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Is your ERC claim protected? Keep an eye on litigation deadlines

by , and | Mar 13, 2026 | , , , ,

In February 2026, the Internal Revenue Service (IRS) announced that, as of December 31, 2025, it had closed all non-examined Employee Retention Credit (ERC) claims. This development could compel businesses to pursue litigation to secure their ERC refunds. In its announcement, the IRS also noted that approximately 41,000 claims remain under IRS examination or appeal.

The IRS’s announcement brings renewed focus to a risk we have been highlighting for some time: Statutes of limitation can quietly extinguish otherwise valid refund claims. As discussed in our article in Bloomberg on how to litigate and resolve ERC claims, administrative delay does not eliminate judicial deadlines. For taxpayers whose claims have been formally disallowed, Internal Revenue Code Section 6532(a) provides only two years to file a refund suit. A protest to the IRS Independent Office of Appeals (IRS Appeals) does not suspend that deadline. Without filing suit or obtaining a written extension (Form 907), the right to a refund can be permanently lost.

For taxpayers with ERC claims that are pending without action (i.e., those described in the IRS’s announcement), the statute of limitations analysis is more complex. Some courts have dismissed taxpayer suits that were filed more than six and a half years from the time the claim arose.[1] Under the logic of these cases, there may be a six-and-a-half-year limit in effect from the date a refund claim is filed – the six months a taxpayer must wait before filing a refund suit plus six years during which the government is susceptible to suit under a general statute of limitations on civil claims against the government (31 U.S.C. § 3702(b)). For ERC claims submitted in 2020, the end of this possibly applicable six-and-a-half-year period is quickly approaching. To the extent a court will apply this limitation, a taxpayer with an ERC refund claim may be barred from suit even without a formal disallowance by the IRS.

The message for businesses is consistent with our earlier guidance: Protecting the right to an ERC refund requires a proactive strategy. Taxpayers must identify which limitations periods apply to their claims, manage calendar critical deadlines, and evaluate whether protective litigation is necessary to preserve their potential refunds. Businesses facing challenged, delayed, or disallowed ERC claims should evaluate their statute posture urgently. Our tax controversy & litigation team continues to advise clients on navigating ERC audits, IRS Appeals proceedings, and refund litigation to ensure procedural missteps do not foreclose recovery.

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[1] See Wagenet v. United States, No. CV 08-01234, 2009 WL 4895363, at *5 (C.D. Cal. Sept. 14, 2009) (dismissing tax refund action as filed outside the six-year statute). See also Bowman Transp., Inc. v. United States, 220 Ct. Cl. 36, 40–41 (1979) (interpreting 28 U.S.C. § 2501 and explaining that “[d]espite the fact that the carrier has only two years from the date on which the refund claim is expressly disallowed or apparently the regular six-year period of limitations contained in 28 U.S.C. § [...]

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IRS roundup: March 3 – March 10, 2026

by , and | Mar 10, 2026 | , , , ,

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for March 3, 2026 – March 10, 2026.

IRS guidance

March 3, 2026: The IRS released Revenue Procedure 2026-15, which provides the inflation-adjusted luxury automobile depreciation limits under Internal Revenue Code (Code) Section 280F for passenger vehicles, including trucks and vans, placed in service in 2026 and the lease inclusion amounts for vehicles first leased in 2026. The guidance includes separate first-year depreciation caps depending on whether bonus depreciation under Section 168(k) applies.

March 4, 2026: The IRS released Revenue Procedure 2026-16, which provides information for individuals who failed to meet Code Section 911(d)(1) requirements for 2025 due to adverse conditions, listing countries and “date of departure on or after” thresholds (e.g., Haiti, Ukraine, and the Democratic Republic of the Congo, among others).

March 5, 2026: The IRS released Notice 2026-4, which requests comments on whether to modify requirements for electronic furnishing of certain payee statements, including for brokers and potentially other furnishers.

The IRS also released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums, and Chief Counsel Advice).

Recent court decisions

March 2, 2026: The US Tax Court held that a German parent company had zero basis in a $610 million promissory note that was contributed to a partnership after its wholly owned subsidiary elected to be disregarded for US tax purposes. Because the subsidiary’s retroactive “check-the-box” election caused the transaction to be treated as the parent’s contribution of its own note, the Tax Court concluded that the note had no tax basis since a taxpayer incurs no “cost” in issuing its own obligation, resulting in zero basis both in the partnership interest and in the partnership’s basis in the note.



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IRS roundup: January 21 – February 9, 2026

by , and | Feb 11, 2026 | , , ,

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for January 21, 2026 – February 9, 2026.

January 26, 2026: The IRS released Notice 2026-9, which provides a one-year extension to make certain amendments to individual retirement arrangements (IRAs), simplified employee pension arrangements, and savings incentive match plan for employees IRA plans. The new deadline is December 31, 2027. The extension gives the IRS additional time to issue model language for the various changes resulting from compliance with the SECURE 2.0 Act of 2022 and related legislation.

January 27, 2026: The IRS released Fact Sheet 2026-2, which provides updated questions and answers regarding the implementation of Executive Order 14247, Modernizing Payments To and From America’s Bank Account. The executive order advances the transition to fully electronic federal payments both to and from IRS.

January 29, 2026: The IRS announced that it is accepting applications for the Electronic Tax Administration Advisory Committee (ETAAC) through February 28, 2026. The ETAAC provides an organized public forum for discussing electronic tax administration issues, such as prevention of identity theft and refund fraud.

February 2, 2026: The IRS released Internal Revenue Bulletin No. 2026-6, which includes Announcement 2026-3. The announcement provides a copy of the arrangement entered into by the competent authorities of the United States and Spain regarding the implementation of the arbitration process provided for in paragraphs 5 and 6 of Article 26 of the US-Spain income tax treaty and its protocol.

February 2, 2026: The IRS announced that it would continue operations under the current lapse in appropriations until further notice, using funding from the Inflation Reduction Act of 2022 (IRA).

February 3, 2026: The US Department of the Treasury and the IRS issued proposed regulations regarding the clean fuel production credit enacted by the IRA and amended by the One Big Beautiful Bill Act. The new law made important changes to what is often referred to as the 45Z credit. The proposed regulations would provide rules for determining clean fuel production credits. They also would amend three sets of final regulations: the elective payment election regulations and the credit transfer election regulations (to clarify language relating to ownership of clean fuel production facilities) and the federal excise tax registration regulations (to make them clearer and more consistent with the clean fuel production credit registration requirements in these proposed regulations). The proposed regulations would affect domestic producers of clean transportation fuel, taxpayers that may claim a credit for a related producer’s fuel, and excise tax registrants. Comments must be received by April 6, 2026. There is a public hearing that will be held on May 28, 2026, and requests to speak at the public hearing will be accepted until May 26, 2026.

Recent court decisions

January 28, 2026: The US Tax Court issued its opinion in Aventis Inc. v. Commissioner, rejecting Aventis’s attempt to treat [...]

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Major update: Potential refund opportunity for interest and penalty amounts accrued during COVID-19 federally declared disaster

by and | Dec 8, 2025 | , , , , , ,

The US Court of Federal Claims’ (CFC) recent decision in Kwong v. United States, No. 23-267 (Fed. Cl. Nov. 25, 2025), provides significant support for the potential refund opportunity we identified in a previous blog post titled, “Refund opportunity for interest and penalty amounts accrued during COVID-19 federally declared disaster.” The refund opportunity applies to taxpayers who made payments to the Internal Revenue Service (IRS) that included underpayment interest and/or failure-to-file/failure-to-pay penalties that accrued during all or part of the period from January 20, 2020, through July 10, 2023.

Although the CFC’s holding in Kwong addressed whether Internal Revenue Code (IRC) § 7508A provided the taxpayer an extension of the two-year statute of limitations deadline for filing a refund suit (in IRC § 6532(a)) that fell after the COVID-19 disaster was declared, Kwong answered important questions for those taxpayers pursuing refunds for underpayment interest and/or failure-to-file/failure-to-pay penalties that accrued during COVID-19. The CFC held that the 2019 version of IRC § 7508A applies to the COVID-19 federally declared disaster. This is a significant holding because Congress amended IRC § 7508A in 2021 to significantly limit the IRC § 7508A(d) mandatory extension period. The CFC also held that the IRC § 7508A(d) mandatory extension period, as applied to the COVID-19 disaster, commenced on January 20, 2020, and ended on July 10, 2023.

Kwong has potentially sweeping implications for taxpayers who faced federal tax filing and/or payment deadlines that fell between January 20, 2020, and July 10, 2023. Under the CFC’s Kwong analysis, the deadline for payment of any federal tax falling between these two dates was extended to July 11, 2023. Since the IRS computes underpayment interest and/or failure-to-file/pay penalties from the payment due date, penalties should not accrue from January 20, 2020, through July 10, 2023, and any taxpayers who already paid these amounts may be entitled to a refund. The CFC’s analysis also does not rule out the possibility that taxpayers with payment due dates preceding January 20, 2020, may be entitled to relief to the extent the underpayment interest and/or failure-to-file/failure-to-pay penalties accrued during the COVID-19 disaster period.

As noted in our previous post, taxpayers considering this refund opportunity should be aware that the statute of limitations to file a refund claim expires three years from the filing deadline of the original tax return or two years from the date on which payment was made, whichever is later (unless the statute of limitations period was otherwise extended). This refund opportunity may apply to underpayment interest and/or penalties paid with respect to federal income, estate, gift, employment, or excise taxes.



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IRS roundup: November 7 – November 24, 2025

by , , , , and | Dec 2, 2025 | , , ,

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for November 7, 2025 – November 24, 2025.

November 10, 2025: The IRS released Internal Revenue Bulletin No. 2025-46, which includes proposed regulations 109742-25. The proposed regulations would remove a rule in previous final regulations that uses the shareholders of certain domestic corporations to determine whether foreign persons hold – directly or indirectly – stock in a domestically controlled qualified investment entity (QIE). If a QIE was not domestically controlled following the changes from the proposed regulations, stock owned by foreign persons in a QIE would qualify as a US real property interest.

November 10, 2025: The IRS released Revenue Procedure 2025-31, providing guidance on a safe harbor that allows trusts qualifying as investment trusts under Section 301.7701-4(c) and as grantor trusts to stake digital assets without losing their tax status and offering a limited period for existing trusts to amend their governing instruments to meet the safe harbor requirements.

November 13, 2025: The IRS released Notice 2025-67, which announces the annual cost-of-living adjustments to the limits on benefits and contributions for qualified retirement plans under Section 415 of the Internal Revenue Code (Code). These adjustments, required by Section 415(d), follow procedures similar to those used for Social Security benefit updates and apply to certain amounts under deferred compensation plans.

November 13, 2025: The IRS released Revenue Ruling 2025-22, announcing that interest rates will remain unchanged for the calendar quarter beginning January 1, 2026. The rates are as follows:

  • 7% for individual overpayments and 6% for corporate overpayments
  • 5% on the portion of a corporate overpayment exceeding $10,000
  • 7% for underpayments and 9% for large corporate underpayments

Under the Code, these rates are recalculated quarterly based on the federal short-term rate. For noncorporate taxpayers, both overpayment and underpayment rates equal the federal short-term rate plus three percentage points. For corporations, the underpayment rate is also the short-term rate plus three points while the overpayment rate is the short-term rate plus two points. Large corporate underpayments add five points, and corporate overpayments exceeding $10,000 add 0.5 points. The current rates are based on the federal short-term rate determined in October 2025.

November 19, 2025: The IRS announced that it would resume its regular activities following the 2025 lapse in appropriations during the government shutdown. In its announcement, the IRS included specific frequently asked questions regarding the resumption of regular activities for audits, collections, and appeals and stated that determination letter applications for tax exempt and government entities would resume.

Recent court decisions

November 5, 2025: The US District Court for the Northern District of Texas issued an opinion in Ryan, LLC v. IRS. Check out our recent insight on the case, including an analysis of the district court’s holdings and practice points for taxpayers.

November 12, 2025: The US [...]

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Tax consulting firm permitted to challenge final micro-captive reporting regulations

by and | Dec 2, 2025 | , ,

Ryan, LLC v. Internal Revenue Service[1] is the latest example of success in overcoming procedural hurdles to challenge the validity of a US Department of the Treasury (Treasury) regulation. In a recent opinion, the US District Court for the Northern District of Texas held that:

  • Ryan has standing to challenge the validity of the Treasury’s final regulations[2] that require disclosure of certain transactions engaged in by businesses and their “micro-captive insurance companies” (MCICs).
  • Ryan sufficiently pleaded its claim that the final regulations under challenge were “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” and must be set aside under the Administrative Procedure Act (APA).[3]
  • The court’s opinion confirms that nontaxpayer actors may have standing to challenge Treasury regulations. The case is also another example of a plaintiff reaching the merits stage of a challenge to a Treasury regulation in the aftermath of Loper Bright v. Raimondo.[4]

Background

Ryan is an advisor to businesses seeking to establish and maintain MCICs. “Captive” insurance companies are specialized insurance companies that exist to insure the entities that own them. When the owning entities make premium payments to the captive, the premiums do not need to include commissions or other fees associated with traditional insurers, making captives an attractive option especially when coverage is unavailable or costly through traditional insurers. Certain small captive insurance companies, commonly called MCICs, qualify for favorable tax treatment. Under section 831(b), MCICs are not taxed on the first $2.2 million in premiums paid by their owner-insured. The Internal Revenue Service (IRS) has increased its scrutiny of the captive insurance industry because of concerns that these arrangements may be exploited for fraud and abuse.

The Treasury’s new regulations

Section 6707A requires the disclosure of certain “reportable transactions,” defined as transactions that, in the IRS’s determination, have a “potential for tax avoidance or evasion.” A “listed transaction” is a type of reportable transaction in which the taxpayer is presumed to have engaged in the transaction for the purpose of tax avoidance or evasion.[5] A “transaction of interest” is a reportable transaction designated by the IRS as having a potential for abuse but is not presumed abusive.[6] These designations create heavy reporting requirements by taxpayers and their advisors (e.g., Ryan).

Under the Treasury’s new regulations, a micro-captive insurance transaction is defined based on a loss ratio factor and a financing factor. The loss ratio factor is the ratio of the captive insurance company’s cumulative insured losses to the cumulative premiums earned over a specified period, typically the most recent 10 taxable years (or all years if less than 10). The financing factor refers to whether the captive insurance company participated in certain related-party financing arrangements within the most recent five taxable years, such as making loans or other transfers of funds to insureds, owners, or related parties. A transaction is classified as a “listed transaction” if the MCIC’s loss ratio is [...]

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Tax Court confirms codified economic substance doctrine requires threshold relevancy determination, upholds 40% strict-liability penalty

by and | Nov 24, 2025 | , ,

Patel v. Commissioner, 165 T.C. No. 10 (Nov. 12, 2025), gave the US Tax Court its “first opportunity to examine when the codified economic substance doctrine applies.” Patel at *16. The Tax Court made two key holdings:

  • Section 7701(o) requires a relevancy determination that “is not coextensive with the two-part test set forth in section 7701(o)(1)(A) and (B).” Patel at *17.
  • Adequate disclosure to reduce the 40% economic substance penalty imposed by sections 6662(b)(6) and (i) must be made at the time the return is filed and not at a later time. Patel at *30.

Relevancy determination

Section 7701(o) provides:

Sec. 7701(o). Clarification of economic substance doctrine.—

 

(1) Application of doctrine.—In the case of any transaction to which the economic substance doctrine is relevant, such transaction shall be treated as having economic substance only if—

 

(A) the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer’s economic position, and

 

(B) the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into such transaction.

While the Internal Revenue Service (IRS) endorses a seemingly limitless application of the codified economic substance doctrine, taxpayers contend that it does not apply to every transaction. Rather, the plain language of section 7701(o)(1) requires a threshold relevancy determination. If the economic substance doctrine is not relevant, the inquiry ends.

There are very few cases that have considered whether section 7701(o) requires a threshold relevancy determination. And those that have found that section 7701(o) does not impose a separate relevancy requirement. See Liberty Global, Inc. v. United States, No. 20-cv-63501, 2023 WL 8062792 (D. Colo. Oct. 31, 2023); Chemoil Corp. v. United States, No. 19-cv-6314, 2023 WL 6257928 (S.D.N.Y. Sept. 26, 2023). While Liberty Global was appealed to the US Court of Appeals for the Tenth Circuit – and many speculate the Tenth Circuit may clarify that there is a relevancy requirement – the Tax Court beat the appellate court to the punch.

The Tax Court’s holding had solid statutory support. The plain language of section 7701(o)(1) states: “In the case of any transaction to which the economic substance doctrine is relevant…” After quoting these words, the Tax Court stated, “we easily conclude that the statute requires a relevancy determination. To put it plainly—the statute says so, right there, on its face.” Patel at *17.

Adequate disclosure of transactions

The second key holding in Patel is that the taxpayers in the case are liable for a 40% penalty for engaging in a transaction that lacks economic substance that was not adequately disclosed. Section 6662(b)(6) imposes a 20% penalty on transactions that lack economic substance. This penalty is increased to 40% under section 6662(i) if the transaction is not adequately disclosed.[1]

In the current wave of economic substance challenges, it is unclear what constitutes adequate disclosure under section 6662(i) such that the 20% (instead of the 40%) penalty applies. Based on current audit activity, [...]

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3M Co. v. Commissioner: IRS shipwrecks hard on the shoals of Loper Bright

by | Oct 16, 2025 | , ,

3M Co. v. Commissioner, 136 AFTR 2d 2025-, (8th Cir.) (Oct.1, 2025), is perhaps the most significant tax case to date that implements Loper Bright’s instruction regarding evaluation of an agency’s exercise of delegated authority.[1] The unanimous panel held that:

  • The Internal Revenue Services’ (IRS) adjustment imputing additional royalty income to 3M from its Brazilian affiliate was invalid because it was outside the authority delegated by Internal Revenue Code Section 482.
  • The underlying regulation, Reg. § 1.482-1(h)(2) (the blocked income regulation), was invalid for the same reason.

The IRS’s change of tack

Those following the US Court of Appeals for the Eighth Circuit’s consideration of the case were aware that the Court had asked the parties to file supplemental briefing on the impact of the Loper Bright decision, which was handed down after the US Tax Court’s decision. The focus of the Tax Court dispute was whether the blocked income regulation was a valid implementation of the statute under Chevron and the Administrative Procedure Act. A plurality of that court agreed it was.

In its briefing before the Eighth Circuit, the IRS pivoted[2] and argued that even if the Court determined that the blocked income regulation was invalid, Code Section 482 provided direct authority to the IRS to make adjustments to income. The IRS maintained that it did not need a regulation to support the adjustment in the case. Moreover, the IRS argued, where adjustments relate to the transfer of intangible property (such as here), its authority was only constrained by the requirement that the adjustment conform to the income commensurate with that attributable to the intangible.[3] Because the parties agreed that the higher royalty would have been paid to an unrelated party, slip op. at 2, the IRS maintained it was authorized to make the adjustment to 3M’s income.

No one can be taxed on income they can’t have

The IRS’s maneuver did not deter the Eighth Circuit from carefully following the mandate it had received via Loper Bright to evaluate whether the agency’s exercise of authority was within its statutory mandate. In other words, even if the IRS could act without a regulation to make adjustments under Code Section 482, the exercise of its authority under that section must remain within the confines of the statute: “[I]t is still our job to ‘fix[] the boundaries of [that] delegated authority’ based on the statute’s text, as we have done today.” Slip. op. at 11 (quoting Loper Bright). Viewed through this lens, the Eighth Circuit found that the adjustments asserted by the IRS were well outside the authority granted by Code Section 482. Because the blocked income regulation purported to exercise the same extra-statute authority, it too was found deficient.

According to the Eighth Circuit, Code Section 482’s broad delegation to the IRS by its terms is limited to making adjustments where necessary to avoid evasion or distortion of income. However, in Comm’r v. First Sec. Bank of Utah, N.A., 405 U.S. [...]

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IRS roundup: September 19 – October 1, 2025

by , , , and | Oct 8, 2025 | , , , ,

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for September 19, 2025 – October 1, 2025.

September 19, 2025: The US Department of the Treasury (Treasury) and the IRS issued proposed regulations, providing guidance on the “no tax on tips” provision of the One Big Beautiful Bill Act. The proposed regulations define “qualified tips” and identify which occupations customarily and regularly receive tips on or before December 31, 2024.

September 23, 2025: The IRS issued Notice 2025-54, providing guidance on the 2025 – 2026 special per diem rates for taxpayers when determining their ordinary and necessary business expenses incurred while traveling away from home, including meal and incidental expenses rates, rates for the incidental expenses only deduction, and rates for (and a list of) high-cost localities for purposes of the high-low substantiation method.

September 29, 2025: The IRS issued Revenue Procedure 2025-30, providing updated procedures for taxpayers requesting private letter rulings from the IRS after September 29, 2025, regarding transactions intended to qualify under Internal Revenue Code § 3551. This guidance specially provides details on the representations, information, and analysis taxpayers should submit when requesting these rulings.

September 30, 2025: The IRS issued Notice 2025-46 and Notice 2025-49, providing guidance on the application of the corporate alternative minimum tax (CAMT).

Notice 2025-46 provides interim guidance to domestic corporate transactions, financially troubled companies, and tax consolidated groups. This notice also announces the Treasury and the IRS’s intent to partially withdraw the CAMT Proposed Regulations (described in Section 2.03 of this notice) and instead issue revised proposed regulations with guidance similar to Sections 3 – 6 of this notice. The proposed regulations will reduce compliance burdens related to, and costs associated with, application of the CAMT.

Notice 2025-49 provides interim guidance regarding application of the CAMT as it relates to §§ 55, 56A, and 59. This notice also announced the Treasury and the IRS’s intent to partially withdraw the CAMT Proposed Regulations (described in Section 2.03 of this notice) and instead issue revised proposed regulations with guidance similar to Sections 3 – 10 of this notice.

October 1, 2025: The Treasury and the IRS issued final regulations, providing guidance on interest capitalization requirements on designated property. The final regulations specifically remove the associated property rule (including similar rules in existing regulations), modifies how “improvement” is defined when applying those similar rules, and primarily affects taxpayers making improvements to real or tangible personal property if those improvements are the production of designated property.

October 1, 2025: The US Court of Appeals for the Eighth Circuit released its opinion in 3M Company v. Commissioner. The Eighth Circuit reversed the US Tax Court’s decision that 3M must pay taxes on royalties – that it could not legally receive – from a Brazilian subsidiary and remanded the Tax Court’s decision with instructions to redetermine 3M’s tax liability. Relying [...]

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