Penalties Archives | TAX CONTROVERSY 360

IRS roundup: December 12, 2025 – January 12, 2026

by Matthew J. Blaney and Suzanne Golshanara | Jan 13, 2026 | IRS Guidance, Penalties, Tax Reform

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for December 12, 2025 – January 12, 2026.

December 12, 2025: The IRS issued Treasury Decision 10042, which modified and clarified the Internal Revenue Code (Code) Section 892 rules. The Treasury Decision contains final regulations regarding the taxation of income earned by foreign governments from investments in the United States. The regulations clarify how to determine when a foreign government is engaged in commercial activity and when an entity qualifies as a controlled commercial entity. These rules apply to foreign governments that earn income from US sources.

December 12, 2025: The IRS issued proposed regulations, which provided additional guidance under Section 892 and focus on:

Determining when an acquisition of debt by a foreign government is treated as a commercial activity
Determining when a foreign government has effective control of an entity engaged in a commercial activity
Clarifying that partnerships, including partnerships wholly owned by a single foreign sovereign, are not controlled entities under Section 892 for US tax purposes.

December 15, 2025: The IRS issued proposed regulations, updating points of contact within the US Department of Justice (DOJ) and the IRS to identify points of contact for matters involving internal revenue laws following a reorganization within the DOJ. The regulations would also update points of contact at the IRS for taxpayers submitting administrative claims for civil damages related to certain unauthorized collection actions or awards of administrative costs in specified administrative proceedings.

December 15, 2025: The IRS withdrew two notices of proposed rulemaking regarding innocent spouse relief.

December 22, 2025: The IRS issued proposed updates, which set forth a clearer, more predictable system for its Voluntary Disclosure Practice and a more streamlined penalty framework. The IRS seeks public comment on the proposed updates by March 22, 2026.

December 29, 2025: The IRS released Internal Revenue Bulletin 2026-1, which includes the following:

Revenue Procedure 2026-1, which contains the revised procedures for letter rulings and information letters issued by the different associate chief counsel offices. This revenue procedure also contains the revised procedures for determination letters issued by the Large Business and International Division, the Small Business/Self-Employed Division, the Wage and Investment Division, and the Tax Exempt & Government Entities (TE/GE) Division.
Revenue Procedure 2026-2, which explains when and how associate chief counsel offices should provide advice in technical advice memoranda (TAM) as well as taxpayers’ rights when a field office requests a TAM.
Revenue Procedure 2026-3, which provides a revised list of Code areas under the jurisdiction of the following associate chief counsel offices:
- Corporate
- Financial Institutions and Products
- Income Tax and Accounting
- Passthroughs and Special Industries
- Procedure and Administration
- Energy, Credits, and Excise Tax
- Employee Benefits, Exempt Organizations, and Employment Taxes.

These relate to matters in which the IRS will not issue letter rulings [...]

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

by Shawn O’Brien and Samuel F. Hamer | Dec 8, 2025 | Court Procedure Matters, IRS Appeals, IRS Audits, Penalties, Settlements, Significant Court Decision, Tax Refunds

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.

IRS roundup: October 23 – November 6, 2025

by Evan Walters, Samuel F. Hamer, Edward L. Froelich, Michael J. Scarduzio, Matthew J. Blaney and Suzanne Golshanara | Nov 7, 2025 | IRS Guidance, Penalties, Tax Reform

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for October 23, 2025 – November 6, 2025.

October 23, 2025: The IRS issued frequently asked questions, addressing its revisions and updates to Form 1099-K following changes resulting from the One Big Beautiful Bill Act (OBBBA). The OBBBA retroactively reinstated the reporting threshold in effect prior to the passage of the American Rescue Plan Act of 2021 (ARPA). This means that a third-party settlement organization (TPSO), which is a type of payment settlement entity, is generally not required to file a Form 1099-K. However, TPSOs will be required to file a Form 1099-K if the gross amount of reportable payment transactions to a payee exceeds $20,000 and if the number of reportable payment transactions exceeds 200. Previously, under the ARPA reporting threshold, TPSOs had to file a Form 1099-K for any payee that received more than $600 in total payments for the sales of goods or services, regardless of the number of reportable payment transactions.

October 27, 2025: The IRS reminded tax preparers that preparer tax identification numbers (PTINs) must be renewed annually and that the 2026 renewal period is now open. All 2025 PTINs will expire on December 31, 2025.

November 3, 2025: The IRS released Internal Revenue Bulletin No. 2025-45, which includes Notice 2025-61. Notice 2025-61 provides guidance on the adjusted applicable dollar amount for the Patient-Centered Outcomes Research Trust Fund (PCORTF) fee, which is imposed on issuers of specified health plans and plan sponsors of applicable self-insured health plans to fund PCORTF. Notice 2025-61 specifically provides the increased adjusted applicable dollar amount for determining the PCORTF fee as $3.84 (from the previous set amount of $3.47) for all policies and plans ending on or after October 1, 2025, and before October 1, 2026. The IRS explained that the amount was calculated by US Department of the Treasury economists based on the percentage increase in the projected per capita amount of National Health Expenditures, which was published by the US Department of Health and Human Services in June 2025.

November 5, 2025: The IRS issued Notice 2025-62, providing guidance on penalty relief for taxable year 2025 in connection with the implementation of new information reporting requirements related to the deductions for qualified tips and qualified overtime compensation to reflect amendments resulting from the OBBBA. Notice 2025-62 specifically provides relief for taxable year 2025 from the penalty under Section 6721 for failure to file correct information returns and the penalty under Section 6722 for failure to furnish correct payee statements. The IRS also announced that guidance on how taxpayers can claim these deductions on their tax return for the 2025 tax year is forthcoming.

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