IRS Update: 2025 Act Guidance & 2026 Filing Prep

The PPC daily update, released December 9^th, provided updates regarding the One Big Beautiful Bill Act. Now known as the 2025 Act, the IRS has recently provided guidance for these new tax provisions as well as some for older ones. The briefing also discusses a new bill recently signed and a final reminder as we move into 2026.

Guidance on “Trump Accounts”

The 2025 Act provides an opportunity for parents with children born between 2025 and 2028 to create a “Trump Account” for their child. Found under IRC Sec. 530A, a tax deferred investment account may be created, contributed to, and held until the child turns eighteen. The IRS recently issued Notice 2025-68 which provides some guidance for the time being. A new form is introduced (Form 4547), and a link is provided for parents to elect to have an account for their child who meets the requirements, such as being a U.S citizen and being born within the given timeframe. Contribution limits, after the U.S government initially funds the account with $1,000, are $5,000 per year from parents and $2,500 per year from employers of parents. All funds within the account are to be invested into a qualified mutual fund or ETF. Once the child, who serves as the beneficiary of the account, turns eighteen, the account will be treated as a traditional IRA. The IRS is looking to issue proposed regulations soon as they wish to hear taxpayer feedback through February 20, 2026.

Guidance on New Tip and Overtime Deduction for 2025

Although final regulations have not yet been given, the IRS has released Notice 2025-69 to provide further guidance regarding qualified tips and overtime pay recording for 2025. This provision, coming from the 2025 Act, will be implemented from 2025 through 2028 but in the case of the former, reporting forms such as the W-2 and 1099 have not yet been updated to record these amounts separately. For the 2025 tax year, employees may determine their qualified tips by using box 7 on their W-2 or the Employee’s Report on Tips to Employer (Form 4070). Non-employees must use records such as a daily tip log. Regarding qualified overtime pay, those under FLSA may use their pay statement and take one-third of their total overtime pay to use as their deduction. Transition relief is also available for a Specified Service Trade or Business that customarily receives tips. An official list of such occupations will be provided once the IRS provides final regulations for this provision.

Guidance for IRC Sec. 139L

As an addition to the 2025 Act, IRC Sec. 139L offers a 25% exclusion of interest income for lenders whose loan aided in obtaining rural or agricultural real property. The IRS recently issued Notice 2025-71 to help provide guidance for loans given after 7/4/25. Within the notice are definitions of key terms and standards to determine if the loan was used for rural or agricultural real property, as well as refinancing rules. It is this information that taxpayers will rely on until the IRS supplies their proposed regulations. The IRS will receive taxpayer comments up until 1/20/26.

Guidance on Foreign Tax Allocation and Section 987 Rules

The 2025 Act saw the repeal of the IRC Sec. 898(c)(2) one-month deferral election which had allowed specified foreign corporations (SFCs) to start their tax year a month earlier than their majority U.S. shareholders. Due to this repeal, the IRS will be issuing proposed regulations that will cover foreign tax allocation and recognizing Section 987 gain or loss since it will cause a short tax year. Notice 2025-72 informed taxpayers that the coming regulations will allocate “specified foreign income taxes” between the first year (short due to repeal) and the following year. Regarding Section 987, to avoid accelerated recognition, the gain or loss will be recognized ratably over a 120-month period. Comments regarding these upcoming regulations may be submitted until 1/24/26.

Final Regulations for Stock Buyback Tax Rules

Introduced by the Inflation Reduction Act of 2022, the 1% excise tax on corporate stock repurchases has been given its final regulations by the IRS (TD 10037). There are certain acquisitive reorganizations, leveraged buyouts, and “take-private” transactions that have been excluded from being considered as a repurchase. The final regulations also removed the “funding rule” that had been previously proposed. More exclusions include preferred stock (IRC Sec. 1504(a)(4)), but transition relief will be available for those with eligible preferred stock issued before 8/16/22. To make it easier for tax administration, the “no double benefit” part of the netting rule as well as streamlining dividend election claims for corporations without every shareholders certification. These final regulations are effective for transactions taking place after 11/24/25.

IRS Math Error Bill

On December 1^st, President Donald Trump signed the Internal Revenue Service Math and Taxpayer Help Act (H.R. 998), otherwise known as The Act. This law will require the IRS to send notices to taxpayers regarding mathematical errors on their tax returns. Under The Act, the IRS must provide the taxpayer with a straightforward explanation of mathematical errors, a detailed calculation of the adjustment, and the section of the return that contained the error. The phone number for the automated transcript service as well as the deadline for a response will also be included. The taxpayer will have 60 days to respond to the notice before the adjustment on the return becomes final. To encourage responses, The IRS will be piloting a program to send some of these notices via certified or registered mail to highlight their importance. The effectiveness of the program will eventually be reported to Congress.

Public Input for Federal Tax Credit for Scholarship Donations

Within the 2025 Act is Section 25F credit, this part of the act refers to Scholarship Granting Organizations (SGO’s) and one’s ability to make cash contributions. The IRS is currently asking for feedback as they intend to issue proposed regulations. Effective 1/1/27, an eligible person may claim up to $1,700 nonrefundable tax credit for donations to SGOs. Scholarships provided by an SGO must be for elementary and secondary students from low to middle income families. State participation is required as the IRS needs the location of the SGOs that meet the requirements. Comments regarding state certification, multistate organizations, SGO requirements, and reporting rules are needed by the IRS by 12/26/25. New release IR-2025-115 and Notice 2025-70.

Preparation for 2026 Tax Filing Reminders

As we soon move into 2026, the IRS announced a few reminders regarding the 2026 filing season. The 2025 Act brought about a lot of changes to tax laws; therefore, it is important to review what is new and what has been repealed. To provide a smooth transition into these changes, New announcement IR-2025-116 from the IRS suggested that taxpayers assemble detailed records such as bank account information, Form W-2, Form 1099, and any records of digital transactions. IRS online accounts are available for taxpayers to see their filed returns and other information. Under Executive Order 14247, paper checks will begin to be phased out by the IRS, therefore refunds will instead be deposited directly into taxpayers’ bank accounts.

‍