Bulletin No. 2025–42
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Bulletin No. 2025–42
October 14, 2025
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
ADMINISTRATIVE
INCOME TAX
REG-108673-25, page 494.
REG-110032-25, page 495.
Tax return preparers must use a preparer tax identification
number (PTIN) on returns they prepare for compensation.
The PTIN must be renewed annually. The IRS charges a user
fee on each PTIN application or application for renewal to
recover costs for issuing and renewing PTINs. The IRS has
recalculated the PTIN user fee and determined the full cost
for each application or application for renewal is $10, plus
an amount payable directly to a third-party contractor. These
regulations therefore propose to decrease the current PTIN
user fee of $11 to $10, plus an amount payable directly to
the third-party contractor. REG-108673-25. Published September 30, 2025.
T.D. 10035, page 484.
Tax return preparers must use a preparer tax identification
number (PTIN) on returns they prepare for compensation.
The PTIN must be renewed annually. The IRS charges a
user fee on each PTIN application or application for renewal
to recover costs for issuing and renewing PTINs. The IRS
has recalculated the PTIN user fee and determined the full
cost for each application or application for renewal is $10,
plus an amount payable directly to a third-party contractor. These interim final regulations therefore decrease the
current PTIN user fee of $11 to $10, plus amount payable
directly to the third-party contractor. TD 10035. Published
September 30, 2025.
Finding Lists begin on page ii.
These proposed regulations would identify occupations that
customarily and regularly received tips on or before December 31, 2024, and would provide a definition of “qualified
tips” for purposes of the income tax deduction for qualified
tips.
REG-112261-24; REG-116085-23, page 522.
The document withdraws a notice of proposed rulemaking containing proposed regulations regarding certain matters relating
to corporate separations, incorporations, and reorganizations
qualifying, in whole or in part, for nonrecognition of gain or loss.
The document also withdraws a notice of proposed rulemaking containing proposed regulations that would have required
multi-year tax reporting for corporate separations and related
transactions. The proposed regulations would have affected
corporations and their shareholders and security holders.
Rev. Proc. 2025-30, page 489.
This revenue procedure provides procedures for taxpayers
requesting private letter rulings from the Internal Revenue
Service regarding certain issues pertaining to transactions
intended to qualify under section 355 of the Internal Revenue
Code, including representations, information, and analysis
that taxpayers requesting these rulings should submit to the
IRS. This revenue procedure revokes Notice 2024-38, 202421 I.R.B. 1211, supersedes Rev. Proc. 2024-24, 2024-21
I.R.B. 1214, and modifies Rev. Proc. 2025-1, 2025-1 I.R.B.
1 and Rev. Proc. 2017-52, 2017-41 I.R.B. 283.
The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and
enforce the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
October 14, 2025
Bulletin No. 2025–42
Part I
26 CFR 300.11: Fee for obtaining a preparer tax
identification number
T.D. 10035
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 300
Preparer Tax Identification
Number (PTIN) User Fee
Update
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Interim final rule.
SUMMARY: This document contains
interim final regulations relating to
the imposition of certain user fees on
tax return preparers. These regulations
reduce from $11 to $10 the amount of
the user fee to apply for or renew a preparer tax identification number (PTIN)
and affect individuals who apply for or
renew a PTIN. The Independent Offices
Appropriation Act of 1952 authorizes the
charging of user fees. The text of these
interim final regulations also serves as
the text of the proposed regulations set
forth in the notice of proposed rulemaking on this subject in this issue in the Proposed Rules section of this edition of the
Federal Register.
DATES: Effective date: These final regulations are effective on September 30,
2025.
Applicability date: For date of applicability, see §300.11(d) of these interim final
regulations.
FOR FURTHER INFORMATION
CONTACT: Concerning the interim
final regulations, Jamie Song at (202)
317-6845; concerning cost methodology,
Maria E. Arias-Buchanan at (202) 8039569 (not toll-free numbers).
October 14, 2025
SUPPLEMENTARY INFORMATION:
Authority
This document contains interim final
amendments to 26 CFR part 300 regarding user fees to apply for or renew a PTIN.
The Independent Offices Appropriation Act of 1952 (IOAA), which is codified at 31 U.S.C. 9701, authorizes agencies to prescribe regulations that establish
user fees for services provided by the
agency. The IOAA provides that regulations implementing user fees are subject
to policies prescribed by the President;
these policies are set forth in the Office of
Management and Budget Circular A-25,
58 FR 38142 (July 15, 1993) (OMB Circular A-25).
Under OMB Circular A-25, Federal
agencies that provide services that confer benefits on identifiable recipients are
to establish user fees that recover the full
cost of providing the service. An agency
that seeks to impose a user fee for government-provided services must calculate
the full cost of providing those services.
In general, a user fee should be set at an
amount that allows the agency to recover
the direct and indirect costs of providing
the service, unless the Office of Management and Budget (OMB) grants an exception. OMB Circular A-25 provides that
agencies are to review user fees biennially
and update them as necessary.
Background
A. PTIN Requirement
Section 6109(a)(4) of the Internal Revenue Code (Code) authorizes the Secretary of the Treasury or the Secretary’s
delegate (Secretary) to prescribe regulations for the inclusion of a tax return preparer’s identifying number on a return,
statement, or other document required to
be filed with the IRS. On September 30,
2010, the Department of the Treasury
(Treasury Department) and the IRS published final regulations (TD 9501) under
section 6109 in the Federal Register (75
FR 60309) to provide that, for returns or
claims for refund filed after December
484
31, 2010, the identifying number of a tax
return preparer is the individual’s PTIN or
such other number prescribed by the IRS
in forms, instructions, or other appropriate guidance. Those regulations require a
tax return preparer who prepares or who
assists in preparing all or substantially all
of a tax return or claim for refund after
December 31, 2010, to have a PTIN.
B. PTIN User Fee
Final regulations (TD 9503) published
in the Federal Register (75 FR 60316) on
September 30, 2010, established a $50
user fee to apply for or renew a PTIN,
based on a 2010 Cost Model. In addition,
a $14.25 fee for a new application and a
$13 fee for an application for renewal was
payable directly to a third-party contractor.
In 2013, the IRS conducted a biennial
review of the PTIN user fee and issued a
new Cost Model that estimated an increase
of the PTIN user fee, to $54. However, the
IRS determined to keep the fee at $50 for
the next two years.
In 2015, the IRS conducted a biennial
review of the PTIN user fee and issued a
new Cost Model, which determined that
the full cost of administering the PTIN
program going forward was reduced from
$50 to $33 per application or application
for renewal, plus a $17 fee per application
or application for renewal payable directly
to a third-party contractor. Final regulations (TD 9781) published in the Federal
Register (81 FR 52766) on August 10,
2016, superseded and adopted temporary regulations (TD 9742) published in
the Federal Register (80 FR 66792) on
October 30, 2015, and established the $33
annual user fee to apply for or renew a
PTIN, plus $17 per application or application for renewal payable directly to a
third-party contractor.
In 2017, the IRS again conducted a
biennial review of the PTIN user fee and
issued a new Cost Model, which determined that the amount of the fee going forward should be reduced to $31 per application or application for renewal, plus an
amount payable directly to a third-party
contractor. However, on June 1, 2017,
Bulletin No. 2025–42
before a notice of proposed rulemaking
proposing to reduce the amount of the
PTIN user fee was issued, the IRS was
enjoined from charging a PTIN user fee.
In Steele v. United States, 260 F. Supp. 3d
52 (D.D.C. 2017), the United States District Court for the District of Columbia
concluded that the Treasury Department
and the IRS lacked the statutory authority to charge a PTIN user fee and enjoined
the IRS from charging a PTIN user fee.
See Steele, 2017 WL 3621747 (D.D.C.
July 10, 2017) (final judgment and permanent injunction). The government filed an
appeal and on March 1, 2019, the United
States Court of Appeals for the District
of Columbia Circuit reversed the district
court’s decision and lifted the injunction
against charging the PTIN user fee. See
Montrois v. United States, 916 F.3d 1056
(D.C. Cir. 2019) (holding that a PTIN provides tax return preparers a specific benefit by allowing them to provide an identifying number that is not a social security
number on returns they prepare and stating that the permissible amount of the fee
would be the same regardless of whether
the specific benefit was instead the ability
to prepare tax returns for compensation).
The case was remanded to the United
States District Court for the District of
Columbia to determine whether the fee
amounts were excessive. Id. at 1068.
In 2019, the IRS again conducted a
biennial review of the PTIN user fee and
issued a new Cost Model, which determined that the amount of the fee going forward should be reduced to $21 per application or application for renewal, plus a
$14.95 fee per application or application
for renewal payable directly to a thirdparty contractor. Final regulations (TD
9903) published in the Federal Register
(85 FR 43433) on July 17, 2020, adopted
the proposed regulations (REG-11713817) published in the Federal Register (85
FR 21126) on April 16, 2020, and established the $21 annual user fee to apply for
or renew a PTIN, plus $14.95 per application or application for renewal payable
directly to a third-party contractor.
In Steele v. United States, 657 F. Supp.
3d 23 (D.D.C. 2023), the United States
District Court for the District of Columbia on remand considered whether the fee
amounts were excessive under the IOAA
(Steele opinion). Explaining that while an
agency may charge only the reasonable
cost incurred to provide a service, or the
value of the service to the recipient, whichever is less, the district court allowed that
the activities charged for need only be
“reasonably related” to the cost to the
agency and the value to the recipient, and
the amount may include both “direct and
indirect costs” associated with the service
provided. Id. at 37. The court further noted
that where an activity produces an independent public benefit, the fee that would
otherwise be charged must be reduced by
that portion of the costs attributable to the
public benefit. Id. at 37-38.
The district court concluded that the
PTIN fees for fiscal years (FYs) 2011
through 2017 were excessive to the extent
they were based on: (1) the activities
already conceded by the government in
the case;1 (2) any compliance activities
other than direct and indirect costs of
investigating ghost preparers who do not
list their PTINs on returns they prepared
for compensation as required by law, handling complaints regarding improper use
of a PTIN, use of a compromised PTIN,
or use of a PTIN obtained through identity theft, and composing the data to refer
those specific types of complaints to other
IRS business units; (3) any suitability
activities; (4) any support activities, other
than those for the provision of PTINs and
maintenance of the PTIN database, that
facilitated provision of an independent
benefit to the agency and the public; and
(5) any activities of the third-party contractor, other than those related to the issuance, renewal, and maintenance of PTINs,
that facilitated provision of an independent
benefit to the agency and the public. Id. at
48. The plaintiffs in Steele filed a notice of
appeal on March 26, 2025, and the government filed a notice of cross-appeal on
May 22, 2025, to the Court of Appeals
for the District of Columbia Circuit. The
appeal is pending as of the publication of
these interim final regulations.
In its 2023 biennial review, the IRS,
taking into account the Steele opinion,
determined the amount of the user fee
as $11 per application or application for
renewal, plus an $8.75 fee per application
or application for renewal payable directly
to a third-party contractor. The amount
payable directly to the third-party contractor also took into account certain costs
that were addressed in the Steele opinion.
Subsequently, the IRS entered into a modified contract that allows the government
to pay those costs rather than the individuals who apply for or renew a PTIN. Final
regulations (TD 9997) published in the
Federal Register (89 FR 42362) on May
15, 2024, adopted the interim final rule
and cross-referencing notice of proposed
regulations (REG-106203-23) published
in the Federal Register (88 FR 68456) on
October 4, 2023, and established the $11
annual user fee to apply for or renew a
PTIN, plus $8.75 per application or application for renewal payable directly to a
third-party contractor.
In accordance with the biennial review
requirement in OMB Circular A-25 and
taking into account the Steele opinion,
the IRS has issued a new Cost Model that
re-determines costs that the government
continues to incur for providing PTINs
and administering the PTIN program, and
re-calculates the amount of the user fee
as $10 per application or application for
renewal, plus an $8.75 fee per application
or application for renewal payable directly
to a third-party contractor. The amount
payable directly to the third-party contractor also takes into account certain costs
that were addressed in the Steele opinion.
The government is authorized to charge
a PTIN user fee under the IOAA because,
in exchange for the fee, it provides a service by issuing and maintaining PTINs,
which provide tax return preparers a specific benefit by allowing them to provide
an identifying number that is not a social
security number on returns and claims for
1
The government previously conceded $26,576,661, $26,623,420, and $25,685,247 for amounts collected in FY 2011, FY 2012, and FY 2013, respectively, which related to certain communications, compliance, Office of Professional Responsibility (OPR), and operations support activities; $8,737,123 and $9,010,458 for amounts collected in FY 2014 and FY 2015, respectively,
which related to certain communications, Office of the Director, Strategy and Finance, suitability, compliance and complaint referrals, competency and standards, continuing education, OPR,
enrolled agent and enrolled retirement plan agent department, and contractor processing activities; and $6,904,345 and $6,784,762 for amounts collected in FY 2016 and FY 2017, respectively, which related to certain communications, Office of the Director, Strategy and Finance, suitability, compliance and complaint referrals, OPR, enrolled agent and enrolled retirement plan
agent department, and contractor processing activities.
Bulletin No. 2025–42
485
October 14, 2025
refund and to prepare returns and claims
for refund for compensation. OMB Circular A-25 states that user fees should
be collected in advance of or simultaneously with the provision of a service. The
PTIN user fee is collected when tax return
preparers apply for or renew their PTINs
during the application season, which
begins annually in October.
Explanation of Provisions
The IRS follows generally accepted
accounting principles (GAAP) in calculating the full cost of administering PTIN
applications and renewals. The Federal
Accounting Standards Advisory Board
(FASAB) is the body that establishes
GAAP that apply for Federal reporting
entities, such as the IRS. FASAB publishes the FASAB Handbook of Federal Accounting Standards and Other
Pronouncements, as Amended (Current
Handbook), available at https://files.fasab.
gov/pdffiles/2024_FASAB%20Handbook.
pdf. The Current Handbook includes the
Statement of Federal Financial Accounting Standards (SFFAS) No. 4: Managerial
Cost Accounting Standards and Concepts.
SFFAS No. 4 establishes internal costing
standards to accurately measure and manage the full cost of Federal programs, and
the methodology below is in accordance
with SFFAS No. 4.
1. Cost Estimation of Direct Salary
The IRS uses various cost-measurement techniques to estimate the cost
attributable to the program. These techniques include using various timekeeping
systems to measure the time required to
accomplish activities, or using information provided by subject-matter experts on
the time devoted to a program. To determine the salary and benefits cost incurred
to provide the service of providing a
PTIN, the IRS estimated the number of
full-time employees required to conduct
Expense
Salary and benefits
Travel, training, and supplies
Overhead (62.92 percent)
October 14, 2025
activities related to the costs of issuing
and renewing PTINs. The number of fulltime employees is based on both current
employment numbers and future hiring
estimates. The IRS aggregated the hours
spent by employees for performing each
task, identified by cost center, related to
the PTIN user fee, and calculated the percentage of time spent on the PTIN user
fee based on a full-time schedule of 2,088
hours annually, with leave and training
hours allocated to the resulting percentages based on employees’ tasks related to
the PTIN user fee.
2. Overhead
When the indirect cost of a service or
activity is not specifically identified from
the cost accounting system, an overhead
rate is added to the identifiable direct
cost to arrive at full cost. Overhead is an
indirect cost of operating an organization
that is not specifically identifiable with
an activity. Overhead includes costs of
resources that are jointly or commonly
consumed by one or more organizational
unit’s activities but are not specifically
identifiable to a single activity. These
costs can include:
• Financial, human resources, information technology, and general management and administrative.
• Rent and building.
• Procurement, other services, and consulting.
• Property, plant, and equipment.
• Publication services.
• Research, analytical, statistical,
library and legal services.
To calculate the overhead allocable to
a service, the IRS applies an overhead rate
to the identified direct salary and benefits
and other direct costs. The overhead rate is
the ratio of the IRS’s indirect salary, benefits, and non-salary costs of business divisions that do not interact with taxpayers
to the salary and benefits costs of business
divisions that interact with taxpayers. The
FY 2026
$5,693,975
$63,579
$3,582,649
FY 2027
$5,850,559
$63,579
$3,681,172
486
IRS calculates an overhead rate annually.
For the FY 2025 user fee review, an overhead rate of 62.92 percent was used.
3. Calculation of PTIN User Fee
The IRS used projections for FYs
2026 through 2028 to determine the
direct and indirect costs associated with
the PTIN program that are includible in
the PTIN user fee calculation taking into
account the Steele opinion. Direct costs
are incurred by the Return Preparer Office
and include staffing and contract-related
costs for activities, processes, and procedures related to administering the PTIN
program. Staffing costs included in the
PTIN user fee calculation relate to the
compliance activities of investigating
ghost preparers; handling complaints
regarding the improper use of a PTIN,
use of a compromised PTIN, or use of
a PTIN obtained through identity theft;
and composing the data to refer those
specific types of complaints to other IRS
business units. The PTIN user fee also
takes into account indirect costs for support activities related to the provision
of PTINs and maintenance of the PTIN
database. In accordance with Steele, the
PTIN user fee calculation does not take
into account compliance costs other than
those described in this paragraph, costs
incurred by the Suitability Department,
support costs other than those described
in this paragraph, and costs previously
conceded by the government in Steele, as
detailed earlier in this preamble.
The salary and benefits for the work
performed related to the PTIN program is
projected to be $17,555,984 in total over
FYs 2026 through 2028. In addition to salary and benefits and overhead expenses,
the IRS projects incurring travel, training,
and supplies costs of $63,579 in each of
FYs 2026 through 2028. The total salary
and benefits, travel, training, and supplies,
and overhead expenses projected are
shown below:
FY 2028
$6,011,450
$63,579
$3,782,404
Total
$17,555,984
$190,737
$11,046,225
Bulletin No. 2025–42
The total cost for FYs 2026 through
2028 is therefore projected to be
$28,792,946. The number of users is
based on FY 2024 numbers adjusted by
a projected increase in applications in
FYs 2026, 2027, and 2028. Dividing this
total cost by the projected population of
users for FYs 2026 through 2028 results
in a cost per application or application for
renewal of $10 as follows: $28,792,946
(total cost) ÷ 2,829,524 (number of applications) = $10.18 (cost per application or
application for renewal).
Taking into account the full amount
of these costs, the amount of the PTIN
user fee per application or application for
renewal is $10.
Costs related to a third-party contractor’s activities for the issuance, renewal,
and maintenance of PTINs, such as processing applications and operating a call
center, are included in the PTIN user fee
calculation, in accordance with Steele.
This amount is currently set at $8.75 per
application or application for renewal.
The third-party contractor was chosen
through a competitive bidding process.
The amount of the third-party contractor
portion may change in 2026 when the contract expires and will be re-computed.
Special Analyses
I. Regulatory Planning and Review
These interim final regulations are
not subject to review under section 6(b)
of Executive Order 12866 pursuant to
the Memorandum of Agreement (July 4,
2025) between the Treasury Department
and OMB regarding review of tax regulations.
II. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby
certified that these interim final regulations will not have a significant economic
impact on a substantial number of small
entities. These final regulations affect
all individuals who prepare or assist in
preparing all or substantially all of a tax
return or claim for refund for compensation. Only individuals, not businesses, can
have a PTIN. Thus, the economic impact
of these regulations on any small entity
Bulletin No. 2025–42
generally will be a result of an individual
tax return preparer who is required to have
a PTIN owning a small business or a small
business otherwise employing an individual tax return preparer who is required to
have a PTIN. The Treasury Department
and the IRS estimate that approximately
915,437, 942,900, and 971,187 individuals will apply annually for an initial or
renewal PTIN in FYs 2026, 2027, and
2028, respectively. Although these regulations will likely affect a substantial
number of small entities, the economic
impact on those entities is not significant. These regulations will establish an
$10 fee per application or application for
renewal (plus $8.75 payable directly to the
third-party contractor), which is a reduction from the previously established fee
and will not have a significant economic
impact on a small entity. Accordingly, the
rule is not expected to have a significant
economic impact on a substantial number
of small entities, and a regulatory flexibility analysis is not required.
III. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 (UMRA) requires
that agencies assess anticipated costs and
benefits and take certain other actions
before issuing a final rule that includes
any Federal mandate that may result in
expenditures in any one year by a State,
local, or Tribal government, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for
inflation. This rule does not include any
Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector in excess of
that threshold.
IV. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial, direct
compliance costs on State and local governments, and is not required by statute,
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Executive
order. These interim final regulations do
not have federalism implications and do
487
not impose substantial direct compliance
costs on State and local governments or
preempt State law within the meaning of
the Executive order.
V. Good Cause
The annual PTIN application and
renewal period for the 2025 filing season
will begin shortly. It would be unnecessary and contrary to the public interest for
the IRS to continue to charge the current,
higher user fee pending public comment
after the IRS has determined pursuant
to the biennial review conducted under
OMB Circular A-25 that the PTIN user
fee should be reduced going forward.
To enable the reduced fee amount to be
in effect for PTINs issued to or renewed
by tax return preparers preparing returns
or claims for refund in 2026, the Treasury Department and the IRS find that
there is good cause to dispense with (1)
notice and public comment pursuant to 5
U.S.C. 553(b) and (c) and (2) a delayed
effective date pursuant to 5 U.S.C. 553(d).
The Treasury Department and the IRS
will consider public comments submitted
in response to the cross-referenced notice
of proposed rulemaking published in the
Proposed Rules section of this issue of
the Federal Register and will promulgate
a final rule after considering those comments.
VI. Submission to Small Business
Administration
Pursuant to section 7805(f) of the
Code, this Treasury decision has been
submitted to the Chief Counsel for the
Office of Advocacy of the Small Business
Administration for comment on its impact
on small business.
VII. Congressional Review Act
Pursuant to the Congressional Review
Act (5 U.S.C. 801 et seq.), the Office of
Information and Regulatory Affairs designated this rule as not a major rule, as
defined by 5 U.S.C. 804(2).
Drafting Information
The principal author of these regulations is Jamie Song, Office of the Asso-
October 14, 2025
ciate Chief Counsel (Procedure and
Administration). Other personnel from
the Treasury Department and the IRS participated in the development of the regulations.
List of Subjects in 26 CFR Part 300
Estate taxes, Excise taxes, Fees, Gift
taxes, Income taxes, Reporting and
recordkeeping requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 300 is
amended as follows:
October 14, 2025
PART 300—USER FEES
Paragraph 1. The authority citation for
part 300 continues to read in part as follows:
Authority: 31 U.S.C. 9701.
Par. 2. Section 300.11 is amended by
revising paragraphs (b) and (d) to read as
follows:
§300.11 Fee for obtaining a preparer
tax identification number.
*****
(b) Fee. The fee to apply for or renew
a preparer tax identification number is
$10 per year and is in addition to the fee
charged by the contractor.
*****
488
(d) Applicability date. This section
applies to applications for or renewal of a
preparer tax identification number filed on
or after September 30, 2025.
Edward T. Killen,
Acting Chief Tax Compliance Officer.
Approved: September 15, 2025.
Kenneth J. Kies,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register September 29, 2025, 8:45 a.m., and published in the issue
of the Federal Register for September 30, 2025, 90
FR 46762)
Bulletin No. 2025–42
Part III
26 CFR 601.201: Rulings and determination letters.
(Also Part I, §§ 355, 1.355-1.)
Rev. Proc. 2025-30
SECTION 1. PURPOSE
This revenue procedure supersedes
Rev. Proc. 2024-24, 2024-21 I.R.B. 1214,
and provides procedures for taxpayers
requesting private letter rulings from
the Internal Revenue Service (IRS) after
September 29, 2025, regarding certain
issues pertaining to transactions intended
to qualify under § 3551 (Section 355
Transactions), including representations,
information, and analysis that taxpayers requesting these rulings should submit to the IRS. This revenue procedure
also modifies Rev. Proc. 2025-1, 2025-1
I.R.B. 1, and Rev. Proc. 2017-52, 2017-41
I.R.B. 283, and revokes Notice 2024-38,
2024-21 I.R.B. 1211.
SECTION 2. BACKGROUND
.01 Law.
Section 355(a)(1) provides that, if
certain requirements are met, a corporation (Distributing) may distribute (i)
stock of a controlled corporation (Controlled) to Distributing’s shareholders,
or (ii) Controlled stock and securities to
Distributing’s shareholders and security
holders, without recognition of gain or
loss to, or inclusion of any amount in the
income of, the shareholders or security
holders.
Section 355(c)(1) provides that no gain
or loss is recognized to Distributing upon
a distribution of Controlled stock, or stock
and securities, to which § 355 (or so much
of § 356 as relates to § 355) applies and
which is not in pursuance of a plan of reorganization.
In a reorganization under §§ 355 and
368(a)(1)(D) (Divisive Reorganization),
Distributing transfers property to Controlled in exchange for consideration (§
361 Consideration). The § 361 Consideration received by Distributing includes
Controlled stock and also may include
money, securities or other debt obliga1
tions of which Controlled is the obligor,
and other property. Controlled also may
assume liabilities of Distributing. To complete the Divisive Reorganization, Distributing distributes the Controlled stock,
and possibly other § 361 Consideration,
to its shareholders and also may distribute
§ 361 Consideration in satisfaction of its
obligations to holders of its securities or
to other creditors.
.02 Prior Revenue Procedures.
(1) Rev. Proc. 2017-52. Rev. Proc.
2017-52 provides procedures for requesting private letter rulings regarding Section
355 Transactions.
(2) Rev. Proc. 2018-53. Rev. Proc.
2018-53, 2018-43 I.R.B. 667, amplified
Rev. Proc. 2017-52 and described the procedures for requesting rulings on issues
relating to the assumption or satisfaction
of Distributing Debt (as defined therein)
in Divisive Reorganizations and the representations, information, and analysis to be
submitted in those requests.
(3) Rev. Proc. 2024-24. Rev. Proc.
2024-24 superseded Rev. Proc. 201853 and modified Rev. Proc. 2017-52 by
deleting Representations 2, 4, and 17
through 21 in section 3 of the Appendix.
Notice 2024-38, which accompanied Rev.
Proc. 2024-24, requested feedback on the
procedures set forth in Rev. Proc. 202424. Notice 2024-38 also described the
then-current views and concerns of the
Treasury Department and the IRS relating
to certain matters addressed in Rev. Proc.
2024-24 and requested feedback on those
matters.
.03 This Revenue Procedure.
Section 3 of this revenue procedure
restates the guidance originally provided
in section 3 of Rev. Proc. 2018-53. Section 4 of this revenue procedure restates
the guidance originally provided in Representations 2, 4, and 17 through 21 in
section 3 of the Appendix to Rev. Proc.
2017-52.
SECTION 3. APPLICATION AND
PROCEDURES
.01 Ruling requests to which procedures apply.
A taxpayer engaging in a Divisive
Reorganization may request rulings that
no gain or loss will be recognized to Distributing (i) upon Controlled’s assumption
of liability for an obligation of Distributing (§ 357(a)), and (ii) upon Distributing’s
receipt of § 361 Consideration and its distribution of the § 361 Consideration to a
creditor in satisfaction of Distributing’s
debt obligation (§§ 361(b) and (c)).
The procedures described in section
3.03 of this revenue procedure apply to
a request for a ruling to the extent that a
subject of the request is an assumption
by Controlled of liability for Distributing
Debt or the satisfaction of Distributing
Debt with § 361 Consideration. For purposes of this revenue procedure, an obligation is “Distributing Debt” if (a) Distributing is the obligor, and (b) the obligation
(i) is evidenced by a debt instrument
(defined in § 1.1275-1(d)) that is not a
contingent payment debt instrument subject to § 1.1275-4 (Non-contingent Debt
Instrument) and (ii) by its terms is payable
only in money. (For example, Distributing
Debt does not include an obligation that,
by its terms, can be satisfied with § 361
Consideration at Distributing’s option.)
.02 Ruling requests on similar or
related transactions.
The IRS will continue to rule on transactions that are not described in section
3.01 of this revenue procedure but are
similar to such transactions. These transactions include assumption or satisfaction
of Distributing’s obligations that are not
Distributing Debt (for example, contingent liabilities) and distributions of § 361
Consideration to Distributing’s shareholders. However, this revenue procedure does
not describe procedures for requesting
such rulings or the representations, information, or analysis that taxpayers requesting such rulings should submit. See generally Rev. Proc. 2025‑1 and Rev. Proc.
2017-52.
A taxpayer may request rulings regarding assumption or satisfaction of some
obligations that are, and of other obligations that are not, Distributing Debt. In
this situation, the taxpayer should follow
the procedures described in section 3.03 of
Unless otherwise specified, all “section” or “§” references are to sections of the of the Internal Revenue Code of 1986, as amended (Code) or the Income Tax Regulations (26 CFR part 1).
Bulletin No. 2025–42
489
October 14, 2025
this revenue procedure with respect to the
Distributing Debt and should follow the
procedures described in Rev. Proc. 2025-1
and Rev. Proc. 2017-52 with respect to the
other obligations. Additional representations, information, and analysis may be
required.
.03 Procedures.
In a request for rulings described in
section 3.01 of this revenue procedure,
the taxpayer should submit (in addition
to the representations, information, and
analysis described in Rev. Proc. 2025-1
and Rev. Proc. 2017-52) information that
describes (1) the Distributing Debt that
will be assumed or satisfied (including the
relevant terms of the Non-contingent Debt
Instruments that evidence the Distributing
Debt and the date or dates on which the
Distributing Debt was incurred), (2) the §
361 Consideration that will be distributed
to creditors in satisfaction of the Distributing Debt, and (3) the transactions that
will implement Controlled’s assumption
of liability for Distributing Debt or Distributing’s receipt of § 361 Consideration
and its distribution of § 361 Consideration
to creditors in satisfaction of Distributing
Debt.
The taxpayer should also submit
information and analysis to establish
that (1) any assumption of Distributing
Debt by Controlled will be consideration
received by Distributing in the Divisive
Reorganization, and (2) any distribution
of § 361 Consideration by Distributing to
its creditors in satisfaction of Distributing
Debt will be in connection with the plan of
reorganization.
If, at the time of the first distribution
of Controlled stock to Distributing shareholders, the assumption or satisfaction of
Distributing Debt is subject to any contingency, the taxpayer should (1) describe
each contingency and any alternative
transactions and (2) establish that there
are one or more substantial business reasons for the plan not being fixed and determined at that time. Documentation of such
business reasons should be submitted only
if requested.
In addition, the taxpayer should submit
the representations, information, and analysis set forth in section 3.04 of this revenue procedure.
.04 Representations, information, and
analysis.
October 14, 2025
The
representations,
information,
and analysis described in paragraphs (1)
through (8) of this section 3.04 should be
submitted. With respect to these representations, the taxpayer should not follow the
procedures in section 3.04 of Rev. Proc.
2017-52. Instead, the taxpayer should set
forth each applicable representation and
the additional information and analysis
described in this section 3.04. If the taxpayer believes that any of the representations is not applicable, the taxpayer should
explain its rationale for this belief.
If the taxpayer is unable to submit an
applicable representation in the form set
forth in this section 3.04 (Standard Representation), the taxpayer should submit (1)
an explanation for its inability to provide
the Standard Representation and (2) the
rationale supporting the issuance of each
relevant requested ruling in the absence of
the Standard Representation. If appropriate, the taxpayer should submit (1) a modified representation that addresses the same
matter, (2) an explanation of the modification, and (3) the rationale supporting the
issuance of each relevant requested ruling,
taking into account the modified Standard
Representation.
The representations in this section 3.04
use terms defined in this revenue procedure. The taxpayer should include in
its request either (1) definitions of these
terms that are consistent with the definitions in this revenue procedure or (2)
a statement to the effect that these terms
have the meanings set forth in this revenue
procedure.
(1) Distributing as obligor in substance.
Submit the following REPRESENTATION: Distributing is in substance the
obligor of each Distributing Debt that will
be assumed or satisfied. With respect to
any such Distributing Debt, the taxpayer
should submit information regarding
any co-obligation, guarantee, indemnity,
surety, make-well, keep-well, or similar
arrangement, including security provided
by any person other than Distributing. The
taxpayer also should submit information
and analysis to establish that, taking into
account any such arrangement, Distributing is in substance the obligor of such
Distributing Debt.
(2) Holder not a Related Person. Submit the following REPRESENTATION:
No holder of Distributing Debt that will
490
be assumed or satisfied is a person related
to Distributing or Controlled within the
meaning of § 267(b) or 707(b)(1) (Related
Person). If a holder is a Related Person,
the taxpayer should establish that the §
361 Consideration received by the Related
Person will be used to satisfy an obligation that is evidenced by a Non-contingent
Debt Instrument and is held by a person
other than a Related Person. The taxpayer
also should submit information and analysis to address any potential application
of the consolidated return regulations,
including § 1.1502‑13(g).
(3) Holder of Distributing Debt. Submit the following REPRESENTATION:
The holder of Distributing Debt that will
be assumed or satisfied will not hold the
debt for the benefit of Distributing, Controlled, or any Related Person. A collateral benefit received by Distributing from
an arrangement with an intermediary (for
example, facilitation of exchanges of §
361 Consideration for Distributing Debt)
will not be treated as the intermediary
holding Distributing Debt for the benefit
of Distributing, Controlled, or a Related
Person. If an intermediary will acquire
pre-existing Distributing Debt from any
person, and such Distributing Debt will be
satisfied with § 361 Consideration, submit
the following additional REPRESENTATIONS: [Name of intermediary] will not
acquire Distributing Debt from Distributing, Controlled, or any Related Person.
Neither Distributing, nor Controlled, nor
any Related Person will participate in any
profit gained by [name of intermediary]
upon an exchange of § 361 Consideration; nor will any such profit be limited
by agreement or other arrangement. The
value of the § 361 Consideration received
by [name of intermediary] in satisfaction
of the Distributing Debt will not exceed
the amount to which the holder is entitled
under the terms of the Distributing Debt.
The taxpayer should describe any co-obligation, guarantee, indemnity, surety,
make-well, keep-well, or similar arrangement, including additional security, provided to the intermediary by Distributing,
Controlled, or any Related Person for risk
of loss with respect to the Distributing
Debt.
(4) Distributing Debt as historic debt.
Submit the following REPRESENTATION: Distributing incurred the Distrib-
Bulletin No. 2025–42
uting Debt that will be assumed or satisfied (a) before the request for any relevant
ruling is submitted and (b) no later than
60 days before the earliest of the following dates: (i) the date of the first public
announcement (as defined in § 1.3557(h)(10)) of the Divisive Reorganization
or a similar transaction, (ii) the date of
the entry by Distributing into a binding
agreement to engage in the Divisive Reorganization or a similar transaction, and
(iii) the date of approval of the Divisive
Reorganization or a similar transaction
by the board of directors of Distributing.
A transaction is a similar transaction if it
would have effected a direct or indirect
separation of all, or a significant portion
of, the same assets as the Divisive Reorganization that is the subject of the taxpayer’s ruling request (cf. § 1.355-7(h)(12)
and (13) (describing the terms “similar
acquisition (not involving a public offering)” and “similar acquisition involving
a public offering,” respectively). If Distributing incurred or will incur any of the
Distributing Debt that will be assumed
or satisfied at a later time, the taxpayer
should establish that, based on all the facts
and circumstances, the borrowing and the
assumption or satisfaction of such Distributing Debt will result in an allocation of
historic Distributing Debt between Distributing and Controlled or an exchange of
historic Distributing Debt for Controlled
stock. As one example, the taxpayer may
establish that the proceeds of the more-recently incurred Distributing Debt were
used to satisfy other Distributing Debt
that was incurred no later than the time
described in the representation in this section 3.04(4) (cf. Rev. Rul. 79-258, 1979-2
C.B. 143 (in connection with a Divisive
Reorganization, Controlled’s assumption
of liability for debt newly issued by Distributing to replace historic debt incurred
in connection with the business to be
transferred to Controlled did not cause
§ 357(b) to apply to the assumption)). As
another example, the taxpayer may establish that the proceeds of the Distributing
Debt assumed or satisfied were or will be
used in Controlled’s business.
(5) Historic average. Submit the following REPRESENTATION: The total
adjusted issue price (determined under
§ 1.1275-1(b)) of Distributing Debt that
will be assumed or satisfied does not
Bulletin No. 2025–42
exceed the historic average of the total
adjusted issue price of (a) Distributing
Debt owed to persons other than Related
Persons and (b) obligations that are evidenced by Non-contingent Debt Instruments and are owed by other members of
Distributing’s separate affiliated group
(within the meaning of § 355(b)(3)(B)) to
persons other than Related Persons. The
historic average of total adjusted issue
price should be determined based on debt
outstanding as of the close of the eight fiscal quarters that ended or will end immediately before the date of approval of the
Divisive Reorganization by the board of
directors of Distributing.
(6) Delayed satisfaction of Distributing
Debt. If applicable, submit the following
REPRESENTATIONS: There are one or
more substantial business reasons for any
delay in satisfying Distributing Debt with
§ 361 Consideration beyond 30 days after
the date of the first distribution of Controlled stock to Distributing’s shareholders. All the Distributing Debt that will be
satisfied with § 361 Consideration will be
satisfied no later than 180 days after such
distribution. The taxpayer should submit
information and analysis to establish the
substantial business reasons for any delay
in satisfying Distributing Debt after the
30-day period beginning on the date of
the first distribution of Controlled stock to
Distributing’s shareholders. If satisfaction
of any Distributing Debt with § 361 Consideration will occur more than 180 days
after the date of such first distribution, the
taxpayer should submit information and
analysis to establish that, based on all the
facts and circumstances, the satisfaction
will be in connection with the plan of reorganization. Documentation of the matters
described in this section 3.04(6) should be
submitted only if requested.
(7) No replacement of Distributing
Debt. Submit the following REPRESENTATION: Distributing will not
replace any Distributing Debt that will
be assumed or satisfied with previously
committed borrowing, other than borrowing in the ordinary course of business
pursuant to a revolving credit agreement
or similar arrangement. The purpose of
this representation is to establish that the
application of § 361 to the proposed transactions is consistent with the purposes
of § 361. If Distributing is a prospective
491
borrower under a revolving credit agreement or similar arrangement, the taxpayer
should submit information and analysis to
establish that the agreement or arrangement was not entered into, and amounts of
borrowing provided for therein were not
increased, in a transaction related to the
Divisive Reorganization.
(8) General information and analysis. Submit information and analysis to
establish that, under general principles of
tax law, the transactions (including any
exchange facilitated by an intermediary)
should not be recast, recharacterized, or
otherwise treated as one or more transactions that would not qualify under the
relevant provisions of the Code.
SECTION 4. ADDITIONAL
APPLICATION AND PROCEDURES
.01 Ruling requests to which procedures apply.
The procedures described in section
4.02 of this revenue procedure apply to
a request for rulings for a Section 355
Transaction. For purposes of this section
4, any defined term has the meaning provided in section 2 of the Appendix to Rev.
Proc. 2017-52.
.02 Procedures.
In a request for rulings described in
section 4.01 of this revenue procedure,
the taxpayer should submit the documentation, factual information, legal analysis,
and representations set forth in Rev. Proc.
2025-1 and Rev. Proc. 2017-52. In addition, the taxpayer should submit the representations described in section 4.03 of this
revenue procedure.
.03 Representations, information, and
analysis.
The representations, information,
and analysis described in paragraphs (1)
through (6) of this section 4.03 should be
submitted. With respect to these representations, the taxpayer should follow the
procedures in section 3.04 of Rev. Proc.
2017-52.
(1) Control requirements. Submit the
following REPRESENTATIONS: In the
Distribution, Distributing will distribute
on the same day all the stock and securities of Controlled that it holds immediately before the Distribution. No indebtedness owed by Controlled to Distributing
after the Distribution will constitute stock
October 14, 2025
or securities of Controlled or any other
entity.
(2) Section 357(b). Submit the following REPRESENTATION: Any Liabilities assumed (within the meaning of §
357(d)) by Controlled were incurred in the
ordinary course of business and are associated with any assets transferred.
(3) Sections 357(c) and 361(b)(3).
Submit the following REPRESENTATION: The total adjusted basis and the
fair market value of assets transferred by
Distributing to Controlled will each equal
or exceed the sum of (a) the total amount
of the Liabilities assumed (within the
meaning of § 357(d)) by Controlled, and
(b) the total amount of any money and the
fair market value of other property, if any,
received by Distributing and transferred
to its shareholders and its creditors.
(4) Sections 361(b)(3) and (c)(3). Submit the following REPRESENTATION:
Any Other Property issued or transferred
by Controlled to Distributing in pursuance
of the plan of reorganization will be transferred by Distributing to its shareholders
in pursuance of the plan of reorganization
or to its creditors in connection with the
reorganization.
(5) Controlled securities. Submit the
following REPRESENTATION: Any
securities issued by Controlled to Distributing in pursuance of the plan of reorganization will be transferred by Distributing
to its shareholders in pursuance of the
plan of reorganization or to its creditors
in connection with the reorganization.
(6) Solvency of Distributing and Controlled. Submit the following REPRESENTATION: Immediately after the
transaction, the fair market value of the
assets of each of Distributing and Controlled will exceed the amount of its Liabilities.
SECTION 5. MODIFICATIONS TO
REVENUE PROCEDURE 2025-1
Rev. Proc. 2025-1 is modified as follows with respect to requests for private
letter rulings postmarked or, if not mailed,
received by the IRS after, September 29,
2025:
.01 Section 7.01(2)(a).
(1) First paragraph. Section 7.01(2)
(a) of Rev. Proc. 2025-1 is modified by
deleting the second sentence of the first
October 14, 2025
paragraph and adding the following in its
place:
But see section 3.02 of Rev. Proc. 201752, 2017-41 I.R.B. 283, and sections 3.03
and 4.02 of Rev. Proc. 2025-30, 2025-42
I.R.B. 489, for requirements relating to
ruling requests under § 355.
(2) Second paragraph. Section 7.01(2)
(a) of Rev. Proc. 2025-1 is further modified by deleting the second paragraph and
adding the following in its place:
If the request concerns a corporate
distribution, reorganization, or similar transaction, the corporate balance sheet and profit and loss statement also should be submitted. If
the request relates to a prospective
transaction, the most recent balance
sheet and profit and loss statement
should be submitted. See section 3.02
of Rev. Proc. 2017-52, and sections
3.03 and 4.02 of Rev. Proc. 2025-30,
for requirements relating to ruling
requests under § 355.
.02 Appendix F. Section .01 of Appendix F to Rev. Proc. 2025-1 is modified as
follows:
(1) In the column titled REVENUE
PROCEDURE AND NOTICE, in the text
corresponding to “Subchapter C—Corporate Distributions, Adjustments, Transfers,
and Reorganizations” found in the column
CODE OR REGULATION SECTION, by
deleting the text and adding the following
text in its place:
Rev. Proc. 77-37, 1977-2 C.B. 568, as
amplified by Rev. Proc. 77-41, 1977-2
C.B. 574, and Rev. Proc. 83-81, 1983-2
C.B. 598, and as modified by Rev.
Proc. 89-30, 1989-1 C.B. 895 (see also
Rev. Proc. 2025-3, this Bulletin), Rev.
Proc. 84-42, 1984-1 C.B. 521 (superseded, in part, as to no-rule areas by
Rev. Proc. 2018-3), Rev. Proc. 86-42,
1986-2 C.B. 722, Rev. Proc. 89-50,
1989-2 C.B. 631, Rev. Proc. 2017-52,
2017-41 I.R.B. 283, and Rev. Proc.
2025-30, 2025-42 I.R.B. 489.
(2) In the column titled REVENUE
PROCEDURE AND NOTICE, in the text
corresponding to “355 Checklist questionnaire” found in the column CODE OR
REGULATION SECTION, by deleting
492
the text and adding the following text in
its place:
Rev. Proc. 2017-52, 2017-41 I.R.B.
283, and Rev. Proc. 2025-30, 2025-42
I.R.B. 489.
SECTION 6. MISCELLANEOUS
Taxpayers and their advisers are
encouraged to contact the Office of
Associate Chief Counsel (Corporate)
with questions and comments regarding
these matters. Taxpayers seeking rulings
described in section 3.01 or 4.01 of this
revenue procedure are encouraged to
request pre-submission conferences. See
section 10.07 of Rev. Proc. 2025-1.
SECTION 7. EFFECT ON OTHER
DOCUMENTS
Notice 2024-38 is revoked. With
respect to requests for private letter rulings postmarked or, if not mailed, received
by the IRS after September 29, 2025, Rev.
Proc. 2025-1 and Rev. Proc. 2017-52
are modified, and Rev. Proc. 2024-24 is
superseded.
SECTION 8. EFFECTIVE DATE
This revenue procedure will apply to
all ruling requests postmarked or, if not
mailed, received by the IRS after September 29, 2025. If a ruling request described
in section 3.01 or 4.01 of this revenue
procedure is pending on such date, the
taxpayer may consider a supplemental submission with the representations,
information, and analysis described in
sections 3.04 and 4.03 of this revenue procedure (to the extent this material has not
been submitted).
SECTION 9. PAPERWORK
REDUCTION ACT
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501-3520) (PRA) generally
requires that a Federal agency obtain the
approval of the Office of Management and
Budget (OMB) before collecting information from the public, whether such
collection of information is mandatory,
voluntary, or required to obtain or retain
a benefit. An agency may not conduct or
Bulletin No. 2025–42
sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information displays a valid control number assigned by
OMB.
The collections of information in this
revenue procedure are in sections 3 and 4.
This information is required to determine
whether a taxpayer would qualify for
tax-free treatment to the extent allowed
under §§ 357 and 361. The collections of
information are required to obtain a benefit. The likely respondents are corpora-
Bulletin No. 2025–42
tions that control another corporation, as
well as the management of the corporation the stock of which is distributed or
that controls the corporation the stock of
which is being distributed. These collection requirements supplement the existing
collection requirement in Rev. Proc. 20251, which is included in the OMB Control
Number 1545-1522.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal
493
revenue tax law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
SECTION 10. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Grid Glyer of the Office of
Associate Chief Counsel (Corporate). For
further information regarding this revenue
procedure, please contact Mr. Glyer at
(202) 317-3181.
October 14, 2025
Part IV
Notice of Proposed
Rulemaking
Preparer Tax Identification
Number (PTIN) User Fee
Update
REG-108673-25
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: In the Rules and Regulations
section of this issue of the Federal Register, the Department of the Treasury (Treasury Department) and the IRS are issuing
interim final regulations that amend the
current regulations to reduce from $11 to
$10 the amount of the user fee imposed on
tax return preparers to apply for or renew a
preparer tax identification number (PTIN).
DATES: Electronic or written comments
and requests for a public hearing must be
received by October 30, 2025.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic submissions via the Federal eRulemaking Portal
at https://www.regulations.gov (indicate
IRS and REG-108673-25) by following
the online instructions for submitting
comments. Requests for a public hearing
must be submitted as prescribed in the
“Comments and Requests for a Public
Hearing” section. Once submitted to the
Federal eRulemaking Portal, comments
cannot be edited or withdrawn. The Treasury Department and the IRS will publish for public availability any comments
submitted to the IRS’s public docket.
Send paper submissions to: CC:PA:01:PR
(REG-108673-25), Room 5203, Internal
Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Jamie Song at (202) 317-
October 14, 2025
6845; concerning cost methodology, Maria
E. Arias-Buchanan at (202) 803-9569;
concerning submissions of comments or
requests for a public hearing, the Publications and Regulations Section at (202) 3176901 (not toll-free numbers) or by email at
publichearings@irs.gov (preferred).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
Interim final regulations in the Rules
and Regulations section of this issue of the
Federal Register amend regulations under
26 CFR part 300 setting a user fee for individuals who apply for or renew a PTIN.
The Independent Offices Appropriation
Act of 1952 (IOAA), which is codified at
31 U.S.C. 9701, authorizes agencies to prescribe regulations that establish user fees for
services provided by the agency. The IOAA
provides that regulations implementing user
fees are subject to policies prescribed by the
President; these policies are set forth in the
Office of Management and Budget Circular
A-25, 58 FR 38142 (July 15, 1993).
The text of the interim final regulations
also serves as the text of these proposed
regulations. The preamble to the interim
final regulations explains the interim final
regulations and these proposed regulations.
Special Analyses
I. Regulatory Planning and Review
These proposed regulations are not
subject to review under section 6(b) of
Executive Order 12866 pursuant to the
Memorandum of Agreement (July 4,
2025) between the Treasury Department
and the Office of Management and Budget
regarding review of tax regulations.
II. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), it is hereby certified that these proposed regulations will
not have a significant economic impact
on a substantial number of small entities.
These proposed regulations affect individuals who prepare or assist in preparing all
494
or substantially all of a tax return or claim
for refund for compensation. Only individuals, not businesses, can have a PTIN.
Thus, the economic impact of these regulations on any small entity generally will be
a result of an individual tax return preparer
who is required to have a PTIN owning a
small business or a small business otherwise employing an individual tax return
preparer who is required to have a PTIN.
The Treasury Department and the IRS estimate that approximately 915,437, 942,900,
and 971,187 individuals will apply annually for an initial or renewal PTIN in fiscal
years 2026, 2027, and 2028, respectively.
Although the interim final regulations will
likely affect a substantial number of small
entities, the economic impact on those
entities is not significant. The interim final
regulations will establish a $10 user fee per
application or renewal (plus $8.75 payable
directly to the contractor), which is a reduction from the previously established user
fee and will not have a significant economic
impact on a small entity. Accordingly, the
Secretary of the Treasury (or the Secretary’s
delegate) certifies that the rule will not have
a significant economic impact on a substantial number of small entities, and a regulatory flexibility analysis is not required.
III. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 (UMRA) requires that
agencies assess anticipated costs and benefits and take certain other actions before
issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or
Tribal government, in the aggregate, or by
the private sector, of $100 million in 1995
dollars, updated annually for inflation. This
rule does not include any Federal mandate
that may result in expenditures by State,
local, or Tribal governments, or by the private sector in excess of that threshold.
IV. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial, direct
compliance costs on State and local gov-
Bulletin No. 2025–42
ernments, and is not required by statute,
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Executive order. These proposed regulations do
not have federalism implications and do
not impose substantial direct compliance
costs on State and local governments or
preempt State law within the meaning of
the Executive order.
V. Submission to Small Business
Administration
Pursuant to section 7805(f) of the Internal Revenue Code, this notice of proposed
rulemaking has been submitted to the
Chief Counsel of the Office of Advocacy
of the Small Business Administration for
comment on its impact on small business.
Comments and Requests for a Public
Hearing
Consideration will be given to comments that are submitted timely to the
IRS as prescribed in this preamble under
the ADDRESSES heading. The Treasury
Department and the IRS request comments on all aspects of the proposed regulations. Any comments submitted will
be made available at https://www.regulations.gov or upon request.
A public hearing will be scheduled if
requested in writing by any person who
timely submits electronic or written comments. Requests for a public hearing are
also encouraged to be made electronically.
If a public hearing is scheduled, notice of
the date and time for the public hearing
will be published in the Federal Register.
Drafting Information
The principal author of these regulations is Jamie Song, Office of the Associate Chief Counsel (Procedure and
Administration). Other personnel from
the Treasury Department and the IRS participated in the development of the regulations.
List of Subjects in 26 CFR Part 300
Estate taxes, Excise taxes, Fees, Gift
taxes, Income taxes, Reporting and
recordkeeping requirements.
Bulletin No. 2025–42
Proposed Amendments to the
Regulations
Accordingly, the Treasury Department
and IRS propose to amend 26 CFR part
300 as follows:
PART 300—USER FEES
Paragraph 1. The authority citation
for part 300 continues to read as follows:
Authority: 31 U.S.C. 9701.
Par. 2. Section 300.11 is amended by
revising paragraphs (b) and (d) to read as
follows:
§300.11 Fee for obtaining a preparer
tax identification number.
*****
(b) [The text of proposed § 300.11(b) is
the same as the text of § 300.11(b) in the
interim final rule published elsewhere in
this issue of the Federal Register].
*****
(d) [The text of proposed § 300.11(d) is
the same as the text of § 300.11(d) in the
interim final rule published elsewhere in
this issue of the Federal Register].
Edward T. Killen,
Acting Chief Tax Compliance Officer.
(Filed by the Office of the Federal Register September
29, 2025, 8:45 a.m., and published in the issue of the
Federal Register for September 30, 2025, 90 FR 46777)
Notice of Proposed
Rulemaking
Occupations that
Customarily and Regularly
Received Tips; Definition of
Qualified Tips
REG-110032-25
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking and public hearing.
SUMMARY: This document contains
proposed regulations that identify occu-
495
pations that customarily and regularly
received tips on or before December 31,
2024, and provide a definition of “qualified tips” for purposes of the income tax
deduction for qualified tips. These proposed regulations affect individuals who
receive tips as part of their occupation.
DATES: Written or electronic comments
must be received by October 22, 2025. The
public hearing is being held on October
23, 2025, at 10 a.m. Eastern Time (ET).
Requests to speak and outlines of topics to
be discussed at the public hearing must be
received by October 22, 2025. If no outlines
are received by October 22, 2025, the public hearing will be cancelled. Requests to
attend the public hearing must be received
by 5 p.m. ET on October 21, 2025.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically via the Federal eRulemaking
Portal at https://www.regulations.gov (indicate IRS and REG-110032-25) by following the online instructions for submitting
comments. Requests for a public hearing
must be submitted as prescribed in the
“Comments and Public Hearing” section.
Once submitted to the Federal eRulemaking Portal, comments cannot be edited or
withdrawn. The Department of the Treasury (Treasury Department) and the IRS
will publish for public availability any comments submitted to the IRS’s public docket.
Send paper submissions to: CC:PA:01:PR
(REG-110032-25), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044.
FOR
FUTHER
INFORMATION
CONTACT: Concerning these proposed
regulations, Stephanie Caden or Andrew
Holubeck at (202) 317-4774; concerning
submission of comments or the public
hearing, please contact Publications and
Regulations Section at (202) 317-6901
(not toll-free numbers) or by email at publichearings@irs.gov (preferred).
SUPPLEMENTARY INFORMATION:
Authority
This notice of proposed rulemaking contains proposed amendments that
would add new regulations to the Income
October 14, 2025
Tax Regulations (26 CFR part 1) under
section 224 of the Internal Revenue Code
(Code) related to the deduction for qualified tips. The proposed regulations are
issued under the authority conferred by
section 70201(h) of Public Law 119-21,
139 Stat. 72 (July 4, 2025), commonly
known as the One, Big, Beautiful Bill Act
(OBBBA), which requires that, not later
than 90 days after the date of the enactment of the OBBBA, the Secretary of
the Treasury or the Secretary’s delegate
(Secretary) publish a list of occupations
that customarily and regularly received
tips on or before December 31, 2024, for
purposes of section 224(d)(1) of the Code.
The proposed regulations are also issued
under the authority in section 224(d)(2)
(C), which provides that “qualified tips”
do not include any amount received by an
individual unless such other requirements
as may be established by the Secretary in
regulations or other guidance are satisfied,
and section 224(g) of the Code, which
instructs the Secretary to prescribe such
regulations or other guidance as may be
necessary to prevent reclassification of
income as qualified tips, including regulations or other guidance to prevent abuse
of the deduction allowed by section 224.
In addition, the proposed regulations are
also issued under the authority of section
7805(a) of the Code, which authorizes the
Secretary to prescribe all needful rules
and regulations for the enforcement of
the Code, including all rules and regulations as may be necessary by reason of
any alteration of law in relation to internal
revenue.
Background
Under section 61(a), amounts received
by individuals as tips are included in gross
income and subject to income tax. Treasury regulations under section 61 provide
that “[w]ages, salaries...[and] tips... are
income to the recipients unless excluded
by law.” See § 1.61-2(a).1
Section 63(a) defines taxable income
as gross income minus allowable deduc-
tions (other than the standard deduction).
Section 63(b) provides that, in the case of
an individual who does not elect to itemize deductions for the taxable year, taxable income means adjusted gross income
reduced by the standard deduction and
certain other enumerated deductions.
Section 70201(a) of the OBBBA added
new section 224 to the Code providing an
income tax deduction for “qualified tips”
that are received during the taxable year
by individuals in an occupation that customarily and regularly received tips on
or before December 31, 2024. Section
70201(b) of the OBBBA added the deduction provided by section 224 to the list
of deductions used to determine taxable
income in section 63(b). Specifically, section 224(a) provides for a deduction in an
amount equal to the qualified tips received
by an individual in a taxable year that are
included on statements2 furnished to the
individual pursuant to section 6041(d)(3),
section 6041A(e)(3), section 6050W(f)
(2), or section 6051(a)(18), or are reported
by the taxpayer on Form 4137 (or successor). Section 224(b)(1) limits this deduction to an amount not to exceed $25,000
in a taxable year. Section 224(b)(2) further limits the amount of the deduction
based on a taxpayer’s modified adjusted
gross income, which is a taxpayer’s
adjusted gross income for the taxable year
increased by any amount excluded from
gross income under section 911, section
931, or section 933. The deduction phases
out for taxpayers with modified adjusted
gross income over $150,000 ($300,000
for joint filers).
Section 224(c) provides that, in the case
of qualified tips received by an individual
during any taxable year in the course of
a trade or business (other than the trade
or business of performing services as an
employee) of such individual, such qualified tips are taken into account under
section 224(a) only to the extent that the
gross income for the taxpayer from such
trade or business for such taxable year
(including such qualified tips) exceeds
the sum of the deductions allocable to the
trade or business in which such qualified
tips are received by the individual for such
taxable year.
Section 224(d)(1) defines “qualified
tips” as cash tips received by an individual in an occupation that customarily
and regularly received tips on or before
December 31, 2024, as provided by the
Secretary. Section 224(d)(2) further
requires that qualified tips not include any
amount received by an individual unless
the amount:
• Is paid voluntarily without any consequence in the event of nonpayment, is
not the subject of negotiation, and is
determined by the payor;
• Is not received in the course of a trade
or business that is a specified service
trade or business as defined in section
199A(d)(2) of the Code; and
• Satisfies such other requirements as
may be established by the Secretary
in regulations or other guidance.
Section 224(d)(2) further provides
that, for purposes of determining whether
amounts received in the course of a trade
or business is a specified trade or business
as defined in section 199A(d)(2), in the
case of an individual receiving tips in the
trade or business of performing services
as an employee, such individual is treated
as receiving tips in the course of a trade or
business which is a specified service trade
or business if the trade or business of the
employer is a specified service trade or
business.
Section 224(d)(3) provides that for purposes of section 224(d)(1), the term “cash
tips” includes tips received from customers that are paid in cash or charged and,
in the case of an employee, tips received
under any tip-sharing arrangement.
Section 224(e) provides that no deduction is allowed under section 224 unless
the taxpayer includes on the return of
tax for the taxable year such individual’s
Social Security number (SSN) as defined
in section 24(h)(7) of the Code.
Section 224(f) provides that if the taxpayer is a married individual (within the
meaning of section 7703), section 224
Under section 3121(q), tips are also considered wages for Federal Insurance Contributions Act (FICA) purposes. However, the deduction under section 224 does not apply for FICA purposes
and is not taken into account in determining wages subject to FICA tax. Similarly, the deduction under section 224 does not apply for Self-Employment Contributions Act (SECA) purposes
and is not taken into account for purposes of determining net earnings subject to SECA tax.
2
The House Budget Committee report on the OBBBA, H. Rept. 119-106, at 1503 (2025), specifies that the qualified tip amounts included on reporting statements (for example, Form 1099)
must be separately accounted for on the statements.
1
October 14, 2025
496
Bulletin No. 2025–42
applies only if the taxpayer and the taxpayer’s spouse file a joint return for the
taxable year. That is, the deduction is not
available for a taxpayer who is married
and files separately.
Section 224(h) provides that no deduction is allowed under section 224 for any
taxable year beginning after December 31,
2028.
Section 70201(h) of the OBBBA
instructs the Secretary to publish a list of
occupations that customarily and regularly received tips on or before December
31, 2024, for purposes of section 224(d)
(1) no later than 90 days after the date the
OBBBA was enacted (July 4, 2025).
The Council of Economic Advisors
(CEA) released a report in June 2025, entitled “The One Big Beautifull Bill: Legislation for Historic Prosperity and Deficit
Reduction,” that estimates the economic
effects and fiscal impacts of OBBBA. In
this report CEA estimates that the no tax
on tips provision of OBBBA will increase
average take-home pay for tipped workers
by $1,300 per year. CEA also estimates
that the provisions for no tax on overtime,
no tax on tips, and senior tax relief will
boost Gross Domestic Product by 0.3 to
0.4 percent while they are in effect and the
growth that they generate will yield $54 to
$73 billion in higher revenue to offset the
direct revenue losses attributable to these
provisions.
Explanation of Provisions
1. Qualified tips
Section 224(d)(1) defines “qualified
tips” as cash tips received by an individual in an occupation that customarily
and regularly received tips on or before
December 31, 2024, as provided by the
Secretary. Consistent with section 224(d),
the proposed regulations would define
“qualified tips” as amounts received as
cash tips by an individual in an occupation that customarily and regularly
received tips on or before December 31,
2024, subject to certain limitations. The
proposed regulations would define cash
tips as tips received from customers or, in
the case of an employee, through a mandatory or voluntary tip-sharing arrange3
ment, such as a tip pool, that are paid in
a cash medium of exchange, including
by cash, check, credit card, debit card,
gift card, tangible or intangible tokens
that are readily exchangeable for a fixed
amount in cash (such as casino chips), and
any other form of electronic settlement
or mobile payment application that is
denominated in cash. Cash tips would not
include items paid in any medium other
than cash or charge, such as event tickets,
meals, services, or other assets that are
not exchangeable for a fixed amount in
cash (such as most digital assets). For purposes of these proposed regulations, tips
would be amounts paid by customers for
services that are in excess of the amount
agreed to, required, charged, or otherwise
reasonably expected to have to be paid for
the services in an arm’s length transaction. These definitions are consistent with
IRS guidance defining tips for FICA and
income tax withholding purposes in §§
31.3121(a)(12)-1 and 31.3401(a)(16)-1,
as well as other IRS guidance concerning
tips in Notice 2023-13, 2023-9 I.R.B. 534,
and Rev. Rul. 2012-18, 2012-26 I.R.B.
1032.
A. Payments must be voluntary
Section 224(d)(2)(A) provides that
“qualified tips” must be paid voluntarily
without any consequence in the event of
nonpayment, must not be the subject of
negotiation, and must be determined by
the payor. In Revenue Ruling 2012-18, the
IRS applied similar factors in distinguishing tips from non-tip wages, specifically
service charges, for FICA and income tax
withholding purposes. Revenue Ruling
2012-18 provides that the absence of any
of the following factors creates a doubt
as to whether a payment is a tip and indicates that the payment may be a service
charge: (1) the payment must be made free
from compulsion, (2) the customer must
have the unrestricted right to determine
the amount, (3) the payment should not
be the subject of negotiation or dictated
by employer policy, and (4) generally,
the customer has the right to determine
who receives the payment. See also Ann.
2012-25, 2012-26 I.R.B. 1058; Rev. Rul.
59-252, 1059-2 C.B. 215. Example A in
Revenue Ruling 2012-18 concludes that
an 18% charge automatically added to a
bill for a large party is a service charge
and not a tip because it was dictated by
the employer and was not paid free from
compulsion. Consistent with both existing IRS guidance on tips and evolving
practices concerning service charges, the
proposed regulations would clarify that
service charges, automatic gratuities, and
other mandatory amounts automatically
added to a customer’s bill by the vendor
or establishment, are not qualified tips
for purposes of section 224(d) unless the
customer is expressly provided an option
to disregard or modify it without consequence.
B. Special rules regarding a specified
service trade or business
Section 224(d)(2)(B) provides that
qualified tips do not include those 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). Under section 199A(d)(2), an SSTB
is defined as any trade or business (A)
involving the performance of services in
the fields of health, law, accounting, actuarial science, performing arts, consulting,
athletics, financial services, brokerage services, or any trade or business where the
principal asset of such trade or business
is the reputation or skill of one or more
of its employees or owners, or (B) that
involves the performance of services that
consist of investing and investment management, trading, or dealing in securities
(as defined in section 475(c)(2)), partnership interests, or commodities (as defined
in section 475(e)(2)).3 Treasury regulations in § 1.199A-5(b)(2) further define
what it means to perform services in the
fields listed in section 199A(d)(2)(A). For
example, § 1.199A-5(b)(2)(vi) provides,
in part, that the meaning of services performed in the performing arts means “the
performance of services by individuals
who participate in the creation of performing arts, such as actors, singers, musicians, entertainers, directors, and similar
professionals performing services in their
capacity as such.” The regulations further
provide that, ‘[t]he performance of ser-
Section 199A(d)(2) cross references the qualified trade or business definition in section 1202(e)(3)(A), with certain modifications.
Bulletin No. 2025–42
497
October 14, 2025
vices in the field of performing arts does
not include the provision of services that
do not require skills unique to the creation
of performing arts, such as the maintenance and operation of equipment or facilities for use in the performing arts. . . . [or
the] provision of services by persons who
broadcast or otherwise disseminate video
or audio of performing arts to the public.”
The proposed regulations would provide
that an amount received by an individual
in the course of an SSTB (as defined in
section 199A(d)(2) and § 1.199A-5(b)) is
not a qualified tip. The Treasury Department and the IRS request comments on
the application of the existing rules under
§ 1.199A-5(b) to the SSTB definition in
section 224. Specifically, comments are
requested concerning whether the definitions in §1.199A-5(b) should be refined
for section 224 purposes.
Consistent with the flush language in
section 224(d)(2), the proposed regulations would also provide that tips received
by an employee performing services for
the employee’s employer in the course
of a specified service trade or business
operated by the employer are not qualified
tips. The proposed regulations would clarify that this rule applies without regard to
whether an owner of the trade or business
is able to claim a section 199A deduction. For example, this rule applies if the
employer is a corporation, even though
corporations are not eligible for the deduction under section 199A.
The proposed regulations would also
clarify that this rule applies even if the
employee receiving tips in the course of
working for an SSTB employer is working
in an occupation that customarily and regularly received tips on or before December
31, 2024, for purposes of section 224(d)
(1) and is listed in proposed § 1.224-1(f).
The proposed regulations would provide
examples illustrating this rule.
pliance Agreement (GITCA) program
agree to report tips to their employer at
or above the tip rate established by their
employer for their occupational category.
In exchange for the employees’ voluntary
agreement to report tips at this agreed
upon rate, the IRS provides tip examination protection to the employees for the
taxable years in which their agreements
were in effect. The proposed regulations
would clarify that “qualified tips” include
tips reported pursuant to an agreement
under the TRDA or GITCA program
provided that the participating employee
in the TRDA or GITCA program is otherwise eligible for the deduction under
section 224, and reports tips using the tip
rates established under their agreement.
Additionally, the proposed regulations
would clarify that an employee participating in the TRDA or GITCA program may
report additional qualified tips to the IRS
on the Form 4137.
C. Determining qualified tips for
employees who participate in voluntary
tip reporting programs with tip rates
2. Trade or business limitations
Employees who enter into a Tipped
Employee Participation Agreement as part
of the Tip Rate Determination Agreement
(TRDA) program or a Model Gaming
Employee Tip Reporting Agreement as
part of the Gaming Industry Tip Com-
October 14, 2025
D. Other requirements
Section 224(d)(2) provides that the
term “qualified tips” does not include
amounts received by an individual unless
such other requirements as may be established by the Secretary in regulations or
other guidance are satisfied. The proposed
regulations would provide that amounts
received for services the performance of
which is a felony or misdemeanor under
applicable law are not qualified tips. In
addition, the proposed regulations would
provide that amounts received for prostitution services and pornographic activity
are not qualified tips. Finally, to prevent
reclassification of income as qualified tips,
and to prevent abuse of the deduction, the
proposed regulations would also provide
that a payment is not a qualified tip if the
tip recipient has an ownership interest in
or is employed by the payor of the tip.
Section 224(c) imposes a limitation on
a taxpayer who receives tips in the course
of a trade or business (other than the trade
or business of performing services as an
employee). The proposed regulations
would restate the statutory limit, which is
the difference between the gross income
from the taxpayer’s trade or business for
498
the taxable year minus the sum of deductions (other than the deduction for qualified tips) for that trade or business for the
taxable year. The proposed regulations
would clarify that the deduction allowed
for qualified tips is not taken into account
for this purpose because it is not a deduction associated with a trade or business.
3. Social Security numbers and married
individuals
The proposed regulations would clarify that a taxpayer must include on the
tax return for the taxable year the SSN,
within the meaning of section 24(h)(7),
of the individual who has received the
tips. The proposed regulations would
also restate the statutory requirement
that a taxpayer who is married, within
the meaning of section 7703, must file a
joint return with the taxpayer’s spouse to
claim the deduction allowed by section
224. The proposed regulations would
further clarify that married taxpayers are
only required to include the SSN of the
taxpayer who has received the qualified
tips to claim the deduction, and that an
SSN is required of both taxpayers only
when both have qualified tips for which
they are claiming a deduction.
The proposed regulations would also
clarify that the total amount of qualified
tips that can be deducted on a return per
calendar year is $25,000 regardless of filing status. After applying the $25,000 limitation, the proposed regulations would
provide that the amount is subject to the
phase-out based on the taxpayers’ modified adjusted gross income described in
section 224(b)(2).
4. Occupations that customarily and
regularly received tips on or before
December 31, 2024
Under section 224(d)(1), “qualified
tips” are cash tips received by an individual in an occupation that customarily
and regularly received tips on or before
December 31, 2024, as provided by the
Secretary. In addition, section 70201(h)
of the OBBBA instructs the Secretary
to publish a list of occupations that customarily and regularly received tips on or
before December 31, 2024, for purposes
of section 224(d)(1).
Bulletin No. 2025–42
A. Methodology
The Treasury Department and the IRS
drafted the proposed list of occupations
that customarily and regularly received
tips based on a review of IRS data, legislative history, and survey data regarding
tipped occupations and the presence of
certain factors demonstrating that those
occupations customarily and regularly
received tips. Because the Code does not
define the phrase “customarily and regularly” regarding tips,4 the Treasury Department and the IRS looked to dictionary
definitions and other statutory provisions
for guidance. The Oxford English dictionary defines the term “customarily” as
“[i]n a way that follows customs or usual
practices; according to custom; usually;
habitually.”5 It defines “regularly” as “in
conformity to a general rule or established
principle; in a steady, predictable, or uniform manner; at fixed times or uniform
intervals; repeatedly, without interruption;
frequently, often.”6
The Fair Labor Standards Act (FLSA)
uses the phrase “customarily and regularly” in relation to the FLSA tip credit.7
The FLSA defines a “tipped employee”
for whom an employer may take a tip
credit as “any employee engaged in an
occupation in which he customarily and
regularly receives more than $30 a month
in tips.” 29 U.S.C. 203(t). The FLSA further provides that when an employer takes
an FLSA tip credit for a tipped employee,
the tipped employee must retain all of the
tips the employee receives, except that
this requirement “shall not be construed
to prohibit the pooling of tips among
employees who customarily and regularly receive tips.” 29 U.S.C. 203(m)(2)
(A).8 United States Department of Labor
(DOL) regulations provide, in part, that
“[t]he phrase ‘customarily and regularly’
signifies a frequency which must be
greater than occasional, but which may
be less than constant.” 29. CFR 531.57.9
DOL guidance also addresses specific
occupations in which employees customarily and regularly receive tips within the
meaning of the FLSA. For instance, DOL
guidance interpreting the FLSA states that
servers, counter personnel who serve customers, bellhops, bussers (that is, server
helpers), and service bartenders are examples of occupations that “customarily and
regularly receive tips” for purposes of
the FLSA.10 In guidance, and in opinion
letters based on specific factual scenarios
presented, DOL’s Wage and Hour Division
(WHD) has looked to the FLSA’s statutory text, its legislative history, and the
extent to which employees in the occupation interact with customers to determine
whether an employee customarily and
regularly receives tips for purposes of the
FLSA. Courts similarly have considered
whether an employee is in an occupation
that customarily and regularly receives
tips for purposes of the FLSA.11 Based on
these definitions and the guidance under
the FLSA, the Treasury Department and
the IRS determined that individuals must
have received cash tips more often than
occasionally (for example, not only on
annual holidays or other celebrations)
during a calendar year ending on or before
December 31, 2024, in order for the occupation to be an occupation that customarily and regularly received tips on or before
December 31, 2024.
With these parameters in mind,
the Treasury Department and the IRS
reviewed data collected from 2023 Forms
W-2, Wage and Tax Statement,12 and
Forms 4137, Social Security and Medicare Tax on Unreported Tip Income, and
corresponding income tax returns (Forms
1040) that reported tips in box 7 of Form
W-2 (Social Security tips) or on Line 4
of an attached Form 4137. The Treasury
Department and the IRS identified occupations listed on income tax returns (as
reported on page 2 of Form 1040 next
to the taxpayer’s signature) as having
customarily and regularly received tips,
based on the percentage of wage earners
who reported a given occupation in the tax
The Code does use the term “customarily” in section 6053(c)(3). Section 6053(c)(3) requires large food or beverage establishments to allocate tips among “employees performing services
during any payroll period who customarily receive tip income.” Section 6053(c)(4) defines the term “large food or beverage establishment” as a trade or business “with respect to which
the tipping of employees serving food or beverages by customers is customary.” Regulations under section 6053(c) provide further guidance concerning the term “customary.” Section
31.6053-3(j)(6) excludes “fast food” operation from the definition of “food or beverage operation.” Section 31.6053-3(j)(7) provides that, for purposes of defining “large food or beverage
establishments,” tipping would not be considered customary for a cafeteria style operation or for a food or beverage operation where at least 95% of its total sales are nonallocable receipts
(defined as carryout sales and sales with service charges). A “cafeteria style operation” is defined in § 31.6053-3(j)(18) as a food or beverage operation which is primarily self-service and
in which the total cost of food or beverages selected by a customer is paid prior to the customer’s being seated or is stated on a check provided to the customer prior to the customer’s being
seated and is paid by the customer to a cashier.
5
Oxford University Press. (n.d.). Customarily, adv. In Oxford English dictionary. Retrieved July 31, 2025, from https://doi.org/10.1093/OED/1071895970.
6
Oxford University Press. (n.d.). Regularly, adv., 1.a. In Oxford English dictionary. Retrieved July 31, 2025, from https://doi.org/10.1093/OED/1195323874.
7
Under the FLSA, employers take a tip credit of up to $5.12 per hour to bring an employee’s total earnings up to the Federal minimum wage amount. See 29 USC 203(m)(2)(A)(i)-(ii); see
also Fair Labor Standards Amendments of 1989, Pub. L. 101–157, § 5, 103 Stat. 938, 941 (1989) (requiring employers to pay directly at least “50 percent of the [$4.25 per hour] minimum
wage rate after March 31,1991”).
8
The FLSA’s tip credit has several components, including that an employee must be in an occupation in which the employee customarily and regularly receives at least a certain amount per
month in tips (more than $30), retains all tips (except for a pool limited to employees who customarily and regularly receive tips), receives other direct wages, and receives advance notice to
qualify as a “tipped employee” for whom an employer may take a tip credit against its minimum wage obligations. See 29 U.S.C. 203(m)(2)(A), (t).
9
The regulations also provide that “if an employee is in an occupation in which he normally and recurrently receives more than $30 a month in tips, he will be considered a tipped employee
even though occasionally because of sickness, vacation, seasonal fluctuations or the like, he fails to receive more than $30 in tips in a particular month.” 29 CFR 531.57.
10
See DOL Field Operation Handbook, §30d08. Retrieved August 19, 2025, from https://www.dol.gov/agencies/whd/field-operations-handbook; see also WHD Opinion Letter FLSA2009-12
(Jan. 15, 2009); WHD Opinion Letter FLSA2008-18 (Dec. 19, 2008); and WHD Opinion Letter FLSA-858 (June 28, 1985) (concluding that barbacks, itamae-sushi and teppanyaki chefs, and
a “wine-server/captain-host,” respectively, could be included in a tip pool with tipped employees for whom the employer took a tip credit)..
11
See, e.g., Wai Man Tom v. Hosp. Ventures LLC, 980 F.3d 1027, 1040 (4th Cir. 2020); Montano v. Montrose Rest. Assocs., Inc., 800 F.3d 186, 191 (5th Cir. 2015) (finding that “[t]he common
thread of the cases and the DOL opinion letters is to require a tipped employee to have more than a de minimis interaction with the customers who leave the undesignated tips” for purposes of
the FLSA tip credit.); Myers v. Copper Cellar Corp., 192 F.3d 546, 550-51 (6th Cir. 1999); Kilgore v. Outback Steakhouse of Fla., Inc., 160 F.3d 294, 301 (6th Cir. 1998) (noting that restaurant
hosts “sufficiently interact with customers in an industry where undesignated tips are common.”).
12
Section 224(d)(1) specifies that the occupation must have customarily and regularly received tips on or before December 31, 2024. The Treasury Department and the IRS reviewed data for
the 2023 tax year because that was the most recent year for which comprehensive income tax return data was available. The Treasury Department and the IRS compared the 2023 tax year
data to similar data for 2017-2022. Because 2023 data was similar to prior year data, the Treasury Department and the IRS have reviewed preliminary data for the 2024 tax year and anticipate
that final 2024 data will be substantially similar to 2023 data.
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October 14, 2025
return data and also reported at least $100
in annual tipped income.
The Treasury Department and the IRS
next determined that the data was subject
to limitations that resulted in under-inclusion because the data was limited to
the tax return data of individuals who
reported tips to employers and received a
Form W-2 or who filed Form 4137. Individuals working in certain occupations,
such as rideshare drivers, receive tips but
may operate as independent contractors
rather than employees, and therefore do
not receive a Form W-2 reporting tips, nor
do they separately report their tip income
for income tax purposes.13 Because tips
were not separately reported on Forms
1099-NEC, Nonemployee Compensation,
1099-MISC, Miscellaneous Information,
or 1099-K, Payment Card and Third Party
Network Transactions, certain occupations that received tips were not reflected
in the income tax return data. In addition, the Treasury Department and IRS
determined that the data may have been
overinclusive due to variations in how
taxpayers chose to write their occupation
on Form 1040. For example, the self-reported occupation may have typographical errors or abbreviations, or taxpayers
may have written multiple occupations on
their Form 1040, separated by a comma
or a slash mark (like “Occupation 1/Occupation 2”).14 These variations in how taxpayers reported their occupation on Form
1040 made it difficult for the data analysis to capture all taxpayers with a given
occupation (in the sense of what job they
actually performed, rather than what they
wrote on the Form 1040) together. This
was particularly problematic for certain
occupations that had more variations in
how they were reported (for example,
server, waitstaff, waitress, waiter).
To account for these limitations, the
Treasury Department and the IRS examined occupations identified in the GITCA
program, a voluntary tip reporting program for the gaming industry run by the
IRS, and other similar IRS tip reporting
programs as occupations that received tips
on or before December 31, 2024. See Rev.
Proc. 2007-32, 2007-22 I.R.B. 1322.15 The
IRS has been collecting tip data through
its GITCA program (and other voluntary
tip reporting programs) for over 20 years.
The GITCA program requires participating employers to provide annual reports to
the IRS that contain information regarding employees’ occupational categories,
shifts, and outlets; gross receipts subject
to food and beverage tipping; and aggregated receipts showing charged tips and
reported tips. The occupations identified as having customarily and regularly
received tips based on the GITCA data
were largely consistent with those identified by the confidential tax return data.
The Treasury Department and the IRS
also consulted the House Budget Committee report on the OBBBA, H. Rept.
119-106, at 1502 (2025), for additional
information regarding occupations that
traditionally and customarily received
tips on or before December 31, 2024. In
the explanation of the deduction for qualified tips under section 224, the report
describes occupations that traditionally
and customarily received tips on or before
December 31, 2024, as including, but not
limited to, restaurant servers, bartenders,
taxi drivers, rideshare drivers, food delivery drivers, hairdressers, hairstylists, hotel
bellhops, hotel housekeepers, and casino
dealers.16 To the extent those occupations
were not already captured by the IRS data,
they were added to the list.
Finally, the Treasury Department and
the IRS examined survey data from the
Panel Study of Income Dynamics that
included information on occupations and
tip income of both employees and self-employed individuals. The Panel Study of
Income Dynamics is a nationally represen-
tative survey conducted by the University
of Michigan. It includes questions about
the occupation of, and tip income received
by, the reference person and the person’s
spouse (if they are married). The Treasury
Department and the IRS consulted data
from surveys conducted in years 2017,
2019, and 2023 (surveys which inquired
about tips received in 2016, 2018, and
2022, respectively), which is the most
recent data available (except for 2021,
which was avoided due to any potential
abnormalities related to the COVID-19
pandemic). The occupations identified as
having customarily and regularly received
tips based on this survey data were largely
consistent with those identified by the
confidential tax return data.
While reviewing the data, the Treasury
Department and the IRS recognized that
the occupations identified as having customarily and regularly received tips on or
before December 31, 2024, were in service
industries, and the individuals working in
the occupations either interacted with the
customers for whom they were providing
a service or, commonly participated in
tip-sharing arrangements with individuals
who interacted with customers.
In defining “cash tips,” section 224(d)
(3) “includes tips received from customers
…, and, in the case of an employee, tips
received under any tip-sharing arrangement.” The Treasury Department and
the IRS considered the language in section 224(d)(3) to indicate that, for purposes of the deduction for qualified tips
under section 224, there is no distinction between employees in occupations
receiving tips directly from customers
and employees in occupations receiving
tips through tip-sharing arrangements
with other employees that interact with
customers. While certain employees in
tip-sharing arrangements may not have
extensive, or any, customer interaction,
they do assist employees who do interact
While tip income must be included in the total income that independent contractors report on their income tax returns, independent contractors did not separately report tips on their income
tax returns and payors did not separately report tips to payees on Forms 1099.
14
Taxpayers have a single line to report their occupation on the Form 1040. The 1040 instructions do not address how to report multiple occupations. Some taxpayers reported more than
one occupation. Additionally, some taxpayers with multiple jobs only reported one occupation. When analyzing the tax return data, it was sometimes difficult to determine which occupation
resulted in the receipt of tips. Therefore, the Treasury Department and the IRS limited the main analysis of the tax return data to taxpayers with only one job by limiting the data to taxpayers
who submitted one Form W-2 with their Form 1040, did not file a Schedule C or Schedule F, and reported no active income from a partnership or S corporation on Schedule E.
15
The GITCA program was established by Rev. Proc. 2003-35, 2003-20 I.R.B. 919, and was updated by Rev. Proc. 2007-32 with a new model GITCA. Revenue Procedure 2020-47, 2020-48
I.R.B. 1121 modified Rev. Proc. 2007-32 to provide that the term of a GITCA is generally five years.
16
Initial drafts of the OBBBA legislation contemplated a deduction for tips received by individuals in occupations that traditionally and customarily received tips, but this language was later
revised to refer to occupations that customarily and regularly received tips.
13
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Bulletin No. 2025–42
with customers or otherwise contribute to
the overall customer experience. For this
reason, the Treasury Department and the
IRS have proposed that certain occupations that may not involve direct interactions with customers should still be considered occupations that customarily and
regularly received tips if employees in
such occupations participated in tip-sharing arrangements such as tip pooling or
tip-outs with employees who do interact
with customers. For example, dishwashers
reported receiving sufficient tips to appear
in the IRS data and, even though they do
not typically interact with customers, they
may sometimes participate in tip-sharing arrangements with employees who
do interact with customers (for example,
waitstaff). Accordingly, dishwashers are
included in the proposed list of occupations that customarily and regularly
received tips for purposes of section 224.
The Treasury Department and the IRS
recognize that courts and DOL have interpreted the FLSA standard for customarily
and regularly somewhat differently, but
this interpretation is due to differences in
the specific language, purpose, and history of the FLSA tip credit and mandatory
tip-sharing arrangement provisions. For
instance, the FLSA provides that when an
employer takes a tip credit, the employer
may only require “the pooling of tips
among employees who customarily and
regularly receive tips.” 29 USC 203(m)
(2)(A). This presumes that the employee
has some level of interaction with customers to “customarily and regularly” receive
tips under the FLSA.17 In contrast, section
224(d)(3) specifically defines “cash tips”
to include both tips received from customers and, in the case of an employee, tips
received under any tip-sharing arrangement.
After compiling the list of occupations
that customarily and regularly received
tips, the Treasury Department and the IRS
compared the proposed list of occupations
that customarily and regularly received
tips for purposes of section 224 to occupations contained in the 2018 Standard
Occupation Classification (SOC) code.
The SOC Code system is published by the
Executive Office of the President, Office
of Management and Budget (OMB). The
SOC Code system is a Federal statistical
standard used by Federal agencies to classify workers into occupational categories
for the purpose of collecting, calculating,
or disseminating data.18 The SOC Code
system classifies paid work or work for
profit into occupational categories based
on the work performed. All workers are
classified into one of 867 detailed occupations according to their occupational
definition.19 To facilitate classification,
detailed occupations are combined to form
459 broad occupations, 98 minor groups,
and 23 major groups.20 Detailed occupations in the SOC with similar job duties,
and in some cases skills, education, and/or
training, are grouped together. The Treasury Department and the IRS focused on
the detailed occupations in the SOC Code
system. However, in the process of compiling this list, the Treasury Department
and the IRS determined that several of the
detailed SOC codes included, in the same
detailed SOC code, some occupations that
customarily and regularly received tips on
or before December 31, 2024, and other
occupations that did not.21
To address the issue of the over-inclusivity of certain SOC codes, the Treasury
Department and the IRS created a new
categorization system. The descriptions
and illustrative examples for the occupation codes in this new system often mirror
their SOC code counterparts. However, in
situations where the SOC code was overly
inclusive, the new system provides an
occupation code, description, and illustrative examples that only encompass occupations that customarily and regularly
received tips on or before December 31,
2024.
In addition, in certain situations where
multiple detailed SOC codes described
occupations that had similar titles, the
new system provides an occupation code,
description, and illustrative examples that
stem from multiple detailed SOC codes.
For example, detailed SOC codes for a
variety of chefs and cooks were aggregated in the new system into a single
occupation code.
Lastly, in certain situations, some
detailed SOC codes were split into multiple occupation codes under the new system. For example, chauffeurs were moved
from the SOC occupation “Shuttle Drivers and Chauffeurs” to the “Taxi Driver”
occupation, thus creating under the new
system two occupations: “Taxi and Rideshare Drivers and Chauffeurs” and “Shuttle Drivers.”
B. List of occupations that customarily
and regularly received tips on or before
December 31, 2024.
The proposed regulations would
include the list of occupations that customarily and regularly received tips on or
before December 31, 2024 (List of Occupations that Receive Tips), that was compiled based on the methodology described
in this preamble. In accordance with statutory language in section 224(d)(1), the
proposed regulations would provide that
only occupations included in the List of
Occupations that Receive Tips are eligible
for the deduction in section 224(a).
This List of Occupations that Receive
Tips would be organized according to the
new categorization system created by the
Treasury Department and the IRS specifically for this purpose, as described in this
preamble. The specific occupations in the
List of Occupations that Receive Tips,
each assigned a three-digit code called a
See Montano v. Montrose Rest. Assocs., Inc., 800 F.3d 186, 189 (5th Cir. 2015) (noting that “[i]t would be circular” to interpret the FLSA to mean that if an employer requires a tipped
employee to give another employee tips, that employee customarily and regularly receives tips for purposes of 29 USC 203(m)(2)(A)’s tip pooling limitation).
18
Office of Management and Budget. (2018). Standard Occupational Classification Manual. U.S. Government Publishing Office. This manual and other related SOC documents can be found
at https://www.bls.gov/soc.
19
Id.
20
Id.
21
For instance, the SOC Code for “Animal Caretakers,” is described in the 2018 SOC Code System as an occupation in which individuals “provide care to promote and maintain the well-being
of pets and other animals that are not raised for consumption.” More specific occupations that would fall under this description include both pet caretakers and zookeepers. Pet caretakers customarily and regularly receive tips. Zookeepers, on the other hand, do not. Thus, if the “Animal Caretakers” SOC code were included in the list of occupations that customarily and regularly
receive tips, then zookeepers would become part of the list via their corresponding SOC code, even though they do not customarily and regularly receive tips.
17
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October 14, 2025
“Treasury Tipped Occupation Code” or
“TTOC” would be grouped together in
the following more general occupational
categories:
100s – Beverage and Food Service
200s – Entertainment and Events
300s – Hospitality and Guest Services
400s – Home Services
500s – Personal Services
600s – Personal Appearance and Wellness
700s – Recreation and Instruction
800s – Transportation and Delivery
The List of Occupations that Receive
Tips also provides the “TTOC Occupation Title” for each occupation code, a
short description of the types of services
performed by individuals working in an
occupation included in this occupation
code, illustrative examples of specific
occupations that would be included under
the occupation code, and the related SOC
System Code(s).
Proposed Applicability Dates
These regulations are proposed to
apply for taxable years beginning after
December 31, 2024. Taxpayers may rely
on these proposed regulations for taxable
years beginning after December 31, 2024,
and on or before the date these regulations
are published as final regulations in the
Federal Register, provided that taxpayers
follow these proposed regulations in their
entirety and in a consistent manner.
Special Analyses
I. Regulatory Planning and Review—
Economic Analysis
Executive Orders 12866 and 13563
direct agencies to assess costs and benefits of available regulatory alternatives
and, if regulation is necessary, to select
regulatory approaches that maximize net
benefits (including potential economic,
environmental, public health and safety
effects, distributive impacts, and equity).
Executive Order 13563 emphasizes the
importance of quantifying both costs and
benefits, reducing costs, harmonizing
rules, and promoting flexibility.
22
The proposed regulations have been
designated by the OMB’s Office of Information and Regulatory Affairs (OIRA)
as subject to review under Executive
Order 12866 pursuant to the Memorandum of Agreement (MOA, July 4, 2025)
between the Treasury Department and the
Office of Management and Budget regarding review of tax regulations. OIRA has
determined that the proposed rulemaking
is economically significant under section
3(f)(1) of Executive Order 12866 and
subject to review under Executive Order
12866 and section 1(c) of the Memorandum of Agreement. Accordingly, the proposed regulations have been reviewed by
OMB.
Need for Regulation
Section 70201 of Public Law 119-21,
139 Stat. 72 (July 4, 2025), commonly
known as the One, Big, Beautiful Bill Act
(OBBBA), adds new section 224 to the
Internal Revenue Code,22 which provides
an income tax deduction for “qualified
tips” that are reported on Internal Revenue Service (IRS) returns and various
forms. The statute requires, under section
70201(h) of the OBBBA, that not later
than 90 days after the date of enactment of
OBBBA, the Secretary of the Treasury or
the Secretary’s delegate (Secretary) publish a list of occupations that customarily
and regularly received tips on or before
December 31, 2024, for purposes of defining the term “qualified tips” under section
224(d)(1).
The proposed regulations clarify the
definition of “qualified tips” for purposes
of the income tax deduction under section
224. As required by section 70201(h) of
the OBBBA, the proposed regulations
also provide the list of occupations that
customarily and regularly received tips
on or before December 31, 2024 (List of
Occupations that Receive Tips). The purpose of these proposed regulations is to
provide guidance on requirements of section 224 to claim the deduction, including
the definition of “cash tips;” determinations of whether the tips received were in
the course of a trade or business which is
a specified service trade or business; the
requirement for the taxpayer to include
on the tax return for the taxable year
such individual’s Social Security number
(SSN); and the requirement that if the taxpayer is married (within the meaning of
section 7703), section 224 applies only
if the taxpayer and the taxpayer’s spouse
file a joint return for the taxable year. The
proposed regulations also clarify that the
deduction is limited to $25,000, regardless of the taxpayer’s filing status, and that
the deduction is reduced based on the taxpayer’s modified adjusted gross income
for that taxable year after applying the
$25,000 limitation.
I. The Statute and Proposed Regulations
For taxable years beginning after
December 31, 2024, and before January
1, 2029, employees and self-employed
individuals may deduct qualified tips
from their gross income when calculating
their Federal income tax liability. Section
224(d)(1) defines the term “qualified tips”
to mean cash tips received by an individual in an occupation that customarily
and regularly received tips on or before
December 31, 2024, as provided by the
Secretary.
Section 224(d)(3) defines the term
“cash tips” for the purposes of section
224(d)(1) to include tips received from
customers that are paid in cash or charged
and, in the case of an employee, tips
received under any tip-sharing arrangement. The proposed regulations clarify
that “cash tips” are amounts received from
customers or, in the case of an employee,
through a mandatory or voluntary tip-sharing arrangement that are paid in a cash
medium of exchange, including by check,
credit card, debit card, gift card, tangible or intangible tokens that are readily
exchangeable for a fixed amount in cash
(such as casino chips), and any other form
of electronic settlement or mobile payment application that is denominated in
cash. Cash tips do not include items paid
in any medium other than cash or charge,
such as event tickets, meals, services, or
other assets that are not exchangeable for
a fixed amount in cash (such as most digital assets).
Section 224(a) allows qualified tips to
be deducted if they are included on Form
References to a “section” are to a section of the Internal Revenue Code of 1986, as amended (Code), unless otherwise indicated.
October 14, 2025
502
Bulletin No. 2025–42
W-2, “Wage and Tax Statement;” Form
1099-NEC, “Nonemployee Compensation;” Form 1099-K, “Payment Card
and Third Party Network Transactions;”
Form 1099-MISC, “Miscellaneous Information;” or Form 4137, “Social Security
and Medicare Tax on Unreported Tip
Income.” Employees that enter a Tipped
Employee Participation Agreement as
part of the IRS Tip Rate Determination
Agreement (TRDA) program or a Model
Gaming Employee Tip Reporting Agreement as part of the IRS Gaming Industry
Tip Compliance Agreement (GITCA)
program report their tips according to tip
rates established under their agreement
(and these tips are included on Form W-2).
The proposed regulations would clarify
that the term “qualified tips” for employees participating in the TRDA or GITCA
program includes tips reported using the
tip rates established under their agreement
and additional tips reported on Form 4137.
The proposed regulations clarify that
the section 224(d)(2)(A) term “qualified
tips” only includes amounts that are paid
voluntarily without any consequence in
the event of nonpayment, are not the subject of negotiation, and are determined
by the payor. The proposed regulations
clarify that the section 224(d)(2)(B) term
“qualified tips” excludes tips received by
an individual who is self-employed in a
specified service trade or business (SSTB)
as defined in section 199A(d)(2) or by
an employee performing services for the
employee’s employer in the course of
an SSTB operated by the employer. The
proposed regulations also clarify that the
term “qualified tips” does not include
tips that were received while performing
a service that is a felony or misdemeanor
under applicable law. (However, “qualified tips” may include tips received for a
service that is legal but while working for
an establishment that violates applicable
law in other respects.) In addition, the proposed regulations provide that amounts
received for prostitution services and
pornographic activity are not included in
the definition of “qualified tips.” The proposed regulations also clarify that a payment is not considered a “qualified tip” if
the tip recipient has an ownership interest
in or is employed by the payor of the tip.
Section 224(c) limits the deduction for
qualified tips received by a self-employed
Bulletin No. 2025–42
individual to the gross income (including
the qualified tips) from the individual’s
trade or business minus the sum of the
individual’s deductions (other than the
deduction for qualified tips) that are allocable to that trade or business. The proposed regulations clarify that the deduction for qualified tips is not included when
calculating this limit because it is not a
trade or business deduction.
The proposed regulations clarify the
requirement in section 224(e) that taxpayers must include their SSN (as defined
in section 24(h)(7)) on their tax return
to claim the deduction for qualified tips.
Taxpayers with an Individual Taxpayer
Identification Number (ITIN) rather than
an SSN will not be able to use their tips
to claim the deduction under section 224.
Married taxpayers must include the SSN
of the taxpayer who earned the qualified
tips that are being used to claim the deduction; if both spouses earned qualified tips
for the deduction, then they must include
the SSNs of both spouses on their tax
return. The proposed regulations clarify
section 224(f), which requires married
individuals (within the meaning of section
7703) to file a joint tax return for the taxable year to claim the deduction for qualified tips.
Section 224(b)(1) limits the deduction
for qualified tips for any taxable year to
$25,000. The proposed regulations clarify that this limitation applies regardless
of the taxpayer’s filing status for that taxable year. Under section 224(b)(2)(A), the
deduction for qualified tips is reduced (but
not below zero) by $100 for each $1,000
by which the taxpayer’s modified adjusted
gross income (MAGI) exceeds $150,000
($300,000 in the case of a joint return).
Section 224(b)(2)(B) defines “modified
adjusted gross income” for the purposes
of this phaseout as adjusted gross income
of the taxpayer for the taxable year plus
any amount excluded from gross income
under section 911, section 931, or section
933. The proposed regulations clarify that
the phaseout based on MAGI is applied
after applying the $25,000 limit to the
deduction.
The proposed regulations implement
the statutory requirement from section
70201(h) of the OBBBA that the Secretary publish a list of occupations that customarily and regularly received tips on
503
or before December 31, 2024. For each
occupation, the list provides a numeric
Treasury Tipped Occupation Code
(TTOC), an occupation title, a description of the types of services performed
by individuals working in the occupation, illustrative examples of specific
occupations that would be included, and
the Standard Occupation Classification
(SOC) system code(s) that are related to
the occupation.
II. Baseline
The Treasury Department and the IRS
have assessed the benefits and costs of the
proposed regulations relative to a no-action baseline reflecting anticipated Federal income tax-related behavior in the
absence of these proposed regulations.
III. Affected Entities and Taxpayers
By providing clarity to the statutory
definition of “qualified tips” and publishing the statutorily required list of occupations that customarily and regularly
received tips on or before December 31,
2024, the proposed regulations affect
taxpayers who wish to claim the deduction for qualified tips on their individual
income tax returns beginning in taxable
year 2025. Using confidential tax return
data, the Treasury Department and the
IRS estimate that, in 2026, more than 10
million returns will have tips reported on
Form W-2, Form 1099-NEC, Form 1099K, Form 1099-MISC, or Form 4137.
IV. Economic Effects of the Proposed
Regulations
The Treasury Department and the IRS
analyzed the economic effects of the proposed regulations in enumerating the list
of occupations that customarily and regularly received tips on or before December
31, 2024, the clarification that “qualified
tips” excludes tips received while performing services that are misdemeanors or felonies under applicable law, and
the clarification that “qualified tips” for
employees under tip agreements through
the TRDA or GITCA programs include
tips reported using the tip rates established
under their agreement and additional tips
reported on Form 4137. The projected
October 14, 2025
economic costs and benefits of these proposed regulations are small.
i. List of Occupations that Receive Tips
The proposed regulations enumerate
the List of Occupations that Receive Tips,
as described in section 70201(h) of the
OBBBA. Providing this list will provide
clarity for taxpayers who are expected to
receive qualified tips. While these clarifications will reduce uncertainty, the Treasury Department and the IRS project that
the magnitude of the efficiency gains from
publishing these proposed regulations
would be small.
a. Methodology
To create the List of Occupations that
Receive Tips, the Treasury Department
and the IRS examined confidential income
tax return data from tax year 2023; data
from the GITCA and related programs;
the House Budget Committee report
on the OBBBA, H. Rept. No. 119-106,
at 1502 (2025); guidance and caselaw
related to the U.S. Department of Labor
(DOL) Fair Labor Standards Act (FLSA);
and survey data from the Panel Study of
Income Dynamics (PSID) for years 2017,
2019, and 2023 (which asks about the
occupation of and tip income received
by individuals in 2016, 2018, and 2022,
respectively). Based on prior guidance
under the FLSA, the Treasury Department
and the IRS determined that individuals
must have received cash tips more often
than occasionally (for example, not only
on annual holidays or other celebrations)
during a calendar year ending on or before
December 31, 2024, in order for their
occupation to be considered as having
customarily and regularly received tips on
or before December 31, 2024.
While reviewing the data, the Treasury Department and the IRS recognized
that the occupations identified as having
customarily and regularly received tips
on or before December 31, 2024, were in
the service industry, and the individuals
working in the occupations either interacted with the customers for whom they
were providing a service or commonly
participated in tip-sharing arrangements
with individuals who interacted with customers.
The inclusion of occupations that may
not interact with customers but received
tips from tip-sharing arrangements with
individuals who interacted with customers departs from the interpretation of the
term “customarily and regularly received
tips” that courts and the DOL have used
regarding the FLSA.23 The prior guidance and court cases related to the FLSA
require that the employee has some level
of interaction with customers in order to
be considered an occupation that customarily and regularly receives tips.24
However, this is due to differences in the
specific language, purpose, and history
of the FLSA tip credit and mandatory
tip-sharing arrangement provisions. For
instance, the FLSA provides that when an
employer takes a tip credit, the employer
may require “the pooling of tips” only
among employees who customarily and
regularly receive tips, 29 USC 203(m)(2)
(A); this presumes that, under the FLSA,
an employee is not customarily and regularly tipped merely by virtue of receiving tips from a pool. In contrast, section
224(d)(3) defines “cash tips” to include
both tips receive from customers and, in
the case of an employee, tips received
under any tip-sharing arrangement. As a
result, occupations in which employees
are commonly included in tip-sharing
arrangements would be considered as having “customarily and regularly” received
tips for purposes of the deduction for qualified tips under section 224.
After identifying the occupations that
customarily and regularly received tips on
or before December 31, 2024, the Treasury
Department and the IRS created a categorization system to organize and define the
occupations for purposes of the deduction
for qualified tips. Each occupation was
assigned a TTOC code, an occupation
title, a short description of the types of
services performed by individuals working in the occupation, illustrative examples of specific occupations that would be
included under the occupation code, and
the related SOC System code(s).
b. Alternative Methods Considered
In addition to the method described
above, the Treasury Department and the
IRS considered two alternative methods for creating the List of Occupations
that Receive Tips. These alternative
methods were 1) using the SOC Code
System to define occupations and 2)
using only the confidential income tax
return data to identify occupations that
reported tips. These alternative methods both excluded some occupations
that customarily and regularly received
tips on or before December 31, 2024,
and also included some occupations that
did not in reality customarily and regularly receive tips on or before December 31, 2024. Therefore, the approach
to produce the List of Occupations that
Receive Tips included in these proposed
regulations was selected over the alternatives described below.
One of the alternative methods that
the Treasury Department and the IRS
considered to construct the List of Occupations that Receive Tips was to use the
occupation definitions from the SOC system.25 However, the Treasury Department
and the IRS determined that several of
the detailed SOC occupations were not
sufficiently detailed to separate occupations that should be included on the List
of Occupations that Receive Tips, from
those that should not. For example, the
SOC code for “Animal Caretakers” is
described in the 2018 SOC Code system
as an occupation in which individuals
“provide care to promote and maintain
the well-being of pets and other animals
that are not raised for consumption.” The
specific occupations that are provided as
illustrative examples for this SOC code
include both pet caretakers and zookeepers. Pet caretakers provide a service to
See supra, Explanation of Provisions, Sec. 4.A.
See Montano v. Montrose Rest. Assocs., Inc., 800 F.3d 186, 189 (5th Cir. 2015) (noting that “[i]t would be circular” to interpret the FLSA to mean that if an employer requires a tipped
employee to give a second employee tips, that second employee customarily and regularly receives tips for purposes of 29 USC 203(m)(2)(A)’s tip pooling limitation).
25
The SOC Code system is published by the Executive Office of the President, Office of Management and Budget. The SOC Code system is a Federal statistical standard used by Federal agencies to classify workers into occupational categories for the purposes of collecting, calculating, or disseminating data. See Office of Management and Budget. (2018). Standard Occupational
Classification Manual. U.S. Government Publishing Office. This manual and other related SOC documents can be found at https://www.bls.gov/soc.
23
24
October 14, 2025
504
Bulletin No. 2025–42
individual customers, personally interact
with customers, and commonly receive
tips on a frequent basis. Therefore, they
would be considered an occupation that
customarily and regularly receives tips.
Zookeepers, on the other hand, provide
a service to animals but not directly to
customers. Many, if not most, zookeepers
do not interact with zoo customers, and
zookeepers do not receive tips on a frequent basis. Zookeeper is therefore not an
occupation that customarily and regularly
received tips. Thus, if the “Animal Caretakers” SOC Code were included in the
list of occupations that customarily and
regularly received tips, then zookeepers
would become part of the list via their corresponding SOC Code, even though they
did not customarily and regularly receive
tips. Thus, using the SOC system alone
was not sufficient for creating the List of
Occupations that Receive Tips.
For the method that was selected
instead of using the SOC System, the
Treasury Department and the IRS created a new categorization system. The
descriptions and illustrative examples for
the occupation codes in this new system
often mirror their SOC code counterparts,
and it includes the SOC code(s) that are
related to each TTOC occupation. Of the
867 detailed SOC codes in the 2018 SOC
Code System, 77 of these codes are related
to at least one TTOC occupation.
A second alternative method that the
Treasury Department and the IRS considered was to use only confidential income
tax return data to identify occupations that
customarily and regularly received tips on
or before December 31, 2024. This data
includes reported tips from Form W-2 and
Form 4137 and the occupation that the
taxpayer (the primary filer and, if married
filing jointly, the spouse) self-reports next
to the taxpayer’s signature on Form 1040.
Individuals in some occupations, such as
rideshare drivers, often operate as independent contractors rather than employees
and do not receive Form W-2 or file Form
4137 related to their rideshare activity.
Thus, using only the income tax return
data would have omitted these occupations, even though individuals in such
occupations did in fact regularly and customarily receive tips on or before December 31, 2024. In addition, the analysis
of the income tax return data may have
incomplete information on certain occupations due to variations in how taxpayers
choose to self-report their occupation on
Form 1040. For example, the self-reported
occupation may have typographical errors
or abbreviations, or taxpayers may write
multiple occupations separated by a
comma or a slash mark, like “Occupation
1/Occupation 2.”26 These variations in
how taxpayers reported their occupation
on Form 1040 made it difficult for the data
analysis to capture all taxpayers with a
given occupation (in the sense of what job
they actually performed, rather than what
they wrote on the Form 1040) together.
This was particularly problematic for certain occupations that have more variations
in how they were reported.
Due to these limitations, the Treasury Department and the IRS rejected
the method of only using the tax return
data to create the List of Occupations
that Receive Tips. Instead, the tax return
data was supplemented with data from the
GITCA and related programs; the House
Budget Committee report on the OBBBA,
H. Rept. No. 119-106, at 1502 (2025);
guidance and caselaw related to the DOL
FLSA; and survey data from the PSID.
c. Statistics on Reported Tip Income in
Tax Return Data
Table A below contains the List of
Occupations that Receive Tips and statistics on their reported tip income. The table
is organized by Treasury Tipped Occupation Code (TTOC) and contains the TTOC
Occupation Title and the Related Standard
Occupation Classification (SOC) System
Code(s). (As previously described, the
List of Occupations that Receive Tips in
Table 1 of the proposed regulations also
includes descriptions and illustrative
examples of each TTOC occupation.)
Table A summarizes taxpayer information
from Tax Year 2023 on employees who
have a single job, meaning they received
only one Form W-2; did not file Schedule
C, “Profit or Loss from Business (Sole
Proprietorship),” or Schedule F, “Profit
or Loss From Farming;” and did not have
non-passive income from a partnership or
an S-corporation on Schedule E, “Supplemental Income and Loss (From rental real
estate, royalties, partnerships, S corporations, estates, trusts, Real Estate Mortgage
Investment Conduits, etc.).”27
Table A shows the percentage of individuals within the Related SOC code(s)
who have at least $100 of tips reported
on Form W-2 or Form 4137. For example, 82.8 percent of individuals who had
the SOC code related to the TTOC Occupation Title of “Bartenders” had at least
$100 of tips reported on Form W-2 or
Form 4137.
Table A also shows the amount of
reported tips of individuals in the Related
SOC code(s) as a percentage of all
reported tips. The numerator of the percentage is the amount of reported tips of
individuals in the Related SOC code(s)
who had any tips reported on Form W-2
or Form 4137. The denominator is the
amount of reported tips of all individuals,
regardless of whether their occupation
could be mapped to a SOC code or if their
SOC code is related to a TTOC. For example, 34.2 percent of all reported tips are
from individuals who had the SOC code
related to the TTOC Occupation Title of
“Wait Staff.”
Lastly, Table A shows reported tips as
a percent of wage compensation for individuals in Related SOC code(s) who had
reported tips. Wage compensation is the
sum of wages, tips, and other compensation reported in Box 1 of Form W-2 and
unreported tips from line 4 of Form 4137.
For example, among individuals with
SOC Codes related to the TTOC Occupation Title of “Gambling Dealers” who had
reported tips on Form W-2 or Form 4137,
reported tips were 70.7 percent of wage
compensation.
Taxpayers have a single line to report their occupation on the Form 1040. If they have multiple occupations, they may write the occupation for only one of their jobs or they may write
multiple occupations. However, when analyzing the tax return data, it would be difficult to determine to which job any reported tips should be assigned when a taxpayer has multiple jobs.
Therefore, the Treasury Department and the IRS limited the main analysis of the tax return data to taxpayers with only one job. However, even among this sample, some taxpayers may write
both the occupation from their job and a title for a role where they may not receive income, such as “Student/Occupation.”
27
Since tips are reported separately from other compensation for employees but not for self-employed individuals in the current tax return data, these screening criteria that limit the sample
to employees with a single job were utilized to better illuminate the link between the self-reported occupations and reported tips.
26
Bulletin No. 2025–42
505
October 14, 2025
Table A: Reported Tips of Single-Job Holders, Tax Year 2023
Reported Tips Related Standard
Treasury
Percent
Percent with
as Percent
Occupational
Tipped
of All
TTOC Occupation Title
Reported
of Wages
Classification
Occupation
Reported
Tips1
of Tipped
(SOC) System
Code (TTOC)
Tips2
Workers3
Code
Beverage & Food Service
101
Bartenders
82.8
9.8
63.4
35-3011
102
Wait Staff
74.6
34.2
63.5
35-3031
103
Food Servers, Nonrestaurant
30.4
0.1
33.0
35-3041
Dining Room and Cafeteria Attendants
104
38.9
1.0
44.8
35-9011
and Bartender Helpers
35-1011, 35-2011,
105
Chefs and Cooks
12.8
2.0
17.1 35-2013, 35-2014,
35-2019
35-1012, 35-2021,
106
Food Preparation Workers
21.4
3.3
33.5
35-9099
107
Fast Food and Counter Workers
40.1
1.4
17.9
35-3023
108
Dishwashers
11.0
0.1
15.8
35-9021
Host Staff, Restaurant, Lounge, and
109
46.3
0.8
35.3
35-9031
Coffee Shop
110
Bakers
12.0
0.1
14.7
51-3011
Entertainment & Events
39-3011, 39-1013,
201
Gambling Dealers
70.9
4.3
70.7
39-3013
Gambling Change Persons and Booth
202
78.0
0.4
64.8
41-2012
Cashiers
203
Gambling Cage Workers
37.6
0.2
57.7
43-3041
Gambling and Sports Book Writers and
204
30.0
*
43.3
39-3012
Runners
205
Dancers
8.8
*
54.3
27-2031
206
Musicians and Singers
2.9
*
36.8
27-2042
207
Disc Jockeys, Except Radio
15.7
*
44.9
27-2091
208
Entertainers and Performers
7.9
*
52.0
27-2099
209
Digital Content Creators
7.9
*
52.0
27-2099
Ushers, Lobby Attendants, and Ticket
210
3.1
*
11.6
39-3031
Takers
Locker Room, Coatroom, and Dressing
211
12.0
*
19.1
39-3093
Room Attendants
Hospitality & Guest Services
301
Baggage Porters and Bellhops
7.0
0.1
18.6
39-6011
302
Concierges
3.7
*
11.7
39-6012
303
Hotel, Motel, and Resort Desk Clerks
11.7
0.7
42.8
43-4081
304
Maids and Housekeeping Cleaners
2.7
0.1
10.6
37-2012
October 14, 2025
506
Bulletin No. 2025–42
Treasury
Tipped
Occupation
Code (TTOC)
401
402
403
404
405
406
407
408
409
501
502
503
504
505
506
507
508
601
602
603
604
605
606
607
608
609
610
611
Table A: Reported Tips of Single-Job Holders, Tax Year 2023
Reported Tips
Percent
Percent with
as Percent
of All
TTOC Occupation Title
Reported
of Wages
Reported
Tips1
of Tipped
2
Tips
Workers3
Home Services
Home Maintenance and Repair
Workers
Home Landscaping and
Groundskeeping Workers
Home Electricians
Home Plumbers
Home Heating and Air Conditioning
Mechanics and Installers
Home Appliance Installers and
Repairers
Home Cleaning Service Workers
Locksmiths
Roadside Assistance Workers
0.5
0.1
16.1
49-9071, 49-9098,
49-9099, 49-9063,
49-2097, 51-7021
0.5
*
14.0
37-3011
0.1
0.2
*
*
10.6
5.1
47-2111
47-2152
0.2
*
4.0
49-9021
1.8
*
1.9
49-9031
0.1
*
*
10.6
3.1
10.8
37-2012
49-9094
49-3023, 53-3032
0.1
0.1
31.1
16.3
31-1122, 39-9099
13-1121, 27-1023
*
22.0
27-4021
*
*
0.3
*
*
*
16.8
16.2
34.5
28.8
27-4031
21-2011
39-2021
25-3041
39-9011
0.5
0.6
24.4
25.7
39-5094
31-9011
3.2
22.7
39-5012, 39-5011
*
0.3
*
*
14.9
14.8
39-5093
39-5092
39-5091
*
25.8
39-9031
*
*
15.8
15.9
27-1019
51-6052
*
*
51-6041
3.0
22.6
39-5012
2.7
2.0
0.2
Personal Services
Personal Care and Service Workers
0.6
Private Event Planners
5.9
Private Event and Portrait
2.3
Photographers
Private Event Videographers
*
Event Officiants
0.2
Pet Caretakers
19.1
Tutors
0.5
Nannies and Babysitters
0.7
Personal Appearance & Wellness
Skincare Specialists
54.7
Massage Therapists
55.8
Barbers, Hairdressers, Hairstylists, and
52.4
Cosmetologists
Shampooers
*
Manicurists and Pedicurists
36.2
Makeup Artists
13.1
Exercise Trainers and Group Fitness
1.0
Instructors
Tattoo Artists and Piercers
11.1
Tailors
0.8
Shoe and Leather Workers and
*
Repairers
Eyebrow Threading and Waxing
53.2
Technicians
Bulletin No. 2025–42
507
Related Standard
Occupational
Classification
(SOC) System
Code
October 14, 2025
Table A: Reported Tips of Single-Job Holders, Tax Year 2023
Reported Tips Related Standard
Treasury
Percent
Percent with
as Percent
Occupational
Tipped
of All
TTOC Occupation Title
Reported
of Wages
Classification
Occupation
Reported
Tips1
of Tipped
(SOC) System
Code (TTOC)
Tips2
Workers3
Code
Recreation & Instruction
701
Golf Caddies
8.0
*
27.9
39-3091
702
Self-Enrichment Teachers
1.9
*
7.5
25-3021
703
Sports and Recreation Instructors
1.9
*
7.5
25-3021
704
Tour Guides
14.2
*
17.1
39-7011
705
Travel Guides
13.3
*
16.2
39-7012
706
Recreational and Tour Pilots
*
*
*
53-2012
Transportation & Delivery
801
Parking and Valet Attendants
17.4
0.1
21.5
53-6021
Taxi and Rideshare Drivers and
802
24.9
*
21.2
53-3054
Chauffeurs
803
Shuttle Drivers
16.7
0.1
28.0
53-3053
804
Goods Delivery People
3.7
0.5
30.0
53-3031
Personal Vehicle and Equipment
805
4.8
*
12.4
53-7061
Cleaners
806
Private and Charter Bus Drivers
0.7
*
9.9
53-3052
Water Taxi Operators and Charter Boat
807
*
*
*
53-5022
Workers
Rickshaw, Pedicab, and Carriage
808
0.8
*
21.4
53-6099
Drivers
809
Home Movers
2.5
2.8
32.8
53-7062
4
Total
67.4
44.6
Notes: Data are for Tax Year 2023. An * indicates a share of less than 0.1% or a small cell size.
1
Percentage of individuals within the Related SOC code(s) who have at least $100 of tips reported on a W-2 or Form 4137
("reported tips").
2
Reported tips of individuals in Related SOC code(s) as a percentage of all reported tips. The denominator includes all
individuals regardless of whether their occupation could be mapped to a SOC code or if their SOC code is related to a TTOC
code.
3
Reported tips of individuals in Related SOC code(s) as a percentage of wages of individuals with tips in Related SOC code(s).
The denominator includes wages of individuals in Related SOC code(s) only if they report tips
4
Occupation codes are matched to SOC codes, which are then related to TTOC occupation titles, using the self-reported
character strings in the “Your occupation” box next to the signature box on the Form 1040. The occupation box does not
affect a taxpayer’s tax liability, and taxpayers with a single W-2 sometimes enter an occupation (character string) that does not
correspond to the W-2. For example, a student who was also a bartender might have entered “Student” in the occupation box, or
they may have misspelled “bartender” as “batrender”. In either case, we would not be able to match the “Student” or “batrender”
who received tips to a TTOC code. These data shortcomings are the primary reason that the percentage of all reported tips for
occupations listed in the table sum to only 67.4%.
Source: Office of Tax Analysis, August 9, 2025
October 14, 2025
508
Bulletin No. 2025–42
d. Economic Effects
ii. Illegal Activity
In general, OBBBA granted taxpayers
the deduction for income earned in the
form of qualified tips. In the absence of the
list enumerated by these proposed regulations, two taxpayers with otherwise similar tax situations would face uncertainty
as to whether this tax deduction applies to
their situation. In the absence of this guidance, these taxpayers might make different
choices as to whether their tips qualify for
the deduction, and, therefore, face different tax liability. By enumerating the List
of Occupations that Receive Tips, these
proposed regulations ensure that these two
taxpayers face the same tax treatment.
Consider an example where Employee
A is a hairstylist and Employee B is a
makeup artist, both working at Beauty
Salon 1. Employee A and Employee B
each receives $10,000 in tips from customers at Beauty Salon 1. The House
Budget Committee report on the OBBBA,
H. Rept. 119-106, at 1502 (2025) included
hairstylists but not makeup artists in its
examples of occupations that traditionally and customarily28 received tips on or
before December 31, 2024. Thus, prior
to reading the guidance in theses proposed regulations, Employee B might
have been unsure whether her occupation
as a makeup artist makes her eligible to
claim the deduction for her qualified tips.
By enumerating this list, Employee A and
Employee B have clarity that they are both
eligible to use the $10,000 in tips that they
receive while working at Beauty Salon 1
for purposes of the deduction in section
224 (assuming that all other requirements
to claim the deduction are satisfied).
Some taxpayers may reclassify their
occupation as described on their Form
1040 to fall under a category that appears
on the List of Occupations that Receive
Tips. This reclassification would merely
be a relabeling of their reported occupation and does not constitute a meaningful
economic change. Due to the tax preference granted by the statute, some taxpayers may genuinely change occupations to
one which appears on the List of Occupations that Receive Tips. This effect is
ascribed to the statute.
The proposed regulations clarify that
the term “qualified tips” does not include
tips that were received while performing
a service that is a felony or misdemeanor
under applicable law. For example, tips
received while performing services in
human trafficking, exotic pet smuggling,
counterfeiting or fencing stolen goods,
drug trafficking, drug dealing, and unlicensed sales that violate the applicable law
would not be eligible for the deduction for
qualified tips. The Treasury Department
and the IRS do not have sufficient data
to determine the behavioral effects of the
clarification that the tips are excluded
from the definition of “qualified tips” if
they were earned while performing illegal
activities. The Treasury Department and
the IRS also do not have readily available
data and models to assess the economic
costs and benefits of excluding these tips
from the definition of “qualified tips,” but
the economic impact is expected to be
low. However, the Treasury Department
and the IRS invite comments on such
costs and data that could be used to analyze these behavioral effects.
For example, consider Employee C
who works as a bartender but does not have
the license or certification that is required
based on the applicable laws, and these
laws specify that serving alcohol without
a license is a misdemeanor. Employee C
receives $10,000 in tips during the year
while serving alcohol at a bar. “Bartender” is on the List of Occupations that
Receive Tips, but serving alcohol as a bartender without the proper license violates
the applicable law. Because the proposed
regulations clarify that the definition of
“qualified tips” excludes tips received
while performing services that violate the
applicable law, Employee C is aware that
the $10,000 in tips received while serving
alcohol without a license are not qualified
tips, and so Employee C does not claim
the deduction for these tips.
Alternatively, consider a different
example where Restaurant 2 includes a
bar that serves alcohol but does not have
the liquor license required by the applicable laws. Employee D works on the
wait staff at Restaurant 2 and does not
serve alcohol, which the applicable laws
allow. Employee D receives $10,000 in
tips while waiting tables at Restaurant
2. They satisfy all other requirements to
claim the deduction under section 224.
Because the proposed regulations clarify
that “qualified tips” exclude tips received
while performing services that are illegal
under applicable law, and the services that
Employee D provided as a wait person
were legal, Employee D understands that
the $10,000 in tips are considered “qualified tips” and Employee D claims the
deduction accordingly.
The clarification in the proposed regulations, that tips are not considered “qualified tips” if they were received while
performing services that are illegal under
applicable law, provides clarity for taxpayers about whether their tips qualify for
the tax deduction under section 224, as
instituted by the OBBBA.
iii. Employees Participating in Voluntary
Tip Reporting Programs with Tip Rates
The proposed regulations clarify that
employees who enter into a tip agreement
through the TRDA or GITCA program
may determine the amount of their qualified tips using applicable tip rates in their
agreement (as these tips are reported on
Form W-2), as well as amounts reported
to the IRS on Form 4137. This would
not affect the behavior of employees in
agreements under the TRDA or GITCA
programs as they are required to report
their tips (regardless of whether they are
eligible for the deduction under section
224) using average tip rates for their occupational category that their employer and
the IRS have established.
For example, suppose Employee E and
Employee F both work as gambling dealers at Casino 3, and they both have a tip
agreement as part of the GITCA program.
Employee E receives $11,000 in tips for
the year, and Employee F receives $12,000
in tips. The tip rate established by the
IRS and their employer for their occupation in the tip agreement requires them to
report $10,000 in tips. The Forms W-2 for
Employee E and Employee F from Casino
Initial drafts of the OBBBA legislation contemplated a deduction for tips received by individuals in occupations that traditionally and customarily received tips, but this language was later
revised to refer to occupations that customarily and regularly received tips.
28
Bulletin No. 2025–42
509
October 14, 2025
3 each report $10,000 in tips. Due to the
clarification in the proposed regulations
about the definition of “qualified tips” for
employees under a tip agreement through
the TRDA or GITCA program, Employee
E and Employee F each understand that
they may claim a deduction for $10,000
in qualified tips (if the other requirements
of section 224 are met) as those tips were
reported to the IRS and Casino 3 in accordance with the tip rate established in their
tip agreement.
Some employees under a tip agreement
through the TRDA or GITCA programs
may decide to report the full amount of
their tips (in excess of the tip rate established in their tip agreement) to the IRS
on Form 4137 or to their employer. These
employees would use that full amount as
qualified tips for the deduction under section 224. Any change in the reporting of
tip income in excess of the established tip
rates is ascribed to the statute, which creates the deduction for qualified tips that
are reported on Form W-2 or Form 4137
(as well as Form 1099-NEC, Form 1099K, and Form 1099-MISC).
iv. Summary
Based on the available models and
data, the Treasury Department and the
IRS estimate that the economic costs and
benefits of the proposed regulations would
be small. The Treasury Department and
the IRS invite public comments and additional data on the economic effects that
would result from these proposed regulations.
II. Paperwork Reduction Act
This proposed regulation does not
create new collection requirements, as
defined under the Paperwork Reduction
Act (44 U.S.C. 3501-3520), and does not
alter any previously approved OMB information collection requirements and their
associated burden.
III. Regulatory Flexibility Act
The Secretary of the Treasury certifies
that these proposed regulations will not
have a significant economic impact on a
substantial number of small entities pursuant to the Regulatory Flexibility Act
October 14, 2025
(5 U.S.C. chapter 6). This certification
is based on the fact that these proposed
regulations would not impose any new
requirements on small entities but rather
provide individuals rules for claiming
the deduction under section 224 of the
Code by specifying the scope of affected
occupations as those contained in the
proposed regulations and providing clarity on the definition of qualified tips.
Because the regulation does not directly
impact small entities a Regulatory Flexibility Act (5 U.S.C. chapter 6) analysis is
not required.
Notwithstanding this certification that
the proposed regulations would not have a
significant economic impact on a substantial number of small entities, the Treasury
Department and the IRS invite comments
on the impacts these proposed regulations
may have on small entities.
IV. Section 7805(f)
Pursuant to section 7805(f) of the
Code, these proposed regulations will be
submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small
business.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 requires that agencies
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal mandate that may result in expenditures in any
one year by a State, local, or Tribal government, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. These
proposed regulations do not include any
Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector, in excess
of that threshold.
VI. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
rule that has federalism implications if
the rule either imposes substantial, direct
compliance costs on State and local governments, and is not required by statute,
510
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Executive order. These proposed regulations
do not have federalism implications, do
not impose substantial direct compliance
costs on State and local governments, and
do not preempt State law within the meaning of the Executive order.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration will be given to comments regarding
the notice of proposed rulemaking that are
submitted timely to the IRS as prescribed
in this preamble under the ADDRESSES
section. The Treasury Department and
the IRS request comments on all aspects
of the proposed regulations. In particular, the Treasury Department and IRS
request comments on the application of
the existing rules under § 1.199A-5(b) to
the SSTB definition in section 224, and
whether the definitions in § 1.199A-5(b)
should be refined to better align with the
anti-abuse provision in section 224 and
the congressional directive for the Secretary to publish a list of occupations that
customarily and regularly received tips
on or before December 31, 2024. Additionally, Treasury and the IRS are concerned that taxpayers might misclassify
income as tips and request comments
on how to address this issue in the final
regulations. All comments will be made
available at https://www.regulations.gov.
Once submitted to the Federal eRulemaking Portal, comments cannot be edited or
withdrawn.
A public hearing has been scheduled for
October 23, 2025, beginning at 10 a.m. ET,
in the Auditorium at the Internal Revenue
Building, 1111 Constitution Avenue, NW.,
Washington, DC. Due to building security
procedures, visitors must enter at the Constitution Avenue entrance. In addition, all
visitors must present photo identification
to enter the building. Because of access
restrictions, visitors will not be admitted
beyond the immediate entrance area more
than 30 minutes before the hearing starts.
Participants may alternatively attend the
public hearing by telephone.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish
Bulletin No. 2025–42
to present oral comments at the hearing
must submit an outline of the topics to be
discussed and the time to be devoted to
each topic by October 22, 2025. A period
of 10 minutes will be allotted to each
person for making comments. An agenda
showing the scheduling of the speakers
will be prepared after the deadline for
receiving outlines has passed. Copies of
the agenda will be available free of charge
at the hearing. If no outline of the topics
to be discussed at the hearing is received
by October 22, 2025, the public hearing
will be cancelled. If the public hearing is
cancelled, a notice of cancellation of the
public hearing will be published in the
Federal Register.
Individuals who want to testify in
person at the public hearing must send
an email to publichearings@irs.gov to
have your name added to the building
access list. The subject line of the email
must contain the regulation number REG110032-25 and the language TESTIFY In
Person. For example, the subject line may
say: Request to TESTIFY in Person at
Hearing for REG-110032-25.
Individuals who want to testify by
telephone at the public hearing must send
an email to publichearings@irs.gov to
receive the telephone number and access
code for the hearing. The subject line
of the email must contain the regulation
number REG-110032-25 and the language
TESTIFY Telephonically. For example,
the subject line may say: Request to TESTIFY Telephonically at Hearing for REG110032-25.
Individuals who want to attend the
public hearing in person without testifying must also send an email to publichearings@irs.gov to have your name added to
the building access list. The subject line
of the email must contain the regulation
number REG-110032-25 and the language
ATTEND In Person. For example, the
subject line may say: Request to ATTEND
Hearing In Person for REG-110032-25.
Requests to attend the public hearing must
be received by 5:00 p.m. ET on October
21, 2025.
Individuals who want to attend the public hearing by telephone without testifying
must also send an email to publichearings@irs.gov to receive the telephone
number and access code for the hearing.
The subject line of the email must con-
Bulletin No. 2025–42
tain the regulation number REG-11003225 and the language ATTEND Hearing
Telephonically. For example, the subject
line may say: Request to ATTEND Hearing Telephonically for REG-110032-25.
Requests to attend the public hearing must
be received by 5:00 p.m. ET on October
21, 2025.
Hearings will be made accessible to
people with disabilities. To request special
assistance during a hearing please contact
the Publications and Regulations Section
of the Office of Associate Chief Counsel
(Procedure and Administration) by sending an email to publichearings@irs.gov
(preferred) or by telephone at (202) 3176901 (not a toll-free number) by October
20, 2025.
Drafting Information
The principal author of these proposed
regulations is the Office of Associate Chief
Counsel (Employee Benefits, Exempt
Organizations and Employment Taxes).
However, other personnel from the IRS
and the Treasury Department participated
in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS propose to amend 26 CFR
part 1 as follows:
PART 1-INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding an entry
for § 1.224-1 in numerical order to read in
part as follows:
Authority: 26 U.S.C. 7805* * *
*****
§ 1.224-1 also issued under 26 U.S.C.
224(d)(2)(C) and (g) and sec. 70201(h) of
Public Law 119-21, 139 Stat. 72 (July 4,
2025), commonly known as the One, Big,
Beautiful Bill Act.
*****
Par. 2. Section 1.224-1 is added to read
as follows:
511
§ 1.224-1 Qualified tips.
(a) In general. Under section 224(a) of
the Internal Rev
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