Revising Qualified Domestic Trust Regulations under Section 2056A to Update Outdated References and Procedures, T.D. 10050, 2026-13925, 91 FR 13925 (codified at 26 C.F.R. pt. 20) (effective July 10, 2026)

The federal estate tax marital deduction is one of the most critical estate planning tools available to married couples. However, under Internal Revenue Code (Code) Section 2056(d)(1), this deduction is generally disallowed for property passing to a surviving spouse who is not a United States citizen. To bridge this gap, Section 2056(d)(2)(A) provides an exception, allowing the marital deduction if the property passes to the surviving spouse in a Qualified Domestic Trust (QDOT). For decades, practitioners have navigated the strict regulatory requirements of Section 2056A to secure this deduction.

In a significant administrative update, the Department of the Treasury and the Internal Revenue Service (IRS) finalized Treasury Decision 10050 (TD 10050). This decision amends the federal estate tax regulations under Section 2056A to modernize outdated administrative procedures, correct historical drafting oversights, and update organizational references. This article provides tax professionals—including CPAs, Enrolled Agents, and estate attorneys—with a rigorous analysis of these key regulatory updates, the practical rationale behind the changes, comment responses from the preambles, and the critical effective and applicability dates.

National Taxpayer Advocate, "A Long-Awaited Taxpayer Win: The IRS Implements Automatic Penalty Relief," https://www.taxpayeradvocate.irs.gov/news/nta-blog/a-long-awaited-taxpayer-win-the-irs-implements-automatic-penalty-relief/2026/07/ , July 8, 2026

In a recent commentary, the National Taxpayer Advocate (NTA) characterized the Internal Revenue Service's introduction of the Automatic Exemption from Penalty (AEP) program as "a major taxpayer win." For years, the NTA has advocated for a shift from the manual First Time Abate (FTA) process to an automated system to ensure that "relief should not depend on a taxpayer’s income, ability to reach the IRS by phone, or access to professional representation."

The NTA notes that under the legacy FTA system, many eligible taxpayers missed out on relief because they "did not know it was available, did not understand how to request it, could not get through to the IRS, or did not have a tax professional advising them." The transition to AEP addresses these systemic barriers by automatically suppressing penalties for failure-to-file, failure-to-pay, and failure-to-deposit for taxpayers with a clean three-year compliance history. The scale of this change is significant; while manual FTA relief assisted approximately 220,000 taxpayers in fiscal year 2025, the NTA estimates that "if AEP had been in place for the same period, over 1.5 million taxpayers would have received penalty relief – about seven times as many."

Internal Revenue Service, IR-2026-83, July 8, 2026

The Internal Revenue Service is implementing a significant procedural evolution regarding administrative penalty relief. The agency is transitioning from the traditional First Time Abate (FTA) procedure to a new systemic program titled "Automatic Exemption from Penalty" (AEP). This transition is expected to begin in the summer of 2026. Unlike the current FTA method, where "taxpayers must contact the IRS to request relief" via a written statement or Form 843, the AEP is a "systemic administrative relief program" that requires "no taxpayer action." Under the new framework, if a taxpayer is eligible, the IRS will apply the relief automatically upon the completion of the original return's processing and "issue a notice confirming that the relief was granted."

TD 10051, July 9, 2026

The issuance of TD 10051, which finalizes the proposed rules set forth in REG-108761-22, represents a definitive strategic shift in the Internal Revenue Service’s oversight of Charitable Remainder Annuity Trusts (CRATs). This regulation formalizes the "listed transaction" status for specific avoidance schemes utilizing CRATs and Single Premium Immediate Annuities (SPIAs). Crucially, this shift reflects an intentional move away from the use of sub-regulatory "Notices" to identify tax shelters—a method that has recently failed in federal courts—toward formal "Notice-and-Comment" rulemaking. This approach ensures enforcement stability and immunizes the IRS from procedural challenges under the Administrative Procedure Act (APA).

The primary regulatory objectives of TD 10051 for taxpayers and material advisors include:

• Identification of Tax Avoidance: Codifying the specific mechanical steps of CRAT-based avoidance to differentiate them from legitimate § 664 planning.

• Mandatory Disclosure: Requiring participants and material advisors to file comprehensive disclosure statements, facilitating data collection for the Office of Tax Shelter Analysis (OTSA).

• Strict Penalty Enforcement: Establishing a severe penalty framework for non-compliance, including monetary fines and the extension of the statute of limitations.

This regulatory framework addresses both the inherent mechanical tax abuse of these structures and the procedural vulnerabilities previously exposed by tax controversy litigation.

Treasury Decision (TD) 10052, July 9, 2026

Treasury Decision (TD) 10052 has finalized highly anticipated regulations providing crucial guidance on the application of the transfer-for-value rules under Section 101 and the associated information reporting requirements under Section 6050Y. These regulations adopt, with significant practitioner-friendly modifications, the proposed regulations issued under REG-108054-21.

For CPAs and tax professionals managing life insurance transactions, corporate mergers, and client wealth transfers, this Treasury Decision represents a major victory. It successfully dismantles an "inadvertent" tax trap created by the 2019 final regulations that threatened to tax death benefits on ordinary Section 1035 exchanges, while also establishing a de minimis exception for corporate reorganizations.

Thermal Circuits, Inc. v. Commissioner, T.C. Memo. 2026-29 (July 7, 2026)

In the complex intersection of supply chain financing and tax characterization, the distinction between a non-shareholder contribution to capital and compensation for services remains a frequent point of contention. A recent decision by the United States Tax Court in Thermal Circuits, Inc. v. Commissioner provides a critical examination of how manufacturing expansion agreements, specifically those involving leasehold improvements funded by a customer, are treated for federal income tax purposes.

Keysight Technologies, Inc. & Subsidiaries v. United States, No. 25-137 (Fed. Cl. July 2, 2026)

The United States Court of Federal Claims has held that the Department of the Treasury lacked the statutory authority to promulgate Treasury Regulation Section 1.951A-2(c)(5), which sought to deny amortization and depreciation deductions on assets transferred during the "disqualified period". This controversy arose from what the court characterized as the "Treasury’s self-inflicted fix of a mismatch between foreign subsidiaries with fiscal- or calendar-year tax filing requirements that Congress quietly built into the global intangible low-taxed income ('GILTI') statutory scheme".

By granting partial summary judgment to the taxpayer, the court’s decision in Keysight Technologies, Inc. & Subsidiaries v. United States represents a landmark post-Chevron application of the statutory interpretation principles established in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024). For tax professionals, including CPAs and EAs, the decision provides a critical blueprint of how federal courts will scrutinize Treasury regulations that seek to rewrite clear statutory provisions under the guise of preventing tax-advantaged transactions.

Wepplo v. Comm'r, Docket No. 36722-21, Order (T.C. July 2, 2026); Wepplo v. Comm'r, Docket No. 36722-21, Motion to Redetermine Interest Pursuant to Rule 261 (T.C. Apr. 10, 2026)

Factual Background and Procedural Posture 

The underlying dispute in Wepplo v. Commissioner originates from a settled deficiency proceeding covering taxable years 2015, 2016, and 2017. Following a trial calendar date in February 2024, the parties reached a settlement, the Court entered a decision on May 12, 2025, and the petitioners subsequently satisfied the assessed deficiencies along with all related interest. Recognizing that the Internal Revenue Code permits post-decision interest disputes under specific conditions, the petitioners filed a motion within the statutory window. As noted in the petition, "Because this motion is being filed within one year of when the Decision became final, this motion is timely under Rule 261(a)(2)." The Court concurred with this jurisdictional threshold, observing that "petitioners paid the tax owed, including all related interest. They then moved, within one year of doing so, for an order under Rule 261 for a redetermination of interest. This appears to establish jurisdiction for a decision on their motion under that Rule and IRC § 7481(c)." The procedural posture thus hinges entirely on whether the Commissioner’s interest computations properly account for statutory postponement periods and standard interest calculation mechanics.

Matter of Edward A. Zelinsky et al. v. Commissioner of Taxation and Finance of the State of New York et al., CV-25-1156 (N.Y. App. Div. 3d Dept. July 2, 2026)

The matter of Edward A. Zelinsky et al. v. Commissioner of Taxation and Finance of the State of New York et al. involves a challenge to the application of New York’s "convenience of the employer" rule during the COVID-19 pandemic. The petitioner, Edward A. Zelinsky, a law professor and attorney employed by Cardozo Law School, is a resident of Connecticut. During the 2019 and 2020 tax years, Zelinsky performed his professional duties both on the New York campus and remotely from his Connecticut home.

In 2020, Zelinsky worked on campus for 24 days between January and March. However, on March 20, 2020, Governor Andrew Cuomo issued Executive Order 202.8, which directed nonessential businesses to "reduce in-person workforce levels by 100% and to implement telecommuting and remote work 'to the maximum extent possible'" (Executive Order [A. Cuomo] No. 202.8 [9 NYCRR 8.202.8]). Consequently, Zelinsky performed the remainder of his duties for the 2020 tax year from his Connecticut residence.

Region IV Mental Health Services v. United States, No. 3:26-CV-12-RPC-JMV, 2026 WL ___ (N.D. Miss. July 1, 2026)

The controversy in Region IV Mental Health Services v. United States centers on the Employee Retention Credit (ERC) provided under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Pub. L. 116-136, 134 Stat. 281 (2020). Specifically, the plaintiff, Region IV Mental Health Services (Region IV), sought refundable tax credits for employment taxes for the first, second, and third quarters (Q1, Q2, and Q3) of 2021.

On October 24, 2022, Region IV filed administrative refund claims totaling $5,381,683.35 for these three quarters. On June 5, 2023, the Internal Revenue Service (IRS) issued a refund for Q2 2021 in the amount of $1,990,593.87. However, following a subsequent review, the IRS issued a letter on April 17, 2024, disallowing the ERC refund claims for all three quarters. Region IV protested this disallowance. While the taxpayer claimed the IRS did not directly communicate the final decision, the IRS issued an assessment for Q2 2021 to recover the previously refunded amount. The IRS subsequently provided letters stating the protests were denied and notifying the taxpayer of the right to challenge the determination in a United States District Court or the United States Court of Federal Claims.

Suvarna v. United States, No. 25-902T (Fed. Cl. July 1, 2026)

The United States Court of Federal Claims has dismissed a taxpayer's suit for lack of subject-matter jurisdiction despite compelling and sympathetic personal circumstances. In Suvarna v. United States, Chief Judge Matthew H. Solomson ruled that the court has no discretion to suspend the administrative statute of limitations under Internal Revenue Code (I.R.C.) § 6511(a) for any reasons other than the taxpayer's own personal "financial disability" under I.R.C. § 6511(h). This decision serves as an essential, high-stakes reminder for Certified Public Accountants (CPAs) and Enrolled Agents (EAs) that third-party illnesses, no matter how severe, cannot toll the statute of limitations for an administrative tax refund.

U.S. Department of the Treasury, Treasury Announces Investment Lineup for Trump Accounts (July 1, 2026), https://home.treasury.gov/news/press-releases/sb0551

On July 1, 2026, the U.S. Department of the Treasury issued a formal announcement regarding the investment lineup for the newly established Trump Accounts. This initiative is designed to facilitate long-term savings for American families, specifically aiming to provide "the lowest cost options available to invest in their childrenʼs future" (U.S. Dep't of the Treasury, 2026). The Treasury has established a structured investment framework that prioritizes low-cost, diversified index funds to ensure compliance with statutory requirements and to maximize the efficiency of the accounts.

Key Meetings, Inc. v. United States, Case No. 25-cv-06520-WHO (N.D. Cal. June 26, 2026) and Juggler Dave & Friends, LLC v. United States, 181 Fed. Cl. 52 (2026)

The retroactive termination of the Employee Retention Credit (ERC) for the third quarter of 2021, enacted under the One Big Beautiful Bill Act (OBBBA), has survived two major constitutional challenges in the federal courts. Enacted on July 4, 2025, Section 70605(d) of the OBBBA established a retroactive deadline of January 31, 2024, for all claims seeking the ERC for the third quarter of 2021. Under this provision, notwithstanding Section 6511 of the Internal Revenue Code of 1986, "no credit under section 3134 of the Internal Revenue Code of 1986 shall be allowed, and no refund with respect to any such credit shall be made, after the date of the enactment of this Act, unless a claim for such credit or refund was filed by the taxpayer on or before January 31, 2024" (Pub. L. 119-21, § 70605(d), 139 Stat. 72 (2025)).

This sudden statutory contraction of the filing window has caught many late-filing taxpayers in its net, leading to aggressive litigation under the Due Process Clause of the Fifth Amendment. Two recent decisions—Key Meetings, Inc. v. United States in the Northern District of California and Juggler Dave and Friends, LLC v. United States in the Court of Federal Claims—have solidly rejected these constitutional challenges, establishing a formidable shield for retroactive tax administration.

Besicorp Group, Inc. v. Commissioner of Internal Revenue, Docket Nos. 23-296(L), 23-299 (Con), 23-302 (Con), 23-321 (Con), 23-353 (Con), 23-359 (Con), ___ F.4th ___ (2d Cir. June 29, 2026)

The United States Court of Appeals for the Second Circuit has ruled that an Internal Revenue Service Appeals Officer's failure to verify written supervisory approval for tax penalties during a Collection Due Process (CDP) hearing invalidates the collection of those penalties via federal tax liens and levies, even if the underlying liabilities were previously adjudicated. In Besicorp Group, Inc. v. Commissioner of Internal Revenue, the Second Circuit reversed a series of Tax Court orders that had sustained IRS liens and proposed levies for millions of dollars in outstanding penalty liabilities. The court's decision establishes a critical boundary between the administrative determination of tax liability and the statutory due process required during the collection phase, reminding tax practitioners that the procedural protections enacted under the Internal Revenue Service Restructuring and Reform Act of 1998 (the "Reform Act") are absolute and must be enforced according to their literal text.

This ruling represents a significant victory for taxpayers contesting IRS collections, clarifying that the government's failure to obtain and verify supervisory approval under Internal Revenue Code (I.R.C.) § 6751(b)(1) is a fatal defect that permanently bars the IRS from using its expedited collection tools—namely, liens and levies—to collect the penalty portion of a tax debt.

Rev. Proc. 2026-25 (June 29, 2026), 26 CFR 601.601; IRC §§ 530A, 2010, 2503, 2505, 2642, 2662, 6019

Under Revenue Procedure 2026-25, the Internal Revenue Service (IRS) has established a transfer tax safe harbor for certain individual donors making contributions to "Trump accounts" established under Section 530A of the Internal Revenue Code. This administrative guidance clarifies that qualifying contributions are "treated as completed gifts that are not gifts of future interests in property and to which the annual per-donee gift tax exclusion applies," thereby relieving eligible taxpayers of the obligation to file gift tax returns (Form 709) for these transfers. 

RAAM Construction Inc v. United States of America, Case No. 2:25-cv-04681-SPG-AJR, 2026 WL 18391 (C.D. Cal. June 23, 2026).

The Employee Retention Credit (ERC) codified under Internal Revenue Code Section 3134 remains a significant source of controversy, audits, and high-stakes federal litigation. While taxpayers often focus on demonstrating that they experienced pandemic-related disruptions, a recent summary judgment ruling from the United States District Court for the Central District of California underscores a more formidable evidentiary hurdle: causation. In RAAM Construction Inc. v. United States of America, Case No. 2:25-cv-04681-SPG-AJR (C.D. Cal. June 23, 2026), the court granted the government's motion for summary judgment on both the taxpayer’s refund claim and the government's substantial clawback counterclaim. This decision provides critical guidance for tax practitioners (CPAs and EAs) on the strict "but-for" causation standard required to establish ERC eligibility under the partial suspension pathway.

Tapestry Senior Housing Management, LLC v. United States, Case No. 25-cv-3419 (LMP/EMB), 2026 WL 18388 (D. Minn. June 25, 2026).

The Employee Retention Credit (ERC) under Internal Revenue Code Section 3134 has been one of the most widely claimed and heavily contested tax relief provisions arising from the COVID-19 pandemic. While much of the professional discussion has centered on the substantive eligibility rules—such as the gross receipts test and the partial suspension of operations test—a recent order from the United States District Court for the District of Minnesota highlights a critical procedural hurdle: federal pleading standards. In Tapestry Senior Housing Management, LLC v. United States, Case No. 25-cv-3419 (LMP/EMB) (D. Minn. June 25, 2026), the court granted the government’s motion to dismiss a taxpayer’s $3 million refund suit, providing essential guidance for tax professionals on how ERC eligibility must be pleaded in federal court.

Soroban Capital Partners LP v. Commissioner, 161 T.C. 310 (2023); Soroban Capital Partners LP v. Commissioner, T.C. Memo. 2025-52; Soroban Capital Partners LP v. Commissioner, No. 25-2079 (2d Cir. 2026) (Oral Argument Transcript).

For tax professionals advising private equity funds, hedge funds, and closely held businesses, the ongoing litigation in Soroban Capital Partners LP v. Commissioner represents one of the most critical developments in self-employment tax controversy in decades. At the heart of the dispute is whether active, service-providing individual partners in a state-law limited partnership can utilize the limited partner exception of Internal Revenue Code (I.R.C.) Section 1402(a)(13) to exclude their distributive shares of ordinary partnership income from self-employment taxes under the Self-Employment Contributions Act (SECA). With over $140 million in distributive shares at stake in this single case, the controversy has progressed from foundational battles over Tax Court jurisdiction to a high-stakes appeal before the U.S. Court of Appeals for the Second Circuit. This article provides a highly technical analysis of the two underlying Tax Court decisions, the key items before the Second Circuit appellate panel, the detailed debates and concerns raised by the judges during oral arguments, and the broader compliance and risk mitigation strategies for CPAs and EAs.

Sundancer Pools, Inc. v. United States, No. 25-1291T (Fed. Cl. June 23, 2026).

The Employee Retention Credit (ERC) has been one of the most heavily litigated and audited tax provisions in recent history. Originally enacted under Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Pub. L. No. 116-136, 134 Stat. 281 (2020), and later codified as amended at I.R.C. § 3134, the ERC was designed to provide a refundable tax credit against employment taxes for employers facing severe economic hardships during the COVID-19 pandemic. While the statutory framework provides multiple pathways to eligibility, the most contentious has been the "full or partial suspension" prong under I.R.C. § 3134(c)(2)(A)(ii)(I).

In Sundancer Pools, Inc. v. United States, No. 25-1291T, the United States Court of Federal Claims addressed critical threshold issues regarding what constitutes a "full or partial suspension" and the standard of causation required to prove that such a suspension was "due to orders from an appropriate governmental authority." For CPAs and Enrolled Agents (EAs) advising clients, this case serves as an essential case study on the pleading standards necessary to survive government motions and the rigorous legal thresholds that courts are applying to ERC refund suits.

Office of Professional Responsibility, Internal Revenue Service, U.S. Dep't of the Treasury, Alert Issue No. 2026-19, Introductory Guidelines for Responsible AI Use in Federal Tax Practice (June 24, 2026).

The IRS Office of Professional Responsibility on June 24, 2026 issued an Alert dealing with the use of artificial intelligence in tax practice (U.S. Dep't of the Treasury, Alert Issue No. 2026-19, Introductory Guidelines for Responsible AI Use in Federal Tax Practice).

The rapid integration of artificial intelligence ("AI") has transformed modern law and accounting offices. While traditional AI tools—such as advanced legal research products and document review platforms—have been ubiquitous for years, the emergence of generative artificial intelligence ("GAI") introduces a paradigm shift. The Office of Professional Responsibility (OPR) defines AI fundamentally as "the use of machines in a way that mimics human cognitive skills, including judgment, perception, and prioritization". Unlike legacy analytical software, contemporary GAI platforms "have the ability to make discretionary decisions, devoid of any human interaction". This autonomy stems from "GAI’s use of complex pattern-recognition capabilities that continually interact and evolve, allowing the program to learn from itself". Although these tools offer transformative potential—such as "cost savings, rapid data analysis," and advanced government risk assessment applications—they also pose profound ethical, regulatory, and legal hazards for federally authorized tax practitioners.