The Betting On Tech And Modernization Edition

Have you checked out the IRS website lately?

The IRS has made progress toward a more digital tax system, but the latest report from the Electronic Tax Administration Advisory Committee (ETAAC) makes clear that modernization is still very much unfinished. The committee’s 2026 Annual Report to Congress includes 18 recommendations aimed at improving electronic tax administration.

Some of the recommendations will sound very familiar to anyone who has ever tried to resolve an IRS issue by phone, fax, or mail. ETAAC wants taxpayers to have better online accounts and tax professionals to have more access to client information, including notices and transcripts. The committee also pushes for less paper (IRS’s kryptonite) and more practical digital tools, including better return tracking and clearer explanations when an e-filed return is rejected.

The report also leans into artificial intelligence (AI). ETAAC supports IRS use of AI for things like fraud detection, identity verification, and faster service, but says taxpayers should be able to understand how AI is being used. To make that happen, the committee recommends a plain-language AI dashboard and town hall-style meetings to explain projects that could affect taxpayer rights or safety.

That transparency question matters because AI is not just a tax-administration issue, it is also driving broader tax-policy conversations.

In a recent episode of Tax Notes Talk, Tax Notes contributing editor Carrie Brandon Elliot discussed the renewed interest in universal basic income amid concerns about worker displacement and long-term unemployment as AI advances. Universal basic income is typically a cash payment to individuals that is not tied to work, household size, geography, or means testing, and the idea has gained attention in part because high-profile technology figures have floated it as one possible response to shake ups in the labor market due to AI.

The tax question, of course, is how to pay for it. Elliot noted that UBI proposals often come back to tax, whether through broad-based surtaxes, carbon taxes, payroll-tax-style mechanisms, changes to tax expenditures, or consolidation of existing cash and near-cash transfer programs. One law review model she discussed estimated that a $500-per-month payment to about 314 million people would cost roughly $1.8 trillion a year, which helps explain why UBI is still a policy debate instead of a near-term legislative reality.

Of course, AI is not the only place where technology, money, and tax compliance are colliding this summer. Digital betting platforms have made it easier than ever to put money on sports, and the World Cup is expected to be a major test of just how big that market has become. With the World Cup expected to drive billions in wagers, plenty of fans may be tempted to put a little money on a match. If you do, remember that gambling winnings are taxable whether the bet is placed through a legal sportsbook or through an illegal operation.

The risks are not limited to bettors—federal investigators also follow the money behind illegal wagering operations. This month, Jason Noah Feinman, 52, of Calabasas, California, was sentenced to 27 months in federal prison after admitting that he operated an illegal Costa Rica-based gambling business, laundered cash proceeds, and evaded federal income taxes on more than $4 million in income. Prosecutors said Feinman maintained websites that allowed unlicensed gambling businesses to take bets from customers, including customers in California.

In the case, which was investigated by IRS Criminal Investigation and the Department of Homeland Security, the feds investigated not only the underlying crimes but what happened after. They followed the money behind illegal wagering operations, and noted when cash was swapped for checks and omitted from tax returns. As a result, Feinman was ordered to pay more than $1.3 million in restitution and a $150,000 fine. It’s a good reminder that illegal gambling income is still income, and offshore operations are not outside the reach of U.S. prosecutors.

And with that, I’m off to keep one eye on the World Cup and both hands off the betting apps (there aren’t enough lucky charms in the world). Until next time, may your picks be lucky, your records be clean, and your winnings—if any—be properly reported.

Enjoy your weekend,

Kelly Phillips Erb (Senior Writer, Tax)

This is a published version of the Tax Breaks newsletter, you can sign up to get Tax Breaks in your inbox here.

Questions

This week, a reader asks:

I saw on Twitter that your mom is living with you now. After my dad died, my mom moved in with me and has lived with me for four years now. Can I claim her on my taxes?

Maybe. In 2026, “claiming” your mom on your taxes generally means listing her as a dependent, not taking a personal exemption for her. Personal exemptions are currently zero, thanks to the Tax Cuts and Jobs Act, so the practical benefit is usually eligibility for the credit for other dependents, which can be worth up to $500 if she qualifies.

For your mom, that means she must meet the IRS rules for a qualifying relative: She is not someone else’s qualifying child, she meets the citizenship or residency rules (she’s a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico), her gross income is under the annual limit ($5,300 for 2026), and you provide more than half of her financial support.

When figuring income, be careful with Social Security benefits. Nontaxable Social Security benefits are generally not counted for the gross income test, but they do matter for the support test, which looks at all resources used for her living expenses. So if your mother’s income is under the $5,300 limit and you paid more than half the cost of her housing, food, medical care, transportation, and other support, you may be able to claim her as a dependent.

For the dependency support test, basic and supplementary Medicare benefits are not counted as support. The IRS distinguishes those benefits from Medicare premiums you pay, including premiums for supplementary Medicare coverage, which are included in the support you provide. So, you would not count the value of Medicare-paid medical care in total support, but you would count unreimbursed medical costs you paid, Medicare premiums you paid for her, and other support items such as food, lodging, clothing, transportation, and similar necessities.

(Questions like this are why I write Tax Breaks every week. Have a question to submit? Email me.)

Statistics, Charts, and Graphs

More than five years after Congress created the Employee Retention Credit (ERC) as part of its COVID relief response, disputes over the program are still working their way through the courts. In a recent case, First Source Employee Management, an Ohio-based professional employer organization, sued the government seeking more than $20 million in unpaid ERC refunds for the first two quarters of 2021. A federal judge in Ohio allowed the company’s refund claim to continue, but dismissed its Administrative Procedure Act (APA) challenge to IRS guidance.

The ruling reflects the broader controversy surrounding the ERC, which quickly became the largest of the COVID-era employer tax credits. According to IRS Statistics of Income data, employers claimed approximately $152.6 billion in ERC amounts on processed employment tax returns, far more than the $12.4 billion reported for sick and family leave credits and the $1.2 billion reported for COBRA premium assistance credits. The ERC was intended to help employers keep workers on the payroll during the pandemic, but it later became a flashpoint due to complicated eligibility rules, aggressive marketing by ERC promoters, and IRS concerns about improper or inflated refund requests. The IRS issued guidance, imposed a processing moratorium, created claim withdrawal and voluntary disclosure options, and stepped up scrutiny of claims—all moves that frustrated businesses still waiting on refunds while the government tried to separate valid claims from questionable ones.

In First Source’s case, the court said the company can still try to prove that it is entitled to the refunds. But it cannot use the refund suit to mount a broader attack on IRS guidance. The decision underscores a key point in ERC litigation: Even after Loper Bright, taxpayers challenging IRS interpretations must still tick the right boxes to proceed.

Taxes From A To Z: X is for XML Schema

XML schema is part of the IRS’s electronic filing system. When a tax return is e-filed, the information is not sent to the IRS as a simple image of a form. Instead, tax software organizes the return data into a structured format called XML, so the IRS system can recognize each item and put it in the right place. That includes names, identification numbers (like Social Security numbers or Tax Identification Numbers), income, deductions, credits, forms, and schedules.

The IRS also uses built-in checks, often called business rules, to make sure an e-filed return is complete and internally consistent before accepting it. These checks can flag issues such as a required field being missing, a mismatch between related numbers, or a missing attachment. XML schema and business rules are not tax law themselves, but they help the IRS receive, read, and process electronic returns efficiently.

Tax Trivia

Eilers & Krejcik Gaming says the U.S. men’s national team’s World Cup performance could help determine how much Americans wager this summer. If the USMNT makes a deep run, how much is expected to be wagered on soccer in the U.S.?

(A) $1 billion

(B) $2 billion

(C) $3 billion

(D) $4 billion

Find the answer at the bottom of this newsletter.

Positions And Guidance

IRS has announced its intent to submit proposed regulations on the section 4960 excise tax on excess tax-exempt organization executive compensation, including the OBBBA-expanded definition of “covered employee” and transition relief.

The AICPA submitted a letter to the IRS urging improvements to its CP53E notices after more than 3 million taxpayers received them during the filing season, causing confusion about refund status, direct deposit requirements, and next steps. The AICPA said the notices were sent not only when taxpayers failed to provide direct deposit information, but also in cases involving overpayment applications, no-balance-due or balance-due returns, and even when direct deposit information was valid.

The AICPA urged Treasury and the IRS to revise the method change procedures in Revenue Procedure 2015-13 to make it easier for taxpayers under examination to correct erroneous accounting methods while reducing administrative burdens.

Noteworthy

Richard L. Slowinski and Stefanie E. Kavanagh have joined BakerHostetler’s Washington office as partners in the tax practice group and as members of the international tax team. Both join from an Am Law 50 firm, and their practices focus on transfer pricing, advance pricing agreements, cross-border tax planning, and tax controversy for businesses.

The National Foreign Trade Council (NFTC) announced that Gary Haglund has joined the NFTC as Senior Director for International Tax Policy. Haglund will join NFTC’s tax team, which works to develop tax policies that strengthen U.S. companies’ competitiveness abroad and spur economic growth and job creation.

KPMG International announced leadership appointments to its Global Board. Will Williams, who currently serves as Chair of KPMG’s Americas Region and previously held the role of COO for the Americas and Vice Chair of Operations for KPMG US, was appointed Global Chief Operating Officer. Tim Walsh has been elected Chair of KPMG’s Americas Region and will continue to serve as Chair and Chief Executive Officer of KPMG LLP in the United States. At the same time, Atif Zaim has been elected Deputy Chair of the Americas Region and will continue to serve as Deputy Chair and Managing Principal for the US firm.

Centri Business Consulting, an accounting and advisory firm, announced the acquisition of Altair Associates, Inc., a Minneapolis-based property and casualty insurance and reinsurance underwriting and claim services firm. The transaction marks Centri’s first acquisition.

SolomonEdwards has appointed Larry Kaufman as SVP of revenue growth & alliances, a newly created role focused on expanding strategic partnerships and the solutions the firm can provide clients. Kaufman’s appointment follows several recent investments in the Office of CFO practice, including the addition of Bryan Stelly as partner of tax services and the continued expansion of the firm’s advisory capabilities.

Key Figures

That’s the year that Congress created the limited partner exception to self-employment tax under section 1402(a)(13), excluding a limited partner’s distributive share from self-employment tax other than certain guaranteed payments for services. Nearly 50 years later, the IRS and courts are still wrestling with how that exception applies to modern entities, including LLCs, LLPs, and foreign partnership-like structures that were not contemplated when the rule was drafted.

That debate has sharpened after the Fifth Circuit’s decision in Sirius Solutions, which rejected the IRS’s emphasis on a taxpayer’s active participation and instead focused on the statute and the legal characteristics of limited partner status, including liability protection. Although Sirius involved a domestic entity, its reasoning may offer U.S. taxpayers in foreign structures, such as a German KG, new arguments against self-employment tax exposure.

Trivia Answer

The answer is (D) $4 billion.

EKG projects that $2.82 billion will be wagered in the U.S. on this summer’s World Cup. The firm estimates that the previous World Cup generated between $900 million and $1 billion in online betting in the U.S., which would represent a 182% increase in 2026.

But if the USMNT goes deep? Wagering estimates could reach up to $4 billion. That could be a big boost for the IRS. As noted earlier, gambling winnings are taxable income.

Worth A Second Look

The links, clips, and tax takes readers loved (and a few you may have missed):

You can find last week’s newsletter here.

Tax Filing Deadlines

📅 September 15, 2026. Due date for your 2026 Q3 estimated tax payment.

📅 October 15, 2026. Due date for individual taxpayers filing on extension (payment was still due April 15).

Tax Conferences And Events

📅 June 22-25, 2026. Latino Tax Fest. MGM Grand Hotel & Casino, Las Vegas, Nevada.

📅 July 7-9, 2026. IRS Nationwide Tax Forum. Chicago, Illinois.

📅 July 13-15, 2026. NATP Taxposium. Huntington Convention Center, Cleveland, Ohio.

📅 August 4-7, 2026. IRS Nationwide Tax Forum. New Orleans, Louisiana.

Feedback

We’d love your thoughts. What’s helpful? What’s confusing? What tax topics do you want more of? Email me directly—I read every message.

If you have a tax question, conference or tip for me, check out our guidelines and submit it here.