IRS Rates | June 2025 [1]
- Applicable Federal Rate
The Applicable Federal Rate (“AFR”) is the lowest interest rate allowed by the IRS before a loan is deemed a gift. The purpose of this restriction is to prevent gifts from 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 commonly applied in connection 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
WAYS AND MEANS APPROVES FY 2025 TAX BILL [2]
The House Ways and Means Committee on May 14 voted 26 to 19 along party lines to approve proposed tax law changes with an estimated net cost of $3.8 trillion over 10 years. The Ways and Means reported tax provisions are expected to be considered by the full US House of Representatives during the week of May 19 as part of the Fiscal Year (FY) 2025 reconciliation “One, Big, Beautiful Bill” (OBBB). Assuming House passage of OBBB, Senate action could follow as early as June.
The Ways and Means bill (the “Bill”) would extend permanently, with some modifications, certain individual, pass-through business, and international tax provisions enacted as part of the 2017 Tax Cuts and Jobs Act (TCJA) that currently are set to change at the end of this year.
The bill features a large number of new business and individual tax proposals, including “bonus” depreciation and other business investment incentives; “no tax on tips” and certain other tax proposals offered by President Donald J. Trump; a new retaliatory measure to address “unfair foreign taxes;” a new $30,000 cap for individual itemized deductions for state and local taxes (SALT); and various revenue-raising measures including repealing clean energy tax credits. The Bill also includes a provision to increase the federal statutory debt limit by $4 trillion.
GOP FACTIONS IN TUG OF WAR OVER SPENDING CUTS [3]
House Republican leaders dead set on passing President Trump’s agenda of tax cuts and spending reductions this week face difficult trade-offs in closing the deal among members of their narrow, fractious majority.
The mammoth bill advanced through a key committee Sunday night after GOP spending hawks reached behind-the-scenes agreements with Republican leaders to reduce subsidies for clean energy and accelerate the date when work requirements for Medicaid beneficiaries will take hold. Nothing was set in stone, and the fate of the legislation hinged on how leaders balance concessions to the right flank of their party with their more moderate members.
“There’s a lot more work to do,” House Speaker Mike Johnson (R., La.) told reporters after the House committee cleared the package. “We’ve always acknowledged that towards the end, there will be more details to iron out.”
SUPREME COURT GRAPPLES WITH TAXPAYERS’ DUE PROCESS RIGHTS IN ZUCH [4]
The U.S. Supreme Court just heard oral arguments in a case that, in effect, gets to the heart of the due process rights of American taxpayers.
Zuch examines whether a taxpayer who owes the IRS may still challenge the underlying liability in a de novo review.
A brief history, Zuch originally stemmed from a dispute about the IRS’s allocation of estimated tax payments made by Jennifer Zuch and her ex-husband Patrick Gennardo. The result was a balance due that Zuch contested in a CDP hearing.
Zuch was permitted to challenge the underlying liability at the IRS Independent Office of Appeals, which ultimately determined it could not move the credits to her, sustained the levy, and issued a CDP notice of determination.
Zuch challenged that determination in the Tax Court. However, during the several years while the challenge was pending at the Tax Court, the IRS offset amounts of the tax refunds owed to Zuch and applied them to her tax debt until the remainder of her unpaid tax was reduced to zero. The court then granted an IRS motion to dismiss as moot.
MASSACUSETTS COURT AFFIRMS TAX DUE ON NONRESIDENT’S CAPITAL GAIN [5]
On April 3, 2025, the Massachusetts Appeals Court issued its decision in Welch v. Commissioner of Revenue. The Court upheld the Appellate Tax Board (ATB) ruling that a nonresident individual’s gain from the sale of stock in a C corporation which he co-founded was taxable as Massachusetts source income because the gain was derived from and effectively connected with a Massachusetts trade or business. Under the controlling statute, Massachusetts source income includes items of gross income derived from or effectively connected with any trade or business, including any employment carried on by the taxpayer in Massachusetts, whether or not the nonresident is actively engaged in a trade or business or employment in Massachusetts in the year in which the income is received.
Other Headlines
Domestic Headlines
- U.S. Loses Last Triple-A Credit Rating. [6] The U.S. has lost its last triple-A credit rating. Moody’s Ratings downgraded the U.S. government on Friday, citing large fiscal deficits and rising interest costs.
Expanding budget deficits mean U.S. government borrowing will rise at an accelerating rate, pushing interest rates up over the long term, Moody’s said. The firm said Friday that it didn’t believe that any current budget proposals under consideration by lawmakers would do anything significant to reduce the persistent gap between government spending and revenues.
The move strips the U.S. of its last remaining triple-A credit rating from a major ratings firm, following similar cuts by Fitch Ratings in 2023 and S&P Global Ratings in 2011. Moody’s downgraded the U.S. to Aa1, a rating also held by Austria and Finland.
- Lutnick Says Administration Wants to Replace the IRS. [7] Commerce Secretary Howard Lutnick said the Trump administration aims to replace the IRS with an “External Revenue Service” to administer tariffs, but tax policy watchers doubt the new agency would collect enough revenue to adequately fund the government.
Lutnick, during an April 30 meeting with President Trump and members of his Cabinet, said that “hundreds and hundreds of billions of dollars” from Trump’s proposed tariff regime will allow for the creation of an “External Revenue Service” that would administer tariffs instead of taxes.
- Direct File Would Be Eliminated Under House Tax Bill. [8] Treasury would be required to end Direct File and explore the creation of a new public-private filing program under the tax package proposed by House Republicans.
Direct File, which allows some taxpayers to file for free through the IRS, would be eliminated within 30 days of the enactment of the 389-page tax bill released by House Ways and Means Committee Republicans May 12.
- “Big Beautiful Bill” House Gop Tax Plan: Preliminary Details and Analysis. [9] The House Ways and Means Committee is scheduled to mark up the tax portion of the House budget reconciliation bill on Tuesday, May 13, addressing the expirations of the 2017 Tax Cuts and Jobs Act (TCJA) and making additional changes to US tax policy. The Ways and Means Committee released full text for the markup on May 12, which has been titled “The One Big Beautiful Bill.”
Our preliminary analysis finds the tax provisions included in the May 12 text would increase long-run GDP by 0.6 percent and reduce federal tax revenue by $4.1 trillion from 2025 through 2034 on a conventional basis before added interest costs. On a dynamic basis, accounting for economic growth, the revenue reduction would fall by 19 percent to $3.3 trillion over 10 years before added interest costs.
Overall, the bill would prevent tax increases on 62 percent of taxpayers that would occur if the TCJA expired as scheduled. However, by introducing narrowly targeted new provisions and sunsetting the most pro-growth provisions, like bonus depreciation and research and development (R&D) expensing, it leaves economic growth on the table and complicates the structure of the tax code.
- Real State Tax Revenues Decline Amid Growing Fiscal Uncertainty. [10] The fiscal outlook for most states remains bleak, as tax revenue growth continued to lag in the first half of fiscal year 2025. This sluggish performance is partly attributable to widespread tax rate reductions and other relief measures enacted in recent years. Compounding these challenges are recent federal policy decisions—such as cuts to federal funding, new tariffs, and reductions in federal employment—which are expected to further strain state and local budgets.
- U.S. Allies Are Still Waiting for Tariff Relief Even After Speedy China Truce. [11] The U.S. hammered out a trade truce with its foremost geopolitical rival in record time. Reaching agreement with longtime allies is proving more of a slog.
The U.S. drew up a list of 18 key trading partners to focus on in negotiations following President Trump’s April 2 tariff blitz, when he slapped “reciprocal” tariffs on almost all U.S. imports.
Yet aside from one quick agreement with the U.K. and now the tariff rollback with China, none have so far yielded the kind of breakthrough that would bring relief for painful import levies.
- IRS reminds taxpayers and small businesses to look out for scams. [12] The Internal Revenue Service joins in celebrating National Small Business Week by reminding taxpayers and small businesses that, even though the April 15, 2025, tax filing deadline has passed, it is important to stay vigilant against scams and fraud year-round.
Earlier this year, the IRS issued its annual Dirty Dozen list that highlights some persuasive schemes impacting businesses, including new client scams, spear phishing, fake charities, bad social media advice and false credit claims.
There are several protective measures taxpayers and businesses can take, such as watching out for fake requests for W-2s especially with the tax filing deadline already passed. Businesses are encouraged to take proactive steps today to safeguard their business and employees by implementing robust security measures. Some examples are using anti-malware/anti-virus software with automatic updates and enforcing strong passwords with multi-factor authentication. Ensure that you only enter personal data on secure websites (https) to prevent unauthorized access.
- House Bill Would Raise Reporting Threshold for Payment Apps. [13] The House Ways and Means tax bill includes an increase to the reporting threshold for online payment platforms like Venmo, PayPal, and Etsy.
The bill, if adopted, would return the Form 1099-K reporting threshold to its original level and apply when over 200 transactions are made that total more than $20,000 during a year. The payment platform is required to send the form to the IRS and the taxpayer.
The American Rescue Plan Act, passed in 2021, lowered the threshold — also known as a de minimis rule for third-party payment processors — to $600 with no minimum number of transactions.