Internal Revenue Bulletin No. 2025–41

Executive Summary: Rates, Chemicals, and Travel Expenses

This Internal Revenue Bulletin provides essential updates and guidance across several key areas of federal taxation. It encompasses changes to applicable federal interest rates, valuation methods for fringe benefits, excise taxes on chemical substances, relief measures for livestock farmers, and per diem rates for business travel. This summary will provide a brief overview of each item, setting the stage for a more in-depth analysis of their implications for tax practitioners.

Revenue Ruling 2025-19 addresses Applicable Federal Rates (AFR) as defined under Section 1274(d). This ruling provides the updated rates for October 2025, which are crucial for various calculations, including those related to Sections 382 (limitations on net operating loss carryforwards), 1274 (determination of issue price in the case of certain debt instruments issued for property), 1288 (treatment of original issue discount on tax-exempt obligations), and 7872 (treatment of loans with below-market interest rates).

Next, Revenue Ruling 2025-20 updates the Standard Industry Fare Level (SIFL) rates, which are used to determine the taxable value of non-commercial flights on employer-provided aircraft. These rates are applied under Section 1.61-21(g) of the Income Tax Regulations, and the ruling sets forth the cents-per-mile rates and terminal charge in effect for the second half of 2025.

Notice 2025-51 concerns the excise tax imposed by Section 4671 on certain chemical substances. This notice adds 39 chemical substances to the list of taxable substances under Section 4672, expanding the scope of the Superfund excise tax.

Notice 2025-52 offers drought relief for ranchers. It explains the circumstances under which the four-year replacement period under Section 1033(e)(2) is extended for livestock sold on account of drought. This extension allows eligible farmers additional time to reinvest proceeds from the sale of livestock and defer capital gains.

Finally, Notice 2025-54 provides the 2025-2026 special per diem rates for taxpayers to use in substantiating the amount of ordinary and necessary business expenses incurred while traveling away from home, as described in Section 274(d), which governs substantiation requirements. The notice includes the special transportation industry rate, the rate for the incidental expenses only deduction, and the rates and list of high-cost localities for the high-low substantiation method. Each of these items will be explored in detail below.

October 2025 Federal Rates (Rev. Rul. 2025-19)

Revenue Ruling 2025-19 establishes the Applicable Federal Rates (AFR) for October 2025. These rates, prescribed under Section 1274(d), which governs the determination of the issue price for certain debt instruments issued for property, are crucial for various tax calculations. Table 1 of the ruling provides the short-term, mid-term, and long-term AFRs. For example, the short-term AFR is listed at 3.81% (annual compounding). These rates are used to determine imputed interest on below-market loans, including intra-family loans, to ensure that the transfer of wealth is properly taxed and that the lender is not improperly gifting interest to the borrower.

Table 3 of Revenue Ruling 2025-19 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in Section 382(f), which pertains to the limitation on net operating loss carryforwards and certain built-in losses following an ownership change. These rates are significant in determining the limitation on the use of a corporation's losses after an ownership change. Specifically, the adjusted federal long-term rate for October 2025 is 3.58%, while the long-term tax-exempt rate is 3.65%.

Table 4 provides the appropriate percentages for determining the low-income housing credit under Section 42(b)(1) for buildings placed in service during October 2025. The appropriate percentage for the 70% present value low-income housing credit is 8.00%, and the appropriate percentage for the 30% present value low-income housing credit is 3.43%. However, as noted in the ruling, Section 42(b)(2) stipulates that the applicable percentage for non-federally subsidized new buildings placed in service after July 30, 2008, cannot be less than 9%. These rates influence the amount of credit available to developers of low-income housing, incentivizing the construction and rehabilitation of affordable housing.

SIFL Rates Update for Employer Aircraft (Rev. Rul. 2025-20)

The previous section discussed the applicable federal rates used in determining the present value of low-income housing credits. This section transitions to the valuation of fringe benefits, specifically the use of employer-provided aircraft.

1. The Rule:

Revenue Ruling 2025-20 updated the Standard Industry Fare Level (SIFL) rates for the second half of 2025. As explained in the ruling, for the purposes of taxation of fringe benefits under Section 61, which defines gross income, the IRS provided updated guidance on valuing non-commercial flights on employer-provided aircraft. The mechanism for doing so is found in Section 1.61-21(g) of the Income Tax Regulations, which provides a formula to determine the value of such flights, and is used to calculate the taxable benefit conferred upon the employee.

2. The Context:

These rates are used to value non-commercial flights on employer-provided aircraft for fringe benefit taxation purposes under Reg. 1.61-21(g). Section 1.61-21(g)(5) provides the aircraft valuation formula: (SIFL cents-per-mile rates * applicable aircraft multiple) + applicable terminal charge. The SIFL rates and terminal charge are calculated by the Department of Transportation (DOT) and reviewed semi-annually. This provides a consistent and updated method for determining fair values.

3. The Implication:

For flights taken between July 1, 2025, and December 31, 2025, the terminal charge was set at $53.62. The SIFL mileage rates were as follows:

• Up to 500 miles: $0.2933 per mile
• 501-1500 miles: $0.2237 per mile
• Over 1500 miles: $0.2150 per mile

Tax practitioners must use these updated rates to accurately calculate the taxable fringe benefit associated with non-commercial flights on employer-provided aircraft. It is also important to remember that Section 1.61-21(g)(8) defines "control employee" and these individuals are subject to higher aircraft multiples than non-control employees, further impacting the calculation of the taxable benefit. Errors in SIFL valuation can lead to the IRS treating the entire flight value as a market-rate charter, resulting in significantly higher tax liabilities.

Superfund Tax Expands: 39 Substances Added (Notice 2025-51)

Continuing from the discussion on SIFL rates and their implications for valuing fringe benefits associated with employer-provided aircraft, this section examines a significant regulatory action affecting the chemical industry. Notice 2025-51 expands the scope of the Superfund excise tax, imposing new obligations on importers of a wide array of substances.

1. The Rule

The IRS, through Notice 2025-51, modified the list of taxable substances under Section 4672, which defines the term taxable substance as any substance which, at the time of sale or use by the importer, is listed as a taxable substance by the Secretary of the Treasury or the Secretary’s delegate (Secretary) on the list of taxable substances under section 4672(a) (List). This change adds 39 chemicals to the list, primarily targeting various types of rubbers, phthalates, and plasticizers. Specifically, the new additions include substances such as acrylonitrile-butadiene rubber, bromo-isobutene-isoprene rubber, chloroprene rubber, and a range of phthalates like di-isodecyl phthalate and di-isononyl phthalate.

2. The Context

This action occurs within the framework of the Superfund excise tax, initially established to fund the cleanup of hazardous waste sites. Section 4671(a) imposes an excise tax on the sale or use of a taxable substance by the importer thereof (section 4671 tax). The tax operates through an excise mechanism where importers pay tax on substances that are derived from taxable chemicals. This tax was reinstated by the Infrastructure Investment and Jobs Act (IIJA) of 2021, after having expired in 1995, and became effective on July 1, 2022. The effective date for the newly listed substances under Notice 2025-51 is January 1, 2026.

The decision to add these substances followed a petition process outlined in Revenue Procedure 2022-26, which details how importers, exporters, or interested persons can request a determination on whether a substance should be added to or removed from the taxable substances list. This process was utilized by companies such as Arlanxeo and Exxon Mobil, among others. Section 4672(a)(2)(B) and (a)(4) and (b)(2) dictate that the Secretary is required to add a substance to the List if the Secretary determines that any tax- able chemicals that are listed in section 4661(b) of the Code constitute more than 20 percent of the weight, or more than 20 percent of the value, of the materials used to produce such substance, which determination is required under section 4672(a)(2)(B) and (a)(4) to be made based on the predominant method of production (weight or value test). A crucial aspect of the determination involves a "weight test," where taxable chemicals must constitute more than 20% of the weight of the materials used to produce the substance.

3. The Implication

For tax practitioners, this notice signifies an expanded compliance burden for clients involved in importing these newly listed substances. It is now imperative to assess whether imported substances fall under these new classifications. Section 4662(e) provides the procedures for refund claims related to overpayments; however, the specific effective dates for refund claims vary by substance, as detailed in the notice.

Furthermore, understanding the "weight test" is critical. Practitioners must meticulously analyze the composition of imported substances to ascertain whether the taxable chemicals exceed the 20% threshold. This requires accurate chemical analysis and a thorough understanding of the manufacturing processes involved. Importers are also authorized under Section 4671(b)(1) to calculate their own tax rate instead of using the prescribed tax rate for a taxable substance.

Drought Relief for Ranchers (Notice 2025-52)

Following the updates to superfund taxes, the IRS is also addressing the needs of ranchers impacted by drought through Notice 2025-52.

1. The Rule: The IRS is extending the replacement period for livestock sold due to drought under Section 1033(e) of the Internal Revenue Code (IRC). Section 1033(e) addresses the "Involuntary Conversion of Livestock Due to Weather-Related Conditions," treating the sale or exchange of livestock (excluding poultry) held for draft, breeding, or dairy purposes as an involuntary conversion if sold due to drought, flood, or other weather-related conditions. This applies to the number of livestock sold in excess of what would typically be sold under normal business practices. Section 1033(a) generally provides for non-recognition of gain when property is involuntarily converted and replaced with property that is similar or related in service or use.

2. The Context: Ranchers often face difficult decisions during drought conditions, forcing them to sell livestock. Section 1033(e) provides some relief by allowing them to defer the recognition of gain on these forced sales, provided they reinvest the proceeds into replacement livestock. The extension of the replacement period acknowledges the ongoing challenges faced by ranchers in drought-stricken areas and provides them with additional time to rebuild their herds. Section 1033(e)(2)(A) normally provides for a 4 year replacement period. Section 1033(e)(2)(B) allows the Secretary to extend the replacement period on a regional basis.

3. The Implication: Under Notice 2025-52, for taxpayers who qualified for the four-year replacement period under Section 1033(e)(2)(A), the replacement period is extended until the end of the taxpayer's first taxable year ending after a "drought-free year" for the applicable region. The "applicable region" includes the county experiencing drought and all contiguous counties. The IRS defines a "drought-free year" as a 12-month period ending August 31, without any week reporting exceptional, extreme, or severe drought in the region.

   The Appendix to Notice 2025-52 lists specific eligible counties where exceptional, extreme, or severe drought was reported during the 12-month period ending August 31, 2025. For example, the Appendix lists Autauga County in Alabama, Apache County in Arizona, and Arkansas County in Arkansas, among many others across the US. Practitioners must carefully consult this list to determine if their clients in affected areas are eligible for the extended replacement period. This extension, as outlined in Notice 2006-82, allows ranchers to defer gain recognition on forced sales, offering significant tax benefits and financial flexibility during challenging times.

2025-2026 Special Per Diem Rates (Notice 2025-54)

Following the discussion of drought relief for ranchers under Section 1033(e), this section will delve into per diem substantiation rules. Ranchers, like many taxpayers, incur travel expenses, and understanding the available per diem options is crucial for accurate tax reporting.

Notice 2025-54 updated the special per diem rates that taxpayers can use to substantiate the amount of ordinary and necessary business expenses incurred while traveling away from home. This guidance is particularly relevant in light of Section 274(d) of the Internal Revenue Code, which outlines strict substantiation requirements for travel expenses, including lodging, meals, and incidental expenses. Failing to meet these requirements can result in the disallowance of deductions. As background, Revenue Procedure 2019-48 provides rules for using a per diem rate to substantiate expenses under § 274(d) and § 1.274-5 of the Income Tax Regulations.

The notice detailed several key updates, most notably regarding the "high-low" substantiation method. This method, designed to simplify expense tracking, establishes two rates: one for travel to "high-cost" localities and another for all other locations within the continental United States (CONUS). For the period beginning October 1, 2025, the high rate was set at $319 per day, while the low rate was set at $225 per day. For meal expenses, Section 274(n) limits the deductibility of meal expenses to 50%. The amount of the $319 high rate that is treated as paid for meals is $86 and the amount of the $225 low rate that is treated as paid for meals is $74.

Additionally, Notice 2025-54 addressed the transportation industry, specifying a special meal and incidental expenses (M&IE) rate of $80 for any locality of travel within CONUS and $86 for travel outside CONUS (OCONUS). This recognizes the unique circumstances of transportation workers who frequently travel and incur meal expenses. The rate for any CONUS or OCONUS locality of travel for the incidental expenses only deduction is $5 per day.

The IRS also provided an updated list of high-cost localities, specifying the portions of the calendar year for which the high-cost per diem rate applies. For example, Aspen, Colorado, and San Francisco, California, were designated as high-cost localities for the entire period from October 1 through September 30. Martha's Vineyard, Massachusetts, was also listed as a high-cost locality for the same period.