Latest tax updates: Investment fund scrutiny, digital-asset staking, and IRS-DOJ authority

In this edition of IRS Roundup, we cover Internal Revenue Service (IRS) and US Department of the Treasury guidance addressing potentially abusive investment-fund strategies, installment payments for qualifying farmland sales, Trump Accounts, the new federal scholarship tax credit, and digital-asset staking by investment trusts.

We also discuss the IRS Office of Chief Counsel’s revised procedures following the US Department of Justice’s (DOJ) Tax Division reorganization and recent decisions concerning assessment-period consents and the limitations on DOJ’s otherwise broad authority to settle a refund action where the IRS conceded the case.

IRS and Treasury guidance

September 28, 2026: Treasury and the IRS issued Revenue Ruling 2026-20 and Notice 2026-62, addressing investment-fund strategies they view as potentially inconsistent with federal tax rules. The revenue ruling integrates an investor’s planned contribution of appreciated securities to a newly formed exchange-traded fund (ETF) with the ETF’s subsequent in-kind redemption of an authorized participant. The investor is treated as engaging in a taxable exchange under § 1001 rather than a tax-free contribution under § 351. Notice 2026-62 identifies related partnership, record-date, box-spread, and “tax-aware” fund strategies for possible future guidance or examination challenges. The notice distinguishes these strategies from conventional, long-established planning, and comments are due by October 28, 2026.

September 28, 2026: Treasury and the IRS issued proposed regulations under § 1062 concerning the sale or exchange of qualifying US farmland to qualified farmers. Eligible taxpayers may elect to pay the tax attributable to the gain in four equal annual installments. Among other requirements, the property generally must have been used or leased for farming during substantially all of the preceding 10 years, remain subject to a legally enforceable 10-year farming-use restriction, and be transferred to an individual actively engaged in farming. The proposed regulations also address sales by partnerships, S corporations, trusts, and estates. Comments are due by November 30, 2026.

September 29, 2026: The IRS Office of Chief Counsel issued Notice CC-2026-005 following DOJ’s reorganization of its former Tax Division. The former civil trial sections, Appellate Section, and Office of Review now comprise the Tax Litigation Branch of DOJ’s Civil Division, while criminal tax functions were transferred to the National Fraud Enforcement Division. The notice states that the Tax Litigation Branch retains the former Tax Division’s civil authority and that the chief counsel does not expect the reorganization to materially change its day-to-day coordination with DOJ. It also updates correspondence and delivery procedures and allocates responsibility for preparing and timely filing notices of appeal from adverse US Tax Court decisions.

September 30, 2026: Treasury and the IRS published temporary and proposed regulations under § 530A addressing Trump Accounts. The regulations provide rules concerning general account requirements, the establishment and automatic enrollment of initial accounts, and qualified general contributions, including contributions of qualifying publicly traded stock. The proposed regulations also withdraw and replace earlier proposed rules concerning the election to establish an initial Trump Account. The temporary regulations take effect September 30, 2026, and comments on the proposed regulations are due by November 30, 2026.

October 2, 2026: Treasury and the IRS published proposed and temporary regulations, implementing the federal scholarship tax credit under § 25F. Beginning in 2027, an eligible individual may claim a nonrefundable credit of up to $1,700 for qualified cash contributions to an eligible scholarship-granting organization in a participating state. Married taxpayers filing jointly may claim a combined credit of up to $3,400. The proposed regulations address state and scholarship-organization requirements, coordination with state tax credits, a five-year carryforward, and taxpayer reliance on the IRS’s list of eligible organizations. The temporary regulations establish procedures for state elections, electronic registration, donor acknowledgments, and reporting.

Recent court decisions

September 30, 2026: In Fine v. Commissioner, 167 T.C. No. 13, the Tax Court held that taxpayers may not use Form 872-T to terminate a fixed-date consent to extend the assessment period executed on Form 872. Form 872-T applies to the open-ended extension created by Form 872-A, not to a Form 872 containing a negotiated expiration date. Because the IRS issued the notices of deficiency before the expiration dates stated in the taxpayers’ Forms 872, the notices were timely. The decision underscores that taxpayers should negotiate the duration of a fixed-date extension carefully because it cannot be shortened later unilaterally through Form 872-T.

September 30, 2026: In Groves v. United States, No. 1:16-cv-02485, the US District Court for the Northern District of Illinois held that DOJ could not reinstate a $2.38 million § 6700 tax-shelter penalty that the IRS abated after the case was referred to DOJ. The IRS concluded that the penalty should be abated because it failed to comply with § 6751(b)’s written supervisory-approval requirement. Although § 7122(a) gives DOJ authority to compromise tax cases after referral, the court held that the unilateral abatement was not a “compromise” because the taxpayer made no concession. The court also emphasized that the Internal Revenue Code addresses compromises under § 7122 and abatements separately under § 6404 and rejected DOJ’s attempt to characterize the abatement as a reversible ministerial error.

The holding is narrow; it distinguishes a unilateral abatement from a negotiated compromise and does not return general settlement authority to the IRS after referral. A different outcome in Fuentes v. United States also suggests that further litigation concerning the boundary of DOJ’s post-referral authority under § 7122(a) may follow.