IRS Rates | June 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
INCOME TAX CUT BALLOT QUESTION TOSSED BY STATE’S HIGHEST COURT [2]
Massachusetts’ Supreme Judicial Court ruled that a proposal to cut the state’s income tax from 5% to 4% will not appear on the ballot this fall.
Justices took issue with the summary written by the office of Attorney General Andrea Campbell. The Massachusetts constitution charges her office with providing “a fair, concise summary” to be printed on the ballot.
But the summary, justices found, was inaccurate: the proposed cut, if implemented as written, would lower the long-term tax rate on capital gains. Campbell’s office had written that it would not.
“The summary’s contrary statement is not a minor imprecision. It is significantly misleading and likely to influence voters,” Justice Serge Georges Jr. wrote for the court.
NEW INITIATIVE AIMS TO EXTEND TRUMP ACCOUNT BENEFITS TO FOSTER CHILDREN [3]
The Trump administration announced plans to allow child welfare agencies to elect to open a Trump account for children in foster care. The move comes after commenters raised concerns about access to Trump accounts — a new type of tax-favored account established by the One Big Beautiful Bill Act (OBBB).
First Lady Melania Trump and Treasury Secretary Scott Bessent unveiled the initiative on June 11. Treasury said the option is available where a state, territorial, or tribal government agency is the legal guardian of a child who has a Social Security number.
QUALIFIED OPPORTUNITY ZONE TRANSITIONAL GUIDANCE ISSUED [4]
The IRS released transitional guidance on Qualified Opportunity Zones (QOZs) following recent legislative changes. The guidance addresses how investors and businesses can navigate the rules for gain deferral, property qualifications, and compliance tests after a QOZ’s designation period expires, particularly considering the One Big Beautiful Bill Act (OBBB). (Notice 2026-40, 6/18/2026; IRB 2026-28, 7/6/2026)
Background
The QOZ incentive, originally created by the Tax Cuts and Jobs Act (TCJA), was designed to encourage long-term investments in low-income urban and rural communities designated as QOZs. The program allows investors to defer and potentially reduce tax on capital gains if they invest those gains into a Qualified Opportunity Fund (QOF), which is a vehicle that invests in eligible QOZ property. The rules governing these investments are detailed in IRC § 1400Z-1 and IRC § 1400Z-2.
On July 4, 2025, the OBBB was enacted, which significantly amended these rules. The new notice provides critical transitional guidance to help taxpayers navigate the changes between the prior law and the new provisions enacted by the OBBB.
Transitional rules for QOZ Investors
The notice clarifies that the rules for deferring gains now differ based on when an investment was made. For taxpayers who deferred gain by making a qualifying investment in a QOF on or before December 31, 2026, that deferred gain must be included in gross income in the tax year that includes December 31, 2026.
However, the OBBB created new rules for investments made on or after January 1, 2027. For these later investments, the tax year for gain inclusion is no longer a fixed date but is instead the year that includes the date five years after the qualifying investment was made. Furthermore, for these investments, the OBBB allows a taxpayer’s basis in the investment to be increased by 10% if the investment is held for at least five years, providing an additional benefit for long-term investors.
BIPARTISAN BILL WOULD CREATE ‘BABY BONUS’ CREDIT FOR NEWBORNS [5]
A bipartisan group of House lawmakers has proposed a tax credit aimed at covering the costs incurred by childbirth, potentially creating a supplement to the child tax credit.
The Supporting Newborn Parents Act of 2026, introduced May 13, would allow taxpayers to claim up to $2,000 for each child born within a tax year, either as a credit during filing season or as an advance payment distributed shortly after the child’s birth.
Although the credit would start at that $2,000 figure, its value would be adjusted for inflation over the long term.
Rep. David G. Valadao, R-Calif., leads the group of lawmakers who sponsored the legislation, which also includes House Ways and Means Committee members Blake D. Moore, R-Utah, and Thomas R. Suozzi, D-N.Y.
SUPREME COURT LETS STAND IRS POWER TO ASSESS TAX ANYTIME FOR PREPARER FRAUD [6]
The Supreme Court’s decision Monday to deny certiorari in Murrin lets stand a Third Circuit holding that the Sec. 6501(c)(1) unlimited period for the assessment of tax applies when a fraudulent return is filed with the intent to evade tax, regardless of whether the intent is that of the taxpayer or another person, including the taxpayer’s return preparer.
Other Headlines
DOMESTIC HEADLINES
The Unanswered Questions About Trump Accounts That Parents Need to Know. [7]
IRS statistics from the first two weeks of the filing season indicate that taxpayers are seeing bigger refunds on average versus a year ago, but observers caution the trend could shift as more returns are processed.
The average refund amount through the week ending February 13 was $2,476, which is 14.2 percent higher than refunds at the same time last year, according to a batch of filing season statistics released by the IRS February 20.
The increase, while reflective of only two weeks of filings, is “broadly consistent with expectations that refunds in the aggregate — and on average — will be larger this year than in recent years” because of the various tax changes under the One Big Beautiful Bill Act (P.L. 119-21), including new deductions for tips and overtime, according to Andrew Lautz of the Bipartisan Policy Center.
US Has Most Progressive Tax System in OECD, New Index Shows. [8]
While the US tax code is often believed to be insufficiently progressive, the data continues to show otherwise. A new study from the Fraser Institute ranks the progressivity of tax systems in Organization for Economic Co-operation and Development (OECD) economies and finds the US has the most progressive tax system of the 33 countries studied.
Measuring progressivity in a systematic way is challenging because tax codes are complex and easily conflated with broader redistribution and transfer policies. The Fraser Institute study strikes a balance by creating an index comprised of multiple tax metrics that are indicative of progressivity, readily attainable, and comparable across countries.
As Trust Fund Nears Insolvency, SSA Chief Actuary Shares Options. [9]
The Social Security Administration’s (SSA) Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement benefits, is now projected to run out of reserves in the fourth quarter of 2032, one quarter earlier than last year’s projection. SSA Chief Actuary Karen P. Glenn discussed the findings from the 2026 Social Security Trustees Report and potential pathways to solvency during a June 12 event hosted by the American Enterprise Institute (AEI).
Meanwhile, bipartisan legislation announced June 15 would establish an independent commission to address long-term solvency.
Concerns About Paper Check Refund Delays Continue. [10]
Representative Danny Davis (D-IL) remains concerned about the speed at which the IRS is providing paper check refunds to taxpayers this filing season.
Davis, along with Representative Terri Sewell (D-AL), wrote to Treasury Secretary Scott Bessent on March 9 with concerns that taxpayers who cannot receive their tax refunds via electronic payment may have to wait more than 10 weeks to receive a refund by paper check. Davis pressed Bessent for clear answers to his questions about paper refund processing during a June 4 House Ways and Means Committee hearing.
Bessent and IRS CEO Frank Bisignano have both stressed that 98% of taxpayers now receive their refund electronically. The IRS’ May 8 filing season data indicates that the total number of direct deposit refunds increased by 14% since the last filing season. That jump appears tied to the IRS’ paperless transition efforts, spurred by a 2025 executive order that calls for a shift to electronic federal payments to and from the IRS.
However, despite these efforts, not all taxpayers are able to receive electronic refunds. As of 2023, over 4% of U.S. households lacked a savings or checking account per a Federal Deposit Insurance Corporation survey. Taxpayers in certain religious groups may avoid electronic payment systems, while victims of domestic violence may be wary of sharing their banking information. Still other taxpayers, including those with disabilities and older taxpayers, may face challenges in using electronic banking systems.
“Many of my constituents — especially older individuals — are not comfortable with or lack the infrastructure for electronic payment systems,” Davis told Checkpoint. “All taxpayers deserve to receive their tax refunds quickly, and delayed refunds can cause serious hardship,” he added.
Even More Investors Want Out of Private Credit. [11]
Individual investors accelerated their withdrawal requests from once-hot private-credit funds in the second quarter, adding to the squeeze the industry is facing as fundraising slows and money heads for the exit.
So far, investors in four large credit funds, including those managed by Blackstone BX 2.69% increase; green up pointing triangle and BlackRock, have requested to redeem about $12 billion in the second quarter, up from $7.7 billion the previous quarter, according to data from the investment bank Robert A. Stanger & Co. The requests add to pressure on the industry, continuing months of turmoil that executives have tried to calm by arguing investors are overreacting to a few losses and a lot of scary headlines.
SEC Prepares Proposal to Eliminate Quarterly Reporting Requirement [12]
The Securities and Exchange Commission is preparing a proposal to eliminate the requirement to report earnings quarterly and instead give companies the option to share results twice a year, according to people familiar with the matter.
The regulator could publish the proposal as soon as next month, the people said. In preparation for the proposal, regulators have been talking to officials at the major exchanges to discuss how they may need to adjust their rules.
Once the proposal is published, it will be subject to a public comment period. After that period, which typically lasts at least 30 days, the SEC will vote on it. There are no guarantees it will ultimately happen.
The rule is expected to make quarterly reporting optional, not eliminate quarterly reports altogether.
• Fed Holds Rates Steady, but More Officials See Higher Rates as Soon As Next Month [13]
Federal Reserve officials signaled Wednesday that their next move might be to raise interest rates, not cut them, a striking reversal at Kevin Warsh’s first meeting as chairman and a sign of how sharply the inflation outlook has turned.
The Fed held its benchmark rate steady, in a range of 3.5% to 3.75%, in a unanimous vote. But officials’ quarterly economic projections told the story of the shift: Nine of 19 officials penciled in at least one rate increase by year’s end, up from none in March. Just one foresaw a cut, down from 12.
Investors braced in recent weeks for a higher-for-longer posture from the Fed, but this was sharper and reflected how the committee was inching from a watchful hold toward readiness to raise rates. After the meeting, traders in interest-rate futures markets saw a roughly one-in-three chance of a rate increase as soon as next month, according to CME Group.