Determination of Target Normal Cost and Funding Target for Single-Employer Defined Benefit Plans, REG-107855-25, RIN 1545-BR50, 91 Fed. Reg. _____ (proposed Aug. 20, 2026) (to be codified at 26 C.F.R. § 1.430(d)-1)

The Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) have released a Notice of Proposed Rulemaking under REG-107855-25, which proposes to “modify rules in the existing regulations relating to the minimum funding requirement applicable to single-employer defined benefit pension plans”. These proposed regulations aim to “implement certain statutory amendments that have not yet been reflected in the regulations”.

Historically, the minimum funding rules under Internal Revenue Code (I.R.C.) § 430 were established by the Pension Protection Act of 2006 (PPA ’06), Pub. L. No. 109-280, 120 Stat. 780. The existing final regulations, published on October 15, 2009 (T.D. 9467), have applied to plan years beginning on or after January 1, 2010. Since the issuance of T.D. 9467, several key statutory changes have altered the landscape of single-employer defined benefit plans. The proposed regulations primarily reflect amendments made by the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA ’08), Pub. L. No. 110-458, 122 Stat. 5092; the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), Pub. L. No. 116-94, 133 Stat. 2534; and the SECURE 2.0 Act of 2022 (SECURE 2.0 Act), Pub. L. No. 117-328, 136 Stat. 4459.

Notice of Proposed Rulemaking, REG-119882-25, RIN 1545-BS06, ‘Application of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 to the Refunded Portion of Certain Federal Refundable Tax Credits,’ Scheduled for Publication in the Federal Register on August 20, 2026 (Federal Register Doc. 2026-16985)

The Department of the Treasury and the Internal Revenue Service have released a notice of proposed rulemaking, REG-119882-25 (RIN 1545-BS06), that represents a shift in the intersection of tax administration and federal immigration policy. This proposed regulation seeks to apply Title IV of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), Public Law 104-193, 110 Stat. 2105, to the refunded portion of certain individual refundable tax credits, collectively designated as the “affected refundable tax credits”.

Under the proposed rules, individuals who are not “qualified aliens” under PRWORA would be ineligible to receive the cash-refunded portion of these credits, though they would remain eligible to use the credits to reduce their actual tax liability to zero. This article provides a comprehensive technical analysis of the background, legal authority, justification, operative changes, and planning implications of these proposed regulations for CPAs and Enrolled Agents (EAs).

Mandatory Limits and the Equitable Tolling Deficit: Analyzing Tax Court Filing Deadlines After Kyick Holdings v. Commissioner

Kyick Holdings, LLC, Transferee v. Commissioner of Internal Revenue Service, No. 25-1429, --- F.4th --- (1st Cir. Aug. 17, 2026)

In the complex realm of federal tax litigation, the procedural rules governing the timing of Tax Court petitions are of paramount importance. The United States Court of Appeals for the First Circuit recently addressed these rules in Kyick Holdings, LLC, Transferee v. Commissioner of Internal Revenue Service. Decided on August 17, 2026, the case delivers a nuanced, three-part holding that significantly impacts how tax professionals evaluate Tax Court filing deadlines. Specifically, the First Circuit held that while the ninety-day filing deadline under Internal Revenue Code (I.R.C.) § 6213(a) is nonjurisdictional, it remains a mandatory claim-processing rule that is completely immune to the doctrine of equitable tolling.

In doing so, the First Circuit established a major circuit split, departing from the Second, Third, Sixth and Eighth Circuits’ equitable tolling stances. To reach this conclusion, the panel relied heavily on the Supreme Court’s recent decision in Enbridge Energy, LP v. Nessel (2026), which fundamentally reshaped the federal courts’ approach to nonjurisdictional time bars and equitable exceptions. For CPAs and Enrolled Agents (EAs), Kyick Holdings serves as a stern reminder that procedural technicalities can be just as fatal to a client’s case as substantive errors, even when the taxpayer acts with utmost diligence.

Malibu Valley Land, LLC v. Commissioner, T.C. Memo. 2026-68 (Aug. 17, 2026)

The valuation of noncash charitable contributions has long been a battleground between taxpayers and the Internal Revenue Service. Few cases illustrate the technical complexity of this arena as vividly as Malibu Valley Land, LLC v. Commissioner. This dispute involves a massive gap in valuation regarding a perpetual conservation easement on land with development potential in the Santa Monica Mountains. For tax professionals, particularly CPAs and EAs, this case offers critical guidance on how vested property rights, multi-jurisdictional land-use laws, and partnership interest transactions affect the fair market value of real property. Furthermore, it clarifies the jurisdictional boundaries under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) for interest expense characterization and the standards for establishing a “reasonable cause and good faith” defense against accuracy-related penalties under Section 6664.

Proposed Removal of a Reporting Requirement for Trusts Whose Charitable Contribution Deductions are Solely for Contributions Made by Passthrough Entities, REG-109082-25, 91 Fed. Reg. _____ (proposed Aug. 17, 2026)

The Department of the Treasury and the Internal Revenue Service (IRS) have issued a notice of proposed rulemaking, REG-109082-25, designed to streamline the information reporting requirements under Internal Revenue Code (IRC) Section 6034 for certain trusts claiming charitable contribution deductions under Section 642(c). The primary objective of the proposed regulations is to eliminate the redundant and administratively burdensome obligation for a trust to file Form 1041-A, U.S. Information Return Trust Accumulation of Charitable Amounts, when its only charitable contribution deductions for the taxable year result from its direct or indirect ownership in passthrough entities, such as partnerships or S corporations. By removing this filing requirement, the IRS aims to reduce compliance costs and administrative friction for trustees in situations where the underlying charitable contributions are already documented via Schedule K-1 and do not involve the accumulation of trust income.

Additionally, the proposed regulations modify Section 1.6034-1 of the Income Tax Regulations to formally clarify that split-interest trusts, as described in Section 4947(a)(2), satisfy their information reporting obligations by filing Form 5227, Split-Interest Trust Information Return, rather than Form 1041-A. Importantly, the proposed regulations contain a taxpayer-favorable interim reliance provision, allowing eligible trusts to rely on the proposed rules for taxable years ending before the final regulations are published.

Evans v. Commissioner, Nos. 24-11882 & 24-11884 (11th Cir. 2026)

For tax professionals advising clients on charitable contributions of real property, conservation easements represent one of the most highly scrutinized areas of federal tax law. The critical battlefield in these cases is almost invariably the valuation of the easement. In the consolidated appeal of Ralph G. Evans v. Commissioner and Nathaniel A. Carter v. Commissioner, the United States Court of Appeals for the Eleventh Circuit addressed a pivotal question: Must the U.S. Tax Court perform a formal, explicit determination of a property’s “highest and best use” (HBU) when applying the before-and-after valuation method, or can it adopt an expert’s valuation sub silentio?

While the Eleventh Circuit majority affirmed a Tax Court decision that slashed a claimed $14.175 million deduction to a mere $1 million, a vigorous dissent by Circuit Judge Branch highlights a profound split on the necessity of explicit judicial findings regarding a property’s potential development horizon. This article provides a comprehensive analysis of the facts, the legal framework, the majority’s reasoning, and the critical points of disagreement raised in the dissent.

K Alain, L.L.L.P. v. Commissioner of Internal Revenue, No. 24-60240, --- F.4th --- (5th Cir. Aug. 12, 2026), withdrawing and substituting for Sirius Solutions, L.L.L.P. v. Commissioner of Internal Revenue, 165 F.4th 374 (5th Cir. Jan. 16, 2026), vacating and remanding Nos. 11587-20 and 30118-21 (T.C. Feb. 20, 2024)

On August 12, 2026, the United States Court of Appeals for the Fifth Circuit issued a major decision that fundamentally reshapes the landscape of self-employment tax liability for partners in limited partnerships. In K Alain, L.L.L.P. v. Commissioner of Internal Revenue (formerly known as Sirius Solutions, L.L.L.P. v. Commissioner), the court granted a petition for rehearing, withdrew its previous well publicized opinion issued on January 16, 2026, and substituted a newly updated majority and dissenting opinion.

The decision is a stunning development for tax professionals. While the court’s January opinion held that the limited partner exception under Internal Revenue Code (IRC) Section 1402(a)(13) was governed strictly by limited liability under state law, the August opinion on rehearing completely shifted course. The court now holds that the “original public meaning” of the phrase “limited partner” is “a partner who plays no significant role in managing or running a business”. Although the court still vacated and remanded the Tax Court’s decision, it rejected both its own prior “limited liability alone” touchstone and the Tax Court’s strict “passive investor” standard. Instead, the Fifth Circuit has established a new “managerial versus non-managerial” distinction, allowing for some limited participation by limited partners so long as they do not cross the line into exercising control or playing a significant role in management. This technical article explores the facts of the case, the court’s statutory analysis, the conceptual differences between the withdrawn and substituted opinions, and the practical planning implications for CPAs and EAs.

Foreign Currency Gain or Loss of Controlled Foreign Corporations, REG-103844-26, 91 Fed. Reg. (proposed Aug. 14, 2026)

On August 13, 2026, the Department of the Treasury and the Internal Revenue Service (IRS) released a significant notice of proposed rulemaking under Internal Revenue Code (IRC) Section 987. The proposed regulations introduce a highly anticipated elective regime—the Controlled Foreign Corporation (CFC) exemption election—designed to reduce the overwhelming compliance and administrative burdens associated with tracking foreign currency gain or loss for branches and disregarded entities operated by CFCs. By allowing taxpayers to opt out of the recurring remittance calculations mandated by Section 987(3), Treasury seeks to align foreign currency rules with modern international tax structures while maintaining strict statutory guardrails to prevent tax-motivated basis importation and tax asymmetry.

This article provides an in-depth, technical analysis of the proposed regulations, detailing Treasury’s underlying rationale, the legal authorities cited, the operational and consistency mechanics of the election, the amortization transition rules, and the protective rules governing inbound nonrecognition transactions.

Deutsch v. Commissioner, T.C. Memo. 2026-66, August 12, 2026

For tax professionals representing clients who have fallen victim to fraudulent investment schemes, securing a theft loss deduction under Internal Revenue Code (IRC) Section 165 is a highly technical and fact-intensive endeavor. The recent decision in Deutsch v. Commissioner, T.C. Memo. 2026-66, provides an instructive roadmap on the procedural and substantive hurdles taxpayers must clear. The case addresses the critical interplay between state law definitions of theft, the timing of discovery, the “reasonable prospect of recovery” standard, and the “reasonable cause” defense against Section 6662(a) accuracy-related penalties.

In Deutsch, the Tax Court partially allowed a theft loss deduction of $925,000 for the 2010 tax year arising from a multi-year, multi-million-dollar international advance-fee scam. However, the court disallowed a deduction for $295,600 in advanced “living expenses,” demonstrating the strict statutory demand to prove criminal intent and deception for each specific class of funds transferred. This article analyzes the facts of the case, the taxpayers’ request for relief, the court’s legal analysis, and the critical takeaways for certified public accountants (CPAs) and enrolled agents (EAs).

I.R.S. Notice 2026-49, August 12, 2026

In an ongoing effort to modernize and streamline the administration of retirement assets, the Department of the Treasury and the Internal Revenue Service (IRS) have issued Notice 2026-49. Published in response to a congressional mandate, this notice marks a significant step toward standardizing the administrative processes that govern the movement of retirement savings. Specifically, Section 324 of Division T of the Consolidated Appropriations Act, 2023, Pub. L. 117-328, 136 Stat. 4459 (2022), known as the SECURE 2.0 Act of 2022 (SECURE 2.0 Act), directs the Secretary of the Treasury to “develop and issue guidance, in the form of sample forms (including relevant procedures and protocols), to simplify, standardize, facilitate, and expedite the completion of” rollovers to eligible retirement plans and trustee-to-trustee transfers from individual retirement plans.

Historically, the rollover of retirement funds between employer-sponsored plans and Individual Retirement Accounts (IRAs) has been plagued by a lack of uniformity, resulting in administrative friction, high transaction costs, and substantial security risks. Notice 2026-49 addresses these issues by proposing a series of four sample forms and establishing a standardized, five-step sequential rollover procedure designed to transition the industry toward electronic, plan-to-plan communications and transfers. This technical analysis explores the legal and operational mechanics of the proposed guidance, the underlying statutory authority, and the future regulatory changes currently under consideration by the IRS.

Maniktala v. Commissioner of Internal Revenue, No. 25-1366 (8th Cir. Aug. 11, 2026)

For decades, tax practitioners have operated under the strict assumption that the ninety-day filing deadline to petition the United States Tax Court for a redetermination of a deficiency under Internal Revenue Code (IRC) Section 6213(a) is an absolute, non-negotiable jurisdictional bar. Under this traditional paradigm, a late-filed petition, even by a single day, stripped the Tax Court of its power and left the taxpayer with no recourse but to pay the tax and sue for a refund in Federal District Court or the Court of Federal Claims. However, in Maniktala v. Commissioner of Internal Revenue, No. 25-1366 (8th Cir. Aug. 11, 2026), the United States Court of Appeals for the Eighth Circuit dramatically upended this orthodoxy. Following recent landmark Supreme Court decisions disciplining the term “jurisdictional,” the Eighth Circuit held that the filing deadline under Section 6213(a) is a nonjurisdictional claims-processing rule subject to equitable tolling. This decision aligns the Eighth Circuit with a growing multi-circuit consensus and marks a critical milestone in administrative tax equity.

Gerald A. Beacom and Jean A. Beacom v. Commissioner of Internal Revenue, T.C. Memo. 2026-65, (Aug. 11, 2026)

For tax professionals, advising clients on credit carryforwards and other carryover tax items is a routine task. However, a taxpayer’s failure to maintain the records necessary to substantiate the origin of these carryovers can lead to disastrous audit outcomes. The recent Tax Court memorandum decision in Gerald A. Beacom and Jean A. Beacom v. Commissioner provides a stark reminder of the perpetual nature of the taxpayer’s recordkeeping burden, the severe limitations of retail tax software as a defense, and a widespread, critical misunderstanding of IRS record retention guidelines.

In this case, the court addressed a taxpayer’s attempt to use Alternative Minimum Tax (AMT) credit carryforwards that allegedly originated more than two decades prior to the tax year in question. The decision highlights that the standard statute-of-limitations lookback period does not shield carryover items from audit and that casualty losses (such as fires or floods) do not relieve taxpayers of their absolute duty to substantiate.

Boechler, P.C. v. Commissioner of Internal Revenue, No. 25-2620, (8th Cir. Aug. 10, 2026)

For tax professionals, the landmark Supreme Court decision in Boechler, P.C. v. Commissioner, 596 U.S. 199 (2022) was heralded as a major victory for taxpayer rights. In that ruling, the High Court settled a long-standing circuit split by holding that the 30-day filing deadline under Internal Revenue Code (I.R.C.) § 6330(d)(1) to petition the United States Tax Court for review of a Collection Due Process (CDP) determination is a nonjurisdictional limitations period subject to equitable tolling. However, a critical distinction exists between a deadline being subject to equitable tolling and a taxpayer actually qualifying for such relief. The likely final chapter of this litigation—culminating in the United States Court of Appeals for the Eighth Circuit’s decision issued on August 10, 2026—serves as a stark reminder of how incredibly narrow and rigorous the equitable tolling doctrine remains in tax practice. For CPAs and EAs, the court’s final ruling highlights the severe professional risks of relying on “excusable neglect” and underscores that procedural discipline remains absolute.

Employer Contributions to Trump Accounts and Nondiscrimination Rules for Dependent Care Assistance Programs, REG-101355-26, 91 FR 16314 (proposed Aug. 11, 2026)

The Department of the Treasury and the Internal Revenue Service (IRS) have released REG-101355-26, containing highly anticipated proposed regulations that provide comprehensive guidance regarding employer contributions to Trump accounts and the nondiscrimination testing rules for both Trump account contribution programs and dependent care assistance programs under Sections 128 and 129 of the Internal Revenue Code. Promulgated under the broad authority of Section 7805(a), which empowers the Secretary of the Treasury to “prescribe all needful rules and regulations for the enforcement of [the Code], including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue”, this regulatory package establishes a structured administrative framework for workforce benefit integration.

Backup Withholding on Third Party Network Transactions, T.D. 10053, 91 Fed. Reg. 16269 (Aug. 10, 2026) 

On August 10, 2026, the Department of the Treasury and the Internal Revenue Service (IRS) published final regulations under Treasury Decision 10053, governing backup withholding requirements on reportable payments made in settlement of third-party network transactions under Internal Revenue Code (IRC) § 3406. These final regulations adopt the proposed regulations published on January 9, 2026, in the Federal Register under REG-112829-25, without any substantive changes.

The regulatory changes reflect a lengthy statutory and administrative history regarding information reporting by third-party settlement organizations (TPSOs). Section 6050W, originally enacted by the Housing Assistance Tax Act of 2008 (Public Law 110-289), requires payment settlement entities to report the gross amounts of transactions settled via payment cards and third-party networks. For third-party networks specifically, the statute originally mandated information reporting on Form 1099-K only if payments to a participating payee exceeded a gross annual threshold of $20,000 and the aggregate number of transactions exceeded 200 in a calendar year.

In 2021, Congress enacted the American Rescue Plan Act (ARPA) (Public Law 117-2), which significantly tightened these reporting rules. Section 9674 of ARPA amended section 6050W(e) to lower the TPSO reporting threshold to a flat gross amount of $600 in a calendar year, completely eliminating the 200-transaction volume threshold. This drastic reduction of the reporting floor introduced substantial compliance challenges and administrative burdens for taxpayers and payment facilitators.

In response to the practical difficulties of implementing the $600 threshold, the IRS issued a series of transition notices—Notice 2023-10, Notice 2023-74, and Notice 2024-85—which administrative delays kept the lower threshold from taking full effect. However, as the preambles to the proposed and final regulations note, these notices were merely transition measures and “are inconsistent with the statutory revisions and are obsoleted as of January 9, 2026”.

The legislative gridlock was resolved on July 4, 2025, when Congress passed the One, Big, Beautiful Bill Act (OBBBA) (Public Law 119-21). Section 70432(a) of the OBBBA retroactively reverted the reporting threshold in section 6050W(e) back to its pre-ARPA levels, requiring TPSO reporting on Form 1099-K only when annual gross payments to a participating payee exceed $20,000 and the aggregate number of transactions exceeds 200. Under section 70432(a)(2) of the OBBBA, this change took effect “as if included in section 9674 of the American Rescue Plan Act,” effectively erasing the $600 threshold from the statutory history of section 6050W.

Notice 2026-48, August 7, 2026

In division T of the Consolidated Appropriations Act, 2023, Pub. L. 117-328, 136 Stat. 4459 (2022), known as the SECURE 2.0 Act of 2022 (SECURE 2.0 Act), Congress introduced a paradigm shift in retirement savings incentives for low- and moderate-income taxpayers. Specifically, Section 103 of the SECURE 2.0 Act added Section 6433 to the Internal Revenue Code (Code), replacing the Retirement Savings Contributions Credit (commonly known as the Saver’s Credit) under Section 25B with a direct federal matching contribution of up to $1,000 per eligible individual. This match is paid directly by the Secretary of the Treasury to “applicable retirement savings vehicles” for taxable years beginning after December 31, 2026.

To bridge the gap between statutory enactment and operational implementation, the Department of the Treasury and the Internal Revenue Service (IRS) issued Notice 2026-48. The notice serves as an official “Notice of Intent to Issue Regulations with Respect to Saver’s Match Contributions”. It outlines key administrative, tax, and plan compliance rules that the agencies expect to integrate into forthcoming proposed regulations. It provides practitioners, plan sponsors, and financial institutions with a technical roadmap to prepare for the 2027 effective date, incorporating feedback from Notice 2024-65, 2024-39 IRB 633, and addressing directives from Executive Order No. 14403.

Internal Revenue Service, Fact Sheet FS-2026-13, “Updates to Questions and Answers About the New Deduction for Qualified Overtime Compensation” (August 2026)

The enactment of the One, Big, Beautiful Bill Act (OBBBA), Public Law 119-21, 139 Stat. 72 (July 4, 2025), introduced a landmark, temporary income tax deduction for “qualified overtime compensation” under the newly created Internal Revenue Code (IRC) Section 225. Grounded in the statutory mandate to provide tax relief for hourly workers, the deduction is effective for taxable years beginning after December 31, 2024, and terminates for taxable years beginning after December 31, 2028. In the initial implementation phase, the Department of the Treasury and the Internal Revenue Service (IRS) recognized that employers and payroll processors lacked the administrative infrastructure to track and report this new category of compensation. Consequently, Notice 2025-62 established taxable year 2025 as a transition period, granting comprehensive relief from information reporting penalties under IRC Sections 6721 and 6722. Notice 2025-69 subsequently provided guidance for individual taxpayers filing their taxable year 2025 returns, allowing them to use “reasonable approximation methods” (Methods A through G) based on pay stubs, daily logs, and other personal documentation to calculate and claim their deductions in the absence of formal employer-provided reporting statements.

On August 6, 2026, the IRS issued Fact Sheet FS-2026-13, which officially “updates frequently asked questions for qualified overtime compensation” and “supersedes earlier FAQs that were posted in FS 2026-01 on Jan. 23, 2026”. This latest administrative release marks a crucial transition from the flexible, taxpayer-relying reporting posture of 2025 to a strict, compliance-driven framework for the remaining years of the deduction (taxable years 2026 through 2028). For CPAs and Enrolled Agents (EAs), understanding the technical mechanics of Fact Sheet FS-2026-13 and its intersection with statutory provisions is vital to ensuring proper compliance, avoiding accuracy-related penalties, and advising both individual and corporate clients.

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.