August 2025
The IRS Will Stop Issuing Refunds via Paper Check in September 2025
If you typically receive your tax refunds—or any other type of US government payments—via paper check, you will need to start considering digital alternatives. What happened? On March 25, 2025, President Trump issued an executive order, called “Modernizing Payments To and From America’s Bank Account.” The order indicated the following: “Effective September 30, 2025, and to the extent permitted by law, the Secretary of the Treasury shall cease issuing paper checks for all Federal disbursements inclusive of intragovernmental payments, benefits payments, vendor payments, and tax refunds, except as specified in section 4 of this order.” This means that taxpayers who typically receive their federal tax refunds via check, as well as other government payments, will no longer be eligible to receive them in the mail by paper check after September 2025. Instead, the order expressed a preference to promote digital payment methods, such as: Direct deposits Debit card payments Digital wallets and real-time payment systems Other “modern electronic payment options” What do we know so far? The order explains the types of payments that the Treasury would no longer make via check, the date the Treasury would stop sending checks, and certain exceptions. The order lists the following exceptions and indicates that “individuals or entities qualifying for an exception under this section or other applicable law shall be provided alternative payment options”: “(i) individuals who do not have access to banking services or electronic payment systems; (ii) certain emergency payments where electronic disbursement would cause undue hardship, as contemplated in 31 C.F.R. Part 208; (iii) national security- or law enforcement-related activities where non-EFT transactions are necessary or desirable; and (iv) other circumstances as determined by the Secretary of the Treasury, as reflected in regulations or other guidance.” At the time of this post, the Treasury has not yet addressed details on how it will handle the exceptions or common obstacles. Typically, government departments follow a standard process to flesh out the necessary details. In this case, those details remain scant. On June 13, 2025, the National Taxpayer Advocate issued a request for comments to the Treasury on this order. The comments were due to the Treasury by June 30, 2025. As of the date of this post, the Treasury has not yet released the comments it received, nor has it issued any notices about hearings for proposed regulations. Does the order apply to state refunds, as well? The order does not apply to payments issued by individual states. State tax laws will still govern whether a state can or will send a paper check. Which taxpayers will this order affect? As of May 9, 2025, the IRS reports that 93,569,000 refunds were issued in the 2025 filing season. Estimates show that 6.4% of the refunds were sent via paper check, which equates to 5.9 million US taxpayers. Most of these taxpayers are individuals who either do not have access to a bank account or prefer not to share their banking information with the IRS. If you filed an extension for [...]
Megan Suggs
Areas of Expertise Writing Engagement Communication Planning Education MA, Media and Communication, University of North Carolina at Chapel Hill BS, Environmental Studies, University of North Carolina at Asheville Languages Spoken English Editor Megan is an editor at The Wolf Group responsible for safeguarding the quality of the firm’s written materials and making them more accessible to a range of audiences. In her role, she Helps produce content to keep clients informed of new tax developments that affect them Reviews client materials for user-friendliness and clarity Translates tax technical materials into terms more understandable to their respective audiences Before joining The Wolf Group, Megan worked in employee communications at a non-profit research organization and covered local government, court, and environmental news as a journalist at a local North Carolina paper. When she’s not thinking about commas and key messages, Megan crochets, reads, and has game nights with her friends.
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February 2025
Exit Tax Form 8854 Changes and Common Procedural Errors
In Part 1 of our series on the final Exit Tax regulations issued by the IRS on January 14, 2025, we looked at §2801 tax implications for US individuals who receive certain gifts or bequests (either directly or indirectly) from someone who has expatriated and been subject to the Exit Tax. In Part 2 of our series, we looked at how long US recipients and their tax preparers should maintain records substantiating the §2801 tax reporting. We also examined tax preparer liability related to filing Form 708. In this last part of the series, Part 3, we will highlight changes to the Form 8854, Initial and Annual Expatriation Statement, and other miscellaneous items related to the US Exit Tax. A Notable Change on the 2024 Form 8854 Expatriation Statement The IRS has updated IRS Form 8854 to include new Question #3. Here is a snip: This new question may present challenges to individuals who plan to expatriate and hoped to use gifting strategies to reduce their net worth below $2 million so that they can pass the “Net Worth Test” and avoid paying the Exit Tax. The instructions to Form 8854, Part II, Question 3, say the following: “Check the “Yes” box if there have been significant changes in your assets and liabilities during the 5 years preceding your expatriation date. If your net worth was $2 million or more at any point during the 5 years preceding your expatriation date but was less than $2 million on your expatriation date, there have been significant changes in your assets and liabilities. You must attach a statement to Form 8854 that explains the changes. Example. During the 5 years preceding her expatriation date, Maria’s net worth exceeded $2 million. However, after Maria made a gift of real property to her child on October 31, 2024, Maria’s net worth decreased such that it was less than $2 million on her expatriation date. Maria reported the gift on a federal gift tax return. Maria must check the “Yes” box. Maria must also attach a statement that explains that her net worth decreased because she made a gift of real property to her child on October 31, 2024, and that she reported the gift on a federal gift tax return.” The IRS’s intentions for introducing this question are unclear, but there are a couple of likely explanations. Explanation 1. The IRS may be seeking to clarify the ambiguous terminology found in the law—and specify that gifts in the 5 years prior to expatriation will be included in the Net Worth Test calculation. Internal Revenue Code Chapter 12, Subtitle B, defines which gifts can be pulled back in to calculations of net worth when determining whether an expatriator’s net worth is below the $2 million threshold. Under this section, for purposes of the “Net Worth Test,” a taxable gift is includable in net worth calculations if the individual was a citizen or resident of the United States and transferred the interest immediately prior to expatriation. [...]
Risk and Recordkeeping Requirements for Form 708 Filing To Report Receipt of a Covered Gift or Bequest
In Part 1 of our series on the final Exit Tax regulations issued by the IRS on January 14, 2025, we looked at §2801 tax implications for US individuals who receive certain gifts or bequests (either directly or indirectly) from someone who has expatriated and been subject to the Exit Tax. In this post, Part 2 of our series, we look at how long US recipients and their tax preparers should maintain records substantiating the §2801 tax reporting. We also examine tax preparer liability related to filing Form 708. Recordkeeping Requirements for US Recipients The recordkeeping requirements in the final regulations (§28.6001-1) do not provide an exact number of years that records must be kept. The requirements say the following: “Retain permanent books of account or records as are necessary to establish the amount of that person’s aggregate covered gifts and covered bequests, and the other information required to be shown on Form 708.” “So long as the contents thereof may become material in the administration of any internal revenue law.” The question then becomes, “under what standard of materiality do we apply the retention of records for the effective administration of any internal revenue law?” Three years? Six years? Nine years? Forever? An ultra-conservative reading this regulation would mean forever. However, given the timeline for filing (18 to 24 months), a good rule of thumb would be 8 years total, which would cover the usual 6 years (extended statute of limitations for assessment for most US tax returns), plus the 2 years for the filing. Recordkeeping & Other Requirements for Tax Preparers The requirement for recordkeeping (§28.6060-1) applies to both the US recipient and the tax preparer, if a tax preparer was employed to prepare the Form 708. There are several other regulations that impose tax preparer liability at the very end of the final regulations. They are as follows: If a tax preparer prepares Form 708 (including a protective Form 708) or a claim of refund related to Form 708 (meaning Form 843), then the tax preparer must provide a copy of the final Form 708 (including a protective Form 708 or Form 843) to the client. If a tax preparer prepares Form 708 (including a protective Form 708) or a claim of refund related to Form 708 (meaning Form 843), then the tax preparer must also include their preparer tax identification number (PTIN). Tax preparers are subject to IRC §6694 for significantly miscalculating, undercalculating, and/or improperly calculating the Section 2801 tax by taking an “unreasonable position” on IRS Form 708. An IRC §6694 penalty is the greater of $1,000 or 50 percent of the income derived (or to be derived) by the tax return preparer with respect to the return or claim. Tax preparers are subject to IRC §6695 and a maximum penalty not to exceed $25,000 for failing to do the following: Failure to sign the return Failure to furnish an identification number (see above) Failure to retain records (see above) Failure to furnish a copy [...]
