Minnesota Pass-Through Entity (PTE) Tax Election Set to Expire
Effective for tax years beginning after December 31, 2025, the Minnesota PTE Tax election — which permits certain partnerships, limited liability companies and S-corporations to pay state income tax at the entity level rather than pass it through to individual owners — is scheduled to expire. If no legislative action is taken, entities will no longer be able to make this election for tax years beginning in 2026.
For pass-through entities and their owners, this change has significant implications. Beginning in 2026, state income tax will once again revert to being paid at the owner level rather than at the entity level, where taxpayers will be subject to the federal State and Local Tax (SALT) deduction limit, which will grow from 10k to 40k beginning in 2026 after the recently passed One Big Beautiful Bill Act (OBBBA). As a result, tax liabilities for many individual owners could increase. As of right now, there is no enacted legislation extending the PTE Tax beyond 2025. Accordingly, we recommend that affected entities and owners review their current structures and meet with us for tax planning to evaluate potential impacts and consider alternative planning strategies — especially if they have relied on the PTE election in prior tax years.
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IRS Issues 2025 Guidance on New Tip and Overtime Deduction Calculations
The IRS has released Notice 2025-69, outlining how individual taxpayers may calculate the new deductions for qualified tips and qualified overtime compensation available for the 2025 tax year. Since Forms W-2 and 1099 for 2025 will not separately report these amounts, the IRS has provided alternative methods to determine the deductible portions. For qualified tips, employees may rely on the amount reported in Form W-2, Box 7, or on Form 4070 (Employee’s Report of Tips to Employer), while non-employees may use records such as daily tip logs. For the qualified overtime deduction, individuals covered by the Fair Labor Standards Act may use any reasonable calculation method, including estimating the deductible amount as one-third of total overtime compensation listed on pay statements.
The notice also offers transition relief related to the specified service trade or business (SSTB) rules, allowing tips to be treated as eligible compensation if the occupation customarily received tips before December 31, 2024, pending issuance of final regulations. These rules apply only to the 2025 tax year and are intended to facilitate compliance until updated reporting forms and permanent regulations are in place.
What to Know as the IRS Emerges from the Shutdown
The recent 43-day government shutdown created unusual operational challenges for the IRS, even though a substantial portion of the agency remained on duty. With available Inflation Reduction Act funding, more than half of IRS employees were classified as exempt and continued to work and receive pay—unlike prior shutdowns, where only “excepted” staff could work without compensation. While this helped sustain certain priority initiatives, including implementation of the One Big Beautiful Bill Act (OBBBA), modernization work, preparation for the 2026 filing season, and many other core functions were paused. Refund processing (other than error-free e-filed returns), audits, non-automated collections, and most correspondence handling were temporarily halted, exacerbating an already strained operational environment.
As the IRS resumes full operations, significant backlogs and logistical challenges must now be addressed. The agency faces large volumes of accumulated mail and suspended cases, along with the need to reschedule canceled exams, Appeals hearings, and thousands of Taxpayer Assistance Center appointments. Taxpayers should also be mindful of workforce-related issues: the shutdown’s timing near the holiday season, combined with accrued but unusable leave time, staffing reductions, return-to-office requirements, and tight travel budgets, may affect how swiftly IRS employees can return to full productivity. These pressures raise concerns about employee morale and operational efficiency, potentially slowing the IRS’s ability to resolve outstanding matters. Given these circumstances, taxpayers should anticipate slower response times and increased procedural variability when dealing with the IRS. Experts note that it has become more difficult to reach knowledgeable agents, and interactions may require more proactive engagement and explanation from representatives.
IRS Issues Final Stock Buyback Tax Rules
The IRS has released final regulations (TD 10037) implementing the 1% excise tax on corporate stock repurchases, applicable to transactions occurring after November 24, 2025. The final rules significantly narrow the scope of the tax by excluding certain acquisitive reorganizations, many leveraged buyouts, and typical “take-private” transactions from being treated as repurchases. In a notable shift from the earlier proposal, the IRS also withdrew the controversial “funding rule,” which would have potentially imposed the excise tax on U.S. subsidiaries of foreign-parented groups engaged in funding arrangements that facilitated a foreign parent’s stock buyback. The regulations further clarify that repurchases of preferred stock described under IRC §1504(a)(4) are exempt and provide transition relief for specific preferred stock issued before August 16, 2022.
The final guidance also simplifies compliance and administration of the excise tax. Most notably, it removes the “no double benefit” component of the netting rule, reducing complexity in calculating the excise tax base. Additionally, the IRS streamlined the process for corporations seeking to apply the dividend exception by eliminating the need to obtain shareholder-level certifications, easing the administrative burden on large public companies in particular. Corporations engaging in capital market transactions or planning repurchase programs should review these final rules carefully to assess their impact on future transactions and related tax reporting obligations.
