August 13th, 2026
July Federal Tax Update
Posted in: Tax Law Tagged: David S. De Jong
Author: David S. De Jong
INDIVIDUALS
In Eiler v. Commissioner, 167 TC No 3, the Tax Court held that gross amounts received by a plaintiff from credit reporting agencies in a settlement constituted taxable income and that attorney fees and costs paid from the gross amount were not deductible as an offset.
In Savannah Shoals v. Commissioner, 2026 WL 2056291, the Eleventh Circuit Court of Appeals agreed with the Tax Court in setting aside a $23 million deduction for a conservation easement and allowing only $400,800, finding that development of a quarry was not financially feasible given limited demand, existing competition and unrealistic assumptions; in Piton Holdings v. Commissioner ,167 TC No. 4, the Tax Court reduced the deduction for a donation of a conservation easement from $42 million to $640,000, doubting a significant rise in value from the purchase price six years earlier and noting also that the highest and best use of the property was not for mineral extraction but for recreational purposes.
In Fry v. Commissioner, Docket No. 2836-26, the Tax Court in a stipulated decision unopposed by IRS allowed a couple a theft deduction for $960,000 resulting from a cryptocurrency scam of investment assets.
RETIREMENT AND ESTATE PLANNING
Final Regulations Under Code Section 2056A clarify and update procedures for claiming a marital deduction for a Qualified Domestic Trust (QDOT) in the case of amounts transferred to a noncitizen spouse.
Final Regulations under Code Section 6011 designate certain Charitable Remainder Annuity Trust (CRAT) donations as “listed transactions.” In Lewis v. Commissioner, TC Memo 2026-58, the Tax Court valued a gift to the income beneficiary of a remainder interest in a trust by reducing the actuarial value by gift tax that would have been paid had the converse occurred but denied a further reduction based on the good health of the donor and the fact that, as a top 1 percent earner, he figured to have a 5-year greater life expectancy than what the tables indicated.
BUSINESS
In Thermal Circuits v. Commissioner, TC Memo 2026-29, the Tax Court ruled that $4.3 million received from a customer for leasehold improvements at its facility in order to increase production was income to the recipient and not a contribution to capital.
In HBM Holdings Company v. Commissioner, 167 TC No. 6, the Tax Court held that no exception applied to the general rule and that a consolidated group could not utilize losses of a company joining the group except to offset income attributable to that specific company.
In Letter Ruling 202628009, IRS determined that a conditional rather then a mandatory obligation to restore a deficit balance in a partner’s capital account even upon liquidation does not give the partner ”economic risk of loss” for purpose of basis.
PROCEDURE
In United States v. Aumiller, 2026 WL 1889732, the Third Circuit Court of Appeals agreed with a Pennsylvania Federal District court that a reasonable jury could have found that failure to disclose bank accounts on Form 433-A was an act of criminal tax evasion.
In Prezioso v. Commissioner, TC Memo 2026-63, the Tax Court sustained a civil fraud penalty against a 25 percent stockholder whose company wrote 400 checks for his personal expenses over five years by using two sets of books.
In Hough Beck & Baird v. Commissioner, 167 TC No. 2, the Tax Court held that IRS, using the power to correct “imperfect” or “incomplete” assessments, can summarily correct an erroneous refund to a taxpayer resulting from an improper credit through a “supplemental assessment” within three years of the refund in lieu of filing suit within two years of the refund.
In RC Smithfield v. United States 2026 WL 194780, the Tenth Circuit Court of Appeals affirmed a decision of a Utah Federal District Court finding that the plaintiff held legal title to property while its equitable owner was a defunct company, allowing the Government to be able to keep its lien against the legal owner for the unpaid tax liability of the equitable owner under three separate theories (resulting trust, constructive trust and nominee) ;the Court noted the lack of credibility of plaintiff’s witnesses.
In Anderson v. Commissioner, TC Summary Opinion 2026-6, the Tax Court, in granting Innocent Spouse status to the wife by allowing separation of the spouses’ liabilities, allocated to the husband the full deficiency for unproven mortgage interest where the wife had no income to pay the expenses if they actually were incurred.
IRS CEO Frank Bisignano announced that the automatic relief for first time penalties (AED program) will commence with 2025 original income tax returns and 2026 quarterly payroll returns; the taxpayer must have a clean record for three years/12 quarters.
