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On July 4, President Trump signed the One Big Beautiful Bill Act into law.This followed July 1 passage in the Senate and July 3 passage in the House. Enactment follows days of frantic activity in Congress, with day-long debates, record-setting voting sessions, and many deals to secure passage in the closely divided House and Senate.

COMMENT: One of the final changes to the bill before passage was to strip the name of the Act due to Senate reconciliation rules, so the official name is not the One Big Beautiful Bill Act. This has been done for other recent reconciliation bills, such as the Inflation Reduction Act of 2022 and the Tax Cuts and Jobs Act of 2017.

The Act includes a number of tax changes, including permanent and limited modification of many soon-to-expire tax provisions, new provisions promised by President Trump during his 2024 campaign, elimination or modification of most green energy provisions, and dozens of other changes affecting individuals and businesses. There are many differences outside the tax provisions that have been subject to disagreement within the GOP majority, though the dissenting voices seem to have accepted those changes in order to get the bill across the finish line.

Upon its passage, the majority of the provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) included expiration dates in order to satisfy budgetary requirements. Lower individual rate brackets, higher standard deductions, the elimination of the personal exemption, the cap on the deduction of state and local taxes (SALT), changes to the alternative minimum tax, and many other provisions are all set to expire at the end of 2025. Without legislation, the federal tax system would have largely reverted back to the rules applicable in 2017.

Throughout the 2024 campaign, Trump, as well as many GOP lawmakers, proposed making these soon-to-expire provisions a permanent part of the tax code. The Act does just that, but it comes at a high price tag (some estimates have it at $5 trillion over ten years). Much of this cost is balanced by reduced outlays in many government programs not related to taxation, and by the elimination of many of the "green" tax provisions from the Inflation Reduction Act.

COMMENT: This CCH Tax Briefing is not intended to comprehensively cover all provisions proposed in the approximately 400-page tax portion of the Act, but rather the highlights. See CCH® AnswerConnect for complete coverage of the One Big Beautiful Bill Act.

EXTENDED INDIVIDUAL PROVISIONS

Individual Extenders

Many of the provisions of the TCJA applicable to individuals are among those scheduled to expire at the end of 2025.

These include:

• 10, 12, 22, 24, 32, 35 and 37 percent brackets applicable since 2018;

• Elimination of personal exemptions;

• Increased alternative minimum tax exemption and threshold amounts;

• Lower limitation on the deduction of mortgage interest;

• Limitation on the casualty loss deduction;

• Termination of the miscellaneous itemized deduction; and

• Allowance of rollovers from qualified tuition programs to ABLE accounts.

The Act makes all of these provisions permanent, but does make some modifications. The Act permanently treats mortgage insurance premiums as qualified residence interest for which a deduction could be claimed and allows for unreimbursed educator expenses to be deducted as a miscellaneous itemized deduction. The Act also removes the last seven years of inflation adjustments from the AMT exemption phase-out threshold for joint filers, reverting the threshold to the 2018 amount.

COMMENT: Between 2008 and 2021, mortgage insurance premiums could be treated as qualined residence interest and deducted my homeowners. Also, under current law, teachers are allowed an above-the-line deduction for classroom expenses of up to $300 for 2024 and 2025, but the Act expands that beyond the dollar limitation.

Also, the Act does permanently eliminate the personal exemption amount, but provides a $6,000 deduction amount for seniors age 65 and older after 2024 and before 2029. This deduction would phase out for individuals whose modified adjusted gross income exceeds $75,000 ($150,000 for joint filers).

COMMENT: A similar provision was in the House-passed version of the bill, but was instead an expansion of the standard deduction, and capped at $4,000.

Standard Deduction

The TCJA nearly doubled the standard deduction for tax years beginning after 2017. For 2025 (prior to the Act), the inflation adjusted amounts were $30,000 for joint filers, $22,500 for heads of households, and $15,000 for single taxpayers and married taxpayers filing separately. These higher amounts were set to expire after 2025.

The Act increases the amount of the standard deduction for tax years beginning in 2025 and subject to inflation thereafter. Under the Act, the standard deduction amounts for 2025 are $31,500 for joint filers $23,625 for heads of households, and $15,750 for single taxpayers and married taxpayers filing separately.

COMMENT: In the bill passed by the House, the amounts would have been temporarily increased for tax years 2025 through 2028 by $2,000, $1,500, and $1,000 respectively. The bill originally proposed by the Senate also increased the deduction by the same amounts, but made them permanent and subject to inflation. The lower amounts ultimately passed reflect an attempt to lower the cost of the provision.

SALT Deduction

One of the most controversial provisions of the CJA was the imposition of a $10,000 cap on the deduction for state and local taxes. Before the ink was dry on the 2017 legislation, lawmakers in higher tax states on both sides of the aisle (the so-called "SALT Caucus") were introducing legislation intended to increase or outright repeal the cap.

The Act increases the cap to $40,000 for 2025, with a one percent increase in the cap each year through 2029 before returning to the $10,000 limit in 2030. The cap is reduced by 30% of the amount by which the taxpayer's modified adjusted gross income exceeds a threshold amount. That threshold amount is generally $500,000 for 2025, with a one percent increase each year through 2029.

COMMENT: This had proven to be one of the stickier points for legislators in their negotiations in both the House and Senate. Members of the SALT Caucus were still outwardly unhappy with the $40,000 limit agreed to in the House bill, but ultimately decided to vote in favor of it. The initial Senate proposal made no increase in the cap, but was eventually increased to match the House bill. In the days leading up to passage in the Senate, members of the SALT Caucus have accepted this final framework.

Child Tax Credit

The TCJA increased the amount of the child tax credit from $1,000 to $2,000 for tax years 2018 through 2025, as well as nearly quadrupling the phaseout thresholds to $400,000 for joint filers and $200,000 for other filers.

The Act permanently increases the base amount of the credit to $2,200, subject to annual inflation increases. The post-2017 base amount of the refundable portion of the child tax credit (the "additional child tax credit") remains at $1,400, and continues to be adjusted for inflation ($1,700 for 2025).

The Act requires the taxpayer claiming the credit, the taxpayer's spouse (if married), and the child for whom the credit is claimed to have Social Security numbers.

Estate Taxes

The estate tax basic exclusion amount, which the TCJA doubled for decedents dying through 2025 (inflation adjusted to $13.99 million in 2025) would revert back to 2017 amounts if the TCJA is allowed to expire.

Under the Act, the basic exclusion amount is increased again to a base amount of $15 million for decedents dying in 2026, adjusted for inflation thereafter.

COMMENT: The $15 million amount is probably not far off from where inflation would have taken the exclusion amount for 2026 if the TCJA was not scheduled to expire.

NEW INDIVIDUAL PROVISIONS

No Tax on Tips

One of the big talking points for President Trump during the campaign was the elimination of the tax on tip income. Historically, tip income was not subject to tax until the early 1980s when legislation passed during the Reagan administration treated it like regular income. The deduction is capped at $25,000, and the deduction begins to phase out when the taxpayer's modified adjusted gross income exceeds $150,000 ($300,000 for joint filers). The deduction is not allowed for tax years beginning after 2028. The Act also extends the employer credit for Social Security taxes on employee cash tips to the beauty service industry (the credit currently only applies to the food and beverage industry).

No Tax on Overtime

During his campaign, President Trump also proposed making overtime compensation tax free. Under the Act, taxpayers are able to claim a deduction for the amount of overtime pay received as required under section 7 of the Fair Labor Standards Act of 1938. Like the deduction for tip income, taxpayers do not have to itemize deductions to claim the deduction, but are required to provide a Social Security number. The deduction is capped at $12,500 ($25,000 for joint filers), and the deduction begins to phase out when the taxpayer's modified adjusted gross income exceeds $150,000 ($300,000 for joint filers). The deduction is not allowed for tax years beginning after 2028.

COMMENT: The Act does not provide extensive rules for the application of this provision, leaving the rules of application up to Treasury Regulations.

Social Security Income

During his campaign, President Trump also proposed making Social Security income tax free. However, at no point has the Senate bill, nor the version that passed the House, included a provision to eliminate the tax on or provide a deduction for Social Security income.

COMMENT: It is possible that the special personal exemption available for seniors is intended to accomplish the same goal as making Social Security income tax-free.

Itemized Deduction Limitation

Prior to the TCJA, the itemized deduction limitation was subject to a phaseout at higher incomes (the "Pease" limitation). The Act includes a return of the limitation on itemized deductions for taxpayers in the 37 percent income tax bracket, effective after 2025.

Automobile Loan Interest

Previously, interest on an individual's automobile loan was treated as nondeductible personal interest. The Act includes a deduction of up to $10,000 for interest paid on an automobile loan in 2025 through 2028 for a car purchased after 2024. The deduction is available for both itemizers and non-itemizers.

Trump Accounts

The Act also includes provisions for the creation of tax-favored accounts for newborn children, called "Trump Accounts." The accounts are seeded with $1,000 for newborn children. From a tax standpoint, they operate under rules similar to those applicable to individual retirement accounts, but are available to children.

Additional Provisions

The Act also includes:

• A tax credit for contributions to scholarship-granting organizations;

• An expansion of 529 programs to include elementary, secondary, and home schooling expenses; and

• The resurrection of the COVID-era allowance of a charitable contribution deduction for non-itemizers.

BUSINESS PROVISIONS

Bonus Depreciation

The TCJA provided for 100 percent expensing of certain business property through 2022, with a 20 percent stepdown each year after before reaching 0 percent in 2027 (currently set at 40% in 2025). The Act makes 100 percent bonus depreciation permanent for property acquired after January 19, 2025.

Research and Experimental Expenditures

Under prior law, taxpayers are required to amortize research and experimental expenditures. Prior to 2022, a direct expense election was available. The Act permanently reinstates the deduction for domestic research and experimental expenditure costs incurred after 2024. Taxpayers can elect whether to deduct or amortize the expenditures, though the requirement to amortize under prior law is suspended while the deduction is available. Additionally, small businesses with average annual gross receipts of $31 million or less would be able to elect to claim the deduction retroactively to 2022.

Qualified Business Income Deduction

The TCJA's qualified business income deduction under Code Sec. 199A is set to expire for tax years beginning after 2025.

Under the Act, the qualified business income deduction is made permanent. Additional changes expand qualification for the deduction.

Additional Provisions

The Act also includes:

• An increase in the 179 deduction limitations after 2024

• An exclusion of interest received by qualified lenders secured by rural or agricultural real property

• Modifications to the low-income housing credit.International Extensions

The Act makes permanent many international and foreign-related provisions under the CJA, including the:

• Deduction for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI); and

• Base erosion minimum tax amount.

However, the Act changes the FDIl rate to 33.34 percent (currently 37.5 percent) and the GILTI rate to 40 percent (currently 50 percent) after 2025.

COMMENT: Under TCJA, these rates were scheduled to drop to 21.875 percent and 37.5 percent, respectively, after 2025. So this actually represents a tax increase for 2026 and beyond. The Act also changes the base erosion minimum tax amount to 10.5 percent from its current 10 percent rate after 2025.COMMENT. Under TCJA, this rate was scheduled to increase to 12.5 percent after 2025, so this represents a tax decrease for 2026 and beyond. The Act also makes changes to the treatment of "tested" CFC income and the foreign tax credit.

GREEN ENERGY TERMINATIONS

The Inflation Reduction Act of 2022 created dozens of new tax credits intended to promote the manufacture and adoption of alternative energy sources. The elimination of these credits by the One Big Beautiful Bill Act is a key method of paying for many of the new taxpayer-friendly provisions. However, the timing of the termination had been another sticking point throughout negotiations, and as the Senate amended its bill, House leaders were pleading for changes to be included to look more like the House bill.

The major difference between the two chambers largely centered on when credits for "clean" energy producers will be eliminated. The House took the approach that for producers that have already invested in construction costs, the credits should be terminated in 2026 or later.The Senate initially took a much more aggressive approach, with some credits terminating immediately but nearly all terminating before the end of 2025.

Ultimately, the Senate relented and included a longer run-out for energy producers to claim credits, in some cases allowing for construction to begin in 2026.

Where the Senate Act did agree with the House was on the termination of many credits applicable to the consumer side of green energy. Under the Act, the affected credits include the following (termination generally after 2025):

• Previously owned clean vehicle credit;

• Clean vehicle credit;

• Qualified commercial clean vehice credit;

• Alternative fuel refueling property credit;

• Energy efficient home improvement credit;

• Residential clean energy credit; and

• New energy efficient home credit.

IRS PROCEDURAL PROVISIONS

Perhaps the most widely applicable operations provision of the Act is the termination of the IRS Direct File program.

The Act requires the termination of the program within 30 days after passage and appropriates funding for the IRS to research a public-private partnership to replace the current "free file" program.The Act includes specified penalties for fraudulent promoters of retention credit schemes, but at a much lower limit of $1,000 per failure to comply with due diligence requirements (though without a cumulative limit). The Act also includes the termination of the Direct File program.

COMMENT: The version of the bill that was passed by the House included the provision imposing the penalty on ERC promoters with much higher penalty amounts. However, in a subsequent vote on a recissions bill on June 11, a rule adopted in passage struck that provision from the House-passed bill. It isn't clear how that recissions bill will impact this provision.

The IRS has issued proposed and temporary regulations under Code Sec. 530A, regarding general requirements for Trump accounts, the establishment of an initial account, including automatic enrollment by the Secretary of the Treasury, and qualified general contributions. Proposed regulations issued in March 2026 (NPRM REG-117270-25) that provided guidance on establishing Trump accounts, but did not establish automatic enrollment due to time constraints in resolving legal and administrative issues, are withdrawn. The temporary regulations apply to tax years beginning on or after January 1, 2026, and expire on September 30, 2029.

The IRS has issued proposed and temporary regulations under Code Sec. 530A, regarding general requirements for Trump accounts, the establishment of an initial account, including automatic enrollment by the Secretary of the Treasury, and qualified general contributions. Proposed regulations issued in March 2026 (NPRM REG-117270-25) that provided guidance on establishing Trump accounts, but did not establish automatic enrollment due to time constraints in resolving legal and administrative issues, are withdrawn. The temporary regulations apply to tax years beginning on or after January 1, 2026, and expire on September 30, 2029.

General Requirements and Establishment of an Account

A Trump account is either (1) an initial Trump account, created or organized by the Treasury Secretary for an eligible individual or (2) a rollover Trump account, which is an account created during the growth period and funded by a qualified rollover contribution from the account beneficiary's existing Trump account. The written governing instrument of a Trump account must generally meet the rules of Code Sec. 408(a)(1) through (6) and Code Sec. 530A(b)(1)(C)(i) through (iii). Any person approved by the IRS as of December 31, 2025, to be a nonbank trustee of an IRA would have automatic approval to act as a trustee of a Trump account. The written instrument must clearly identify the account as a Trump account at the time of creation.

The Secretary may make an election to establish an auto account for a qualifying individual. Another person may elect to establish a Trump account for an eligible individual by filing Form 4547 or via the electronic application or webpage made available by the Secretary. A person may claim an auto account pursuant to Temp. Reg. §1.530A-1T(d)(1)(iv) by establishing a claimed initial Trump account and having the funds in the auto account transferred to the claimed initial Trump account. On or about October 1, 2026, the Secretary shall establish an auto account for each person whom the Secretary has determined to meet the requirements of Temp. Reg. §1.530-A-1T(b)(2) to be an eligible individual, and from whom no prior election has been made. Periodic elections to establish accounts for eligible individuals will be made after that date.

Administration of an auto account is the Secretary's responsibility. During the growth period, an account may only accept qualified general contributions under Code Sec. 530A(f) and a $1,000 pilot program contribution. An auto account's only investment must be its equitable interest in the master group trust, which is a trust established for the exclusive benefit of account beneficiaries of auto accounts for purposes of holding investments of those auto accounts and meets the applicable requirements of Rev. Rul. 81-100, as modified, and is exempt from tax under Code Sec. 408(e).

Qualified General Contributions and Qualified Stock Contributions

Temp. Reg. §1.530A-7T establishes the framework for qualified general contributions to Trump accounts. A qualified general contribution must originate from an eligible donor, be accepted by the Secretary through a Treasury acceptance agreement, be made to beneficiaries within an approved class, and be allocated equally among all beneficiaries in that class. An approved class must include at least 5,000 account beneficiaries and include all account beneficiaries who are still in their growth period, reside in the specified geographic location, and born in one or more years identified in the Treasury acceptance agreement.

The regulations also create rules for qualified stock contributions, allowing eligible donors to contribute certain publicly traded stock issued by domestic corporations directly to Trump accounts. Such stock is generally subject to a minimum holding period ending on the earlier of five years after contribution or the beneficiary’s growth period ending.

Contributions made to qualifying Code Sec. 501(c)(3) organizations to fund general funding contributions are deductible under applicable charitable deduction rules, and gifts to eligible donor organizations are treated as qualifying charitable transfers. A Code Sec. 501(c)(3) organization furthers its exempt purposes by making a qualifying general funding contribution, whether directly or through a donor-advised fund. In addition, such contributions are treated as expenditures for charitable purposes and generally are not considered grants or distributions to individuals for purposes of the private foundation and donor-advised fund expenditure responsibility rules.

T.D. 10056

CC-00226466-26

The IRS has released the 2026-2027 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. These special per diem rates include:

• 1. the special transportation industry meal and incidental expenses (M&IE) rates,
• 2. the rate for the incidental expenses only deduction,
• 3. and the rates and list of high-cost localities for purposes of the high-low substantiation method.

The IRS has released the 2026-2027 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. These special per diem rates include:

• 1. the special transportation industry meal and incidental expenses (M&IE) rates,
• 2. the rate for the incidental expenses only deduction,
• 3. and the rates and list of high-cost localities for purposes of the high-low substantiation method.

Transportation Industry Special Per Diem Rates

The special M&IE rates for taxpayers in the transportation industry are:

• $80 for any locality of travel in the continental United States (CONUS), and
• $86 for any locality of travel outside the continental United States (OCONUS).

Incidental Expenses Only Rate

The rate is $5 per day for any CONUS or OCONUS travel for the incidental expenses only deduction.

High-Low Substantiation Method

For purposes of the high-low substantiation method, the 2026-2027 special per diem rates are:

• $329 for travel to any high-cost locality, and
• $230 for travel to any other locality within CONUS.

The amount treated as paid for meals is:

• $86 for travel to any high-cost locality, and
• $74 for travel to any other locality within CONUS

Instead of the meal and incidental expenses only substantiation method, taxpayers may use:

• $86 for travel to any high-cost locality, and
• $74 for travel to any other locality within CONUS.

Taxpayers using the high-low method must comply with Rev. Proc. 2019-48, I.R.B. 2019-51, 1390. That procedure provides the rules for using a per diem rate to substantiate the amount of ordinary and necessary business expenses paid or incurred while traveling away from home.

Notice 2025-54, I.R.B. 2025-41, 479 is superseded.

Notice 2026-60

For 2027, the Social Security wage cap will be $192,300, and Social Security and Supplemental Security Income (SSI) benefits will increase by 3.6 percent. These changes reflect cost-of-living adjustments to account for inflation.

For 2027, the Social Security wage cap will be $192,300, and Social Security and Supplemental Security Income (SSI) benefits will increase by 3.6 percent. These changes reflect cost-of-living adjustments to account for inflation.

Wage Cap for Social Security Tax

The Federal Insurance Contributions Act (FICA) tax on wages is 7.65 percent each for the employee and the employer. FICA tax has two components:

• a 6.2 percent social security tax, also known as old age, survivors, and disability insurance (OASDI); and
• a 1.45 percent Medicare tax, also known as hospital insurance (HI).

For self-employed workers, the Self-Employment tax is 15.3 percent, consisting of:

• a 12.4 percent OASDI tax; and
• a 2.9 percent HI tax.

OASDI tax applies only up to a wage base, which includes most wages and self-employment income up to the annual wage cap.

For 2027, the wage base is $192,300. Thus, OASDI tax applies only to the taxpayer’s first $192,300 in wages or net earnings from self-employment. Taxpayers do not pay OASDI tax on earnings that exceed $192,300.

There is no wage cap for HI tax.

Maximum Social Security Tax for 2027

For workers who earn $192,300 or more in 2027:

• an employee will pay a total of $11,922.60 in social security tax ($192,300 x 6.2 percent);
• the employer will pay the same amount; and
• a self-employed worker will pay a total of $23,845.20 in social security tax ($192,300 x 12.4 percent).

Additional Medicare Tax

Higher-income workers may have to pay an Additional Medicare tax of 0.9 percent. This tax applies to wages and self-employment income that exceed:

• $250,000 for married taxpayers who file a joint return;
• $125,000 for married taxpayers who file separate returns; and
• $200,000 for other taxpayers.

The annual wage cap does not affect the Additional Medicare tax.

Benefit Increase for 2027

Finally, a cost-of-living adjustment (COLA) will increase social security and SSI benefits for 2027 by 3.6 percent. The COLA is intended to ensure that inflation does not erode the purchasing power of these benefits.

Social Security Fact Sheet: 2027 Social Security Changes

SSA Press Release: Social Security Announces 3.6 Percent Benefit Increase for 2027

The IRS established the IRA Compliance Resolution System (ICRS) to permit IRA owners and custodians to correct failures related to individual retirement arrangements by submitting a request to the IRS. Failures eligible for ICRS include required minimum distribution failures and nonspouse beneficiary rollover failures. The revenue procedure will also govern requests for waivers from the 60-day rollover requirement from IRAs as well as qualified employer-sponsored plans. The revenue procedure is effective May 1, 2027.

The IRS established the IRA Compliance Resolution System (ICRS) to permit IRA owners and custodians to correct failures related to individual retirement arrangements by submitting a request to the IRS. Failures eligible for ICRS include required minimum distribution failures and nonspouse beneficiary rollover failures. The revenue procedure will also govern requests for waivers from the 60-day rollover requirement from IRAs as well as qualified employer-sponsored plans. The revenue procedure is effective May 1, 2027.

Self-Correction Not Available

The new system implements provisions of the SECURE 2.0 Act of 2022, P.L. 117-328, requiring expansion of the Employee Plans Compliance Resolution System (EPCRS) for qualified retirement plans to allow IRA custodians to address eligible inadvertent failures involving IRAs. The new ICRS consists of the IRA Voluntary Correction Program (IVCP), although additional correction programs may be introduced later. Self-correction of IRA failures is not currently available under ICRS. Instead, the IRA custodian or owner must make a submission to the IRS using the provided procedures and pay a fee on the Pay.gov website.

60-Day Rollover Waiver Requests

The procedure also establishes a process for requesting waivers of the 60-day rollover requirement under Code Secs. 402 and 408 through ICRS. During 2027, eligible applicants may request waivers through either ICRS or the existing private letter ruling process. Beginning in 2028, the IRS anticipates that such requests will be permitted only under ICRS.

Waiver requests may involve eligible rollover distributions from IRAs, qualified retirement plans, annuity plans, tax-sheltered annuities and governmental deferred compensation plans. Automatic waivers and waiver relief under previous guidance remains available.

Rev. Proc. 2026-33

The IRS updated the Employee Plans Compliance Resolution System (EPCRS), its comprehensive system of corrections programs for employer-sponsored qualified retirement plans. The updates reflect significant changes to EPCRS made by the SECURE 2.0 Act (P.L. 117-328) and subsequent guidance. Former procedures under Rev. Proc. 2021-30 are modified and superseded. The revised procedures are effective October 22, 2026.

The IRS updated the Employee Plans Compliance Resolution System (EPCRS), its comprehensive system of corrections programs for employer-sponsored qualified retirement plans. The updates reflect significant changes to EPCRS made by the SECURE 2.0 Act (P.L. 117-328) and subsequent guidance. Former procedures under Rev. Proc. 2021-30 are modified and superseded. The revised procedures are effective October 22, 2026.

The bulk of the changes in the revised procedures reflect the SECURE 2.0 Act’s expansion of EPCRS’s Self Correction Program component to permit self-correction of eligible inadvertent failures, including plan loan failures. Other changes made by SECURE 2.0 and incorporated into the revised EPCRS include safe harbor corrections under Code Sec. 414(cc) and the recovery of retirement plan overpayments under Code Sec. 414(aa).

Other changes made in the revised revenue procedure include:

• References to the availability of a separate compliance resolution system for IRA failures.
• Updates reflecting changes to the determination letter and opinion letter programs.
• Revisions to correction methods for SEPs and SIMPLE IRA plans.
• Revisions to procedures for locating lost participants.
• Revisions to the correction principle for failure to obtain spousal consent.
• Changes to the Voluntary Correction Program (VCP) and the Audit Closing Agreement Program (Audit CAP), such as revised procedures for a group submission under VCP.

Rev. Proc. 2026-34

The IRS has issued final regulations under Code Sec. 6311 implementing changes made by the Taxpayer First Act. The regulations permit the IRS to pay fees under contracts for processing tax payments by credit or debit card, provided the fees are fully recouped from taxpayers making those payments. The regulations remove restrictions on the IRS’s payment of fees under such contracts and on the imposition of reimbursement fees on persons paying taxes by credit or debit card.

The IRS has issued final regulations under Code Sec. 6311 implementing changes made by the Taxpayer First Act. The regulations permit the IRS to pay fees under contracts for processing tax payments by credit or debit card, provided the fees are fully recouped from taxpayers making those payments. The regulations remove restrictions on the IRS’s payment of fees under such contracts and on the imposition of reimbursement fees on persons paying taxes by credit or debit card.

Payment Processing Fees

The regulations authorize the IRS to enter into contracts for receiving tax payments by credit or debit card if the contracts are cost beneficial to the government. Under certain contracts, the IRS may pay fees, charges, or other monetary consideration to payment processors. If the IRS pays fees under these contracts, it must recoup the full amount from taxpayers making payments by credit or debit card. The reimbursement fees are payable at the time of, and in addition to, the tax payment and are limited to the amounts paid by the IRS under the contracts. The IRS must seek to minimize the fees paid under these arrangements.

Under other contracts, the IRS may elect not to pay fees to payment processors. Such arrangements do not prohibit card issuers, financial institutions, or other persons participating in the transactions from imposing their own fees or charges. The IRS may not receive any portion of those fees.

Error Resolution Procedures

Payments of taxes by credit or debit card, including reimbursement fees paid under the regulations, are subject to applicable error-resolution procedures under the Truth in Lending Act, the Electronic Fund Transfer Act, or similar state or local laws. These procedures apply to errors relating to the credit or debit card account but do not apply to disputes, errors, or adjustments concerning the underlying tax liability. Reimbursement fees paid under the regulations are not taxes imposed by the Internal Revenue Code and are not eligible for refund or credit under Code Sec. 6402.

Applicability

The final regulations amend existing regulations under Code Sec. 6311 to implement changes made by the Taxpayer First Act. The rules apply to tax payments and reimbursement fees made on or after the date of publication in the Federal Register.

T.D. 10060

The IRS has issued proposed and temporary regulations providing guidance on the new federal scholarship tax credit under Code Sec. 25F. Beginning after 2026, an individual may claim a nonrefundable federal income tax credit for contributions to certified scholarship granting organizations (SGOs) issuing scholarships to students in K-12 schools. The regulations clarify how the credit is calculated, including the treatment of state tax credits, credit carryforwards, and substantiation requirements. They also establish immediate administrative rules for SGOs and states that opt into the program and identify SGOs.

The IRS has issued proposed and temporary regulations providing guidance on the new federal scholarship tax credit under Code Sec. 25F. Beginning after 2026, an individual may claim a nonrefundable federal income tax credit for contributions to certified scholarship granting organizations (SGOs) issuing scholarships to students in K-12 schools. The regulations clarify how the credit is calculated, including the treatment of state tax credits, credit carryforwards, and substantiation requirements. They also establish immediate administrative rules for SGOs and states that opt into the program and identify SGOs.

Credit Eligibility and Calculation

An individual may claim a credit for qualified cash contributions made directly to eligible SGOs. The annual credit is generally limited to $1,700 per taxpayer or $3,400 for married individuals filing jointly. Contributions made through pass-through entities, including partnerships and S corporations, are not eligible for the credit. The taxpayer must reduce the federal tax credit by the amount of any state tax credit attributable to the same contribution before applying the federal limitation. Unused credit amounts may be carried forward for up to five years.

A taxpayer claiming the credit may not claim a charitable contribution deduction for the same contribution and must satisfy specified substantiation and reporting requirements. This includes use of a unique donor identification number on new Form 8525. The taxpayer donor must designate contributions as eligible for the credit at the time they are made. Once made, the designation is irrevocable.

A taxpayer may contribute to an eligible SGO regardless of their state of residence, allowing them to support qualifying SGOs across participating states.

Scholarship Granting Organizations

To qualify as an SGO, an organization must be recognized as a tax-exempt public charity, maintain separate accounts for qualified contributions and scholarship funds, and devote at least 90 percent of required expenditures to scholarships. SGOs must verify student eligibility, ensure scholarship funds are used solely for qualified elementary and secondary education expenses, and adopt procedures to prevent scholarships from benefiting disqualified persons. The regulations also require SGOs to register with the IRS, furnish acknowledgments to contributors, file annual reports, and maintain records demonstrating compliance with federal requirements.

State Participation

A state may elect to participate the federal scholarship tax program either through an advanced election or through the submission of a state SGO list. A state seeking to participate must annually certify eligible SGOs and provide the IRS with information demonstrating that the organizations satisfy federal requirements. The IRS will maintain and publish a nationwide list of eligible SGOs upon which taxpayers may generally rely when making contributions and claiming credits.

Applicability

Taxpayers, SGOs, and states may rely on the proposed regulations for qualified contributions beginning on or after January 1, 2027. The temporary regulations apply on or after September 1, 2026, and expire on October 1, 2029.

T.D. 10057

Proposed Regulations, NPRM REG-117199-25

IR 2026-117

The Treasury Department and IRS have issued proposed regulations under Code Sec. 1062 governing the election to pay tax attributable to gain from qualified sales or exchanges of qualified farmland property in four annual installments. The proposed regulations define qualified farmland property and qualified farmers, provide rules for making the election, and address pass-through entities and acceleration events.

The Treasury Department and IRS have issued proposed regulations under Code Sec. 1062 governing the election to pay tax attributable to gain from qualified sales or exchanges of qualified farmland property in four annual installments. The proposed regulations define qualified farmland property and qualified farmers, provide rules for making the election, and address pass-through entities and acceleration events.

Qualified Farmland Property

Qualified farmland property generally is U.S. real property that was used by the taxpayer as a farm for farming purposes, or leased to a qualified farmer for farming purposes, during substantially all of the 10 years preceding the sale or exchange. The property also must be subject to a covenant prohibiting nonfarm use for 10 years following the sale or exchange. A copy of the covenant must be attached to the taxpayer's return for the taxable year of the sale or exchange.

The proposed regulations provide that certain periods of nonuse will be disregarded in applying the 10-year farming use requirement. These include periods during which property is removed from production under a government program, pursuant to recognized farming practices, or because of unforeseen events outside the taxpayer's control, provided the property continues to be maintained for farming purposes.

Election and Installment Payments

Taxpayers would make the election by filing Form 1062, Deferral of Tax on Gain from the Sale or Exchange of Qualified Farmland Property to Qualified Farmers, and Schedule A (Form 1062). Once made, the election generally may be revoked only by paying the remaining unpaid applicable net tax liability. Each installment payment equals 25 percent of the taxpayer's applicable net tax liability. The first installment generally must be paid by the return due date, determined without regard to the extensions, for the taxable year of the sale or exchange.

Pass-Through Entities and Acceleration Events

Under the proposed regulations, partners, S corporation shareholders, beneficiaries, and other owners generally may make the election with respect to applicable net tax liability arising from a qualified sale or exchange by a pass-through entity. Pass-through entities must furnish Schedule A information and the covenant to owners and beneficiaries and report each owner's allocable share of gain.

The proposed regulations also provide rules accelerating unpaid installment payments following certain events. Acceleration events include failure to timely pay an installment, the death of an individual taxpayer, and certain liquidations, dispositions of substantially all assets, and other specified events involving corporations, trusts, and estates. The proposed regulations also provide procedures under which an eligible transferee may assume the remaining installment obligations in certain transactions.

The proposed regulations would apply to qualified sales and exchanges occurring in taxable years ending after publication of final regulations in the Federal Register. Taxpayers may rely on the proposed regulations for qualified sales and exchanges occurring in taxable years beginning after July 4, 2025, provided they apply the rules consistently and in their entirety. Treasury and the IRS requested comments on the proposed regulations and requests for a public hearing within 60 days after publication in the Federal Register.

Proposed Regulations, NPRM REG-117095-25

IR 2026-115

As the excitement of understanding what artificial intelligence can do for the tax profession starts to subside, the conversation is beginning to shift to risk management and risk assessment. To that end, the American Institute of CPAs has launched a new initiative – the Council on AI Risk in Tax (CART) – to help tax professionals manage risk.

As the excitement of understanding what artificial intelligence can do for the tax profession starts to subside, the conversation is beginning to shift to risk management and risk assessment. To that end, the American Institute of CPAs has launched a new initiative – the Council on AI Risk in Tax (CART) – to help tax professionals manage risk.

CART was born out of a risk assessment framework recently developed by former IRS Commissioner Daniel Werfel that was published by AICPA after asking representatives of state tax authorities what he could do for them following his departure from the IRS.

“They said, ‘you know Danny, we are seeing so many interesting, exciting demos of AI products that really have paradigm-shifting productivity … but we don’t know what the risks are. We don’t know what questions we should ask ourselves to make sure that, as a tax authority, we are ready to deploy these powerful AI tools responsibly,” Werfel, senior fellow at Johns Hopkins University School of Government & Policy, said in an interview, adding that they also inquired about questions they should be asking vendors about safety features and other risks they should be looking out for.

“I did some immediate research and learned that there wasn’t an AI risk framework or risk register specific to tax,” he added, leading him develop version one of the recently published risk framework.”

From there, he approached AICPA as the place to publish the framework and through those conversations, created CART as a place for tax professionals and state tax administrators to collaborate on AI risk and further refine the framework.

“With AI, it’s obviously new,” Melanie Lauridsen, AICPA vice president of tax policy and advocacy, added. It’s ever evolving. There’s a huge interest. There’s a lot of unknowns, and there’s nothing really out there right now beyond what I have seen what Danny put forward to help guide people in this area.”

The Framework

The published framework states that it is more than a simple list of “relevant risks. The formulation and activation of the list means the organization has learned to:

• Define how risks show up in practice;

• Assign controls;

• Establish indicators; and

• Make course corrections as the environment evolves.

In this way the register is part of a broader risk governance framework to help organizations chart a sensible path forward from strategy to implementation.”

The publication includes distinct frameworks for both tax authorities and tax preparers. For tax authorities, the publication highlights 20 risk areas across four categories:

• Information integrity – The wrong information reaching taxpayers at scale.
• Fairness and legitimacy – Disparate or unfair treatment across groups.
• Security and data – Compromised systems, corrupted data, or the exploitation of sensitive taxpayer information at AI systems aggregate, surface, or make newly accessible to band actors.
• Institutional capacity – Loss of the knowledge and capacity by the institution needed to govern AI responsibility over time.

For tax preparers, there are 15 risk areas across 5 categories:

• Technical – Incorrect or unreliable AI outputs that establish the conditions for downstream errors.
• Practice – Failures of professional judgement, documentation, or oversight.
• Legal and regulatory – Increased exposure to legal liability (e.g., malpractice claims, regulatory sanctions).
• Business – Erosion of client trust and firm relationships.
• Workforce and Strategic – Loss of the expertise and institutional knowledge needed to practice responsibly.

The framework “establishes a notional risk register for tax authorities and presents that side-by-side with a distinct register for tax preparers,” the framework document states. “It also identifies important areas of overlap across the two.”

A Living Framework

Werfel noted that this is not intended to be a one-and-done framework, but rather a living document that he anticipates will be updated on a regular basis.

“I wanted to give myself six months of feedback and iteration,” he said. “I told CART at our kickoA meeting [that] once we issue version two after six months, then I think it’s an annual [update] from there. But in this form, version one to version two, I wanted to put a little bit more accelerated because that’s the highest risk point for it missing something big in the risk register itself.”

Lauridsen add that convening CART regularly and discussing risks and best practices associated with those risks and updating the framework “is the right approach” as opposed to trying to build a firm set of standards for risk assessment and risk management of AI.

“We don’t know what it’ll be in a month, two months, much less six months or a year,” Lauridsen said, noting the fast evolution AI is currently experiencing. “I think it would be a disservice to come forward with a standard right now.”

She continued: “Right now, it’s more best practices. Everybody’s trying to get their minds and arms around it and how to implement it.”

Werfel added that the feedback will be very important when the framework goes through future iterations, as the CART members will be able to report back when the framework works and more importantly, when it “missed the bullseye” by the cross section of accounting, law firms, government associations and AI vendors.

“My hope is that if it’s oA bullseye, we’ll hear about it and update it,” Werfel said.

He did not rule out seeing the framework converted into an industry standard somewhere down the line, but for now, the focus is to just keep this a framework that users can use as a best practices guide to assessing risks of AI tools that states and practitioners are considering for implementation.

In the near term, Werfel said that an idea was floated to CART to make a voluntary pledge to follow the framework that CART produces. It would be completely voluntary, but a pledge to follow it would be “hopefully helpful to rally attention to AI risk.”

By Gregory Twachtman, Washington News Editor

The 2025 cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS. In general, many of the pension plan limitations will change for 2025 because the increase in the cost-of-living index due to inflation met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged.

The IRS reminded individual retirement arrangement (IRA) owners aged 70½ and older that they can make tax-free charitable donations of up to $105,000 in 2024 through qualified charitable distributions (QCDs), up from $100,000 in past years. 

The IRS reminded individual retirement arrangement (IRA) owners aged 70½ and older that they can make tax-free charitable donations of up to $105,000 in 2024 through qualified charitable distributions (QCDs), up from $100,000 in past years. For those aged 73 or older, QCDs also count toward the year's required minimum distribution (RMD). Following are the steps for reporting and documenting QCDs for 2024:

• IRA trustees issue Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., in early 2025 documenting IRA distributions.
• Record the full amount of any IRA distribution on Line 4a of Form 1040, U.S. Individual Income Tax Return, or Form 1040-SR, U.S. Tax Return for Seniors.
• Enter "0" on Line 4b if the entire amount qualifies as a QCD, marking it accordingly.
• Obtain a written acknowledgment from the charity, confirming the contribution date, amount, and that no goods or services were received.

Additionally, to ensure QCDs for 2024 are processed by year-end, IRA owners should contact their trustee soon. Each eligible IRA owner can exclude up to $105,000 in QCDs from taxable income. Married couples, if both meet qualifications and have separate IRAs, can donate up to $210,000 combined. QCDs did not require itemizing deductions. New this year, the QCD limit was subject to annual adjustments based on inflation. For 2025, the limit rises to $108,000.

Further, for more details, see Publication 526, Charitable Contributions, and Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).

IR-2024-289

For 2025, the Social Security wage cap will be $176,100, and social security and Supplemental Security Income (SSI) benefits will increase by 2.5 percent. These changes reflect cost-of-living adjustments to account for inflation.

For 2025, the Social Security wage cap will be $176,100, and social security and Supplemental Security Income (SSI) benefits will increase by 2.5 percent. These changes reflect cost-of-living adjustments to account for inflation.

Wage Cap for Social Security Tax

The Federal Insurance Contributions Act (FICA) tax on wages is 7.65 percent each for the employee and the employer. FICA tax has two components:

• a 6.2 percent social security tax, also known as old age, survivors, and disability insurance (OASDI); and
• a 1.45 percent Medicare tax, also known as hospital insurance (HI).

For self-employed workers, the Self-Employment tax is 15.3 percent, consisting of:

• a 12.4 percent OASDI tax; and
• a 2.9 percent HI tax.

OASDI tax applies only up to a wage base, which includes most wages and self-employment income up to the annual wage cap.

For 2025, the wage base is $176,100. Thus, OASDI tax applies only to the taxpayer’s first $176,100 in wages or net earnings from self-employment. Taxpayers do not pay any OASDI tax on earnings that exceed $176,100.

There is no wage cap for HI tax.

Maximum Social Security Tax for 2025

For workers who earn $176,100 or more in 2025:

• an employee will pay a total of $10,918.20 in social security tax ($176,100 x 6.2 percent);
• the employer will pay the same amount; and
• a self-employed worker will pay a total of $21,836.40 in social security tax ($176,100 x 12.4 percent).

Additional Medicare Tax

Higher-income workers may have to pay an Additional Medicare tax of 0.9 percent. This tax applies to wages and self-employment income that exceed:

• $250,000 for married taxpayers who file a joint return;
• $125,000 for married taxpayers who file separate returns; and
• $200,000 for other taxpayers.

The annual wage cap does not affect the Additional Medicare tax.

Benefit Increase for 2025

Finally, a cost-of-living adjustment (COLA) will increase social security and SSI benefits for 2025 by 2.5 percent. The COLA is intended to ensure that inflation does not erode the purchasing power of these benefits.