At Around the Tax World, you can find out all about what’s going on in the wonderful, worldwide world of tax. Every month, we’ll feature a few mini-articles on what’s been going on in the world when it comes to tax, and fully available for viewing even if you don’t have a subscription.
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In The Headlines
The Federal Reserve keeps interest rates as-is but alludes to a future cut. This means interest rates remain in the 3.5%-3.75% range for the foreseeable future. The Federal Reserve rate significantly influences borrowing for both consumers and businesses. Factors influencing this decision include the recent spike in oil prices spurred by the conflict in Iran, ongoing inflation, and a weak jobs report. The bank also published its Summary of Economic Projections for 2026 and forecast one rate cut later this year. In response to the Fed’s decision and rising energy prices, stocks took a dip. The Dow fell by 714 points or 1.5%, marking a low for the session. The S&P 500 also fell by 1.2%, and the Nasdaq Composite dropped by 1.3%. Some analysts say this may indicate troubled waters ahead, which explains why investors are selling off stock and monitoring future trends.
The case of the president vs. the IRS kicks up conflict of interest concerns. President Donald Trump filed a $10 billion lawsuit against the tax agency over leaked business and personal tax returns. The president’s sons Donald Jr. and Eric are also listed as plaintiffs. Since the lawsuit was filed, experts have been debating the legal and ethical questions involved in the head of the executive branch suing a branch of the government he leads. This case dates back to 2024 when a former IRS contractor was charged with leaking tax information about Trump and others to news outlets. Now the president is suing the IRS for failing to prevent the leak and claiming damages related to reputational and financial harm. Though legal analysts say Trump’s claim against the IRS is legitimate, some question both the amount he is seeking in damages and the decision to sue the IRS in the first place. Others express concerns that the IRS will be pressured to settle the case before a verdict can be reached and that the payout would come from taxpayer dollars.
Sports betting company Kalski faces criminal charges in Arizona. The prediction-market platform counts itself as the first CFTC regulated exchange that trades on the outcome of future events—from inflation and Fed rates to potential government shutdowns. The problem is that most forms of gambling, including placing bets on sporting events and elections, is illegal in the state of Arizona. Attorney General Kris Mayes has filed criminal charges against Kalshi. In response, the company is claiming that its business is different from sportsbooks and its activities cannot be limited at a state level. This is the central question at play: whether prediction markets are under the jurisdiction of the state or the federal government, namely the CFTC. So far in the case, a federal judge denied Kalshi’s request for a temporary restraining order against the criminal charges. No other states have filed criminal lawsuits against Kalshi, but Massachusetts, Michigan, and Nevada have filed civil lawsuits to prevent the company from offering sports events contracts in their states.
What's New In The Tax World?
The National Taxpayer Advocate anticipates 2026 challenges due to staffing reductions and retroactive changes to tax law
The National Taxpayer Advocate Erin M. Collins was appointed in March 2020 to protect taxpayer rights, resolve disputes, and recommend legislative changes. In her 2025 Annual Report to Congress, Collins predicted that taxpayers who had a smooth filing process in 2025 would likely have a similar experience in 2026. However, taxpayers enjoyed some advantages in 2025 that will not likely translate to 2026. Last year, the IRS had its largest workforce in years and did not have significant tax law changes to implement. Now the IRS is grappling with a 27% reduction to its workforce in addition to leadership shifts and extensive changes to tax law via the “One Big Beautiful Bill” Act (OBBBA). This means the IRS is dealing with many more changes to tax forms and instructions—but with fewer personnel to handle these changes.
Though most taxpayers will likely be able to file their returns without delay, those who encounter problems with their returns may find themselves stuck in an IRS logjam. The agency is expected to find itself short-staffed and struggling to assist the millions of taxpayers encountering problems this year. Last year, the number of IRS customer service representatives was reduced by 22%, and most of those positions were never backfilled.
On top of that, the OBBBA made over 100 changes to the tax code, some of which were retroactive to the start of 2025 and some of which take effect in 2026. Though many of the changes provide benefits to taxpayers, the eligibility rules are very complicated and include income thresholds and phaseouts that taxpayers might find it hard to decode. This is especially true for the new tax deductions for tips, overtime pay, and car loan interest.
So who is likely to skate by unscathed, and who might find themselves in a tangle? Those who file electronically, include their direct deposit information, and whose returns are not stopped by IRS filters will likely have a smooth experience. However, those who need to call customer service may find themselves hitting walls. The IRS typically receives over 100 million phone calls and several million pieces of taxpayer correspondence during filing season. To alleviate delays, the IRS has contracted with several private companies to help scan returns and attempt to reduce processing time by digitizing the forms. However, the Annual Report warns that this approach comes with operational and confidentiality risks that could create future complications.
State-By-State Updates
- California adds animated and competition TV shows to its Film & Television Tax Credit Program. Governor Gavin Newsom recently announced that 16 television projects will receive awards through the expanded program, which was doubled last year from $330 million to $750 million. This year, three projects from the new categories of animation and competition shows will be selected as recipients of the tax credit. The Golden State introduced the program back in 2009 to help keep entertainment projects in-state and boost the local economy. Since then, California has enjoyed massive returns: for every dollar of tax credit awarded, the state has seen $24.40 in economic output, $16.14 in gross domestic product (GDP), and $8.60 in wages. In total, that has resulted in $30.6 billion in economic activity and over 228,000 cast and crew jobs. The program also includes workforce diversity initiatives, a Career Pathways Training Program, and a Safety on Production Pilot Program.
- Georgia taxpayers may get two tax breaks: a one-time rebate and suspended gas tax. Governor Brian Kemp is expected to sign a bill that would approve a $250 rebate for single filers, a $375 payment for heads of household, and $500 for married couples. To be eligible, taxpayers must have filed returns in 2024 and 2025. The payments would be funded by surplus funds held by the state. Additionally, the state legislature is weighing the possibility of pressing pause on the gas tax for 60 days. The goal is to provide temporary financial relief to taxpayers as gas prices rise. The average price per gallon is currently 89 cents higher than this time last year, and Georgia’s fuel tax adds about 33 cents per gallon to the cost. The gas tax was previously suspended in 2022 during a price spike related to the war in Ukraine, in 2023 during high inflation, and in 2024 after Hurricane Helene.
- Massachusetts is weighing a state income tax cut. A potential ballot question would chop the tax down from 5% to 4%. However, this would reduce state revenue by $5 billion by 2030—or about 10% of Massachusetts’ total revenue. Opponents are concerned that the cut essentially offsets the revenue earned via the state’s “millionaire tax.” As a comparison, $5 billion is two-thirds of the state’s education budget and is more than the entire budget for public transportation. A recent study by Tufts University found that the tax cut would be slightly more beneficial for middle-to-high income households after factoring in personal income tax exemptions. Meanwhile, the state House is also voting on a spending bill that would allow Massachusetts to opt out of certain federal tax changes if the state income tax rate falls below 5%. Decoupling state and federal tax policy could save Massachusetts hundreds of millions in tax revenue and guard funding for state programs if the ballot question is successful.
- Wisconsin leverages tax benefits to draw A.I. companies to the state. Major tech companies know that they are in a position of influence—states across the U.S. are vying for their business, hoping to be the site of new data centers that will bring in jobs and boost the local economy. Wisconsin is throwing its hat in the ring by offering a potential sales and use tax exemption for qualified data centers. Companies that choose to build in Wisconsin would be allowed to use tax incremental financing (TIF) where developers use future increases in property tax revenue to fund projects. Supporters of the tax exemption point to the fact that many local governments are struggling to maintain funding for key services and projects. They point to current projects by Vantage and Microsoft that amount to a $22 billion investment in Wisconsin. Critics of the tax break say that it is a form of corporate welfare and a misuse of public financing tools.
Tax Planning Tips
How do the OBBBA tax policies impact retirement planning?
Before the One Big Beautiful Bill Act was passed, taxpayers were in a state of limbo: the lower income tax brackets introduced in 2017 were set to expire at the end of 2025, and it was unclear if Congress would be inclined to renew them. Because of this, many were operating as if tax increases were inevitable, a prediction that affected all future planning—including retirement investments.
So how do the OBBBA tax provisions change things? The fact that the new income tax structure is permanent introduces a new level of stability. For instance, those who are looking to convert a traditional IRA to a Roth no longer have to rush to do so. Previously, taxpayers were encouraged to convert because tax rates went up in 2026, but now the right moment to shift to a Roth will be more dependent on each individual’s tax situation. This could include the taxpayer’s predicted taxable income for the year and the deductions they qualify for—both of which are also affected by OBBBA tax updates.
Stability also makes it easier to predict how different retirement account types will impact your savings. Traditional IRAs tend to be more effective when a taxpayer’s income is expected to decrease during retirement, whereas Roth IRAs may be a better choice if the taxpayer’s income is expected to increase. An increase could be due to pensions, required minimum distributions, or Medicare income-related monthly adjustment amount (IRMAA) kicking in.
Does A.I. have a place in the world of tax planning?
Artificial intelligence is increasingly being used to streamline processes and improve efficiency across every industry. What about an arena as complex and full of legal minefields as tax planning? Both the IRS and state tax agencies have begun to leverage A.I. technology to help them determine when to conduct audits, detect fraud, and provide customer service to taxpayers. These are still primarily administration and communication-based tasks, which A.I. tools are often well-suited to do. The complications increase, however, when taxpayers want to use A.I. to understand the tax code.
More and more taxpayers and corporations are turning to chatbots like ChatGPT and Gemini to ask tax questions and identify savings opportunities. The problem is that tax law changes frequently, guidance on new tax provisions often takes a while to be finalized, and many tax provisions are very nuanced and difficult to apply to individual taxpayer’s situations. Add on top of that, A.I. tools’ tendency to “hallucinate” or spit out fabricated information, and you have a recipe for disaster that can lead to very real legal trouble. The bottom line? A.I. tools can make great administrative assistants or content editors, but they still cannot replace the skillsets and expertise of an actual tax professional.
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CURRENT EDITION
Kwong v. United States: A Pandemic-Era Decision That Could Reshape Tax Deadlines, Penalties, and Refund Opportunities
The 2025 court decision, Kwong v. United States, is quietly gaining traction among tax professionals for exactly these reasons. Its implications could be far-reaching, potentially opening the door to refund claims, penalty abatements, and revived tax deadlines that many assumed were long closed. But there’s a catch: the opportunity to act may be time-sensitive, and the window to preserve claims could begin closing in just a few short weeks. Here’s what the court actually decided and why it matters now.
Untapped State Benefits for Veterans: Planning Opportunities for Advisors and Families
Two veteran clients with seemingly similar financial profiles can end up with very different outcomes, simply based on where they live and how informed they are. Much of that difference comes down to smaller, state-specific benefits that tend to sit just outside the typical planning checklist. But when layered alongside federal veteran benefits, they can reshape major decisions like where to buy a home or settle long-term. For advisors working with military families, recognizing how these state benefits show up in real life can go a long way in helping veteran clients feel seen, understood and better supported in the decisions ahead.
What The Heck Is A Cash Balance Plan?
One of my obsessions is about what we can do for somebody who has high earnings and not much else. When I review multiple collections of year-end tax tips, there is not much for HENRY (high earnings not rich yet) other than a couple of Captain Obvious things like maximizing 401(k) contributions. Henry doesn’t have losses to harvest and is not about to set up a private foundation or a donor advised fund. Charity begins at home. So I got excited when I saw ads about cash balance plans. Was this the great white whale that I have been seeking that is a good answer for Henry? Or is it some sort of scam? As we will see it turns out to be neither, but it is probably something you should consider for some high earners.
