Medicare Tax – Beginning January 1, 2013, employers are responsible for withholding the 0.9% Additional Medicare Tax on an employee’s wages and compensation that exceeds a threshold amount based on the employee’s filing status. You are required to begin withholding Additional Medicare Tax in the pay period in which it pays wages and compensation in excess of the threshold amount to an employee. There is no employer match for the Additional Medicare Tax.

Federal Unemployment (FUTA) Tax – Employers report and pay FUTA tax separately from Federal Income tax, and social security and Medicare taxes. You pay FUTA tax only from your own funds. Employees do not pay this tax or have it withheld from their pay.

Self-Employment Tax (SE tax) – is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most employees.

Depositing And Reporting Employment Taxes

Depositing Employment Taxes

In general, you must deposit federal income tax withheld, and both the employer and employee social security and Medicare taxes.  There are two deposit schedules, monthly and semi-weekly. Before the beginning of each calendar year, you must determine which of the two deposit schedules you are required to use. If you fail to make a timely deposit, you may be subject to a failure-to-deposit penalty of up to 15%.

Deposits for FUTA Tax (Form 940) are required for the quarter within which the tax due exceeds $500. The tax must be deposited by the end of the month following the end of the quarter.

You must use electronic funds transfer (EFTPS) to make all federal tax deposits.

Reporting Employment Taxes

Generally, employers must report wages, tips and other compensation paid to an employee by filing the required form(s) to the IRS. You must also report taxes you deposit by filing Forms 940, 941 and 944 on paper or through e-file.

What Should You Do?

If you or your business owes employment taxes, it is important to get an attorney involved immediately regardless of whether your case has yet to turn criminal.  The tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California know exactly what to say and how to handle issues with the IRS as well as State Tax Agencies.  Our experience and expertise not only levels the playing field but also puts you in the driver’s seat as we take full control of resolving your tax problems. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you and if you are involved in crypto-currency, check out what a Bitcoin tax attorney can do for you.

IRS Is Canceling Its Layoff Plans And Now Asking Workers Who Were Fired Or Pushed-Out To Return. What Could This Mean To The Future Of IRS Tax Enforcement?

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With all the resignations and firings in IRS earlier this year that resulted in 26,000 employees leaving the IRS (26% of its workforce), officials at the IRS are now recognizing that this cut was too deep and the agency is having problems in carrying out its duties.

Another complication is the need for the IRS to update its systems to handle the tax changes established by the One Big Beautiful Bill Act (“OBBBA”).  It is possible that the smaller workface could impact the ability for IRS to be ready for next year’s filing season.

While all this is happening, the IRS has continued to see leadership shakeups. As reported by The Washington Post, three senior IRS executives were ousted late last week, including the director for online services, and the head of the agency, IRS Commissioner Billy Long left earlier this month after only two months in the job. Treasury Secretary Scott Bessent is leading the IRS on an acting basis, the seventh person leading the IRS in 2025.

It should be noted that “acting” personnel positions do not require approval by the Senate as such appointments are temporary and the permanent position is to be filled by someone else who is subject to approval by the Senate.

Danny Werfel, previously served as IRS commissioner during the Biden Administration until resigning January 20, 2025.

History Between Commissioner Long And The White House

According to reporting by The Washington Post, the Department of Homeland Security (“DHS”) had sent the IRS a list of 40,000 names on Thursday that it suspects of being in the country illegally. DHS asked the tax service to crosscheck confidential taxpayer data to verify their addresses.  The IRS reportedly responded that it was able to verify fewer than 3% of the names on the DHS list, and mostly names that came with an individual taxpayer identification, or ITIN number, provided by DHS.

Administration officials then requested information on the taxpayers the IRS identified, which the service declined to do, citing taxpayer privacy rights.

The White House has identified the IRS as a component of its crackdown on illegal immigration and hopes that the tax agency help locate as many as 7 million people in the US without authorization. In April, homeland security struck a data sharing agreement with the Treasury Department.

But Long appears to have resisted acting on that agreement, saying the IRS would not hand over confidential taxpayer information outside its statutory obligation to the Treasury Department.

Difference In Backgrounds Between The Former And Current Presidential Administrations

Danny Werfel, who previously served as IRS commissioner into the Biden administration until resigning January 20, 2025 held leadership roles at the Office of Management and Budget. He also worked in the private sector as a managing director at Boston Consulting Group.  In contrast Billy Long worked many years as a real estate agent and as an auctioneer before spending a dozen years in Congress.  In the last two years since leaving Congress, Long worked for at least two firms that marketed the employee retention credit — a pandemic-era benefit designed to support businesses that kept workers despite revenue losses or disruptions caused by COVID-19.  The credit while designed to help businesses remain in business despite the impact of COVID-19, also attracted fraud, eventually leading to IRS enforcement and investigative activity that is still going on.

Given the $80 billion in new funding that the IRS started receiving under the Inflation Reduction Act, one of Werfel’s first tasks was to produce the IRS’s strategic operating plan on how it will spend these funds.  Commissioner Werfel promised “real world improvements for every taxpayer, every tax professional, and every IRS employee.” But since Werfel is no longer the Commissioner, any new Commissioner will have the power to influence how Americans pay their taxes and how the federal government collects revenue. Trump has promised to end IRS “overstepping” and Republicans have said that they would slash billions of dollars in funding passed under the Inflation Reduction Act that Wefel was relying on to modernize the IRS and enhance tax enforcement.

For taxpayers who have outstanding issues with the IRS or are at risk of being audited or investigated by the IRS, a scaling back of the additional funding and change in posture of the IRS could create new tax relief opportunities.

Importance To Preserve Records

Keep in mind that the IRS has up to three years to select a tax return for audit. For California taxpayers, the Franchise Tax Board has up to four years to select a California State Income Tax Return for audit. In some cases these 3 and 4 year periods are extended to six years. When a taxpayer is selected for audit, the taxpayer has the burden of proof to show that expenses claimed are properly deductible. Having the evidence handy and organized makes meeting this burden of proof much easier.

Essential Records to Have for a Tax Audit

If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

We have seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Orange County or elsewhere can make sure that the documentation is complete and proper.  By submitting this to your tax attorney in advance of the audit, your tax attorney can review your documentation and determine if there are any gaps that need to be addressed before starting the dialogue with the IRS agent.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

  • Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
  • Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
  • Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
  • Written letters from charities confirming your monetary donations from the previous year.
  • Receipts for business expenses you claimed.
  • Mileage Logs for business use of vehicle.
  • Entertainment and Travel Logs for business

Appealing Results Of An IRS Tax Audit

Now if your IRS tax audit is not resolved, the results may be challenged. After the Revenue Agent has concluded the tax examination, the agent will issue a copy of the examination report explaining the agent’s proposed changes along with notice of your appeals rights. Pay attention to the type of letter that is included as it will dictate the appeals process available to you.

The “30-day letter”

The “30-day letter” gives you the right to challenge the proposed adjustment in the IRS Office Of Appeals. To do this, you need to file a Tax Protest within 30 days of the date of the notice. The Appeals Office is the only level of appeal within the IRS and is separate from and independent of the IRS office taking the action you disagree with. Conferences with Appeals Office personnel are held in an informal manner by correspondence, by telephone, or at a personal conference.

The “Notice Of Deficiency”

If the IRS does not adopt your position, it will send a notice proposing a tax adjustment (known as a statutory notice of deficiency). The statutory notice of deficiency gives you the right to challenge the proposed adjustment in the United States Tax Court before paying it. To do this, you need to file a petition within 90 days of the date of the notice (150 days if the notice is addressed to you outside the United States). If you filed your petition on time, the court will eventually schedule your case for trial at the designation place of trial you set forth in your petition. Prior to trial you should have the opportunity to seek a settlement with IRS Area Counsel and in certain cases, such settlement negotiations could be delegated to the IRS Office Of Appeals. If there is still disagreement and the case does go to trial, you will have the opportunity to present your case before a Tax Court judge. The judge after hearing your case and reviewing the record and any post-trial briefs will render a decision in the form of an Opinion. It could take as much as two years after trial before an Opinion issued. If the Opinion is not appealed to a Circuit Court Of Appeals, then the proposed deficiency under the Opinion is final and your account will be sent to IRS Collections.

IRS Area Counsel are experienced trial attorneys working for the IRS whose job is to litigate cases in the U.S. Tax Court and look out for the best interests of the Federal government. So to level the playing field, it would be prudent for a taxpayer to hire qualified tax counsel as soon as possible to seek a mutually acceptable resolution without the need for trial, and if that does not happen, to already have the legal expertise in place to vigorously defend you at trial.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you and if you are involved in crypto-currency, check out what a Bitcoin tax attorney can do for you.

One Big Beautiful Bill Tax Act – How Can You Benefit?

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Focus: Charitable Contribution Deductions     

On July 4, 2025 President Donald J. Trump signed into law H.R.1 – One Big Beautiful Bill Act (“OBBBA”).  OBBBA contains hundreds of provisions including permanently extending the individual tax rates Trump signed into law in 2017, which were originally set to expire at the end of 2025. The passing of the OBBBA introduced several changes to charitable contribution deductions.

Important Rules On Charitable Contributions.

A charitable contribution is a donation or gift to, or for the use of, a qualified organization.  A charitable contribution requires a contribution or gift – i.e., a voluntary transfer of money or property made by the donor without receipt or expectation of financial or economic benefit. Individual taxpayers can deduct charitable contributions only in the year they actually make them (or in a succeeding carryover year).

Generally, a contribution is considered to be made at the time of its unconditional delivery. The unconditional delivery or mailing of a check that subsequently clears in due course constitutes a contribution on the delivery or mailing date. Contributions a taxpayer charges on a bank credit card are deductible in the year the taxpayer makes the charge. For contributions a taxpayer makes through a pay-by-phone account, the date the financial institution pays the amount is the contribution date. This date should be shown on the statement the financial institution sends the taxpayer.

Prior Law.

Maximum Benefit From Charitable Deduction Limited to 35 Percent Tax Rate.

Prior to OBBBA, charitable deductions served to reduce a taxpayer’s income such that the benefit of the deduction was calculated at the highest marginal tax bracket for the taxpayer. OBBBA provides that the maximum benefit for a charitable contribution deduction shall be calculated using a 35 percent marginal income tax rate if the taxpayer’s actual highest tax rate is in the 37 percent or the 35 percent marginal income tax bracket. This limitation is effective starting January 1, 2026.

Larger Donations to Public Charities Made Deductible.

Prior to OBBBA, a limitation that capped cash donations to public charities at 60 percent of the taxpayer’s AGI was set to expire on December 31, 2025, after which the limitation would have reverted to 50 percent of AGI. OBBBA made the 60 percent of the adjusted gross income (AGI) limitation permanent.

Current Law.

New Deduction for Cash Contributions For Non-Itemizing Taxpayers. 

Beginning in 2026, OBBBA provides a charitable contribution deduction for non-itemizers of up to $1,000 in cash contributions for single filers ($2,000 for married filing jointly). This deduction does not apply to gifts to donor-advised funds or supporting organizations. This provision is designed to allow a wider range of donors to receive a tax benefit for their charitable giving directly to charitable organizations, potentially encouraging increased donations from both older and younger donors.

Charitable Deduction Floor For Itemizing Taxpayers.

For individuals who elect to itemize, OBBBA imposes a new 0.5% Adjusted Gross Income (AGI) floor on charitable contributions (meaning only contributions exceeding this floor are deductible).  Previously, there was no minimum threshold for charitable deductions for itemizers. For example – If your AGI is $100,000, only the amount of your contributions above $500 (0.5% of $100,000) will be deductible.

The existing 60% of AGI ceiling for deducting cash charitable contributions remains permanent. Additionally, starting in 2026 taxpayers in the highest tax bracket will have their itemized deductions, including charitable contributions, capped at a 65% limitation.

But Beware……

Taxpayers must keep records to prove the amount of the contributions they make during the year.

Recordkeeping and Substantiation Requirements for Cash Contributions

No charitable contribution deduction is allowed for any contribution of a cash, check, or other monetary gift unless the donor maintains as a record of such contribution a bank record or a written communication from the donee showing the name of the donee organization, the date of the contribution, and the amount of the contribution.  Where the cash contribution is $250 or more, the taxpayer must obtain a contemporaneous written acknowledgment from the donee.

Recordkeeping and Substantiation Requirements for Noncash Contributions

For a contribution not made in cash, the recordkeeping requirements that apply depend on whether the claimed deduction for the contribution is:

  • less than $250 – the donor maintains for each contributiona receipt from the donee showing the following information: (a) the name and address of the donee; (b) the date of the contribution; (c) a description of the property in sufficient detail under the circumstances (taking into account the value of the property) for a person who is not generally familiar with the type of property to ascertain that the described property is the contributed property; and (d) in the case of securities, the name of the issuer, the type of security, and whether the securities are publicly traded securities.
  • at least $250, but not more than $5,000 – in addition to item (1) above, the donor must obtain a contemporaneous written acknowledgment from the donee.
  • over $5,000 – in addition to items (1) and (2) above, the donor obtains a qualified appraisal prepared by a qualified appraiser.

Potential strategies for taxpayers who itemize:

Accelerate Donations – Consider making significant donations in 2025 to avoid the new floor and deduction cap that take effect in 2026.

Bunch Contributions – Consolidate multiple years’ worth of donations into a single year to exceed the 0.5% AGI floor and maximize the deduction.

Donate Appreciated Assets – Gifting appreciated securities held for more than a year can help donors avoid capital gains tax and claim a deduction for the fair market value of the assets.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. It’s important to consult with a tax professional for personalized advice on how these changes might affect your specific tax situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles, San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

President Trump Could Be The Game Changer For Reclassifying Cannabis

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The prime benefits of reclassifying cannabis from a Schedule I substance to a Schedule III substance is that the Federal government would recognize medical benefits of cannabis, make Section 280E inapplicable to licensed cannabis operators, and open up financial and banking markets.

On August 11, 2025 President Donald Trump said his administration was “looking at reclassification” of cannabis and intends to make a decision in the upcoming weeks.  “It’s a very complicated subject base,” he said during a press briefing. “I’ve heard great things having to do with medical and bad things having to do with just about everything else.” His comments come after a Friday Wall Street Journal report indicated Trump was considering reclassifying the drug as less dangerous.  Trump did not indicate at the briefing whether he intends to reclassify the drug, just that his administration would consider it. Reclassifying marijuana as a Schedule III drug would reduce penalties without making it fully legal.

“As I have previously stated, I believe it is time to end needless arrests and incarcerations of adults for small amounts of marijuana for personal use,” Trump wrote on Truth Social. “We must also implement smart regulations, while providing access for adults, to safe, tested product.”  In the post, he indicated he would look into the medical uses of marijuana and the benefits of reducing its classification to Schedule III.

The Growing Trend In Legalizing Cannabis – Current Standings:

Medical marijuana is legal in 39 states and Washington DC

The medical use of cannabis is legal (with a doctor’s recommendation) in 39 states and Washington DC. Currently, the 39 states with medical marijuana legal include Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Illinois, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Virginia, Washington and West Virginia. The medical use of cannabis is also legal in the territories of the Northern Mariana Islands, Guam and Puerto Rico.

Recreational marijuana is legal in 23 states and Washington DC

Twenty-three states and Washington DC, have legalized marijuana for recreational use — no doctor’s letter required — for adults over the age of 21. Those 23 states being Alaska, Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, Vermont, Virginia and Washington and the territories of the Northern Mariana Islands and Guam.

Recreational marijuana is legal in 6 tribal nations.

Six Tribal nations have legalized marijuana for recreational use.  Those 6 tribes being the Flandreau Santee Sioux Tribe (South Dakota), Oglala Lakota Sioux Tribe (South Dakota), Suquamish Tribe (Washington state), Squaxin Island Tribe (Washington State), Eastern Band of Cherokee Indians (North Carolina) and St. Regis Mohawk Tribe (New York).

Proponents Of Cannabis Reclassification Argue That If Approved, Will Put Federal Law More In Line With State Laws.

Currently, under Federal law (Controlled Substances Act 21 U.S.C. 801) marijuana is designated as a Schedule I controlled substance due to the historical belief that it has a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision.

Proponents Of Cannabis Reclassification Argue That If Approved, Will Result In A Tax Regime Similar To What Non-Cannabis Businesses Face.

Generally, businesses can deduct ordinary and necessary business expenses under I.R.C. §162. This includes wages, rent, supplies, etc. However, in 1982 Congress added I.R.C. §280E. Under §280E, taxpayers cannot deduct any amount for a trade or business where the trade or business consists of trafficking in controlled substances…which is currently prohibited by Federal law. Marijuana, including medical marijuana, is a controlled substance. What this means is that dispensaries and other businesses trafficking in marijuana have to report all of their income and cannot deduct rent, wages, and other expenses, making their marginal tax rate substantially higher than most other businesses.  Therefore, under current law, the Internal Revenue Code which treats businesses in the marijuana industry differently resulting in such business paying at least 3-times as much in taxes as ordinary businesses.

However, Even If Cannabis Reclassification Is Approved, DOES NOT Change Reporting Of Cash Payments.

The Bank Secrecy Act of 1970 (“BSA”) requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, and file reports of cash purchases of these negotiable instruments of more than $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA requires any business receiving one or more related cash payments totaling more than $10,000 to file IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

The minimum penalty for failing to file EACH Form 8300 is $25,000 if the failure is due to an intentional or willful disregard of the cash reporting requirements. Penalties may also be imposed for causing, or attempting to cause, a trade or business to fail to file a required report; for causing, or attempting to cause, a trade or business to file a required report containing a material omission or misstatement of fact; or for structuring, or attempting to structure, transactions to avoid the reporting requirements. These violations may also be subject to criminal prosecution which, upon conviction, may result in imprisonment of up to 5 years or fines of up to $250,000 for individuals and $500,000 for corporations or both.

Marijuana-related businesses operate in an environment of cash transactions as many banks remain reluctant to do business with many in the marijuana industry. Like any cash-based business the IRS scrutinizes the amount of gross receipts to report and it is harder to prove to the IRS expenses paid in cash. So it is of most importance that the proper facilities and procedures be set up to maintain an adequate system of books and records.

How Do You Know Which Cannabis Tax Attorney Is Best For You?

Given that cannabis is still illegal under existing Federal law you need to protect yourself and your marijuana business from all challenges created by the U.S. government so it is best to be proactive and engage an experienced cannabis tax attorney in your area who is highly skilled in the different legal and tax issues that cannabis businesses face.  Let the cannabis tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the Inland Empire (Ontario and Palm Springs) and other California locations protect you and maximize your net profits.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

 

President Trump Removed IRS Commissioner Billy Long After Two Months Of Service. What Could This Mean To The Future Of IRS Tax Enforcement?

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On June 12, 2025, the Senate confirmed President Donald Trump’s nomination of former U.S. Rep. Billy Long of Missouri to be Internal Revenue Service commissioner, clearing the path for him to begin a term that will end in November 2027; but that service ended on August 8, 2025 when Trump announced Long being removed from that position and that U.S. Treasury Secretary Scott Bessent (whose department oversees IRS) shall be servicing as the acting IRS Commissioner.  The removal of Long is reportedly due to his refusal to allow IRS to release some information on taxpayers suspected of being in the United States illegally; however, Trump appointed Long to serve as the new U.S. ambassador to Iceland which Long accepted.

While the waiting for the Senate to confirm Billy Long, President Trump had promoted Gary Shapley as the new acting IRS Commissioner replacing Melanie Krause, who resigned from her role as acting IRS commissioner over a deal to share immigrants’ tax data with Immigration and Customs Enforcement to identify and deport people illegally in the U.S. But just 3 days in this position, President Trump replaced Shapley with Michael Faulkender.

It should be noted that “acting” personnel positions do not require approval by the Senate as such appointments are temporary and the permanent position is to be filled by someone else who is subject to approval by the Senate.

Danny Werfel, previously served as IRS commissioner during the Biden Administration until resigning January 20, 2025.  Bessent will be the seventh person to lead the IRS this year.

History Between Commissioner Long And The White House

According to reporting by the Washington Post, the Department of Homeland Security (“DHS”) had sent the IRS a list of 40,000 names on Thursday that it suspects of being in the country illegally. DHS asked the tax service to crosscheck confidential taxpayer data to verify their addresses.  The IRS reportedly responded that it was able to verify fewer than 3% of the names on the DHS list, and mostly names that came with an individual taxpayer identification, or ITIN number, provided by DHS.

Administration officials then requested information on the taxpayers the IRS identified, which the service declined to do, citing taxpayer privacy rights.

The White House has identified the IRS as a component of its crackdown on illegal immigration and hopes that the tax agency help locate as many as 7 million people in the US without authorization. In April, homeland security struck a data sharing agreement with the Treasury Department.

But Long appears to have resisted acting on that agreement, saying the IRS would not hand over confidential taxpayer information outside its statutory obligation to the Treasury Department.

Difference In Backgrounds Between The Former And Current Presidential Administrations

Danny Werfel, who previously served as IRS commissioner into the Biden administration until resigning January 20, 2025 held leadership roles at the Office of Management and Budget. He also worked in the private sector as a managing director at Boston Consulting Group.  In contrast Billy Long worked many years as a real estate agent and as an auctioneer before spending a dozen years in Congress.  In the last two years since leaving Congress, Long worked for at least two firms that marketed the employee retention credit — a pandemic-era benefit designed to support businesses that kept workers despite revenue losses or disruptions caused by COVID-19.  The credit while designed to help businesses remain in business despite the impact of COVID-19, also attracted fraud, eventually leading to IRS enforcement and investigative activity that is still going on.

Given the $80 billion in new funding that the IRS started receiving under the Inflation Reduction Act, one of Werfel’s first tasks was to produce the IRS’s strategic operating plan on how it will spend these funds.  Commissioner Werfel promised “real world improvements for every taxpayer, every tax professional, and every IRS employee.” But since Werfel is no longer the Commissioner, any new Commissioner will have the power to influence how Americans pay their taxes and how the federal government collects revenue. Trump has promised to end IRS “overstepping” and Republicans have said that they would slash billions of dollars in funding passed under the Inflation Reduction Act that Wefel was relying on to modernize the IRS and enhance tax enforcement.

For taxpayers who have outstanding issues with the IRS or are at risk of being audited or investigated by the IRS, a scaling back of the additional funding and change in posture of the IRS could create new tax relief opportunities.

Importance To Preserve Records

Keep in mind that the IRS has up to three years to select a tax return for audit. For California taxpayers, the Franchise Tax Board has up to four years to select a California State Income Tax Return for audit. In some cases these 3 and 4 year periods are extended to six years. When a taxpayer is selected for audit, the taxpayer has the burden of proof to show that expenses claimed are properly deductible. Having the evidence handy and organized makes meeting this burden of proof much easier.

Essential Records to Have for a Tax Audit

If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

We have seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Orange County or elsewhere can make sure that the documentation is complete and proper.  By submitting this to your tax attorney in advance of the audit, your tax attorney can review your documentation and determine if there are any gaps that need to be addressed before starting the dialogue with the IRS agent.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

  • Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
  • Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
  • Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
  • Written letters from charities confirming your monetary donations from the previous year.
  • Receipts for business expenses you claimed.
  • Mileage Logs for business use of vehicle.
  • Entertainment and Travel Logs for business

Appealing Results Of An IRS Tax Audit

Now if your IRS tax audit is not resolved, the results may be challenged. After the Revenue Agent has concluded the tax examination, the agent will issue a copy of the examination report explaining the agent’s proposed changes along with notice of your appeals rights. Pay attention to the type of letter that is included as it will dictate the appeals process available to you.

The “30-day letter”

The “30-day letter” gives you the right to challenge the proposed adjustment in the IRS Office Of Appeals. To do this, you need to file a Tax Protest within 30 days of the date of the notice. The Appeals Office is the only level of appeal within the IRS and is separate from and independent of the IRS office taking the action you disagree with. Conferences with Appeals Office personnel are held in an informal manner by correspondence, by telephone, or at a personal conference.

The “Notice Of Deficiency”

If the IRS does not adopt your position, it will send a notice proposing a tax adjustment (known as a statutory notice of deficiency). The statutory notice of deficiency gives you the right to challenge the proposed adjustment in the United States Tax Court before paying it. To do this, you need to file a petition within 90 days of the date of the notice (150 days if the notice is addressed to you outside the United States). If you filed your petition on time, the court will eventually schedule your case for trial at the designation place of trial you set forth in your petition. Prior to trial you should have the opportunity to seek a settlement with IRS Area Counsel and in certain cases, such settlement negotiations could be delegated to the IRS Office Of Appeals. If there is still disagreement and the case does go to trial, you will have the opportunity to present your case before a Tax Court judge. The judge after hearing your case and reviewing the record and any post-trial briefs will render a decision in the form of an Opinion. It could take as much as two years after trial before an Opinion issued. If the Opinion is not appealed to a Circuit Court Of Appeals, then the proposed deficiency under the Opinion is final and your account will be sent to IRS Collections.

IRS Area Counsel are experienced trial attorneys working for the IRS whose job is to litigate cases in the U.S. Tax Court and look out for the best interests of the Federal government. So to level the playing field, it would be prudent for a taxpayer to hire qualified tax counsel as soon as possible to seek a mutually acceptable resolution without the need for trial, and if that does not happen, to already have the legal expertise in place to vigorously defend you at trial.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you and if you are involved in crypto-currency, check out what a Bitcoin tax attorney can do for you.

One Big Beautiful Bill Tax Act – How Can You Benefit?

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Focus: Casualty and Business Losses Deduction     

On July 4, 2025 President Donald J. Trump signed into law H.R.1 – One Big Beautiful Bill Act (“OBBBA”).  OBBBA contains hundreds of provisions including permanently extending the individual tax rates Trump signed into law in 2017, which were originally set to expire at the end of 2025.

The OBBBA introduces several changes and clarifications regarding casualty and business loss deductions for businesses. A casualty loss is the (1) damage, destruction, or loss of property (2) resulting from an identifiable event that is (3) sudden, unexpected, and unusual.

Prior law

Personal casualty losses, which include theft losses, are temporarily limited under the Tax Cuts and Jobs Act of 2017 (TCJA). In the case of an individual, any personal casualty loss which would otherwise be deductible in tax years 2018 to 2025 is only allowed as a deduction in those years to the extent it is attributable to a federally declared disaster as defined in IRC Sec. 165(i)(5). There is an exception, however, for personal casualty gains during those years. Such gains can be used to offset a personal casualty loss not attributable to a federally declared disaster to the extent the loss does not exceed the gain.

Business casualty losses are not impacted by the TCJA limitations.  IRC Sec. 165(c)(1) allows a deduction for an uncompensated loss incurred in a trade or business. To be engaged in a trade or business, an individual must be involved in an activity with continuity and regularity, and the primary purpose for engaging in the activity must be for income or profit. A sporadic activity, a hobby, or an amusement diversion does not qualify. Whether an individual is carrying on a trade or business requires an examination of the facts involved in each case.

Under IRC Sec. 165(c)(2), an individual can deduct losses incurred in any transaction entered into for profit, though not connected with a trade or business. In determining whether a loss was incurred in any transaction entered into for profit, though not connected with a trade or business, courts consider whether the taxpayer’s predominant, primary or principal objective in engaging in the activity was to realize an economic profit independent of tax savings. Reg. Sec. 1.183-2(b) sets forth the following nonexclusive list of factors to be considered in evaluating a taxpayer’s profit objective:

(1) The manner in which the taxpayer carries on the activity;

(2) The expertise of the taxpayer or his advisers;

(3) The time and effort expended by the taxpayer in carrying on the activity;

(4) The expectation that assets used in the activity may appreciate in value;

(5) The success of the taxpayer in carrying on other similar or dissimilar activities;

(6) The taxpayer’s history of income or losses with respect to the activity;

(7) The amount of occasional profits, if any, from the activity;

(8) The financial status of the taxpayer; and

(9) Elements of personal pleasure or recreation.

OBBBA personal casualty losses deduction

Starting on January 1, 2026, OBBBA expands the definition of disasters to include certain state-declared disasters as well. All other limitations and restrictions still apply.

The loss amount is the lesser of the decline in the property’s value due to the casualty (up to your adjusted basis) or the property’s adjusted basis if completely destroyed. The loss must be reduced by any insurance or other reimbursements received or expected.  Remember, you must prove both the loss and its amount, including the property’s adjusted basis, pre- and post-casualty value, and any reimbursements received.

OBBBA business casualty loss deduction 

OBBBA makes no changes to provisions governing business casualty losses. Taxpayers can generally deduct business casualty losses in the year they occur provided that the lost or damaged property was connected to a trade or business or a transaction entered into for profit.

But Beware……

Regarding business casualty losses, you cannot deduct the loss of future earnings, or your time spent cleaning up after the event. Also, a decline in value due to a casualty without physical damage is generally not deductible.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. It’s important to consult with a tax professional for personalized advice on how these changes might affect your specific tax situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles, San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.