Internal Revenue Bulletin 2025-50

Executive Summary: OBBBA Implementation Takes Center Stage

This week's Internal Revenue Bulletin (IRB) 2025-50 heavily focuses on implementing key provisions of the 'One, Big, Beautiful Bill Act' (OBBBA), Public Law 119-21. The OBBBA, signed into law on July 4, 2025, represents a major overhaul of targeted tax incentives. This IRB provides initial guidance for taxpayers and practitioners navigating these new rules. Three Notices stand out: Notice 2025-69 offers interim relief and guidance for claiming deductions related to qualified tips and qualified overtime compensation under the new Section 224 and Section 225, respectively. Notice 2025-70 clarifies the requirements for the Section 25F credit, concerning contributions to Scholarship Granting Organizations (SGOs). Notice 2025-71 provides details on the 25% exclusion for interest received on rural real estate loans, as outlined in Section 139L. In addition to these OBBBA-related items, Announcements 2025-22 and 23 disclose the recipients of Section 48C credits for qualifying advanced energy projects, with Tesla emerging as a prominent beneficiary. These announcements highlight ongoing efforts to incentivize investment in clean energy technologies.

Notice 2025-69: Interim Relief for Tip and Overtime Deductions

Following up on the previous section's discussion of the One, Big, Beautiful Bill Act (OBBBA) and its impact on various sectors, this section delves into Notice 2025-69, which addresses the implementation of two key provisions of the OBBBA: the deductions for qualified tips under Section 224 and qualified overtime compensation under Section 225 of the Internal Revenue Code (IRC).

1. The Rule

Notice 2025-69 provides interim guidance for individual taxpayers regarding the new deductions for qualified tips and qualified overtime compensation enacted by the OBBBA (Public Law 119-21). Specifically, Section 70201(a) of the OBBBA added Section 224 to the IRC, allowing a deduction for "qualified tips" received by individuals in occupations that customarily and regularly received tips on or before December 31, 2024. Section 70202(a) of the OBBBA added Section 225 to the IRC, providing a deduction for "qualified overtime compensation," which is defined in Section 225(c) as overtime compensation paid to an individual required under Section 7 of the Fair Labor Standards Act of 1938 (FLSA) that is in excess of the regular rate at which the individual is employed.

The notice addresses a practical challenge: the 2025 Form W-2, Form 1099-NEC, Form 1099-MISC, and Form 1099-K will not be updated to separately account for these amounts. As a result, employers are not required to separately report cash tips or qualified overtime compensation on these forms or the corresponding statements furnished to individuals for the 2025 tax year. To address this gap in information reporting, the notice provides guidance for individual taxpayers on how to determine the amount of qualified tips and qualified overtime compensation eligible for the deductions in the 2025 tax year, including transition relief regarding specified service trade or business limitations.

2. The Context

The OBBBA, signed into law on July 4, 2025, aims to modernize the federal tax system. Sections 224 and 225, providing deductions for tips and overtime pay, are key components aimed at providing tax relief to working individuals. However, the rapid implementation timeline of the OBBBA has created logistical challenges for the IRS.

Specifically, the IRS publicly acknowledged in News Release IR-2025-82 that the existing information reporting systems and forms (W-2, 1099 series) would not be ready in time for the 2025 tax year. This acknowledgment necessitated the issuance of Notice 2025-69 to provide interim guidance and prevent taxpayers from being penalized due to the IRS's own administrative limitations.

In conjunction with this notice, the IRS also issued Notice 2025-62, offering penalty relief under Section 6721 (failure to file correct information returns) and Section 6722 (failure to furnish correct payee statements) to employers who do not separately report tips and overtime compensation for 2025. This penalty relief, detailed in IRS News Release IR-2025-110, provides a safe harbor for employers during this transition year.

3. The Implication

For tax practitioners, Notice 2025-69 has several important implications for the 2025 tax year.

First, employers are not required to separately account for qualified tips or qualified overtime compensation on 2025 forms. However, employees are still eligible to claim the deductions under Sections 224 and 225. Therefore, practitioners must advise clients on how to accurately calculate these amounts using "reasonable methods."

For tips, employees can use Form 4070 (Employee's Report of Tips to Employer) or other records to substantiate the amount of qualified tips received. Section 224(a) allows a deduction for tips included on statements furnished to the individual pursuant to Section 6041(d)(3), Section 6041A(e)(3), Section 6050W(f)(2), or Section 6051(a)(18), or reported by the taxpayer on Form 4137. The deduction is capped at $25,000 under Section 224(b)(1), and further limited based on modified adjusted gross income (MAGI), phasing out for taxpayers with MAGI over $150,000 ($300,000 for joint filers) as per Section 224(b)(2).

For overtime compensation, the calculation can be more complex. Section 225 provides a deduction for "qualified overtime compensation," specifically defined as overtime pay required under Section 7 of the FLSA (29 U.S.C. § 207) that exceeds the regular rate of pay. This means the deductible amount is the 0.5x "premium" portion of the 1.5x overtime rate, not the entire overtime payment. Practitioners will need to meticulously review pay stubs and understand how overtime is calculated to determine the deductible amount. Further, overtime pay mandated by company policy or state law that exceeds the federal FLSA requirements does not qualify for the Section 225 deduction.

Notice 2025-69 also addresses the limitation under Section 224(d)(2) that qualified tips cannot be received in the course of a trade or business that is a specified service trade or business (SSTB) as defined in Section 199A(d)(2). The notice provides transition relief related to this requirement, but practitioners should still be aware of the SSTB rules and their potential impact on the tip deduction.

Finally, it's crucial to remember that Section 224(e) requires taxpayers to include their Social Security number on their tax return to claim the tip deduction, and Section 224(f) stipulates that married individuals must file a joint return to be eligible.

Notice 2025-70: Defining the Scholarship Granting Org Credit

Following the transition relief provided in Notice 2025-69 regarding the tip deduction, particularly concerning the specified service trade or business (SSTB) as defined in Section 199A(d)(2), the IRS has issued Notice 2025-70 to provide preliminary guidance on another provision introduced by the One, Big, Beautiful Bill Act (OBBBA): the Section 25F credit for contributions to Scholarship Granting Organizations (SGOs).

The Rule

Notice 2025-70 addresses Section 25F, a new provision in the Internal Revenue Code (IRC) that was added by Section 70411 of Public Law 119-21, also known as the One, Big, Beautiful Bill Act (OBBBA), and signed into law on July 4, 2025. Section 25F establishes a nonrefundable income tax credit for individuals who make qualified contributions to a scholarship granting organization (SGO) as defined in Section 25F(c)(5). This credit is capped at $1,700 per taxpayer per year. The SGO must utilize these contributions to fund scholarships for eligible students within the state where the organization is listed under Section 25F(g). The credit is available to U.S. citizens and residents, as defined under Section 7701(a)(9). Section 25F(e) prevents a double benefit by disallowing a Section 170 charitable contribution deduction for any amount for which the Section 25F credit is claimed. Section 25F(f) allows for the carryforward of unused credit amounts for up to five years, applying a first-in, first-out (FIFO) method for credit utilization.

The Context

This notice serves as pre-regulatory guidance. The Treasury Department and the IRS are seeking comments from practitioners and the public before issuing proposed regulations. While the OBBBA was signed into law in July 2025, this credit is largely intended to launch for the 2027 tax year, giving the IRS time to develop the regulations. The IRS is specifically seeking input on issues related to state certifications and SGO requirements, demonstrating a proactive approach to address potential ambiguities and ensure the smooth implementation of this new credit. A key component of Section 25F is that it relies on voluntary participation by individual states. For a contribution to an SGO to qualify for the federal tax credit, the state in which the SGO is located must elect to participate and identify the SGO as meeting the requirements of Section 25F(c)(5).

The Implication

Tax practitioners need to be aware of the specific requirements for SGOs to qualify under Section 25F(c)(5) and 25F(d). Specifically, an SGO must be a Section 501(c)(3) organization, which refers to organizations organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual. The SGO must also be exempt from tax under Section 501(a), which grants exemption to 501(c)(3) organizations, and cannot be a private foundation. The SGO must maintain separate accounts for qualified contributions to prevent commingling and must comply with Section 25F(d). Section 25F(d) requires that the SGO provide scholarships to at least 10 students who do not all attend the same school and spend at least 90% of its income on scholarships for eligible students. These scholarships must be exclusively for qualified elementary or secondary education expenses, as defined in Section 530(b)(3)(A), which references expenses incurred at public, private, or religious schools. The SGO must also prioritize scholarship renewals and siblings of current recipients. The organization is prohibited from earmarking contributions and must verify the income and family size of applicants to ensure they meet the requirements of Section 25F(c)(2)(A). Finally, scholarships cannot be awarded to disqualified persons, as determined under rules similar to Section 4946, pertaining to private foundations.

Practitioners should also note the specific questions the IRS is seeking comments on. These include the definition of "income" for purposes of the 90% spending requirement, the treatment of SGOs that operate in multiple states, and the procedures for state certification. Understanding these nuances will be crucial for advising clients on the availability and limitations of the Section 25F credit.

Notice 2025-71: 25% Exclusion for Rural Loan Interest

Following the discussion on Section 25F, which introduces a tax credit for contributions to Scholarship Granting Organizations, this section delves into Notice 2025-71, concerning the newly enacted Section 139L of the Internal Revenue Code (IRC). Section 139L, introduced as part of the One, Big, Beautiful Bill Act (OBBBA), provides a significant tax incentive for lenders operating in rural and agricultural sectors.

1. The Rule:

Notice 2025-71 offers interim guidance on Section 139L, which allows qualified lenders to exclude 25% of the interest received on qualified real estate loans from their gross income. This exclusion aims to incentivize lending in rural and agricultural areas, promoting economic growth in these underserved sectors. The Department of the Treasury and the IRS intend to formalize this guidance through forthcoming proposed regulations.

2. The Context:

The enactment of Section 139L reflects a broader political effort to support rural economies. The OBBBA, signed into law on July 4, 2025, included several provisions designed to stimulate growth in sectors often overlooked by traditional economic policies. This provision is particularly relevant in the context of recent economic shifts and concerns about the availability of capital in rural areas. Other programs created by the OBBBA include deductions for employee tips under Section 224, and overtime compensation under Section 225.

3. The Implication:

For tax practitioners, understanding the nuances of Section 139L is crucial for advising financial institutions and other lenders. Key aspects of the guidance include the definitions of "qualified lender" and "qualified real estate loan."

A qualified lender is defined under Section 139L(b) as:

• Any bank or savings association whose deposits are insured under the Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.);
• Any state or federally regulated insurance company;
• Certain entities wholly owned by bank or insurance holding companies with a principal place of business in the United States;
• Federally chartered instrumentalities of the United States established under section 8.1(a) of the Farm Credit Act of 1971 (12 U.S.C. 2279aa-1(a)) regarding loans secured by property substantially used for agricultural production.

A qualified real estate loan is defined under Section 139L(c)(1) as any loan secured by rural or agricultural real estate made to a person other than a specified foreign entity as defined in Section 7701(a)(51), which concerns the definition of foreign governments and related controlled entities. This loan must have been made after July 4, 2025, the enactment date of Section 139L. The determination of whether a property is "rural or agricultural" is made when the interest income on the loan accrues. The term "rural or agricultural real estate," as further defined in Section 139L(c)(3), includes property substantially used for agricultural production, fishing, seafood processing, and aquaculture facilities.

The notice also provides a safe harbor: if the fair market value of the qualified rural or agricultural property securing the loan is at least 80% of the loan's issue price on the issue date, the lender can treat the entire loan as fully secured by qualified property. This safe harbor, outlined in Section 3.04(2) of the notice, simplifies compliance and reduces the burden of valuation for lenders. Section 3.04(3) clarifies that qualified lenders may determine the fair market value of property using any commercially reasonable valuation method, potentially including the value of crops on the land or the income they are expected to generate.

Practitioners should also be aware of the rules regarding refinancings. Section 139L(c)(2) states that a loan is not treated as made after the enactment date if the proceeds refinance a pre-existing loan made on or before July 4, 2025. The notice clarifies that if a new loan partially refinances a pre-enactment loan, only the portion exceeding the outstanding balance of the old loan can be treated as a qualified real estate loan.

This exclusion offers a substantial benefit to qualified lenders, improving their profitability on loans in the rural and agricultural sectors. However, compliance requires careful attention to the definitions and valuation rules outlined in Notice 2025-71.

Announcements 2025-22 & 23: Tesla Leads 48C Credit Recipients

Following the discussion of the rural loan interest exclusion under Section 139L, this section analyzes recent announcements concerning the Qualifying Advanced Energy Project Credit established under Section 48C(e).

The Rule

Announcements 2025-22 and 2025-23 disclose the first set of certifications for Round 1 and Round 2, respectively, of the Section 48C(e) program. Section 48C(e), originally enacted as part of the American Recovery and Reinvestment Act of 2009 and later modified by the Inflation Reduction Act (IRA), provides an investment tax credit for qualified advanced energy projects. Notice 2023-18 established the program under Section 48C(e)(1), allocating $10 billion in credits, with $4 billion earmarked for projects in "energy communities." The base credit rate under Section 48C(e)(4)(A) is 6% of the qualified investment, as defined in Section 48C(b). However, projects meeting the prevailing wage and apprenticeship requirements of Section 48C(e)(5)(A) and (6) qualify for an alternative rate of 30% under Section 48C(e)(4)(B). Section 48C(e)(3)(B) stipulates that applicants have two years from the acceptance date to demonstrate compliance with certification requirements. Further, Section 48C(e)(7) mandates public disclosure of the applicant's identity and the certified credit amount. Announcement 2025-22 covers certifications issued from March 29, 2024, to September 30, 2025, for Round 1, while Announcement 2025-23 covers the period from January 10, 2025, to September 30, 2025, for Round 2.

The Context

The disclosure of Section 48C credits underscores the ongoing efforts to incentivize investment in advanced energy projects, particularly in designated energy communities. The One, Big, Beautiful Bill Act (OBBBA), enacted as Public Law 119-21, amended Section 48C(e)(3)(C) to address the reallocation of previously allocated credits that were subsequently revoked. This reflects a Congressional effort to refine and improve the efficiency of the Section 48C(e) program. The dual-round allocation strategy, with $4 billion allocated in Round 1 and approximately $6 billion in Round 2, demonstrates the program's scale and ambition.

The Implication

Tax practitioners need to understand the allocation-based nature of the Section 48C(e) credit and the importance of meeting the prevailing wage and apprenticeship requirements to qualify for the 30% credit rate. Key recipients of Round 1 allocations include Hemlock Semiconductor Operations LLC ($86.4 million) and MP Magnetics LLC ($58.5 million). In Round 2, Tesla, Inc. secured a significant allocation of $240,289,310. These allocations are certifications for the investment tax credit. These announcements provide transparency regarding the allocation of Section 48C credits and offer insights into the types of projects being supported. Practitioners advising clients in the advanced energy sector should carefully review these announcements to identify potential opportunities and ensure compliance with the program's requirements. Practitioners should also be familiar with the nuances of Section 48C(e), including the definition of "qualified investment" in Section 48C(b) and the implications of the OBBBA amendments.

Administrative & Disciplinary Updates

Following announcements regarding the allocation of Section 48C credits and their implications for advanced energy projects, this section addresses administrative and disciplinary matters highlighted in the latest Internal Revenue Bulletin. Practitioners should be aware of these updates to ensure compliance and maintain professional standards.

Rev. Rul. 2025-24 provides the applicable federal rates (AFR) for December 2025, as mandated by Section 1274(d), which governs the determination of issue price for debt instruments issued for property. The ruling includes short-term, mid-term, and long-term AFRs, adjusted AFRs as per Section 1288(b), rates under Section 382(f) for loss carryforwards, percentages for the low-income housing credit under Section 42(b)(1), and the rate for present value calculations under Section 7520. These rates are essential for various tax computations, including those related to golden parachute payments (Section 280G), payments for the use of property or services (Section 467), and loans with below-market interest rates (Section 7872).

Ann. 2025-29 summarizes disciplinary actions taken by the Office of Professional Responsibility (OPR) against tax professionals. These sanctions include disbarments, suspensions, censures, monetary penalties, and disqualifications of appraisers. By way of example, Barjinderjit Singh, a CPA from California, faced suspension, while Troy Renkemeyer from Kansas also received disciplinary action. These disciplinary actions serve as a reminder of the ethical and professional standards expected of those practicing before the IRS, as outlined in Treasury Department Circular No. 230. Practitioners must remain vigilant in upholding these standards to avoid similar consequences.