The Treasury Inspector General for Tax Administration issued a report Thursday on the Internal Revenue Service’s response to the Oct. 7, 2023 attack on Israel by Hamas.

The report noted that after the attack, the Treasury Department and the IRS issued a notice granting tax relief to individuals and businesses affected by the terrorist attack. The IRS also posted a news release detailing taxpayer eligibility requirements that qualify for the postponement of various tax return filing and payment deadlines. The information was available less than a week after the attack. This relief was in effect from Oct. 7, 2023, through Oct. 7, 2024. 

TIGTA found the IRS proactively identified and marked the tax accounts of the taxpayers who were likely to be affected by the attack. IRS management identified and proactively added freeze codes to 185,707 individual and 22,110 business tax accounts. The IRS also made available some of its well-established disaster relief processes for use by individuals and businesses who are affected by the terrorist attack to self-identify for tax relief.

Alexi J. Rosenfeld/Photographer: Alexi J. Rosenfeld

“When the IRS does not accurately identify all affected taxpayers, these taxpayers may receive tax deficiency notices, which may place unnecessary stress and obligation on taxpayers already impacted by the trauma of experiencing the Israel terrorist attack,” said the report. 

However, unlike the IRS’s process of sending notifications directly to individuals and businesses that qualify for tax relief due to a federally declared disaster, the IRS did not send similar notices to taxpayers whom the IRS identified as qualifying for relief resulting from the terrorist attack, TIGTA found. As a result, individuals and businesses who probably qualified for the specific tax relief made available by the Treasury in response to the terrorist attack were not directly notified.

IRS officials pointed out that they elected to communicate the availability of the tax relief the day it was announced via the posting of the information on the IRS newsroom website, where media and other audiences go to for information. However, TIGTA noted that the IRS failed to include information regarding this relief on the website it uses to disseminate international press releases. 

TIGTA’s evaluation also found the IRS initially missed adding freeze codes to 2,176 individual and 1,306 business tax accounts that met the IRS’s criteria for relief. In addition, TIGTA identified 10,550 individual tax accounts where the IRS incorrectly added a freeze code based on the foreign country code on accounts for taxpayers who resided in the State of Israel, Gaza, or the West Bank when in fact the taxpayers had an U.S. address as their address of record. Finally, TIGTA identified another 413 individual taxpayers whom the IRS also incorrectly added a freeze code on their tax accounts when their international address was outside the covered area of the State of Israel, Gaza or the West Bank. 

TIGTA made three recommendations to the IRS, saying the IRS should: input the freeze code on all eligible individual tax accounts, remove the freeze code from all ineligible tax accounts, and ensure that IRS systems properly update the foreign country codes used by taxpayers to change their address. The IRS agreed with the recommendation to input the freeze code on all eligible individual tax accounts, but disagreed with the recommendation to remove the freeze code from ineligible tax accounts and the recommendation to ensure that IRS systems properly update the foreign country codes used by taxpayers to change their address. 

The IRS noted in response to the report that the foreign country code is necessary to accurately process and post tax returns filed by nonresident aliens.

“This relief effort represents two significant ‘firsts’ for the IRS disaster program — the first time the IRS provided relief based on a terroristic action (and not based on a federally declared natural disaster), and the first time the IRS implemented disaster relief internationally,” wrote Lia Colbert, commissioner of the IRS’s Small Business/Self-Employed Division, in response to the report. 

Securities and Exchange Commission Chair Gary Gensler, whose ambitious agenda drew fierce resistance from Wall Street and the crypto industry, plans to step down on Jan. 20.

“The Securities and Exchange Commission is a remarkable agency,” Gensler said in a statement on Thursday. “The staff and the Commission are deeply mission-driven, focused on protecting investors, facilitating capital formation and ensuring that the markets work for investors and issuers alike.”

His departure will leave the SEC in the hands of an acting chair who’s expected to be either Mark Uyeda or Hester Peirce — both Republican commissioners. 

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Gensler, a self-described “markets guy” appointed by President Joe Biden in 2021, has pursued an aggressive agenda highlighted by climate-risk disclosures, stock-trading reforms and crackdowns on crypto scofflaws. Some of his regulations will leave a lasting imprint on finance. Others have been stymied in conservative courts. The Trump administration’s pick for SEC chair could try to further unwind Gensler’s signature rules and take a more crypto-friendly approach to enforcement.

A New York Republican congressman says that lifting the cap on state and local taxes will be crucial to getting President-elect Donald Trump’s tax overhaul through the House, given the party’s narrow majority in the chamber.      

“I’ve been very clear, I will not support a tax bill that does not lift the cap on SALT,” Representative Mike Lawler said on Bloomberg Television’s “Balance of Power” Wednesday evening. 

“My vote, along with many of my colleagues from New York, New Jersey, California, are going to be critical to pass a tax bill,” he said. “If nothing passes, the cap on SALT completely expires.”

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The Republican 2017 tax package imposed a $10,000 cap on the state-and-local taxes individuals and families could deduct from their federal taxes. Some saw it as a penalty for higher tax states that tend to lean Democratic, but Republicans from those states have been complaining ever since.

The 2017 package expires next year. Trump during the campaign called for its renewal and promised to eliminate taxes on Social Security and tips along with other proposals. 

“It’s important for everybody to recognize the importance of entering into good faith negotiations here, but we need to have a robust tax bill that is focused on economic growth that does work to reduce the deficit,” Lawler said.