Proposed Regulations

On September 19, 2025, the IRS published proposed regulations to implement and provide guidance regarding new Section 224, enacted as part of the One Big Beautiful Bill Act (P.L. 119-21).  The proposed regulations define qualifying payment methods, jobs that customarily receive tips, and exclusions from the deduction.

Section 224 would allow single filers who earn up to $150,000 annually or married couples who earn up to $300,000, to deduct up to $25,000 in qualified tips received during the tax year in an occupation that customarily and regularly received tips on or before December 31, 2024.  The deduction phases out for taxpayers with modified adjusted gross income over $150,000, and over $300,000 for joint filers.  The proposed regulations clarify that the maximum deduction is reduced (but now below zero) by $100 for each $1,000 by which the taxpayer’s modified adjusted gross income exceeds the $150,000 (or $300,000) limit.  To be deductible, tips must be included on reporting statements, such as the Form W-2 or Form 1099.  No deduction is allowed under section 224 for any year beginning after December 31, 2028.

Continue Reading No Tax on “Qualified” Tips:  IRS Issues Proposed Regulations on Tipped Income Deduction

On June 23, Proposed Treasury Regulations §§ 1.274-13 and 1.274-14 were published in the Federal Register addressing the disallowance of employer deductions for the cost of providing commuting and parking benefits to employees.  The proposed regulations are a mixed bag with some clarifications being helpful and others less so.  Proposed Treasury Regulation § 1.274-13 addresses the deduction disallowance under section 274(a)(4) for the cost of qualified transportation fringe benefits (QTFs) provided under section 132(f), i.e., qualified parking, transit passes, and other tax-free commuting benefits.  Proposed Treasury Regulation § 1.274-14 addresses the deduction disallowance for employee transportation costs under section 274(l).  Both deduction disallowance provisions were adopted as part of the Tax Cuts and Jobs Act (“TCJA”), and took effect for tax years beginning after December 31, 2017.
Continue Reading Proposed Regulations Regarding TCJA Disallowance for Employee Commuting and Parking Costs a Mixed Bag

On December 16, 2019, the Treasury and the IRS released final regulations under section 871(m) of the Internal Revenue Code.  The regulations finalize the 2017 temporary and proposed section 871(m) regulations without any substantive change.  On the same day, the Treasury and the IRS released Notice 2020-2 to extend through 2022 the relief provided in Notice 2018-72.
Continue Reading Treasury Finalizes Section 871(m) Regulations and Further Extends Transitory Relief

To corporations hoping for a holiday reprieve from the IRS’s narrow interpretation of the grandfathering rules included in the Tax Cut and Jobs Act (“TCJA”) amendment of section 162(m), the IRS has said “Bah… Humbug!”  To those foreign private issuers, publicly traded partnerships, and issuers of public debt hoping for relief from the expanded definition of publicly held corporation, the IRS has said the same.  On December 16, the IRS released proposed regulations addressing the changes made to section 162(m) of the Internal Revenue Code as part of TCJA, which are certain to disappoint many taxpayers.  The regulations also address the definitions of covered employee and “predecessor of a publicly held corporation,” as well as, the treatment of amounts paid by a partnership in which a publicly held corporation is a partner and director compensation. The regulations are generally proposed to apply to compensation that is otherwise deductible for taxable years beginning on or after December 20, 2019, the date of expected publication in the Federal Register. 
Continue Reading Proposed 162(m) Regulations are a “Lump of Coal”

In 1987, the IRS released Notice 87-7 providing guidance on whether certain recipients of payments from employer deferred compensation plans, individual retirement plans, and commercial annuities are subject to federal income tax withholding under section 3405.  The notice provided that:

  • payors must withhold on periodic and nonperiodic payments under section 3405(a) or 3405(b), respectively, to payees that provide a residence address outside the United States;
  • payors must withhold on periodic and nonperiodic payments under section 3405(a) or 3405(b), respectively, to payees that provide a residence address inside the United States, unless the payee has elected no withholding in accordance with section 3405; and
  • payors must withhold on periodic and nonperiodic payments under section 3405(a) or 3405(b), respectively, to payees that provide a residence address outside the United States.

Continue Reading Proposed 3405 Withholding Regulations Three Decades in the Making