Summary
- With Congress out for August, it was a busy week on tax policy in Treasury/IRS, the Federal courts, and New York City.
- Proposed regulations on employer Trump account contributions and dependent care nondiscrimination.
- Eighth Circuit holds 90-day deficiency petition deadline is non-jurisdictional and subject to equitable tolling.
- Treasury and IRS propose CFC exemption from section 987 gain or loss rules.
- Split Eleventh Circuit panel affirms Tax Court on conservation easement.
- Notice 2026-49: SECURE 2.0 retirement plan and IRA rollover guidance.
Congress is out for August recess, with the House set to return on August 31 for one week, and both chambers reconvening on September 14 for three weeks before leaving until after the November midterm elections. Each chamber is scheduled to be in session for 36 more days in the remainder of the 119th Congress.
On August 10, New York State Supreme Court Justice Wayne Ozzi in Staten Island issued a temporary restraining order pausing implementation of certain aspects of the pied-à-terre tax, as described in this S&C memo, and scheduled a hearing on the issues for August 31. On August 13, Associate Justice Philip Hom of the Second Appellate Division in Brooklyn lifted the order, pending the hearing.
There were several notable federal tax court decisions last week, including on the definition of “limited partner” for purposes of self-employment taxes (described in this S&C memo), conservation easements, and whether the 90-day deadline for filing a deficiency petition is jurisdictional (described further below).
Proposed Regulations on Employer Trump Account Contributions and Dependent Care Nondiscrimination
On August 11, Treasury and the IRS proposed regulations (REG-101355-26) addressing the nondiscrimination rules for Tax Code sections 128 and 129. Section 128, enacted by the OBBBA, excludes from an employee’s gross income employer contributions to Trump accounts for the employee or dependents up to an annual maximum of $2,500 per employee. Section 129 excludes from an employee’s gross income employer expenditures for dependent care assistance pursuant to a dependent care assistance program up to an annual maximum of $7,500 per employee.
Under the proposed regulations, employers would be required to maintain a separate written program for Trump accounts, provide employee notices and annual reporting, verify that contributions are sent to valid Trump accounts, and communicate contribution status and corrections to trustees. The proposal also creates parallel nondiscrimination frameworks for Trump account programs under section 128 and dependent care assistance programs under section 129. Benefits generally must be offered on nondiscriminatory terms, eligibility classifications must rest on objective business criteria, and employers may satisfy a numerical eligibility safe harbor based on the relative participation of non-highly compensated and highly compensated employees.
The regulations would apply to plan years beginning on or after publication of final regulations, although taxpayers may rely on the proposed rules before then. Written comments and requests to speak at a public hearing are due September 25, and a public hearing is scheduled for October 15, 2026.
Eighth Circuit Holds 90-Day Deficiency Petition Deadline Is Non-Jurisdictional and Subject to Equitable Tolling
In Maniktala v. Commissioner, No. 25-1366 (8th Cir. Aug. 11, 2026), the Eighth Circuit held that the 90-day deadline in Tax Code section 6213(a) for filing a deficiency petition in the Tax Court is non-jurisdictional and subject to equitable tolling. Applying the Supreme Court’s “clear statement” rule in Boechler, P.C. v. Commissioner, 596 U.S. 199 (2022), the court concluded that section 6213(a) does not clearly condition the Tax Court’s jurisdiction on timely filing. The statute provides that a taxpayer “may” file a petition within 90 days, language directed to the taxpayer rather than to the Tax Court’s adjudicatory authority. By contrast, later language in the same subsection expressly limits the Tax Court’s “jurisdiction” to issue injunctions and order refunds, which the court viewed as evidence that Congress knew how to impose an express jurisdictional limitation when it intended to do so. The court also declined to follow its prior precedent in Andrews v. Commissioner, 563 F.2d 365, 366 (8th Cir. 1977), which treated the 90-day deadline as jurisdictional, concluding that intervening Supreme Court precedent had materially changed the governing jurisdictional analysis. The court rejected the Commissioner’s arguments based on the historical treatment of the deficiency deadline and the consequences of dismissal under section 7459(d), reasoning that neither supplied the clear statement required by Boechler. Because the deadline is non-jurisdictional, the court further held that it is presumptively subject to equitable tolling and that section 6213(a) contains neither an express prohibition on tolling nor a sufficiently detailed scheme of exceptions to overcome a presumption of equitable tolling.
The dispute arose after the IRS disallowed research-and-development tax credits claimed by Nate and Jaya Maniktala through an S corporation in which Nate was a shareholder. The IRS mailed the Maniktalas a notice of deficiency on December 20, 2023, identifying March 19, 2024, as the deadline to petition the Tax Court. The Maniktalas did not receive the notice until July 9, 2024, and filed their petition ten days later. The Tax Court dismissed the petition as untimely, concluding that the 90-day deadline was jurisdictional. The Eighth Circuit reversed but did not determine whether the Maniktalas themselves were entitled to equitable tolling, instead remanding for the Tax Court to apply the equitable-tolling standard.
The decision places the Eighth Circuit alongside the Second, Third, and Sixth Circuits, each of which has held after Boechler that section 6213(a)’s 90-day deadline is non-jurisdictional and subject to equitable tolling. See Buller v. Commissioner, 160 F.4th 266 (2d Cir. 2025); Oquendo v. Commissioner, 148 F.4th 820 (6th Cir. 2025); Culp v. Commissioner, 75 F.4th 196 (3d Cir. 2023). The Seventh and Ninth Circuits have reached the contrary conclusion, although their decisions predate Boechler. See Tilden v. Commissioner, 846 F.3d 882, 886-87 (7th Cir. 2017); Organic Cannabis Foundation, LLC v. Commissioner, 962 F.3d 1082, 1092-95 (9th Cir. 2020). The Eleventh Circuit also has pre-Boechler published precedent treating the deadline as jurisdictional and, in an unpublished post-Boechler decision, concluded that Boechler did not overrule that precedent. See Pugsley v. Commissioner, 749 F.2d 691, 692 (11th Cir. 1985); Allen v. Commissioner, No. 22-12537, 2022 WL 17825934, at *2 (11th Cir. Dec. 21, 2022) (per curiam).
Treasury and IRS Propose CFC Exemption from Section 987 Gain or Loss Rules
On August 14, Treasury and the IRS proposed regulations under section 987 that would substantially reduce the foreign-currency gain-or-loss compliance burden for controlled foreign corporations with section 987 qualified business units (QBUs). Treasury and the IRS issued final regulations under sections 861, 985, 987-989, and 1502 on December 11, 2024, accompanied by proposed regulations under section 987 addressing the treatment of frequently recurring disregarded transactions. Notice 2026-17 (described in this S&C memo) announced the government’s intent to issue proposed regulations providing an election under which controlled foreign corporations (CFCs) would not compute gain or loss with respect to section 987 qualified business units (QBUs). The government intends to issue additional guidance on comments received in response to the notice that are not addressed in these proposed regulations. Notice 2025-72 (described in this S&C memo) announced the government’s intent to propose regulations to modify the effect of the amortization election for short taxable years by providing that pretransition gain or loss is recognized ratably over a period of 120 months.
The proposed regulations would create a new “CFC exemption election” under Proposed Treas. Reg. § 1.987-15 as previewed by Notice 2026-17. If the election is in effect, a CFC generally would not compute or recognize section 987 gain or loss on remittances from its section 987 QBUs, although the section 987 rules for determining and translating the CFC’s taxable income and earnings and profits would continue to apply. An exempt CFC would generally be treated as having a current rate election in effect, eliminating the need to track historic exchange rates. The election would be subject to broad consistency requirements, including across CFCs majority-owned by the same U.S. shareholder and, in certain cases, across affiliated domestic corporations, and generally could not be revoked without the Commissioner’s consent. The preamble explains that the relief is appropriate because a CFC may itself have a non-dollar functional currency and because economic currency gains and losses that are not recognized under section 987 generally should ultimately be reflected elsewhere in the taxation of the CFC or its U.S. shareholders.
The proposed regulations also would extend the CFC exemption to certain partnership structures. Under Proposed Treas. Reg. § 1.987-7(b)(2), a partnership, partnership interest or eligible QBU directly owned by a partnership may qualify as an “exempt partnership QBU” if, under the taxpayer’s reasonable method of applying sections 987 and 989(a), it is treated as a section 987 QBU and its owner is either an exempt CFC or an “exempt partnership.” An exempt partnership generally is a partnership in which at least 80% of the capital or profits interests are owned, directly or indirectly through other partnerships, by exempt CFCs that are members of the same controlled group. Accordingly, an exempt CFC generally would not compute or recognize section 987 gain or loss with respect to an exempt partnership QBU, and an exempt partnership generally would receive similar treatment with respect to a section 987 QBU that it is treated as owning. The proposal preserves the existing flexibility to apply sections 987 and 989(a) to partnership structures using a reasonable method, including an aggregate or entity approach, but requires that method to be applied consistently from year to year and by members of the same controlled group.
The proposal includes significant transition rules designed to prevent taxpayers from using the election to eliminate previously accrued section 987 gain while preserving losses. If the CFC exemption election is made for the first year to which the 2024 final section 987 regulations apply, the existing transition rules would generally continue to govern pretransition gain or loss, and the taxpayer would be deemed to elect to recognize that amount ratably over 120 months. If the election is first made in a later year, pre-election section 987 gain or loss generally would likewise be computed and amortized over 120 months. A significant compliance exception would treat pre-election or pretransition gain or loss as zero for a QBU whose average assets are less than $50 million, subject to aggregation and other rules. The proposal also provides generous transition election deadlines: for calendar-year taxpayers, the election generally may be made for the 2025, 2026 or 2027 taxable years by October 15, 2027, including by amended return for 2025. Separately, the regulations would implement the previously announced change from ten taxable years to 120 months for amortization of pretransition section 987 gain or loss, avoiding disproportionate recognition in short taxable years.
The principal limitation on the exemption concerns inbound nonrecognition transactions. Treasury is concerned that, absent a special rule, an exempt CFC could import into the United States asset basis attributable to unrecognized currency appreciation without a corresponding income inclusion. Accordingly, immediately before certain inbound liquidations or reorganizations described in Treas. Reg. § 1.367(b)-3(a), the transferor CFC generally would recognize section 987 gain, but not loss, equal to its “section 987 asset basis.” The proposal provides two alternative methodologies for estimating that amount, a historical lookback method and an excess asset basis method, and generally exempts transactions involving a transferor CFC with less than $25 million of inside asset basis. The regulations generally would apply to taxable years ending on or after finalization, but taxpayers may rely on them for taxable years beginning after December 31, 2024, and before finalization if the taxpayer, its consolidated group and its section 987 electing group apply the proposed rules consistently. Comments and requests for a public hearing are due November 12, 2026.
Split 11th Circuit Affirms Tax Court on Conservation Easement
In Evans v. Commissioner, Nos. 24-11882 & 24-11884 (11th Cir. Aug. 13, 2026), an unpublished divided panel of the Eleventh Circuit affirmed the Tax Court’s determination that a conservation easement was worth $1 million, rejecting the taxpayers’ challenges to the Tax Court’s valuation analysis. The court held that the Tax Court did not clearly err in crediting the IRS expert, who valued the easement using comparable properties, over the taxpayers’ experts, whose $10.3 million valuation relied in part on what the Tax Court found was an inadequately supported conclusion that the easement reduced the property’s value by 30%. The majority also rejected the taxpayers’ argument that the Tax Court failed to determine the property’s highest and best use, reasoning that the parties’ experts agreed that the property’s highest and best use was to hold it for development and that the Tax Court implicitly adopted that use by crediting the IRS expert’s testimony and report. Judge Branch dissented, concluding that the parties’ disagreement over when development was likely to occur was material under the governing regulations and that the Tax Court was required to make an express highest-and-best-use determination rather than implicitly incorporating the IRS expert’s analysis.
The dispute concerned a 500-acre conservation easement granted in 2011 by Dover Hall Plantation, LLC over a larger property in Glynn County, Georgia. Dover Hall originally claimed a $14.175 million charitable contribution deduction based on an independent appraisal, with Nathaniel Carter and Ralph Evans each claiming a 50% share. In an earlier appeal, the Eleventh Circuit reversed the Tax Court’s conclusion that the easement failed the statutory perpetuity requirement and remanded; on remand, the Tax Court concluded that the easement qualified for the deduction but was worth only $1 million. The Eleventh Circuit affirmed that valuation, emphasizing the Tax Court’s discretion to weigh competing expert testimony and the taxpayers’ continuing burden to establish the amount of their deduction.
Notice 2026-49: SECURE 2.0 Retirement Plan and IRA Rollover Guidance
On August 12, Treasury and the IRS issued Notice 2026-49, providing guidance to simplify and standardize the rollover process for participants and plan sponsors by issuing sample forms for direct rollovers to or from a retirement plan or IRA. Section 324 of Division T (known as SECURE 2.0) of the Consolidated Appropriations Act, 2023 required the guidance to be issued by January 1, 2025.
The notice invites comments by October 23, especially on how future guidance could foster technological adoptions that would simplify and facilitate the rollover process.