June 26th, 2026
May Federal Tax Update
Posted in: Tax Law Tagged: David S. De Jong
Author: David S. De Jong
INDIVIDUALS
In Dillon Trust Company v. United States, 2026 WL 1340786, the Federal Circuit Court of Appeals agreed with the Court of Federal Claims that a complex transaction known as “SON-of-BOSS” was abusively designed to artificially generate capital losses to offset large capital gain and denied a refund to intermediary entities of $80 million.
In Sims v. United States, 2026 WL 1493873, a New Jersey Federal District court held that the $10,000 limit on deducting state and local taxes did not violate the Ninth, Tenth or Seventeenth Amendment to the US Constitution.
In Kimberly Road Fulton 25 v. Commissioner, TC Memo 2026-36, the Tax Court disallowed deductions for two conservation easements valued at a combined $26 million and instead substituted a value of just over $1 million for forest land near Atlanta which was purchased for just under $700,000 less than two years earlier.
In Martin v. Commissioner, TC Memo 2026-39 and TC Memo 2026-40, the Tax Court held that two cousins who acquired 13 shares of property in Utah for $22,000 could not claim a combined deduction of over $500,000 two years later for a conservation easement where the donation was not substantiated by a contemporaneous written acknowledgement, the Court not needing to deal with actual value as an issue.
In Information Release 2026-65, IRS announced a settlement program open for 90 days for individuals and 45 days for partnerships to resolve most pending conservation easement cases by allowing an itemized deduction for the cash out of pocket and imposing a ten percent penalty or 20 percent in the case of partnerships.
RETIREMENT AND ESTATE PLANNING
In Trefethen v. United States, 2026 WL ________, a Florida Federal District Court allowed a sole estate beneficiary to bring an action to collect a refund where no Personal Representative was required to be designated under state law.
In Letter Ruling 202618006, IRS confirmed that an estate may deduct an unlimited amount of charitable contributions when such payments are required by a decedent’s will and confirmed by state law.
BUSINESS
In Lee v. Commissioner, TC Memo 2026-43, the Tax Court disallowed $54,000 of business expenses, mostly for lack of substantiation, claimed by a moonlighting engineer; he alleged that his receipts were taken from his car in multiple break-ins.
In Kadau v. Commissioner, TC Memo 2026-37, the Tax Court found that there was no substantial purpose other than tax effect for entering into an arrangement with a captive insurance carrier, allowing imposition of a 40 percent accuracy penalty rather than 20 percent given the lack of adequate disclosure.
In Neuberger, Quinn, et al. v. United States, 2026 WL 1473818, a Maryland Federal District Court, having previously denied summary judgment to the law firm, ruled that it was not an alter ego of one of its clients where two attorneys of 20 were among the owners and the law firm trust account was used for infrequent transactions.
In United States v. Estate of Cole, 2026 WL 1356436, a Michigan Federal District Court rejected an argument that the other 50 percent owner and co-President was solely responsible for unpaid payroll taxes as, among other indicia, he provided financial information to the outside accountant and had actual knowledge of the delinquencies per spreadsheets and employment tax returns while drawing a salary and taking loans from the company; the Defendant sought to retract a statement of responsibility on the previously submitted interview form.
In Revenue Procedure 2026-21, IRS announced that it will resume letter rulings on reorganizations including divisions but limited to specific significant issues as opposed to returning to the prior ability to obtain a ruling as to the entirety of the transaction.
Assistant Treasurer Secretary Kenneth Kies indicated that future guidance will seek to curtail “stacking” of qualified small business stock through setting up multiple trusts with various combinations of family beneficiaries.
PROCEDURE
In Karp v. United States, 2026 WL 1459661, the Court of Federal Claims held that an individual extension still requires an attempt to determine the anticipated tax liability, noting that this should be applied loosely and declining to deny the extension here because one type of electronic filing fails to make clear the need for sufficient prepayments and the taxpayers had an overpayment from a prior year erasing the shortfall; IRS sought to deny the extension as it would have treated a claim for refund as filed late.
In Fecondo v. United States, 2026 WL 1470331, the Third Circuit Court of Appeals remanded sentencing to a Pennsylvania Federal District Court which erroneously had computed the nonmandatory sentencing guidelines for failure to pay over payroll taxes based on the amount of the entire liability and not just the trust portion.
In Li v. Commissioner, TC Memo 2026-42, the Tax Court clarified that the statute of limitations on fraud applies to both spouses if either spouse commits fraud, but it allowed the wife of a physician not a party to her husband’s conviction for tax evasion to present a case although her husband was estopped from denying fraud.
In Joseph v. Commissioner, TC Memo 2026-38, the Tax Court remanded a Collection Due Process case to IRS Appeals in that it did not previously consider whether the taxpayer could contest the underlying liabilities as a result of not receiving prior notices and for determination of whether the Appeals Officer ignored any applicable law or administrative procedure in determining “reasonable collection potential” in evaluating a request for an Installment Agreement.
In Larosa v. Commissioner, 2026 WL 1378669, the Fourth Circuit Court of Appeals reversed the Tax Court and held that an erroneous refund of underpayment interest that was subsequently reversed constituted an “unpaid tax” eligible for equitable Innocent Spouse Relief.
