Latest tax updates: Foreign tax transition rules, overtime reporting, and Tax Court anti-abuse decisions

During the last week of July and first week of August 2026, the Internal Revenue Service (IRS) and US Department of the Treasury issued guidance addressing foreign tax credits, the employer-paid family and medical leave credit, the new overtime deduction, the Saver’s Match program, and backup withholding by third-party settlement organizations. The US Tax Court also issued precedential opinions involving consolidated group net operating losses, partnership petition deadlines, and hedged foreign-dividend transactions.

IRS and Treasury guidance

July 31, 2026: The Treasury and the IRS released proposed regulations under Internal Revenue Code Sections 898 and 960 addressing international tax changes enacted by the One Big Beautiful Bill Act. The regulations provide transition rules following the repeal of the one-month deferral election for certain foreign corporations and implement the 10% foreign tax credit disallowance for certain distributions of Section 951A previously taxed earnings and profits. Comments are due September 17, 2026.

August 5, 2026: In Notice 2026-28, the IRS provided interim guidance under Section 45S, the employer credit for paid family and medical leave. Employers may calculate the credit using either qualifying wages paid to employees on leave or qualifying insurance premiums. The notice also addresses employee eligibility, government-funded benefits, controlled groups, and policies covering qualifying and nonqualifying benefits.

August 6, 2026: The IRS updated its frequently asked questions concerning the deduction for qualified overtime compensation under Section 225.

August 7, 2026: The Treasury and the IRS filed final regulations addressing backup withholding on payments processed by third-party settlement organizations. When a payee fails to provide a taxpayer identification number, backup withholding generally begins with the transaction that causes both the $20,000 payment threshold and the 200-transaction threshold to be exceeded. It does not apply retroactively to earlier transactions.

Case developments

July 27, 2026: In HBM Holdings Co. v. Commissioner, 167 T.C. No. 6, the Tax Court applied the separate return limitation year rules to approximately $108 million of net operating losses transferred to a parent corporation shortly before it formed a consolidated group. The Court held that the losses retained their separate-return-year character and rejected the taxpayer’s reliance on the “lonely parent” rule. The decision underscores that transaction sequencing does not necessarily eliminate consolidated return limitations tied to the historical source of tax attributes.

August 5, 2026: In Big Apple Tompkins Realty LLC v. Commissioner, 167 T.C. No. 7, the Tax Court held that the 90-day deadline under Section 6234(a) for challenging a final partnership adjustment is nonjurisdictional. Although the petition was late, the Court declined to dismiss for lack of jurisdiction and reserved whether equitable tolling could apply. The deadline remains mandatory, and partnerships should not assume the decision excuses untimely filing.

August 6, 2026: In SIH Partners LLLP v. Commissioner, 167 T.C. No. 8, the Tax Court denied qualified-dividend treatment and related foreign tax credits arising from Swiss equities hedged by offsetting swap and short positions. Although the transaction passed the mechanical 70% overlap test, the Court applied the regulation’s broader anti-abuse rule because the positions closely tracked each other and held that the transaction’s principal purpose was obtaining tax benefits significantly exceeding the expected pretax economic profits. The opinion thus stands for the proposition that satisfying a numerical test may not preclude application of a broader anti-abuse provision.