Court of Appeals Archives | TAX CONTROVERSY 360

IRS roundup: June 10 – June 21, 2026

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for June 10, 2026 – June 21, 2026.

June 9, 2026: A Treasury Inspector General for Tax Administration (TIGTA) report found that the IRS lost a significant number of experienced employees during the workforce reductions and voluntary departures that occurred in the first year of the second Trump administration. Approximately 40% of departing employees had more than 11 years of experience while another 45% had between one and 11 years of service, raising concerns about the loss of institutional knowledge and expertise within the agency.

The report also noted that the IRS has redirected personnel to maintain taxpayer service operations, including hiring approximately 2,000 customer service representatives and tax examiners and detailing more than 1,100 employees from other divisions to assist with return processing. TIGTA observed that many reassigned employees retained higher-grade salaries while performing lower-grade taxpayer service duties and announced a separate review examining the impact of these resource reallocations on IRS operations and enforcement activities.

June 10, 2026: The IRS issued Notice 2026-39, updating the list of qualifying energy communities for purposes of the bonus credit amounts and rates available under Internal Revenue Code (Code) §§ 45, 45Y, 48, and 48E. The notice provides updated county and census tract information for the Statistical Area and Coal Closure Categories, reflecting 2025 unemployment data, newly identified coal mine closures, and coal-fired electric generating unit retirements.

The updated designations determine whether eligible clean energy projects qualify for enhanced energy community bonus credits. The notice also provides revised appendices identifying qualifying counties, metropolitan and non-metropolitan statistical areas, and census tracts, with the updated energy community status generally effective beginning June 10, 2026.

June 13, 2026: US Department of the Treasury officials announced that forthcoming proposed regulations under Code § 987 will allow certain controlled foreign corporations to make an election to not compute foreign currency gains and losses for their qualified business units and that the election may be made on amended 2025 tax returns. The election was first outlined in Notice 2026-17 and is intended to simplify compliance with the complex § 987 foreign currency rules.

The Treasury indicated that taxpayers will be given additional time to decide whether to make the election, but the election must be made within a reasonable period rather than years later. The proposed regulations are intended to reduce compliance burdens, simplify the operation of the § 987 regime, and limit the application of certain rules to routine business transactions involving US-owned foreign corporations.

June 15, 2026: The IRS issued Revenue Ruling 2026-12, providing the applicable federal rates (AFRs) for July 2026, including short-, mid-, and long-term rates under Code § 1274; adjusted AFRs under § 1288; and rates relevant to §§ 382, 42, 7520, and 7872. The ruling sets the § 7520 rate at 5.20% and the adjusted federal long-term rate under § 382 at 3.77%.

The ruling [...]

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IRS Chief Counsel Signals Increased Tax Enforcement

The Internal Revenue Service (IRS) Chief Counsel is the chief legal advisor to the Commissioner of Internal Revenue on all matters pertaining to the interpretation, administration and enforcement of the Internal Revenue Laws. In this regard, the IRS Office of Chief Counsel is responsible for litigating cases in the US Tax Court. Such cases can arise from examinations conducted by different divisions within the IRS, such as the Large Business & International (LB&I), Small Business/Self Employed (SB/SE), Tax Exempt & Government Entities (TE/GE) and Wage & Investment (W&I) Divisions.

On January 21, 2022, the IRS Office of Chief Counsel announced plans to hire up to 200 additional attorneys to assist with litigation efforts. The announcement specifically notes that new hires are necessary “to help the agency combat syndicated conservation easements, abusive micro-captive insurance arrangements and other tax schemes.” They will also help the IRS manage its increasing caseload as part of its multiyear effort to combat what it believes are abusive schemes and to ensure that the appropriate taxes and penalties are paid. The new hires will be located around the country and focus on audits of complex corporate and partnership issues.

Additionally, there are a significant number of cases before the Tax Court that involve conservation easements and micro-captive insurance arrangements. The IRS’s attack on the donation of conservation easements is well known in the tax world. To date, the IRS has largely been successful in these cases based on non-valuation arguments that easement deeds do not comply with the applicable regulations. However, in the recent Hewitt v. Commissioner case, the US Court of Appeals for the Eleventh Circuit dealt a significant blow when it held that the IRS’s interpretation of Treas. Reg. § 1.170A-14(g)(6)(ii) was arbitrary and capricious and violated the Administrative Procedure Act because the US Department of the Treasury failed to respond to significant comments submitted during the notice-and-comment process. Many conservation easements are within the Eleventh Circuit’s jurisdiction and other appellate courts are expected to weigh in soon, which could result in the IRS and taxpayers proceeding to trial on valuation issues. Valuation issues are inherently fact intensive and will require the IRS to utilize substantial resources to litigate.

Practice Point: Much has been written about the trend of decreased enforcement by the IRS over the past several years, owing in part to decreased or stagnant funding from US Congress. Tax litigation, particularly in fact intensive cases involving valuation issues and transactions the IRS (but not necessarily the courts) deemed abusive, requires the expenditure of substantial resources by the IRS. The IRS has signaled that it is ready to reverse the trend. All IRS tax controversies start with the examination of the taxpayer’s positions on the return. We have seen an increase in IRS audit activity in the last year or so, especially with medium-sized businesses and high-net-worth individuals. The Chief Counsel is assembling his “army” to litigate positions developed during the examination. It’s a good time for taxpayers [...]

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IRS roundup: June 10 – June 21, 2026

IRS Chief Counsel Signals Increased Tax Enforcement

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