November 10th, 2026
October Federal Tax Update
Posted in: Tax Law Tagged: David S. De Jong
INDIVIDUALS
Public Law 119 – 125, the Clergy Act creates a one-time window from January 1, 2029 through December 31, 2030 for clergy who have previously opted out of the Social Security system to revoke their exemption by an irrevocable decision to enter.
Proposed Regulations Under Code Section 36B, would deny the Premium Tax Credit under the Affordable Care Act to undocumented immigrants with income 100 percent below the poverty line.
In Zajac v. Commissioner 2026 WL 2959837, the District of Columbia Circuit Court of Appeals agreed with the District Court that $17,500 of a $35,001 settlement for alleged injuries during an arrest where the allegations included false arrest, false imprisonment, illegal search, civil rights violations, malicious prosecution, abuse of process, conspiracy and defamation was excluded from income; the Settlement Agreement did not break out the purpose of the payment.
In Re Levandowski, 2026 WL 3153342 a California Federal District Court reversed a Bankruptcy Court and held that a third party’s payment of the debt of another may constitute taxable income to the beneficiary; the Court however found that the comprehensive settlement was in a bankruptcy proceeding of the debtor and was tax-free.
In Dworman v. PHH Mortgage Services, 2026 WL 3151247, the First Circuit Court of Appeals agreed with a Massachusetts Federal District Court that issuance of form 1099-C does not necessarily mean the discharge of debt as its filing is required when one of seven identifiable events has occurred.
In Watson Lake Investments v. Commissioner, TC Memo 2026-106, the Tax Court slashed deductions for conservation easements on two parcels, each sought less than two years after purchase, the Court noting that the alleged rise in value was more than 2000 percent and that there was an insufficient market and an ability to obtain rezoning to base the valuation on future sales of small lots as the “highest and best use” of the land.
In Lontrac Enterprises v. Commissioner, TC Memo 2026-108, the Tax Court, using terms such as “laughable” and “cartoonist charitable contribution deduction” and citing the movie “Groundhog Day”, reduced the deduction for a conservation easement from $74.5 million to $500,000 where no purchaser of the property could be found at $2.9 million.
In Del Monte v. Commissioner, TC Memo 2026-107, the Tax Court rejected a claim for most of $39 million in charitable deductions claimed by two real estate partnerships for historic preservation easements in Columbus, Ohio, allowing only $750,000 relating to a building over a century old, noting not only that the easements carved out an exception for development but also that the positions of the partnerships were “empty and unconvincing.”
RETIREMENT AND ESTATE PLANNING
Temporary Regulations Under Code Section 530A provide automatic enrollment for eligible individuals in Trump accounts including the $1,000 Government funding for newborns with those funds held in a master group trust until claimed by the parent or guardian.
In Revenue Procedure 2026-33, IRS announced an IRA Compliance Resolution System taking effect May 1, 2027 to facilitate correcting missed 60-day windows for rollovers and for correcting shortfalls in Required Minimum Distributions due to third party errors.
In Revenue Procedure 2026-34, IRS updated the compliance resolution system for employer plans including SEP and SIMPLE plans to expand self-correction for most inadvertent failures where corrections are made within a reasonable period with the “safe harbor” defined as the later of 18 months after identification or the last day of the third plan year following the failure.
BUSINESS
Proposed Regulations Under Code Section 355 were partially withdrawn to make it easier to effectuate a corporate division with non-operating assets without it being considered a device for the distribution of earnings and profits, getting rid of an objective test as well as eliminating the subjective “anti-abuse” test (but not affecting the “substance over form” or “step-transaction” doctrines).
In West v. Commissioner, TC Memo 2026-105, the Tax Court denied a businessman a loss of over $11 million from a partnership where he could not show basis or that he was at economic risk of loss in the entity’s debt, the Court disagreeing with the pro se taxpayer that he got a basis and was “at risk” based on a promissory note to the other partner as well as from the relationship between the partners in other activities.
In Amodio v. Commissioner, TC Memo 2026-96, the Tax Court confirmed that an individual’s liability for the Trust Fund Recovery Penalty is reduced by amounts paid by the business entity in an Offer in Compromise but is not extinguished by virtue of the Offer.
PROCEDURE
Final Regulations under Code Section 6311 allow IRS to directly process credit card charges rather than utilize a third party, allegedly simplifying the credit card process.
In Groves v. United States, 2026 WL 2939020, an Illinois Federal District Court rejected a Government argument that supervisory approval of civil penalties is not required in a case referred to Department of Justice for possible criminal prosecution.
In United States v. Sagoo, 2026 WL – ____, the Fifth Circuit Court of Appeals reversed a Texas Federal District Court and allowed IRS to enforce over $1 million in penalties by reducing them to judgment; the lower court had held that imposition of these FBAR penalties violated the Seventh Amendment right to a jury trial.
In Mitchell v. Commissioner, TC Memo 2026-102, the Tax Court ruled that the three-year statute of limitations had run as a plaintiff attorney did not commit fraud when he made bookkeeping misclassifications for sizable dollars on his tax return; the Government attempting to impute fraud due to his accounting major and “A” in his one tax class.
In United States v. Abramson, 2026 WL 3025864, the Seventh Circuit Court of Appeals agreed with an Illinois Federal District Court that an attorney who also managed several companies committed fraud to support his affair with a dancer at a local club and that his conviction could stand despite electronic filing as the authorizations to file were under penalty of perjury.
In Tuohy v. Commissioner, 2026 WL 3072979, the Third Circuit Court of Appeals, agreed with the Tax Court that it had no jurisdiction to deal with an IRS assessment for a purported mathematical error which was done summarily without a Notice of Deficiency.
In El Deeb v. Commissioner, TC Memo 2026-101, the Tax Court held that it did not have the authority to deal with which spouse gets the credit for an estimated tax payment, the Court noting that the same applies to withholding and overpayments from the preceding year.
In Singh v. United States, 2026 WL 2906665, a New York Federal District Court treated a letter from a taxpayer as constituting a claim for refund as she set forth the circumstances and the amount of the desired refund, notwithstanding that a formal amended return was filed more than three years later; the Court noted in any event that the actual amended return was timely due to extension of the COVID disaster declarations until 2023 (an issue being contested in the courts).
In United States v. Sorensen, 2026 WL -2935306, a Minnesota Federal District Court determined that a restitution payment schedule for an individual convicted of a tax-related offense does not limit IRS from collecting on the civil side from a pension or otherwise and further found that seized amounts are not applied against the obligation of restitution.
In Estate of Crookston v. United States, 2026 WL 2938412, a Utah Federal District Court applied the theory of an “equitable lien” where taxes were owed by a family limited liability company which did work on the owner’s house, the Court concluding that the Government as a result had an interest in a portion of the value of the property in the absence of consideration for the work.
In Daidone v. Commissioner, TC Memo 2026-98, the Tax Court determined that a taxpayer’s spouse from whom she is now divorced forged her signature on a purported joint return and agreed that she did not tacitly concur with the joint filing and, accordingly, denied Innocent Spouse Relief in the absence of a valid joint return.
In Farwell v. Commissioner, TC Memo 2026-95, the Tax Court found that the IRS properly rescinded acceptance of an Offer in Compromise when it subsequently learned of the death of the individual which occurred prior to acceptance.
