Latest tax updates: Trump Account investment rules, subpart F proration, and conservation easement enforcement

During the last two weeks of August 2026, the Internal Revenue Service (IRS) and US Department of the Treasury issued guidance addressing eligible investments for Trump Accounts, fourth-quarter interest rates, the pro rata allocation of subpart F and global intangible low-taxed income (GILTI) for controlled foreign corporations (CFCs), and a reorientation of IRS enforcement priorities toward tax-exempt organizations and syndicated conservation easement cases. The US Court of Appeals for the Eleventh and Fifth Circuits also issued opinions addressing a conservation easement’s basis limitation and the Anti-Injunction Act’s bar on prepayment penalty litigation while the US Tax Court examined the IRS’s verification obligations in a collection due process dispute.

August 20, 2026: The Treasury and the IRS issued proposed regulations on eligible investments for Trump Accounts, the tax-advantaged savings accounts for children created under Working Families Tax Cuts. The proposed rules limit the account’s investment menu during the growth period (from the time the account is established through December 31 of the year the beneficiary turns 17) to low-cost mutual funds or exchange-traded funds tracking a primarily US-company equity index, prohibit the use of leverage, and cap annual fees and expenses at 0.1% of the invested balance. Funds not affirmatively directed by the beneficiary default to a trustee-selected eligible investment. The rules would generally apply to tax years beginning on or after January 1, 2026, and the Treasury and the IRS requested additional comments by October 20, 2026.

August 21, 2026: The IRS issued Revenue Ruling 2026-15, announcing that interest rates will remain unchanged for the calendar quarter beginning October 1, 2026. The overpayment and underpayment rate for individuals stays at 7%, compounded daily; the corporate overpayment rate remains 6% (4.5% on the portion of a corporate overpayment exceeding $10,000); and the rate for large corporate underpayments holds at 9%.

August 26, 2026: The Treasury and the IRS released proposed regulations under §§ 951 and 951A implementing changes the One Big Beautiful Bill Act made to how US shareholders calculate a CFC’s pro rata share of subpart F income and tested income or loss for GILTI purposes. The proposed rules eliminate the prior “last day” rule and replace it with a daily proration approach, require a CFC’s tax year to close on certain CFC-status change events, and permit an elective closing when unrelated parties cause an ownership shift of more than 50 percentage points. Comments are due 60 days after publication in the Federal Register, and the Treasury has targeted finalization for January 4, 2027.

August 26, 2026: The IRS’s chief tax compliance officer and chief of criminal investigation outlined a substantial reorientation of the agency’s enforcement priorities, describing it as the first update to the IRS’s compliance strategy since 2017. The new approach leans on automation and analytics and directs increased scrutiny toward abuse and illegal activity involving tax-exempt organizations, including efforts to prevent domestic and foreign terrorism financing from moving through exempt entities. A revised Form 990 intended to improve transparency around government contracts, grants, and fiscal sponsorship arrangements is expected to be ready for the next tax year.

The IRS is also easing certain compliance burdens. It established a dedicated office, led by a former Trump administration adviser, to resolve the roughly 1,000 pending syndicated conservation easement cases individually rather than through the blanket settlement offer extended earlier this year. The agency also plans to reduce penalties and shorten the timeline under its criminal voluntary disclosure program within the next two months. Separately, the IRS reported that roughly 50,000 taxpayers have filed protective refund claims tied to the government’s pending appeal in Kwong v. United States.

The IRS also released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums, and Chief Counsel Advice).

Recent court decisions

August 12, 2026: K Alain, L.L.L.P. v. Commissioner, No. 24-60240 (5th Cir.). On rehearing, the Fifth Circuit withdrew its taxpayer-favorable January 2026 opinion in this case (then captioned Sirius Solutions, L.L.L.P. v. Commissioner) and substituted a new decision that narrows – but does not eliminate – the limited partner exception to self-employment tax under § 1402(a)(13). The panel’s original opinion defined a “limited partner, as such” simply as any partner in a state-law limited partnership with limited liability. The substitute opinion instead holds that the phrase’s original public meaning, as of the statute’s 1977 enactment, is a partner who plays no significant role in managing or running the business, reaching that conclusion through contemporaneous legal dictionaries, the 1916 and 1976 Uniform Limited Partnership Acts, period treatises, a 1959 First Circuit decision, and the IRS’s own decades-old partnership return instructions. On that basis, the Fifth Circuit still vacated and remanded the Tax Court’s decision.

Judge James E. Graves, Jr. dissented, as he had from the original opinion, arguing that the Tax Court’s functional, passive-investor analysis is the correct reading of “limited partner, as such,” that it is consistent with a long line of Tax Court and circuit authority, and that the majority’s new standard is untethered from the statutory text and will let substantial self-employment earnings escape taxation. The decision leaves unresolved how much managerial involvement is too much (an issue left for the Tax Court on remand) and arrives while the same question is separately pending before the First and Second Circuits in companion cases involving Denham Capital Management and Soroban Capital Partners LP, raising the prospect of a circuit split and eventual Supreme Court of the United States review.

August 20, 2026: Mill Road 36 Henry, LLC v. Commissioner, No. 24-11334 (11th Cir.). In an unpublished per curiam opinion, the Eleventh Circuit affirmed the Tax Court’s decision limiting a partnership’s charitable contribution deduction for a Georgia conservation easement to its $416,563 cost basis, even though the Tax Court had independently valued the easement at $900,000 (far below the $8.9 million the partnership had claimed). The basis limitation applied under § 170(e)(1)(A) because the underlying land had been inventory held for sale in the ordinary course of business by the partners who contributed it rather than a capital asset. The Eleventh Circuit also affirmed the accompanying 40% gross valuation misstatement penalty.

August 20, 2026: Laborde v. Commissioner, T.C. Memo. 2026-74. The Tax Court sustained a Notice of Federal Tax Lien filing but remanded two Notice of Levy determinations to the IRS Independent Office of Appeals (IRS Appeals) in a collection due process case arising from trust fund recovery penalties assessed against the owner of a New Orleans glass and mirror business. The taxpayer, who had used three different mailing addresses over the years at issue, did not dispute the underlying liability but argued that the Notices of Intent to Levy had not been mailed to his last known address. The Court agreed that the IRS Appeals officer’s verification under § 6330(c)(1) was conclusory and failed to explain how the agency determined the notices were properly addressed and held that such verification cannot be skipped even where the underlying liability is not in serious dispute.

August 21, 2026: Norcave Properties, LLC v. IRS, No. 25-30542 (5th Cir.). The Fifth Circuit affirmed the dismissal, for lack of subject matter jurisdiction, of a partnership’s suit seeking a pre-payment jury trial on civil fraud and accuracy-related penalties the IRS proposed after disallowing a Louisiana conservation easement deduction. The partnership had asked a federal district court for injunctive and declaratory relief, arguing that a jury needed to decide the penalties before they could be assessed, while separately filing a protective petition in the Tax Court. The Fifth Circuit held that § 6665 treats these penalties as “tax” for purposes of the Anti-Injunction Act and the Declaratory Judgment Act, so both statutes barred the pre-payment suit regardless of the underlying constitutional argument, leaving the Tax Court – where the partnership had already filed a parallel petition – as the available forum.