Advance Child Tax Credit Payment Option Available for Tax Year 2025
For Minnesota filers, taxpayers eligible for the Child Tax Credit have the option to receive up to 50% of their credit in advance payments through Schedule M1CWFC. To elect advance payments, taxpayers must file an original 2025 tax return by April 15, 2026. If a taxpayer amends their return, which could impact the amount of their Child Tax Credit, advance payments will cease. Clients can also opt to stop receiving these payments by contacting the relevant authorities via e-Services, phone, or email. It’s important to note that the advance payment election does not carry over from the previous year and must be made annually.
The first year for reconciliation of advance payments will be for tax year 2025, and taxpayers will receive a letter in January outlining the amount of advance payments they received. Misreporting of these payments may delay tax return processing. If eligible, it is important to evaluate whether to accept advance payments based on factors such as the age of qualifying children, changes in residency or income, alternating custody arrangements, and participation in programs like SNAP. A well-informed decision can help avoid any future repayment issues. For additional details, taxpayers are encouraged to visit the state’s Advance Payments of the Child Tax Credit webpage.
For more information:https://bit.ly/4jUCfqR
IRS Issues Updated Safe Harbor Rollover Explanations
The IRS has released updated safe harbor rollover explanations in Notice 2026-13 for retirement plan administrators to use when informing participants about eligible rollover distributions. The new guidance reflects substantial statutory changes enacted under the SECURE 2.0 Act of 2022 and replaces the prior safe harbor explanations contained in Notice 2020-62. These updates are intended to ensure that participant communications accurately reflect current law and support informed decision-making regarding retirement plan distributions.
Key updates incorporated into the new safe harbor explanations include additional exceptions to the 10% early distribution tax, the increase in the required minimum distribution (RMD) starting age, and the elimination of pre-death RMDs for designated Roth accounts. To assist plan administrators, the IRS provides two customizable model notices—one for Roth accounts and one for non-Roth accounts. Notice 2026-13 also incorporates recommendations from a U.S. Government Accountability Office report aimed at improving the clarity and usefulness of rollover disclosures. The updated explanations are designed to make complex rollover rules easier for participants to understand as they evaluate distribution and rollover options.
For more information: https://bit.ly/4sVgn2n
IRS Advisory Council Releases Annual Report Highlighting the 2025 Filing Season
The IRS Advisory Council’s (IRSAC) 2025 annual report strongly defended the IRS and its workforce while criticizing significant budget and staffing cuts. The report highlighted that, despite leadership turnover, rescinded funding, and workforce reductions, remaining IRS employees continue to perform their duties diligently. The IRSAC emphasized the agency’s critical role in funding the federal government and noted that public criticism often stems from misunderstandings about the IRS’s role versus that of Congress, which sets tax policy. The report underscored the IRS’s efficiency, citing that the agency collected $5.1 trillion in revenue in fiscal year 2024 with a $12.3 billion budget—an estimated return on investment of 415 to 1.
The IRSAC also detailed the impact of reduced funding following the Inflation Reduction Act of 2022, which initially allocated $80 billion to the IRS over 10 years, more than half of which has since been rescinded. While early investments improved morale, technology, and taxpayer services—including better phone access, online accounts, and use of artificial intelligence—subsequent workforce reduction initiatives led to the loss of approximately 25% of IRS staff, including more than 2,000 IT employees. These cuts, combined with the passage of major tax legislation requiring extensive guidance and system updates, have increased operational strain on the agency.
The report also acknowledged ongoing service challenges, particularly long wait times during filing season. An IRSAC survey found that over 60% of practitioners waited more than 30 minutes to reach an IRS representative, affecting efficiency and client service. While the 2025 filing season was generally viewed as successful due to improved call response and processing volumes, IRSAC stressed that sustained service improvements depend on adequate and stable funding. The report concluded with numerous recommendations aimed at modernizing IRS systems and improving taxpayer and practitioner interactions going into the 2026 filing season.
5th Circuit Rejects IRS Test for Limited Partner Self-Employment Tax
The U.S. Court of Appeals for the Fifth Circuit recently vacated a Tax Court decision addressing the self-employment tax exception for limited partners under IRC Section 1402(a)(13). The court held that whether a partner qualifies for the exception depends on the partner’s limited liability status under applicable state law, not on the partner’s level of participation in the business. In doing so, the Fifth Circuit rejected the IRS’s long-standing “passive investor” test and the Tax Court’s functional analysis applied in Soroban Capital Partners, which focused on whether partners were sufficiently passive to qualify for the exemption.
In reaching its decision, the court relied on the plain language of the statute, the ordinary meaning of “limited partner” at the time the provision was enacted in 1977, and more than four decades of consistent administrative guidance from both the IRS and the Social Security Administration. The court concluded that Congress tied the exception to limited liability, not to activity level, and that imposing a participation-based test exceeded the statutory framework. The ruling provides important clarity for partnerships structured under state limited partnership laws, confirming that partners who are active in the business may still qualify for the self-employment tax exception if they have limited liability.
