The Internal Revenue Service (IRS) has altered the format of a scheduled public hearing on proposed regulations concerning tip income deductions, shifting from an in-person event to a telephonic-only setup. This change, announced in the Federal Register on October 23, 2025, stems from a lapse in federal appropriations that has disrupted normal government operations. The hearing pertains to rules identifying occupations that customarily and regularly received tips on or before December 31, 2024, and defining 'qualified tips' eligible for an income tax deduction. Set for 10 a.m. Eastern Time on the same day as the announcement, the adjustment ensures the rulemaking process continues despite budgetary constraints, allowing interested parties to participate remotely. This development highlights the immediate impacts of funding lapses on regulatory proceedings, potentially influencing how the IRS finalizes tax policies affecting service workers.
Background on the Proposed Regulations
The proposed rulemaking, identified as REG-110032-25, was initially published in the Federal Register on September 22, 2025 (90 FR 45340). It aims to clarify which occupations qualify as those that 'customarily and regularly' received tips by the end of 2024. This is tied to a new income tax deduction for 'qualified tips,' which could reduce taxable income for workers in tip-dependent industries. The IRS, under the Department of the Treasury, is responding to broader tax policy shifts, though the exact legislative trigger is not detailed in the notice. Such deductions might stem from recent executive or legislative actions aimed at supporting low-wage service sectors, where tips form a significant portion of earnings. For instance, occupations like restaurant servers, bartenders, and delivery drivers are likely candidates, based on historical IRS guidance on tip reporting under Internal Revenue Code sections such as 3121(t) and related revenue procedures.
Key players include IRS officials like Stephanie Caden and Andrew Holubeck, listed as contacts for the regulations, and Oluwafunmilayo A. Taylor, who signed the hearing change notice as Section Chief for Publications and Regulations. The Treasury Department's involvement underscores the executive branch's role in tax administration. No specific court cases are cited in the notice, but precedents like those in tip credit disputes under the Fair Labor Standards Act could inform interpretations, as seen in cases such as Fast v. Applebee's International, Inc. (8th Cir. 2011), which addressed tip pooling and customary practices.
Reasons for the Hearing Format Change
The shift to a telephonic-only hearing is directly attributed to 'the lapse in appropriations,' a term referring to a temporary government shutdown when Congress fails to pass funding bills. This has led to the cancellation of in-person events to avoid costs during the funding gap. The notice states, 'Due to the lapse in appropriations, the in-person public hearing scheduled for October 23, 2025, is changed to a telephonic-only hearing.' This pragmatic adjustment reflects standard protocols during shutdowns, as agencies prioritize essential functions and minimize expenditures. Public participation remains possible, with comments and testimony requests due by October 22, 2025, via the Federal eRulemaking Portal at regulations.gov. Those who previously requested attendance will receive access details by email, ensuring continuity.
From a procedural standpoint, this change aligns with the Administrative Procedure Act's requirements for notice-and-comment rulemaking, which mandates opportunities for public input. However, it may limit engagement for some stakeholders, such as those without reliable phone access or who prefer face-to-face interactions. Perspectives vary: advocates for streamlined processes might view the telephonic format as efficient, while critics could argue it reduces transparency or inclusivity, especially for affected workers in rural areas.
Implications for Stakeholders and Rulemaking Process
Short-term effects include potential delays in finalizing the rules if the shutdown persists, as IRS resources are strained. The hearing is crucial for gathering feedback on the proposed definitions, which could impact millions in the service industry. For example, a narrow definition of 'qualified tips' might exclude certain gratuities, like those from digital platforms, affecting gig economy workers. Long-term, these regulations could influence tax compliance and revenue, with estimates from similar tip-related policies suggesting billions in potential deductions.
Different viewpoints emerge among stakeholders. Labor groups might push for broad inclusion of occupations to maximize deductions, citing economic pressures on tipped workers. Business associations could advocate for clear guidelines to ease reporting burdens, while fiscal conservatives might express concerns over reduced tax revenue. The IRS has emphasized that if no requests to speak are received, the hearing may be canceled, underscoring the importance of public involvement.
Potential Challenges and Ongoing Debates
Challenges include navigating the appropriations lapse, which could extend beyond the hearing date and affect the timeline for final rules. Debates center on the equity of tip deductions, with some arguing they unfairly benefit certain sectors, while others see them as essential relief. Future steps involve analyzing comments post-hearing, potentially leading to revised proposals. This process highlights tensions between regulatory needs and fiscal constraints, shaping how tax policies adapt to economic realities.