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Table of Contents

February Monthly Tax Update (2025): Key Insights for Tax Professional

Imtiaz Munshi, CPA
Mar 19, 2025
152

February 2025 brought a series of important updates from the IRS, legislative developments, and compliance changes. This is your monthly byte to cover the latest update you must not miss.

So, what new intake is ready for you and is going to impact you?

Looking into the economic outlook, the 119th U.S. Congress's first season remained throughout February. The season is focused on IRS code amendments and some specific tax provisions.

Feb Monthly Tax Update and Key Insight

1. Updated Business Ownership Reporting (BOI)

Reinstated Deadline: Long pending continuous issues, multiple legal challenges, and legislative delays, the deadline for Beneficial Ownership Information (BOI) reporting is in place. The latest revised filing deadline is March 21, 2025. Any business LLCs, corporations, and limited partnerships must file within the stipulated time to avoid penalties.

Note >> Non-registered sole proprietorship businesses are exempt from BOI filing. However, multi-member LLCs and partnerships must comply with that.

Scam Alerts:

There are no filing fees for BOI Reporting. A Fraudulent Solicitation sends a misleading notice asking for payment of BOI filing fees. The actual BOI filing process is free through FinCEN.

2. IRS Filing and Penalty Changes

Increased Penalties for Late Filing: Delay in filing tax returns, be ready to pay a high panelty. The IRS has raised the penalties rates. So, as a Tax professional it is your duty to aware your clients about increased fines and encourage them for timely submissions.

Form 1120-S and K-1 Changes: For S corporations, or particularly for ownership structures, this season new reporting requirements have been introduced. Shareholders who are disregarded entities, trusts, estates, or nominees must now disclose additional information to avoid compliance issues.

Schedule K-1 Updates: Major changes or updates with Schedule K-1 reflecting new codes and various tax credits such as (S, WX, and V) have been added. Practitioners should familiarize themselves with these codes to ensure accurate reporting.

3. Partnership Taxation Updates

New Form 7217 for Property Distributions: The new form introduced will require strict reporting for partnership property distributions. Distinguishing liquidating and non-liquidating is a detailed basis allocation for property, ensuring correct calculations and compliance.

Note >> New rules clarify the allocation of basis when distributing non-cash.

4. IRS Enforcement and Compliance Trends

Increased Scrutiny on S Corporation Eligibility: Improper owners could trigger a termination of S Corp status, automatically converting entities to C Corporations, leading to significant tax consequences.

More IRS Audits on Employee Retention Credit (ERC) Claims: Many businesses are facing IRS reviews of previously approved ERC claims. Practitioners should advise clients to retain thorough documentation.

Fake Tax Debt Liens: A rise in fraudulent tax lien notices targeting taxpayers has been reported. Clients should verify any liens directly with the IRS before making payments.

5. IRS Online Account Enhancements

Expansion of IRS Online Services: The IRS now allows taxpayers to access 284 different notices through their online accounts. Tax pros should encourage clients to register for faster document retrieval.

Improved Transcript Access: Business taxpayers can now more easily pull account transcripts, which helps with quarterly estimated tax payments and audits.

6. Circular 230 Updates – New Ethical Standards

Stricter Rules on Contingent Fees: The IRS is moving toward banning contingent fees for tax preparation services except in limited circumstances.

Mandatory Mental Fitness Assessments: Soon Tax practitioners might be required to have a self-assess for their mental fitness to practice. The proposal is still in initial phase, facing significant pushback.

7. Legislative Updates and Pending Tax Bills

SALT Deduction Adjustments on the Table: Congress is debating changes, including doubling the deduction cap for married couples, eliminating certain deductions, and modifying the business SALT deduction.

Potential Elimination of PTE Workarounds: If Congress passes new SALT limitations, states' pass-through entity (PTE) tax workarounds could be phased out, affecting many small business owners.

8. Tax Court Rulings & IRS Audit Defenses

Recent Cohan Rule Cases: Courts reaffirmed that taxpayers could use reasonable estimates for expenses in audits when documentation is missing, but estimates must be reasonable and rounded.

Strict Substantiation Required for Certain Deductions: Congress has reinforced that travel, meals, and entertainment expenses require strict documentation and cannot be estimated under the Cohan Rule.

Key Takeaways for March and Beyond

The Proposed changes that might be seen in upcoming sessions are pertinent for tax professionals.

Longer Processing Times: A number of IRS employees have been laid off. The staff cut may lead to increased wait times and process delays.

House and Senate Tax Bill Timeline: While a major tax bill is in the works, final legislation is unlikely to pass before mid-to-late 2025.

Reliance on Automated Tools: Accuracy and credibility are due hence tax software calculations cannot blindly trust without additional verification. A new due diligence requirement states that tax professionals.

Conclusion

February’s tax updates highlight the importance of strict regulations and transparency. Be sure to monitor ongoing developments. Whether it’s BOI filing, IRS audits, or legislative changes, stay informed and adjust your strategies accordingly. Communicate these changes with clients to stay compliant. Stay tuned for next month’s update!

FAQs

Yes, you will get all the tax Monty, Quarterly and Annual Tax Updates before any other platform only with MYCPE ONE.

Yes, all the courses and tax updates are approved by IRS and NASBA.

Imtiaz Munshi, CPA

CFO, AZSTEC LLC

The author Imtiaz Munshi is a Certified Public Accountant and CFO at Azstec, LLC. He is Business Strategist, Tax Planner, Entrepreneur and Advisor to "HNEs" (High Net Worth Entrepreneurs).