March Legal Update: Key Developments in Tax Law and IRS Oversight
The realm of tax law and IRS oversight has seen a flurry of significant activity that could impact everything from your privacy rights to your financial planning. Whether you’re monitoring government practices or trying to understand how new legislative proposals might affect you, there’s much to consider. This update delves into critical issues including debates on IRS data-sharing, tax credit proposals, and insightful audits that challenge existing practices. Let’s explore these developments and understand their potential implications.
IRS Sharing Immigrant Data Proceeds: Judge Rules
On March 20, U.S. District Court Judge Dabney L. Friedrich made a significant ruling in a case brought by Chicago-based immigrant rights groups, Centro de Trabajadores Unidos and Immigrant Solidarity Dupage. The groups sought a temporary restraining order to prevent the IRS from sharing tax records with agencies like the Department of Homeland Security (DHS) and the Department of Government Efficiency (DOGE) for purposes of immigration enforcement. They argued that such sharing violated taxpayer privacy protections under Code Sec. 6103, particularly linking it to plans by the Trump administration that could affect over 13 million people.
Judge Friedrich, however, denied the motion, stating that the groups did not sufficiently prove their case or demonstrate a strong likelihood of succeeding. She pointed to the lack of substantial evidence, referencing a single news report and an IRS official’s statement that there were no such disclosures or requests from the White House for tax data for immigration purposes. Friedrich also noted statutory exemptions allowing certain disclosures, such as for criminal investigations.
Additionally, Democratic senators, including Catherine Cortez Masto and Ron Wyden, raised concerns in a March 14 letter addressed to IRS and DHS officials. They were worried about the potential misuse of IRS records to specifically target 700,000 suspected undocumented immigrants. Their letter also mentioned the sudden replacement of Acting IRS Chief Counsel William Paul and the potential risks this posed to maintaining proper tax compliance, suggesting possible illegal pressure on IRS leadership. This ruling has broader implications for all taxpayers, underscoring the delicate balance between national security and individual privacy rights. Consulting an IRS tax lawyer could provide clarity and protection for those concerned about privacy and compliance issues.
Tax Credits for Private School Contributions Criticized as Tax Shelter for Wealthy
The Educational Choice for Children Act (ECCA), introduced by House and Senate Republicans in January, proposes tax credits equal to 100% of contributions to Scholarship Granting Organizations (SGOs), which provide private K-12 school vouchers or tuition reductions.
According to Carl Davis, Research Director at the Institute on Taxation and Economic Policy (ITEP), the bill would create a significant tax shelter for wealthy individuals by allowing them to avoid capital gains taxes on contributions of appreciated stock. The ECCA would allocate $10 billion in credits annually, increasing by 5% each year, with ITEP estimating a $125.8 billion reduction in federal tax revenues over the next decade. Davis highlighted that donors could further reduce taxes by contributing marketable securities, avoiding capital gains taxes, and receiving full reimbursement through tax credits, making the program highly attractive to affluent taxpayers.
Supporters, including the American Federation for Children, argue the ECCA redirects existing tax liabilities to support school choice without requiring new federal funding or reducing current K-12 appropriations. However, critics, such as the Consortium for Constituents with Disabilities (CCD) Education Task Force, oppose the bill, stating it diverts public funds to private and religious schools that are not bound by federal education or civil rights laws. CCD also warned that the program undermines local school districts and misuses the tax system to fund private scholarships. Davis described the ECCA as a “classic example” of a tax shelter, incentivizing wealthy families to act as intermediaries in shifting public funds to private education. This legislative move raises critical questions about equity and access to education, potentially widening the gap between the rich and the less affluent.
TIGTA Criticizes IRS’ Inflation Reduction Act Contract Oversight and Compliance
A recent audit by the Treasury Inspector General for Tax Administration (TIGTA) highlighted significant issues with the IRS’s management of contracts under the Inflation Reduction Act (IRA), especially the $4.8 billion earmarked for business systems modernization (BSM). This funding is intended solely for updating systems and does not cover maintaining older systems. The audit exposed substantial gaps in record-keeping, showing that the IRS could not provide a full list of contracts for 74 legacy systems. Instead, they presented about 1,500 “potentially related contracts” for 40 systems with no guarantees of accuracy and completely lacked contracts for the remaining 34 systems.
TIGTA found that $4.6 million of BSM funds were improperly used to maintain three outdated systems, with an estimated total of $21 million misused across 14 systems. Moreover, an examination of seven competitively awarded contracts funded by the IRA for BSM revealed that none met the standards for pre-award documentation or quality assurance, pointing to serious flaws in how contracts are managed.
This situation highlights the need for improved accountability and transparency in government spending, underscoring how inefficiencies can lead to significant financial waste and potentially impact the effectiveness of critical modernization efforts that affect taxpayer services.
Court Shields Taxpayer From Ex-Husband’s Unreported Income Tax Liability
The Tax Court recently affirmed the IRS’ decision to grant Amanda Renee Stewart relief under Code Sec. 6015(c), protecting her from a tax deficiency of $33,028 and an accuracy-related penalty of $6,474 for the year 2019. This decision came about because her ex-husband, Ahmed Zied, failed to report income from his technical consulting business on their joint tax return, as detailed in Stewart, TC Summary Opinion 2025-3. During their marriage, which lasted from 2016 until their separation in 2019 and subsequent divorce in 2020, Stewart and Zied managed their finances separately, leading to Stewart’s unawareness of the unreported income.
Although the couple had already divorced, they had filed jointly for 2019, partly to allow Stewart to claim deductions for student loan interest. An IRS notice in 2022 uncovered the deficiency, which Stewart attributed entirely to Zied, aligning with their divorce agreement that assigned him the responsibility for any tax debts for that year. Zied, intervening in Stewart’s appeal to the Tax Court, claimed that the granted relief unfairly burdened him and sought to adjust the return to include additional deductions. However, the court rejected his claims as irrelevant or outside its authority, ultimately upholding the relief for Stewart based on her eligibility and Zied’s failure to adequately challenge the deficiency.
This case underscores the importance of the innocent spouse relief provision, offering significant protection to individuals unknowingly implicated in tax discrepancies by their spouses, ensuring that they are not unjustly penalized for actions beyond their control.
Secure Your Financial Future with Expert IRS Tax Lawyer Assistance
The legal landscape concerning tax law and IRS practices continues to evolve, carrying significant implications for taxpayer rights and government transparency. At Kundra & Associates, we are dedicated to keeping you informed and ensuring your rights are protected under the law. Our practice areas, including tax litigation, IRS audits, and international tax compliance, cater to a wide range of needs, providing tailored solutions for each client.
Facing complex tax issues or navigating IRS proceedings can be daunting without the right expertise. Our experienced IRS tax lawyers are here to provide expert legal assistance, helping you secure your financial future and uphold your legal rights. Serving clients in Maryland, Virginia, Washington, D.C., and internationally, we are well-equipped to handle legal challenges across diverse jurisdictions. If you need guidance or representation in any of our practice areas, contact us today to benefit from our commitment and expertise.