Key IRS Updates: Corporate Tax Changes, Litigation, and Shutdown Impacts.

IRS Developments Impacting Corporate Tax Strategy, Business Litigation, and Regulatory Compliance

In recent days, significant updates from the Internal Revenue Service (IRS) are reshaping the landscape for businesses navigating federal tax law, mergers and acquisitions, and regulatory compliance. From changes in proposed corporate spinoff regulations to tax litigation updates, here’s what you need to know to stay ahead in these critical areas.

IRS Withdraws Proposed Corporate Spinoff Regulations

In a move that has caught the attention of tax professionals and businesses alike, the IRS has decided to withdraw its proposed regulations governing corporate spinoffs. Originally introduced in January, these regulations aimed to clarify the tax treatment of spinoffs but faced significant pushback from businesses and industry groups. The primary criticism centered on the narrow scope and complexity of the proposed framework, which would have imposed additional reporting requirements for tax-free corporate separations.

For companies considering a spinoff or separation of assets, this withdrawal provides a temporary reprieve, but it also underscores the ongoing scrutiny of corporate tax practices by the IRS. Businesses should continue to monitor developments in this area, as new proposals or guidance may emerge.

IRS Contingency Plan to Continue Operations Amid Government Shutdown

As the U.S. government faces the threat of a shutdown, the IRS has put forward a contingency plan to continue its operations, thanks to funding from the Biden administration. If Congress fails to reach an agreement to avoid a shutdown, the IRS will use funds from prior appropriations to ensure that key tax functions, such as processing returns and issuing refunds, continue without interruption.

For businesses, this means that tax filings and other IRS processes should continue as usual, even in the event of a broader government shutdown. However, there could be delays in other non-essential services or regulatory activities that may affect business operations.

Litigation Update: Tax Court Cases Affecting Businesses

Several high-profile tax litigation cases are currently unfolding, with significant implications for businesses in sectors like retail, real estate, and energy. Key cases include:

• California Tech Retailer Challenges $3.5M Tax Bill: A California electronics retailer is currently challenging a nearly $3.5 million tax assessment in the U.S. Tax Court. The retailer argues that the IRS failed to recognize the role of its Hong Kong affiliate in executing a portion of its sales. This case highlights the importance of cross-border tax compliance and the scrutiny placed on multinational corporate structures.

• Diamond Mogul’s Daughter Escapes $41M Tax Claims: In a notable case involving the estate of a diamond mogul, the U.S. government agreed to cease pursuing millions in tax liabilities from the mogul’s adult daughter. This settlement includes a substantial payment of $41 million, underscoring the importance of navigating complex estate tax matters carefully.

• Tribal Members Push for Inclusion in Supreme Court Tariff Review: Members of the Blackfeet Nation tribe are seeking to intervene in the U.S. Supreme Court’s review of President Trump’s emergency tariffs. This case could have far-reaching consequences for businesses involved in international trade, especially those navigating the intersection of federal law and Native American rights.

  
  

These ongoing litigations emphasize the need for businesses to stay vigilant in their tax reporting and compliance efforts, especially when dealing with complex issues like cross-border transactions, estate taxes, and regulatory enforcement.

IRS Regulatory Updates: Impact on Business Operations

The IRS has also released several important regulatory updates that could affect your business operations:

1. IRS Cuts Tax Preparer ID Fee: The IRS has reduced the user fee for tax preparers seeking an annual tax identification number (PTIN) from $11 to $10. This modest reduction comes amid ongoing litigation over the fee, but it’s a reminder for tax preparers and businesses alike to stay informed about regulatory shifts that can affect compliance costs.

2. IRS Finalizes Income Rules for Housing Tax Credit Projects: The IRS has finalized new rules for developers using affordable housing tax credits. These rules establish an average-income test to set rent for affordable housing projects, helping to reduce the risk of disqualification due to noncompliance. Developers and investors in affordable housing projects should review these finalized regulations to ensure they are in compliance.

3. IRS Cancels Hearing on Offshore Profit Regulations: The IRS has also canceled a scheduled hearing on proposed regulations that would require U.S. multinational corporations to create annual shareholder accounts to account for previously taxed foreign earnings. Businesses operating internationally should continue to monitor the IRS’s stance on offshore profits, as these regulations could significantly affect tax planning and reporting requirements.

   
   

Key Takeaways for Businesses and Legal Professionals

For businesses navigating the complexities of federal tax law, mergers and acquisitions, and regulatory compliance, these recent developments emphasize the importance of staying current with IRS regulations and litigation trends. Whether you’re dealing with cross-border tax issues, preparing for potential changes in spinoff regulations, or managing ongoing tax disputes, understanding the latest IRS actions and court cases is crucial to minimizing risk and ensuring compliance.

In addition, businesses facing government shutdowns should prepare for potential delays in certain IRS services and maintain flexibility in their operations. Legal professionals should be prepared to advise clients on the implications of these ongoing developments, especially if their businesses are involved in any of the cases mentioned.

Thanks for reading.

MD

Reference: Lucero, K., Glover, A., Farrell, A. S., Olivo, N., Glover, A., Moroses, D., Farrell, A. S., Cooper, S. K., & Pinner, K. (2025, September 29). IRS updates: Corporate spinoffs, tax litigation, and regulatory changes businesses need to know. Tax Notes.