May 20th, 2026
April Federal Tax Update
Posted in: Tax Law Tagged: David S. De Jong
Author: David S. De Jong
INDIVIDUALS
Final Regulations under Code Section 224 clarify certain occupations eligible for the partial deduction for tips and add floral designers, visual artists and (noting New Jersey and Oregon requiring full service) gas pump attendants; the Regulations clarified that managers and supervisors are not eligible for excluding tip income that they receive in the pooling of gratuities.
Proposed Regulations under Code Section 6041 indicate that the 90 percent loss limitation against wagering income is applied on a combined basis in the case of a joint return; slot machine players will receive one or more forms 1099 based on total payouts over $2,000 indexed for each 24-hour period.
In McNutt v. Department of Justice, 2026 WL -__, the Fifth Circuit of Appeals agreed with a Texas Federal District Court that the ban on home distilling in the Internal Revenue Code goes beyond the taxation power of Congress and is unconstitutional; in Ream v. Department of the Treasury, 2026 WL -___, a divided Sixth Circuit Court of Appeals reversed an Ohio Federal District Court and, disagreeing, held that the ban is constitutional as a legitimate purpose exists for collecting excise taxes.
In Rayes Barrios v. Commissioner, TC Memo 2026-32, IRS rejected a taxpayer argument that he was excused from the obligation to report income because he received the information return, a 1099-NEC, after he had filed his income return.
RETIREMENT AND ESTATE PLANNING
In Estate of Amplatz v. Commissioner, TC Memo 2026 -35, the Tax Court declined to throw out the Government’s valuation for failure to comply with a statute requiring explanation of a valuation in an estate tax matter, the Court, noting that there is no statutory penalty and the purpose of the provision is to encourage early resolution of valuation disputes; the parties will go to trial with IRS asserting a value equal to the sales price two years after death of about $15 million as adjusted for working capital with the Estate seeking a $1 million valuation.
BUSINESS
In Hyatt Hotels Corporation v. Commissioner 2026 WL _____, the Seventh Circuit Court of Appeals reversed the Tax Court and remanded the case to allow Hyatt to assert the “claim of right” doctrine which would allow avoidance of income on amounts paid by hotel owners into a fund to cover redemption rights of points earned by customers; Hyatt asserted that the fund was collectively owned by hotel owners and that it only managed the program.
In Simmons v. Commissioner, TC Memo 2026-34, the Tax Court disallowed credit card interest on a personal credit card which the 50 percent owner claimed was used only for business despite being in the personal name.
In Liberty Global v. United States, 2026 WL _____, a divided Tenth Circuit Court of Appeals affirmed a Colorado Federal District Court holding that a transaction serving no purpose other than reducing tax liability can be ignored using the “Economic Substance Doctrine”, in this case being an “elaborate tax avoidance scheme designed to shield billions in income…based on economically meaningless transactions between closely related entities” during a window allowing the generation of income avoiding both the Global Intangible Low-Taxed Income (GILTI) tax yet remaining eligible for a dividends received deduction.
In Information Release 2026-55, IRS provided a sample Employer Educational Assistance Plan under which employees can exclude up to $5,250 indexed for the extinguishing of student loans.
In Information Release 2026-58, IRS indicated that a taxpayer with six months or less remaining in their a two-year time period to file suit upon a disallowance of the Employee Retention Credit can submit a form 907 electronically which, when countersigned by IRS, would extend the time for filing suit to a specific later date in order to allow Appeals consideration.
In Letter Ruling 202614002, IRS held that an S Corporation which retained ownership of real properties following sale of the business and leased back these properties to the purchaser did not have passive investment income jeopardizing the S election after three years notwithstanding that the corporation engaged a management company inasmuch as the shareholders monitored operations, communicated daily with the management company and continued to search regularly for new properties.
PROCEDURE
In Trump v. Internal Revenue Service, NO. 26-2609, a Florida District Court appointed three law firms to opine on whether the Court can proceed with a lawsuit by the President who is asking $10 billion for the data breach that resulted in release of information regarding his tax returns Department of Justice must defend the lawsuit but the President oversees the Justice Department.
In Swift v. Commissioner and Battat v. Commissioner, the U.S. Supreme Court declined to review decisions of the Fifth and the Eleventh Circuit Courts of Appeal respectively both of which held that approval of penalties by a supervisor can occur after communication of the proposed penalties to a taxpayer and up to assessment.
