Three Federal Tax Cases That Practitioners Must Watch in 2025

The most important federal tax cases in 2025 involve whether the IRS is correctly processing Employee Retention Credit claims, whether Tribune Media Co. made an abusive disguised sale of the Chicago Cubs, and potential guidance on the tax treatment of certain cryptocurrency transactions.

Here are three cases tax practitioners should track in 2025:

ERC Today LLC v. McInelly

A lawsuit over an IRS denial of Covid-19-related tax credits will allow the US District Court for the District of Arizona to determine if the agency was correct, potentially affecting millions of other ERC claims.

The ERC offered a tax break to encourage companies to keep employees on the payroll during the pandemic. The sheer volume of claims resulted in a backlog that grew to 1.4 million, forcing the agency to close the program and then reopen it with much more stringent standards, Stenson Tamaddon and ERC Today said in their complaint.

The two companies, which help process ERC claims, now allege the IRS is “summarily” disallowing claims without examination or additional information, and asked the court to block that automatic processing.

Stenson Tammadon CEO Eric Stenson told Bloomberg Law that the IRS is acting outside its authority by erecting new barriers for taxpayers that deny claims based on risk-scoring analytics.

“This approach undermines the fundamental rights of taxpayers to have their claims fairly and individually considered,” he said.

“The ERC case is interesting because it’s kind of testing the court’s powers, how hard can it push the IRS to process claims,” said Michelle Abroms Levin, a managing partner at Dentons Sirote.

The statutory language creating the ERC was intentionally vague so businesses could quickly get pandemic relief, said Barclay Taylor, chair of Morris, Manning & Martin LLP’s tax controversy practice. The IRS tried to clarify the program by issuing several notices and answering questions.

Judges now can determine if those interpretations were valid, Taylor said.

But this guidance didn’t go through the Administrative Procedure Act notice-and-comment period, causing confusion and difficulty for taxpayers whose ERC claims have been rejected, Taylor said. Companies never had a chance to negotiate or respond to the IRS on its guidance, he said.

The government’s approach could prove costly because an expected “flood” of cases may result in spending more on interest for delayed claims than in any potential losses from fraudulent claims, Levin said.

“At the end of the day, I think the IRS made a gamble on ERC, and they are going to lose,” Levin said.

Tribune Media Co. v. Commissioner

The US Court of Appeals for the Seventh Circuit is evaluating the tax implications of Tribune Media Co.'s disguised sale of the Chicago Cubs baseball franchise.

Such sales—which involve a transfer of property to a partnership and the partnership providing cash to one of the partners—can be subject to the Treasury Department’s anti-abuse rules, which add scrutiny to the deals if certain conditions are met.

The government told the Seventh Circuit that Tribune should be taxed on $425 million in senior debt that outside parties issued to finance the sale because the anti-abuse rules apply, and the media company structured the deal to avoid paying taxes. Allowing such a deal done only for “outsized tax benefits” could pave the way for other, similar schemes, it said.

The Tax Court found the deal was properly structured as a “nontaxable debt-financed transaction.”

Lucas Rachuba, a tax partner at Paul Hastings LLP, said the government is arguing that the company violated the spirit of the law on deal structures that wasn’t laid out in two of the Treasury department’s anti-abuse regulations, Treas. Regs. 1.752-2(j) and 1.701-2.

But those regulations were modified after the sale, weakening the IRS’ position, he said.

“The government sort of retroactively changed the regs to capture these transactions and that’s extremely helpful to the taxpayer,” Rachuba said.

Jarrett v. United States

The IRS avoided addressing questions about how to tax cryptocurrency staking by issuing investor Joshua Jarrett a refund the first time he sued. The process involves validating cryptocurrency transactions in exchange for rewards called tokens.

But Jarrett has filed a second lawsuit in the US District Court for the Middle District of Tennessee over an IRS assessment he received after staking more than $32,800 worth of Tezos coins, providing an avenue for wider clarity.

The IRS claimed the coins themselves were an economic gain, but Jarrett argued they should be taxed when they are transacted, not when created.

The Sixth Circuit declined to rule on the merits of Jarrett’s first case, finding the appeal moot because the IRS issued the refund he sought.

Shortly thereafter, the IRS issued guidance that tokens received for staking are taxable at fair market value the moment they are created.

Jarrett’s new lawsuit now allows the government to address when cryptocurrency should be deemed taxable, said Alex Farr, a partner with Paul Hastings LLP.

Farr is hopeful the IRS won’t issue Jarrett another refund to sweep the issue under the rug before the court can rule. The government needs to have clearly defined regulations on the treatment of staking, he said.

“The IRS can’t just say hey, we’re going to settle and make the case go away,” Farr said. “There’s a public benefit to addressing the question.”

President-elect Donald Trump has signaled more friendliness to legitimizing and regulating cryptocurrency, said Karla Dennis, who runs Karla Dennis & Associates Inc.

The new administration, along with more audits of cryptocurrency transactions, will hopefully result in regulatory clarity, she said.

“There’s an agenda that’s being pushed forward, and I think there’s going to be a lot of interest in adding new regulations in the crypto world,” Dennis said.