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    IRS says taxpayer service will suffer if Congress cuts modernization funds

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    WASHINGTON (Reuters) – The Internal Revenue Service said on Friday it will launch the 2025 tax filing season on Jan. 27 with expanded tools that cannot be adequately supported if the Republican-controlled Congress rescinds tens of billions of dollars in supplemental IRS funding.IRS Commissioner Danny Werfel said that should the IRS lose funding that was initially enacted at $80 billion over 10 years, it will have to reduce staffing levels that have improved taxpayer service and reduced processing times and backlogs for tax returns. The agency will also see its modernization program stagnate, putting many technology improvements in limbo, he said.”And so if we don’t have the right staffing levels, the performance will backslide, and we will see inevitably slower processing delays and potential backlogs,” Werfel told reporters during a news briefing to preview the 2025 filing season.The IRS won the supplemental funding in 2022 as part of the Biden administration’s Inflation Reduction Act, largely a clean energy subsidy and healthcare bill. The funding, which was passed with votes only from Democrats, made up for more than a decade of understaffing, and the U.S. Treasury had estimated that it would enable beefed up enforcement that would yield $564 billion in new tax revenue over a decade.Republicans called unsuccessfully for the funding to be rescinded, arguing that it would unleash an army of new auditors to harass taxpayers. But they subsequently chopped back $20 billion during government funding battles in 2023, bringing the total down to $60 billion through 2031.But another $20 billion in funding was suspended under a stop-gap funding measure last fall due to a drafting anomaly that repeated the prior year’s language. Unless that amount is restored, Deputy Treasury Secretary Wally Adeyemo said the U.S. budget deficit could rise by $140 billion over 10 years due to reduced enforcement.EXPANDED DIRECT FILE SYSTEMWhile Trump has said little about the IRS funds, billionaire Elon Musk, who co-leads the informal Department of Government Efficiency cost-cutting effort, asked subscribers on his X social media platform in November whether IRS funding should be “deleted.”The IRS, which collects 95% of federal revenues, has focused its initial new funding on increasing taxpayer-facing staff to answer questions, bringing average taxpayer phone waiting times to under five minutes. It introduced new scanning technology to allow it to process paper tax returns far more quickly.  Enhancements scheduled for the new tax year include an expanded Direct File system now available in 25 states, up from 12 in a pilot program last year, allowing taxpayers to file simpler electronic returns for free directly with the IRS without the need for a third-party preparer or software. New electronic form-signing capabilities and phone chatbots also are being made available, the IRS said.Werfel said reduced funding would cause new technology advances to “stagnate” and recently rolled-out tools will have fewer employees supporting them, creating longer wait times for taxpayers with issues.It also will hurt revenue collections as the rebuilding of the IRS’ capacity for sophisticated audits of wealthy taxpayers suffers, he added. More

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    Jobs report fuels Treasury yield surge as markets brace for 5% threshold

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    NEW YORK (Reuters) – A recent surge in U.S. Treasury yields may gain even more momentum after a strong jobs report reinforced expectations that interest rates will stay high for longer and raised the spectre of benchmark 10-year yields hitting 5% — a level that some fear could rattle broader markets.Friday’s jobs report revealed that employers added 256,000 jobs in December, well above economists’ forecasts, while the unemployment rate dropped, bolstering market expectations that the Federal Reserve will maintain elevated interest rates to curb economic overheating.That news dashed investors’ hopes for some respite from a sharp rise in Treasury yields that has wobbled stocks since the beginning of the year. The data also re-ignited concerns about inflation, which remains stubbornly above the Fed’s 2% target.”The report was obviously negative for inflation,” said Felipe Villarroel, partner and portfolio manager at TwentyFour Asset Management. “This is definitely not an economy that is decelerating.”Traders are now expecting the central bank will wait until at least June to reduce its policy rate. Before the jobs data, they were betting the Fed would cut rates as early as May with about a 50% chance of a second cut before year end.Both J.P. Morgan and Goldman Sachs pushed their Fed rate cut forecast to June, having earlier projected a cut in March.Concerns over a rebound in inflation have also begun to raise the prospect that the Fed’s next move could be a hike – a scenario that would have been unthinkable a few months ago when investors expected interest rates would have declined to about 2.8% by the end of this year. They are now at 4.25%-4.5%. “Our base case has the Fed on an extended hold. But we think the risks for the next move are skewed toward a hike,” analysts at BofA Securities said in a note on Friday.Longer-dated U.S. Treasury yields, which move inversely to prices, jumped to their highest levels since November 2023, with the 10-year hitting a high of 4.79%. Yields have gained 20 basis points since the beginning of the year amid a global government bonds selloff that has hit UK government bonds particularly hard, pushing 30-year gilt yields to their highest since 1998.Many in the bond market fear further weakness lies ahead, as fiscal and trade policies under the upcoming Donald Trump administration could lead to more Treasury issuance and a rebound in inflation. A BMO Capital Markets client survey before the jobs report showed 69% of respondents expect 10-year yields will test 5% at some point this year. Next (LON:NXT) week’s economic reports will feature December’s producer and consumer price inflation data, which could be key for the direction of yields. The yield curve comparing two-year with 10-year yields has steepened in recent weeks because 10-year yields have been rising while shorter-dated ones have remained flat, a so-called “bear steepening” dynamic, bad for long-term bond prices, indicating the market expects interest rates to remain high due to ongoing resilience in the economy.But that could change should inflation rise again, warned Jack McIntyre, a portfolio manager at Brandywine Global.”Look for Treasury market to shift to a bear flattening from its recent bear steepening trajectory,” he said in a note. Bear flattening occurs when short-term interest rates rise faster than long-term interest rates, which can happen when investors anticipate central banks will increase interest rates.Outside of bonds, rising U.S. Treasury yields could dampen investor interest in stocks and other high-risk assets by tightening financial conditions and increasing borrowing costs for businesses and individuals.Higher yields can also improve the attractiveness of bonds against equities, “with 5% still seen as a trigger point for asset allocation shifts,” said BNY in a recent note.In late 2023, stocks declined when benchmark 10-year yields reached 5% for the first time since 2007, and while they largely shrugged off the increase in yields late last year as the move was linked to an improved economy, stocks tumbled this week as upbeat economic data propelled yields higher.The S&P 500 was down 1% on Friday.”The 10-year yield will remain above 4% this year and as a result it could be quite challenging for the stock market,” said Sam Stovall, chief investment strategist of CFRA Research, after the jobs data. “We started the year on the wrong foot.” More

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    Bankers hope for IPO revival in 2025 as high-profile listings stack up

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    NEW YORK (Reuters) – Investment bankers are gearing up for a pickup in dealmaking activity in global equity capital markets this year, buoyed by a promising pipeline of anticipated initial public offerings of several high-profile companies. Liquefied natural gas producer Venture Global, privately held medical supply giant Medline, and cybersecurity company Sailpoint, backed by private equity firm Thoma Bravo, are expected to headline a crowded line-up of stock market flotations in the first half of 2025, according to people familiar with the matter. An increase in capital markets activity, driven by improving economic confidence, is expected to be a major boon for several of these private equity-backed companies.Private equity firms have been struggling to sell or list portfolio companies over the past two years due to high interest rates and volatile stock markets that put a chill on dealmaking. “Many of the companies owned by private equity firms have become sizeable,” said Arnaud Blanchard, global co-head of equity capital markets for Morgan Stanley (NYSE:MS). “Sponsors know it may take a while to complete a full exit, so they are becoming active now, early in the cycle.” Other buzzy names that could potentially go public in the U.S. this year include the likes of Swedish payments firm Klarna, artificial intelligence cloud platform CoreWeave, and financial technology firm Chime, which confidentially submitted paperwork for its flotation in December, the sources said.The largest private equity firms have become more bullish about IPOs of their portfolio companies in recent months.When major U.S. banks report earnings next week, investors will focus on the outlook for capital markets, which had a surge of activity last year.Global equity issuance rose 20% last year, but stock market launches have so far lagged that increase, remaining far below their 2021 peak. IPOs raised $123 billion last year, compared with a record-breaking haul of $594 billion in 2021, according to Dealogic.Moreover, Wall Street’s most-watched gauge of investor anxiety, the Cboe Volatility Index, is currently at a relatively low level of about 18, raising expectations of a near-term upswing in capital markets. LARGER DEALSBankers are expecting more large IPOs, which typically refer to share sales worth $750 million and above, and are appealing because they often feature established companies with strong financial performance and offer greater liquidity to investors.“IPOs, on average, are likely to be larger in size perhaps than they ever have been,” Brian Friedman, president of Jefferies, told Reuters in an interview. Bankers also expect the 2025 surge in IPOs to reach across a broad swathe of sectors.”Investors continue to favor scaled, profitable companies with sensible balance sheets and durable cash flows, especially as rates may be staying higher for longer,” said Matt Warren, Bank of America’s head of Americas equity capital markets cash origination. While valuations have risen, many startups backed by private equity firms are still falling short of their targeted returns, said JPMorgan Chase (NYSE:JPM) president Daniel Pinto. “A lot of the companies in the sponsor books, even with these valuations, are not able to produce a good enough exit for these investments,” he said. “Private equity firms can unlock value in several ways, including small stake sales in IPOs, which can then be used for a strategic sale with a premium.”Tech companies may buck the trend, attracting demand from investors even if they are smaller in size, Goldman Sachs Chief Financial Officer Dennis Coleman said during the firm’s financial conference in December.The Wall Street investment banking giant has a “substantial tech pipeline” of IPOs and expects to see offerings for fast-growing companies to rebound after strong performances from recent small and mid-cap tech IPOs. More

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    Explainer-What happens after the TikTok ban?

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    (Reuters) -The U.S. Supreme Court justices on Friday expressed skepticism about a challenge from TikTok and its Chinese parent company ByteDance against a law signed by President Joe Biden, which would force the sale or ban of the popular short-video app by Jan. 19 in the United States. Some of the justices seemed to acknowledge Congress’ national security concerns over TikTok, given its ownership by what lawmakers deemed a foreign adversary.Here’s what could happen on Jan. 19.WHAT HAPPENS TO THE APP?New users will not be able to download TikTok from app stores and existing users will not be able to update the app, because the law prohibits any entity from facilitating the download or maintenance of the TikTok application. In a Dec. 13 letter, U.S. lawmakers told Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL)’s Google, which operate the two main mobile app stores, that they must be ready to remove TikTok from their stores on Jan. 19. Cloud service provider Oracle (NYSE:ORCL) could see some disruption to its work with TikTok. Oracle hosts TikTok’s U.S. user data on its servers, reviews the app’s source code and delivers the app to the app stores. Google declined to comment, while Oracle and Apple did not respond to requests for comment. HOW WILL USERS BE AFFECTED?TikTok’s 170 million users in the U.S. will likely still be able to use the app because it is already downloaded on their phones, experts say. But over time, without software and security updates, the app will become unusable. Some users have begun posting TikTok videos instructing others on how to use virtual private networks (VPNs), which mask an internet user’s location, as a way to circumvent the possible ban. Content creators who have built businesses from their TikTok followings are preparing for the worst. Nadya Okamoto, who has 4.1 million followers and founded August, a menstrual products brand, said TikTok helped her business grow organically through viral videos. A TikTok ban could force her and other small businesses to spend more on marketing and raise their costs. “It’s very stressful,” she said. “If TikTok goes away, we’ll be okay, but it is going to be a hard hit.”WHAT HAPPENS TO TIKTOK’S EMPLOYEES?TikTok’s 7,000 employees in the U.S. are still trying to figure out their fate. After a U.S. appeals court upheld the sell-or-ban law on Dec. 6, pessimism spread among staffers who began worrying about layoffs, said one current employee.But the company has continued to make job offers for new roles, prompting some confused job seekers to seek advice on Blind, an anonymous forum for employees to discuss companies. One user posted on Blind that they received a job offer from ByteDance in San Jose, California, starting in February. Others commented on the post, counseling the user to accept the offer and use it as leverage in other interviews.”I signed the offer and will wait and watch how the situation unfolds,” the user said in the Blind post. WHAT WILL ADVERTISERS DO?TikTok’s U.S. ad revenue is expected to total $12.3 billion in 2024, according to research firm eMarketer, and while that is much smaller than Instagram owner Meta Platforms (NASDAQ:META), advertisers say TikTok’s devoted user base means some brands will try to advertise beyond Jan. 19.”The ongoing assumption is the app might not be updatable, but you’ll see a groundswell of usage,” said Craig Atkinson, CEO of digital marketing agency Code3. The app’s e-commerce feature TikTok Shop, which lets users purchase products directly from videos, has no direct competitor that advertisers can easily switch to, Atkinson said, adding that his agency was signing new contracts with clients to build TikTok Shop campaigns even as of late December. Some advertisers may continue spending beyond Jan. 19 on TikTok and reevaluate if the app sees declining usage or performance, said Jason Lee, executive vice president of brand safety at media agency Horizon Media.ARE THERE POTENTIAL BUYERS?TikTok has repeatedly said it cannot be sold from ByteDance. That hasn’t deterred billionaire businessman Frank McCourt, a former owner of the Los Angeles Dodgers baseball team who said he has secured $20 billion in verbal commitments from a consortium of investors to bid for TikTok. McCourt has not yet spoken with ByteDance, but said he believes the Supreme Court will uphold the law requiring TikTok’s divestment, after which the parent company would be more open to sale discussions.McCourt and his team have had “preliminary conversations” with members of the incoming administration of President-elect Donald Trump, who had tried to ban TikTok during his first term in the White House but has since reversed his views, and are also seeking a CEO to lead the app. McCourt’s business plan for TikTok includes migrating the app onto open-source technology and earning revenue through e-commerce and licensing data for AI training.  More

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    Macquarie says Canada employment report deserves added caution

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    The report, which showed a significant increase of 91,000 jobs in December, was primarily driven by hiring among older workers. This surge in employment led to a drop in the unemployment rate to 6.7%, which partly reversed the sharp increase observed in November.The increase in hours worked, rising by 0.5% month-over-month, is seen as a positive sign that could bolster real GDP estimates for the fourth quarter of 2024 and the first quarter of 2025. Despite this growth, Macquarie economists urge caution, suggesting that the employment report’s figures may have been influenced by seasonal adjustment challenges due to the timing of the data collection.Furthermore, while the recent employment growth has closed the gap between the three-month moving average trend in employment growth and the breakeven level needed to keep the employment rate constant, the economists highlight that this adjustment was entirely attributable to the 55 years and older age group. This demographic detail suggests that the labor market’s strength may not be as broad-based as the headline numbers imply.In addition to labor market insights, Macquarie economists referenced their team’s Global Economic and Market Outlook in relation to the Bank of Canada’s future policy direction. They predict that the central bank will implement four consecutive 25 basis point cuts per meeting, which would bring the overnight rate down to 2.25% by June 2025.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More