Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for May 18, 2026 – May 26, 2026.
May 19, 2026: A Treasury Inspector General for Tax Administration (TIGTA) report warned that the IRS’s efforts to transition to a “zero-paper” processing system faces significant obstacles related to funding, staffing shortages, and contractor readiness. The report noted that the IRS relied heavily on contractors for paper-processing modernization efforts, spending approximately $9 million between May 2025 and December 2025, but the contractors were not fully prepared to handle filing-season return volumes, requiring the IRS to shift additional processing work back in-house.
TIGTA further highlighted that the IRS workforce remains substantially reduced (approximately 17% smaller than in 2021) while previously authorized modernization funding under the Inflation Reduction Act of 2022 has been significantly reduced via subsequent legislative rescissions. According to TIGTA, these resource constraints could undermine the IRS’s ability to achieve its paperless processing and modernization objectives.
May 19, 2026: The US Department of the Treasury and the IRS finalized regulations (T.D. 10048) modifying the reporting requirements for certain sales or exchanges of partnership interests involving inventory items or unrealized receivables under Internal Revenue Code § 751. The regulations removed a prior rule that effectively required partnerships to provide transferor partners with information by January 31 of the following year and instead permit partnerships to furnish the information within 30 days after receiving notice of the transfer, if later than January 31.
The final regulations adopt proposed regulations issued in 2025 without substantive change and are intended to address concerns that partnerships often lack sufficient information to comply with the earlier deadline. The IRS also updated the instructions to Form 8308 to clarify the revised reporting requirements for transfers of partnership interests.
May 19, 2026: The US House of Representatives passed bipartisan legislation (H.R. 6506) expanding taxpayer protections in refund and collection disputes with the IRS by suspending the statute of limitations for refund claims during certain levy disputes and broadening the US Tax Court’s jurisdiction in those cases. The bill responds to the Supreme Court of the Unites States’ 2025 decision in Commissioner v. Zuch, which held that the Tax Court lost jurisdiction after the IRS applied a taxpayer’s refund to an outstanding liability.
Supporters of the legislation argue that the measure prevents the IRS from effectively mooting Tax Court challenges by offsetting refunds against disputed liabilities while litigation is pending. The bill, which has bipartisan support and backing from several taxpayer advocacy and practitioner groups, is intended to preserve taxpayers’ ability to obtain meaningful judicial review of disputed assessments and collections.
May 21, 2026: The IRS issued Notice 2026-32 concerning certain carrying broker-dealers (i.e., a broker-dealer that carries customer accounts and receives or holds funds or securities for those customers). Such broker-dealers may satisfy the Individual Retirement Account nonbank trustee “adequacy of net worth” requirement under Treas. Reg. § 1.408-2(e)(5)(ii) by demonstrating compliance with the US Securities and Exchange Commission’s (SEC) Net Capital Rule and Customer Protection Rule instead of separately proving satisfaction of the IRS’s net worth standards. The guidance reflects the IRS’s conclusion that the SEC regulatory framework provides substantially similar protections regarding solvency and safeguarding customer assets.
The notice also outlines procedures for existing and prospective nonbank trustees that rely on this alternative compliance method and requests public comments on implementation issues, including documentation requirements and circumstances under which a broker-dealer would no longer qualify for the alternative approach.
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
May 18, 2026: In United States v. Gainey, a federal district court denied the taxpayers’ motion for partial judgment on the pleadings, holding that the government plausibly alleged fraudulent transfer claims related to unpaid federal income tax liabilities exceeding $1.8 million. The case involved a transfer of the couple’s residence to the wife shortly after the IRS filed federal tax liens against the husband, with the government seeking to set aside the transfer and foreclose the liens.
The court rejected the taxpayers’ argument that the husband never held an ownership interest in the property, concluding that the complaint plausibly alleged he acquired enforceable property rights under state law by signing the mortgage as a co-borrower. The court further found that the timing of the transfer, the insider nature of the transaction, and allegations regarding the husband’s continued possession and control of the property supported a plausible inference of intent to hinder creditors sufficient to survive dismissal
May 19, 2026: In Menge v. Commissioner, the Tax Court sustained the IRS’s proposed levy action for tax years 2015 – 2018, holding that the IRS Office of Appeals (IRS Appeals) did not abuse its discretion in rejecting collection alternatives after the taxpayer failed to provide requested financial information, including Form 433-A. The Court also held that the taxpayer failed to properly raise challenges to the underlying liabilities during the collection due process (CDP) hearing, instead continuing to assert previously rejected arguments regarding an alleged 2013 overpayment credit.
The Court concluded that IRS Appeals properly verified compliance with all applicable legal and administrative requirements and appropriately balanced the need for efficient tax collection against the taxpayer’s concerns regarding intrusiveness. Because the taxpayer failed to submit supporting documentation or participate meaningfully in the CDP proceedings, the Court upheld the Notice of Determination sustaining the proposed levy action.
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