SIH Partners LLLP, Explorer Partner Corp., Tax Matters Partner v. Commissioner of Internal Revenue, 167 T.C. No. 8 (August 6, 2026)

In the highly structured world of corporate tax planning, practitioners often seek comfort in the mechanical safe harbors provided by the Treasury Regulations. The presumption is that if a transaction can be mathematically engineered to comply with a bright-line test, the taxpayer’s tax position is secure. However, the recent United States Tax Court decision in SIH Partners LLLP v. Commissioner, 167 T.C. No. 8 (August 6, 2026), serves as a stark reminder that subjective anti-abuse rules can completely override formal regulatory compliance.

In this case, the Tax Court examined a sophisticated dividend arbitrage transaction involving hundreds of millions of dollars in Swiss equities, a portfolio swap, and a pre-existing firm-wide hedge. While the taxpayer successfully engineered the transaction to comply with the mechanical “Substantial Overlap Test” under the portfolio rules of Treasury Regulation § 1.246-5(c)(1)(iii), the Court ultimately disallowed over $170 million in qualified dividend income (QDI) and more than $25 million in foreign tax credits (FTCs) by applying the broad, subjective “Anti-Abuse Rule” of Treasury Regulation § 1.246-5(c)(1)(vi). For CPAs and Enrolled Agents (EAs), the decision provides invaluable lessons on the limits of literal compliance and the rigorous standards the IRS and courts will apply to pre-transaction economic profit analyses.

Rev. Proc. 2026-30, August 5, 2026.

On September 4, 2026, a significant shift in tax administration takes effect for practitioners representing qualified retirement plans and tax-exempt organizations. The Internal Revenue Service (IRS) has issued Revenue Procedure 2026-30, which establishes that all requests for letter rulings and nonbank trustee approval letters under the jurisdiction of the Employee Plans Rulings and Agreements Office must be submitted electronically. Specifically, this procedure mandates the use of Form 15662, Application for Private Letter Rulings, and requires that all submissions and associated user fees be processed through the Pay.gov website. Mailed or hand-delivered paper submissions, along with physical paper checks, will no longer be accepted and will be returned to the applicant. This article analyzes the background, legal authority, and section-by-section modifications enacted by this new procedure, providing a technical roadmap for tax professionals.

Scott L. Reed and Stacy N. Reed v. Commissioner of Internal Revenue, T.C. Memo. 2026-64, Docket No. 13757-20 (August 5, 2026)

The United States Tax Court’s recent decision in Scott L. Reed and Stacy N. Reed v. Commissioner of Internal Revenue, T.C. Memo. 2026-64 (filed August 5, 2026), offers tax professionals a valuable case study in the federal income tax consequences of aggressive tax positions paired with inadequate recordkeeping. The case involved Scott L. Reed, a real estate development consultant, and Dr. Stacy N. Reed, a medical doctor, who during the taxable years 2012 through 2015 received income from a myriad of sources and were involved in several highly complex projects. These projects spanned historic real estate development, the starting of a private dermatology practice, and the commercial sale of reclaimed wood. Across these varied activities, however, the Court noted that “recordkeeping left much to be desired”.

The Commissioner of Internal Revenue issued a Notice of Deficiency determining that the taxpayers underreported ordinary income from multiple sources, realized unreported net capital gains, improperly claimed Schedule C business expense deductions and Schedule E unreimbursed partnership expenses, and were not entitled to a claimed Section 38 general business credit. The Commissioner also asserted additions to tax under Section 6651(a)(1) for late filing and accuracy-related penalties under Section 6662(a). Judge Toro, writing for the Tax Court, sustained the vast majority of the Commissioner’s deficiency determinations, concluding that “the Reeds have carried their burden of proof only with respect to some of the issues that remain”. For Certified Public Accountants (CPAs) and Enrolled Agents (EAs), the decision highlights the strict application of IRC Section 162 expense substantiation standards, the stringent boundaries of the Lohrke exception, the absolute binding nature of the form of chosen business transactions, and the fatal consequences of failing to address issues in post-trial briefing.

Big Apple Tompkins Realty LLC, Mojahed H. Bhutta, Partnership Representative v. Commissioner of Internal Revenue, 167 T.C. No. 7 (August 5, 2026)

In tax controversy, the line between a jurisdictional requirement and a mere claim-processing rule can make or break a taxpayer’s case. If a filing deadline is jurisdictional, an untimely petition leaves the court completely powerless to hear the dispute, and equitable considerations cannot save the taxpayer from dismissal. Conversely, if a deadline is a nonjurisdictional claim-processing rule, the court retains the authority to hear the case, and late filings may be excused under principles such as equitable tolling.

In a landmark decision of first impression, the U.S. Tax Court in Big Apple Tompkins Realty LLC v. Commissioner evaluated the jurisdictional status of the 90-day filing deadline for judicial review of a Notice of Final Partnership Adjustment (FPA). Operating under the centralized partnership audit procedures enacted by the Bipartisan Budget Act of 2015 (BBA), the court navigated the statutory text, the broader administrative scheme, and Supreme Court precedent. The court’s holding represents a major development for tax practitioners: the 90-day deadline under Section 6234(a) is not jurisdictional, opening the door for partnerships to seek equitable relief in untimely filings.

Notice 2026-28, 2026-28 I.R.B. 1 (Aug. 5, 2026)

The enactment of the One, Big, Beautiful Bill Act (OBBBA), Pub. L. No. 119-21, 139 Stat. 72 (July 4, 2025), has fundamentally reshaped the tax landscape for employer-provided fringe benefits by making the employer credit for paid family and medical leave under Internal Revenue Code (I.R.C.) § 45S permanent. Prior to the OBBBA, the credit was a temporary incentive prone to statutory expirations. Notice 2026-28 provides critical administrative guidance regarding a significant statutory expansion: the addition of the “premium method” under I.R.C. § 45S(a)(1)(B). This new calculation method permits eligible employers to elect to determine the credit based on the premiums paid or incurred for an insurance policy providing family and medical leave coverage, rather than solely on wages actually paid to employees on leave.

This article provides a technical examination of Notice 2026-28 and I.R.C. § 45S, detailing the statutory background of Section 45S, the mechanical application of the traditional wage method, the operation of the new premium method, the complex rules governing “creditable coverage” and “blended premiums,” aggregation rule modifications, double-dipping prohibitions, and the compliance implications of the corresponding business deduction disallowances under I.R.C. § 280C(a).

Appeal of J. Otting and Y. Otting, OTA Case No. 230914221 (Cal. Off. Tax App. 2026)

For tax practitioners representing executive clients who relocate from California, the tax sourcing of post-termination payments is a frequent and high-stakes battleground. On February 11, 2026, the California Office of Tax Appeals (OTA) held an oral hearing and subsequently issued its opinion in the Appeal of J. Otting and Y. Otting (OTA Case No. 230914221). The OTA’s decision provides a highly sophisticated, bifurcated sourcing framework for termination payments. By distinguishing between severance payments, medical premium reimbursements, and restricted stock units (RSUs), the OTA clarified the boundaries between service-based wage sourcing under California Revenue and Taxation Code (R&TC) Section 17951 and intangible-based contract-right sourcing under R&TC Section 17952. This article analyzes the facts, legal arguments, and the court’s detailed statutory application, providing critical takeaways for CPAs and EAs handling multi-state executive compensation.

Zhang v. Internal Revenue Service, No. 26-cv-00525-VKD (N.D. Cal. July 30, 2026)

The compliance burden for U.S. taxpayers receiving foreign gifts has intensified over the last decade, particularly under the disclosure regime mandated by Internal Revenue Code (IRC) § 6039F. Under this section, U.S. persons who receive aggregate foreign gifts exceeding $10,000 (adjusted for inflation, with the threshold historically set at $100,000 for gifts from foreign individuals) during any taxable year must file an information return via Form 3520. Failure to timely file Form 3520 triggers severe penalties equal to 5% of the amount of the foreign gift for each month the failure continues, capped at 25% in the aggregate.

While the statute provides a “reasonable cause” exception under IRC § 6039F(c)(2), the Internal Revenue Service (IRS) routinely rejects ignorance of the law as a valid defense. When the IRS assesses these substantial penalties and denies administrative relief, taxpayers often seek judicial review. In a recent opinion, Ziyue Zhang v. Internal Revenue Service, et al., the United States District Court for the Northern District of California addressed whether a taxpayer can challenge a Form 3520 penalty assessment under the Administrative Procedure Act (APA), 5 U.S.C. § 701 et seq.. The court’s decision in this case reinforces a significant jurisdictional hurdle for taxpayers seeking to bypass the traditional tax litigation pathways in favor of APA review.

PLR 202631001, July 31, 2026

For tax practitioners managing estate administrations, the post-mortem division of individual retirement accounts (IRAs) represents a significant compliance challenge. In Private Letter Ruling 202631001, the Internal Revenue Service (IRS) addressed a critical question: whether a trustee-to-trustee transfer of a decedent’s traditional and Roth IRAs to separate transferee IRAs, partitioned in equal shares for the estate’s beneficiaries, constitutes a taxable distribution or a prohibited rollover. The Service ruled in favor of the taxpayer, confirming that such transfers, when properly structured, are non-taxable events and do not trigger immediate income recognition under Section 408(d)(1) of the Internal Revenue Code (IRC).

Section 898(c) Transition Rule for Allocating Foreign Taxes and Section 960(d)(4) Foreign Tax Credit Disallowance, REG-115145-25, July 31, 2026

The Department of the Treasury and the Internal Revenue Service have issued proposed regulations under REG-115145-25 (RIN 1545-BR76) addressing two critical statutory changes introduced by the One, Big, Beautiful Bill Act (OBBBA), Public Law 119-21. The proposed regulations provide essential transition guidance for specified foreign corporations (SFCs) forced to alter their taxable years due to the repeal of the one-month deferral election under Section 898(c)(2), and implement the ten percent foreign tax credit (FTC) disallowance on distributions of previously taxed earnings and profits (PTEP) under Section 960(d)(4). This article explores the statutory impetuses, the specific regulatory modifications, the IRS’s legal justifications, and the transitional reliance rules available to practitioners.

Walter D. Prezioso & Kimberly J. Prezioso v. Commissioner, T.C. Memo. 2026-63, July 28, 2026

The taxpayer, Walter D. Prezioso, joined GSP Precision, Inc. (GSP)—an aerospace manufacturing company incorporated under California law in 1983 by his father, Juan Pablo Prezioso, and George J. Gottardi—as an employee in 1992. Following Walter’s acquisition of a 25% interest in GSP from his father in 1997, George retained a 50% interest, while Juan Pablo and Walter each held 25%. In 2001, GSP’s board of directors adopted a resolution designating Walter’s signature as the sole requirement for any checks issued by GSP. By June 2002, George and Juan Pablo effectively retired from GSP’s day-to-day operations, vesting Walter with sole authority over day-to-day operations and future employment decisions, except for the employment of family members. Walter turned the company's declining financials around and became chief executive officer in 2007.

The Court found that beginning in 2007, GSP began paying certain personal expenses for Walter. GSP's board minutes dated December 22, 2009, authorized GSP to "continue to pay personal leased vehicle, vehicle insurance, gas, family medical insurance, Sentry life insurance[,] and credit card expenses for lunch, dinner, customer expenses[,] or company expenses." However, the Court found that GSP paid for a vast array of Walter's personal expenses that far exceeded those authorized by the board. Specifically, the Court found that GSP paid for Walter’s "personal credit cards, home renovations, a home-equity line of credit, landscaping services, tennis court and pool contractors, and audio/visual equipment." GSP also paid Walter’s boat and recreational vehicle loans and leased vehicles on his behalf, issuing over 400 checks for Walter’s personal expenses during the tax years in issue (2009–12).

The Court found that for all years in issue except 2012, "the amounts GSP paid for Walter’s personal expenses exceeded the losses reported on its Forms 1120, U.S. Corporation Income Tax Return." None of these payments were reported on Forms W-2 or Forms 1099-MISC issued to Walter, exempting them from payroll taxes and federal income tax reporting. Nonetheless, the Court found that Walter understood these benefits were compensatory, noting that on a credit application for a Ferrari lease, Walter listed his income as "Verifiable $52,950 W-2" and "Actual $275,000."

HBM Holdings Co. v. Commissioner, 167 T.C. No. 6 (July 27, 2026)

The United States Tax Court recently issued a reported decision in HBM Holdings Co. v. Commissioner, 167 T.C. No. 6 (2026), providing critical guidance on the intersection of Section 381 corporate liquidations, the "lonely parent" exception, and the Separate Return Limitation Year (SRLY) subgroup rules. For tax professionals advising corporate groups, this case underscores the rigidity of the consolidated return regulations and serves as a stark reminder that the Tax Court will not substitute "economic reality" or "common control" arguments for the explicit text of the Treasury Regulations.

This article provides a technical analysis of the facts in HBM Holdings, the taxpayer’s arguments for relief, the court's structural analysis of the consolidated return regulations, and the ultimate planning lessons for CPAs and tax practitioners.

I Health and Life Insurance Services v. United States, No. 25-1315T, United States Court of Federal Claims, July 23, 2026

For tax professionals advising clients on the Employee Retention Credit (ERC), the litigation landscape continues to evolve, establishing rigorous pleading and evidentiary standards. In I Health and Life Insurance Services v. United States, the United States Court of Federal Claims addressed the critical "suspension-of-business" prong under 26 U.S.C. § 3134(c)(2)(A)(ii)(I). The court's decision, authored by Judge Armando O. Bonilla, highlights the high bar taxpayers must clear to survive a motion for judgment on the pleadings under Rule 12(c) of the Rules of the United States Court of Federal Claims (RCFC). Specifically, the court held that a taxpayer must allege that government-mandated occupancy restrictions and worker exclusions caused a "discrete, more-than-nominal portion" of its active trade or business to temporarily cease. While finding that I Health failed to sufficiently plead a partial suspension, the court deferred ruling on the government's motion and granted the taxpayer leave to amend, recognizing the newly emerging precedents in the Circuit.

IRS PLR 202630002, July 24.2026

The Internal Revenue Service (IRS) has recently completed a notable regulatory about-face that carries significant planning implications for life insurance companies and tax professionals advising on variable annuity contracts. In Private Letter Ruling (PLR) 202630002, issued on April 28, 2026, and released to the public on July 24, 2026, the Service retroactively revoked PLR 202426001. This retroactive revocation effectively reinstates a critical tax deferral ruling originally issued in PLR 201424014 regarding the application of the constructive receipt doctrine to a unique variable term certain annuity payout option. For corporate and individual tax planners, this development underscores the durability of the tax deferral benefits under Internal Revenue Code (I.R.C.) § 72, whilst highlighting the complex administrative procedures governing the revocation and reinstatement of letter rulings.

Final Release: Revised Interpretation Tax Services (ET sec. 1.295.160), AICPA Professional Ethic Executive Committee, July 15, 2026

The AICPA Professional Ethics Executive Committee (PEEC) has adopted critical revisions to its ethics interpretation on Tax Services (ET sec. 1.295.160). Formally released by the Professional Ethics Division on July 15, 2026, these revisions carry an official effective date of January 15, 2027, though early implementation is permitted.

Notice of these revisions will appear in the online edition of the Journal of Accountancy in July 2026. For CPAs and CPA firms with audit or other attest clients, these changes establish a more structured and rigorous framework for evaluating how tax advisory, planning, preparation, and representation services impact independence.  This impacts services CPA firms provide to clients that require the maintenance of professional independence (such as audits, reviews, etc.)

This article provides a comprehensive walkthrough of the revised interpretation, detailing the structural changes, new requirements, and renumbered paragraphs to help you update your firm's quality control and independence policies before the new year.

Anderson v. Commissioner, T.C. Sum. Op. 2026-6, No. 11171-24S (July 22, 2026)

For tax professionals representing clients in joint liability disputes, the U.S. Tax Court’s decision in Trisha D. Anderson v. Commissioner, T.C. Summary Opinion 2026-6, provides a highly instructive case study on the boundaries of the "actual knowledge" and allocation rules under Internal Revenue Code (I.R.C.) § 6015(c).

Generally, married taxpayers who elect to file a joint federal income tax return are held jointly and severally liable for the entire tax due on their aggregate income for that year under I.R.C. § 6013(d)(3). Under certain circumstances, however, I.R.C. § 6015 allows an eligible spouse to obtain relief from this joint and several liability.

This article details the facts of the Anderson case, the taxpayer's request for relief, the court's procedural and substantive analysis, and the final allocation that resulted in a total grant of relief to the petitioner.

Matto v. Commissioner, T.C. Memo. 2026-60, July 21, 2026

The intersection of the Employee Retention Credit (ERC) and amended tax returns has created a surge in litigation regarding the assessment of underpayment interest. A recent decision by the United States Tax Court, Matto v. Commissioner, provides critical clarity for tax professionals regarding the narrow scope of interest abatement under Internal Revenue Code (I.R.C.) § 6404(e)(1) and the limitations of relying on erroneous oral advice from IRS personnel.

Rev. Proc. 2026-26, July 21, 2026

The Internal Revenue Service has issued Revenue Procedure 2026-26 to establish the necessary indexing adjustments for the 2027 calendar year. This guidance specifically targets the administrative and procedural requirements for determining tax liability and eligibility for certain tax credits. As stated in the guidance, "This revenue procedure provides indexing adjustments to the applicable percentage table (Applicable Percentage Table) in § 36B(b)(3)(A)(i) of the Internal Revenue Code (Code) for taxable years beginning in calendar year 2027." This table serves as the foundational mechanism for calculating an individual’s premium tax credit under § 36B. Furthermore, the procedure establishes the "Required Contribution Percentage (Required Contribution Percentage) in § 36B(c)(2)(C)(i)(II) for plan years beginning in calendar year 2027," which is utilized to determine whether an individual meets the threshold for affordable employer-sponsored minimum essential coverage under § 36B.

Linda M. Lewis, Donor, Petitioner v. Commissioner of Internal Revenue, Respondent; Peter F. McDougall, Donor, Petitioner v. Commissioner of Internal Revenue, Respondent, T.C. Memo. 2026-58, Docket Nos. 2459-22, 2460-22 (July 20, 2026)

In estate planning, the premature termination of a trust can trigger unexpected gift tax consequences. In the consolidated cases of Linda M. Lewis v. Commissioner and Peter F. McDougall v. Commissioner, T.C. Memo. 2026-58, the United States Tax Court resolved a critical valuation dispute arising from the termination of a qualified terminable interest property (QTIP) trust. Having previously determined that the remainder beneficiaries made taxable gifts by allowing their father to receive the entirety of the trust's assets upon termination, the court was tasked with valuing those gifts.

The court’s opinion is highly technical, addressing the interplay between federal tax valuation statutes, such as I.R.C. § 7520 and I.R.C. § 2207A, and Washington state trust law. The Tax Court held that state law, rather than the actuarial tables of I.R.C. § 7520, governs the underlying property entitlements upon trust termination. Additionally, the court ruled that the value of the gifts must be reduced by the remainder beneficiaries' avoided obligation to reimburse the primary beneficiary for gift taxes under I.R.C. § 2207A(b). This article examines the facts, statutory framework, legal analysis, and key take-aways of this landmark decision for tax professionals.

Savannah Shoals, LLC v. Commissioner of Internal Revenue, No. 24-12661, (11th Cir. 2026).

Conservation easement deductions remain one of the most heavily litigated areas of federal tax law. For tax professionals, advising clients on these transactions requires not only a deep understanding of the strict statutory and regulatory rules under Internal Revenue Code Section 170, but also a mastery of the evidentiary and valuation principles applied by the courts. The recent decision by the United States Court of Appeals for the Eleventh Circuit in Savannah Shoals, LLC v. Commissioner underscores the high stakes of these disputes and provides critical guidance on how courts determine a property's "highest and best use" and evaluate competing expert testimony.

In this case, the taxpayer claimed a $23 million deduction for a conservation easement based on the theory that the property’s highest and best use was as an aggregate quarry. The Internal Revenue Service rejected the deduction in its entirety and imposed substantial penalties. The Tax Court agreed with the Commissioner, valuing the easement at a fraction of the claimed amount and sustaining a 40% gross valuation misstatement penalty. On appeal, the Eleventh Circuit affirmed the Tax Court’s decision, offering a detailed analysis of the legal and factual standards governing valuation. This article provides a technical breakdown of the case's facts, the taxpayer's arguments, the court's legal analysis, and the critical takeaways for tax practitioners.

South Delta Planning & Development District v. United States, Cause No. 4:25-cv-197-JDM-RP (N.D. Miss. July 15, 2026)

The plaintiff, South Delta Planning & Development District ("South Delta"), is a planning and development organization that sought refunds for payroll taxes by claiming eligibility for the Employee Retention Credit ("ERC"). In early 2023, South Delta submitted amended Form 941 payroll tax returns for five calendar quarters: the second and third quarters of 2020, and the first, second, and third quarters of 2021.

Initially, the Internal Revenue Service ("IRS") processed these amended returns and issued refund checks for four of the five quarters—specifically, both quarters in 2020 and the first two quarters of 2021. The IRS issued no refund for the third quarter of 2021.

In late 2023, the IRS made an administrative about-face. The Service disallowed the previously issued ERC refunds and assessed South Delta for the full amount of the refunds issued for the second and third quarters of 2020, plus interest and late penalties. While the IRS announced that similar assessments were forthcoming for the first and second quarters of 2021, no such assessments were ever issued. The IRS remained silent regarding the third quarter of 2021, for which it had never issued a refund.

To challenge these assessments in federal court, South Delta utilized the divisible tax rule. Rather than paying the entire assessment, which is the general rule for federal tax litigation under the Flora full-payment rule, South Delta paid the payroll taxes assessed for one employee in both of the disputed 2020 quarters. Following this payment, South Delta filed a refund complaint in the U.S. District Court for the Northern District of Mississippi.