The Artificial Intelligence Is In Your Home, Office And The IRS Edition

Have you used artificial intelligence (AI) today? Chances are that you have—even if you didn’t realize it. AI is showing up in all aspects of our daily lives, from virtual assistants like Siri or Google Assistant to personalized recommendations (my Spotify DJ is playing as I write this newsletter). You’ve likely used AI through autocorrect and predictive text, as well as spam filters in email—and you may have even used it for your personal financial and tax services.

Companies are also turning to AI. Bain & Company, a global consultancy firm, recently reported that generative AI has become a business staple, with 95% of companies in the U.S. giving it a whirl—a 12% increase in just over a year.

This isn’t just a private sector trend—it’s happening across both public and private sectors and in all industries. Danny Werfel, strategic advisory board member at alliant and former IRS Commissioner, says that more companies are committing to spending money to support AI infrastructure and more leaders asking about how they can effectively integrate AI into their overall corporate strategy. And, Werfel says, it’s no different in the tax space. Technology is increasingly playing a significant role in tax and accounting firms—and at the IRS.

Werfel knows a bit about the use of technology at the IRS, having served as Commissioner from 2023 to 2025. Werfel arrived after the 2022 tax season, which was, to say the least, a challenge. The federal agency was still recovering from the COVID-19 pandemic, which had caused delays in the tax filing season. There was a backlog of unfiled returns, and with many offices still not operating at full capacity, securing an in-person appointment was difficult—and reaching a real person on the phone was almost impossible.

There was a bright spot: Those issues gave the agency an opportunity to ramp up the use of technology as a solution. IRS first dipped its toes into AI with its call centers before expanding to chatbots and other ways to assist taxpayers, including detecting scams targeting taxpayers.

“AI,” Werfel says, “is an opportunity and a risk.”

Scammers aren’t just targeting taxpayers. According to a recent study by the Federal Trade Commission, more than half of those who reported losing money to scams or fraud in 2024 were under the age of 19, with $55 million in losses. A smaller percentage of younger adults (44%) reported being a victim of a scam or fraud, but the overall amount of losses was higher—those individuals aged 20 to 29 reported losses of $430 million.

(Overall, younger people report losing money to fraud more often than older people, but the median amount of loss for seniors is much higher.)

What makes younger people vulnerable? Technology plays a big part. Today’s kids are more digitally active than ever, which makes them more vulnerable to online scams. And for students just starting college or heading back to school, it’s often the first time they’re dipping their toes into the real world and managing their own money. Those looking for a good deal on textbooks or an apartment to rent can easily fall into a scammer’s trap.

Darius Kingsley, the Head of Consumer Banking Practices at Chase, highlighted a few of these scams currently making the rounds with some tips on how students and families can protect themselves.

And it’s not just back-to-school season that’s beginning—football season is also on the way. I’m sure that you’ve seen the big football news this week… No, not Travis Kelce’s engagement to Taylor Swift. The other big move. Micah Parsons, who, after demanding a trade from the Dallas Cowboys (located in a jurisdiction with no state income tax), was traded to the Green Bay Packers (located in a jurisdiction with one of the highest state income tax rates) with a reported $188 million contract. He’ll likely now pay millions more annually in state income taxes—he might also have an opportunity to pick up some championship hardware.

(Despite not winning a championship in, well, decades, Dallas remains firmly at the top of the Forbes list of The NFL’s Most Valuable NFL Teams 2025 with an eye-popping $13 billion valuation.)

As for Parsons, I’m not sure how you fit that many zeros on a Form W-2, but I’m guessing we’d all like to try.

We’ll all get a look at a different Form W-2 soon—but not as soon as we thought. The IRS has released drafts of some 2026 tax forms, including a draft of Form W-2. The changes are intended to address tax reporting updates, particularly for employees who receive tips and overtime pay. Notably, the draft Form W-2 is for the 2026 tax year—that’s for the tax return that you’ll file in early 2027. There will be no changes to Form W-2 for the tax year 2025, even though some of the new provisions, including those new, temporary deductions, take effect in 2025. The IRS has previously said that the omissions are “intended to avoid disruptions during the tax filing season and to give the IRS, business and tax professionals enough time to implement the changes effectively.” You can see what the revised draft form looks like and learn more about the changes here (spoiler alert: it’s mostly box code changes).

There’s lots more good information below, including a reminder about alimony and a look at how private equity could be moving into your retirement accounts.

Before I sign off, a special shout out to those of you who finished up your first week of classes–amazing work! If you’re feeling overwhelmed, it will get better, I promise! And for those of you who are first-gen college or university students, I’ve been there–you’ve got this!

Everybody else? Enjoy your long weekend,

Kelly Phillips Erb (Senior Writer, Tax)

Questions

A divorce can impact your taxes—but the timing matters.

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This week, a reader asks:

I know that the alimony tax law changed in 2018. Did the new tax law change it back to the old rules?

You’re referring to changes to the tax treatment of alimony. The Tax Cuts and Jobs Act (TCJA) did change the alimony rules, making them permanent. However, they were not impacted by the One Big Beautiful Bill Act (OBBBA).

Here’s what changed under the TCJA. For decades, alimony payments were deductible to the payer, even for taxpayers who didn’t itemize, and taxable to the recipient. However, under the TCJA, alimony is no longer deductible under new divorce or separation agreements signed on or after January 1, 2019. That also means that the receipt of alimony is not taxable (under the same conditions).

Agreements signed on or before December 31, 2018, follow the pre-TCJA rules unless you modify the agreement after January 1, 2019, and explicitly reference the change in the law.

You still have to meet some criteria. For example, to qualify as alimony for federal income tax purposes, you must be divorced or under a separation agreement. You cannot be living under the same roof as your spouse/ex-spouse when you make the payments—unless you meet a court-ordered exception—nor can you claim alimony in a year that you file a joint tax return with your spouse/soon-to-be-ex-spouse.

The alimony has to be couched as such–an example includes an official decree of divorce with mandatory support payments, a written separation agreement requiring such payments, or any other type of court order requiring you to support your spouse. The agreement or order does not have to be permanent: temporary decrees, interlocutory (not final) decrees, decrees of alimony pendente lite (awaiting a final decree “during the proceedings”) count.

Alimony payments must be in cash or a cash equivalent, like a check or money order. Property settlements don’t count. And you must not have an obligation to make any payment (in cash or property) after the death of your spouse or former spouse.

The obligation to pay alimony must not be voluntary. The IRS and you may have different understandings of what constitutes “voluntary.” Here’s a tip: if you have an official order or agreement, it’s not voluntary. But if you have an understanding, you feel morally compelled to make payments because you screwed things up or your ex-spouse is demanding that you pay something and just want to shut him or her up, that is voluntary and doesn’t count as alimony.

Finally, alimony payments do not include child support. Child support is tax-neutral—it’s neither tax-deductible to the payer nor taxed as income to the recipient.

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Do you have a tax question that you think we should cover in the next newsletter? We’d love to help if we can. Check out our guidelines and submit a question here.

Statistics, Charts, and Graphs

Earlier this month, President Trump signed an executive order that could pave the way for the use of private equity (PE) in retirement savings accounts. While private equity isn’t technically prohibited in retirement plans, the associated risks have traditionally given fiduciaries pause.

For many workers, retirement accounts represent most of their liquid savings. At the end of 2024, according to the Investment Company Institute, Americans held $15.2 trillion in individual retirement accounts (IRAs) and another $12.4 trillion in workplace defined contribution plans such as 401(k), 403(b), and 457 plans.

U.S. persons are increasingly saving for retirement.

Kelly Phillips Erb

The incentive to sock money inside retirement accounts instead of, say, a plain vanilla brokerage account is generally tied to tax breaks. Depending on the kind of retirement account, the tax benefits can be immediate, deferred, or both.

Here’s a quick primer: With a traditional IRA, you make potentially tax-deductible contributions. Any earnings, including interest and gains, aren’t taxed until you withdraw from the account once you retire. If you opt for a Roth IRA, contributions are not tax-deductible and are funded with after-tax dollars, but the payoff is that future withdrawals are tax-free.

Your employer may offer a defined contribution plan like a 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan. With an employer-sponsored retirement account, you can kick in a portion of your paycheck toward retirement savings (typically, pre-tax contributions) and your employer may offer a matching contribution. There may also be a Roth option for these accounts—as with a Roth IRA, with a Roth 401(k) or similar plan, in exchange for paying taxes upfront, the contributions and earnings can be withdrawn tax-free in retirement.

From a tax standpoint, the benefit of traditional (non-Roth) retirement accounts is generally two-fold: earnings don’t count towards your current year income—which reduces your potential tax bill—and it grows tax-deferred. When you reach retirement age, withdrawals are taxable as you take the money out—certain exceptions may apply.

The Executive Order doesn’t change the rules for retirement plans. It does, however, seek to change the “regulatory burdens and litigation risk” that may currently stand in the way of investing in alternative assets inside retirement plans. Under the Order, alternative assets include not only private equity, but also real estate and other assets like cryptocurrency.

So what makes private equity different from a more traditional investment? In PE, investors target privately held companies, as opposed to publicly held companies. Unlike investing in a public company, investing in a private company typically involves fewer regulations but requires more capital. The finances of private companies may be less transparent and more difficult to interpret. That means that PE isn’t for everyone.

A Deeper Dive

AUSTIN, TEXAS – JULY 17: In this photo illustration, Coke beverages are displayed in an ice-cooler at a park on July 17, 2025 in Austin, Texas. (Photo illustration by Brandon Bell/Getty Images)

Getty Images

Transfer pricing cases look to be the hot tax topic for fall, with several high-profile cases moving through the court system.

Transfer pricing is a tricky concept affecting multinational corporations and how they allocate costs and–ultimately–taxable profits. In a typical scenario, a parent company may set up several subsidiary companies all over the world and move goods, services, and assets from one to another—that’s completely okay. However, transactions between those companies are supposed to be at “arm’s length,” meaning that the goods, services, and assets are transferred for the same price as they would have been between unrelated parties. But often, that’s not what happens.

With a wink and a nudge, transactions are often structured to shift profits from high-tax countries to low-tax countries to cut their tax bills. The most popular target for transfer pricing abuse is intangible property, including licenses for manufacturing, distribution, sale, marketing, and promotion of products in overseas markets. Since intangible property doesn’t really have a physical home—unlike, say, real estate—it’s easy to transfer it to countries that offer certain benefits, including more favorable tax treatment.

Transfer pricing cases are often referred to as section 482 cases. Section 482 of the Tax Code—which has existed since the 1920s—gives the IRS broad authority to make adjustments on returns and allocate the income, deductions, and credits of commonly owned or controlled organizations, entities, or businesses. According to the Treasury, these adjustments are made “to prevent evasion of taxes or to clearly reflect income.”

One of those section 482 cases involves Facebook. The case focused on the value of the platform contribution transaction (PCT) that Facebook’s Irish subsidiary owed the U.S. parent company for the right to participate in this 2010 cost-sharing arrangement, or CSA. The case essentially involved a dispute over the valuation method—which is the most reliable, and how it should be applied? Facebook’s method initially yielded a value of approximately $6.3 billion for the PCT, whereas the IRS, using its own method, arrived at a value of almost $20 billion.

The IRS won and it lost. It won in the sense that Tax Court Judge Cary Pugh upheld the general validity of the income method. However, the IRS lost in the sense that nearly every methodological detail and assumption that went into its income method analysis was rejected. In the end, the Tax Court reduced the PCT from the $20 billion initially proposed by the IRS, all the way down to $7.8 billion, which is much closer to the $6.3 billion that Facebook initially estimated.

Another big transfer pricing case in the news involves Coca-Cola. This case focuses largely on royalties. Coca-Cola has argued that the IRS’s valuation analysis is flawed and that an old closing agreement, which provided for a simple profit allocation formula, should be honored moving forward. That case, which involves billions of dollars, is still being litigated.

(You can read my summary from last year here.)

Two other transfer pricing cases, Medtronic and 3M, are on appeal to the Eighth Circuit. And now, both cases are fully briefed and argued. 3M is about a specific and narrower issue, the validity of the blocked income regulations. Medtronic II is a broader case about the best method and valuation.

You can find out more about all of these cases on the most recent episode of Tax Notes Talk. You can read the transcript here.

Tax Filings And Deadlines

📅 September 15, 2025. Third quarter estimated payments due for individual taxpayers.

📅 September 30, 2025. Due date for individuals and businesses impacted by recent terrorist attacks in Israel.

📅 October 15, 2025. Due date for individuals and businesses affected by wildfires and straight-line winds in southern California that began on January 7, 2025.

📅 November 3, 2025. Due date for individuals and businesses affected by storms in Arkansas and Tennessee that began on April 2, 2025.

Tax Conferences And Events

📅 September 9-September 16 (various dates), 2025. IRS Nationwide Tax Forum in New Orleans, Orlando, Baltimore and San Diego. Registration required (discounts available for some partner groups).

📅 September 17-18, 2025. National Association of Tax Professionals Las Vegas Tax Forum. Paris Hotel, Las Vegas, Nevada. Registration required.

📅 Sept. 26-27, 2025. National Association of Tax Professionals Philadelphia Tax Forum. Sheraton Philadelphia Downtown, Philadelphia, Pennsylvania. Registration required.

Trivia

When were the first Forms W-2 issued?

(A) 1913

(B) 1944

(D) 1978

Find the answer at the bottom of this newsletter.

Positions And Guidance

The IRS has published Internal Revenue Bulletin 2025-36.

The IRS announced that interest rates will remain unchanged for the calendar quarter beginning October 1, 2025. For individuals, the rate for overpayments (yes, IRS has to pay you interest sometimes) and underpayments will be 7% per year, compounded daily. The rate is 6% for corporation overpayments (4.5% for the portion of a corporate overpayment exceeding $10,000) and 7% for corporate underpayments (9% for large corporate underpayments). The interest rate is set quarterly—the most recent rates are based on the federal short-term rate determined in July 2025. You can find the details in Rev Ruling 2025-18, which will appear in IRB 2025-37, dated September 8, 2025.

Noteworthy

ICYMI: The IRS is inviting the public to participate in an anonymous feedback survey on tax preparation and filing options. The survey is being conducted as part of the Department of Treasury and the IRS’ efforts to fulfill a reporting requirement to Congress under the new tax law. The survey will run through September 5, 2025.

Hoping to travel this fall? The IRS is urging taxpayers to resolve their significant tax debts to avoid putting their passports in jeopardy. The Taxpayer Advocate has more information.

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If you have tax and accounting career or industry news, submit it for consideration here or email me directly.

The Artificial Intelligence Is In Your Home, Office And The IRS Edition

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