Jonathan D. Sawyer v. Commissioner of Internal Revenue, T.C. Memo. 2026-33 (April 16, 2026)

Jonathan Sawyer was the owner and chief executive officer of Henry N. Sawyer (HNS), a family printing business that operated from 1835 until its liquidation in 2010. In 1982, Mr. Sawyer purchased a $200,000 life insurance policy on himself through Northwestern Mutual Life Insurance Co. (Northwestern) to provide for his wife in the event of his death. Due to occasional liquidity issues, Mr. Sawyer elected an automatic premium loan option, allowing Northwestern to secure premium payments by borrowing against the policy's cash surrender value to prevent the policy from lapsing.

Over the years, HNS experienced significant financial volatility, forcing Mr. Sawyer to repeatedly inject personal funds into the business to keep it afloat. In May 2009, Mr. Sawyer borrowed $80,000 from Northwestern, secured by the cash surrender value of the life insurance policy, and deposited the funds directly into HNS's business bank account. Despite these efforts, HNS liquidated in 2010. In 2015, the combined balances of the $80,000 policy loan and the accumulated premium loans eclipsed the policy's cash surrender value. Consequently, Northwestern automatically terminated the policy.

At the time of cancellation, the cash surrender value was $205,433.81, which Northwestern used in its entirety to satisfy the outstanding principal and interest of the loans. Mr. Sawyer's investment in the contract was $44,533.42, resulting in a taxable distribution of $160,900.39 reported on a Form 1099-R. Believing the Form 1099-R to be inaccurate, Mr. Sawyer did not file a 2015 federal income tax return, prompting the Internal Revenue Service (IRS) to prepare a substitute for return (SFR) pursuant to I.R.C. § 6020(b) and issue a Notice of Deficiency.

Drake Plastics Ltd. Co. v. Internal Revenue Service, Civil Action No. H-25-2570, S.D. Tex., April 16, 2026)

Micro-captive insurance transactions allow corporate entities to claim payments made to their affiliated captive insurers as business expenses under 26 U.S.C. § 162(a). Concurrently, if the captive insurer meets diversification requirements and keeps its written premiums below a statutory cap, it can elect under 26 U.S.C. § 831(b) to be taxed only on its investment income, meaning the premium income is entirely excluded from taxation. To combat perceived tax abuse where affiliated companies claim this benefit but merely move money "from one pocket to another" without genuinely distributing risk, the Department of the Treasury promulgated a final rule (the Final Rule) adding 26 C.F.R. § 1.6011-10 and 26 C.F.R. § 1.6011-11.

Under the Final Rule, the IRS designated two distinct categories of micro-captive arrangements subject to strict disclosure:

• Transactions of Interest (26 C.F.R. § 1.6011-11): Transactions requiring disclosure if a captive has a "loss ratio of 'less than 60 percent'" or satisfies a financing factor where untaxed premiums are returned to the insured.

• Listed Transactions (26 C.F.R. § 1.6011-10): A more severe classification applying to captive insurers operational for at least ten years with an adjusted loss ratio of "less than 30 percent," triggering heightened penalties for non-disclosure.

The plaintiffs in this case are Drake Plastics Ltd. Co., an ultra-high-performance polymer company; Drake Insurance Co., its affiliated micro-captive providing coverage to Drake Plastics and related entities; and Strategic Risk Alternatives, LLC, a firm that creates and manages micro-captives for closely held businesses.

TD 10045, REG-108706-25, April 17, 2026

The Internal Revenue Service (IRS) and the Department of the Treasury recently issued interim final regulations (TD 10045) and a concurrent notice of proposed rulemaking (REG-108706-25) amending 26 CFR Part 300. These regulatory updates relate specifically to the imposition and reduction of user fees associated with the Special Enrollment Examination for Enrolled Agents (EA SEE). For tax professionals monitoring procedural costs and credentialing requirements under Treasury Department Circular No. 230 (31 CFR, Subtitle A, part 10), these amendments reflect favorable downward adjustments to the cost of admission to practice before the IRS.

The Department of the Treasury and the Internal Revenue Service (IRS) have issued a Notice of Proposed Rulemaking (REG-113229-25) to amend 26 CFR Parts 1 and 31. The primary purpose of these proposed regulations is to reflect recent changes to statutory law enacted under the One, Big, Beautiful Bill Act (OBBBA), Public Law 119-21, which was signed into law on July 4, 2025.

Specifically, OBBBA sections 70114 and 70433 substantively amended Internal Revenue Code (IRC) §§ 165(d), 6041, 6041A, and 3406. Prior to these statutory changes, the baseline threshold for information reporting under sections 6041 and 6041A was fixed at $600, a level that had been in place since 1954 and was unadjusted for inflation. OBBBA raised this base threshold to $2,000 for payments made after December 31, 2025, and introduced an inflation adjustment for calendar years after 2026 under the newly added IRC § 6041(h). Furthermore, OBBBA altered the calculation of allowable wagering losses under IRC § 165(d).

The Treasury states the explicit reason for releasing these updates is to "ensure that the regulations reflect current law, thereby preventing confusion by individuals and entities who are impacted by the updates to the relevant statutory provisions". The preamble warns that failing to update the outdated regulations "could create confusion and uncertainty for taxpayers impacted by the statutory changes," leading to a scenario where practitioners might mistakenly "apply the lower, outdated thresholds in the regulations despite the new, higher thresholds in the statutes".

Under Section 61 of the Internal Revenue Code (IRC), gross income generally includes all fringe benefits unless a specific statutory exclusion applies. To assist taxpayers and tax professionals in properly calculating the includible value of certain fringe benefits, the IRS periodically releases updated valuation rates. Revenue Ruling 2026-08 specifically addresses the valuation of noncommercial flights taken on employer-provided aircraft.

As the ruling explicitly states, "[f]or purposes of the taxation of fringe benefits under section 61 of the Internal Revenue Code, section 1.61-21(g) of the Income Tax Regulations provides a rule for valuing noncommercial flights on employer-provided aircraft". Tax practitioners must utilize these regulatory guidelines to compute the imputed income for employees utilizing corporate aircraft for personal travel.

The enactment of the One, Big, Beautiful Bill Act (OBBBA) introduced section 224 to the Internal Revenue Code, creating an above-the-line deduction for "qualified tips" received by certain workers. Following the issuance of proposed regulations last year, the Treasury Department and the IRS have now issued final regulations under § 1.224-1. This article provides a comprehensive, technical review of the final regulations in regulation order, highlighting critical revisions from the proposed rules and emphasizing practical application for tax practitioners.

For tax professionals navigating the complex intersection of the Transition Tax under I.R.C. § 965 and the dividends received deduction (DRD) under I.R.C. § 245A, the United States Tax Court’s recent decision in Varian Medical Systems, Inc. & Subs. v. Commissioner, 166 T.C. No. 8 (April 8, 2026), provides critical guidance. This opinion addresses the mechanical computation of Varian’s DRD under § 245A and the corresponding foreign tax credit (FTC) disallowance under § 245A(d)(1). The analysis clarifies the strict application of holding periods under § 246(c) to indirectly owned controlled foreign corporations (CFCs) and settles the denominator computation for the § 245A(d) FTC disallowance fraction in the context of a § 965(c) deduction.

On April 6, 2026, the Treasury Department announced key infrastructure details for the implementation of the new Trump Accounts program, designating The Bank of New York Mellon Corporation (BNY) as the financial agent to manage the initial accounts. For CPAs and Enrolled Agents advising families with eligible children, understanding this initial setup—as well as the strict mechanics for rolling these accounts over to a successor trustee under IRC § 530A and Notice 2025-68—will be critical as the program's July 4, 2026, contribution launch date approaches.

On April 6, 2026, the Internal Revenue Service released News Release IR-2026-46, marking a significant milestone in the agency's ongoing service improvement efforts. For CPAs and EAs navigating the daily complexities of tax administration, the newly expanded Business Tax Account (BTA) platform promises a streamlined approach to managing clients' federal tax responsibilities. According to IRS Chief Executive Officer Frank J. Bisignano, this digital expansion is designed to reduce practitioner and taxpayer burden by eliminating the reliance on paper and phone interactions for routine tasks.

On April 1, 2026, the U.S. Department of the Treasury issued a news release titled "Treasury and IRS Announce Tax Filing Relief to DHS Personnel". This official Treasury guidance, issued in coordination with the Internal Revenue Service (IRS), establishes formal administrative relief for a specific class of taxpayers currently impacted by a lapse in government appropriations. For CPAs and EAs representing federal employees, understanding the exact parameters of this relief is essential for proper tax planning and compliance during the current filing season. The authority for the positions discussed below is derived directly from the U.S. Department of the Treasury press release.

The Internal Revenue Service recently issued Notice 2026-24, which provides critical administrative relief for qualifying farmers and fishermen who may be subject to the addition to tax for underpayment of estimated income taxes under Internal Revenue Code (IRC) § 6654. Due to late corrections to the 2025 Instructions for Form 8995 and subsequent delays in tax preparation software updates, the Service has exercised its authority to waive these penalties for affected taxpayers who file and pay their 2025 tax liabilities by April 15, 2026. This article examines the statutory framework, the factual basis for the IRS's waiver, and the specific procedural steps tax professionals must take to secure this relief for their clients.

The case of Thermal Circuits, Inc. v. Commissioner, T.C. Memo. 2026-29, centers on a manufacturing corporation that received substantial funds from a customer to expand its production capacity. Thermal Circuits, Inc. (Thermal), an accrual-method C corporation, manufactures foil heating components. In 2013, Nicoventures Trading Limited (NVT), a subsidiary of British American Tobacco, engaged Thermal to produce foil heating elements for electronic tobacco devices.

By 2016, NVT’s demand for the heaters significantly outpaced Thermal’s production capacity. NVT desired nearly 20 times the output without an increase in the $10 per-unit cost. To meet this volume at a fixed cost, Thermal needed a larger facility and more equipment. NVT ultimately agreed to fund an expansion of Thermal's leased manufacturing facility. In 2017, NVT paid $4.085 million toward the leasehold addition, followed by an additional $204,529 in 2018. Throughout construction, Thermal purchased necessary tools and machinery to populate the addition, billing NVT on a cost-plus basis. Once completed, Thermal paid the insurance and property taxes for the entire premises, including the new addition, and bore all attendant risks.

Barrett Business Services, Inc. ("Barrett") operates as a professional employer organization (PEO) and is not a certified PEO pursuant to I.R.C. § 7705. The company provides employment-related services to small and mid-sized businesses across the United States. Barrett's standard services for its clients—the "worksite employers"—include onboarding worksite employees into its payroll system, processing and paying wages, and handling the withholding, payment, and reporting of all applicable federal, state, and local employment taxes. Critically, while Barrett manages human resources and payroll functions, "Barrett does not supervise the day-to-day activities of the worksite employees". Instead, the worksite employers direct and supervise the employees' day-to-day activities at the clients' respective sites.

For the tax years 2017 through 2020, Barrett claimed the Work Opportunity Tax Credit (WOTC) under I.R.C. § 51 and the Empowerment Zone Employment Credit (EZEC) under I.R.C. § 1396 on its corporate returns for qualifying worksite employees. The Commissioner issued a Notice of Deficiency to Barrett, disallowing the claimed WOTC and EZEC on the grounds that Barrett was not a common law employer of the worksite employees.

On March 25, 2026, the House Ways and Means Committee unanimously approved a slate of five bipartisan bills aimed at delivering targeted tax relief to vulnerable populations and modernizing Internal Revenue Service (IRS) operations. For CPAs and Enrolled Agents, this legislative package introduces critical modifications to the Internal Revenue Code and IRS procedures that will directly impact tax planning and controversy representation. The proposed statutory changes address the tax-free treatment of legal settlements for sexual assault survivors (H.R. 2347), extend generous casualty loss rules and exclusions for disaster and wildfire victims (H.R. 5366), and expand the above-the-line educator expense deduction to include early childhood teachers (H.R. 5334). Furthermore, the package includes critical operational reforms that mandate a more taxpayer-friendly IRS through sweeping customer service and online account upgrades (H.R. 7971), while simultaneously strengthening protections, anonymity, and evidentiary standards for tax whistleblowers (H.R. 7959). The following article provides a detailed, code-level analysis of how each of these five bills proposes to alter the existing tax landscape for practitioners and their clients.

In the recent Memorandum Opinion Tibor Gyarmati v. Commissioner of Internal Revenue, T.C. Memo. 2026-27, the United States Tax Court addressed fundamental principles regarding the substantiation of basis in real property, the allocation of sale proceeds to personal property, and the assessment of additions to tax for unfiled returns. The case highlights a critical area of tax practice: the rigid documentation requirements taxpayers face when attempting to offset capital gains through alleged basis increases and purchase price allocations. For CPAs and Enrolled Agents, the ruling serves as a stark reminder of the limitations of the Cohan rule when a taxpayer’s records are fundamentally deficient and their testimony lacks credibility.

The case of Hancock County Land Acquisitions, LLC v. Commissioner, T.C. Memo. 2026-28, centers on a syndicated conservation easement (SCE) transaction over a 236-acre parcel of land located in Hancock County, Mississippi, within a buffer zone surrounding the John C. Stennis Space Center. The subject property was carved out of a 1,698-acre parent tract that had been bought and sold multiple times between 2003 and 2013. The transactions involving the parent tract established historical pricing between $895 and $7,479 per acre. In March 2015, the entity WMAH, which was solely owned by Shale Support Holdings, LLC, held the undeveloped 236-acre subject property.

This case (Jackson Crossroads LLC v. Commissioner, CA11, No. 25-10744, No. 25-10745, March 25, 2026) involves two consolidated entities subject to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA): Jackson Crossroads, LLC and Long Branch Investments, LLC. In late 2015, real estate professionals Russell Bennett and Carlton Walstad, acting through Mor-Ton, LLC, purchased two adjoining parcels of land totaling approximately 925 acres in Walton and Morgan Counties, Georgia, for $5.2 million. A contemporaneous third-party bank appraisal confirmed the collective value of the properties at the $5.2 million purchase price.

For tax professionals representing partnerships in complex examinations, particularly those involving syndicated conservation easements under the centralized partnership audit regime (BBA), the procedural safeguards surrounding the statute of limitations are paramount. The recent stipulated decision in Agate Holdings, LLC v. Commissioner, Docket No. 1464-24, provides a critical examination of the final partnership adjustment (FPA) limitations period under I.R.C. § 6235, the mechanics of modification period extensions via Form 8984, and the high evidentiary burden the IRS faces when attempting to assert the civil fraud penalty under I.R.C. § 6663 to keep an expired assessment statute open.

In Smith v. Commissioner, T.C. Memo. 2026-25, the Tax Court reviewed the 2022 individual income tax return of Michael Smith. During the 2022 tax year, Mr. Smith held jobs with two separate employers, receiving wages totaling $16,535, which he appropriately reported on his Form 1040. However, claiming a disabling injury, Mr. Smith applied for Social Security Disability Insurance (SSDI) benefits in April 2022.

In November 2022, the Social Security Administration (SSA) issued an award letter granting retroactive benefits, and Mr. Smith subsequently received SSDI payments spanning from March 2022 through March 2023. In total, the SSA paid Mr. Smith $26,802 in SSDI benefits during the 2022 tax year, which the agency reported to the IRS on Form SSA-1099. Mr. Smith did not report any of these benefits on his 2022 Form 1040.

In April 2023, the SSA ceased making disability payments after discovering Mr. Smith had been employed since April 2022. The SSA informed him that he "should have never been entitled to receive [a] Social Security disability benefit". Consequently, Mr. Smith was required to reimburse the SSA. He repaid $31,116 in May 2023 and fulfilled the remaining balance via monthly payments across 2023 and 2024. Upon examining his 2022 return, the IRS determined that 85% of the 2022 SSDI benefits ($22,782) should have been included in his gross income pursuant to IRC Sec. 86(a), resulting in a tax deficiency of $5,454.

In a reviewed opinion that holds significant implications for partnerships subject to the centralized partnership audit regime, the United States Tax Court recently issued its decision in Jones Bluff, LLC v. Commissioner, 166 T.C. No. 6 (2026). At the heart of the litigation was whether a partnership possesses the legal standing to assert the Fifth Amendment due process rights of its individual members to invalidate a Notice of Final Partnership Adjustment (FPA).