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February 19, 2026
News
Filing a joint return with your spouse means each of you is equally and severally liable for the tax liability. But if your spouse was responsible for the underpayment (e.g., it was his or her income) you may be able to avoid the liability under the innocent spouse rules. But it's far from automatic. You've got to meet a number of criteria. In Lisa Marie Walsh (T.C. Memo. 2025-91) the Court sided with the IRS in denying relief. The Court noted Rev. Proc. 2013-34 sets forth siven nonexclusive factors--(1) the taxpayer's marital status, (2) whether the requesting spouse will suffer economic hardship absent relief, (3) whether the requesting spouse had knowledge or reason to know that the nonrequesting spouse would not or could not pay the income tax liabilities, (4) whether either spouse had a legal obligation to pay the liabilities, (5) whether the requesting spouse significantly benefited from the underpayments, (6) whether the requesting spouse has complied with income tax laws in the years following those to which the request for relief relates, and (7) the mental or physical health of the requesting spouse. The IRS argued the factors for knowledge or reason to know that the nonrequesting spouse would not or could not pay the income tax liabilities, significant benefit, and compliance with tax laws weigh against relief (there was a history of the spouse deceiving and hiding money from the IRS and personal expenses were paid by the business. Three factors were neutral and one, marital status, weighed for the taxpayer.
Tip of the Day
IRS online help . . . IRS staffing is down and getting "in person" help on the phone may be difficult but there's plenty of online help. Many common tax questions and tasks can be handled online before, during, and after filing through IRS self-service tools available 24/7. The IRS offers step-by-step tax filing guidance and self-service assistance to help taxpayers before, during, and after filing their returns. You can also go to Let Us Help You for other questions. The Interactive Tax Assistant is another useful tool. And, if all else fails, read the instructions--Publication 17 is a good overall primer. But the instructions to the Forms and Schedules may answer most of your questions. The IRS has a long list of publications that are also a big help. They're generally easy to understand and are an excellent source. Check our home page for links to Forms and Publications.
February 18, 2026
News
The IRS has announced (Rev. Rul.2026-6) interest rates will decline by one percentage point for the calendar quarter beginning April. 1, 2026. For individuals, the rate for overpayments and underpayments will be 6% per year, compounded daily. The rates are as follows:
Note that the interest rates on over-and underpayments are based on the yields of marketable obligations of the U.S. These rates are only indirectly affected by the Federal Reserve rates. Moreover, the yields are rounded. As a result these rates don't change in lock step with actions by the Federal Reserve.
Tip of the Day
State returns . . . If you're doing your own return and using tax preparation software, you should be aware that most items carry automatically to your state return. That's one of the advantages of computers. But, depending on the state, the software is unlikely to handle all the special items. Some require an entry on the state return. That's especially true for nonresident and part-year resident returns. Check the instructions for any lines that require a special entry. The special treatment varies by state. New York has an unusual number of modifications--both positive and negative, Maryland, far less. And keep in mind that almost every state with an income tax has special credits and deductions.
February 17, 2026
News
The IRS announced (LA-2026-01) tax relief for individuals and businesses in the State of Louisiana affected by severe winter ice storms that began on Jan. 22, 2026. These taxpayers now have until March 31, 2026, to file various federal individual and business tax returns and make tax payments. Following the disaster declaration issued by the State of Louisiana, individuals and households that reside or have a business in the State of Louisiana qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, for certain deadlines falling on or after Jan. 22, 2026, and on or before March 31, 2026, taxpayers are granted additional time to file. As a result, affected individuals and businesses will have until March 31, 2026, to file returns and pay any taxes that were originally due during this period. The March 31, 2026, deadline applies to individual income tax returns and payments normally due on or after Jan. 22, 2026. Penalties on payroll and excise tax deposits due on or after Jan. 22, 2026, and before Feb. 6, 2026, will be abated as long as the tax deposits are made by Feb. 6, 2026.
Tip of the Day
Nontaxable distributions . . . C corporations, S corporations, and partnerships can throw off nontaxable distributions. How that can occur is different for each entity. In the case of entities held in your mutual fund the nontaxable amount will appear on your Form 1099-DIV. You'll have to reduce the basis in that holding by the amount of the distribution so when you sell the investment you'll report a higher capital gain or smaller loss.
February 13, 2026
News
?You can appeal a Tax Court decision to the U.S. Court of Appeals. That's what the taxpayer did in Karen Veeraswamy, Petitioner-Appellant (U.S. Court of Appeals, Second Circuit). In the earlier case (T.C. Memo. 2024-83) the taxpayer argued that she had abandoned her half interest in the S corporation she owned with her husband and should not have to report any income from the corporation. The Appeals Court noted that evidence before the Tax Court established that she remained a part owner of the S corporation in years prior to 2014. The minutes of the corporation's first board meeting demonstrated that her husband and her each had 50 percent ownership of in 2000. Moreover, she testified at trial that she participated in management of the enterprise after the couple began living separately in 2004. In addition, the corporation's Forms 1120S and Schedules K-1, which she submitted in her husband's personal bankruptcy, showed that she remained a half-owner of the corporation as of 2010. She did not demonstrate that she abandoned her interest prior to 2014, and she submitted no evidence of such abandonment in proceedings before the Tax Court. Indeed, her own admissions supported the Tax Court's conclusion that she was part owner of the corporation through at least 2014. In particular, in 2019, responding to the trustee's attempt to obtain turnover of the escrow funds in her ex-husband's bankruptcy, Veeraswamy repeatedly asserted that she was 50 percent equity shareholder of the corporation. The Court found that the Tax Court did not err in finding her a part owner of the corporation for the time at issue.
Tip of the Day
Using computer software to prepare your return? . . . If you prepare your return using tax software you may have to file the return electronically. That's what some states require. Check the rules for your state. Another point. It's often far easier to "plug" an entry rather than entering a number on a lower-level worksheet and having the software compute the entry on the form. But entering the info on the worksheet may add vital information that could be used in other ways such as computing any limitations or entering the number correctly on a state return. In more than a few cases it can generate an error message that will prevent you from filing electronically.
February 12, 2026
News
Make sure you're able to take your case to court. In Veleta Williams (T.C. Memo. 2025-90) the taxlpayer received an IRS Notice CP71A, Annual Reminder of Balance Due Taxes for Tax Year 2006, dated October 23, 2023, informing her of a balance due for her 2006 taxable year. On January 8, 2024, she filed her Petition in this case, attaching only the Notice CP71A, which is not a Notice of Deficiency. Respondent states that he has mailed no Notice of Deficiency and made no other determination that might confer jurisdiction on the Court. Because the taxpayer failed to establish the Court's jurisdiction, the Court granted the IRS's Motion to Dismiss and dismiss this case for lack of jurisdiction.
Tip of the Day
More than one sole proprietorship? . . . If you operate more than one sole proprietorship, you've got to file separate Schedule C's for each one. That's not always easy to ascertain. If you're operating an auto body shop out of the same location as your auto repair and the operations and recordkeeping are integrated, that's probably a single business. But if you have an auto repair business and also own a hardware store, you should be filing two Schedule C's.
February 11, 2026
News
Revenue Procedure 2026-12 updates Rev. Proc. 2024-44 and 2024-52, and identifies circumstances under which the disclosure on a taxpayer's income tax return with respect to an item or position is adequate for the purpose of reducing the understatement of income tax under Section 6662(d) of the Code (relating to the substantial understatement aspect of the accuracy-related penalty), and for the purpose of avoiding the tax return preparer penalty under section 6694(a) (relating to understatements due to unreasonable positions) with respect to income tax returns.
Tip of the Day
Nondeductible losses . . . You can generally deduct losses on the sale of stock or other investment property. Losses on the sale of most business assets (e.g., machinery, trucks) can also be deducted. But there are restrictions. You can't deduct losses on sales to related parties. Related parties include members of a family, a corporation and an individual who directly (or indirectly) owns more than 50% of the corporation's stock, a fiduciary and a beneficiary of the same trust, and an executor of an estate and a beneficiary of that estate unless the sale was to satisfy a pecuniary bequest.
February 10, 2026
News
The IRS announced (IR-2026-22) a new expansion of Tax Pro Account, introducing business-level digital capabilities for tax professionals who work in tax-preparation companies, accounting firms, or other organizations. The latest enhancements give tax-professional businesses greater visibility and control over their Centralized Authorization File relationship, helping organizations that serve larger numbers of taxpayers manage authorizations more efficiently while reducing paper-based processes. These updates establish the digital foundation for future expansions supporting tax professionals. Sole proprietorships and other businesses that do not use CAF systems are not impacted by this change. This release allows designated business representatives to:
Tip of the Day
Bought bonds at a discount? . . . In general, a capital gain from the disposition of a market discount bond is treated as interest income to the extent of accrued market discount as of the date of disposition. You can find more information in the instructions to Form 8949 and in IRS Publication 550.
February 9, 2026
News
You can get relief from the IRS for unpaid tax obligations, but you've got to work with them. In John J. Mongogna and Michelle L. Mongogna (T.C. Memo. 2025-89) the taxpayers had filed a voluntary petition for bankruptcy. The taxpayers claimed several items of exempt property including their current residence. The IRS has filed a notice of federal tax liens (NFTL) for the years 2008 through 2015. During the CDP hearing, the taxpayers contended that their federal tax debts for tax years 2008 through 2015 were discharged during the bankruptcy action. The IRS concluded that tax years 2008 through 2015 were dischargeable; but because a properly recorded lien existed on the property before the filing of the bankruptcy action, the IRS could pursue collection against any exempt or abandoned assets. To evaluate whether collection against any exempt or abandoned property was warranted and what collection alternatives the taxpayers might have available to them, the IRS requested certain information from petitioners: (1) a completed Form 433–A (financial information) and (2) two denials for loans showing that the equity in the assets could not be reached or borrowed against. The taxpayers did not supply the requested information despite numerous requests to do so. The Court found the settlement officer correctly determined that the 2008 through 2015 tax liabilities could be collected against the taxpayers' exempt property despite liabilities that may have been discharged personally. She determined that petitioners needed to show the IRS their inability to reach equity in the assets before the IRS bankruptcy specialist could conclude her review of the case. Having correctly applied bankruptcy law, the settlement officer did not abuse her discretion in sustaining the proposed levy action.
Tip of the Day
Change your name? . . . Your name and social security number on your tax return have to match. If you change your name because of marriage, divorce should report the name change to the Social Security Administration (SSA). And don't forget to notify the SSA if your child's last name changes.
February 6, 2026
News
In a start-up business (and on-going entities) it's not unusual for an officer, employee, or outside contractor to receive shares or an interest in the company for services performed. If the interests are fully transferrable, that is, there is no risk of forfeiture, the fair market value is income when received and the basis of the property to the recipient is the fair market value at time of transfer. In Corri A. Feige (T.C. Memo. 2025-88) the taxpayer claimed the shares received had a substantial risk of forfeiture. The Court noted Whether a risk of forfeiture is substantial depends on the facts and circumstances. A substantial risk of forfeiture exists only if rights in property that are transferred are conditioned, directly or indirectly, upon the future performance (or refraining from performance) of substantial services by any person, or upon the occurrence of a condition related to a purpose of the transfer if the possibility of forfeiture is substantial. The Court found the shares were not subject to a substantial risk of forfeiture and were fully transferable and that they had to be included in income in the year received.
February 5, 2026
News
Substantiation is the key. The IRS can disallow virtually any deduction without substantiation. The amount of documentation varies but is particularly stringent for charitable contributions. In Dax Xavier Johnson (T.C. Memo. 2025-87) the taxpayer claimed a substantial charitable contribution to a charitable organization on which the taxpayer was a board member. The organization's mission was to find the killer of the taxpayer's nephew. The Court noted to verify a charitable contribution of money, the regulations require the taxpayer to maintain one of the following for each contribution: (1) a canceled check; (2) a receipt from the donee; or (3) in the absence of a check or receipt, other reliable written records. A receipt or record used for this purpose must show the name of the donee, the date of the contribution, and the amount of the contribution. For all contributions over $250, Section 170(f)(8) requires a contemporaneous written acknowledgment from the donee organization that specifies the amount of cash and whether any goods or services were provided in return. Section 170(f)(17) further directs that no deduction is allowed for any cash contribution "unless the donor maintains as a record of such contribution a bank record or a written communication from the donee showing the name of the donee organization, the date of the contribution, and the amount of the contribution." A donee organization's written communication that complies with section 170(f)(17), however, does not irrefutably prove the fact and deductibility of the donation it attests.The Court was skeptical of the veracity of the deduction because the taxpayer was a board member. The Court was skeptical in part because of an overstatement of deductions on other parts of the return and that the letter was the only substantiation of the dollar amount. In addition, the taxpayer presented no bank records to support the amount. The Court sustained the disallowance of the deduction.
Tip of the Day
Changes to the child tax credit . . . In addition to the increase, beginning in 2025, to be eligible to claim the CTC or ACTC, you must have a valid SSN, which means it must be valid for employment and issued before the due date of your return (including extensions). If you are filing a joint return, only one spouse is required to have a valid SSN in order to be eligible for the CTC and ACTC. The other spouse must have either an SSN or ITIN, and it must have been issued on or before the due date of the eturn (including extensions).
February 4, 2026
News
The IRS announced (MT-2025-02) tax relief for individuals and businesses in the State of Montana affected by severe storms and flooding that began on Dec. 10, 2025. These taxpayers now have until May 1, 2026, to file various federal individual and business tax returns and make tax payments. Following the disaster declaration issued by the FEMA, individuals and households that reside or have a business in the Blackfeet Indian Reservation, Lincoln, and Sanders counties qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Dec. 10, 2025, and before May 1, 2026, are granted additional time to file. As a result, affected individuals and businesses will have until May 1, 2026, to file returns and pay any taxes that were originally due during this period. For more information, click on the link above.
Tip of the Day
Research and experimental expenditures . . . Beginning in 2025 businesses can deduct domestic R&D expenditures or you can elect to capitalize them and deduct them ratably over a period of 60 months or more starting in the month you realize benefits from such expenditures. The choice can have a substantial impact on your tax planning.
February 3, 2026
News
If you can't pay your assessed tax liability at once, the IRS has options. In Christopher B. Epps (T.C. Memo. 2025-85) the taxpayer owed some $159,000 and requested a CDP hearing at which he (1) indicated that he could not pay the balance, (2) requested penalty abatement, and (3) expressed interest in both an installment agreement and an offer-in-compromise. The taxpayer's lawyer participated in a telephone hearing and stated his client (who was incarcerated at the time) was unable to pay. The lawyer provided financial information showing $33,300 in bank accounts, investments of $182,176, and equity in real property of $236,995, as well as additional equity in vehicles, and an open line of credit. The Appeals officer concluded that the taxpayer could fully pay his 2014 liability, applying his equity and future income and accordingly informed the lawyer that he was not eligible for currently-not-collectible status. The Appeals Office issued a notice of determination, sustaining the proposed levy action and denying currently-not-collectible status. The notice of determination rested this conclusion on the financial information the taxpayer himself supplied. In particular, the Appeals officer pointed to the twin facts that (1) although incarcerated, the taxpayer still received pension income and had] the ability to pay, and (2) he had sufficient funds and equity in assets to pay towards the debt. The Court found no abuse of discretion on the part of the IRS.
Tip of the Day
Contributions to a governmental paid family leave program . . . Beginning in 2025, if you made contributions to a governmental paid family leave program, you will now include the full amount of those contributions in your income. If you itemize your deductions on Schedule A, you can include the amounts contributed as part of the state and local taxes you paid.
February 2, 2026
News
National Taxpayer Advocate Erin M. Collins released her 2025 Annual Report to Congress, finding that taxpayers generally fared well in their dealings with the IRS in 2025 and that most taxpayers are likely to have a smooth experience in 2026. However, the report cautions the upcoming filing season is likely to present greater challenges for taxpayers who encounter problems. “Among the reasons the 2025 filing season went well was that the IRS had its largest workforce in many years and faced no major tax law changes that required implementation during the filing season,” Collins writes. “Entering 2026, the landscape is markedly different. The IRS is simultaneously confronting a reduction of 27% of its workforce, leadership turnover, and the implementation of extensive and complex tax law changes mandated by the [One, Big, Beautiful Bill] Act, many of which apply retroactively and require significant IRS programming, guidance, changes to tax forms and instructions, and taxpayer education.” The report noted that overall staffing is down 27%, but not across the board. The Small Business/Self-Employed area is down 38% and Taxpayer Services, the largest by staff, is down 21%. For more information and links to other resources, see IR-2026-15.
Tip of the Day
Interest on home under construction . . . You can treat a home under construction as a qualified home for a period of up to 24 months, but only if it becomes your qualified home at the time it is ready for occupancy. The 24-month period can start any time on or after the day construction begins.
January 30, 2026
News
You can file an amended return if you've made an error on a filed return, and you may have options for in paying the amount on the return. But in the case of Tisha S. Hillman (T.C. Memo. 2025-84) the taxpayer filed returns but failed to pay the full amount of the liabilities. The IRS sent the taxpayer a Notice of Intent to Levy and informing the taxpayer of the amount that she owed with interest and penalties, and had until May 27, 2023, to request a CDP hearing. On May 2, 2023, an IRS employee prepared and signed the NFTL (Notice of Federal Tax Lien) for the years at issue. On May 11, 2023, the IRS issued petitioner a Notice of Federal Tax Lien Filing and Your Right to a Hearing (Lien Notice), notifying her of the filing of the NFTL. The taxpayer timely mailed a request for a CDP hearing. She stated that she was not liable for the tax the IRS was trying to collect and requested that the NFTL be withdrawn. Importantly,she did not check the box requesting a hearing regarding the Levy Notice. On June 13 and 14, 2023, the IRS processed levies on the taxpayer's assets. She subsequently raised the issue of these levies with the IRS, at which time she was informed that she could have an equivalent hearing for the levies but that the time for a CDP hearing on the levies had run out. After a number of months, the levies were lifted. In a collection hearing she requested payment alternatives and filed the requested financial information. She did not accept either of the IRS's alternative installment agreements and challenged her underlying tax liabilities, but a notice explained that such liabilities reflected amounts listed on tax returns she herself had filed. The Notice further noted that petitioner had been provided with an opportunity to file amended returns to correct the liabilities but had not done so. The Court found that respondent did not abuse his discretion in sustaining the collection action.
Tip of the Day
Scan those receipts . . . As you're going through your receipts for your tax prep consider scanning or copying them. Most stores now print receipts on heat sensititve paper. The big advantage for them is no ribbon or other source of ink to replace. The downside for the customer is that receipt will become unreadable over time. How long? Depends on several factors, but the paper is very heat sensitive. At room temperature they can become worthless after a year or two. The IRS wants to read the receipt. If it's faded you might get sympathy from the examiner, but no deduction.
January 29, 2026
News
In years past an employee could deduct unreimbursed employment expenses such as work clothes, tools, travel, etc. The Tax Cuts and Jobs Act of 2017 stopped that and the change was made permanent by the One Big Beautiful Bill. In Sohail S. Hussaini (T.C. Memo. 2025-82) the taxpayer was working on site for a military contractor. He was classified as an employee and was not reimbursed for his travel expenses. The taxpayer claimed the expenses under the category for military reservists, performing artists, and fee based government officials. The Court held the taxpayer did not qualify under these specifically limited classifications and denied the taxpayer a deduction.IRS Tax Tip 2026-7 reminds taxpayers they must report the sale or disposal of digital assets. If you receive a Form 1099-DA the form may or may not include your basis (basis is not yet required to be reported). If there's no basis reported you must calculate your own basis. And you must report the sale even if you do not receive a Form 1099-DA. Click on the link above for links to additional resources.
Tip of the Day
Disregarded entities . . . For most taxpayers that means a single member LLC. If you're the only owner in an LLC the IRS considers it a disregarded entity and, instead of reporting the income from a sole proprietorship on a separate return, you report it on Schedule C of your personal return. If the LLC's only activity is the holding of rental real estate, you report the income on your Schedule E of your 1040. Most, but not all states, follow the same rule. Check the rules for the states in which you do business. And check to make sure you don't have to file another form. New York state requires all LLCs to file a one-page report and most will be liable for a fee. Check the rules in your state.
January 28, 2026
News
The IRS has issued (IR-2026-13) frequently asked questions in Fact Sheet 2026-02 to help taxpayers, businesses, and other stakeholders understand the changes under Executive Order 14247: Modernizing Payment To and From America's Bank Account. These changes apply to:
Electronic payments are generally processed faster, cost less to handle, and reduce errors compared to paper payments. Limited exceptions to electronic payment requirements will be available in specific situations, such as those involving hardship and/or legal or procedural requirements.
Tip of the Day
Watch for frequency changes in filing requirements . . . In many states filing frequency for sales tax is dependent on sales volume or taxable sales. In New York you may only have to file annually, or you may have to file quarterly or monthly. Employment tax deposits may be due monthly or within a certain number of days of the payroll. Check the rules regularly, but more frequently if you're approaching a break point.
January 27, 2026
News
Notice 2026-09 provides guidance relating to amendments under the Consolidated Appropriations Act, 2023, known as the SECURE 2.0 Act of 2022 (SECURE 2.0 Act) for an individual retirement arrangement (IRAs) under Section 408(a), (b), or (h) of the Code, an employer's SEP arrangement under section 408(k), and an employer's SIMPLE IRA plan under Section 408(p). This notice provides that the IRS has extended the deadline to make certain amendments for IRAs, SEP arrangements, and SIMPLE IRA plans to December 31, 2027 because the Treasury Department and the IRS are still developing model language that may be used by IRA trustees, custodians, and issuers to amend an IRA for compliance with the Acts.
Tip of the Day
Form 1099-K reporting . . . Payment card companies, payment apps, and online marketplaces will be required to send you a Form 1099-K only if the amount of your business transactions during the year is more than $20,000 and the total number of your transactions is more than 200.
January 26, 2026
News
The IRS has issued (IR-2025-10) frequently asked questions in Fact Sheet 2026-01 related to the new deduction for qualified overtime compensation under the One, Big, Beautiful Bill. For tax years 2025 through 2028, individuals who receive qualified overtime compensation may deduct the amount that exceeds their regular rate of pay (generally, the "half" portion of "time-and-a-half" compensation) and is reported on a Form W-2 or Form 1099. These FAQs contain additional information about the deduction, provide resources for employees (including federal employees) to assist them in determining whether they received qualified overtime compensation under the Fair Labor Standards Act, and contain useful information regarding the differences in reporting requirements for tax year 2025 and 2026-2028. Treasury and IRS previously issued Notice 2025-62 providing penalty relief to employers and other payers for tax year 2025 regarding new information reporting requirements for qualified overtime compensation; and issued Notice 2025-69 for workers eligible to claim the deduction for overtime compensation for tax year 2025.
January 23, 2026
News
Setting up a captive insurance company and payimg the premiums to an affiliate sounds like a way to save taxes, but it's not that easy. In Curtis K. Kadau and Lori A. Kadau, Deceased, Curtis K. kadau, Personal Representative (T.C. Memo. 2025-81) the taxpayer was a shareholder of an S corporation that incurred expenses for purported insurance coverage provided through an arrangement with its affiliated captive insurance company. The IRS attacked the arrangement, claiming it did not provide actual insurance and that the taxpayers could not deduct the amounts paid to the captive insurance company. To be deductible the amounts paid must be for true insurance. The Court looked at four factors to see if (1) the arrangement involves an insurance risk; (2) the arrangement shifts the risk of loss to the insurer; (3) the insurer distributes its risk among its policyholders; and (4) the arrangement is insurance in the commonly accepted. The Court noted there was a lack of risk distribution, the captive insurer was undercapitalized, and the contracts were not at arm's length (they were 2.5 to 3.5 times more per dollar of coverage than comparable commercial policies). The Court found the payments were not for insurance and therefore were not deductible. In addition, the Court sustained the accuracy-related penalties imposed by the IRS.
Tip of the Day
The box approach . . . Some people are excellent recordkeepers; some are just good. And some are terrible. If you fall in the latter category, just throw the documents you receive in the mail, required receipts, etc. into a box. Having unorganized documentation is far better than no documentation. Email statements? Create a directory in which to save the statements. You should also ask your accountant what he prefers. Many don't want to look at paper and prefer a PDF file.
January 22, 2026
News
Awards or compensation for physical injury and sickness are generally not taxable (under Sec. 104). In Adrienne Mennemeyer (T.C. Memo. 2025-80) the taxpayer received a monetary settlement in an arbitration case from a former employer in compensatory and punitive damages for defamation and related economic claims. The Court noted that damages are on account of personal physical injuries or physical sickness if there is a direct causal link between the action giving rise to the damages and the physical injury or physical sickness. Personal injuries are not enough. Only physical personal injuries qualify. When damages are received pursuant to a settlement agreement, the nature of the claim that gave rise to the settlement controls whether the damages are excludable under Sec. 104. While the taxpayer claimed she had a physical aliment arising from a difficult work environment with the employer, the settlement agreement did not mention personal injuries, nor was there any indication that the settlement was for physical injuries. Moreover the Court did not find the settlement agreement ambiguous. The Court found the entire settlement taxable.
Tip of the Day
Annual reports, statements, etc. . . . This is not only the time of the year to file income taxes, if you own a business you may also have to file an annual report. Many states require a report that includes officers, board members, shares outstanding, etc. plus a fee. The rules vary widely as does the required information. In some cases the report is due on the anniversary of the corporation or creation of the entity. Failure to file the report can jeopardize the entity's legal standing with serious consequences.
January 21, 2026
News
In Abdul Khaliq Mustafa Muhammad (T.C. Memo. 2025-77) was found to have underreported income and failed to substantiate his deductions. The Court reviewed the record and found the taxpayer engaged in repeated underreporting of income, claimed numerous deductions and expenses beyond receipts, failed to keep adequate records, and failed to cooperate with tax authorities. Considering the taxpayer's background (degrees in business and taxation and was and IRS employee) and his refusal to provide any testimony to reconstruct records, the existence of several badges of fraud in this matter was persuasive circumstantial evidence of fraud. The Court was continually frustrated by the taxpayer's failure to provide adequate explanations despite having been provided opportunities to do so. The Court concluded that the IRS has established, by clear and convincing evidence, that the taxpayer's underpayments of tax for the years in issue were attributable to fraud.
Tip of the Day
Contributions to a governmental paid family leave program . . . Beginning in 2025, if you made contributions to a governmental paid family leave program, you will now include the fullamount of those contributions in your income. If you itemize your deductions on Schedule A, you can include the amounts contributed as part of the state and local taxes that you paid.
January 20, 2026
News
The IRS has confirmed (IR-2026-09) that supplemental basic allowance for housing payments made to members of the uniformed services in December 2025 are not to be included in income by those who received the payments; they are not taxable. In the One, Big, Beautiful Bill enacted last July, Congress appropriated $2.9 billion to supplement the basic allowance for housing payable to members of the uniformed services. In December, the President announced that 1,450,000 military service members would receive a special "Warrior Dividend" before Christmas. The resulting one-time supplemental payments of $1,776 made primarily to active-duty members of the uniformed services in the pay grades of O-6 and below and eligible Reserve Component members as of Nov. 30, 2025, of the Army, Air Force, Navy, Marine Corps and Space Force were funded by this appropriation. Federal tax law specifically excludes from gross income a "qualified military benefit." The basic allowance for housing payments are qualified military benefits and, therefore, are not taxable.
Tip of the Day
What's the threshold for reporting income? . . . Basically all gross income is reportable unless excluded. And the exclusions are few. Some online posts have suggested that if the income isn't reported on a 1099, it doesn't have to be reported on a tax return. That's not true. Technically if you mow a couple of yards in the neighborhood the gross amount has to be reported and the net amount is taxable. There is no lower limit. Talk to your tax adviser when preparing your return.
January 16, 2026
News
Notice 2026-13 provides guidance for certain retirement plan administrators, updating safe harbor explanations to reflect tax law changes made after Aug. 6, 2020. Notice 2026-13 provides a safe harbor explanations that may be used by plan administrators when they provide written explanations to retirement plan participants about eligible rollover distributions, satisfying their requirements under section 402(f). In the notice, the first safe harbor explanation applies to non-Roth accounts and the second safe harbor explanation applies to Roth accounts. The notice also addresses, among other things, changes to the 10% additional tax on early withdrawals from retirement plans, the required minimum distribution rules for surviving spouses, and the increased age for determining required beginning dates for required minimum distributions. Plan administrators may customize these safe harbor explanations as appropriate. For instance, if the plan does not hold after-tax employee contributions, the plan administrator could eliminate that section of the safe harbor explanation. This guidance modifies the safe harbor explanations previously provided in Notice 2020-62.
Tip of the Day
Need to file a gift tax return? . . . If you made any gifts to relatives or others over the $19,000 exclusion amount in 2025 you have to file a gift tax return. It's due at the same time as your individual return and an extension of your individual return applies to the gift tax return too. If you made a gift of cash or marketable securities the return isn't that complicated. Things get tricker if you made a gift of property. While there's unlikely to be any current tax liability, each gift will reduce your estate tax exclusion. If your state has an estate tax it probably has a gift tax and you'll probably have to file return there too.
January 15, 2026
News
The IRS has issued Notice 2026-11 that provides taxpayers with guidance on the permanent 100% additional first year depreciation deduction for eligible depreciable property acquired after Jan. 19, 2025, provided by the One, Big, Beautiful Bill (OBBB). The notice also provides guidance on certain qualified sound recording productions that the OBBB added as property that may be eligible for the additional first year depreciation deduction. Generally, when taxpayers acquire property for business use, they must depreciate it over several years based on various depreciation schedules. The notice also provides interim guidance to taxpayers that they may generally rely on the existing additional first year depreciation deduction regulations. The notice provides rules for determining whether depreciable property is eligible for the additional first year depreciation deduction and for determining the amount of such deduction allowable under the OBBB. In general, the OBBB provides a permanent 100% additional first year depreciation deduction for qualified property acquired, or specified plants that are planted or grafted, after Jan. 19, 2025. The notice also provides interim guidance on elections taxpayers can make for certain property to be eligible for the additional first year depreciation deduction. Under the OBBB, taxpayers may elect:
Tip of the Day
Estimated tax due . . . Estimated taxes for the last quarter of 2025 are due today. You can't avoid a penalty for underpaid taxes in earlier quarters, but you can stop the running of penalties. For example, if you were underpaid for the first three quarters but made up the shortfall in the final quarter, there wouldn't be any additional penalties from January 15th to April 15th. Most state estimated taxes are also due today and their rules are similar.
January 14, 2026
News
Everyone is entitled to a $15 million estate tax exclusion (2026). A married couple can get up to $30 million if the first spouse to die passes his or her spousal unused exclusion (DSUE) to the surviving spouse, sometimes known as "porting." But passing the usused excluion is not automatic. In Estate of Billy S. Rowland, Deceased, James A. Park, Executor (T.C. Memo. 2025-76) the wife predeceased the husband. A return for her was filed but it was filed late and did not specify the fair market value of the assets, just a gross amount for the estate. When the husband died the estate attempted to use the spouses DSUE. The Court held that in order to use the DSUE the estate tax of the wife had to be timely filed and did not qualify for the safe harbor in Rev. Proc. 2017-34.
Tip of the Day
Mind the store . . . You've seen the headlines from time to time--rouge bond trader creates $8 billion loss for bank--or some similar catastrophe. While the magnitude may be less, the impact may be just as significant for a small firm. The bookkeeper who embezzled $280,000 from a 10-person consulting firm over 18 months, the salesman who inflated his numbers to increase his commissions, etc. Don't assume the numbers from your bookkeeper are automatically correct. There are number of fairly simple tests that can be done to insure that the numbers represent the actual results. One of the easiest steps is to make sure your bank statement is reconciled each month--by someone other than the bookkeeper. Use a special bank account for electronic deposits and/or a special address for incoming checks. There are a number of relatively inexpensive steps that can be taken. Talk to your CPA. And use common sense. If sales are up and your margins are the same you should be making more money. If not, why not?
January 13, 2026
News
If you overvalue a charitable contribution by more than 200 percent the IRS can impose a gross valuation misstatement penalty. The penalty is equal to 40% of the additional tax attributable to the misstatement. In the case of Sand Valley Holdings, LLC, Sand Valley Investors, LLC, Tax Matters Partner (T.C. Memo. 2025-74) that penalty was significant. The taxpayer argued that the penalty was not correctly approved. The law requires that no penalty under shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination. In a TEFRA case, "the IRS must secure written supervisory approval for the penalty before issuing an FPAA (final partnership administrative adjustment) to the partnership." The record showed that the revenue agent (RA) consulted with Chief Counsel about the technical requirements for the FPAA package, but the advice he received did not constitute the initial determination of a penalty assessment. The Court found the penalty was properly assessed.
Tip of the Day
IRS Free File available . . . The IRS direct file is no longer around, but IRS Free File has begun accepting individual tax returns, giving eligible taxpayers an early opportunity to prepare and file their federal income tax returns ahead of the official start of the 2026 filing season later this month. IRS Free File Guided Tax Software allows taxpayers to prepare and submit returns now and hold them for electronic filing once the season officially begins. For 2026, eight private-sector partners are offering guided tax software products through IRS Free File to taxpayers with an Adjusted Gross Income of $89,000 or less in 2025. Taxpayers with an AGI above $89,000 can use the Free File Fillable Forms, available beginning Jan. 26. These electronic versions of IRS paper forms are ideal for individuals who are comfortable preparing their own taxes using IRS instructions and publications. While most business owners won't be able to use the system, younger relatives or employees of your business might use it and avoid a fee for a commercial preparer.
January 12, 2026
News
In Mission Organic Center, Inc. (165 T.C. No. 13) the taxpayer was a state-legal marijuana dispensary. Section 280E disallows a deduction for expenses related to the sale of federally illegal drugs. The IRS tried to collect past due taxes and the taxpayer requiested a collection due process hearing and made an offer-in-compromise. In calculating its earning potential the taxpayer reduced its income by related expenses. The revenue officer (RO) disregarded such expenses when calculating the taxpayer's reasonable collection potential and the settlement officer rejected the offer-in-compromise because it was substantially lower than the reasonable collection potential the revenue officer had calculated. The IRS relied on guidance in the Internal Revenue Manual. The Tax Court held that the settlement officer did not abuse her discretion in relying on the Internal Revenue Manual provisions regarding how to compute the taxpayer's reasonable collection potential and the IRS did not abuse its discretion in adopting a policy of disregarding expenses rendered nondeductible by Sec. 280E for purposes of calculatinga taxpayer's reasonable collection potential.
Tip of the Day
No tax on tips, overtime, etc. . . . So how do you handle the new no tax on tips and overtime, auto loan interest deduction, and the $6,000 senior deduction? They all get entered on Schedule 1-A, Additional Deductions. The form is needed to calculate your modified adjusted gross income, the limitations on the exclusions and to enter the vehicle identification number of the car.
January 9, 2026
News
The IRS announced (IR-2026-02) that Monday, January 26, 2026, as the opening of the nation’s 2026 filing season. This year, several new tax law provisions of the One, Big, Beautiful Bill become effective, which could impact federal taxes, credits and deductions. Taxpayers have until Wednesday, April 15, 2026, to file their 2025 tax returns and pay any tax due. The IRS expects to receive about 164 million individual income tax returns this year, with most taxpayers filing electronically. For more information and links to IRS resources, click on the link above.The IRS has issued (REG-112829-25) proposed regulations that would revise the threshold for when certain third-party settlement organizations are required to perform backup withholding to comply with changes made in the One, Big, Beautiful Bill. The proposed regulations provide clarity on backup withholding and would provide that third party settlement organizations generally are not required to backup withhold on payments settled through third party payment networks unless the gross amount of reportable payment transactions to a payee exceeds $20,000 and the number of transactions exceeds 200
.
Tip of the Day
Rent property to your business? . . . If you do, make sure you have a lease with standard commercial terms. If your business or you get audited there's a high probability the agent will ask to see the lease. If the terms aren't similar to what's commercially available in the area, he could make an adjustment. And that applies not only to you, but also to a relative or related party that might be renting property to you.
January 8, 2026
News
One of the critical elements in a charitable contribution of any property valued at $5,000 or more or easement is a qualified appraisal. In the case of larger contributions that appraisal must be attached to the return. In Rock Cliff Reserve, LLC, Five Rivers Conservation group, LLC, Tax Matters Partner, et al. (T.C. Memo. 2025-73) the taxpayers made a contribution of conservation easements of land. The IRS challenged the appraisal because of the significant increase in the valuation over the recent purchase price. The Court found the appraisals to be defective. Comparables chosen to value the properties were not comparable for a number of reaaons. The Court also noted that Reg. Sec. 1.170A-13(c)(5)(ii) provides that an appraiser will be disqualified if "the donor and the appraiser make an agreement concerning the amount at which the property will be valued and the donor knows that such amount exceeds the fair market value of the property." This example is silent about the knowledge of the appraiser; it focuses on whether the donor actually or constructively knows that the agreed amount exceeds the FMV of the property. Because the appraisal was not qualified, no qualified appraisal was attached and the Court disallowed the deduction in its entirety. In addition, the Court sustained the imposition of the gross valuation misstatement penalty and the accuracy-related penalty.
Tip of the Day
Credit fixing services . . . You've seen or heard the ads. Companies that can raise your credit score. There are honest companies out there, but there are a number of dishonest credit repair services. There are a number of things you can do to fix your credit report and save the money. There are also non-profit services that can help. For more information and links to other resources, go to the Federal Trade Commission.
January 7, 2026
News
In Arden Row Assets, LLC, Natural Aggregates Partners, LLC, Partnership Representative (T.C. Memo. 2025-71) made a charitable contribution of a conservation easement which the IRS disallowed completely. During this proceeding the parties engaged in settlement discussions and exchanged letters for the purpose of reaching a settlement. The taxplayer filed a Motion to Enforce Settlement asserting that the exchange of letters resulted in a binding agreement. The IRS argued that the exchanged letters did not result in a binding agreement. The Court held that the parties did not enter into a binding agreement.
Tip of the Day
Contemporaneous records . . . The IRS and the courts give more value to diary entries, etc. made near the time of the action. For example, a car log entry regular made at the time of the trip has more value than one made at the end of the week and much more value than one made at the end of the month. The IRS and the courts can usually spot a log you made the night before you saw the IRS agent. But the IRS and courts also look at other aspects such as do you regularly keep such records. A single entry in your diary for a six-month period showing the detail of a certain transaction carries less weight than if you made regular entries. Finally, sometimes a well-kept diary or log can substitute for missing receipts. But there are some areas of tax law where strict recordkeeping rules won't allow that, e.g., in the case of travel and meal receipts, car logs, charitable contributions, etc. The law requires a receipt and the neither the IRS nor the courts can waive that rule.
January 6, 2026
News
The civil fraud penalty is equal to 75% of the deficiency attributable to fraud. But it's not easy for the IRS to assess the penalty. The IRS must prove fraud and that's not always easy. In Remus Beleiu and Naomi J. Beleiu (T.C. Memo. 2025-70) The taxpayers owned and operated two businesses--one was reported on a Schedule C, the other was not reported. The wife as a financial analyst for a hospital and had an accounting degree and an M.B.A. She prepared the accounting records for the entities. The Court looked at the 11 "badges of fraud". The Court noted the lack of adequate books and records, the tax returns reported significant discrepancies in gross income and in deductions and explanations of the discrepancies were self-contradictory and implausible in light of the wife's education and training. The Court also noted the concealment of the second business as well as a failure to cooperated with the tax authorities and the failure to provide complete tax information to the counsel and accountants representing the taxpayers to the IRS. The Court held that the IRS carried its burden of proving fraud by clear and convincing evidence. The Court sustained the IRS's determination that taxpayer-wife was liable for Section 6663(a) civil fraud penalties for the years at issue.
Tip of the Day
New deductions . . . The new deductions--no tax on tips, no tax on overtime, no tax on auto loan interest and the $6,000 deduction for seniors are all applied after computing your adjusted gross income. As a result these items won't reduce your income for computing the phaseout of most benefits. And, because states that rely on IRS income to start use your adjusted gross income it means that these items won't reduce your state income unless the state specifically allows them. Check the rules carefully when completing your state return.
January 5, 2026
News
The IRS has updated frequently asked questions in Fact Sheet 2025-10 related to changes to the Premium Tax Credit made under the One Big, Beautiful Bill and to related provisions that no longer apply. The Premium Tax Credit is a refundable tax credit that helps eligible individuals and families with low or moderate income with the cost of their health insurance purchased through the Health Insurance Marketplace, also known as the Exchange. OBBB made a number of changes to the Premium Tax Credit, including removing the limitations on repayment of excess advance payments of the premium tax credit for tax years beginning after Dec. 31, 2025. The FAQs have been updated to delete the questions about certain Premium Tax Credit rules that do not apply after tax years 2020 and 2021. More information, please see One, Big, Beautiful Bill Provisions.
Tip of the Day
New postal procedures . . . For years the IRS rule (and most state rules) was that the postmark date counted as the date a bill was paid or a return filed. That may still be true but the post office may not be postmarking your mail on the date you drop it into the letter box or at the post office. The postmark now is affixed on ther date a piece of mail is first processed by an automated sorting machine. Thus, you go to the post office on January 15, the deadline for mailing your estimated taxes. But the postmark is not printed until January 17th. Your estimated taxes are late. The cheapest and easiest solution is to take the mail to the postal clerk and ask him or her to hand cancel the item. That will guarantee the postmark is the 15th. Using certified mail will also work, but costs money. Switching to electronic filing makes the most sense. The IRS has not indicated how it will handle the situation and may not make any changes to the rules (it wants to reduce mail volume). This may also be an issue for other time sensititve mailings such as lease options, contracts, payment due dates, etc.
January 2, 2026
News
The IRS is providing guidance on the "No Tax on Car Loan Interest" provision enacted under the One, Big, Beautiful Bill. The proposed regulations relate to a new deduction for interest paid on vehicle loans incurred after Dec. 31, 2024, to purchase new made-in-America vehicles for personal use. This new tax benefit applies to both taxpayers who take the standard deduction and those who itemize deductions. Who can take a deduction for interest on car loans. Important eligibility criteria, include:
The IRS previously announced transition guidance for certain lenders and other taxpayers receiving interest for vehicle loans in 2025. In general, those persons must file information returns with the IRS to report interest received during the tax year and other information related to the loan. These information returns enable taxpayers to claim the benefits of the vehicle loan interest deduction. To help lenders implement these information reporting requirements, the proposed regulations clarify:
Tip of the Day
Financial control . . . In some households it's the husband; in some the wife. It should be both. You may write the checks, but your spouse should review the outflow periodically to know what's going on. Should something happen to your spouse the survivor should know when the insurance premiums are due, how the mortgage is paid, etc. The same is true for investments. Your spouse can be the one who picks the stocks, but you should have an idea of what you're invested in, where the accounts are, etc. And you both should have signatory authority over the accounts. If one spouse has a business, the other should have an idea of the operations and be able to sign checks, tax returns, etc. Your wife doesn't have to know the plumbing business, but should be familiar with the finances, where the customer information is, etc. And not only in the case of death but if one of you is incapacitated. That's especially important if one of you owes a small business. Single? Work with a relative, trusted friend, colleague.
December 30, 2025
News
The IRS announced (Notice 2026-10) that the optional standard mileage rate for business use of automobiles will increase by 2.5 cents in 2026, while the mileage rate for vehicles used for medical purposes will decrease by half a cent, reflecting updated cost data and annual inflation adjustments. Optional standard mileage rates are used to calculate the deductible costs of operating vehicles for business, charitable, and medical purposes. Beginning Jan. 1, 2026, the standard mileage rates for the use of a car, van, pickup or panel truck will be:
The rates apply to fully-electric and hybrid automobiles, as well as gasoline and diesel-powered vehicles. (These rates are optional. You can still use the actual expenses if you decide to.)
Tip of the Day
IRA catchup . . . You can make an extra $1,000 catchup contribution to your IRA in the year you reach age 50. Fred will turn 50 on December 30, 2025. In addition to his regular $7,000 contribution he can put an extra $1,000 into his IRA for 2025.
December 29, 2025
News
Any gain from the sale or exchange of qualified farmland to a qualified farmer can be paid in four equal annual installments. An election and first installment must be made to do so and must be made by the due date of the return. The rule applies to sales in tax years beginning after July 4, 2025. Notice 2026-3 provides relief from the additions to tax under Sections 6654 and 6655 of the Code for underpayment of estimated income tax by a taxpayer that makes a valid election under Section 1062(a).The IRS has updated (IR-2025-126) frequently asked questions in Fact Sheet 2025-09 regarding changes to the limitation on the deduction for business interest expense (Section 163(j)) under the One, Big, Beautiful Bill.For tax years beginning after December 31, 2024, OBBB amended Section 163(j) by allowing taxpayers to add back deductions for depreciation, amortization, or depletion when calculating Adjusted Taxable Income and expanding the definition of floor plan financing interest to treat, as a motor vehicle, any trailer or camper designed to provide temporary living quarters for recreational, camping or seasonal use and designed to be towed by, or affixed to, a motor vehicle. For tax years beginning after December 31, 2025, OBBB amended Section 163(j) by clarifying that business interest expense subject to Section 163(j) includes any interest incurred and capitalized during the tax year, except for interest capitalized under Sections 263(g) and 263A(f).
Tip of the Day
One size doesn't fit all . . . The internet is a great source of knowledge--and misinformation. We've seen articles about whether or not you should convert your traditional IRA to a Roth, how much money you need for retirement, etc. There's no rule of thumb for either, or a number of other "formula". Should you convert an IRA to a Roth? Depends on your age, your current income, your income at retirement, when you're going to retire, how much you're going to convert, how you're going to pay the taxes, etc. Even something as simple as whether or not and how much life insurance to have requires understanding a number of factors.
December 23, 2025
News
The IRS announced (WA-2005-03) tax relief for individuals and businesses in the State of Washington affected by severe storms, straight-line winds, flooding, landslides, and mudslides that began on Dec. 9, 2025. These taxpayers now have until May 1, 2026, to file various federal individual and business tax returns and make tax payments. Following the disaster declaration issued by FEMA, individuals and households that reside or have a business in Benton, Chelan, Clallam, Grays Harbor, Jefferson, King, Kittitas, Lewis, Mason, Pierce, Samish, Skagit, Snohomish, Thurston, Wahkiakum, Whatcom, and Yakima counties qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Dec. 9, 2025, and before May 1, 2026, are granted additional time to file. As a result, affected individuals and businesses will have until May 1, 2026, to file returns and pay any taxes that were originally due during this period. The May 1, 2026, deadline applies to individual income tax returns and payments normally due on or after Dec, 9, 2025. The May 1, 2026, deadline also applies to 2025 contributions to IRAs and health savings accounts for eligible taxpayers. This relief also applies to the estimated tax payments normally due on Jan 15, 2026, and April 15, 2026. Penalties on payroll and excise tax deposits due on or after Dec. 9, 2025, and before Dec. 29, 2025, will be abated as long as the tax deposits are made by Dec. 29, 2025.Tip of the Day
New Year, new rules . . . The new year will bring new tax rules, some state, some federal. Make sure you're up on new minimum wage rules, property and sales tax rates, as well as a number of other requirements. And in 2026 you'll have to track overtime pay and tips for employees if you do your own payroll. Check for other changes such as electronic filing of state returns and deposit requirements. Now is also a good time to make a list of current requirements
December 23, 2025
News
Announcement 2026-01 provides general information to interested taxpayers and potential claimants on claiming a payment under a new OBBB provision related to dyed fuel. The new law allows a taxpayer to recover federal excise taxes paid on clear diesel fuel or kerosene if that taxpayer later removed the fuel from a terminal as dyed fuel for nontaxable use. The announcement notes that absent a statutory change, the IRS lacks the authority to pay the claims to anyone other than the person that paid the original tax on the dyed fuel to which the claim relates.The IRS has announced the opening of a 90-day public comment period, ending March 22, 2026, for proposed updates to its Voluntary Disclosure Practice, including a more streamlined penalty framework. The proposed revisions reflect the IRS's commitment to improve its processes, and to further incentivize non-compliant taxpayers to come into compliance. Under the proposed framework, taxpayers conditionally approved to participate must, within three months after being conditionally approved to participate must file amended or delinquent income tax returns, international information returns, and Reports of Foreign Bank and Financial Accounts, as applicable, information returns, and Reports of Foreign Bank and Financial Accounts, as applicable, pay all applicable taxes, penalties, and interest in full; and execute required agreements to finalize participation. Click on the link above for more information.
Tip of the Day
Employee whistleblowers . . . More often than not employees know or suspect if other employees are committing fraud but they're often reluctant to inform management. You should make it clear that management encourages the information that could reveal a fraud and that their identity will be protected.
December 22, 2025
News
You can fully deduct business bad debts. However, the IRS will frequently challenge the loss, claiming it was not a bona fide debt, but equity which can only be deducted as a capital loss. In Anaheim Arena Management, LLC, H&S Investments I, LP, A Partner other than the Tax Matters Partner (T.C. Memo. 2025-68) partnership advanced funds to a building the taxpayers were to manage. However, the building was a physical asset of a city, not a distinct legal entity with the legal capacity to borrow money. The Court noted the taxpayer could not sue the city to enforce repayment of the notes, repayment of the notes was to be from the profits of the venture which indicates equity, the creditor could participate in and management of the borrower, and several other factors indicated the advances were equity, not debt.
Tip of the Day
Income and expense . . . In a normal business venture expenses offset some or all of the income. But that may not be true if you can't take advantage of the expenses. The best example is a rental property. You borrowed $100,000 at 5% to finance the property but because of the phase-out rules you can't deduct any of the rental losses. Meanwhile the sale of some stock results in $100,000 of cash which you invest in a 5% CD. While the interest income and expense evens out, the income is taxed but you can't deduct the expense, at least not currently. If the rental is expected to produce taxable income in the near term, that might be an issue. But rental properties frequently have losses for an extended period. Unless you expect to sell the rental in the near term, the best thing to do may be to use the free cash to pay off the loan. There may be other factors to consider such as is the cash needed elsewhere. Think it through.
December 19, 2025
News
Your address is important when a deficiency notice is sent. In Cuis Carlos Ibarra Cano (T.C. Memo. 2025-65) the IRS claimed the taxpayer filed his Tax Court petition was filed late. The Court noted the taxplayer's last known address when the Notice of Deficiency was mailed was 220 6th Street. The Notice was erroneously addressed to him at 2206 TH St. (the city was correct). The Court found that the IRS failed to prove that a valid Notice of Deficiency wasd mailed to the taxpayer's last known address.In order to be valid, any penalty has to be approved by the revenue agent's (RA) immediate supervisor. In Ivey Branch Holdings, LLC, Ivey Branch Investors, LLC, Tax Matters Partner (T.C. Memo. 2025-63) the IRS denied the taxpayer a deduction for a charitable conservation easement and assessed penalties. The record established that the RA's supervisor timely approved the penalties. She affixed her electronic signature to the penalty lead sheet on August 12, 2019, using Adobe software. She stated that she was providing "written managerial approval for all penalties determined in the FPAA". The Court noted the supervisor had the discretion to approve or disapprove of the penalties. The taxpayer challenged the status of the RA who made the initial determination to assert the penalties. The taxpayer contended that a different employee made the intial determination. The Court noted that employee just provided technical assistance on TEFRA cases. When that employee reviewed the penalty had already been approved. The Court found that and another similar argument as frivolous and that the requirements of supervisory approval were met.
Tip of the Day
Negotiating? . . . If you're negotiating an important deal don't introduce petty requests. If you want to do the deal you may be causing problems that can ruin it. Yes some things may be agreed to easily, but some things can be real sticking points. And, if the other party senses too may such requests they may decide the deal isn't worth it.
December 18, 2025
News
In Inga I. Kramarenko (T.C. Memo. 2025-61) worked full time as a "post-doc"-a trained Ph.D. with high technical skills—in laboratories at a university's medical institution. In that capacity she performed work in the laboratory. In return she received further training in laboratory techniques at the direction of her scientist supervisors and received a salary and various other benefits incidental to employment. The taxpayer contended that her salary was in the nature of a "grant" and was therefore exempt from taxation pursuant to Article 18 of the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income and Capital, Russ.-U.S., June 17, 1992 (U.S.-Russia Tax Treaty). On her income tax returns for 2010 and 2011 she reported the salary as tax exempt. The IRS determined that the salary was payment for her work and was therefore ineligible for the Article 18 exemption, and also determined accuracy-related penalties. The Tax Court held that Under Baturin the taxplayer's salary was earned through an employer-employee relationship as part of a substantial "quid pro quo" for her labor, not as a "grant, allowance, or other similar payment" under the U.S.-Russia Tax Treaty, and is therefore not exempt from U.S. income tax. The Court also held that the taxpayer was liable for the accuracy-related penalties under Secs. 6662(a) and (b)(2) on the underpayments resulting from reporting that income as tax exempt.
Tip of the Day
Phone phishing . . . It's like email phishing, but using the phone. Old fashioned? Yes, but it does work. One scam involves a phone call from a large national bank with the caller asking if you just applied for a new credit card. Sounds legit because the caller can provide some information. But the information is very broad and could apply to a number of other people such as zip code. When a bank or other financial institution calls they should be able to provide you with specific information about your account. If you're still uncertain, hang up and call the bank directly.
December 17, 2025
News
The IRS reported it is withdrawing Notice of proposed rulemaking 132251-11 and 134219-06. The regulations provided relief from joint and several tax liability and relief from Federal income tax liability resulting from the operation of State community property laws. The proposed regulations would have affected married individuals who filed joint returns and later seek relief from joint and several liability.
Tip of the Day
Basis in LLC, S corporation, etc. . . . You have to report any income from a pass-through entity (you may be able to offset carryforward losses) but you can't deduct losses unless you "materially participate" in the business have sufficient basis and you're "at risk" with respect to that amount. If you're unsure of the rules, check with your tax advisor.
December 16, 2025
News
T.D. 10038 contains final regulations relating to the imposition of a user fee on authorized persons requesting the issuance of IRS Letter 627, also referred to as an estate tax closing letter. The final regulations adopt without change the text of the interim final rule and proposed regulations that reduced the amount of the user fee imposed on a request for the issuance of an estate tax closing letter from $67 to $56.The IRS Criminal Investigation released its Fiscal Year 2025 Annual Report on Dec. 11, 2025, showcasing banner investigative results fueled by new partnerships and innovative financial investigative techniques. The report details how IRS-CI's approximately 3,000 employees worked to safeguard the global financial system and identify $10.59 billion in financial crimes during FY25, which took place from Oct. 1, 2024, to Sept. 30, 2025. Click on the link above for the report.
Tip of the Day
Tax forms . . . The IRS is releasing final and draft versions of 2025 tax forms fast and furious. There are usually few changes between the draft and final versions of the forms but if you download draft versions any don't use them for filing. Only the current copy of final versions are posted to the "final" link above, but you can find forms for prior years (yes, at least back into the 1940's).
December 15, 2025
News
The IRS has issued Revenue Procedure 2026-6) allowing States, including the District of Columbia, to make an Advance Election to participate in a new tax credit for calendar year 2027. This new credit, established under the One, Big, Beautiful Bill, is for contributions to Scholarship Granting Organizations that serve elementary and secondary school students from low- and middle-income families. Beginning Jan. 1, 2027, individual taxpayers may claim a nonrefundable federal tax credit for cash contributions to SGOs providing scholarships for elementary and secondary education expenses. The credit allowed to any taxpayer is limited to $1,700. However, for contributions to an SGO to be eligible for this credit, the SGO must be listed on a State list of one or more covered states for the applicable calendar year. A covered state is defined as one of the States, or the District of Columbia, that, for a calendar year, voluntarily elects to participate in the credit and identifies SGOs in the State. Rev. Proc. 2026-6 provides that a State may choose to be a covered State for calendar year 2027 before it provides the IRS with a list of the SGOs located in the State, allowing SGOs additional time to prepare for the commencement of this new credit in 2027. For more information, click on the link above and/or go to IR-2025-121.
Tip of the Day
Adoption credit . . . It can be a big number. The IRS is reminding taxpayers that if they finalized an adoption in 2025 or started the adoption process before 2025, they may qualify for the Adoption Tax Credit. Additionally, there have been significant changes to the tax credit under the One, Big, Beautiful Bill. For more information, see IRS Tax Tip 2025-71.
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