New Jersey: We Delayed Processing Your Extension Payment So We’re Going to Penalize You for Our Error

Posted on November 26, 2025 by Russ

Two clients of ours timely filed their federal and New Jersey extensions on April 15th, paying by electronic debit.  (One filed at 7am and the other at 12 noon, well before the midnight deadline.)  Both clients were waiting on K-1s, so they couldn’t file in April.  They both timely filed their returns (one in June, the other in October) and both asked for refunds.  Imagine the clients (and our) surprise when New Jersey assessed the late filing penalty!

New Jersey is notorious with tax professionals for taking a long time to process electronically filed returns.  This year, the state took one week to process returns (and extensions) filed around April 15th.  Thankfully, tax professionals can run reports that prove the return (or extension) was timely filed.  The report, called an “Electronic Postmark Report,” shows the exact time the return (or extension) was transmitted.

What is New Jersey supposed to do when they late process a payment?  New Jersey is supposed to back date it when the return or extension is timely filed to the filing date (here, April 15th).  My first client responded to the notice and (eventually) New Jersey agreed that it was their fault, and the payment date was changed to April 15th.  That client has received his refund.  My second client will have to go through the same process and he, too, will eventually receive his refund.

This is also a reminder to you that many notices sent by tax agencies are wrong in part or in whole.  Do not blindly pay a notice!  Send it to your tax professional and have them check it for accuracy.  Thankfully, both of my clients did that.

As for New Jersey, it would be nice if you either timely processed electronically filed extensions and returns or fixed this systemic issue…but I’m not holding my breath.

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Kalshi Preliminary Injunction in Nevada Dissolved; Kalshi Likely Soon Gone from State

Posted on November 25, 2025 by Russ

This morning, a judge here in Nevada dissolved Kalshi’s preliminary injunction against the Nevada Gaming Control Board.  That injunction (now gone) prohibited Nevada from stopping Kalshi’s sports betting–excuse me–sports contracts from being offered in the state.  While I expect Kalshi to quickly file an appeal (which would be with the 9th Circuit Court of Appeals), it’s likely that Kalshi’s days in the Silver State are limited.

As I said in my post last week, gambling has been historically regulated at the state level.  Kalshi being allowed by the Commodities Futures Trading Commission (CFTC), a regulator that does not focus on gambling, had to do with general predictions.  Sure, Kalshi can (based on CFTC rulings) offer whether or not the Epstein files will be released.  But does it make sense they can offer a contract on whether the Bears will beat the Eagles on Friday?

The only certainty here is that further court actions are coming.

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Are Prediction Markets Sports Betting Products Doomed in the Long-Term?

Posted on November 20, 2025 by Russ

Prediction markets are another new phenomenon. Kalshi, PolyMarket, and others offer predictions on things like, “Will the Epstein Files be released by the end of 2025?”  They also offer sports predictions which I believe are clearly sports betting by any other name.

In tax (which I’m qualified to talk about) and law (which I’m not qualified to talk about, except for tax law) there is a doctrine called substance over form.  Here’s an example we can all agree on: I pay you $10,000 for consulting work.  I wrongly issue you a Form 1099-INT (showing interest income) instead of a Form 1099-NEC (which shows non-employee compensation).  You should report the income on your tax return as non-employee compensation.

I’ve discussed this doctrine before in the context of Daily Fantasy Sports (DFS) and concluded that DFS is gambling; it’s yet another instance of the Duck Test.  For those who don’t remember, the Duck Test is that if something looks like a duck, walks like a duck and quacks like a duck, it just may be a duck.  Prediction market sports predictions look, walk, and quack like sports betting.   I have bad news for those who partake in sports prediction markets: it’s sports betting by any other name, and I believe the courts will force such prediction markets to obtain licenses from states in order to offer these products.

The problem for the prediction market companies is that gambling has historically been regulated by states, not the federal government.  Currently, several states have filed lawsuits against prediction market companies for offering sports predictions; the prediction market companies initially won in Nevada but lost in Maryland.  Both cases have been appealed, and this looks to me to be headed to the Supreme Court.  Given how this has historically been treated I think the prediction market companies face an extremely uphill battle in the long-term.

I’ve been asked by clients how the IRS will look at sports prediction income (from prediction markets).  I believe the IRS will conclude it’s gambling winnings. For there to be wagering (aka gambling) income, there must be a prize, consideration, and an element of chance (and not be defined by the Tax Code as something else).  Sports predictions meet this definition and have not been defined by the Tax Code as something else.  Yes, the Commodities Futures Trading Commission (CFTC) treats sports predictions as contests; however, the IRS is in no way bound by the CFTC’s actions.

Now, it may take a couple of years for this to all play out (courts do not move quickly and the IRS is known for being inefficient). Unfortunately, the long-term future for sports predictions within the prediction companies looks poor.

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The Shutdown

Posted on October 1, 2025 by Russ

Once again there’s a government shutdown. What does it mean for taxes?

First, deadlines and responsibilities don’t change just because there’s a government shutdown. You still owe tax, and if you’re on extension your taxes are still due (generally) on October 15th.  If you use the excuse, “The government shut down, so I’m not going to file or pay,” your chance of winning that argument is zero. Don’t try it.

For now, it’s business as usual at the IRS. The IRS is using Inflation Reduction Act funds to stay fully staffed. Unfortunately, there’s about five days of funding left; that means the IRS will likely run out of funds next Wednesday, October 8th.  When that happens, it’s likely there will be little or no phone support, correspondence will start being accumulated, and IRS counsel (dealing with legal issues) may be furloughed.  If you need to reach the IRS, call ASAP.

If this shutdown lasts any appreciable amount of time, it will add to the challenges the IRS faces. The IRS is already facing (a) massive tax law changes, (b) ancient computer systems, and (c) probable budget cuts. If you add backlogged work you have a nightmare for anyone who has to deal with the IRS on a regular basis. (And yes, that’s me.)

One thing that’s likely to continue during the shutdown are automated notices. Consider a taxpayer who gets an automated notice and timely responds. Will that response get noted so that a second notice doesn’t get generated?  Who knows.

I hope that this gets resolved quickly, but the reason I wrote when that happens above rather than if it happens is that I’m convinced this will take a number of weeks to get resolved. I think the best case is two weeks, but I wouldn’t be surprised if this takes a month or longer. This is one prediction I really hope I have wrong.

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Pittsburgh Sacked

Posted on September 26, 2025 by Russ

Jock taxes impact nonresident athletes (and others) who perform in out of state venues.  Let’s say you’re in the National Hockey League (NHL), playing for the Vegas Golden Knights.  You play a game in Pittsburgh.  You now owe tax to Pennsylvania and, because Pittsburgh has a nonresident tax on performers, to the city of Pittsburgh.

Pennsylvania law allows a “Second Class City” (yes, Pittsburgh is literally that–but it’s actually defined by Pennsylvania law as a city with a population of more than 250,000 bet less than one million) to impose up to a 3% tax on earnings at sports venues for nonresidents. However, the Pennsylvania Constitution (article VIII, § 1) states, “All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax.”  Pittsburgh residents pay a 1% earned income tax plus a 2% school district tax; nonresidents pay 1% on income plus a 2% “Facility Fee.”

Three NHL players plus the players associations for the NHL, NFL, and major league baseball sued Pittsburgh.  They won in the lower courts, but Pittsburgh appealed to the Pennsylvania Supreme Court. Yesterday, the court ruled that the 2% Facility Fee is indeed unconstitutional.

The court noted that they had to determine, “…whether there exists ‘some concrete justification’ for treating the relevant taxpayers as members of distinguishable classes.” If the court couldn’t find that, the tax would be unconstitutional.

And that’s what the court found:

Here, the City does not provide concrete reasons that would justify taxing nonresident athletes and entertainers more than resident athletes and entertainers. Instead, the City once again argues that the facility fee “does not impose an unequal tax burden on nonresidents” because it actually equalizes the tax burdens of resident and nonresident performers. Residents who perform at the stadiums are taxed three percent of what they earn (one percent to the City and two percent to the School District), and now—because of the facility fee—nonresidents also pay a three percent tax. The City maintains that a tax which equalizes the burdens between two groups of taxpayers cannot violate the Uniformity Clause. [citations omitted]

When an argument loses at two lower courts, you might think about finding something else as backup for your cause. Pittsburgh didn’t. The result wasn’t good for the Second-Class City:

Because the two percent Pittsburgh School District tax cannot be used to justify the facility fee in our Uniformity Clause analysis, and because the City of Pittsburgh has not supplied a “concrete justification” for treating resident athletes and entertainers differently from nonresident athletes and entertainers, we agree with the lower courts that the facility fee is unconstitutional. [citation omitted]

Pittsburgh will need to repay a lot of athletes, and this is definitely going to put a strain on the Steel City’s finances. It’s also a reminder that uniformity means just that.

 

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About That List of Occupations Eligible for “No Tax on Tips…”

Posted on September 5, 2025 by Russ

You may have seen a list of occupations that are eligible for the One Big Beautiful Bill’s “No Tax on Tips” provision.  And perhaps your occupation is on that list, and you’re thinking, “Wonderful! My taxable income is going down!”  Perhaps that’s the case, but there’s a chance that won’t be true.

The problem, one noted quickly by Tom Gorczynski (and I agree completely with Tom), is that there are two parts to qualify for this tax break.  First, the occupation must be one where tips were customarily and regularly received prior to 2025.  Second, the occupation must be one which is not a “Specified Service Trade or Business (SSTB).” 

What is an SSTB? The Tax Cuts and Jobs Act (TCJA), the tax bill that passed during the first Trump Administration, allowed for a new deduction (the deduction for Qualified Business Income).  However, certain businesses–called Specified Service Trade or Businesses–had limitations built into this deduction.  Generally, if your business is one based on the reputation or skill of the employee or owner (such as attorneys, tax professionals, and consultants/personal coaches), you’re an SSTB.

If we look at the list published by Treasury, there are numerous SSTB occupations listed.  For example, a tennis coach is clearly an SSTB. Sure, he may have receive tips but the second part of the test will disqualify that coach from receiving this tax benefit.  (Of course, many of the occupations listed are absolutely not SSTBs, such as waiters, bartenders, and gaming dealers.)

I’d love to reclassify my business as a “Self-Enrichment Teacher;” that happens to be one of the professions listed on the list published by Treasury. Clearly, tax professionals help individuals keep more of their money; that’s absolutely self-enrichment.  Unfortunately, changing the name of my business to “Clayton Self-Enrichment LLC” won’t change my profession.  My dream of changing my billings from “Tax Preparation” to “Self-Enrichment Fee” will just not work.

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IRS Closes Cincinnati Lockboxes; New Addresses In Effect Immediately

Posted on August 24, 2025 by Russ

Last week, the IRS released Publication 3891.  This publication lists out where to mail paper-filed returns and payments for the 2026 tax year.  Currently, Nevadans mail many IRS payments to addresses in Cincinnati, but not anymore.  Spidell reports that the new addresses should be used immediately.  

The major change for residents of Alaska, California, Colorado, Hawaii, Idaho, Kansas, Michigan, Montana, Nebraska, Nevada, Ohio, Oregon, North Dakota, South Dakota, Utah, Washington, and Wyoming is that there are new addresses to mail Forms 1040-V and 1040-ES. (Paper-filed forms 1040 with a payment go to the 1040-V address.)  The new address for residents in these states for Form 1040-V is:

Internal Revenue Service
PO Box 931000
Louisville, KY 40293-1000

The new address for residents of those states for Form 1040-ES is:

Internal Revenue Service
PO Box 931100
Louisville, KY 40293-1100

While the IRS states they will forward mail from the old Cincinnati addresses, I would, if at all possible, use the new address.  The IRS’s ability to deal with correspondence is dreadful, and while penalties will be waived if you can prove you mailed it to the Cincinnati address why deal with that at all! [1]

Even better, if you pay electronically (using IRS Direct Pay, EFTPS, your IRS online account, or having your tax professional have your bank account debited with the filing of your return) you avoid any issue at all.

Other addresses have changed, too, including where to mail extension payments and where to mail business payments.  Those are also noted in Publication 3891.

[1] Remember, to prove you mailed anything timely to the IRS it must go by certified mail.  Yes, it will cost you $5.30, but it’s well worth it.

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I’m Tipsy on Overtime

Posted on August 8, 2025 by Russ

The IRS issued a press release yesterday:

The Internal Revenue Service today announced that, as part of its phased implementation of the One Big Beautiful Bill Act, there will be no changes to certain information returns or withholding tables for Tax Year 2025 related to the new law.

Key points for TY 2025 relating to OBBBA provisions:

  • Form W-2, existing Forms 1099, and Form 941 and other payroll return forms will remain unchanged for TY 2025.
  • Federal income tax withholding tables will not be updated for these provisions for TY 2025.
  • Employers and payroll providers should continue using current procedures for reporting and withholding.

These decisions are intended to avoid disruptions during the tax filing season and to give the IRS, business and tax professionals enough time to implement the changes effectively.

There’s problem here: Certain tip income and overtime income isn’t subject to tax under the OBBBA.  How am I, a tax professional, to know the total of tips and overtime?  Or that the taxpayer worked in an industry where tipping is ‘normal?’

For tips, there is a box on the W-2: box 7, so that should be straightforward as to the amount paid. As to the industry, well, I’ll have to use my judgment.  But there’s no box on the current W-2 for overtime.  That means either it will need to be listed as an other item in Box 14 (the current ‘catch-all’ box) or we’ll need the final pay statement (aka pay stub) for the year for anyone who earned overtime.

The new OBBBA may be good for many workers, but it absolutely adds complexity to tax preparation.  It will increase the amount of time it takes to prepare a tax return.  Given the OBBBA didn’t (and couldn’t) change the clock–our day still remains 24 hours–and I’m loathe to require my employees to work additional hours (nor do I really want to myself), that means the cost to prepare a 2025 tax return will rise.  And that’s before inflation, demand increase, and the overall shortage of tax preparers is factored into the cost.

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A February 17th Start to Tax Filing Next Year?

Posted on August 3, 2025 by Russ

Yes, we’re looking at a late start to Tax Season next year.  New IRS Commissioner Billy Long said at the recent National Association of Enrolled Agents (NAEA) annual meeting (per a friend’s email–I did not attend) that the IRS expects next year’s tax season to begin on February 16th.  That’s President’s Day, so a February 17th beginning looks likely.

I’m not yet ready to call next year’s tax filing another “Tax Season From Hell,” but it sure looks that way to me.  We have a lot of tax law changes, an even more compressed filing season than usual, and the IRS will be understaffed.  It doesn’t look good (though that’s six months from now).

I’ve learned that version 0 of tax software is to be avoided.  Tax software is quite complex, and there’s an interaction between the software companies and the IRS (of course).  If the IRS isn’t ready to process returns, many forms from the software companies won’t be ready.  Typically, some forms aren’t ready until one month after the first day the IRS accepts returns.  That means many returns won’t be able to be filed until late March.

What does this mean for taxpayers?  Lots and lots of extensions for 2025 tax returns filed in 2026.  Higher costs for tax preparation next year are also likely.  There are only so many hours in the day, and if tax season gets compressed–and that appears a near certainty–it’s another cap on supply.  If supply goes down, price goes up; that’s basic economics.

Additionally, the IRS uses old–let’s be honest, it’s ancient–technology.  We’re talking computers that are older than I am (dating to 1959).  Everything I’m seeing looks like a lot of storm clouds on the horizon.  That storm may miss us, but it sure doesn’t look that way.

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New Portal Delayed Until Next Week

Posted on August 1, 2025 by Russ

Our newsletter (which has gone out) notes that you should have received an announcement on our new web portal.  You haven’t.  The current (old) portal is still active; the new portal will be released next week as there was a minor delay.

(We have to submit the newsletter for publication a few days ahead of its release, and that was the cause of the issue.)

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