AI Research
The Artificial Intelligence Is In Your Home, Office And The IRS Edition
Have you used artificial intelligence (AI) today? Chances are that you have—even if you didn’t realize it. AI is showing up in all aspects of our daily lives, from virtual assistants like Siri or Google Assistant to personalized recommendations (my Spotify DJ is playing as I write this newsletter). You’ve likely used AI through autocorrect and predictive text, as well as spam filters in email—and you may have even used it for your personal financial and tax services.
Companies are also turning to AI. Bain & Company, a global consultancy firm, recently reported that generative AI has become a business staple, with 95% of companies in the U.S. giving it a whirl—a 12% increase in just over a year.
This isn’t just a private sector trend—it’s happening across both public and private sectors and in all industries. Danny Werfel, strategic advisory board member at alliant and former IRS Commissioner, says that more companies are committing to spending money to support AI infrastructure and more leaders asking about how they can effectively integrate AI into their overall corporate strategy. And, Werfel says, it’s no different in the tax space. Technology is increasingly playing a significant role in tax and accounting firms—and at the IRS.
Werfel knows a bit about the use of technology at the IRS, having served as Commissioner from 2023 to 2025. Werfel arrived after the 2022 tax season, which was, to say the least, a challenge. The federal agency was still recovering from the COVID-19 pandemic, which had caused delays in the tax filing season. There was a backlog of unfiled returns, and with many offices still not operating at full capacity, securing an in-person appointment was difficult—and reaching a real person on the phone was almost impossible.
There was a bright spot: Those issues gave the agency an opportunity to ramp up the use of technology as a solution. IRS first dipped its toes into AI with its call centers before expanding to chatbots and other ways to assist taxpayers, including detecting scams targeting taxpayers.
“AI,” Werfel says, “is an opportunity and a risk.”
Scammers aren’t just targeting taxpayers. According to a recent study by the Federal Trade Commission, more than half of those who reported losing money to scams or fraud in 2024 were under the age of 19, with $55 million in losses. A smaller percentage of younger adults (44%) reported being a victim of a scam or fraud, but the overall amount of losses was higher—those individuals aged 20 to 29 reported losses of $430 million.
(Overall, younger people report losing money to fraud more often than older people, but the median amount of loss for seniors is much higher.)
What makes younger people vulnerable? Technology plays a big part. Today’s kids are more digitally active than ever, which makes them more vulnerable to online scams. And for students just starting college or heading back to school, it’s often the first time they’re dipping their toes into the real world and managing their own money. Those looking for a good deal on textbooks or an apartment to rent can easily fall into a scammer’s trap.
Darius Kingsley, the Head of Consumer Banking Practices at Chase, highlighted a few of these scams currently making the rounds with some tips on how students and families can protect themselves.
And it’s not just back-to-school season that’s beginning—football season is also on the way. I’m sure that you’ve seen the big football news this week… No, not Travis Kelce’s engagement to Taylor Swift. The other big move. Micah Parsons, who, after demanding a trade from the Dallas Cowboys (located in a jurisdiction with no state income tax), was traded to the Green Bay Packers (located in a jurisdiction with one of the highest state income tax rates) with a reported $188 million contract. He’ll likely now pay millions more annually in state income taxes—he might also have an opportunity to pick up some championship hardware.
(Despite not winning a championship in, well, decades, Dallas remains firmly at the top of the Forbes list of The NFL’s Most Valuable NFL Teams 2025 with an eye-popping $13 billion valuation.)
As for Parsons, I’m not sure how you fit that many zeros on a Form W-2, but I’m guessing we’d all like to try.
We’ll all get a look at a different Form W-2 soon—but not as soon as we thought. The IRS has released drafts of some 2026 tax forms, including a draft of Form W-2. The changes are intended to address tax reporting updates, particularly for employees who receive tips and overtime pay. Notably, the draft Form W-2 is for the 2026 tax year—that’s for the tax return that you’ll file in early 2027. There will be no changes to Form W-2 for the tax year 2025, even though some of the new provisions, including those new, temporary deductions, take effect in 2025. The IRS has previously said that the omissions 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.” You can see what the revised draft form looks like and learn more about the changes here (spoiler alert: it’s mostly box code changes).
There’s lots more good information below, including a reminder about alimony and a look at how private equity could be moving into your retirement accounts.
Before I sign off, a special shout out to those of you who finished up your first week of classes–amazing work! If you’re feeling overwhelmed, it will get better, I promise! And for those of you who are first-gen college or university students, I’ve been there–you’ve got this!
Everybody else? Enjoy your long weekend,
Kelly Phillips Erb (Senior Writer, Tax)
Questions
A divorce can impact your taxes—but the timing matters.
getty
This week, a reader asks:
I know that the alimony tax law changed in 2018. Did the new tax law change it back to the old rules?
You’re referring to changes to the tax treatment of alimony. The Tax Cuts and Jobs Act (TCJA) did change the alimony rules, making them permanent. However, they were not impacted by the One Big Beautiful Bill Act (OBBBA).
Here’s what changed under the TCJA. For decades, alimony payments were deductible to the payer, even for taxpayers who didn’t itemize, and taxable to the recipient. However, under the TCJA, alimony is no longer deductible under new divorce or separation agreements signed on or after January 1, 2019. That also means that the receipt of alimony is not taxable (under the same conditions).
Agreements signed on or before December 31, 2018, follow the pre-TCJA rules unless you modify the agreement after January 1, 2019, and explicitly reference the change in the law.
You still have to meet some criteria. For example, to qualify as alimony for federal income tax purposes, you must be divorced or under a separation agreement. You cannot be living under the same roof as your spouse/ex-spouse when you make the payments—unless you meet a court-ordered exception—nor can you claim alimony in a year that you file a joint tax return with your spouse/soon-to-be-ex-spouse.
The alimony has to be couched as such–an example includes an official decree of divorce with mandatory support payments, a written separation agreement requiring such payments, or any other type of court order requiring you to support your spouse. The agreement or order does not have to be permanent: temporary decrees, interlocutory (not final) decrees, decrees of alimony pendente lite (awaiting a final decree “during the proceedings”) count.
Alimony payments must be in cash or a cash equivalent, like a check or money order. Property settlements don’t count. And you must not have an obligation to make any payment (in cash or property) after the death of your spouse or former spouse.
The obligation to pay alimony must not be voluntary. The IRS and you may have different understandings of what constitutes “voluntary.” Here’s a tip: if you have an official order or agreement, it’s not voluntary. But if you have an understanding, you feel morally compelled to make payments because you screwed things up or your ex-spouse is demanding that you pay something and just want to shut him or her up, that is voluntary and doesn’t count as alimony.
Finally, alimony payments do not include child support. Child support is tax-neutral—it’s neither tax-deductible to the payer nor taxed as income to the recipient.
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Do you have a tax question that you think we should cover in the next newsletter? We’d love to help if we can. Check out our guidelines and submit a question here.
Statistics, Charts, and Graphs
Earlier this month, President Trump signed an executive order that could pave the way for the use of private equity (PE) in retirement savings accounts. While private equity isn’t technically prohibited in retirement plans, the associated risks have traditionally given fiduciaries pause.
For many workers, retirement accounts represent most of their liquid savings. At the end of 2024, according to the Investment Company Institute, Americans held $15.2 trillion in individual retirement accounts (IRAs) and another $12.4 trillion in workplace defined contribution plans such as 401(k), 403(b), and 457 plans.
U.S. persons are increasingly saving for retirement.
Kelly Phillips Erb
The incentive to sock money inside retirement accounts instead of, say, a plain vanilla brokerage account is generally tied to tax breaks. Depending on the kind of retirement account, the tax benefits can be immediate, deferred, or both.
Here’s a quick primer: With a traditional IRA, you make potentially tax-deductible contributions. Any earnings, including interest and gains, aren’t taxed until you withdraw from the account once you retire. If you opt for a Roth IRA, contributions are not tax-deductible and are funded with after-tax dollars, but the payoff is that future withdrawals are tax-free.
Your employer may offer a defined contribution plan like a 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan. With an employer-sponsored retirement account, you can kick in a portion of your paycheck toward retirement savings (typically, pre-tax contributions) and your employer may offer a matching contribution. There may also be a Roth option for these accounts—as with a Roth IRA, with a Roth 401(k) or similar plan, in exchange for paying taxes upfront, the contributions and earnings can be withdrawn tax-free in retirement.
From a tax standpoint, the benefit of traditional (non-Roth) retirement accounts is generally two-fold: earnings don’t count towards your current year income—which reduces your potential tax bill—and it grows tax-deferred. When you reach retirement age, withdrawals are taxable as you take the money out—certain exceptions may apply.
The Executive Order doesn’t change the rules for retirement plans. It does, however, seek to change the “regulatory burdens and litigation risk” that may currently stand in the way of investing in alternative assets inside retirement plans. Under the Order, alternative assets include not only private equity, but also real estate and other assets like cryptocurrency.
So what makes private equity different from a more traditional investment? In PE, investors target privately held companies, as opposed to publicly held companies. Unlike investing in a public company, investing in a private company typically involves fewer regulations but requires more capital. The finances of private companies may be less transparent and more difficult to interpret. That means that PE isn’t for everyone.
A Deeper Dive
AUSTIN, TEXAS – JULY 17: In this photo illustration, Coke beverages are displayed in an ice-cooler at a park on July 17, 2025 in Austin, Texas. (Photo illustration by Brandon Bell/Getty Images)
Getty Images
Transfer pricing cases look to be the hot tax topic for fall, with several high-profile cases moving through the court system.
Transfer pricing is a tricky concept affecting multinational corporations and how they allocate costs and–ultimately–taxable profits. In a typical scenario, a parent company may set up several subsidiary companies all over the world and move goods, services, and assets from one to another—that’s completely okay. However, transactions between those companies are supposed to be at “arm’s length,” meaning that the goods, services, and assets are transferred for the same price as they would have been between unrelated parties. But often, that’s not what happens.
With a wink and a nudge, transactions are often structured to shift profits from high-tax countries to low-tax countries to cut their tax bills. The most popular target for transfer pricing abuse is intangible property, including licenses for manufacturing, distribution, sale, marketing, and promotion of products in overseas markets. Since intangible property doesn’t really have a physical home—unlike, say, real estate—it’s easy to transfer it to countries that offer certain benefits, including more favorable tax treatment.
Transfer pricing cases are often referred to as section 482 cases. Section 482 of the Tax Code—which has existed since the 1920s—gives the IRS broad authority to make adjustments on returns and allocate the income, deductions, and credits of commonly owned or controlled organizations, entities, or businesses. According to the Treasury, these adjustments are made “to prevent evasion of taxes or to clearly reflect income.”
One of those section 482 cases involves Facebook. The case focused on the value of the platform contribution transaction (PCT) that Facebook’s Irish subsidiary owed the U.S. parent company for the right to participate in this 2010 cost-sharing arrangement, or CSA. The case essentially involved a dispute over the valuation method—which is the most reliable, and how it should be applied? Facebook’s method initially yielded a value of approximately $6.3 billion for the PCT, whereas the IRS, using its own method, arrived at a value of almost $20 billion.
The IRS won and it lost. It won in the sense that Tax Court Judge Cary Pugh upheld the general validity of the income method. However, the IRS lost in the sense that nearly every methodological detail and assumption that went into its income method analysis was rejected. In the end, the Tax Court reduced the PCT from the $20 billion initially proposed by the IRS, all the way down to $7.8 billion, which is much closer to the $6.3 billion that Facebook initially estimated.
Another big transfer pricing case in the news involves Coca-Cola. This case focuses largely on royalties. Coca-Cola has argued that the IRS’s valuation analysis is flawed and that an old closing agreement, which provided for a simple profit allocation formula, should be honored moving forward. That case, which involves billions of dollars, is still being litigated.
(You can read my summary from last year here.)
Two other transfer pricing cases, Medtronic and 3M, are on appeal to the Eighth Circuit. And now, both cases are fully briefed and argued. 3M is about a specific and narrower issue, the validity of the blocked income regulations. Medtronic II is a broader case about the best method and valuation.
You can find out more about all of these cases on the most recent episode of Tax Notes Talk. You can read the transcript here.
Tax Filings And Deadlines
📅 September 15, 2025. Third quarter estimated payments due for individual taxpayers.
📅 September 30, 2025. Due date for individuals and businesses impacted by recent terrorist attacks in Israel.
📅 October 15, 2025. Due date for individuals and businesses affected by wildfires and straight-line winds in southern California that began on January 7, 2025.
📅 November 3, 2025. Due date for individuals and businesses affected by storms in Arkansas and Tennessee that began on April 2, 2025.
Tax Conferences And Events
📅 September 9-September 16 (various dates), 2025. IRS Nationwide Tax Forum in New Orleans, Orlando, Baltimore and San Diego. Registration required (discounts available for some partner groups).
📅 September 17-18, 2025. National Association of Tax Professionals Las Vegas Tax Forum. Paris Hotel, Las Vegas, Nevada. Registration required.
📅 Sept. 26-27, 2025. National Association of Tax Professionals Philadelphia Tax Forum. Sheraton Philadelphia Downtown, Philadelphia, Pennsylvania. Registration required.
Trivia
When were the first Forms W-2 issued?
(A) 1913
(B) 1944
(C) 1965
(D) 1978
Find the answer at the bottom of this newsletter.
Positions And Guidance
The IRS has published Internal Revenue Bulletin 2025-36.
The IRS announced that interest rates will remain unchanged for the calendar quarter beginning October 1, 2025. For individuals, the rate for overpayments (yes, IRS has to pay you interest sometimes) and underpayments will be 7% per year, compounded daily. The rate is 6% for corporation overpayments (4.5% for the portion of a corporate overpayment exceeding $10,000) and 7% for corporate underpayments (9% for large corporate underpayments). The interest rate is set quarterly—the most recent rates are based on the federal short-term rate determined in July 2025. You can find the details in Rev Ruling 2025-18, which will appear in IRB 2025-37, dated September 8, 2025.
Noteworthy
ICYMI: The IRS is inviting the public to participate in an anonymous feedback survey on tax preparation and filing options. The survey is being conducted as part of the Department of Treasury and the IRS’ efforts to fulfill a reporting requirement to Congress under the new tax law. The survey will run through September 5, 2025.
Hoping to travel this fall? The IRS is urging taxpayers to resolve their significant tax debts to avoid putting their passports in jeopardy. The Taxpayer Advocate has more information.
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If you have tax and accounting career or industry news, submit it for consideration here or email me directly.
In Case You Missed It
Here’s what readers clicked through most often in the newsletter last week:
You can find the entire newsletter here.
Trivia Answer
The answer is (B).
The Current Tax Payment Act of 1943 introduced pay-as-you-go (which featured withholding)–and Forms W-2 to track it. The first Forms W-2 were issued the following year, in 1944.
The first modern income tax was established in the U.S. in 1913, but that predates third-party reporting.
In 1965, the IRS changed the name of the form to better reflect the information being reported. Instead of “Withholding Tax Statement,” it was changed to “Wage and Tax Statement,” which is what it still says today.
Screenshot of 1978 Form W-2 from IRS website
Kelly Phillips Erb
In 1978, Form W-2 was redesigned to look more modern, including the numbered boxes we’ve grown to know and love.
Feedback
How did we do? We’d love your feedback. If you have a suggestion for making the newsletter better, submit it here or email me directly.
Esme Stallard and Justin RowlattClimate and science team
Sean Gallup/Getty ImagesIt is smaller than your fingernail, but this hairy beetle is one of the biggest single threats to the UK’s forests.
The bark beetle has been the scourge of Europe, killing millions of spruce trees, yet the government thought it could halt its spread to the UK by checking imported wood products at ports.
But this was not their entry route of choice – they were being carried on winds straight over the English Channel.
Now, UK government scientists have been fighting back, with an unusual arsenal including sniffer dogs, drones and nuclear waste models.
They claim the UK has eradicated the beetle from at risk areas in the east and south east. But climate change could make the job even harder in the future.
The spruce bark beetle, or Ips typographus, has been munching its way through the conifer trees of Europe for decades, leaving behind a trail of destruction.
The beetles rear and feed their young under the bark of spruce trees in complex webs of interweaving tunnels called galleries.
When trees are infested with a few thousand beetles they can cope, using resin to flush the beetles out.
But for a stressed tree its natural defences are reduced and the beetles start to multiply.
“Their populations can build to a point where they can overcome the tree defences – there are millions, billions of beetles,” explained Dr Max Blake, head of tree health at the UK government-funded Forestry Research.
“There are so many the tree cannot deal with them, particularly when it is dry, they don’t have the resin pressure to flush the galleries.”
Since the beetle took hold in Norway over a decade ago it has been able to wipe out 100 million cubic metres of spruce, according to Rothamsted Research.
‘Public enemy number one’
As Sitka spruce is the main tree used for timber in the UK, Dr Blake and his colleagues watched developments on continental Europe with some serious concern.
“We have 725,000 hectares of spruce alone, if this beetle was allowed to get hold of that, the destructive potential means a vast amount of that is at risk,” said Andrea Deol at Forestry Research. “We valued it – and it’s a partial valuation at £2.9bn per year in Great Britain.”
There are more than 1,400 pests and diseases on the government’s plant health risk register, but Ips has been labelled “public enemy number one”.
The number of those diseases has been accelerating, according to Nick Phillips at charity The Woodland Trust.
“Predominantly, the reason for that is global trade, we’re importing wood products, trees for planting, which does sometimes bring ‘hitchhikers’ in terms of pests and disease,” he said.
Forestry Research had been working with border control for years to check such products for Ips, but in 2018 made a shocking discovery in a wood in Kent.
“We found a breeding population that had been there for a few years,” explained Ms Deol.
“Later we started to pick up larger volumes of beetles in [our] traps which seemed to suggest they were arriving by other means. All of the research we have done now has indicated they are being blown over from the continent on the wind,” she added.
Daegan Inward/Forestry ResearchThe team knew they had to act quickly and has been deploying a mixture of techniques that wouldn’t look out of place in a military operation.
Drones are sent up to survey hundreds of hectares of forest, looking for signs of infestation from the sky – as the beetle takes hold, the upper canopy of the tree cannot be fed nutrients and water, and begins to die off.
But next is the painstaking work of entomologists going on foot to inspect the trees themselves.
“They are looking for a needle in a haystack, sometimes looking for single beetles – to get hold of the pioneer species before they are allowed to establish,” Andrea Deol said.
In a single year her team have inspected 4,500 hectares of spruce on the public estate – just shy of 7,000 football pitches.
Such physically-demanding work is difficult to sustain and the team has been looking for some assistance from the natural and tech world alike.
Tony Jolliffe/BBCWhen the pioneer Spruce bark beetles find a suitable host tree they release pheromones – chemical signals to attract fellow beetles and establish a colony.
But it is this strong smell, as well as the smell associated with their insect poo – frass – that makes them ideal to be found by sniffer dogs.
Early trials so far have been successful. The dogs are particularly useful for inspecting large timber stacks which can be difficult to inspect visually.
The team is also deploying cameras on their bug traps, which are now able to scan daily for the beetles and identify them in real time.
“We have [created] our own algorithm to identify the insects. We have taken about 20,000 images of Ips, other beetles and debris, which have been formally identified by entomologists, and fed it into the model,” said Dr Blake.
Some of the traps can be in difficult to access areas and previously had only been checked every week by entomologists working on the ground.
The result of this work means that the UK has been confirmed as the first country to have eradicated Ips Typographus in its controlled areas, deemed to be at risk from infestation, and which covers the south east and east England.
“What we are doing is having a positive impact and it is vital that we continue to maintain that effort, if we let our guard down we know we have got those incursion risks year on year,” said Ms Deol.
Tony Jolliffe/BBCAnd those risks are rising. Europe has seen populations of Ips increase as they take advantage of trees stressed by the changing climate.
Europe is experiencing more extreme rainfall in winter and milder temperatures meaning there is less freezing, leaving the trees in waterlogged conditions.
This coupled with drier summers leaves them stressed and susceptible to falling in stormy weather, and this is when Ips can take hold.
With larger populations in Europe the risk of Ips colonies being carried to the UK goes up.
The team at Forestry Research has been working hard to accurately predict when these incursions may occur.
“We have been doing modelling with colleagues at the University of Cambridge and the Met Office which have adapted a nuclear atmospheric dispersion model to Ips,” explained Dr Blake. “So, [the model] was originally used to look at nuclear fallout and where the winds take it, instead we are using the model to look at how far Ips goes.”
Nick Phillips at The Woodland Trust is strongly supportive of the government’s work but worries about the loss of ancient woodland – the oldest and most biologically-rich areas of forest.
Commercial spruce have long been planted next to such woods, and every time a tree hosting spruce beetle is found, it and neighbouring, sometimes ancient trees, have to be removed.
“We really want the government to maintain as much of the trees as they can, particularly the ones that aren’t affected, and then also when the trees are removed, supporting landowners to take steps to restore what’s there,” he said. “So that they’re given grants, for example, to be able to recover the woodland sites.”
The government has increased funding for woodlands in recent years but this has been focused on planting new trees.
“If we only have funding and support for the first few years of a tree’s life, but not for those woodlands that are 100 or century years old, then we’re not going to be able to deliver nature recovery and capture carbon,” he said.
Additional reporting Miho Tanaka
AI isn’t here to replace jobs, it’s here to eliminate outdated practices and empower entrepreneurs to innovate faster and smarter than ever before.
Medical Laboratory Scientist at bench with micropipettes. —
Courtesy U.S. National Institutes of Health (Public Domain)
By deploying a specially configured artificial intelligence, researchers at the University of Colorado Boulder have exposed ‘predatory’ scientific journals—those that trick scientists into paying for publication without proper peer review.
This was achieved by analyzing journal websites for AI-learned red flags like fake editorial boards, excessive self-citation, and sloppy errors. Through these pre-sets. the AI flagged over 1,400 suspicious titles out of 15,200 assessed.
The new AI tool automatically screens scientific journals, evaluating their websites and other online data for certain criteria: Do the journals have an editorial board featuring established researchers? Do their websites contain a lot of grammatical errors?
Many scientists, including this author, receive messages to our email inboxes. These spam messages come from people who purport to be editors at scientific journals, usually ones Acuña has never heard of, and offer to publish his papers — for a hefty fee.
The types of publications are sometimes referred to as “predatory” journals, since they target scientists, convincing them to pay hundreds or even thousands of dollars to publish their research without proper vetting.
Some organisations have long campaigned against such publications. For instance, the Directory of Open Access Journals (DOAJ). Since 2003, volunteers at the DOAJ have flagged thousands of journals as suspicious based on six criteria. (Reputable publications, for example, tend to include a detailed description of their peer review policies on their websites.)
Why does this matter?
In an era when prominent figures (notably Donald Trump) are questioning the legitimacy of science, stopping the spread of questionable publications has become more important than ever before.
Legitimate science
When scientists submit a new study to a reputable publication, that study usually undergoes a practice called peer review. In other words, outside experts read the study and evaluate it for quality.
AI model
The new AI system is not yet publicly accessible; however, the researchers hope to make it available to universities and publishing companies soon.
The application of the AI model appears in the journal Science Advances, titled “Estimating the predictability of questionable open-access journals.”
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