Your Federal Loss Strategy May Not Work in CA

Many California taxpayers assume that if a loss reduces their federal tax bill, it will automatically reduce their California tax as well. Unfortunately, that assumption can lead to unpleasant surprises. California does not always follow federal rules when it comes to net operating losses (NOLs), and right now the gap between federal and state treatment is especially significant.

At the federal level, net operating losses are generally allowed to be carried forward and used to offset future taxable income, subject to certain limitations. For businesses and individuals who experienced losses in recent years, federal NOLs remain an important planning tool.

California, however, plays by different rules.

For tax years beginning in 2024 through 2026, California has suspended the use of NOL deductions for many taxpayers. While losses may still be calculated and carried forward, some higher-income taxpayers and larger businesses cannot currently use those losses to reduce their California taxable income. In other words, you may receive a federal tax benefit from your losses while still owing substantial California tax.

There are limited exceptions. Taxpayers with net business income or modified adjusted gross income under $1 million may still be able to use California NOLs, and certain disaster-related losses are treated differently. We talk about this in our January and February 2025 blog posts.

For everyone else, the deduction is essentially paused. To offset this suspension, California has extended the carryforward period for affected losses. Unfortunately, this does not help with near-term cash flow or estimated tax planning.

This mismatch creates several real-world problems. Businesses relying on federal projections may underpay California estimated taxes. Startups and professional practices expecting losses to shelter state income may find themselves unexpectedly exposed. In mergers or business sales, California loss carryforwards are often overvalued if this suspension is not considered.

The key takeaway is simple: federal tax planning does not equal California tax planning. Loss strategies that make perfect sense at the federal level can fail at the state level if they are not carefully reviewed through a California lens.

If you are carrying forward losses, anticipating losses, or relying on federal projections to plan cash flow, now is the time to reassess. Proper planning may involve adjusting estimates, reviewing eligibility for exceptions, or re-timing income and deductions where possible.

At Wilson Tax Law Group, APLC, we regularly help California businesses and individuals navigate these state-specific pitfalls before they turn into costly surprises. If you’re assuming your federal loss strategy will protect you in California, it’s worth getting a second look and/or legal opinion from a trusted tax attorney before the Franchise Tax Board does.

If you have any questions regarding your individual or businesses’ state and/or federal tax return(s)/tax liabilities or received a notice from the IRS, FTB, EDD, CDTFA or any other regulatory agency, please call or email Wilson Tax Law Group, APLC, to setup a consultation with our firm.

Wilson Tax Law Group, APLC is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group, APLC, is comprised of former IRS litigators & Special Agents, and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division, which at the time handled both civil tax lawsuits and criminal tax prosecutions on behalf of the United States of America.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Tel: (949) 397-2292 (Newport Beach Office) 

Tel: (714) 463-4430 (Yorba Linda Office)

Disclaimer: This blog post is for informational purposes only and does not constitute legal, tax or financial advice. Please consult with a qualified attorney, accountant or financial advisor for specific guidance related to your circumstances.

Essential IRS Changes Ahead for Partnerships

Partnerships, S corporations, and other passthrough entities are facing a new wave of Internal Revenue Service reporting changes, many of which are complex, technical, and still evolving. As we move into the 2026 tax filing season, one is clear: the IRS rules governing partnership reporting are becoming more intricate, and taxpayers will benefit from professional guidance more than ever.

This year, the American Institute of CPAs (“AICPA”) called on the IRS and Treasury to provide earlier notice, clearer instructions, and more time for partnerships and their advisors to implement new reporting requirements. The goal is simple and that is to reduce confusion while avoiding last-minute surprises that can lead to errors, penalties, or delays. While those recommendations are still being reviewed, they highlight what tax professionals, and their clients, are feeling every day, the reporting landscape shifting quickly.

For partnerships, this means preparing tax filings under new and upcoming rules that impact everything from K-1 disclosures to basis reporting, CAMT implications for corporate partners, and even potential changes to IRS Form 8308 reporting of partnership interest sales. These updates are not just technical, the affect how information flows between partners, how income is allocated, and how compliance risk is managed.

The IRS has released interim guidance to ease some burdens, such as simplified methods for calculating adjusted financial statement income under the CAMT framework. However, these temporary measures still require careful interpretation and planning. Many partnerships will face mixed elections, new documentation requirements, and expanded disclosure responsibilities.

And that is exactly where a trusted tax attorney can make the biggest difference.

At  Wilson Tax Law Group, APLC, we help partnerships understand what these IRS changes mean in practical terms, not just what the regulations say, but how they affect your filings, your partners, and your audit exposure. We stay ahead of IRS updates, advocate for your interests, and ensure that your reporting is accurate, defensible, and aligned with the most current guidance available.

As the IRS continues refining partnership reporting rules, having an experienced tax attorney on your side provides clarity, strategy, and peace of mind; especially when the stakes involve multi-partner allocations, complex transactions, or potential penalties.

If your partnership wants to get ahead of the 2026 filing season, now is the time to plan. We’re here to be your trusted partner and your strongest line of defense, every step of the way.

If you have any questions regarding your individual or businesses’ state and/or federal tax return(s)/tax liabilities or received a notice from the IRS, FTB, EDD, CDTFA or any other regulatory agency, please call or email Wilson Tax Law Group, APLC, to setup a consultation with our firm.

Wilson Tax Law Group, APLC is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group, APLC, is comprised of former IRS litigators & Special Agents, and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division, which at the time handled both civil tax lawsuits and criminal tax prosecutions on behalf of the United States of America.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Tel: (949) 397-2292 (Newport Beach Office) 

Tel: (714) 463-4430 (Yorba Linda Office)

Disclaimer: This blog post is for informational purposes only and does not constitute legal, tax or financial advice. Please consult with a qualified attorney, accountant or financial advisor for specific guidance related to your circumstances.

AI-Powered IRS: Why Now is the Time to Have a Human Tax Attorney in Your Corner

The Internal Revenue Service (“IRS”) is moving aggressively into the next phase of its modernization strategy – and the shift is more significant than many taxpayers realize. Recent announcements confirm that the agency is rolling out Salesforce-powered AI agents to handle taxpayer interactions, streamline case processing, and triage compliance issues long before a human analyst ever sees the file. At the same time, independent workforce reports show continued reductions in IRS staffing, particularly among experienced revenue agents, appeals officers, and collections personnel.

While the IRS has publicly stated that these changes are designed to “improve efficiency,” “increase efficiency,” and “enhance taxpayer service,” the practical entity is far more complex. For many individuals and businesses, this new system may feel less like modernization and more like enforcement by algorithm and it’s crucial to understand what that means.

Automation and Fewer Experienced IRS Employees = A New Enforcement Landscape

In recent years, the IRS has struggled to rebuild its workforce. Retirements, hiring delays, and a shortage of experienced specialists have created gaps in examination and appeals. Rather than slow enforcement actions, the IRS is turning to AI systems, powered through Salesforce, to help identify discrepancies, flag potential audit triggers, route cases, and generate notices automatically.

For taxpayers, this means: less human discretion, more notices generated faster, fewer opportunities for informal resolution and greater chance of errors. With reduced human interaction, there is less likelihood for judgment or context which trained IRS employees bring to the table as well as reasonable cause and industry-specific nuances. With more notices, this means less time for any human review of taxpayer data and increased room for error; as notices could be relying on incomplete data, timing miscalculations, or outdated information.

At Wilson Tax Law Group, APLC, we are already seeing the consequences. Clients are receiving inquiry letters triggered by algorithmic filters, not by IRS agents reviewing files. Some notices are issued before taxpayers have time to update their filings or respond to prior correspondence. And in many cases, taxpayers are pushed into automated cycles that escalate penalties or collections without meaningful human oversight.

Why Working with a Trusted Tax Attorney is More Essential than Ever

As the IRS becomes more automated, your defense must remain human, experiences, and strategic. Technology can accelerate enforcement, but it cannot interpret your unique circumstances, your supporting documents, or your legal arguments the way a seasoned tax attorney does. An experienced tax attorney can intervene early, communicate with real IRS personnel, identify procedural errors, prepare nuanced legal arguments, and navigate escalations to IRS appeals or Tax Court. More importantly, a tax attorney serves as a buffer between you and the IRS, ensuring that your rights are protected in a system that is becoming more impersonal and mechanized.

The IRS May Be Turning to AI – But Your Tax Advocate Should be Human

Automation is here to stay. The IRS will continue investing in AI tools to manage workloads, reduce staffing pressure, and increase revenue collection. But this does not mean taxpayers must navigate this new environment, alone.

If you receive a letter generated by an IRS AI system or if you suspect you have been flagged by automated review, do not wait. Early intervention can prevent months of unnecessary stress, penalties, and escalating enforcement. While the IRS relies on automated agents, Wilson Tax Law Group, APLC relies on trusted human judgment, careful analysis, and personalized advocacy to protect your financial future. Give us a call, we are happy to guide you every step of the way.

If you have any questions regarding your individual or businesses’ state and/or federal tax return(s)/tax liabilities or received a notice from the IRS, FTB, EDD, CDTFA or any other regulatory agency, please call or email Wilson Tax Law Group, APLC, to setup a consultation with our firm.

Wilson Tax Law Group, APLC is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group, APLC, is comprised of former IRS litigators & Special Agents, and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division, which at the time handled both civil tax lawsuits and criminal tax prosecutions on behalf of the United States of America.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Tel: (949) 397-2292 (Newport Beach Office) 

Tel: (714) 463-4430 (Yorba Linda Office)

Disclaimer: This blog post is for informational purposes only and does not constitute legal, tax or financial advice. Please consult with a qualified attorney, accountant or financial advisor for specific guidance related to your circumstances.