Tax Coda Weekly Digest — November 23, 2025
Each development this week circled the same theme. The system only works when records, procedures, and intent hold up under scrutiny.
Courts focused on proof. The IRS faced questions about the process. Policy debates circled back to whether subsidies solve anything or mask deeper structural issues.
It was a week defined by gaps between what the rules expect and how they play out in practice.
1. Graham v. Commissioner, T.C. Memo. 2025-116
The Tax Court denied a sister-in-law's earned income tax credit claim because the taxpayers failed to prove the age and residency requirements. The court found the record lacked documentation showing the child lived with them for more than half the year. The IRS's efficiency determination stood.
Why It Matters:
Reinforces strict substantiation rules for qualifying children under §32.
Highlights the need for residency records, such as school or medical documents.
Demonstrates that family relationships alone do not meet statutory tests.
Takeaway:
EITC claims fail quickly when age and residency records are missing.
2. The Subsidy Reflex in the Age of AI (Policy Commentary)
A policy analysis examined how tax incentives for AI development have expanded beyond their original purpose. The piece argues that temporary fixes have hardened into ongoing subsidies without clear metrics for public benefit. It notes that incentives now shape investment decisions more than underlying economic need.
Why It Matters:
Shows how tax credits evolve without periodic reassessment.
Raises concerns about long-term fiscal impact and sector-specific favoritism.
Frames the debate around whether incentives align with measurable public outcomes.
Takeaway:
AI subsidies are becoming permanent tools without clear benchmarks for effectiveness.
3. IRS Outages During Federal Shutdown Slow Processing and Guidance
A prolonged federal shutdown caused system outages at the IRS that stalled return processing, delayed notices, and postponed planned guidance. Backlogs built quickly once operations resumed. Taxpayers and practitioners faced uncertainty as routine timelines slipped.
Why It Matters:
Highlights system fragility when funding or staffing lapses occur.
Affects refund timing, collection workflows, and correspondence deadlines.
Underscores the risk of guidance bottlenecks during peak compliance cycles.
Takeaway:
Shutdown-related outages pushed the IRS months behind at a time when stability matters most.
4. IRS Faces Scrutiny Over Summons That Appeared Altered Post-Approval
A taxpayer asked a federal court to invalidate an IRS summons after discovering changes to the document that were made after it was approved and signed. The dispute centers on whether the alterations were substantive or purely clerical. The court must decide whether the summons remains enforceable.
Why It Matters:
Tests procedural integrity for administrative summonses.
Raises questions about the auditor's authority to modify signed documents.
Could influence future challenges to summons enforcement actions.
Takeaway:
Courts will determine whether post-approval changes render an IRS summons invalid.
5. Apache Corp. v. Commissioner, 165 T.C. No. 11
The Tax Court held that Apache could make a split election for specified liability losses under §172. The company applied different carryback periods to different categories of losses. The court found the statute and regulations allowed separate treatment based on loss type.
Why It Matters:
Clarifies flexibility for large corporate NOL planning under §172.
Confirms that specified liability losses may follow their own carryback schedule.
Provides a roadmap for structuring future NOL elections in complex years.
Takeaway:
The decision confirms taxpayers can split NOL elections when the statute recognizes different loss categories.
Overall Takeaway
The week showed how documentation, procedure, and statutory detail drive outcomes across the system.
Courts enforced strict proof requirements. The IRS faced operational and procedural stress. Policy debates turned to whether incentives have drifted from original goals. Everything pointed to the same conclusion: structure and evidence shape every result.