Several notable tax developments have recently emerged, including the Internal Revenue Service’s (IRS) new automatic penalty relief program and a taxpayer-favorable court decision that struck down a key global intangible low-taxed income (GILTI) regulation. The US Department of the Treasury and the IRS also finalized guidance on life insurance contract transactions and issued updates affecting various energy-related tax credits and reporting obligations.
Updates from the IRS and Treasury
July 8, 2026: The IRS announced a new Automatic Exemption from Penalty (AEP) program, a systemic administrative relief program expected to begin this summer. AEP will replace the long-standing First Time Abate administrative relief process and apply to eligible original returns beginning with tax year 2025 and 2026 quarterly returns. Taxpayers generally qualify if IRS records show timely filing and payment for the prior three years or 12 consecutive quarters for quarterly filers. For qualifying taxpayers, the IRS will not assess failure-to-file, failure-to-pay, or failure-to-deposit penalties during processing.
AEP will apply to certain business and employment tax returns, including Forms 1065, 1120, 940, 941, 943, 944, 945, and CT-1. During the transition period, some qualifying taxpayers may still receive penalty notices for eligible 2025 tax year and 2026 quarterly returns. Taxpayers who believe they qualify may contact the IRS to request First Time Abate. AEP will replace First Time Abate for eligible returns with original due dates on or after January 1, 2027.
July 9, 2026: The Treasury and the IRS issued final regulations in Treasury Decision 10052, addressing the application of the transfer-for-value rules and related information reporting requirements under Internal Revenue Code (Code) §§ 101 and 6050Y to § 1035 exchanges of life insurance contracts and certain acquisitions of life insurance contracts in corporate reorganizations. The final regulations affect parties involved in these life insurance contract transactions, including with respect to reportable death benefits.
The final regulations generally retain the approach of the 2023 proposed regulations: treating a § 1035 exchange, standing alone, not as a transfer of the newly issued life insurance contract. The final regulations also reverse the broader treatment reflected in the 2019 final regulations while preserving rules intended to track contracts that previously were transferred in reportable policy sales. The Treasury and the IRS also declined to adopt certain proposed information return filing requirements for old and new issuers in § 1035 exchanges of reportable policy sale contracts, concluding that compliance goals can be addressed through the old issuer’s Form 1099-R reporting and related information exchange between issuers.
July 9, 2026: The IRS published Internal Revenue Bulletin 2026-29, which includes several items relevant to energy, fuel, chemicals, and importer taxpayers.
Notice 2026-41 publishes the 2026 inflation adjustment factors and applicable amounts for the Code § 45U zero-emission nuclear power production credit, the Code § 45V clean hydrogen production credit, and the Code § 45Z clean fuel production credit. For 2026, the notice provides, among other amounts, a § 45V inflation-adjusted applicable amount of $0.656 before applying the lifecycle greenhouse gas emissions percentage, and § 45Z amounts of 22 cents and $1.09 for transportation fuel produced and sold in calendar year 2026.
Notice 2026-42 provides the applicable reference price and credit amount for qualified natural gas production from qualified marginal wells for taxable years beginning in calendar year 2026. The notice sets the reference price at $2.20 per Mcf and the credit amount at $0.81 per Mcf. Notice 2026-43 adds two substances – chloro-isobutene-isoprene rubber and ethylene-propylene-dicyclopentadiene rubber – to the list of taxable substances for purposes of the Superfund chemical substances tax under Code § 4671, effective October 1, 2026, for tax purposes and April 1, 2023, for certain refund claim purposes.
Recent court decision
July 2, 2026: In Keysight Technologies Inc. & Subsidiaries v. United States, the US Court of Federal Claims handed taxpayers a significant post-Loper Bright win, holding that the Treasury lacked authority to issue Treas. Reg. § 1.951A-2(c)(5), the GILTI “disqualified basis” rule that denied certain amortization and depreciation deductions arising from gap-period related-party transfers. The Court rejected the government’s position that Section 7805(a)’s general “needful rules” authority, either standing alone or paired with other statutory delegations, allowed the Treasury to rewrite the statutory allocation rules to prevent what the Treasury viewed as an unintended fiscal-year taxpayer benefit.
The decision is notable because it is another concrete example of how Loper Bright is reshaping how a court evaluates the validity of a regulation: statutory ambiguity is no longer enough for the Treasury to require courts to respect its interpretation. The Court was blunt that allowing the Treasury to define statutory terms it views as ambiguous, without a specific congressional grant of authority, would be exactly the kind of agency overreach Loper Bright was meant to stop. Taxpayers with affected GILTI computations should review return positions and consider possible protective claims pending likely further litigation by the government to try and redeem the regulation.
