IRS Rates | December 2025 [1]
- Applicable Federal Rate
Applicable Federal Rate (“AFR”) is the lowest interest rate allowed by the IRS without having a loan be deemed a gift. The purpose of this restriction is to prevent gifts being disguised as loans (i.e., parents “loan” kids $1MM at 0.00% rate). When AFR rates are low, there are a lot of creative ways to manage liquidity, capitalize trusts, and handle interfamily finances using Promissory Notes. When rates are high, estate vehicles like Charitable Remainder Annuity Trusts (“CRATs”) become more attractive as the up-front charitable deduction is larger.
- §7520 Rate
The §7520 Rate is related to the valuation of long-term or future interests. It’s most used with GRATs, annuities, and estates. The rate is based off the Mid-Term AFR rate (120%, rounded to the nearest two-tenths).
Legislations, Guidance, & Judicial Cases
WHAT YOU SHOULD KNOW ABOUT THE TRUMP TARIFFS BEING CHALLENGED AT THE SUPREME COURT [2]
A federal appeals court late Friday struck down the Trump administration’s signature tariffs, finding that the president had gone too far in his use of emergency powers to rewrite U.S. trade policy.
The 7-4 ruling from the U.S. Court of Appeals for the Federal Circuit upheld a lower-court decision that undercuts a core tenet of President Trump’s economic agenda. The majority found the president overstepped his authority under a 1977 law known as the International Emergency Economic Powers Act, or IEEPA.
The decision is a significant blow to one of the signature policies of Trump’s second term and sets the stage for the case to go to the Supreme Court. The appeals court allowed the tariffs to remain in place through mid-October to allow the parties time to ask the high court to hear the case.
TREASURY, IRS ISSUE GUIDANCE ON TRUMP ACCOUNTS [3]
The Department of the Treasury and the Internal Revenue Service today issued a notice announcing upcoming regulations and providing guidance regarding Trump Accounts, which are a new type of individual retirement account (IRA) for eligible children.
Notice 2025-68 PDF provides a general overview of how Trump Accounts work and addresses certain initial questions about creating initial and rollover Trump Accounts, the $1,000 pilot program contribution, other contributions – including qualified general contributions and section 128 employer contributions – eligible investments, distributions, reporting, and coordination with the rules applicable to other types of IRAs.
IRS SHUTTERS DIRECT FILE, CITING COST AND LOW UPTAKE [4]
Treasury announced in a new report to Congress that the IRS’s Direct File tool will be suspended in favor of improving Free File — the IRS’s long-standing partnership with private tax software companies.
“The report announces that the IRS will suspend Direct File,” Treasury said in the report, which is dated October 2 but was released November 5. “The report recommends refocusing IRS efforts on strengthening existing free filing programs, particularly Free File, while engaging stakeholders to modernize and promote awareness of Free File.
IRS RELEASES TAX INFLATION ADJUSTMENTS FOR TAX YEAR 2026 [5]
The Internal Revenue Service today announced the tax year 2026 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. Revenue Procedure 2025-32 PDF provides details about these annual adjustments.
The tax year 2026 adjustments described below generally apply to tax returns filed in 2027. The tax items for tax year 2026 of greatest interest to most taxpayers include the following:
• Standard Deduction
• Marginal Rates
• AMT Exemption Amounts
• Estate Tax Credits
• Adoption Credits
• Employer-Provided Childcare Tax Credit
NEW REGS. RESHAPE 1% STOCK BUYBACK TAX, DROP FUNDING RULE [6]
The IRS finalized regulations for the 1% excise tax on corporate stock repurchases under Sec. 4501 — and one heavily criticized proposed provision is gone.
The final rules (T.D. 10037), released Nov. 21, eliminate the so-called “funding rule,” which could have triggered the tax when a U.S. subsidiary helps its foreign parent finance a buyback. Commenters argued the rule was vague and could apply to routine transactions, making compliance costly and uncertain.
The regulations also tighten other areas. They remove a proposed “no double benefit” item that would have disregarded certain reorganization and distribution transactions for purposes of the netting rule under Sec. 4501(c)(3). They also clarify the treatment of certain preferred stock, such as excluding “plain vanilla” stock described in Sec. 1504(a)(4) from the definition of stock subject to the tax, treating it as more akin to debt.
ESTATE’S PORTABILITY ELECTION HELD INVALID [7]
The Tax Court denied an estate’s claim of a deceased spousal unused exemption (DSUE) amount, holding that the decedent’s predeceased spouse’s estate did not make a valid portability election (i.e., an election to allow the surviving spouse or the surviving spouse’s estate to use the DSUE of the predeceased spouse) because it did not file a timely estate tax return under Sec. 2010(c)(5)(A), nor did it qualify for the safe harbor in Rev. Proc. 2017-34.
Other Headlines
DOMESTIC HEADLINES
-
Fed Chair Powell’s Allies Provide Opening for December Rate Cut. [8]
Allies of Federal Reserve Chair Jerome Powell have laid the groundwork for him to push a rate cut through a divided committee at next month’s meeting even though it could draw multiple dissents.
The unusual level of division inside the Fed means that, to an even greater degree than usual, the final call rests with Powell.
To negotiate these stark divisions, Powell is likely to weigh two approaches, each with drawbacks. The first: cut rates, as markets now expect, and use the exquisitely negotiated post meeting statement to signal a higher bar for further reductions. This “cut then hold” approach would mirror what Powell did in late 2019 when, like now, three cuts met meaningful resistance from his colleagues.
This option would also likely trigger objections from officials who don’t support any cut. But it could end the soap opera of officials airing their disagreements in public by stitching together a new consensus that further cuts aren’t warranted if recent conditions persist.
The alternative is to hold rates steady and reassess in January, when officials will have more of the employment and inflation data that was suspended by a federal government shutdown. But that approach could prolong the public discord for another seven weeks, with no guarantee the additional data will resolve the underlying disagreements.
-
U.S. Home Prices Slow Further Amid Affordability Concerns. [9]
U.S. home prices rose in September, though the pace of growth continued to slow as elevated mortgage rates and affordability concerns hit demand.
The S&P Cotality Case-Shiller National Home Price Index, which measures home prices across the country, rose 1.3% in the 12 months through September, compared with a revised 1.4% rise in August. This represents the weakest performance since mid-2023.
“For context, this represents the weakest annual price growth since early 2023, when the market was absorbing the initial shock of the Federal Reserve’s aggressive rate-hiking cycle,” said Nicholas Godec at S&P Dow Jones Indices.
-
IEEPA Tariffs Are Down from April Threats. [10]
On “Liberation Day” in April 2025, President Trump threatened to impose extreme tariffs on most US trading partners under the International Emergency Economic Powers Act (IEEPA). These so-called “reciprocal” tariffs included a baseline of 10 percent on most US trading partners and higher rates of up to 50 percent on 57 specific trading partners, along with the subsequently announced 125 percent tariff on China. The “reciprocal” tariffs were in addition to the IEEPA “fentanyl” tariffs imposed on Canada, Mexico, and China under a separate emergency declaration. Since April, the tariffs that have been implemented in practice are mostly, but not exclusively, lower than what was originally threatened.
-
Charitable Deduction Unpacked – Individual Itemizers. [11]
The One Big Beautiful Bill Act (OBBB) made several changes to the charitable deduction, including establishing a permanent and expanded deduction for non-itemizing taxpayers. But for individuals who itemize, the OBBB added new limitations, effective in 2026.
-
Senate Funding Plan for IRS, SEC Unveiled. [12]
Senate appropriators released their fiscal year 2026 funding plan for Treasury, the IRS, and the SEC on November 24, 2025. The plan boosts funding for taxpayer services and maintains 2025 IRS enforcement funding levels.
The draft Financial Services and General Government (FSGG) funding bill is, overall, more generous for the IRS than Treasury’s budget request or the House budget bill (H.R. 5166). Likewise, the measure proposes flat funding for the SEC, avoiding the steep reductions envisioned under the House bill.
The House Appropriations Committee passed its FSGG funding plan in September.