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A recent Tax Court decision underscores that even a thriving, mission-driven business cannot outrun basic tax compliance. In Branch v. Commissioner, the court sustained the bulk of a multi-million-dollar deficiency and significant additions to tax against the owner of a Louisiana home care company who failed to file returns for three straight years.

Colette Branch has owned A-1 Absolute Best Care, LLC since 1998, caring for roughly 100 adults with intellectual and physical disabilities in the New Orleans area. A-1’s gross receipts exceeded $6.5 million annually, almost entirely from Medicaid. Despite this, Branch did not file individual returns for 2015–2017. The IRS prepared substitute returns and assessed deficiencies exceeding $8.3 million plus additions to tax topping $2 million. Branch petitioned the Tax Court, arguing the IRS failed to account for offsetting business expenses and itemized deductions.

Branch sought hundreds of thousands in additional Schedule C deductions for rent, utilities, contractors, and miscellaneous expenses. Citing Cohan v. Commissioner, the court reaffirmed it may estimate deductions a taxpayer cannot fully substantiate, but only where there is “some basis on which an estimate may be made.”

The court allowed full deductions for a Houston apartment Branch credibly testified was kept as a hurricane evacuation site, and estimated partial deductions (20%–80%) for utilities, contractors, and client expenses with some documentary support. But where records gave the court nothing to work with, such as two years of American Express statements mixing personal and business charges with no separation attempted, deductions were denied entirely. A six-figure depreciation deduction also failed, due to an internally inconsistent depreciation schedule.

Vehicle and travel expenses face strict substantiation under Section 274(d), requiring contemporaneous records of amount, time, place, and business purpose, a gap the Cohan rule cannot fill. Branch lost every vehicle and travel deduction claimed across all three years for lack of such records, regardless of plausibility.

Branch claimed her bookkeeper advised her to delay filing during a prior audit. The court rejected this: advice to delay filing, unlike advice that no filing was required, does not excuse nonfiling, especially since Branch admitted she knew she had a filing obligation. All failure-to-file, failure-to-pay, and estimated tax penalties were sustained. For business owners facing multi-year nonfiling exposure, Branch is a reminder that the path back into compliance is far less costly when it starts with timely returns and disciplined recordkeeping. For more information about this update, contact Liskow attorneys Leon Rittenberg III, Caroline Lafourcade, and Kevin Naccari, and visit Liskow’s Tax Practice page. 

The Investment Company Institute, the trade association representing more than $45 trillion in assets across mutual funds, ETFs, and other fund structures, has filed a comment letter with the United States Treasury Department requesting formal guidance on so-called Section 351 ETF conversions, a fast-growing tax planning strategy that allows investors to contribute appreciated securities to an exchange-traded fund without immediately recognizing capital gains. The request for guidance comes at a moment of regulatory uncertainty, as Treasury has been actively assessing the practice and has internally discussed a range of potential responses, including the possibility of curtailing the strategy or designating certain conversions as transactions of interest subject to heightened IRS scrutiny.

A Section 351 conversion allows an investor holding a concentrated stock position or a broader portfolio of appreciated securities to contribute those assets to an ETF in exchange for shares of the fund, without triggering the capital gains tax that would ordinarily apply to a sale of those securities. Once inside the ETF structure, the fund can use the exchange-traded fund industry’s well-established in-kind redemption mechanism, which allows ETFs to distribute appreciated securities to authorized participants in exchange for ETF shares without generating a taxable gain at the fund level, to gradually swap out the contributed securities for different holdings. The practical result is that an investor can rebalance a portfolio of highly appreciated assets and effectively reset its composition over time without ever paying tax on the built-in gains at the time of the initial conversion. 

Treasury’s internal deliberations reflect the tension between the strategy’s legitimate uses and its potential for abuse. The ICI has met with Treasury officials on at least two occasions to discuss the practice, and those discussions have included consideration of whether certain conversions should be designated as transactions of interest. Transaction of interest is a formal designation that signals the IRS and Treasury view a transaction as having tax-avoidance potential and that triggers enhanced disclosure and reporting requirements for participants. While that designation remains a possibility, the ICI has advocated against a broad-based curtailment of the practice, emphasizing that Section 351 conversions serve genuine non-tax purposes, including portfolio diversification, access to the operational and cost efficiencies of the ETF structure, and competitive fee arrangements that benefit investors. 

The regulatory risk associated with seeking formal guidance is one that the industry is navigating carefully. Submitting a comment letter and requesting clarity creates a formal record and invites a response that could take a less favorable form than the current ambiguity. However, the absence of clear rules has created operational uncertainty for fund managers who are offering or considering offering Section 351 conversion vehicles. Treasury has not indicated a timeline for action, and it remains possible that no formal guidance will be issued in the near term. For more information about this update, contact Liskow attorneys Leon Rittenberg III, Caroline Lafourcade, and Kevin Naccari, and visit Liskow’s Tax Practice page. 

A common theme we see today in family-owned businesses is the ownership of several lines of business either through a parent corporation with the original business and one or more subsidiaries holding other newer business lines or through a parent holding company and several subsidiaries holding the various business lines. At some point along the ownership journey, whether it be in a single multi-generational family or in a multi-family investment, certain owners may favor one or more of the business lines while other shareholders favor other business lines. A recent IRS private letter ruling provides a roadmap for separating and dividing those business lines among interested shareholders without incurring US federal income tax.

Private Letter Ruling 202622007, issued by the IRS Office of Associate Chief Counsel (Corporate) on May 29, 2026, confirms that a proposed corporate separation transaction qualifies for tax-free treatment under IRC Sections 355 and 368(a)(1)(D) (as a split-up). The ruling addressed a privately held corporation that conducted two distinct businesses through a single corporate structure: one directly and through disregarded entities, and a second through a wholly-owned limited liability company also treated as a disregarded entity. 

For valid business purposes, the company proposed to separate the two businesses into independent corporate entities, allowing certain shareholders to exit the original corporation and become owners of the newly independent company while the remaining shareholders retained their interests in the original. The proposed transaction involved converting a disregarded LLC into a corporation under state law or by federal tax election, followed by the distributing entity (“Distributing”) distributing the newly formed corporation’s stock to three of its five shareholders in exchange for some or all of their Distributing shares, leaving the remaining two shareholders holding interests only in Distributing. Following the distribution, the two businesses would be held and operated by entirely separate shareholder groups going forward.

The IRS confirmed that the entire transaction, including both the initial conversion of the LLC to corporate status and the subsequent distribution of shares to the departing shareholders, qualifies as a reorganization under Section 368(a)(1)(D) and a distribution under Section 355, with no gain or loss recognized at either the corporate or shareholder level. The IRS issued ten specific rulings covering the tax consequences of the proposed transaction. At the corporate level, neither the Distributing nor the controlled entity (“Controlled”) recognized gain or loss on the conversion, the distribution of Controlled stock, or the exchange of Distributing shares. Controlled took a carryover basis in all assets received from Distributing, and Controlled’s holding period for each asset tacked on to Distributing’s prior holding period. 

At the shareholder level, the shareholders who received Controlled stock recognized no gain or loss on the exchange, and their basis in the Controlled shares equaled the basis of the Distributing shares they surrendered, with holding periods carrying over from the surrendered shares. The ruling also confirmed that Distributing’s earnings and profits, if any, would be allocated between Distributing and Controlled in accordance with Section 312(h) and the applicable Treasury Regulations. Notably, the IRS expressly declined to rule on whether the distribution satisfied the business purpose requirement of Treasury Regulation Section 1.355-2(b), which remains a factual determination outside the scope of a PLR on structural tax consequences.

PLR 202622007 is a useful illustration of the planning flexibility available to privately held corporations seeking to separate distinct business operations among shareholders with divergent interests. Liskow attorneys Leon Rittenberg III, Caroline Lafourcade, John Rouchell, John Bradford, and Kevin Naccari can help your family business optimize the tax results of these family business separations. 

The Louisiana Department of Revenue has issued a revised version of Revenue Information Bulletin No. 25-023, originally published in August 2025, to provide additional procedural guidance on how general contractors and subcontractors must register for a Louisiana Taxpayer Access Point (LaTAP) account before they can apply for the sales and use tax exemption available for purchases made in connection with public construction projects. Act 384 of the 2025 Regular Session extended the governmental sales tax exemption under Louisiana Revised Statute 47:305.7(A) to cover purchases of materials and equipment rentals made by general contractors and their subcontractors performing work under construction contracts with the state, local governments, and their agencies and instrumentalities, effective July 1, 2025. Access to that exemption requires electronic submission of Form R-85012, Public Projects Contractor/Subcontractor Certification and Exemption Application, through LaTAP. The revised bulletin provides step-by-step guidance for contractors who do not yet have a LaTAP account:

Taxpayers must have a sales tax account in LaTAP to use the electronic application and access their exemption certificate. To register for a LaTAP account, visit www.revenue.louisiana.gov/latap and click the LaTAP link to access the homepage. From there, select “Sign Up” in the Log In box and follow the prompts to create a business account. For additional help with registering your business, setting up a LaTAP account, or adding a tax type, visit www.revenue.louisiana.gov/FAQ and select LaTAP.

 Contractors who have been performing public project work since July 1, 2025, and have not yet applied for the exemption because of uncertainty about the registration process should note that applications may be submitted retroactively for contracts executed prior to July 1, 2025, though the exemption itself does not apply to any purchases made before that date. For more information, contact Liskow attorneys Bob Angelico, Caroline Lafourcade, and Kevin Naccari, and visit Liskow’s Tax Practice page. 

Louisiana voters will have the opportunity to expand property tax relief for senior homeowners when a proposed constitutional amendment appears on the statewide ballot on November 3, 2026. The amendment, authorized by Act 274 of the 2026 legislative session, would allow individual parishes and municipalities to offer an additional property tax exemption on top of the existing homestead exemption for qualifying property owners aged 65 and older who also qualify for the special assessment level freeze. The proposed amendment would layer an age-graduated additional exemption on top of the baseline exemption. The additional exemption would apply to seniors as follows:

1. For a person aged 65 years of age but not yet 69 years of age, the next $6,000 of the assessed valuation of the property.

2. For a person 69 years of age but not yet 73 years of age, the next $12,000 of the assessed valuation of the property.

3. For a person 73 years of age but not yet 77 years of age, the next $18,000 of the assessed valuation of the property.

4. For a person 77 years of age but not yet 81 years of age, the next $24,000 of the assessed valuation of the property.

5. For a person 81 years of age and older, the next $30,000 of the assessed valuation of the property.

The exemption would take effect in any individual parish or municipality only after a majority of voters in that jurisdiction approve it at a separate local election called for that purpose, and it would apply to tax years beginning on or after January 1, 2028, if the constitutional amendment is adopted. Eligibility for the exemption would extend to the surviving spouse of a qualifying property owner, provided the surviving spouse continues to occupy and own the property, or retains a usufruct on it, and is not more than five years younger than the deceased owner. Trusts would also be eligible for the exemption as provided by law. 

The amendment expressly prohibits the exemption from shifting the tax burden onto other property owners: any taxing authority in a jurisdiction that adopts the exemption would be required to absorb the resulting decrease in property tax collections, and the amendment expressly clarifies that neither subsequent reappraisal and valuation nor millage adjustment may be used to create additional tax liability for other taxpayers as a consequence of the senior exemption. Implementation of the exemption also may not serve as a basis for triggering a reappraisal of property or an adjustment of millages.

Clients who are approaching 65 and qualify for the special assessment level freeze should be aware that the availability and amount of the exemption will ultimately depend on whether their parish or municipality elects to adopt it following voter approval of the constitutional amendment itself. For more information, contact Liskow attorneys Bob Angelico, Leon Rittenberg, III, Caroline Lafourcade, and Kevin Naccari, and visit Liskow’s Tax Practice page. 

In a unanimous decision issued May 27, 2026, the United States Court of Appeals for the Sixth Circuit reversed a $39 million judgment the government had obtained against Flight Options, LLC, an Ohio-based fractional-share jet company. The court held that the 7.5% federal excise ticket tax imposed on “transportation by air” under IRC Section 4261 applies only to flight-by-flight usage charges and does not extend to the fixed monthly management and overhead fees Flight Options charged its fractional jet owners. The decision rejects the IRS’s position that the “reasonably necessary” costs of running a fractional jet program are amounts paid “for transportation” within the meaning of the statute.

Background and the IRS’s Enforcement Position

Flight Options operated two programs: a fractional-share jet ownership program and a Jet Club Membership program. Under the fractional-share jet ownership program, clients purchased a percentage interest in a specific aircraft and paid both a fixed monthly management fee covering hangar leasing, inspections, repairs, insurance, pilot salaries, and program administration, and variable usage fees for each flight actually taken. Under the Jet Club Membership program, clients paid an upfront fee for the option to purchase flight time on company-owned aircraft. The fractional-share industry had collected the ticket tax on usage fees since 1992, when the IRS directed NetJets’ predecessor to do so through a technical advice memorandum. 

However, the IRS had never applied the tax to fixed management and overhead fees. That changed in 2004, when the IRS issued a second technical advice memorandum asserting that the tax extended to those fees as well. The IRS then began auditing the industry, assessing approximately $24 million in uncollected taxes against Flight Options for the period from January 1, 2009, through March 31, 2012, plus interest and penalties, for a total of approximately $39 million. Flight Options sued to abate the assessment. A magistrate judge, relying on IRS revenue rulings, found for the government, concluding that the fixed fees were “amounts paid for transportation by air” and that Flight Options should have known to collect the tax on them.

The Sixth Circuit’s Primary Analysis

The court’s reversal rested on a textual reading of the statute, reinforced by its context, the implementing regulations, and two taxpayer-protective canons of construction. Beginning with the statute’s own label of a “ticket tax,” the court observed that tickets are purchased for specific flights, not for the ongoing overhead of running an aviation business. The operative statutory language taxes the “amount paid for taxable transportation of any person,” which the court read as referring to the fare paid for a specific journey from one point to another. The court noted that Congress chose the term “transportation” rather than “transportation services,” a deliberate narrowing that excludes the management infrastructure that makes transportation possible.

The court’s analysis also drew from the relevant Treasury regulations. The Treasury regulations expressly exclude from the tax charges “in connection with the charter of an air conveyance” for parking, de-icing, sanitation, dockage, wharfage, and similar items services just as “reasonably necessary” for flight as anything covered by Flight Options’ fixed fees. The fact that the IRS had long recognized those charges as outside the tax directly undermined its broad “reasonably necessary” test. As the court put it, if every cost reasonably necessary for flight were taxable, the entire purchase price of a fractional jet share would qualify. 

The Notice Requirement and the Penalties Issue

The court found a second ground for reversal. Under the Supreme Court’s decision in Central Illinois Public Service Co. v. United States, 435 U.S. 21 (1978), the IRS cannot impose secondary collection liability on a third-party tax collector unless that collector had “precise and not speculative” notice of its withholding obligation. The court found that Flight Options had no such notice. The statute never specified how fixed charges could be allocated between taxable domestic transportation and nontaxable international transportation. The IRS had issued two conflicting technical advice memoranda, applying the tax only to usage fees in one and extending it to fixed fees without any allocation methodology in the other. 

Additionally, the IRS had repeatedly settled or conceded fixed-fee assessments when challenged, while acknowledging internally that “specific advice was needed” to clarify the law. No revenue ruling, binding regulation, or published judicial decision had ever held that management and membership fees fell within the tax as of the relevant period. Because the government had not provided Flight Options with the precise guidance required before enlisting it as an involuntary tax collector, the court held the government could not hold it secondarily liable after the fact. 

The Flight Options decision is the first circuit court ruling to hold that fixed management and overhead fees charged by fractional-share jet operators fall outside the Section 4261 ticket tax. It directly contradicts the Fifth Circuit’s 2016 decision affirming excise tax liability for Bombardier’s Flexjet program on similar fees, creating a circuit split on the issue. For more information about this update, contact Liskow attorneys Leon Rittenberg III, Caroline Lafourcade, and Kevin Naccari, and visit Liskow’s Tax Practice page. 

The Louisiana Department of Revenue has finalized two sets of regulations published in the May 20, 2026 edition of the Louisiana Register that affect Louisiana’s pass-through entity tax election framework and employer state income tax withholding. The adopted rules amend Louisiana Administrative Code Title 61, Part I, at Sections 1001 and 1501, respectively, and reflect regulatory changes that the Department had signaled earlier this year through both a notice of intent and a Revenue Information Bulletin. 

Pass-Through Entity Election: Streamlined Documentation Requirements

The final rules include an amendment to LAC 61:I.1001 governing the election available to S corporations and entities taxed as partnerships under Louisiana Revised Statute 47:287.732.2, which permits qualifying entities to pay Louisiana income tax at the entity level rather than passing the tax obligation through to individual owners. Under the prior regulation, each shareholder, partner, or member of an electing entity was required to submit Form R-6981, Statement of Owner’s Share of Entity Level Tax Items, together with a pro forma federal income tax return with their Louisiana individual or fiduciary income tax filing. The final rule amends that requirement so that the pro forma federal return and nonresident worksheet are no longer required to be filed with the Louisiana return. Instead, they will be required only upon specific request by the Department. Owners of electing entities must still submit Form R-6981, and all other requirements for making and maintaining the election remain unchanged. This includes the majority ownership approval requirement, electronic filing of the entity’s Form CIFT-620, and attachment of Schedule K-1s and Form R-6982 to the entity’s return. The amendment applies beginning with the 2025 taxable year and formalizes the administrative relief that the Department had previously announced in Revenue Information Bulletin 26-007.

Updated Income Tax Withholding Tables

The second adopted rule finalizes updated Louisiana income tax withholding tables under LAC 61:I.1501, which govern the amounts Louisiana employers are required to withhold from employee wages and remit to the Department. The withholding tables are updated to reflect the annual inflation adjustment to the Louisiana standard deduction as required by Louisiana Revised Statute 47:294(B), which requires that the standard deduction be adjusted for inflation each year. The revised tables are effective for withholding periods on or after January 1, 2026, and apply across all standard deduction categories and pay frequencies. Employers who have not yet updated their payroll systems to reflect the 2026 withholding tables should do so promptly to ensure that employee withholding is correctly calculated for the remainder of the calendar year.

Notice of Intent: Repeal of Obsolete Sales and Use Tax Exemptions, Exclusions, Refunds, and Holidays

Also published in the May 20, 2026 Louisiana Register is a notice of intent by the Department to repeal eight regulatory provisions concerning sales and use tax exemptions, exclusions, refunds, and holidays which were repealed from Louisiana statutory law effective December 4, 2024, or have otherwise expired. The regulations proposed for repeal are the exclusion from the definition of retail sale for pollution control devices and systems; the sales tax refund available for tangible personal property destroyed in a natural disaster; and six provisions in Chapter 44 covering exemptions for little theater tickets, tickets to musical performances of nonprofit musical organizations, admissions to entertainment furnished by certain domestic nonprofit corporations, purchases of Mardi Gras specialty items, the annual state sales tax holiday on hurricane-preparedness items held on the last Saturday and Sunday of each May, and the sales and use tax exemption for charitable construction of animal shelters. Interested parties may submit written comments to the Tax Policy and Planning Division at the Department’s Baton Rouge office, no later than 4 p.m. on June 30, 2026, and a public hearing is scheduled for July 1, 2026.

For more information, contact Liskow attorneys Bob Angelico, Caroline Lafourcade, and Kevin Naccari, and visit Liskow’s Tax Practice page.