future-focused

Treasury Declines to Close the SIFL Private Jet Valuation Loophole

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The Treasury Department formally declined a request from a group of Senate Democrats to change the tax rules governing how employees value personal use of employer-provided aircraft, preserving the Standard Industry Fare Level (SIFL) valuation method.

In a letter dated August 17, 2026, Treasury’s Office of Legislative Affairs responded to an earlier July 24, 2026 letter from Senators Sheldon Whitehouse, Elizabeth Warren, Chris Van Hollen, Ed Markey, and Bernie Sanders, who had urged Treasury and the IRS to close what they characterized as a loophole allowing wealthy executives to substantially undervalue the taxable cost of personal travel on corporate jets. The senators referenced a Joint Committee on Taxation analysis showing that a flight between New York and Washington, D.C., with a fair market chartered value potentially exceeding $5,000, could be reported under the SIFL method at a value of roughly $236, producing a meaningful reduction in the executive’s imputed income and corresponding tax liability.

Under Treasury Regulation § 1.61-21, employees generally must include in gross income the value of personal use of employer-provided aircraft as a fringe benefit, treated as wages for employment tax and information reporting purposes. Employees may value that use either at the amount it would cost to charter a comparable aircraft in an arm’s length transaction, or under the SIFL method, which multiplies published cents-per-mile rates by an aircraft weight-based multiple and adds a terminal charge. The Department of Transportation calculates the underlying SIFL mileage rates and terminal charge, and the IRS publishes updated figures twice a year in a Revenue Ruling. For flights taken in the first half of 2026, for example, the terminal charge was $54.48, with mileage rates ranging from roughly 22 to 30 cents per mile depending on flight distance.

Treasury’s defended the SIFL method largely on administrative grounds, explaining that requiring individualized fair market value appraisals for every personal flight taken on employer-provided aircraft would impose a significant compliance burden on both taxpayers and the IRS. Treasury noted that the standardized method, finalized in 1989, was designed to produce consistent results across taxpayers and that the semi-annual rate updates were intended to keep pace with prevailing market conditions.

The exchange comes against the backdrop of the permanent extension of 100 percent bonus depreciation for aircraft purchases under recent tax legislation, which the senators argue compounds the benefit created by the SIFL valuation gap. Critics of the current rule, including Senator Whitehouse,  argue that the SIFL rates have fallen far behind actual charter costs and that maintaining the status quo effectively shifts tax burden away from high-income executives and toward other taxpayers.

For businesses and executives that provide or use employer aircraft for personal travel, Treasury’s response indicates that the current SIFL valuation framework remains the standard. However, future rulemaking proceedings are worth monitoring given the sustained scrutiny this issue has received. For more information about this update, contact Liskow attorneys Leon Rittenberg III, Caroline Lafourcade, and Kevin Naccari, and visit Liskow’s Tax Practice page.

Tax Court Finds IRS Revenue Agent Liable for Civil Fraud Penalty

3 minute read

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The United States Tax Court recently issued a reminder that tax sophistication can support a finding of civil fraud. In Janangelo v. Commissioner, T.C. Summary Opinion 2026-8, the court found that a longtime IRS revenue agent, who is also a licensed attorney and CPA, committed civil fraud by claiming a series of fabricated and unsubstantiated deductions across four consecutive tax years.

Peter J. Janangelo, Jr. worked as an IRS revenue agent for nearly two decades while also holding an active law license in New York and CPA licenses in New York and Nevada. He and his wife, Mary Ann Janangelo, jointly filed returns for 2018 through 2021 claiming a range of deductions tied almost entirely to Mr. Janangelo’s activities. The IRS disallowed the deductions in full, and Mr. Janangelo challenged the resulting deficiencies along with proposed fraud and negligence penalties.

The largest issue involved a purported Schedule C business, styled “SSA DCS,” that Mr. Janangelo claimed to have formed in late 2018 to represent his wife in a potential Social Security disability claim. The business reported just $812 in gross receipts against $23,354 in claimed expenses. The court found the arrangement to be a sham created shortly after the Tax Cuts and Jobs Act suspended miscellaneous itemized deductions, allowing Mr. Janangelo to continue deducting the same recurring expenses, such as tax software, continuing education, and professional dues, that he had claimed in prior years. The court noted that the supposed retainer payment from his wife was, in substance, indistinguishable from her ordinary contribution to household expenses, and that the attorney Mr. Janangelo claimed to have paid for related legal work testified he had never heard of the business and performed no such work.

For 2019 through 2021, Mr. Janangelo attempted to deduct tens of thousands of dollars in expenses he attributed to an age discrimination lawsuit against the IRS, including attorney’s fees, travel, and even pet kenneling costs. The court rejected these deductions outright because the lawsuit ended in summary judgment against him, meaning he received no settlement or award against which any legal fees could be deducted under I.R.C. § 62(a)(20). The court also rejected a claimed health savings account related deduction, since the Janangelos were never enrolled in a qualifying high deductible health plan.

Applying the clear and convincing evidence standard, the court found multiple badges of fraud, including overstated deductions across every year at issue, inadequate recordkeeping, implausible explanations, and submission of inaccurate documentation. The court gave particular weight to Mr. Janangelo’s professional background, reasoning that his expertise as a trained tax professional made his conduct especially deliberate rather than mistaken. As a result, the court sustained the 75 percent civil fraud penalty under I.R.C. § 6663 against Mr. Janangelo for each year. Mrs. Janangelo, however, was found to have reasonably relied on her husband, a tax professional, in preparing and signing the couple’s joint returns, and the court declined to impose any accuracy-related penalty against her.

Although issued as a small tax case opinion that carries no precedential value under I.R.C. § 7463(b), the decision underscores the weight the Tax Court gives to a taxpayer’s professional background when evaluating fraudulent intent, and offers a cautionary illustration of how not to structure family tax planning. For more information about this update, contact Liskow attorneys Leon Rittenberg III, Caroline Lafourcade, and Kevin Naccari, and visit Liskow’s Tax Practice page.

MARAD Overhauls Title XI Vessel and Shipyard Financing Regulations

3 minute read

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On August 28, 2026, the Maritime Administration (MARAD) published an interim final rule rewriting the regulations governing the Vessel and Shipyard Financing Program, commonly known as the Title XI Program, found at 46 CFR Part 298. The rule took effect immediately upon publication, though MARAD is accepting public comments through October 27, 2026. This is the first comprehensive revision of the Title XI regulations since they were originally promulgated in 1978, and the changes significantly affect federal loan guarantees to financing of vessel construction, reconstruction, reconditioning, repair, or shipyard modernization.

The most obvious structural change is consolidation of the rules. The new rule eliminates 14 of 34 sections and reorganizes the remainder into 20 renumbered sections with no subpart divisions. Much of the material that disappears from the regulatory text has not been deleted outright, but instead relocated into MARAD’s published loan agreement documents and application forms, which are now the source for terms such as escrow fund mechanics, required loan document provisions, examination and audit rights, reporting requirements, and remedies after default. 

The rule also updates the regulations to reflect statutory changes made by the National Defense Authorization Act for Fiscal Year 2020. That legislation repealed the eligible export vessel financing authority previously found at 46 U.S.C. § 53732, and the new rule removes all references to export vessel financing, since MARAD no longer has authority to provide it. The 2020 NDAA also added a statutory directive requiring MARAD to apply modern federal credit best practices and to recommend financial covenants and ratios for applicants, which the rule implements by incorporating current Office of Management and Budget credit program standards that did not exist when the original 1978 regulations were written.

Additionally, the rule makes several financial changes for program applicants. The application fee is reduced from $5,000 to $1,000, a change MARAD describes as intended to lower barriers to entry for smaller participants. The former investigation fee is renamed and restructured as a commitment fee, calculated as one quarter of one percent of the guaranteed note amount or $250,000, whichever is less, reduced by any professional service fees already paid during due diligence. The rule also aligns the guarantee fee methodology with the credit subsidy fee calculation used elsewhere in federal credit programs. Finally, it introduces a new prioritization mechanism under which applications for vessels suitable for wartime or national emergency use, and applications for vessels designated as being of national interest, receive expedited processing ahead of other applications.

Other provisions include a new rule allowing MARAD to grant foreign component waivers after an application has already been approved, rather than requiring resolution before approval, which is intended to prevent waiver review from delaying project financing. The rule also consolidates all definitions into a single section, restates general credit standards and underwriting criteria such as collateral, working capital, and audited financial statement requirements in one place, and separately addresses vessel project requirements and shipyard project requirements in their own sections for clarity.

MARAD invoked the good cause exception to the Administrative Procedure Act’s notice and comment requirements, concluding that the changes largely codify existing administrative practice, implement statutory amendments, and adopt government-wide fiscal standards rather than reflect a discretionary policy shift. As a result, the rule is already in effect, though MARAD may revise it in response to comments received during the 60-day comment period.

Shipowners, operators, and shipyards currently participating in or considering the Title XI Program should review the revised Part 298 alongside MARAD’s updated loan agreement documents and application forms, since many previously codified terms now reside exclusively in those documents rather than in the regulatory text itself. For more information about this update, contact Liskow attorneys Leon Rittenberg III and Kevin Naccari, and visit Liskow’s Tax Practice page.

QPRTs, Homestead Exemptions, and the Estate Tax Basis Trap: Lessons from Palermo v. United States

2 minute read

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A recent decision from the United States District Court for the Southern District of Florida offers a cautionary tale for estate planners who rely on Qualified Personal Residence Trusts (QPRTs) and the interplay between state homestead protections and federal estate tax inclusion rules. In Palermo v. United States, No. 24-22514-Civ-BECERRA/TORRES (S.D. Fla. Aug. 17, 2026), the court addressed whether a residence held in a QPRT was includable in the decedent’s gross estate, and in doing so, clarified important limits on the use of state homestead law to secure a stepped-up basis under I.R.C. § 1014.

The decedent in Palermo created a QPRT in 2002 and transferred his residence into the trust. After the trust term expired, he continued living in the home under lease agreements with the trust, paying rent below the property’s appraised fair rental value. Following the eventual sale of the property, the trust claimed a stepped-up basis under Section 1014, arguing that the residence should have been included in the decedent’s gross estate. The IRS disagreed, assessing additional tax and penalties, which prompted the litigation.

The trust first argued that the property’s homestead exemption status under Florida law created an interest includable in the gross estate under I.R.C. § 2033. The court rejected this theory on partial summary judgment, holding that state homestead provisions exist to provide limited protections, primarily against creditors, and do not operate to determine property ownership for federal estate tax purposes. This holding reinforces a familiar principle: state law characterizations of property rights do not automatically translate into federal tax consequences, and taxpayers cannot bootstrap a homestead classification into estate tax inclusion simply because it may be advantageous for basis purposes.

The court reached a different result, however, on the government’s alternative argument under I.R.C. § 2036(a)(1), which addresses transfers where the decedent retains possession or enjoyment of transferred property. Because the decedent continued to occupy the residence after the QPRT term ended, under a lease arrangement priced below market and lacking arm’s length characteristics, the court found genuine issues of material fact as to whether he had retained the kind of beneficial enjoyment that would trigger inclusion under Section 2036(a)(1). Summary judgment on this issue was therefore denied, leaving the question for further proceedings.

Finally, the court held that the taxpayer could not pursue two additional theories, cessation of qualified use and a reasonable cause defense to the penalties, because neither had been raised in the administrative refund claim. This aspect of the ruling underscores the importance of comprehensively identifying and preserving all arguments when submitting a claim for refund, since failure to do so can foreclose those arguments in subsequent litigation.

Palermo serves as an important reminder for practitioners administering QPRTs. Post-term lease arrangements with the grantor must be carefully structured at fair market rental value and on genuine arm’s length terms to avoid inadvertent estate tax inclusion exposure, and taxpayers should ensure that every potential theory of recovery is clearly articulated in administrative refund claims before proceeding to litigation. For more information about this update, contact Liskow attorneys Leon Rittenberg III, Caroline Lafourcade, and Kevin Naccari, and visit Liskow’s Tax Practice page.

D.C. Circuit Upholds EPA’s Designation of PFOA and PFOS as CERCLA Hazardous Substances

4 minute read

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On August 18, 2026, the D.C. Circuit handed EPA a clean win on one of the most consequential environmental rules of the decade. In Chamber of Commerce v. EPA, No. 24-1193, the court denied every petition challenging EPA’s 2024 rule designating PFOA and PFOS — two of the most common “forever chemicals” — as hazardous substances under CERCLA, the federal Superfund law. 

EPA’s designation, which is now firmly in place, carries significant implications for companies that (knowingly or unknowingly) make, use, transport, or dispose of materials containing PFOA and PFOS. Here is what the Chamber of Commerce decision says and what it means going forward.

 

What the Court Decided

In 2024, EPA designated PFOA and PFOS as CERCLA hazardous substances, relying on research linking exposure to adverse health effects, including cancer and developmental delays. The Chamber of Commerce and other industry groups petitioned to vacate the rule. They raised three challenges, and the court rejected all of them. 

  • Statutory authority. The petitioners argued EPA could designate a substance only if harm was certain to follow a release. Reviewing the statute de novo under Loper Bright Enters. v. Raimondo, 603 U.S. 369 (2024), the court held EPA had the better reading: the word “may” refers to a possibility of substantial danger, not a certainty, and Congress wrote CERCLA to operate on scientific probabilities rather than absolute proof.
  • Adequate notice. The court found EPA’s final cost-benefit analysis was a “logical outgrowth” of the economic assessment it had circulated for comment – indeed, EPA expanded that analysis in direct response to industry’s own comments.
  • Reasoned decision-making. The court applied deferential “zone of reasonableness” review and upheld EPA’s cost and benefit estimates, its treatment of specific industries, and its decision to regulate despite acknowledged uncertainties. The court emphasized the deferential nature of arbitrary-and-capricious review and concluded that EPA had reasonably addressed those issues based on the information available to it.

The court also rejected petitioners’ constitutional arguments, finding no nondelegation or vagueness problem, reasoning that Congress supplied an intelligible principle tying EPA’s authority to a science-based public-health standard. 

One potentially significant question remains unanswered: whether CERCLA actually requires EPA to consider costs when deciding whether to designate a hazardous substance in the first place. EPA assumed that it did for purposes of this rule, and the D.C. Circuit likewise assumed the requirement without deciding it.

 

What the Decision Means for Industrial Companies

The immediate legal effect is straightforward: PFOA and PFOS are confirmed hazardous substances under CERCLA, and the compliance and liability machinery that comes with that status applies.

That status carries some direct regulatory consequences. Among other things, releases above the applicable one-pound reportable quantity can trigger federal reporting requirements, and shipments above specified quantities are subject to hazardous-material transportation requirements.

The potentially larger concern for industrial companies, however, is CERCLA liability. Hazardous-substance status means that PFOA and PFOS can now form the basis for CERCLA response actions and cost-recovery claims. EPA may, after additional regulatory steps, compel responsible parties to undertake cleanup, while EPA, states, and private parties may potentially seek recovery of response costs under CERCLA.

 

Practical considerations for industry

Companies with current or historical connections to PFOA or PFOS should continue evaluating where those substances may intersect with their operations – not only through their own historical use, but through their connection to products, waste streams, wastewater, and other pathways.

The Chamber of Commerce opinion is particularly relevant to businesses that have not manufactured PFAS but may have received or handled PFAS-containing materials. The petitioners specifically raised concerns about downstream industries such as waste management, construction, and recycling. EPA responded, and the court noted, that CERCLA contains statutory defenses and limitations as well as mechanisms addressing parties responsible for comparatively small contributions.

As we have previously reported, EPA has noted that, under its enforcement discretion, it intends to prioritize manufacturers of PFAS in response actions, as opposed to passive receivers of PFAS.  But companies evaluating their PFAS exposure should not assume that EPA’s current enforcement priorities eliminate potential liability – particularly because private parties and states may have independent avenues for pursuing claims.

Practical steps that companies should consider include:

  • Evaluate potential PFAS risk. In consultation with counsel to ensure privileges and confidentiality are upheld, companies with historical PFOA or PFOS use should consider whether their operations, facilities, or waste streams present material CERCLA or release-reporting issues.
  • Update transactional diligence. Purchasers and lenders should ensure that environmental due diligence appropriately considers potential PFOA/PFOS releases, particularly where a property’s historical uses involved PFAS, and evaluate with counsel and environmental professionals whether further investigation is warranted.
  • Revisit contracts and insurance. Review indemnities, representations, and environmental cost-allocation provisions in acquisition, lease, and supply agreements, and evaluate how PFAS liabilities are treated under existing coverage.
  • Preserve potential defenses. Companies should evaluate, with counsel, whether facts may support CERCLA defenses or liability limitations, including third-party, innocent-landowner, de minimis, or de micromis protections.

 

What’s Still Unsettled

The Chamber of Commerce ruling resolves the challenge to the PFOA/PFOS designation – but the broader PFAS legal landscape remains in motion. PFOA and PFOS are only two of more than 9,000 PFAS compounds, and questions remain about whether and how additional PFAS will be regulated by federal, state, and local authorities. 

Among the questions that will continue to develop are how courts apply traditional CERCLA liability, causation, divisibility, allocation, and statutory defenses to PFAS scenarios; how entities that passively received PFAS through ordinary waste or wastewater streams will fare in CERCLA disputes; and how EPA’s enforcement policies interact with private-party and state claims.

Beyond CERCLA, PFAS litigation continues to expand. The federal AFFF MDL in South Carolina includes thousands of pending claims, with personal-injury claims moving toward bellwether trials. How those cases resolve – and whether PFAS litigation expands materially beyond AFFF into claims involving industrial releases, consumer products, and other exposure pathways – remains an important trend to watch.

Finally, it is possible that the Chamber of Commerce petitioners will seek review from the U.S. Supreme Court. Because the case involves a nationally significant EPA rule with potentially substantial consequences across multiple industries, it would not be surprising to see the Court grant certiorari.

For further questions regarding PFAS and regulation of other “forever chemicals,” contact Liskow attorney Michael Mims and visit our Environmental Practice Page.

D.C. Circuit Upholds EPA’s NSR “Project Emissions Accounting” Rule, Signals Future As-Applied Challenges

3 minute read

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On July 28, 2026, the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) upheld the first Trump EPA’s “project emissions accounting” rule (or the Rule), which allows air permit applicants to account for both emissions increases and decreases at the first stage of New Source Review (NSR). Environmental Defense Fund v. EPA, No. 18-1149. The D.C. Circuit’s decision comes on the heels of several significant NSR developments, including EPA’s reinstatement of its “no-second guessing” policy, recission of its reactivation policy, and promulgation of its proposed rule clarifying the scope of construction activities that may proceed without obtaining an NSR permit.

EPA’s “Project Emissions Accounting” Rule

Under the Clean Air Act’s NSR program, an existing major stationary source proposing to undertake a project must determine whether such project will constitute a “major modification” subject to the major NSR preconstruction permitting requirements by following a two-step applicability test:

  • At Step One, the regulated entity and permitting authority ask whether the proposed project would, by itself, cause a “significant emissions increase” of a regulated NSR pollutant; if it would not, the project does not constitute a modification, and no major NSR permit is required.
  • If the proposed project will itself significantly increase emissions of a regulated NSR pollutant, the regulated entity and permitting authority move to Step Two and determine whether the project will also result in a “significant net emissions increase” (i.e., whether it will be offset by a source-wide emissions decrease, which must be creditable and contemporaneous with the corresponding emissions increase).

In 2020, EPA finalized the project emissions accounting rule to clarify that both increases and decreases in emissions resulting from a proposed project can be considered in Step One of the NSR major modification applicability test. 

Petitioners’ Challenge

Petitioners claimed that the Rule was contrary to law and arbitrary or capricious, in part because measuring net emissions on a project-by-project basis (as opposed to a source-wide basis) “invites entities to circumvent NSR review by bundling ‘unrelated activities’ into a single ‘project.’” That flaw, the petitioners argued, “was enabled and exacerbated, by the EPA’s decision not to import Step Two’s guardrails—namely, creditability and contemporaneity—into Step One.”

D.C. Circuit’s Decision

The D.C. Circuit ultimately rejected the petitioners’ arguments because it concluded that the Clean Air Act did not preclude EPA’s interpretation allowing project-related emissions decreases to be considered alongside increases at Step One. The D.C. Circuit did, however, note that the petitioners had identified circumstances which could preclude certain applications of the Rule. 

Prior precedent established that, when calculating net emissions increases, any emissions decrease must be “substantially contemporaneous” with the emissions increase. Because EPA’s Rule did not include a temporal boundary on the emissions decreases that may be considered, the D.C. Circuit explained that, depending on how the Rule is applied to particular projects, an application of the Rule might not satisfy the substantial contemporaneity requirement. However, the D.C. Circuit held that the project emissions accounting rule was not facially unlawful and would “reserve questions regarding the Rule’s particular applications for another day.”

This decision confirms EPA’s authority to evaluate a project’s net emission effects at the first step of the NSR applicability analysis and provides continued regulatory certainty for facilities undertaking modernization and operational improvement projects. For certain projects, the ability to account for emissions decreased alongside increases at Step One may allow facilities to avoid triggering major NSR permitting requirements. However, facilities should continue to evaluate whether emissions decreases satisfy applicable timing and creditability requirements.

For further information on air permitting requirements for construction, please contact Greg Johnson, Clare Bienvenu, Emily von Qualen, or Colin North.

The Environmental Defense Fund and several other environmental
groups have petitioned for review of a rule that alters the
Environmental Protection Agency’s process to determine
whether a stationary source of air pollution can be modified
absent a permit under the Clean Air Act’s New Source Review
program. The petitioners have not persuaded us that the rule is
contrary to law. Nor have they demonstrated that it is arbitrary
or capricious. Accordingly, we deny their petitions.

media.cadc.uscourts.gov/…

IRS Proposes to Ease Form 1041-A Filing Burden for Trusts With Passthrough Charitable Deductions

3 minute read

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The Treasury Department and IRS have issued proposed regulations that would eliminate an information-return filing requirement for certain trusts whose only charitable contribution deductions flow from a partnership or S corporation in which the trust holds an interest. The proposed rule, published for public inspection under REG-109082-25 and scheduled for formal publication in the Federal Register on August 17, 2026, responds directly to complaints from practitioners that the current filing requirement imposes an unnecessary burden on trustees who may not even be aware it applies to them.

Under existing law, a trust other than a simple trust can generally deduct amounts of gross income that are, under its governing instrument, paid for a charitable purpose described in Section 170(c) of the tax code. Section 6034 requires trusts claiming this deduction, or split-interest trusts described in Section 4947(a)(2), to file an annual information return reporting details about the deduction, including amounts previously deducted but not yet paid out and a full balance sheet of trust assets and liabilities. The reporting requirement, dating back to the Revenue Act of 1950, was designed to let the IRS confirm that charitable deductions claimed for accumulated trust income are eventually actually paid to charity and are not claimed more than once.

The problem the new proposal addresses is that this same reporting obligation currently sweeps in trusts that never accumulated any charitable funds of their own at all. When a trust owns an interest in a partnership or S corporation that makes a charitable contribution, the trust picks up its allocable share of that deduction under Sections 702 or 1366 of the Code, even though the trust itself never received or held the contributed funds and made no independent decision to give to charity. Commenters argued that requiring these pass-through recipient trusts to complete the same Form 1041-A as trusts actively accumulating charitable funds serves no real enforcement purpose while creating real administrative headaches, particularly for trustees unfamiliar with the obscure filing requirement.

The proposed regulations would add a new exception under Treasury Regulation Section 1.6034-1(b), relieving a trust of the Form 1041-A filing requirement for any taxable year in which its only Section 642(c) deduction results from a passthrough contribution reported to it on a Schedule K-1. The proposal would also fix a longstanding technical inconsistency in the regulations: current rules still direct split-interest trusts described in Section 4947(a)(2) to file Form 1041-A, even though Form 5227 has actually replaced that form for such trusts since 2007 following the Pension Protection Act. The proposed regulations would formally update the text to require split-interest trusts to file Form 5227 instead.

Treasury and the IRS have designated the rule as deregulatory under Executive Order 14192 and confirmed it is not economically significant. If finalized, the changes would apply to taxable years ending on or after the date final regulations are published, though trusts and split-interest trusts may rely on the proposed rules for earlier taxable years in the meantime. Trustees and fiduciary advisors whose trusts hold interests in partnerships or S corporations with charitable giving programs should review their current Form 1041-A filing practices in light of this proposal and consider submitting comments if the change would affect their compliance obligations. For more information about this update, contact Liskow attorneys Leon Rittenberg III, Caroline Lafourcade, and Kevin Naccari, and visit Liskow’s Tax Practice page.

Fifth Circuit Narrows Limited Partner Tax Exemption in Revised Ruling

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The US Court of Appeals for the Fifth Circuit has  quietly rewritten the rules for who counts as a “limited partner” exempt from self-employment tax, replacing a taxpayer-friendly January opinion with a more restrictive standard that will make the exemption harder to claim for partners who are actively involved in running their businesses.

The case, involving Houston consulting firm Sirius Solutions LLLP, centers on Section 1402(a)(13) of the tax code, which exempts a limited partner’s share of partnership income from the self-employment taxes that fund Social Security and Medicare. Sirius argued that any partner with limited liability under state law should qualify for the exemption, regardless of their actual involvement in the business. The IRS countered that only genuinely passive investors should qualify. The Tax Court sided with the IRS, but a Fifth Circuit panel reversed that decision in January, adopting a bright-line rule that a limited partner is simply “a partner in a limited partnership that has limited liability.” The formalistic test would have let almost any partner claim the exemption based on paperwork alone.

This week, the same panel withdrew that opinion and issued a new one reaching the same result for Sirius but on narrower grounds. Judges Kurt Engelhardt and Andrew Oldham now define a limited partner as “a partner who plays no significant role in managing or running a business,” a functional standard grounded in what the judges called the plain text of the statute. The court did not explain why it revised its earlier reasoning. Judge James Graves Jr., who dissented from both versions, said the new opinion “partially corrected course” but still failed to limit the exemption strictly to passive investors, as he believes the statute requires. The new opinion ties limited partner status to a partner’s actual role in the business, making it tougher for active partners to claim the exemption. 

The ruling does not settle the matter nationally. Similar cases are pending in two other federal circuits, and the underlying question, including a related Tax Court case involving Soroban Capital Partners, may eventually reach the Supreme Court. In the meantime, partnerships relying on limited partner status to avoid self-employment tax should review partners’ actual management roles, not just their titles, and watch how this evolving standard develops. For more information about this update, contact Liskow attorneys Leon Rittenberg III, Caroline Lafourcade, and Kevin Naccari, and visit Liskow’s Tax Practice page.

Treasury Finalizes Rollback of Corporate Transparency Act Reporting Requirements

2 minute read

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The Treasury Department permanently scaled back the beneficial ownership reporting obligations that the Corporate Transparency Act (CTA) originally imposed on tens of millions of US companies. Final regulations released by Treasury’s Financial Crimes Enforcement Network (FinCEN) on August 11, 2026, confirm that domestic companies will no longer need to disclose their owners’ names, addresses, and other identifying information to the government.

The final rule builds on interim guidance FinCEN issued in March 2025, which signaled that US companies were off the hook for reporting. The final regulations make that relief permanent. 

When the CTA’s reporting regime took effect in 2024, it was allegedly put in place to prevent bad actors from hiding behind anonymous shell companies to launder money, finance terrorism, and fund other illicit activity. The requirements drew sustained criticism from the business community and faced repeated legal challenges before Treasury began walking them back.  The burdens imposed upon the average citizen were overwhelming.

Importantly, the rollback is not a full repeal. Foreign companies registered to do business in the United States must still report beneficial ownership information for their foreign owners, though they are now excused from disclosing information about US “company applicants” who assisted with their US registration. FinCEN has also confirmed it will delete previously submitted beneficial ownership information for any US persons who are now exempt from reporting.

For businesses that previously registered or prepared to register under the CTA, this final rule offers welcome certainty: domestic entities generally have no further reporting obligations going forward. Foreign entities operating in the US, however, should confirm their continuing obligations under the narrowed rule. For more information about this update, contact Liskow attorneys Leon Rittenberg III, Caroline Lafourcade, and Kevin Naccari, and visit Liskow’s Tax Practice page.

Tax Court Rejects Reeds’ Deduction Claims Over Poor Recordkeeping and Commingled Funds

2 minute read

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On August 5, 2026, the Tax Court issued its decision in Reed v. Commissioner, T.C. Memo. 2026-64, sustaining most of the IRS’s determinations against Scott L. Reed, a real estate consultant, and Dr. Stacy N. Reed, a physician, for tax years 2012 through 2015. The opinion offers a useful reminder of how far courts will go to hold taxpayers to the consequences of sloppy bookkeeping and casually structured transactions.

The Reeds ran several ventures during the years at issue, including a real estate consulting firm, three historic rehabilitation projects in Arkansas and Alabama, a private dermatology practice, and a small business selling reclaimed wood. The IRS used a bank deposit analysis to reconstruct unreported income and disallowed roughly $500,000 in claimed deductions, leading to a notice of deficiency and penalties.

Mr. Reed had used personal funds to cover expenses for his consulting firm’s development projects and then deducted those amounts as business expenses, unreimbursed partnership expenses, or bad debts. The court rejected all three theories. Because the entities had recorded the transfers as loans, some of which were later repaid, the payments were not deductible business expenses. The court also found no partnership agreement requiring Mr. Reed to personally cover partnership costs, and no evidence the underlying loans had become worthless, since the project entities still held valuable real estate. As the court put it, taxpayers are bound by the tax consequences of the form they choose for a transaction, whether they intended those consequences or not.

The opinion also illustrates the limits of the Cohan doctrine, which sometimes allows courts to estimate deductions when records are incomplete. The Reeds tried to establish their basis in a partnership interest using a year-end Schedule K-1, but the court found the document did not reflect the timing of contributions and liabilities relative to when the units were actually sold. Because the record could not establish the Reeds’ basis at the relevant time, the court declined to estimate a number in their favor, noting that doing so would effectively substitute for the taxpayers’ burden of proof rather than fill a narrow evidentiary gap.

The taxpayers did prevail on a few issues. The court excluded a $40,000 deposit from a friend that was credibly shown to be a due diligence advance rather than income, and it allowed a $50,000 farmland rent deduction based on unrebutted testimony. The court also rejected a late, unproven attempt by the IRS to argue for an even larger capital gain. Still, the bulk of the deficiencies, along with additions to tax for late filing and accuracy-related penalties, were upheld.

Reed v. Commissioner underscores that separating personal and business finances, and documenting the terms of any related-party transfers in writing, can make the difference between a sustained deduction and a lost one. For more information about this update, contact Liskow attorneys Leon Rittenberg III, Caroline Lafourcade, and Kevin Naccari, and visit Liskow’s Tax Practice page.