Grüße from Berlin!

Around the time you open this newsletter, I will likely be munching on a currywurst and drinking a Berliner Weisse as part of a culinary tour. It’s a fun diversion as I’m in Europe this week for a legal conference. We were lucky enough to be able to check out my daughter’s new digs in Berlin and swoop her up to come along with us. 

Of course, just because I’m out of the country doesn’t mean the tax news stopped. 

We got our first look at what tax rates and other inflation-adjusted amounts could look like in 2027. Bloomberg Tax & Accounting projects an inflation adjustment of roughly 3.2%, which would push tax brackets, the standard deduction, and a host of other tax-related amounts higher. There’s an unusual wrinkle this year: because of the lapse in federal appropriations, BLS did not publish an October 2025 C-CPI-U figure, so Bloomberg calculated its projections using 11 months of data instead of the usual 12. These are projections—the IRS hasn’t released the official numbers yet—but they give taxpayers an early look at what to expect.

Also making headlines was President Trump’s promise of $5,000 payments to adult U.S. citizens if Republicans win control of Congress in November. There’s no legislation yet, and plenty of questions remain about who would qualify and how the payments would work. But we can do the math: At roughly 240 million adult citizens, $5,000 each would cost about $1.2 trillion. Trump and Vice President Vance have pointed to tariff revenue as a potential funding source, but current tariff revenue projections don’t come close to covering that amount in a single year.

In the courts, the D.C. Circuit blocked an IRS procedure for sharing taxpayer information with Immigration and Customs Enforcement (ICE). The ruling doesn’t mean the IRS can never share taxpayer information with ICE—section 6103 allows certain disclosures for qualifying criminal investigations. But those exceptions come with strict requirements, and the court found that the IRS procedure likely didn’t satisfy them. The case is a good reminder of why the rules protecting tax-return information are deliberately so restrictive.

And finally, earlier this week, I asked readers to be the Tax Judge. Ohio brewer John Ream wanted to make whiskey at home, something federal law prohibits. He argued that Congress couldn’t justify the ban as an exercise of its taxing power simply because home distilling might make federal excise taxes harder to collect.

The Sixth Circuit disagreed and upheld the prohibition. Case closed? Not quite. Just 11 days earlier, the Fifth Circuit considered the same federal restrictions and reached the opposite conclusion. Now both sides of that circuit split are asking the Supreme Court to step in. So if you ruled for the government, congratulations—the Sixth Circuit agrees with you. If you ruled for Ream, congratulations—the Fifth Circuit agrees with you. ⚖️

Let’s talk more tax.

After last week’s question (read it here), I received a follow-up.

Q: Bicycles can be FSA/HSA legal (with a doctor’s note). Worth noting, no? 

A: First, a quick refresher. Health savings accounts (HSAs) and flexible spending accounts (FSAs) are tax-advantaged ways to pay for qualified medical expenses. HSAs are generally available to eligible taxpayers with qualifying high-deductible health plans, while health FSAs are offered through employers. The rules differ, but both let you pay qualifying medical expenses with tax-favored dollars.

Generally, qualified medical expenses include those for the diagnosis, cure, mitigation, treatment, or prevention of disease, as well as treatments affecting a function or structure of the body. Think doctor and dentist visits, prescription drugs, eyeglasses and contact lenses, certain medical equipment, and other health-related expenses.

But something isn't a qualified medical expense simply because it's good for you. The expense generally must be primarily for medical care rather than general health. That's why exercise ordinarily doesn't qualify, even if your doctor thinks getting more exercise would be a terrific idea.

And that brings us back to the bicycle. Buying a bike because you'd like to exercise more or—as in last week's question—ride to work doesn't turn the purchase into a medical expense. But the answer can be different when exercise is used to treat or alleviate a specific diagnosed medical condition. The IRS applies the same principle to gym memberships: one purchased for general health doesn't qualify, while one purchased solely to treat a specific disease may qualify.

That's also why you sometimes hear that you need a “doctor's note” for an expense like this. The note isn't a magic ticket that turns a personal purchase into a medical expense. But it can help show that the expense is for treating a specific condition rather than simply promoting general health.

So the fun tax answer is: A bike you buy to commute to work isn't deductible as a commuting expense, and a bike you buy simply to stay fit generally isn't a qualified medical expense. But a bike purchased primarily as part of treatment for a specific medical condition may qualify for HSA or FSA reimbursement. Same bicycle. Different tax result.

Domicile is your permanent legal home—the place you consider home and intend to return to, even if you're temporarily living somewhere else. (It’s a bit simplistic, but we often say that your residence is where you live, but your domicile is where you intend to die.)

You can have more than one residence, but generally only one domicile at a time. Your domicile isn't necessarily determined by where you spend the most time or where you happen to own a house. States may consider many factors to determine where you really call home, including where you vote, hold a driver's license, register your car, and maintain important personal and financial ties. Simply buying a house in a lower-tax state—or spending part of the year there—doesn't automatically change your domicile.

Why does it matter? Domicile can affect whether a state treats you as a resident for income tax purposes, and it can also play a role in estate and inheritance taxes. The rules vary by state, and some states use separate statutory residency tests in addition to domicile. That's why taxpayers who split their time among states, move during the year, or maintain homes in more than one state should pay attention to both where they live and where the law considers their permanent home.

When the federal government taxes distilled spirits, what is a “proof gallon”?

A. One gallon of any distilled spirit

B. One gallon of spirits at 100 proof

C. One gallon of pure alcohol

D. mThe amount of alcohol produced by one licensed still in a day

Find the answer at the bottom of this newsletter.

This week, meet Bijal Chikani, CPA, who has spent more than 20 years in tax and now helps ultra-high-net-worth families tackle complex tax and planning issues. Bijal talks about why the latest “hot” tax strategy isn’t always worth the hype, the tax planning opportunity he thinks too many people miss, and why “it’s tax deductible” doesn’t necessarily make something a good financial decision. Plus: Masala chai, yoga, the Chicago Bears, and the old-school tax resource he still keeps within arm’s reach.

If you know someone who should be featured in a future Getting To Know You Tuesday, you’ll find nomination and submission information at the bottom of the post.

If you filed for an extension, figure out what you're still missing. The October 15 filing deadline is just a month away. If your return isn't finished, don't simply put “taxes” on your October to-do list—take a few minutes now to identify what's holding things up. Does your preparer need information from you? Are you still tracking down basis or other records? Finding the gaps now gives you time to fill them before the last-minute rush.

October 15, 2026 — Extended individual income tax returns due. This is the big one for individuals who requested a timely extension to file their 2025 Form 1040. (Remember, it’s an extension to file, not to pay: tax was due April 15.)

October 15, 2026 — Extended C corporation returns due. Calendar-year corporations that timely requested an extension generally must file Form 1120. 

September 21–22 — NATP Tax Forum, Minneapolis, MN
Practitioner-focused federal tax education covering S corporations, rentals, planning, compliance, and more.

September 29 — Advisory Amplified, Minneapolis, MN
I’m headed to Advisory Amplified in Minneapolis à la Mary Tyler Moore.  As someone who runs my own firm, I totally get that conferences can be expensive. So if you’re a solo, too, register using this code for 20% off: Taxgirl-roadie

September 30–October 1 — NATP Tax Forum, Philadelphia, PA
The same NATP program—and obviously in a great city!

AICPA pushes back on IRS guidance about AI and tax-prep fees. The AICPA is asking the IRS to clarify guidance suggesting that tax professionals should pass savings from AI and automation along to clients. The group says the language doesn't adequately account for value pricing or the costs firms incur to implement and oversee AI responsibly.

Could COVID relief wipe out years of tax interest? Taxpayer and business groups are urging the Tax Court to rule that interest on certain pre-pandemic tax debts was suspended during the COVID disaster period. The court took the unusual step of inviting amicus briefs in Wepplo v. Commissioner, noting the issue could affect a large number of taxpayers.

Treasury flags $17.5 billion in suspected health care fraud. Treasury says it identified $17.5 billion in potentially fraudulent health-care transactions during fiscal year 2026. The effort is part of Treasury's broader push to use government data to identify fraud before—or more quickly after—federal dollars go out the door.

The tax world is full of interesting people. Here’s who’s making news.

Vicki Heard has been named the first female Group Managing Partner of KPMG’s UK/Swiss Group. Heard will become Managing Partner Designate on October 1 before taking over fully on January 1, 2027. Alan Turner will succeed her as head of Tax and Legal.

Mike De Stefano officially took over as CEO of Pennsylvania-based accounting and advisory firm RKL on September 1. De Stefano began his public accounting career at RKL in 1995 and spent 14 years in its Tax and Audit Services Groups before moving to industry; he returned to RKL as CFO in 2019 and became COO in 2022.

The answer is B.

A proof gallon is a gallon of liquid that is 50% alcohol by volume, or 100 proof. Tax on distilled spirits is calculated using proof gallons, so the volume is adjusted based on the spirit's alcohol content.

That’s it from me this week. I’m off to see how much tax research I can reasonably justify doing over pretzels and beer.

Until next week—cheers from Berlin! 🍻

Have thoughts about the newsletter? I’d love to hear what you liked, what you didn’t, and what you’d like to see more of. You can email me here.