Summary
- First Circuit holds Section 6213(a) deadline non-jurisdictional but not subject to equitable tolling.
- IRS creates Office of Conservation Easements, ends uniform settlement initiative.
- Tax Court redetermines value of conservation easement in California, does not impose penalties.
- Eleventh Circuit affirms Tax Court’s easement valuation and inventory basis limitation for charitable deduction.
- Treasury announces forthcoming investment rules for Trump Accounts.
- Treasury and IRS propose rules excluding certain property disposition income FDDEI.
- Treasury and IRS propose updates to single-employer defined benefit plan funding rules.
- Treasury and IRS propose rules applying PRWORA restrictions to refunded portion of refundable tax credits.
The House is scheduled to return from its August recess on August 31. Government funding is currently set to expire after September 30, the end of the 2026 Fiscal year. The House and Senate have passed different continuing resolutions (CRs): the House-passed CR would extend funding through December 4, while the Senate-passed CR would extend funding through December 11 and contains other substantive changes. On August 20, Speaker Johnson said that he plans to put the Senate-passed CR on the floor “as soon as” the House returns and expects that “it will probably pass early, but we’ve got some work to do.”
There were several developments this week involving conservation easements, as further described below. The IRS ended its uniform settlement initiative for conservation easement cases and established a new Office of Conservation Easements. The Tax Court found a middle ground between the IRS and taxpayer valuations of California property subject to a conservation easement. The Eleventh Circuit affirmed a Tax Court decision limiting a partnership’s charitable contribution deduction to its adjusted basis in property held as inventory in the ordinary course of its business.
On August 18, the New York City Council’s Committees on Finance and Governmental Operations, and State & Federal Legislation held a joint oversight hearing on implementation of the City’s new pied-à-terre tax. The Department of Finance declined to appear, citing pending litigation challenging the City’s implementation of the tax, although Finance Commissioner Richard Lee submitted written testimony. Separately, on August 19, more than 40 property owners sued Rhode Island over its new tax on non-owner-occupied residential property valued above $1 million, principally alleging that the tax violates the Dormant Commerce Clause because it disproportionately and deliberately targets out-of-state property owners.
First Circuit Holds Section 6213(a) Deadline Non-Jurisdictional but Not Subject to Equitable Tolling
In Kyick Holdings, LLC v. Commissioner, No. 25-1429, slip op. (1st Cir. Aug. 17, 2026), the First Circuit rejected the Tax Court’s conclusion that the 90-day deficiency-petition deadline in Tax Code section 6213(a) is jurisdictional, but also held that section 6213(a)’s deadline is mandatory and cannot be equitably tolled. The First Circuit thus affirmed the Tax Court’s dismissal of Kyick Holdings’ untimely Tax Court petition. The IRS mailed Kyick’s notice of transferee liability to the address shown on its most recently filed federal return, the notice was returned as undeliverable, and Kyick did not receive a copy until after the 90-day period expired. However, the court held that the IRS satisfied the statutory “last known address” requirement and, even assuming a reasonable-diligence obligation applied, exercised reasonable diligence. Turning to section 6213(a), the court concluded that the deadline is a non-jurisdictional claim-processing rule under the Supreme Court’s modern clear-statement jurisprudence, reasoning that the deadline is directed to taxpayers and is structurally separate from the provision’s express limitations on the Tax Court’s jurisdiction. In light of Boechler, P.C. v. Commissioner, 596 U.S. 199 (2022), the panel therefore declined to follow the jurisdictional characterization in Ferré v. Commissioner, 718 F.2d 6 (1st Cir. 1983), and joined the Second, Third, and Sixth Circuits in treating the § 6213(a) deadline as non-jurisdictional.
Nonetheless, the court held section 6213(a)’s deadline is mandatory and cannot be equitably tolled. Relying heavily on Enbridge Energy, LP v. Nessel, 146 S. Ct. 1074 (2026), the court reasoned that section 6213(a) itself specifies several adjustments and exceptions to the ordinary 90-day period and that Congress has repeatedly added other targeted extensions and suspensions elsewhere in the Code. The combination of those express exceptions, the history of Congress incrementally modifying the deadline, and the broader statutory structure rebutted the ordinary presumption that a non-jurisdictional limitations period is subject to equitable tolling. The result makes the First Circuit the first circuit to hold that section 6213(a) is non-jurisdictional yet categorically unavailable for equitable tolling, breaking with four sister circuits on the tolling question. Please see this S&C Memo for prior developments on this issue.
IRS Creates Office of Conservation Easements, Ends Uniform Settlement Initiative
The IRS is establishing a new Office of Conservation Easements to centralize technical expertise and coordinate the resolution of conservation easement cases, while also working with Treasury on potential legislative proposals supporting conservation and historic preservation objectives. At the same time, the agency is ending the uniform settlement initiative it launched in May for syndicated conservation easement cases (see this S&C Memo for further details), concluding that standardized settlement letters with fixed response periods were not well suited to the range of cases at issue. The initiative had generally disallowed the claimed charitable contribution deductions and imposed a 10% penalty plus interest for taxpayers agreeing to settle. Although the IRS will issue no further settlement letters under the program, taxpayers with pending cases may still request a settlement on those terms through their IRS examination or Chief Counsel representative.
Tax Court Redetermines Value of Conservation Easement in California, Does Not Impose Penalties
In Malibu Valley Land, LLC v. Commissioner, T.C. Memo. 2026-68, the Tax Court partially rejected the IRS’s challenge to a 2014 conservation-easement deduction claimed by Malibu Valley Land, LLC (MVL) for an easement over approximately 298 acres in the Santa Monica Mountains. MVL reported a $32.075 million deduction. The IRS disallowed the deduction and, alternatively, valued the easement at $4.65 million. The Court first held that MVL possessed the requisite donative intent. Although MVL hoped the easement might generate transferable development credits useful elsewhere, the donation was not conditioned on receiving those credits, the donee did not provide or negotiate for them, and any resulting benefit was merely incidental rather than a quid pro quo. The decision therefore preserved MVL’s entitlement to a charitable contribution deduction and turned principally to the proper valuation of the easement.
On valuation, the Court rejected both parties’ all-or-nothing views of the property’s development potential and instead valued the property in two components because different zoning regimes applied. The northern portion retained valuable vested development rights under a 1988 vesting tentative tract map, supporting a 22-lot residential subdivision and an estimated pre-easement value of approximately $20.4 million; the southern portion, by contrast, was subject to the much more restrictive 2014 coastal zoning regime and was valued at approximately $1.26 million based on limited and uncertain development potential. After subtracting the stipulated $2 million post-easement value, the Court estimated the easement at approximately $19.7 million, with the precise amount left for Rule 155 computations. The Court separately characterized $450,000 of interest expense as investment interest subject to partner-level limitations and held that no accuracy-related penalties applied because the estimated valuation was above the gross-misstatement threshold and MVL otherwise established reasonable cause and good faith through its reliance on a qualified appraisal.
Eleventh Circuit Affirms Tax Court’s Easement Valuation and Inventory Limitation
In an unpublished per curiam opinion issued August 20, the Eleventh Circuit affirmed the Tax Court’s valuation of a conservation easement and its imposition of a 40% gross valuation misstatement penalty. In Mill Road 36 Henry, LLC v. Commissioner, T.C. Memo. 2023-129, the partnership claimed an $8.9 million charitable contribution deduction for a conservation easement over 33 acres of a 40-acre tract in Henry County, Georgia. The Tax Court determined that the easement had a fair market value of $900,000 and, separately, that the partnership’s allowable deduction was limited to its $416,563 basis in the property because the property had been inventory in the hands of the partners that contributed it to the partnership. The Eleventh Circuit affirmed both conclusions. Mill Road 36 Henry, LLC v. Commissioner, No. 24-11334 (11th Cir. Aug. 20, 2026) (per curiam).
Reviewing the Tax Court’s valuation, the Eleventh Circuit found “no clear error.” The Tax Court assumed, in the partnership’s favor, that development as an assisted-living facility was the property’s highest and best use, but rejected the partnership’s expert valuation of nearly $200,000 per acre. The partnership’s expert relied on comparable properties in Fulton and Gwinnett Counties, closer to Atlanta, whereas the Commissioner’s expert identified six undeveloped properties in Henry County with the same zoning classification as the Mill Road property that sold for approximately $6,000 to $11,000 per acre. The Tax Court also relied on the sale of a 97.99% interest in another nearby Mill Road property for $1 million three months before the easement donation, reflecting a value of approximately $25,800 per acre. The Eleventh Circuit concluded that these facts amply supported the Tax Court’s $900,000 valuation and, because the $8.9 million value claimed on the partnership’s return was more than 200% of the correct value, affirmed the 40% gross valuation misstatement penalty under section 6662(h).
The Eleventh Circuit also affirmed the Tax Court’s conclusion that the partnership’s deduction was limited to its $416,563 basis in the property. Section 170(e)(1)(A) generally reduces a charitable contribution deduction by the amount of gain that would not have been long-term capital gain if the donated property had instead been sold at fair market value. In this case, the Mill Road tract had been contributed to the partnership by Mill Road Partners and Benwood Investments, both of which were engaged in the business of buying and selling real estate. Under section 724(b), property that is inventory in the hands of a contributing partner generally retains its ordinary-income character in the hands of the partnership for five years. Applying the Eleventh Circuit’s three-part Suburban Realty test, the Tax Court found that the contributing partners were engaged in the real estate business, had acquired and held the property primarily for sale in that business, and contemplated a sale in the ordinary course of that business. The Eleventh Circuit concluded that the record supported each finding. It also rejected the partnership’s argument that the Tax Court was required to separately analyze each of the seven factors identified in United States v. Winthrop, 417 F.2d 905 (5th Cir. 1969), explaining that those factors are nonexclusive and noncontrolling and that the ultimate inquiry turns on the evidence as a whole.
Treasury Announces Forthcoming Investment Rules for Trump Accounts
On August 20, 2026, the U.S. Department of the Treasury announced proposed guidance governing eligible investments for Trump Accounts, aimed at limiting investment costs, promoting broad diversification, and generating long-term growth. Treasury stated that the contemplated framework would restrict eligible investments to low-cost products and require an eligible index to reflect a broad segment of the U.S. or global equity market using objective financial criteria. Although Treasury characterizes the guidance as proposed, the announcement does not include or link to proposed regulatory text or a Federal Register notice; accordingly, the announcement appears to describe forthcoming proposed rules rather than constitute the publication of the proposed rules themselves.
Treasury and IRS Propose Rules Excluding Certain Property Disposition Income from FDDEI
On August 20, 2026, the Treasury Department and IRS released proposed regulations addressing the One Big Beautiful Bill Act’s exclusion from the Tax Code Section 250 deduction (enacted in the 2017 TCJA) of income and gain from certain sales or other dispositions of property. The OBBBA added section 250(b)(3)(A)(i)(VII), which generally excludes from deduction eligible income (DEI) income and gain from the sale or other disposition of intangible property, as defined in section 367(d)(4), and other property of a type that is subject to depreciation, amortization, or depletion by the seller. The statutory amendments generally apply to sales or other dispositions occurring after June 16, 2025. The proposed regulations largely implement rules previously described in Notice 2025-78 (as described in this S&C memo) and also reflect other OBBBA amendments to section 250.
The proposed regulations would define the new category of excluded income as “excluded property sales income.” For intangible property, the rules would continue to use the existing section 250 definition, which incorporates section 367(d)(4) but excludes copyrighted articles as defined under Treas. Reg. § 1.861-18(c)(3). For other property, the proposed regulations generally would treat property as excluded if, in the seller’s hands, it is or previously has been of a character subject to depreciation or has been subject to amortization or depletion. Accordingly, property that has always been held as inventory generally would not fall within the exclusion, but property that was previously depreciated and later converted into inventory generally would remain excluded property. Treasury and IRS declined requests for a “remanufacturing” exception for depreciated property that is subsequently refurbished or materially transformed into inventory, as well as a rule that would limit excluded gain to the amount of prior depreciation recapture. They reasoned that the statute excludes all income and gain from the disposition of covered property, rather than only the portion attributable to prior depreciation.
For purposes of the exclusion, whether a transaction constitutes a sale or other disposition would be determined under general federal income tax principles and would include deemed sales, deemed dispositions, and transactions subject to section 367(d). The broader section 250 definition of a “sale,” which otherwise includes leases and licenses, would not apply to this exclusion. The proposed regulations also address software and digital-content transactions. In particular, a sale of a copyrighted article generally would not be treated as a disposition of intangible property merely because the underlying product consists of software or other digital content, while a transfer of the underlying intangible rights could fall within the exclusion. The regulations include additional examples intended to distinguish transactions involving copyrighted articles from transfers of intangible property. The proposed rules also contain a related-party anti-abuse provision under which covered property can retain its excluded character following certain carryover-basis transactions undertaken with a principal purpose of avoiding section 250(b)(3)(A)(i)(VII).
The proposed regulations would additionally clarify that, notwithstanding the OBBBA’s elimination of the former deemed intangible income and deemed tangible income return components of the FDII calculation, FDDEI remains a subset of DEI and therefore cannot exceed DEI. Treasury and IRS expect to finalize the regulations by January 4, 2027. The property-disposition rules are generally proposed to apply to sales or other dispositions occurring after June 16, 2025, while the clarification that FDDEI remains limited by DEI would apply to taxable years beginning after December 31, 2025. Until final regulations are issued, taxpayers may rely on the proposed regulations, provided the taxpayer and its related parties apply the proposed rules in their entirety and consistently. Comments are due October 5, 2026.
Treasury and IRS Propose Updates to Single-Employer Defined Benefit Plan Funding Rules
On August 20, 2026, the Treasury Department and IRS published proposed regulations updating the funding rules for single-employer defined benefit pension plans under Tax Code section 430 (parallel to ERISA section 303 (29 U.S.C. § 1083)), to reflect statutory changes made by WRERA 2008, the SECURE Act, and SECURE 2.0. The proposed regulations are generally intended to make it easier for employers to adopt amendments increasing plan benefits by allowing certain amendments adopted after the end of a plan year to be reflected in that year’s actuarial results, thereby potentially accelerating the corresponding increase in the section 404(o) deductible contribution limit. The proposal would also clarify which plan-related expenses are included in target normal cost, address plans adopted after the end of a plan year, specify when certain plan amendments must or may be reflected in a plan’s funding target and target normal cost, revise rules concerning changes in actuarial assumptions or funding methods, and make conforming changes to reflect statutory amendments. The regulations are proposed to apply to plan years beginning on or after six months following publication of final regulations. Comments are due October 19, 2026.
Treasury and IRS Propose Rule Applying PRWORA Restrictions to Refunded Portion of Refundable Tax Credits
On August 20, 2026, the Treasury Department and IRS published proposed regulations under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) that would treat the refunded portion of four individual refundable income tax credits, the adoption tax credit, child tax credit, American opportunity tax credit, and earned income tax credit, as a “Federal public benefit,” making that portion unavailable to aliens who are not “qualified aliens” under PRWORA. The restriction would apply only to the portion of the affected refundable credits that exceeds the taxpayer’s federal income tax liability, rather than to the portion used to reduce tax liability. A taxpayer generally would have to be a U.S. citizen, U.S. national, or qualified alien on the date the taxpayer first files a return claiming the credit to be eligible for refundable portion. For joint returns, only one spouse would need to satisfy the citizenship, nationality, or qualified-alien requirement. Taxpayers receiving a refunded portion would be required to self-certify their qualifying status under penalty of perjury. The proposed rules would not apply PRWORA to the premium tax credit, because Treasury and IRS conclude that Congress’s later-enacted immigration-status restrictions for that credit supersede PRWORA. Separate regulations are contemplated for the Saver’s Match. Treasury estimates that approximately 200,000 to 700,000 taxpayers could be ineligible for affected refunds for 2026, representing an estimated $0.7 billion to $2.6 billion in disallowed credits; the regulations are proposed to apply to taxable years ending on or after the date final regulations are published. Comments are due October 5, 2026.