The 2025 filing season was a measured success for the IRS, but the agency has lingering weaknesses when it comes to assisting identity theft victims, according to the National Taxpayer Advocate’s Objectives Report to Congress for the 2026 fiscal year. The report also noted that the IRS’s staff has been reduced by 25% since the beginning of 2025, likely leading to reduced taxpayer services and enforcement.

National Taxpayer Advocate Erin Collins’s report found the IRS has rebounded from the COVID-19 pandemic disruptions to provide much-improved taxpayer services, and most taxpayers filed their returns, paid their taxes and received refunds without any direct intervention from the agency.

The report included updated statistics on the 2025 filing season:

• 140 million individual returns received
• 138 million individual returns processed
• Average refund amount: $2,942
• 81 million refunds issued by direct deposit

During processing the IRS suspended more than 13 million individual returns pending further review, with 2.1 million being suspended after the agency’s identity theft filters flagged them. The IRS sent notices to the affected taxpayers saying they must authenticate their identities or address other irregularities in their returns before the agency can continue processing them.

Weaknesses in assisting identity theft victims

The IRS’s performance in resolving identity theft victim assistance (IDTVA) cases is proceeding at a “glacial pace,” the report found. Generally, the IRS addresses two categories: returns flagged by processing filters as potentially fraudulent and cases where an identity thief has filed a return using the name and Social Security number of a legitimate taxpayer.

In cases where a return is flagged as potentially fraudulent, the taxpayer is usually required to verify their identity, and cases are usually resolved within several months. However, when a taxpayer’s information is used to file a fraudulent return, the IRS takes an average of about 20 months to resolve their cases. The report found the delays disproportionately affect vulnerable populations who depend on their refunds to meet basic living expenses.

IRS leadership has repeatedly assured Collins that reducing the time for resolving IDTVA cases is a high priority, but the time it takes to resolve them remains unacceptably long, Collins notes in her report.

Question: Edna and Stacy, who own Counting Cowgirls, LLC, purchased a 2025 Subaru Forester and “wrapped” it with a vinyl graphic to promote their accounting business. The question arose as to whether having the advertising on the vehicle makes business use of the vehicle 100%. Is 100% of the mileage for the wrapped vehicle deductible now that it is essentially a mobile billboard?

Answer: No, 100% of the mileage is not deductible just because of the vinyl graphic on the vehicle. Substantiation of business versus personal use must still be tracked even if the vehicle is fully wrapped with advertising. That means Edna and Stacy should track business use with one of several methods, including contemporaneous mileage logs, appointment books or delivery records, or a mileage application on the user’s smartphone. In other words, the advertising function does not convert all use of the vehicle to 100% deductible. However, a benefit still exists to the owners in that they may deduct the wrapping costs as a legitimate advertising expense under §162 in the year such costs were paid or incurred. Deduction costs can include the design, production and installation costs of the wrap as well as any replacement or removal costs due to wear.

If the vehicle is used 100% for business purposes with zero personal use, 100% of the car expenses may be deducted, regardless of the advertising graphic.

Selling a business, rental property or other appreciated asset can trigger a hefty tax bill, but an installment sale spreads the cash and the tax hit over several years.

What is an installment sale?

An installment sale occurs when at least one payment is received after the tax year of the sale. Instead of reporting the entire gain up front, the taxpayer recognizes a portion each year as payments are collected. This reporting method, known as the installment method of accounting, is reported on Form 6252, Installment Sale Income.

Why use an installment method of accounting?

• Defer capital-gain tax
  • The seller spreads recognition of gain (and tax liability) over the payment schedule
• Improve cash flow
  • For the seller, taxes align with cash receipts; potential to avoid a single lump-sum tax bill
• Flexible terms
  • Buyers often prefer a down payment followed by scheduled installment payments; this can expand the pool of potential purchasers

Which sales qualify?

Generally eligible:

• Real property (commercial or residential)
• Tangible personal property (machinery, equipment, etc.)

Not eligible:

• Dealer property
• Inventory
• Revolving‐credit sales
• Publicly traded securities

Key conditions and traps

Ordinary‐income recapture

If the taxpayer claimed depreciation on business property, part of their gain may be subject to recapture rules (under §1245 or §1250). This recaptured gain is taxed in full in the year of sale, regardless of whether they receive payments later.

Interest income

Interest must be reported as ordinary income. Generally, a part of each later payment must be treated as interest, even if it’s not called interest in the sales agreement. There may be unstated interest or an original issue discount (OID) if the agreement doesn’t provide for enough stated interest.

Electing out

Under the general rule, property sellers are required to use the installment method for installment sales [453(a)]; they can elect out of the installment method by reporting the full gain in the year of sale. This may be beneficial if capital gains rates are expected to rise or if the taxpayer has a large loss carryforward that they can utilize.

Example

Arthur sells his business for $500,000 in 2025. He agrees to receive $50,000 at closing and will receive four annual payments of $112,500 (2026-2029). If the sale qualifies for installment reporting, Arthur will report a portion of the gain each year as he receives payment.

However, if $200,000 of his gain is depreciation recapture, he will report the full $200,000 of depreciation recapture in 2025, even if he hasn’t received all the money.

An installment sale can be a powerful tool for smoothing out tax obligations, but the rules are complex. When in doubt, run the numbers both ways, with and without the installment method, so the tradeoffs are understood.

Deeper dive

For a deeper dive into the mechanics of installment sales, including how to handle depreciation recapture, related party rules and special transactions, check out our upcoming webinar, Navigating Installment Sale Mechanics Webinar. You’ll gain practical insights on reporting with Form 6252 and learn when opting out of the installment method might be right.