National Taxpayer Advocate’s Report to Congress and Legislative Recommendations Released

The National Taxpayer Advocate (NTA) has released the 2024 Annual Report to Congress, along with the 2025 Purple Book, a compilation of legislative recommendations. These documents highlight critical issues facing taxpayers and propose solutions that could significantly impact tax practice. This article will delve into the key findings of the report and the legislative recommendations, offering insights relevant to CPAs in tax practice.

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Taxpayer Denied Refund as Court Found the Taxpayer Had Taken the Position That Its Reporting Was an Error Rather Than a Method of Accounting

BankUnited, Inc. v. United States of America, US District Court Southern District of Florida, Case no. 1:23-cv-20379-KMM, revolves around a tax refund dispute initiated by BankUnited, Inc. (BUI) against the United States of America. The dispute arose from BUI’s 2009 acquisition of a failed bank and the subsequent tax treatment of the acquired assets.

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Seventh Circuit Upholds Imposition of Fraud Penalty for an Overstatement of Withholdings

The Seventh Circuit Court of Appeals decided the case of Bachner v. Commissioner, No. 24-1420, on January 7, 2025, which provides a clear illustration of how the IRS and courts handle cases of fraudulent tax returns and the assessment of penalties. This case particularly highlights the complexities surrounding the calculation of underpayments when taxpayers fraudulently overstate their withholdings.

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Taxpayer Found to Have Embezzlement Income from Transactions with Retirement Plans for Which He Was a Fiduciary

Matthew Hutcheson at the very end of 2024 and very beginning of 2025 received both good news and bad news. Mr. Hutcheson, who had been convicted of wire fraud in 2013 and sentenced to 17 years in prison had his remaining sentence commuted by President Biden as part of his end of term pardons and sentence commutations on December 12, 2024. But three days into 2025, Mr. Hutcheson received less upbeat news, as the Tax Court found he owed taxes on the amounts he embezzled that led to those 2013 convictions in the case of Hutcheson v. Commissioner.

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Basis of Digital Assets Sold Cost Flow Assumptions - IRS Releases Temporary Specific Identification Relief for 2025

To close out 2024, the IRS released Revenue Procedure 2025-7 providing temporary relief provisions for allowing taxpayers to specifically identify specific blocks of digital assets sold from a brokerage account in 2025. This relief is in addition to special rules adopted earlier this year in Revenue Procedure 2024-28 for allocating unallocated basis as taxpayers transition to the provisions of Reg. §1.1012-1(j).

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Fifth Circuit Merits Panel Stay on Injunction Against Enforcement of the CTA Vacated After Case Transferred to Merits Panel, BOI Enforcement Back on Hold

On December 26, 2024, an order was issued vacating a previous stay that had been granted regarding the enforcement of the Corporate Transparency Act (CTA) and its corresponding Reporting Rule. The stay had been granted by a motions panel of the Fifth Circuit Court of Appeals on December 23, 2024, but was vacated by the merits panel of the same court. The order vacating the stay was made to “preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments”

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Request for an En Banc Rehearing on Stay of Injunction in BOI Case Filed

The plaintiffs in Texas Top Cop Shop, Inc., et al. v. Merrick Garland, Attorney General of the United States, et al. are requesting an en banc rehearing based on several arguments related to the panel decision to grant a stay of the district court’s preliminary injunction. The plaintiffs contend that the panel decision conflicts with Supreme Court precedent, improperly weighed the equities, and failed to consider key aspects of the case.

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Plaintiffs in Texas Top Cop Shop, Inc. BOI Case File a Petition for an En Banc Rehearing on the Injunction Ruling

As reported by Reuters yesterday, the plaintiffs in the Texas Top Cop Shop, Inc. case are filing a petition for an en banc rehearing of the matter by the entire Fifth Circuit. They are asking for a decision by January 6, 2025.

Plaintiffs-Appellees’ Emergency Petition for Rehearing En Banc - Texas Top Cop Shop, Inc.

Tax Court Again Finds That a Functional Test Must be Applied to State Law Limited Partners for the Exclusion from Self-Employment Income Under IRC §1402(a)(13)

The Tax Court’s decision in Denham Capital Management LP v. Commissioner, TC Memo 2024-114 addresses whether a state law limited partner’s distributive share of partnership income is subject to self-employment tax. The court concluded that the partners were not “limited partners, as such” under section 1402(a)(13), and their distributive shares were included in the partnership’s net earnings from self-employment (NESE). This conclusion is consistent with the court’s prior ruling in Soroban Capital Partners LP v. Commissioner, 161 T.C. 310 (2023), which held that a partner’s status as a limited partner for purposes of the limited partner exception is determined by a functional analysis of their roles and responsibilities, not solely on their state law designation

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FinCEN Grants Additional Extension of Time to File BOI Reports for Certain Entities Following Fifth Circuit Ruling

Following the Fifth Circuit’s stay of the injunction against the Corporate Transparency Act (CTA), FinCEN extended the reporting deadlines for beneficial ownership information. These extensions were implemented because the Department of the Treasury recognized that companies might need additional time to comply due to the period when the preliminary injunction was in effect.

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Injunction Against Enforcement of the Corporate Transparency Act Lifted, January 1, 2025 Initial Filing Deadline for Most Effected Entities Back in Place

The Fifth Circuit Court of Appeals on December 23, 2024 issued an order[^1] staying the nationwide injunction issued by the US District Court for the Eastern District of Texas blocking enforcement of the Corporate Transparency. Thus, entities in existence on January 1, 2024 will be required to have filed their BOI report by January 1, 2024 unless they qualify for an exemption.

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Ninth Circuit Affirms Tax Court, Ruling that All Events Test Was Not Met

The Ninth Circuit Court of Appeals, in a split decision, upheld[^1] the Tax Court’s holding in the case of The Morning Star Packing Co. LP et al. v. Commissioner, TC Memo 2020-142 that the all events test had not been met by a taxpayer with respect to costs to restore, rebuild, recondition, and retest their manufacturing facilities recorded at the end of the taxpayers’ tomato products packaging season.

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IRS Proposes Changes to Circular 230

The IRS has issued proposed regulations[1] that would revise Circular 230, removing provisions found at sections 10.3 through 10.6 of the current Circular 230 that related to the regulation of registered return preparers, clarify that practice before the IRS includes “preparation and submission of tax returns in connection with representing a client in a matter before the IRS,” eliminate Section 10.27 of the current Circular 230 that bars the acceptance of contingent fees (but now making accepting such fees disreputable conduct in certain situations), expand the definition of competency to include requiring that a federally authorized tax practitioner (FATP) must maintain certain minimum qualifications of technological competency related to tax practice as well as make additional changes.

Unless otherwise provided for in the proposed regulations, these regulations would become effective 30 days after being published in final form in the Federal Register.[2]

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