“What exactly are the rules for filing taxes during a coup?”
That’s just one of several questions I’ve been asked about this tax season. Taxpayers aren’t happy–some are angry with perceived waste in government, while others believe that their financial data isn’t secure now that Elon Musk and his Department of Government Efficiency (DOGE) has so much access to federal computer systems. Still others believe that if the IRS will be shut down, there’s no point in filing (more on that in a moment).
Whatever the reason, the tax filing season is off to a bumpy start. IRS data from the second week of the tax filing season—the week ending February 7, 2025—suggests a result similar to last week: Taxpayers aren’t rushing to file. (☆)
The IRS has so far received 23,589,000 individual income tax returns in 2025, compared to the 25,553,000 received at the same point in 2024, a drop of about 8%. The IRS drop in processing is about the same, and visits to the IRS website have dropped a remarkable 40%.
The good news? Refunds are still up. The IRS has issued 8,054,000 tax refunds so far in 2025 with an average refund of $2,065 per taxpayer, an increase of 18.6%.
While the IRS still wants us to believe this is business as usual, tax professionals know differently. Discussions about federal hiring freezes and reducing staff at the IRS are causing some anxiety in the profession. This week, Tax Notes sat down with Robert Kerr, who currently runs his own tax consulting firm and has a decades-long career in tax administration, to talk about changes to the federal workforce that are bound to have immediate and long-term implications for the IRS. You can listen to the conversation on the Tax Notes podcast or read the transcript here.
The IRS is likely holding its collective breath to find out what will happen to the agency’s funding as Congress tackles the budget. So far, there’s no consensus on the budget, but Trump has signaled what’s on his wish list. That includes extending the Tax Cuts and Jobs Act (his 2017 tax cuts) through December 31, 2034, eliminating income taxes on overtime pay, tips, and Social Security income, increasing the SALT (state and local tax) deduction and reducing corporate income taxes for companies that manufacture goods domestically.
The House Budget Committee will consider the framework for the budget that’s largely been designed by House Speaker Mike Johnson (R-La.). The problem? Pulling that together in “one big beautiful bill” won’t likely happen without dropping some of President Trump’s tax cutting goals. Extending the expiring provisions of the TCJA alone will cost in excess of $4 trillion over the next decade. Adding other tax cuts proposed by President Trump in his 2024 campaign, including tax-free tips, overtime, and Social Security benefits could boost the price tag to between $5 trillion and $11 trillion, according to the Committee for a Responsible Federal Budget.
There is one thing that the House did agree on this week: extending the deadline for beneficial ownership information (BOI) reporting requirements. (☆) On February 10, the House unanimously passed H.R. 736, the Protect Small Business from Excessive Paperwork Act. The bill would postpone the BOI reporting deadline for one year for most companies (those reporting companies formed or registered before January 1, 2024). Under the bill, the new reporting deadline would be January 1, 2026.
The bill moved quickly through the House, resulting in 40 minutes of debate Monday before the roll call. The vote was 408-10. Twenty-five House members—11 Republicans and 14 Democrats—did not vote. (You can see how your Representative voted here.) The bill now moves to the Senate where it’s not certain when–or if–it will go to the floor for a vote.
It can be a challenge to keep up with all of the latest news during the tax season. If you’re looking for more great coverage, there’s no need to search for articles that might be useful for tax season, like tax rates, tax filing season statistics, and tips for dealing with missing tax forms. We’ve put them all in one place, and we’ll be updating the page as more stuff comes our way.
And one more thing. I’m all packed and ready for my big trip next week. Earlier this year, I announced that I would be heading to Alaska to prepare tax returns as part of the Alaska Volunteer Income Tax Assistance (VITA) Project. The project partners with the Alaska Business Development Center (ABDC) and trains volunteers to prepare tax returns for residents in remote villages who rely on VITA to prepare free income tax returns. I hope to post some updates as I go. Think warm thoughts!
Enjoy your weekend.
Kelly Phillips Erb (Senior Writer, Tax)
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Questions
This week, a reader asked:
What happens if I don’t file my income tax return?
I’ve been asked variations on this question quite a bit this week.
First, let’s address the elephant in the room: Nobody likes to pay taxes. But despite your feelings about taxes, there is no provision in the tax code that allows you to opt out of paying (or filing)—even if you disagree with the government.
Normally, penalties can be assessed for failure to file and failure to pay. The failure-to-file penalty is usually 5% of the tax due for each month or part of a month that your tax return is late, up to a maximum of 25%. However, if your tax return is filed more than 60 days after the due date, the minimum penalty is the lesser of a whopping $510 or 100% of the unpaid tax.
(Exceptions apply, of course, if you’re not required to file a tax return.)
But don’t assume that it will stop there. The IRS also has the right to file a substitute tax return on your behalf if you don’t file. Importantly, a substitute return might not give you credit for deductions and exemptions you may be entitled to receive–plus, you’ll still have to pay the tax due.
If the failure to file is willful, you could also be criminally prosecuted. Typically, the failure to file is charged as a misdemeanor, resulting in fines of up to $25,000, though prison time of up to a year can be tacked on if the situation warrants.
The bottom line? Failing to file your tax return—even as an act of protest—can land you in hot water.
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Statistics, Charts, And Maps (Oh My!)
The year 2024 was a record-breaking year for legal cannabis sales—but recent activity from the federal government suggests that 2025 may look a little different. (☆)
While still prohibited by federal law—possession can lead to fines and jail time—most states and the District of Columbia have legalized cannabis for medical or recreational use (or both). Under federal law, however, it’s classed as a Schedule I drug—on par with heroin and LSD—which means that it is not legal in any form. It is against federal law to grow, sell, or use cannabis for any purpose, including medical reasons.
A Biden administration proposal would have moved cannabis from its current classification as a Schedule I drug to a Schedule III drug alongside ketamine and some anabolic steroids. The DEA hearing is now on hold.
While rescheduling would not make cannabis legal, it would allow cannabis businesses to claim tax deductions for business expenses. To keep that from happening, Senators Pete Ricketts (R-Nebraska) and James Lankford (R-Oklahoma) introduced a bill that would prevent cannabis businesses from deducting business expenses on their federal tax returns. Specifically, the bill calls out cannabis by name—not by Schedule—as ineligible for deduction.
In a statement posted on his website, Ricketts said, “The federal government should not be subsidizing an industry that profits from addiction and undermines public safety. This bill ensures that marijuana businesses do not receive tax breaks while they continue to violate federal law.”
A Deeper Dive
Earlier this year, President Trump suggested that he might fire Internal Revenue Service employees—or send them to the border, telling a crowd at the Circa Resort & Casino in Las Vegas, “They hired, or tried to hire, 88,000 workers to go after you and we’re in the process of developing a plan to either terminate all of them, or maybe we’ll move them to the border.”
What sounded to some like a joke turned out to be true. A February 7 letter sent out by Department of Homeland Security (DHS) Secretary Kristi Noem asked Treasury Secretary Scott Bessent to deputize IRS agents (☆) to help with efforts to crack down on immigration.
Noem suggested that IRS workers could assist DHS with auditing employers charged with hiring illegal immigrants as well as investigating human trafficking. Many of those skills appeared to be directed to employees of the IRS’ Criminal Investigation (CI) division, though the letter also included tasks that fall within the purview of other IRS workers.
CI is the sixth-largest law enforcement agency in the U.S. It is the arm of the IRS, responsible for investigating financial crimes such as tax fraud, narcotics trafficking, money laundering, public corruption, healthcare fraud, and identity theft. While other federal agencies also have investigative jurisdiction over money laundering and some bank secrecy act violations, the IRS is the only federal agency that can investigate potential criminal violations of the tax code.
If CI employees are reassigned to immigration (and desk) tasks, tax and other financial crimes may not be investigated. That’s because CI is often called in to help with crimes that focus on money–like scams.
One of those crimes is now in the spotlight (☆) after the true crime story was made into an ABC News documentary series. Scamanda, now playing on Hulu, is the story of Amanda Riley, a California woman who lied for years about having cancer. Arlette Lee, a Special Agent with CI, was brought in by local law enforcement to help with the investigation.
Riley was a wife and mother from California who, in 2012, started a blog called Lymphoma Can Suck It. She used the blog to write about her “battle” with Hodgkin’s lymphoma, a form of blood cancer–only she never had cancer. She was faking it.
Beginning in 2013, Riley began to monetize the blog. By the time investigators got involved, she had raked in over $100,000 in online donations alone.
It wasn’t the dollar amounts that stood out to Lee, but rather the number of potential victims. Lee refers to this kind of matter as a “righteous case”—one where the importance to law enforcement is about the overall impact on the community.
Riley eventually pleaded guilty to wire fraud and was sentenced to prison. She’s currently in custody at a Residential Reentry Management (RRM) facility in Long Beach, California—a sort of halfway house to transition to life outside of prison. Her scheduled release date is December 4, 2025.
Tax Filings And Deadlines
📅 April 15, 2025. Due date for most taxpayers to file an individual tax return—or apply for an extension.
📅 May 1, 2025. Due date for individuals and businesses in the entire states of Alabama, Georgia, North Carolina, and South Carolina and parts of Florida, Tennessee, and Virginia affected by severe storms and flooding from Hurricane Helene (☆) and Hurricane Milton.
📅 September 30, 2025. Due date for individuals and businesses impacted by recent terrorist attacks in Israel.
📅 October 15, 2025. Due date for individuals and businesses affected by wildfires and straight-line winds in southern California that began on January 7, 2025. Currently, individuals and households that reside or have a business in Los Angeles County qualify for tax relief.
Tax Conferences And Events
📅 May 13-14, 2025. National Association of Enrolled Agents 2025 Capitol Hill Fly-In, Washington, DC. Registration required (NAEA members only).
📅 July 21-23, 2025. National Association of Tax Professionals Taxposium 2025, Caesars Palace, Las Vegas. Registration required.
Trivia
Which President signed into law the requirement that taxpayers with a financial interest in or signature authority over one or more foreign financial accounts with an aggregate value greater than $10,000 at any time during the calendar year file a Report of Foreign Bank and Financial Accounts, or FBAR?
(A) President Richard Nixon
(B) President Jimmy Carter
(C) President Ronald Reagan
(D) President Bill Clinton
Find the answer at the bottom of this newsletter.
Positions And Guidance
In response to what it perceives as attacks on the court system, the American Bar Association posted a statement on its website urging attorneys to “insist that our government, a government of the people, follow the law. It is part of the oath we took when we became lawyers. Whatever your political party or your views, change must be made in the right way. Americans expect no less.”
In a letter submitted to leadership of the Congressional tax writing committees, the American Institute of CPAs (AICPA) asked to amend the Section 199A Qualified Business Income (QBI) deduction in preparation for a tax reconciliation bill. Specifically, the AICPA recommends that Congress broaden the QBI deduction by increasing the $50,000 (non-joint returns) and $100,000 (joint returns) amounts. The AICPA also recommends that these QBI limitation phase-in range amounts be adjusted for inflation annually.
Noteworthy
Skadden, Arps, Slate, Meagher & Flom LLP announced that Loren Ponds has joined the firm as a partner in the Tax Group. Based in the Washington, D.C. office, Ponds provides strategic counsel to clients across industries on legislative, regulatory and other tax policy issues, as well as on technical matters related to international tax, including controversy and transfer pricing issues.
Reuters has reported that Italian prosecutors are investigating Amazon and three of its executives over alleged tax evasion worth 1.2 billion euros ($1.26 billion). The allegations are that Amazon sold goods in Italy from non-EU sellers, mostly Chinese, to help them avoid paying Italian value-added tax (VAT).
The IRS began accepting tax returns on January 27, but taxpayers in Colorado are still waiting for tax season to open. A banner on the Colorado Department of Revenue website says “The 2024 return links for Individual income tax, Fiduciary income tax, and Business income tax are coming soon. Please check in early February 2025.” That banner is still up as of February 14.
The state of Maryland sent out an estimated 6,000 Forms 1099-G to the wrong taxpayers earlier this month—replacement forms have now been mailed out. The comptroller of Maryland blamed a printing error for the mistake. (The comptroller’s office did not respond to a Forbes request for comment.)
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In Case You Missed It
Here’s what readers clicked through most often last week:
You can find the entire newsletter here.
Trivia Answer
The answer is (A) President Richard Nixon.
The requirement to file an FBAR was first enacted in 1970 as part of the Bank Secrecy Act (BSA). The law, which was designed to identify transactions related to money laundering, tax evasion, and other criminal activities, was signed into law by President Richard Nixon on October 26, 1970.
While the BSA has been around for decades, the IRS has, in recent years, intensified its focus on international tax compliance, including ensuring that U.S. taxpayers report their foreign financial interests.
Feedback
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