Washington News

Each year, the National Taxpayer Advocate (NTA) reviews the tax filing season and publishes a report with findings and objectives for the next year. On June 25, 2025, the NTA released this year’s report for the filing season that ended April 15, 2025 and noted that this year’s tax season was a "measured success" for the Internal Revenue Service (IRS).

The IRS collected approximately $5 trillion in revenue for fiscal year 2024. This involved processing 180 million tax returns and managing over five billion information forms. The $5 trillion was essential for funding government programs that include national defense, Social Security and Medicare.

The IRS has made major steps forward to improve the filing process since the COVID-19 pandemic. This is the third generally successful filing season. Most taxpayers filed their returns on time and received prompt refunds.

Over 95% of taxpayers filed electronically. In addition approximately 60% of taxpayers received refunds. Many of the refunds were for returns that claimed the Earned Income Tax Credit and Child Tax Credit.

The IRS processed 140,633,000 individual tax returns and issued 86,021,000 refunds. The average refund amount was $2,942. Over 81 million of the 86 million refunds were delivered through direct deposit to the bank account of the taxpayer.

The IRS reports that it suspended approximately 13 million returns. Over 2 million returns were flagged because they were caught by IRS identity theft filters. For these returns, the IRS sent a letter to affected taxpayers, explaining that they needed to authenticate their identities prior to the IRS issuing a refund.

The IRS operates a massive mail system. Many taxpayers receive notices from the IRS and call to speak with IRS representatives. As a result, the IRS receives tens of millions of phone calls about filings, correspondence and tax-related issues.

The IRS set a major goal this past year to improve telephone service and met its Level of Service (LOS) goal of 85%. While it has steadily expanded the digital tools on the IRS.gov website, it recognizes that many taxpayers need to speak directly to an IRS representative. The agency considers reliable phone service an essential part of taxpayer support.

During the past year, the IRS received over 38 million calls and more than 12 million calls were answered by an IRS employee. The claimed level of service was 70% and the average time on hold was 8 minutes.

If the "One Big Beautiful Bill Act" is passed, there will be significant changes that affect the filing system next year. The IRS may have more taxpayers calling to inquire about major changes in the law that affect their tax return.

Another concern is delays in responding to victims of identity theft. The IRS considers identity theft cases in two categories. The first is a potentially fraudulent return. In those cases, the IRS requires the taxpayers to authenticate their identity. The second type of identity theft involves a stolen Social Security number. The fraudster claims to be a legitimate taxpayer, files a return and seeks to receive a large refund.

The IRS has 387,000 pending cases involving suspected identity theft, a fraudulent return and improper refund claims. The cases took approximately 20 months to resolve. The NTA explained that this is a huge problem. These delays "disproportionately affect vulnerable populations dependent upon their refunds to meet basic living expenses." Therefore, NTA is urging the IRS to improve the taxpayer experience, especially those who are waiting for the IRS to resolve a potential identity theft situation.

A major issue for the IRS in the next year is its outdated information technology (IT) structure. The IRS has been attempting for many years to improve its technology. It is now working with the Treasury Department to assess its technology priorities.

The IRS needs to move from paper to electronic returns and information returns. In prior reports the NTA stated, "Paper is the IRS’s is kryptonite, and the IRS is buried in it." The IRS is attempting to allow submission and upload of electronic documents and eventually eliminate paper documents and returns.

Potential Senate Vote on Big Beautiful Bill

Senate Majority Leader John Thune (R-SD) is attempting to move forward with a vote on The One Big Beautiful Bill Act. The bill, which is a massive tax reform act, is a huge challenge for Sen. Thune and Senate Republicans. The White House set a goal for the bill to be passed by both the House and Senate by July 4, 2025. This date is increasingly difficult to meet because of the unresolved issues in the major tax and budget bill.

Sen. John Kennedy (R-LA) indicated he thought the bill would be submitted for a vote on June 27. However, the Senate will allow an unlimited number of amendments to be filed. This Senate process is termed a "vote-a-rama” and could potentially take several days.

The bill is also likely to be modified after rulings by the Senate parliamentarian. Under the Byrd Rule, a reconciliation bill must be limited to items that impact the budget. Any non-budget provisions should be removed from the bill.

The other concern is that there are strong opinions about parts of the bill. Sen. Josh Hawley (R-MO) is seeking to restore Medicaid funds for rural hospitals. Other members are attempting to create additional Medicaid savings to reduce the cost of the bill.

Jonathan Traub from Deloitte Tax LLP spoke on a June 25 webcast. He was previously the staff director for the House Ways and Means Committee. Traub noted, "One of the challenges they face is that they have members that are asking for diametrically opposite things."

This clash of members will present continued challenges for Majority Leader Sen. Thune. There also has been a strong effort by the House SALT Caucus to increase the SALT limit from $10,000 to $40,000.

Traub concluded, "There are so many problems still to be ironed out. I think they solve them; I am just not sure they resolve them in time to get it done by July Fourth.”

Intense State and Local Tax (SALT) and Medicaid Battles

The key battles coming up on The One Big Beautiful Bill Act involve the state and local tax (SALT) deduction and Medicaid savings.

Sen. Markwayne Mullin (R-OK) has been negotiating between the Senate leadership and the House SALT Caucus. The House SALT Caucus is determined to increase the SALT cap to $40,000. With regard to the negotiations, Sen. Mullin indicated, "It does have to do with the income threshold, but not the cap."

The final version of the bill may offer a $40,000 SALT cap, but the House phaseout level at $500,000 in income may be significantly reduced. Individuals with incomes over the phaseout level would be limited to the current $10,000 SALT cap.

Sen. Mullin commented after a meeting with Senate Republicans to discuss issues related to the tax bill. He stated, "I think we got our numbers now. I would not say an agreement––this is an acceptance. It means that no side is going to be happy, but it is something that we have got to put a number in.”

Sen. Mullin also stated that he hopes the Senate will proceed after the "vote-a-rama” that will likely occur soon. Senate Majority Leader John Thune has stated the Senators "will remain here until this reconciliation bill is passed."

Sen. John Kennedy (R-LA) indicated the bill is still on rather tenuous grounds. He noted, "The bill is held together with happy thoughts and spit."

A major challenge with the bill is the decision by Senate parliamentarian, Elizabeth MacDonough, to remove the provisions on the Medicaid provider tax. The provider tax is a transfer of federal funds to state governments to assist in making Medicaid payments. The provider tax encourages states to increase the coverage for their Medicaid programs. The One Big Beautiful Bill Act proposed reducing the provider tax benefit to the states. However, MacDonough stated that this was not a permitted option under the Byrd Rule.

MacDounough also excluded a provision that involves the sale of two million acres of federal land in the West. Other removed sections involve the sale of U.S. Postal Service electric vehicles and immigration-related provisions.

The Senate leadership is diligently redrafting some provisions to try to comply with the Byrd Rule. However, some provisions will need to be removed in order to allow a reconciliation vote which allows the bill to pass with a simple 51-vote majority.

Sen. Rick Scott (R-FL) indicated the provider tax ruling was "pretty frustrating." However, he is "optimistic that we can come up with ways to make sure we fulfill the Trump agenda and also have fiscal sanity."

Editor's Note: Your editor and this organization do not take a position on specific provisions of the House and Senate tax bills. This information is offered as a service to our readers.

Applicable Federal Rate of 5.0% for July: Rev. Rul. 2025-13; 2025-28 IRB 1 (17 June 2025)

The IRS has announced the Applicable Federal Rate (AFR) for July of 2025. The AFR under Sec. 7520 for the month of July is 5.0%. The rates for June of 5.0% or May of 5.0% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2025, pooled income funds in existence less than three tax years must use a 4.0% deemed rate of return. Charitable gift receipts should state, “No goods or services were provided in exchange for this gift and the nonprofit has exclusive legal control over the gift property.”