TAX CONTROVERSY 360

Latest tax updates: IRS launches automatic penalty relief program and court invalidates GILTI rule

by Akiva B. Ungar and Edward L. Froelich | Jul 20, 2026 | Court Procedure Matters, IRS Guidance, Significant Court Decision, Tax Reform

Several notable tax developments have recently emerged, including the Internal Revenue Service’s (IRS) new automatic penalty relief program and a taxpayer-favorable court decision that struck down a key global intangible low-taxed income (GILTI) regulation. The US Department of the Treasury and the IRS also finalized guidance on life insurance contract transactions and issued updates affecting various energy-related tax credits and reporting obligations.

Updates from the IRS and Treasury

July 8, 2026: The IRS announced a new Automatic Exemption from Penalty (AEP) program, a systemic administrative relief program expected to begin this summer. AEP will replace the long-standing First Time Abate administrative relief process and apply to eligible original returns beginning with tax year 2025 and 2026 quarterly returns. Taxpayers generally qualify if IRS records show timely filing and payment for the prior three years or 12 consecutive quarters for quarterly filers. For qualifying taxpayers, the IRS will not assess failure-to-file, failure-to-pay, or failure-to-deposit penalties during processing.

AEP will apply to certain business and employment tax returns, including Forms 1065, 1120, 940, 941, 943, 944, 945, and CT-1. During the transition period, some qualifying taxpayers may still receive penalty notices for eligible 2025 tax year and 2026 quarterly returns. Taxpayers who believe they qualify may contact the IRS to request First Time Abate. AEP will replace First Time Abate for eligible returns with original due dates on or after January 1, 2027.

July 9, 2026: The Treasury and the IRS issued final regulations in Treasury Decision 10052, addressing the application of the transfer-for-value rules and related information reporting requirements under Internal Revenue Code (Code) §§ 101 and 6050Y to § 1035 exchanges of life insurance contracts and certain acquisitions of life insurance contracts in corporate reorganizations. The final regulations affect parties involved in these life insurance contract transactions, including with respect to reportable death benefits.

The final regulations generally retain the approach of the 2023 proposed regulations: treating a § 1035 exchange, standing alone, not as a transfer of the newly issued life insurance contract. The final regulations also reverse the broader treatment reflected in the 2019 final regulations while preserving rules intended to track contracts that previously were transferred in reportable policy sales. The Treasury and the IRS also declined to adopt certain proposed information return filing requirements for old and new issuers in § 1035 exchanges of reportable policy sale contracts, concluding that compliance goals can be addressed through the old issuer’s Form 1099-R reporting and related information exchange between issuers.

July 9, 2026: The IRS published Internal Revenue Bulletin 2026-29, which includes several items relevant to energy, fuel, chemicals, and importer taxpayers.

Notice 2026-41 publishes the 2026 inflation adjustment factors and applicable amounts for the Code § 45U zero-emission nuclear power production credit, the Code § 45V clean hydrogen production credit, and the Code § 45Z clean fuel production credit. For 2026, the notice provides, among other amounts, a § 45V inflation-adjusted applicable amount of $0.656 before applying the [...]

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Latest tax updates: Section 7508A refund claims, whistleblower award eligibility, and court restrictions on IRS collection

by Kai M. Fenty and Edward L. Froelich | Jul 14, 2026 | Appellate Courts, Court Procedure Matters, IRS Appeals, IRS Guidance, Penalties, Significant Court Decision, Tax Reform, Tax Refunds

This roundup covers key Internal Revenue Service (IRS) developments from June 23 to July 2, 2026, including a notable executive nomination, new electronic filing procedures for COVID-19 disaster relief refund claims, and three significant court decisions shaping tax controversy.

June 23, 2026: US President Donald Trump nominated Jim Gadwood, a tax controversy partner at Miller & Chevalier, to serve as IRS chief counsel. The agency’s top legal official, the chief counsel is responsible for advising IRS leadership, issuing legal guidance, and overseeing the development of US Department of the Treasury regulations, including implementation of the One Big Beautiful Bill Act. Gadwood has focused his practice on federal tax controversies; transfer pricing; tax accounting; and representing large corporations, partnerships, and high-net-worth individuals before the IRS.

June 26, 2026: The IRS issued PLR 202626001, granting a limited liability company 120 days of § 9100 relief to file a late Form 8832 for electing to be treated as an association taxable as a corporation under the entity classification regulations. The IRS concluded that the taxpayer acted reasonably and in good faith and that granting relief would not prejudice the interests of the government after the taxpayer inadvertently failed to timely file its entity classification election despite intending corporate tax treatment from the desired effective date.

The taxpayer must file Form 8832 within 120 days and file all required federal income tax and information returns, including amended returns, consistent with the requested classification. The IRS emphasized that its ruling does not address the taxpayer’s eligibility to make the election or provide relief from any interest or penalties that may otherwise apply, and, as with all private letter rulings, the decision may not be cited as precedent.

July 2, 2026: The IRS announced an electronic filing option for taxpayers seeking to preserve potential claims for COVID-19 disaster relief refunds pending the government’s appeal in Kwong v. United States. Taxpayers with an IRS online account may electronically submit Form 843 before the July 10, 2026, deadline by identifying the claim as relating to Kwong. The IRS stated that it will process the claims only if the government is ultimately unsuccessful in its appeal. The Kwong decision held that the COVID-19 pandemic automatically postponed certain federal tax deadlines until July 10, 2023, potentially entitling taxpayers to refunds of penalties and interest previously assessed for late filing or payment. The IRS continues to challenge that ruling, but the new filing procedure allows taxpayers to preserve potential refund claims while the appeal remains pending.

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

Recent court developments

June 29, 2026: In White v. Commissioner, T.C. Memo. 2026-56, the US Tax Court held that the IRS abused its discretion by sustaining a proposed levy to collect restitution-based assessments (RBAs) under § 6201(a)(4) because the collection action conflicted with a prior US Department of Justice [...]

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Government drops statute of limitations defense in McKesson cost-sharing challenge

by Kai M. Fenty and Edward L. Froelich | Jul 10, 2026 | Court Procedure Matters, Significant Court Decision, Tax Refunds

We previously reported on McKesson Corporation’s motion for summary judgment on the grounds that the US Department of the Treasury’s stock-based compensation cost-sharing regulations under Internal Revenue Code (IRC) § 482 were invalid as exceeding its delegated authority and invalid based on procedural violations of the Administrative Procedure Act. On June 5, 2026, the government filed its opposing brief, arguing that the regulations fall “well within the bounds” of the statute and are necessary to ensure arm’s-length results in cost-sharing arrangements between related parties.

Defending the Treasury’s regulatory authority

The government contended that IRC § 482 does not require the Internal Revenue Service to rely exclusively on comparable uncontrolled transactions. It argued that the statute grants the Treasury broad authority to allocate income and deductions to clearly reflect income and prevent tax avoidance. Responding to McKesson’s reliance on the Supreme Court of the United States’ 2024 Loper Bright decision, the government argued that the ruling does not undermine the regulations and, if anything, reinforces Congress’s ability to delegate discretionary authority to agencies.

The government also cited to the US Tax Court’s 2025 decision in Facebook v. Commissioner and the US Court of Appeals for the Ninth Circuit’s 2019 ruling in Altera. It argued that these cases support the proposition that the Treasury may define arm’s-length outcomes where no comparable third-party transactions exist and that including stock-based compensation in cost-sharing arrangements is consistent with IRC § 482’s statutory objectives.

Six-year statute of limitations defense no more

Notably, the government chose to drop the affirmative defense it raised in its answer based on the six-year statute of limitations for civil actions against the United States. Under 28 U.S.C. § 2401(a), such suits must be filed within six years of when the right of action first accrues. While the government did not concede that McKesson’s procedural challenge was timely, it explicitly declined to advance the six-year limitations argument. The practical effect is that the merits of McKesson’s regulatory challenge will proceed without a threshold timeliness barrier. The government’s decision may reflect a strategic decision to avoid unfavorable precedent on whether the six-year statute ever applies in a tax refund action.

IRS roundup: June 10 – June 21, 2026

by Kai M. Fenty and Edward L. Froelich | Jun 23, 2026 | Appellate Courts, Court Procedure Matters, IRS Appeals, IRS Guidance, Significant Court Decision, Tax Reform, Trial Courts

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 roundup: May 29 – June 8, 2026

by Kai M. Fenty | Jun 15, 2026 | Appellate Courts, Court Procedure Matters, IRS Guidance, Significant Court Decision, Tax Reform, Trial Courts

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for May 29, 2026 – June 8, 2026.

May 29, 2026: The US Department of the Treasury and the IRS issued additional guidance on the applicability dates of proposed regulations under Internal Revenue Code (IRC) § 892, which governs the tax exemption for certain income earned by foreign governments and sovereign wealth funds from passive US investments. The guidance responds to stakeholder comments by providing both grandfathering protection for existing investments and transitional relief before the proposed rules become final.

Under the guidance, existing foreign government interests generally would not become subject to the final regulations, and affected investors will have at least 90 days after publication of the final regulations or until the beginning of the first taxable year following publication to come into compliance. The Treasury and the IRS stated that the changes are intended to provide certainty for current investments, preserve established market practices, and support continued sovereign investment in the United States.

June 1, 2026: The Treasury and the IRS issued proposed regulations that would increase the user fee for obtaining an estate tax closing letter from $56 to $76. The agencies explained that a recent cost study determined the full cost of processing and issuing these letters exceeds the current fee and that the increase is intended to satisfy federal user-fee requirements that services provided to specific taxpayers be self-sustaining.

The proposed regulations provide that the increased fee would apply to requests received 30 days after publication of the final regulations. The Treasury and the IRS estimate that the higher fee reflects updated labor, quality review, and overhead costs associated with processing approximately 8,000 estate tax closing letter requests annually.

June 3, 2026: Following US President Donald Trump’s executive order creating a new Schedule Policy/Career employment category, the IRS and IRS Office of Chief Counsel identified several career positions that may be reclassified, including senior advisers, program managers, human resources specialists, attorney-advisers, and senior legal counsel positions. Employees placed in the new category will lose certain long-standing civil service protections and could be removed more easily than traditional career employees.

The Trump administration stated that the changes are intended to increase accountability and facilitate the removal of employees for poor performance or misconduct. Critics, including unions and former IRS officials, contend that the reclassification could undermine workforce stability, make recruitment more difficult, and increase concerns about political influence over tax administration and enforcement.

June 4, 2026: The Treasury and the IRS indicated that guidance on clean energy tax credit restrictions enacted by the One Big Beautiful Bill Act is expected in the third quarter of 2026. The guidance is expected to address the new prohibited foreign entity rules, which limit eligibility for certain clean energy credits when projects rely on financing, supplies, components, or contractual relationships involving entities connected to designated foreign countries such as China and Russia.

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