Tax Regulatory Update

In December, the Treasury Department (“Treasury”) and the Internal Revenue Service (IRS) issued guidance addressing tax issues for businesses, education, energy, real estate, individuals, retirement and other sectors. Several regulatory proposals also continued to work their way through the White House Office of Information and Regulatory Affairs.

Please see below for more information on significant releases in December 2025.^[1]

Business

IRS Releases Updated FAQs on Section 163(j): On Dec. 23, 2025, the IRS updated the frequently asked questions in Fact Sheet 2025-09 regarding the limitation on the deduction of business interest expenses (Section 163(j)) under the One Big Beautiful Bill Act (OBBBA). The updated FAQs address the gross receipts tests, floor plan financing interest expenses, the adjusted taxable income (ATI) limitation calculation and other OBBBA changes.

Importantly, the FAQs note that for taxable years beginning after Dec. 31, 2024, the ATI limitation will again be based on earnings before interest, taxes, depreciation and amortization (EBITDA).

The updates also clarify that small businesses with average annual gross receipts of $31 million or less for 2025 are exempt, even if the prior year’s additional interest carries forward. The FAQs define business interest expense as interest allocable to non-excepted trades or businesses (excluding employee services, electing real property/farming businesses and utilities). It also includes loans to finance trailers/campers held for sale or lease for taxable years after Dec. 31. 2024.

Education

IRS Issues Guidance on Scholarship Granting Organizations: On Dec. 12, 2025, the IRS issued Rev. Proc. 2026-6, which establishes procedures for states to make an Advance Election to become a “covered state” under the new Section 25F credit for contributions to qualified scholarship granting organizations (SGOs), established by the OBBBA. The guidance allows a state to notify potential SGOs of the state’s participation in the new federal scholarship tax credit program before formally submitting the state’s SGO lists for calendar year 2027. States making the Advance Election must file Form 15714 between Jan. 1, 2026, and the deadline for submitting their SGO lists.

Energy

IRS Provides Safe Harbor for Carbon Capture Verification Standards: On Dec. 19, 2025, the IRS issued Notice 2026-01, which provides a safe harbor for eligibility determinations for taxpayers claiming the Section 45Q Carbon Capture and Sequestration credit. The guidance allows sequestration data to be verified by an independent engineer or geologist beginning in tax year 2025 to ensure continued compliance until a long-term solution replaces the greenhouse gas reporting framework. The change follows the Environmental Protection Agency (EPA)’s September proposal to terminate its Greenhouse Gas Reporting Program (GHGRP) for industrial facilities. Current regulations require section 45Q credit claimants to meet the requirements from this program for verification of sequestration volumes.

IRS Provides Information on Dyed Fuel Excise Tax for Taxpayers: On Dec. 22, 2025, the IRS issued Announcement 2026-01 informing taxpayers about refunds available for federal excise taxes paid on undyed diesel or kerosene that later exits a terminal as dyed fuel intended for tax-exempt purposes.

Health Care

IRS Issues Guidance for HSAs: On Dec. 9, 2025, the IRS issued Notice 2026-05, which addresses questions regarding the OBBBA changes to health savings account (HSAs). The notice explains how high-deductible health plans (HDHPs) can now cover telehealth services without a deductible if they match Medicare’s list of over 250 approved remote care codes, with 2025 plans grandfathered in—although in-person visits, equipment or non-vaccine drugs typically are not eligible. It also describes how bronze and catastrophic plans from health insurance exchanges count as HDHPs even if they skip standard deductibles or spending caps (and work with employer reimbursement accounts like ICHRA), but small business exchange plans and recent Indian Health Services use often do not qualify. It also details Direct Primary Care arrangements, which will not preclude HSA use if they are just for basic primary care (by specific doctors or nurses), charge a flat monthly fee up to $150/$300 (individual/family) for up to a year, skip extras like anesthesia or lab tests outside a doctor’s office and let employers pay separately from the HDHP—HSAs can reimburse fees early, but higher fees block contributions while still qualifying as medical costs.

IRS Issues Fact Sheet Regarding Premium Tax Credits: On Dec. 23, 2025, the IRS updated the frequently asked questions in Fact Sheet 2025-10 regarding advanced premium tax credits (APTC). The changes highlight eligibility rules (income at least 100% of federal poverty line, no affordable employer/government coverage, non-Married Filing Separately except for abuse victims), household income definition (modified adjusted gross income (MAGI) plus certain exclusions), affordability tests for employer plans and PTC computation (second-lowest silver plan minus income percentage, reconciled via Form 8962 and Form 1095-A). It also states that taxpayers must reconcile APTC on returns even if filing solely to claim additional credit, with reporting mandatory if any APTC was received.

Individuals and Families

IRS Issues Guidance on Auto Loan Interest Deduction: On Dec. 31, 2025, the IRS issued proposed regulations regarding the auto loan interest deduction. The rule addresses information reporting requirements for lenders, identifies eligible taxpayers and loans and guidelines for determining final assembly.

Qualifying vehicles must be “new” to the taxpayer (original use starts with the purchase), built mainly for roads and highways (not rails or off-road only), and have their final assembly in the United States, which taxpayers can check via the vehicle’s ID number (VIN) details or the label on the car showing the assembly location. Only individuals, estates of deceased people and certain trusts can claim the deduction, which is subject to phase-out limitations.

Qualifying loans must be taken out after Dec. 31, 2024, secured by a first lien on the qualifying vehicle, and used to buy the car plus typical add-ons like sales tax, registration fees or service plans, but not insurance or “negative equity” from trading in an old car loan. The deduction does not apply to loans to finance boats or trailers. Additionally, deductible interest on refinanced loans are capped at the original loan’s remaining balance. To qualify as “personal use,” the taxpayer must expect to use the financed vehicle for more than half the time for individual, rather than business, purposes.

Lenders receiving more than $600 in interest annually from a qualifying loan must report the details to the IRS and send taxpayers a statement noting that not all interest may be deductible. The lender would be required to file an information return for each borrower, reporting items such as the borrower’s name and address, total interest received, outstanding principal at the start of the year, loan origination date and the vehicle’s VIN, year, make and model. The guidance incorporates existing penalty frameworks for failures to file or furnish required information returns and payee statements.

Public comments on the proposed regulations are due by Feb. 2, 2026, and a public hearing has been scheduled for Feb. 24, 2026.

International

IRS Issues Initial Guidance on OBBBA International Tax Provisions: On Dec. 4, 2025, Treasury and the IRS issued Notices 2025-75, 2025-77 and 2025-78 previewing proposed regulations on the OBBBA international tax transition rules. Notice 2025-75 covers modified subpart F pro rata share rules for CFC dividends paid on or before June 28, 2025. Notice 2025-77 clarifies the 10% foreign tax credit disallowance under section 960(d)(4) for taxes on section 959(a) distributions of section 951A. Notice 2025-78 addresses the new foreign-derived deduction-eligible income regime excluding gains after June 16 outbound sales of intellectual property or depreciable property (adopting the definitions of intangibles under section 367(d)(4), excluding leases and licenses).

IRS Issues Guidance on Foreign-Government Income: On Dec. 12, 2025, Treasury and the IRS issued proposed and final regulations under section 892 that update and clarify the treatment of income earned by foreign governments from their U.S. investments. The proposed rules would redefine “commercial activity,” establish new standards for determining government control of entities, and clarify that partnerships are not considered government-controlled even if wholly owned by a sovereign government. The final regulations confirm that income from qualified, government-controlled entities such as foreign pension funds remains eligible for U.S. real-estate tax exemptions.

Real Estate

IRS Issues Penalty Relief Guidance for the Sale of Farmland Property: On Dec. 22, 2025, the IRS issued Notice 2026-03 for penalty relief from estimated tax penalties for taxpayers that make a valid section 1062(a) election related to gain from the sale of qualified farmland to a qualified farmer. Section 1062(a) allows eligible taxpayers to elect to pay the tax attributable to that gain in four equal annual installments instead of in full by the original due date of the return. The notice clarifies that the deferred portion of the tax may be excluded when computing required estimated tax payments for the year of sale and relief applies only if the taxpayer files a return on time, properly makes the election with the required covenant or restriction attached, and complies with all associated requirements.

Retirement

IRS Issues Guidance on Trump Accounts: On Dec. 2, 2025, Treasury and the IRS issued Notice 2025-68, announcing its intent to issue upcoming regulations on Trump Accounts, a new type of tax-advantaged individual retirement account (IRA) for eligible children under 18 established under the OBBBA. The accounts will include a one-time $1,000 federal pilot contribution for U.S. citizen newborns between Jan. 1, 2025, and Dec. 31, 2028. Families or others can contribute up to $5,000 annually. Employers can contribute up to $2,500 tax-free per employee (counting toward the limit), and certain governments and charities may add qualified general contributions.

The IRS also released draft Form 4547 (Trump Account Election(s)) and instructions for electing into the Trump Accounts program for eligible children. Elections for 2026 are expected to be made by filing the new form or through the online portal at trumpaccounts.gov, which is expected to be available by mid-2026.

IRS Issues Guidance on 403(b) Plans: On Dec. 3, 2025, the IRS issued Notice 2025-60 announcing the 2025 Required Amendments List (RA List) for qualified 401(a) plans, 403(b) plans and preapproved interim amendments. The guidance sets Dec. 31, 2027, as the general deadline to amend non-governmental plans (later for governmental or union plans). The list has Part A items (RMD rule updates affecting most plans), Part B items (partnership/trust attribution changes under section 414(c) for unusual plans), and no Part C items, The list aligns with SECURE 2.0 deadlines of 2026 through 2029.

What’s Next?

The proposed regulations listed below were sent by the Treasury Department to OIRA in December and are currently under review. There is no formal date for the review to be completed.

Under Review as of Jan. 9
Issue	Title	Stage
Energy	Section 45Z Clean Fuel Production Credit	Proposed Rule
Business	Withdrawal of Basis Shifting Transaction of Interest Regulations (Treas. Reg. 1.6011-18)	Proposed Rule
Crypto	Crypto-Asset Reporting Framework (CARF): U.S. Broker Digital Transaction Reporting	Proposed Rule

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[1] This summary includes significant regulatory and other guidance issued by Treasury and the IRS. It does not include administrative or regularly scheduled guidance like monthly updates to federal interest rates.