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IRS roundup: March 23 – March 31, 2026

by | Apr 3, 2026 | , , , ,

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for March 23, 2026 – March 31, 2026.

March 23, 2026: A US Treasury Inspector General for Tax Administration (TIGTA) report found that the IRS’s approach to auditing large partnerships has been ineffective due to resource constraints and inefficient selection processes, resulting in missed audit opportunities before the statute of limitations expired. The report highlighted delays caused by duplicative review steps, prompting TIGTA to recommend improvements to streamline procedures and better target high-risk partnerships.

March 30, 2026: The IRS released its annual Advance Pricing Agreement (APA) report for 2025, summarizing the operations of the Advance Pricing and Mutual Agreement Program and transfer pricing agreement trends. The report shows that 178 APA applications were filed and 110 APAs were executed in 2025, with 622 cases pending at year-end, reflecting continued demand for advance certainty in transfer pricing. Bilateral APAs remained the dominant category, and a significant portion of cases involved jurisdictions such as India (26%) and Japan (24%) for filings, with similar trends reflected in executed agreements.

The report further indicates that most APAs covered intercompany service transactions, and the comparable profits method/transactional net margin method was used in approximately 86% of cases involving tangible and intangible property, with the operating margin as the most common profit level indicator. The average time to complete an APA was approximately 44 months overall (about 50 months for new bilateral APAs), and the typical APA term averaged six years, often including rollback years to prior tax periods.

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 26, 2026: The Tax Court held that taxpayers involved in a micro-captive insurance arrangement were liable for a 40% accuracy-related penalty under Internal Revenue Code (Code) § 6662(i) because the transaction lacked economic substance and was not adequately disclosed. The Court analyzed economic substance within the meaning of Code § 7701(o). The Court found that the arrangement did not meaningfully change the taxpayers’ economic position, involved a circular flow of funds among related entities, and was undertaken primarily to obtain tax benefits.

The Court noted that a “circular flow of funds among related entities” may be a strong indication that a transaction lacks economic substance. The Court further emphasized that the taxpayers failed to satisfy the adequate disclosure requirements under Code § 6662(i)(2), judging that merely reporting an “insurance” deduction without providing details of the micro-captive structure was insufficient for alerting the IRS to the potential issue.

March 26, 2026: The Tax Court rejected a $180 million conservation easement deduction, finding that the partnership’s valuation exceeded the property’s actual value and imposing a 40% gross valuation misstatement penalty. The Court rejected the taxpayer’s income-based valuation, which it considered “inherently speculative and unreliable,” and instead relied on comparable sales to determine a substantially lower value.

[...]

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The Employee Retention Credit: Ninth Circuit affirms denial of injunction, but leaves door open on merits

by and | Mar 27, 2026 | , , , ,

Case: ERC Today, LLC v. McInelly, Case No. 25-2642 (9th Cir. Mar. 17, 2026)

We previously discussed the US District Court for the District of Arizona’s April 2025 order denying a motion for a preliminary injunction filed by two tax preparation firms challenging the Internal Revenue Services’ (IRS) automated “risking” model for processing Employee Retention Credit (ERC) claims. The firms appealed, and on March 17, 2026, the US Court of Appeals for the Ninth Circuit affirmed the district court’s denial – but the way in which it did so warrants attention.

Standing, but not substance

The Ninth Circuit affirmed on the narrow ground that the tax preparation firms failed to demonstrate Article III standing. The Court found that the firms offered no evidence that they were making less money or spending more on representations because of the IRS’s processing approach. The Court also rejected claims of procedural and reputational injury, holding that IRS administrative procedures are designed to protect taxpayers, not the economic interests of third-party contingency fee firms.

Given the standing ruling, the Court did not address whether the IRS’s Disallowance During Processing program, which uses automated risk models to categorically disallow thousands of claims without individualized review, violates the Administrative Procedure Act or is otherwise unlawful. Those questions remain open. A challenge brought by a party with proper standing could reach those merits and might reveal the program to be infirm.

The future of taxpayer challenges

This decision comes as the IRS closes the book on ERC processing. In February 2026, the IRS announced it had closed all non-examined ERC claims as of December 31, 2025, meaning businesses whose claims were closed without payment must now pursue litigation to secure their refunds.

Unlike the tax preparation firms in ERC Today, taxpayers whose claims have been disallowed can engage the jurisdiction of a refund court under Internal Revenue Code Sections 6532 and 7422 and would have no standing issues. They would be better positioned to test the legality of the IRS’s automated processing procedures on the merits and should consider raising the argument in their complaint. As we have previously cautioned, however, taxpayers must remain vigilant about statutes of limitations: Administrative delay does not eliminate judicial deadlines, and a protest to the IRS Independent Office of Appeals does not suspend the two-year period under Section 6532(a) to file a refund suit.



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IRS roundup: March 9 – March 25, 2026

by , and | Mar 26, 2026 | , , , ,

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for March 9, 2026 – March 25, 2026.

AI controversy developments

March 20, 2026: The US Tax Court is considering developing a disciplinary framework for the misuse of artificial intelligence (AI) in litigation following concerns raised by Judge Mark V. Holmes regarding lawyers citing AI-generated, nonexistent cases. Judge Holmes indicated that the Court is proceeding cautiously given that a large share of its docket involves pro se taxpayers and emphasized the difficulty of crafting appropriate sanctions in that context. The discussion highlights broader concerns about hallucinated authorities, potential IRS misuse of AI, and the need to protect sensitive taxpayer information as the Court balances enforcement with legitimate AI uses.

IRS guidance

March 13, 2026: The IRS announced that the secretary of the US Department of the Treasury is no longer serving as acting IRS commissioner following the expiration of authority under the Federal Vacancies Reform Act of 1998. Chief Executive Officer Frank J. Bisignano is currently leading the IRS’s day-to-day operations.

March 16, 2026: The IRS issued Revenue Ruling 2026-11, updating the rules and technical specifications for substitute versions of Form 941, Form 8974, and related schedules, including Schedules B, D, and R. The guidance provides standards for paper and computer-generated substitutes used by software developers and payroll providers and supersedes prior guidance.

March 17, 2026: The IRS issued Notice 2026-19, providing updated interest rates for pension the corporate bond monthly yield curve, spot segment rates under Internal Revenue Code (Code) § 417(e)(3), and 24-month average segment rates under Code § 430(h)(2). The notice also includes the applicable 30-year Treasury rate for February 2026 (4.76%) and related weighted average rates.

March 18, 2026: The IRS issued Notice 2026-20, extending for one additional year the temporary relief provided by Notice 2025-7, which allows taxpayers to use alternative methods to identify which units of digital assets are sold, disposed of, or transferred when held with a broker. Under this relief, taxpayers may identify units on their own books and records, including through standing orders, rather than communicating with brokers. The notice clarifies that this does not prevent taxpayers from complying with § 1.1012-1(j)(3)(ii).

March 20, 2026: The IRS issued Revenue Procedure 2026-17, providing transition relief under Code § 163(j) that allows certain taxpayers to withdraw previously irrevocable elections to be treated as electing real property trades or businesses, electing farming businesses, or excepted regulated utility trades or businesses. The guidance also permits taxpayers withdrawing those elections to make a late election out of bonus depreciation, allows taxpayers to revoke or make controlled foreign corporation group elections without regard to the 60-month limitation, and permits eligible Bipartisan Budget Act of 2015 (BBA) partnerships to file amended Forms 1065 and issue amended Schedules K-1.

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 9, 2026: [...]

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AI platforms and privilege: Tax departments should be wary about what they share

by and | Mar 23, 2026 | , , ,

Today’s artificial intelligence (AI) platforms have shown impressive capabilities that keep evolving. As those capabilities improve, tax departments may be inclined to leverage AI’s analytical power. While this technology has led to incredible efficiencies, we’ve been warning in-house tax departments about which platforms they use and what information they share to avoid waiving privilege or creating documents that cannot be protected.

The US District Court for the Southern District of New York recently held that a criminal defendant’s communications with a publicly open AI platform were not protected by attorney-client privilege nor the work product doctrine. United States v. Heppner, No. 1:25-cr-00503-JSR (S.D.N.Y. Feb. 17, 2026).

In Heppner, the defendant transmitted confidential information to a public AI system and generated various documents that incorporated the information. The district court concluded that the documents created were not protected by attorney-client privilege nor the work product doctrine. The AI platform was a public and open system that did not provide confidentiality, the documents created by the AI platform were not prepared by or at the direction of counsel (in fact, counsel had no idea the client was using AI), and documents (regardless if created by AI or other means) can never be cloaked with privilege simply because they are later sent to a lawyer.

Practice point:

While the facts of Heppner are probably distinguishable from how tax departments typically use AI platforms, the case serves as a reminder for tax professionals to have good hygiene when using them. All in-house tax professionals should exercise caution when inputting confidential information into AI platforms and, where possible, rely on closed, internal AI systems that are only accessible by relevant persons within their corporation. Even then, Heppner makes clear that AI platforms are not lawyers, and disclosures of privileged information to such platforms risk waiving that privilege.

Given this risk, tax professionals should use great caution when using AI for sensitive legal issues. At a minimum:

  • Do not input any sensitive, confidential, or privileged information into publicly open AI systems.
  • Remember that AI is not a lawyer, so asking AI legal questions is not the same as asking a lawyer for legal advice.
  • For tax issues that are likely to result in a contentious audit or litigation, work with in-house or outside counsel to establish best practices on AI use to maximize attorney-client privilege and work product protection.


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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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