The Full Payment Requirement and the Presumption of Correctness: Jurisdictional Lessons from Pellegrino v. United States

Pellegrino v. United States, No. 1:26-cv-00403, 2026 WL (Fed. Cl. Aug. 20, 2026)

In Pellegrino v. United States, No. 1:26-cv-00403 (Fed. Cl. Aug. 20, 2026), Judge Philip S. Hadji of the United States Court of Federal Claims addressed a pro se tax refund action that, while ultimately dismissed on jurisdictional grounds, raises several issues of practical significance for tax professionals who advise clients on refund claims, withholding credits, and the evidentiary standards governing Forms 1099-B and 1099-MISC.

Plaintiff Mark Pellegrino alleged that he filed his individual income tax return for tax year 2024 in April 2025, submitting a Form 1040, a Schedule C for Mark Pellegrino LLC (a real estate business), a Form 8949 reporting two short-term transactions, and a Schedule D summarizing those transactions. The Form 1040 reported $0 in wages, the standard deduction, and $48,220 in federal tax withheld. The Schedule C reflected $110,417 in gross income and $85,000 in total expenses for the LLC, yielding $25,417 in tentative profit. The Form 8949 included two transactions described as “Real Money Monitized [sic],” one with cost and proceeds of $42,000 and another with cost and proceeds of $66,500, producing neither capital gains nor losses.

The IRS determined that Plaintiff would owe $1,083 in taxes, based on $10,817 in taxable income ($25,417 in adjusted gross income from the LLC’s tentative business profit, minus the standard deduction of $14,600). Initially, the IRS Record of Account reflected the $48,220 in withholdings Plaintiff had listed on his return, but the IRS subsequently disallowed those withholdings “because it could not verify that it received the Forms 1099 or the withholdings claimed by [P]laintiff.” The IRS Wage and Income Transcript listed three Forms 1099, none of which aligned with the forms Plaintiff provided in this case, and the Government represented that the IRS never received the relevant Forms 1099.

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The Zero-Return Partnership Filing: Applying the Beard Test to Form 1065 Validity

Internal Revenue Service, Chief Counsel Email No. 202634014, CCA_2026030612260600, UILC 9999.00-00 (Mar. 6, 2026) (released Aug. 21, 2026)

I. Introduction

On August 21, 2026, the Internal Revenue Service released a redacted third-party communication (No. 202634014) in which IRS Chief Counsel personnel addressed a question of considerable practical importance to partnership tax practitioners: whether an initial Form 1065, U.S. Return of Partnership, that displays ownership information but reports all zeros across its income, deduction, and credit lines constitutes a valid return for purposes of the Internal Revenue Code.¹ The communication, dated March 6, 2026, concludes that such a filing “would most likely be considered invalid under application of the Beard test,” specifically failing the prong requiring “sufficient data to allow calculation of tax.”

For experienced CPAs and enrolled agents who prepare or review partnership returns, this guidance carries significant implications. It confirms that the Beard framework—long applied to individual income tax returns in the tax-protester context—extends to partnership returns, and it narrows the circumstances under which a zero-return might be deemed valid. This article examines the Beard test in detail, traces its doctrinal origins through the Tax Court’s landmark 1984 opinion, and analyzes how the test applies to the partnership context in light of the recently released guidance.

II. The Beard Test: Doctrinal Origins and Development

A. The Supreme Court Lineage

The Beard test did not emerge in a vacuum. The Tax Court in Beard v. Commissioner, 82 T.C. 766 (1984), expressly drew upon a trilogy of Supreme Court decisions to articulate the standard for determining whether a submitted document qualifies as a “return” for purposes of the Internal Revenue Code:

  • Florsheim Bros. Drygoods Co. v. United States, 280 U.S. 453 (1930) – The Court held that a “tentative return” filed to secure an extension of time was not a return sufficient to trigger the running of the statute of limitations. The Court reasoned that the period of limitations was to commence only “when the taxpayer supplied the required information in the prescribed manner—the completed return.” Id. at 462. The Court recognized, however, that “the filing of a return that is defective or incomplete may under some circumstances be sufficient to start the running of the period of limitation,” but such a return “must purport to be a specific statement of the items of income, deductions, and credits in compliance with the statutory duty to report information and ‘to have that effect it must honestly and reasonably be intended as such.’” Id. at 463 (emphasis added).

  • Zellerbach Paper Co. v. Helvering, 293 U.S. 172 (1934) – Justice Cardozo, writing for the Court, articulated the now-familiar standard: “Perfect accuracy or completeness is not necessary to rescue a return from nullity, if it purports to be a return, is sworn to as such . . . and evinces an honest and genuine endeavor to satisfy the law. This is so even though at the time of filing the omissions or inaccuracies are such as to make amendment necessary.” Id. at 180.

  • Badaracco v. Commissioner, 464 U.S. 386 (1984) – The Supreme Court reaffirmed the Florsheim and Zellerbach framework, holding that returns which “purported to be returns, were sworn to as such and appeared on their faces to constitute endeavors to satisfy the law” were not nullities even though they were fraudulent. Id. at 403–04. The Court further stated that “a document which on its face plausibly purports to be in compliance, and which is signed by the taxpayer, is a return despite its inaccuracies.” Id. at 404.

B. The Tax Court’s Articulation in Beard

In Beard v. Commissioner, 82 T.C. 766 (1984), the Tax Court synthesized the Supreme Court precedent into a four-part test. The Court stated:

“The Supreme Court test to determine whether a document is sufficient for statute of limitations purposes has several elements: First, there must be sufficient data to calculate tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the return under penalties of perjury.”

Id. at 778.

The Beard case itself involved a taxpayer, Robert D. Beard, who had tampered with an official Form 1040 by altering margin and item captions to recategorize his $24,401.89 in wages as “Non-taxable receipts” under a so-called “equal exchange” theory derived from a misreading of Eisner v. Macomber, 252 U.S. 189 (1920). The tampered form showed a zero tax liability while simultaneously claiming a refund of $1,770.75 in withheld taxes. The Tax Court held that the tampered form was not a return within the meaning of §§ 6011, 6012, 6072, and 6651(a)(1) of the Internal Revenue Code, and that an addition to tax under § 6651(a)(1) for failure to file was properly assessed. Beard, 82 T.C. at 766, 780.

The Court’s analysis of the first prong—sufficient data to calculate tax liability—was particularly pointed. The Court observed that to compute a tax from the tampered form, “one must effectively ignore the margin and line descriptions, imagining instead the correct ones from an official Form 1040, or one must simply select from the form, including the Form W-2, that information which appears to be applicable and correct, and from the information so selected, irrespective of its label, compute the tax.” Id. at 779. The Court concluded that “we do not believe such an exercise is what the U.S. Supreme Court had in mind in Commissioner v. Lane-Wells Co., 321 U.S. 219, 222–23 (1944), and Germantown Trust Co. v. Commissioner, 309 U.S. 304, 309 (1940).” Id.

The Court further emphasized the third prong, finding that the tampered form “does not reflect an endeavor to satisfy the law. It in fact makes a mockery of the requirements for a tax return, both as to form and content.” Id. at 778–79. Quoting the Seventh Circuit in United States v. Moore, 627 F.2d 830, 835 (7th Cir. 1980), the Court noted: “In the tax protestor cases, it is obvious that there is no ‘honest and genuine’ attempt to meet the requirements of the code. In our self-reporting tax system the government should not be forced to accept as a return a document which plainly is not intended to give the required information.” Beard, 82 T.C. at 779.

The Beard decision was affirmed on appeal. Beard v. Commissioner, 793 F.2d 139 (6th Cir. 1986).

C. The Four Prongs in Summary

For practitioners, the Beard test requires that a document satisfy all four of the following elements to qualify as a valid return:

Prong Requirement Key Authority
1 Sufficient data to calculate tax liability Florsheim, 280 U.S. at 462; Beard, 82 T.C. at 778
2 The document must purport to be a return Zellerbach, 293 U.S. at 180; Badaracco, 464 U.S. at 404
3 An honest and reasonable attempt to satisfy the requirements of the tax law Florsheim, 280 U.S. at 463; Zellerbach, 293 U.S. at 180; Beard, 82 T.C. at 778–79
4 Execution under penalties of perjury Zellerbach, 293 U.S. at 180; Badaracco, 464 U.S. at 404

III. The Recently Released IRS Communication: Application to Partnership Returns

A. The Question Presented

The redacted third-party communication (No. 202634014) arose from a question regarding an initial partnership return (Form 1065) that displayed ownership information (i.e., partner names, addresses, and ownership percentages) but contained all zeros in the income, deduction, credit, and tax computation lines. The question was whether such a filing constituted a valid return under the Beard test.

B. The IRS Conclusion

The IRS personnel responded:

“We agree with the RA’s memo that the initial return showing ownership information, but containing all 0s would most likely be considered invalid under application of the Beard test. We believe the Beard test to determine validity of the purported return is applicable here, specifically the prong requiring sufficient data to allow calculation of tax.”

The communication further acknowledged that “the Beard test doesn’t apply perfectly to partnership returns, but courts and Service guidance have applied it to determine the validity of a 1065 on several occasions,” citing:

  • Huff v. Commissioner, 138 T.C. 258 (2012); and
  • Field Service Advisory 1992 WL 1354785 (BNA 1992).

C. The Zero-Return Distinction: Tax Protestors vs. Legitimate Filers

The communication drew an important distinction between the typical tax-protester zero-return and a zero-return that might genuinely reflect a taxpayer’s (or partnership’s) activity. The IRS noted:

“Numerous tax court decisions have found that a return (typically a 1040) containing all zeros, even if filed on an official IRS form, does not constitute a valid return. However, these are all in the tax protestor context and other cases have held that a zero return may be valid if there is reason to believe that is an accurate reflection of the taxpayer’s activity. YA Global Investments v. Commissioner, 161 T.C. 173, 264 (2023).”

The communication then applied this distinction to the facts at hand: “There is no indication here that this is an accurate reflection of the taxpayer’s activity.”

D. The YA Global Investments Exception

The citation to YA Global Investments v. Commissioner, 161 T.C. 173, 264 (2023), is critical for practitioners. In that case, the Tax Court recognized that a return reporting zero income, zero deductions, and zero tax liability is not per se invalid. Where there is a reasonable basis to believe that the zero figures accurately reflect the taxpayer’s actual economic activity—for example, a partnership in its first year of formation that has not yet commenced operations, or a dormant entity with no income or expenses during the reporting period—the Beard test may be satisfied even though no tax can be “calculated” in the conventional sense. The key inquiry is whether the filing represents an honest and reasonable attempt to comply with the tax law, rather than a sham or protest document.

This exception, however, is narrow. As the IRS communication makes clear, the burden is on the taxpayer (or the practitioner preparing the return) to demonstrate that the zero figures are an “accurate reflection” of the entity’s activity. Mere ownership information on a Form 1065, without any supporting explanation or context for the absence of economic activity, is insufficient.

IV. Practical Implications for Tax Practitioners

A. Preparing Initial Partnership Returns

For CPAs and EAs preparing a Form 1065 for a newly formed partnership or a partnership in a year of inactivity, the following considerations arise from the Beard framework and the recent IRS guidance:

  • Document the basis for zero figures. If a partnership genuinely has no income, deductions, or credits for the tax year, the preparer should ensure that the return is accompanied by adequate documentation or a statement explaining the partnership’s status (e.g., “Partnership formed on [date]; no business operations commenced during the tax year”). This supports the third Beard prong (honest and reasonable attempt to satisfy the tax law) and distinguishes the filing from a tax-protester zero-return.

  • Ensure the return “purports to be a return.” The Form 1065 must be completed on the official IRS form (or an approved substitute), signed by a responsible party under penalties of perjury, and include all required identifying information. A document that omits essential structural elements of the form may fail the second and fourth Beard prongs.

  • Be mindful of the “sufficient data” prong. Even in a legitimate zero-activity scenario, the return should include all required schedules and statements (e.g., Schedule K, Schedule K-1 for each partner, and any applicable information returns). The absence of all economic data, combined with no explanatory context, creates a risk that the IRS will determine the return lacks “sufficient data to calculate tax” and is therefore invalid under Beard.

B. Reviewing Client Returns

When reviewing a client’s previously filed Form 1065 that reports all zeros, practitioners should consider:

  • Whether the partnership had any activity during the year (even minimal administrative expenses, guaranteed payments, or capital contributions that might generate reportable items);
  • Whether the return was filed in a timely manner and on the proper form;
  • Whether there is documentation supporting the zero figures;
  • The potential consequences of an invalid return, including the failure-to-file penalty under § 6651(a)(2) (for partnerships, the penalty is assessed per partner per month) and the potential impact on the statute of limitations under § 6501(a).

C. Statute of Limitations Considerations

The Beard test originated in the statute-of-limitations context. Florsheim, 280 U.S. at 453; Zellerbach, 293 U.S. at 172; Badaracco, 464 U.S. at 386. If a Form 1065 is deemed invalid under Beard, the three-year assessment period under § 6501(a) may never have begun to run. This has significant implications for both the IRS and the taxpayer. For the practitioner, this means that an invalid partnership return does not provide the same statutory “safe harbor” as a valid one, and the exposure period for assessment remains open.

Conversely, if a return is valid under Beard (even if it reports zeros), the statute of limitations begins to run from the date of filing, providing certainty for both the Service and the taxpayer.

D. The “Doesn’t Apply Perfectly” Caveat

The IRS communication’s acknowledgment that “the Beard test doesn’t apply perfectly to partnership returns” is noteworthy. Partnership returns serve a different function than individual returns: they are primarily informational, reporting the allocation of income, deductions, and credits among partners. The partnership itself is generally not a taxpaying entity (absent subchapter C election, certain excise taxes, or the § 6695(b) preparer penalty context). The “tax” to be “calculated” on a Form 1065 is, in many respects, the allocation of items to partners rather than a discrete tax liability.

Nevertheless, as Huff v. Commissioner, 138 T.C. 258 (2012), and Field Service Advisory 1992 WL 1354785 confirm, the Service and the courts have consistently applied the Beard framework to partnership returns. The “sufficient data to calculate tax” prong, in the partnership context, is best understood as requiring sufficient data to determine the partnership’s items of income, loss, deduction, and credit and their allocation to partners. A Form 1065 with all zeros and no supporting context fails this prong because it provides no data from which any allocation can be determined or verified.

V. Distinguishing Beard from the Present Context

It is important for practitioners to recognize that the Beard case involved a taxpayer who intentionally tampered with an official form to create a false zero liability while claiming a refund—a classic tax-protester scheme. The Court’s language was accordingly strong: the form “makes a mockery of the requirements for a tax return, both as to form and content.” Beard, 82 T.C. at 778–79.

The partnership return at issue in the recent IRS communication is not described in those terms. The communication does not allege tampering, fraud, or protest. It addresses a more mundane (if still problematic) scenario: a return that was filed but contains no economic data. The Beard test still applies, but the analysis is less about intent to deceive and more about whether the document provides the minimum informational content necessary to function as a return within the self-assessment system.

The YA Global Investments decision, 161 T.C. at 264, provides the critical counterweight: a zero-return is not automatically invalid. The question is one of context and reasonable belief. For a partnership that has genuinely not commenced operations, a properly prepared and documented zero-return may satisfy Beard. For a partnership that has been actively conducting business but files a return with all zeros and no explanation, the return is far more likely to be deemed invalid.

VI. Conclusion

The recently released IRS communication (No. 202634014) provides practitioners with useful, if somewhat cautious, guidance on the validity of zero-return partnership filings. The use of “most likely” rather than a categorical statement reflects the fact-specific nature of the Beard analysis and the narrow YA Global Investments exception. For experienced CPAs and EAs, the practical takeaways are:

  • The Beard test applies to Form 1065 filings, notwithstanding the test’s origins in the individual return and tax-protester contexts.
  • A Form 1065 showing ownership information but all zeros will “most likely” be invalid under the first Beard prong (sufficient data to calculate tax) absent evidence that the zeros accurately reflect the partnership’s activity.
  • Practitioners should document the basis for zero figures on initial or dormant-year partnership returns to support the “honest and reasonable attempt” prong and to distinguish the filing from a tax-protester submission.
  • The YA Global Investments exception provides a path to validity for legitimate zero-activity partnerships, but the burden of demonstrating that the zeros are an “accurate reflection” of activity rests with the taxpayer.
  • The invalidity of a return under Beard has downstream consequences for the statute of limitations, failure-to-file penalties, and the overall administrative posture of the partnership’s tax compliance.

Practitioners should remain vigilant in ensuring that every partnership return they prepare or review contains the minimum informational content necessary to satisfy the Beard framework, even in years of apparent inactivity.

Prepared with assistance from Qwen 3.8 27B

Notes

¹ The communication is a redacted third-party communication released by the IRS on August 21, 2026. The parties’ names, specific facts, and certain identifying details have been redacted. The communication reflects the views of IRS Chief Counsel personnel responding to a question regarding the validity of a partnership return under the Beard test.

Implementing Trump Account Eligible Investments: An Analytical Analysis of the Proposed Regulations

Guidance on Eligible Investments for Trump Accounts, CC-00349938-26, RIN 1545-BS14, 26 CFR Part 1, FR Doc. 2026-17123 (Filed Aug. 20, 2026, 8:45 a.m., published Aug. 21, 2026).

The Department of the Treasury and the Internal Revenue Service have released a highly anticipated notice of proposed rulemaking providing comprehensive guidance on the investment parameters governing Trump accounts. Enacted under Section 70204 of Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly referred to as the One, Big, Beautiful Bill Act, the new statute added Sections 530A, 128, and 6434 to the Internal Revenue Code. A Trump account is defined under Section 530A(b)(1) as an individual retirement account established for the exclusive benefit of an eligible minor under age 18. During the “growth period”—which begins upon the account’s establishment and ends on December 31 of the calendar year in which the beneficiary reaches age 17—funds may only be invested in “eligible investments” designed to promote low-cost, non-leveraged equity growth.

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The Evolution of Conservation Easement Enforcement: IRS Shuts Down Uniform Settlement Initiative to Establish a Dedicated Office of Conservation Easements

Internal Revenue Service, IRS establishes Office of Conservation Easements and transitions settlement process, Announcement IR-2026-95 (Aug. 19, 2026).

Internal Revenue Service, IRS announces terms of a time-limited settlement opportunity for eligible taxpayers involved in conservation easement disputes, Announcement IR-2026-65 (May 13, 2026

On August 19, 2026, the Internal Revenue Service (IRS) announced a significant structural and tactical shift in its ongoing enforcement campaign against abusive conservation easements under Internal Revenue Code (I.R.C.) § 170(h). This pivot is characterized by two major developments: the immediate termination of the uniform settlement initiative established under the May 13, 2026 program (Announcement IR-2026-65) and the creation of a specialized, centralized Office of Conservation Easements (Announcement IR-2026-95).

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The Doug LaMalfa Federal Disaster Tax Relief Certainty Act: Technical Analysis of Statutory Revisions to Sections 165, 63, and the Inception of Section 139M

Doug LaMalfa Federal Disaster Tax Relief Certainty Act, H.R. 5366, 119th Cong. (2026) (Enrolled Bill)

For tax practitioners representing clients in disaster-impacted regions, the legislative landscape is on the precipice of a significant, taxpayer-favorable shift. As of August 19, 2026, the Doug LaMalfa Federal Disaster Tax Relief Certainty Act (H.R. 5366) has successfully passed both the House of Representatives and the Senate and is currently on the President’s desk awaiting signature. Introduced in the House on September 15, 2025, and reported with amendments by the Committee on Ways and Means on April 9, 2026 (H. Rept. 119-605), the bill passed the House under a suspension of the rules on April 27, 2026. The Senate subsequently discharged its Committee on Finance and passed the bill without amendment by Unanimous Consent on August 7, 2026.

Should this bill be signed into law by the President, it will amend the Internal Revenue Code (I.R.C.) of 1986 to “codify and extend the rules for personal casualty losses arising from major disasters and the rules for the exclusion from gross income of compensation for losses or damages resulting from certain wildfires.” For Certified Public Accountants (CPAs) and Enrolled Agents (EAs), this legislation represents a critical stabilization of disaster tax relief, transitioning temporary, ad-hoc disaster provisions into a structured statutory framework within I.R.C. § 165 and § 63, and introducing a brand-new exclusion under I.R.C. § 139M.

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Reevaluating the Section 163(j) Interest Expense Limitation: Technical Insights from IRS Fact Sheet FS-2026-14

IRS Fact Sheet FS-2026-14 (Aug. 19, 2026); Internal Revenue News Release IR-2026-94 (Aug. 19, 2026)

On August 19, 2026, the Internal Revenue Service (IRS) released Fact Sheet FS-2026-14, which immediately supersedes the prior Fact Sheet FS-2025-09 (originally issued on December 23, 2025). Announced in News Release IR-2026-94, this update provides tax professionals—including Certified Public Accountants (CPAs) and Enrolled Agents (EAs)—with critical administrative and substantive guidance. The new release integrates the long-standing provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 with the recent structural changes and clarifications enacted under the One, Big, Beautiful Bill Act (P.L. 119-21).

Tax practitioners must grasp the structural shifts in the IRS’s presentation, the deletion of defunct legislative provisions, and the addition of crucial administrative transition rules. Crucially, the IRS has introduced Revenue Procedure 2026-17, which provides a path for certain taxpayers to withdraw historical excepted trade or business elections. This article analyzes the technical mechanics of the Section 163(j) limitation under the new Fact Sheet, evaluates the key differences from the superseded FS-2025-09 guidance, and explains the IRS’s underlying rationale for this timely update.

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Treasury’s Excluded Property Sales Income Regulations under Section 250: Deconstructing the Proposed Guidance for Tax Professionals

Application of Section 250(b)(3)(A)(i)(VII) to Sales or Other Dispositions of Property, REG-117130-25, 91 Fed. Reg. _____ (proposed Aug. 20, 2026) (to be codified at 26 C.F.R. pt. 1)

The enactment of the Tax Cuts and Jobs Act of 2017 (TCJA) fundamentally reshaped the landscape of international corporate taxation, introducing the global intangible low-taxed income (GILTI) regime under Internal Revenue Code (I.R.C.) Section 951A and the foreign-derived intangible income (FDII) deduction under Section 250. Designed to neutralize tax considerations when choosing whether to serve foreign markets through domestic operations or controlled foreign corporations (CFCs), Section 250 originally allowed a domestic corporation a deduction equal to 37.5 percent of its foreign-derived deduction eligible income (FDDEI), reducing the effective corporate tax rate on qualifying income.

However, under the original statutory framework, Section 250 did not generally exclude income or gain derived from sales or other dispositions of intangible property or depreciable, amortizable, or depletable business property from deduction eligible income (DEI). This loophole allowed taxpayers to claim FDII benefits with respect to certain major asset dispositions. Treasury and the Internal Revenue Service (IRS) noted that this treatment could undermine the legislative intent, as it could “undermine the policy objectives of the TCJA’s changes to the U.S. international tax system, which were principally directed toward curbing erosion of the U.S. tax base through the offshoring of property that generates ongoing foreign-market intangible income”.

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Treasury Proposes New Rules for Single-Employer Defined Benefit Pension Funding: Technical Analysis for Tax Professionals

Determination of Target Normal Cost and Funding Target for Single-Employer Defined Benefit Plans, REG-107855-25, RIN 1545-BR50, 91 Fed. Reg. _____ (proposed Aug. 20, 2026) (to be codified at 26 C.F.R. § 1.430(d)-1)

The Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) have released a Notice of Proposed Rulemaking under REG-107855-25, which proposes to “modify rules in the existing regulations relating to the minimum funding requirement applicable to single-employer defined benefit pension plans”. These proposed regulations aim to “implement certain statutory amendments that have not yet been reflected in the regulations”.

Historically, the minimum funding rules under Internal Revenue Code (I.R.C.) § 430 were established by the Pension Protection Act of 2006 (PPA ’06), Pub. L. No. 109-280, 120 Stat. 780. The existing final regulations, published on October 15, 2009 (T.D. 9467), have applied to plan years beginning on or after January 1, 2010. Since the issuance of T.D. 9467, several key statutory changes have altered the landscape of single-employer defined benefit plans. The proposed regulations primarily reflect amendments made by the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA ’08), Pub. L. No. 110-458, 122 Stat. 5092; the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), Pub. L. No. 116-94, 133 Stat. 2534; and the SECURE 2.0 Act of 2022 (SECURE 2.0 Act), Pub. L. No. 117-328, 136 Stat. 4459.

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Immigration Status Restrictions on Refundable Individual Tax Credits: Analyzing the Preamble and Provisions of REG-119882-25

Notice of Proposed Rulemaking, REG-119882-25, RIN 1545-BS06, ‘Application of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 to the Refunded Portion of Certain Federal Refundable Tax Credits,’ Scheduled for Publication in the Federal Register on August 20, 2026 (Federal Register Doc. 2026-16985)

The Department of the Treasury and the Internal Revenue Service have released a notice of proposed rulemaking, REG-119882-25 (RIN 1545-BS06), that represents a shift in the intersection of tax administration and federal immigration policy. This proposed regulation seeks to apply Title IV of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), Public Law 104-193, 110 Stat. 2105, to the refunded portion of certain individual refundable tax credits, collectively designated as the “affected refundable tax credits”.

Under the proposed rules, individuals who are not “qualified aliens” under PRWORA would be ineligible to receive the cash-refunded portion of these credits, though they would remain eligible to use the credits to reduce their actual tax liability to zero. This article provides a comprehensive technical analysis of the background, legal authority, justification, operative changes, and planning implications of these proposed regulations for CPAs and Enrolled Agents (EAs).

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Mandatory Limits and the Equitable Tolling Deficit: Analyzing Tax Court Filing Deadlines After Kyick Holdings v. Commissioner

Mandatory Limits and the Equitable Tolling Deficit: Analyzing Tax Court Filing Deadlines After Kyick Holdings v. Commissioner

Kyick Holdings, LLC, Transferee v. Commissioner of Internal Revenue Service, No. 25-1429, --- F.4th --- (1st Cir. Aug. 17, 2026)

In the complex realm of federal tax litigation, the procedural rules governing the timing of Tax Court petitions are of paramount importance. The United States Court of Appeals for the First Circuit recently addressed these rules in Kyick Holdings, LLC, Transferee v. Commissioner of Internal Revenue Service. Decided on August 17, 2026, the case delivers a nuanced, three-part holding that significantly impacts how tax professionals evaluate Tax Court filing deadlines. Specifically, the First Circuit held that while the ninety-day filing deadline under Internal Revenue Code (I.R.C.) § 6213(a) is nonjurisdictional, it remains a mandatory claim-processing rule that is completely immune to the doctrine of equitable tolling.

In doing so, the First Circuit established a major circuit split, departing from the Second, Third, Sixth and Eighth Circuits’ equitable tolling stances. To reach this conclusion, the panel relied heavily on the Supreme Court’s recent decision in Enbridge Energy, LP v. Nessel (2026), which fundamentally reshaped the federal courts’ approach to nonjurisdictional time bars and equitable exceptions. For CPAs and Enrolled Agents (EAs), Kyick Holdings serves as a stern reminder that procedural technicalities can be just as fatal to a client’s case as substantive errors, even when the taxpayer acts with utmost diligence.

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The Intersection of Vested Development Rights and Valuation in Conservation Easements: Analyzing Malibu Valley Land, LLC v. Commissioner

Malibu Valley Land, LLC v. Commissioner, T.C. Memo. 2026-68 (Aug. 17, 2026)

The valuation of noncash charitable contributions has long been a battleground between taxpayers and the Internal Revenue Service. Few cases illustrate the technical complexity of this arena as vividly as Malibu Valley Land, LLC v. Commissioner. This dispute involves a massive gap in valuation regarding a perpetual conservation easement on land with development potential in the Santa Monica Mountains. For tax professionals, particularly CPAs and EAs, this case offers critical guidance on how vested property rights, multi-jurisdictional land-use laws, and partnership interest transactions affect the fair market value of real property. Furthermore, it clarifies the jurisdictional boundaries under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) for interest expense characterization and the standards for establishing a “reasonable cause and good faith” defense against accuracy-related penalties under Section 6664.

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Proposed Regulations Offer Relieving Exception from Form 1041-A Filing for Trusts with Passthrough Charitable Deductions

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The Department of the Treasury and the Internal Revenue Service (IRS) have issued a notice of proposed rulemaking, REG-109082-25, designed to streamline the information reporting requirements under Internal Revenue Code (IRC) Section 6034 for certain trusts claiming charitable contribution deductions under Section 642(c). The primary objective of the proposed regulations is to eliminate the redundant and administratively burdensome obligation for a trust to file Form 1041-A, U.S. Information Return Trust Accumulation of Charitable Amounts, when its only charitable contribution deductions for the taxable year result from its direct or indirect ownership in passthrough entities, such as partnerships or S corporations. By removing this filing requirement, the IRS aims to reduce compliance costs and administrative friction for trustees in situations where the underlying charitable contributions are already documented via Schedule K-1 and do not involve the accumulation of trust income.

Additionally, the proposed regulations modify Section 1.6034-1 of the Income Tax Regulations to formally clarify that split-interest trusts, as described in Section 4947(a)(2), satisfy their information reporting obligations by filing Form 5227, Split-Interest Trust Information Return, rather than Form 1041-A. Importantly, the proposed regulations contain a taxpayer-favorable interim reliance provision, allowing eligible trusts to rely on the proposed rules for taxable years ending before the final regulations are published.

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The Crucial Role of Highest and Best Use in Conservation Easement Valuations: Technical Analysis of Evans v. Commissioner

Evans v. Commissioner, Nos. 24-11882 & 24-11884 (11th Cir. 2026)

For tax professionals advising clients on charitable contributions of real property, conservation easements represent one of the most highly scrutinized areas of federal tax law. The critical battlefield in these cases is almost invariably the valuation of the easement. In the consolidated appeal of Ralph G. Evans v. Commissioner and Nathaniel A. Carter v. Commissioner, the United States Court of Appeals for the Eleventh Circuit addressed a pivotal question: Must the U.S. Tax Court perform a formal, explicit determination of a property’s “highest and best use” (HBU) when applying the before-and-after valuation method, or can it adopt an expert’s valuation sub silentio?

While the Eleventh Circuit majority affirmed a Tax Court decision that slashed a claimed $14.175 million deduction to a mere $1 million, a vigorous dissent by Circuit Judge Branch highlights a profound split on the necessity of explicit judicial findings regarding a property’s potential development horizon. This article provides a comprehensive analysis of the facts, the legal framework, the majority’s reasoning, and the critical points of disagreement raised in the dissent.

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Rehearing Reversal: The Fifth Circuit’s Substitutive Management Test for the Limited Partner Self-Employment Tax Exception

K Alain, L.L.L.P. v. Commissioner of Internal Revenue, No. 24-60240, --- F.4th --- (5th Cir. Aug. 12, 2026), withdrawing and substituting for Sirius Solutions, L.L.L.P. v. Commissioner of Internal Revenue, 165 F.4th 374 (5th Cir. Jan. 16, 2026), vacating and remanding Nos. 11587-20 and 30118-21 (T.C. Feb. 20, 2024)

On August 12, 2026, the United States Court of Appeals for the Fifth Circuit issued a major decision that fundamentally reshapes the landscape of self-employment tax liability for partners in limited partnerships. In K Alain, L.L.L.P. v. Commissioner of Internal Revenue (formerly known as Sirius Solutions, L.L.L.P. v. Commissioner), the court granted a petition for rehearing, withdrew its previous well publicized opinion issued on January 16, 2026, and substituted a newly updated majority and dissenting opinion.

The decision is a stunning development for tax professionals. While the court’s January opinion held that the limited partner exception under Internal Revenue Code (IRC) Section 1402(a)(13) was governed strictly by limited liability under state law, the August opinion on rehearing completely shifted course. The court now holds that the “original public meaning” of the phrase “limited partner” is “a partner who plays no significant role in managing or running a business”. Although the court still vacated and remanded the Tax Court’s decision, it rejected both its own prior “limited liability alone” touchstone and the Tax Court’s strict “passive investor” standard. Instead, the Fifth Circuit has established a new “managerial versus non-managerial” distinction, allowing for some limited participation by limited partners so long as they do not cross the line into exercising control or playing a significant role in management. This technical article explores the facts of the case, the court’s statutory analysis, the conceptual differences between the withdrawn and substituted opinions, and the practical planning implications for CPAs and EAs.

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Treasury Proposes Substantive Section 987 Relief for Controlled Foreign Corporations: Analysis of the CFC Exemption Election and Inbound Transaction Safeguards

Foreign Currency Gain or Loss of Controlled Foreign Corporations, REG-103844-26, 91 Fed. Reg. (proposed Aug. 14, 2026)

On August 13, 2026, the Department of the Treasury and the Internal Revenue Service (IRS) released a significant notice of proposed rulemaking under Internal Revenue Code (IRC) Section 987. The proposed regulations introduce a highly anticipated elective regime—the Controlled Foreign Corporation (CFC) exemption election—designed to reduce the overwhelming compliance and administrative burdens associated with tracking foreign currency gain or loss for branches and disregarded entities operated by CFCs. By allowing taxpayers to opt out of the recurring remittance calculations mandated by Section 987(3), Treasury seeks to align foreign currency rules with modern international tax structures while maintaining strict statutory guardrails to prevent tax-motivated basis importation and tax asymmetry.

This article provides an in-depth, technical analysis of the proposed regulations, detailing Treasury’s underlying rationale, the legal authorities cited, the operational and consistency mechanics of the election, the amortization transition rules, and the protective rules governing inbound nonrecognition transactions.

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Unmasking the $70 Million Dubai Fraud: A Technical Analysis of Section 165 Theft Loss Deductions in Deutsch v. Commissioner

Deutsch v. Commissioner, T.C. Memo. 2026-66, August 12, 2026

For tax professionals representing clients who have fallen victim to fraudulent investment schemes, securing a theft loss deduction under Internal Revenue Code (IRC) Section 165 is a highly technical and fact-intensive endeavor. The recent decision in Deutsch v. Commissioner, T.C. Memo. 2026-66, provides an instructive roadmap on the procedural and substantive hurdles taxpayers must clear. The case addresses the critical interplay between state law definitions of theft, the timing of discovery, the “reasonable prospect of recovery” standard, and the “reasonable cause” defense against Section 6662(a) accuracy-related penalties.

In Deutsch, the Tax Court partially allowed a theft loss deduction of $925,000 for the 2010 tax year arising from a multi-year, multi-million-dollar international advance-fee scam. However, the court disallowed a deduction for $295,600 in advanced “living expenses,” demonstrating the strict statutory demand to prove criminal intent and deception for each specific class of funds transferred. This article analyzes the facts of the case, the taxpayers’ request for relief, the court’s legal analysis, and the critical takeaways for certified public accountants (CPAs) and enrolled agents (EAs).

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Standardizing Retirement Plan Rollovers and Trustee-to-Trustee Transfers under SECURE 2.0: A Technical Analysis of IRS Notice 2026-49

I.R.S. Notice 2026-49, August 12, 2026

In an ongoing effort to modernize and streamline the administration of retirement assets, the Department of the Treasury and the Internal Revenue Service (IRS) have issued Notice 2026-49. Published in response to a congressional mandate, this notice marks a significant step toward standardizing the administrative processes that govern the movement of retirement savings. Specifically, Section 324 of Division T of the Consolidated Appropriations Act, 2023, Pub. L. 117-328, 136 Stat. 4459 (2022), known as the SECURE 2.0 Act of 2022 (SECURE 2.0 Act), directs the Secretary of the Treasury to “develop and issue guidance, in the form of sample forms (including relevant procedures and protocols), to simplify, standardize, facilitate, and expedite the completion of” rollovers to eligible retirement plans and trustee-to-trustee transfers from individual retirement plans.

Historically, the rollover of retirement funds between employer-sponsored plans and Individual Retirement Accounts (IRAs) has been plagued by a lack of uniformity, resulting in administrative friction, high transaction costs, and substantial security risks. Notice 2026-49 addresses these issues by proposing a series of four sample forms and establishing a standardized, five-step sequential rollover procedure designed to transition the industry toward electronic, plan-to-plan communications and transfers. This technical analysis explores the legal and operational mechanics of the proposed guidance, the underlying statutory authority, and the future regulatory changes currently under consideration by the IRS.

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Equitable Tolling of Tax Court Filing Deadlines: The Eighth Circuit Joins the Post-Boechler Consensus in Maniktala v. Commissioner

Maniktala v. Commissioner of Internal Revenue, No. 25-1366 (8th Cir. Aug. 11, 2026)

For decades, tax practitioners have operated under the strict assumption that the ninety-day filing deadline to petition the United States Tax Court for a redetermination of a deficiency under Internal Revenue Code (IRC) Section 6213(a) is an absolute, non-negotiable jurisdictional bar. Under this traditional paradigm, a late-filed petition, even by a single day, stripped the Tax Court of its power and left the taxpayer with no recourse but to pay the tax and sue for a refund in Federal District Court or the Court of Federal Claims. However, in Maniktala v. Commissioner of Internal Revenue, No. 25-1366 (8th Cir. Aug. 11, 2026), the United States Court of Appeals for the Eighth Circuit dramatically upended this orthodoxy. Following recent landmark Supreme Court decisions disciplining the term “jurisdictional,” the Eighth Circuit held that the filing deadline under Section 6213(a) is a nonjurisdictional claims-processing rule subject to equitable tolling. This decision aligns the Eighth Circuit with a growing multi-circuit consensus and marks a critical milestone in administrative tax equity.

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The Perpetual Burden of Carryover Substantiation: Lessons on AMT Credits and Recordkeeping from Beacom v. Commissioner

Gerald A. Beacom and Jean A. Beacom v. Commissioner of Internal Revenue, T.C. Memo. 2026-65, (Aug. 11, 2026)

For tax professionals, advising clients on credit carryforwards and other carryover tax items is a routine task. However, a taxpayer’s failure to maintain the records necessary to substantiate the origin of these carryovers can lead to disastrous audit outcomes. The recent Tax Court memorandum decision in Gerald A. Beacom and Jean A. Beacom v. Commissioner provides a stark reminder of the perpetual nature of the taxpayer’s recordkeeping burden, the severe limitations of retail tax software as a defense, and a widespread, critical misunderstanding of IRS record retention guidelines.

In this case, the court addressed a taxpayer’s attempt to use Alternative Minimum Tax (AMT) credit carryforwards that allegedly originated more than two decades prior to the tax year in question. The decision highlights that the standard statute-of-limitations lookback period does not shield carryover items from audit and that casualty losses (such as fires or floods) do not relieve taxpayers of their absolute duty to substantiate.

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The High Bar for Equitable Tolling in Tax Practice: Lessons from the Eighth Circuit’s Final Ruling in Boechler, P.C.

Boechler, P.C. v. Commissioner of Internal Revenue, No. 25-2620, (8th Cir. Aug. 10, 2026)

For tax professionals, the landmark Supreme Court decision in Boechler, P.C. v. Commissioner, 596 U.S. 199 (2022) was heralded as a major victory for taxpayer rights. In that ruling, the High Court settled a long-standing circuit split by holding that the 30-day filing deadline under Internal Revenue Code (I.R.C.) § 6330(d)(1) to petition the United States Tax Court for review of a Collection Due Process (CDP) determination is a nonjurisdictional limitations period subject to equitable tolling. However, a critical distinction exists between a deadline being subject to equitable tolling and a taxpayer actually qualifying for such relief. The likely final chapter of this litigation—culminating in the United States Court of Appeals for the Eighth Circuit’s decision issued on August 10, 2026—serves as a stark reminder of how incredibly narrow and rigorous the equitable tolling doctrine remains in tax practice. For CPAs and EAs, the court’s final ruling highlights the severe professional risks of relying on “excusable neglect” and underscores that procedural discipline remains absolute.

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