Internal Revenue Bulletin 2026-7

Bulletin Overview: Extensions and New Energy Penalty Rules

This week's Internal Revenue Bulletin (IRB) 2026-7 contains updates regarding retirement plan amendments, disclosure requirements for certain tax penalties, and professional conduct standards for tax practitioners. The IRB provides critical guidance for practitioners navigating recent legislative changes and ongoing IRS enforcement priorities.

The bulletin addresses three key areas. First, Notice 2026-9 extends the amendment deadline for certain retirement plans under Section 501 of the SECURE 2.0 Act of 2022. This extension applies to individual retirement arrangements and annuities (IRAs) under Section 408(a), (b), or (h), which governs traditional and Roth IRAs as well as health savings accounts (HSAs), employer-sponsored SEP arrangements under Section 408(k), concerning simplified employee pensions, and SIMPLE IRA plans under Section 408(p), pertaining to savings incentive match plans for employees.

Second, Revenue Procedure 2026-12 updates the rules for adequate disclosure on tax returns, which are essential for mitigating penalties under Section 6662(d), regarding accuracy-related penalties for understatements of income tax, and Section 6694(a), which relates to penalties for tax return preparers who take unreasonable positions. This update incorporates changes stemming from the One, Big, Beautiful Bill Act (OBBBA), Public Law 119-21, particularly concerning new energy credit penalties.

Finally, the IRB includes Announcement 2026-7, which details disciplinary actions taken by the Office of Professional Responsibility (OPR) against various tax professionals, including attorneys, certified public accountants, enrolled agents, and other preparers.

Notice 2026-9: IRS Extends SECURE 2.0 Amendment Deadline

Following Announcement 2026-7, detailing disciplinary actions taken by the Office of Professional Responsibility (OPR) against various tax professionals, including attorneys, certified public accountants, enrolled agents, and other preparers, this bulletin addresses retirement plan amendments and energy credit disclosure.

Notice 2026-9 brings welcome news to custodians of retirement accounts. The IRS is extending the deadline to amend certain retirement plans for compliance with the SECURE 2.0 Act of 2022.

1. The Rule:

The Department of the Treasury and the IRS have extended the deadline to December 31, 2027, for amending individual retirement arrangements (IRAs) under Section 408(a), (b), or (h), Simplified Employee Pension (SEP) arrangements under Section 408(k), and SIMPLE IRA plans under Section 408(p) to reflect changes made by the SECURE 2.0 Act. Section 408 outlines the requirements for individual retirement accounts, SEPs, and SIMPLE plans. Specifically, Section 408(a) describes individual retirement accounts, Section 408(b) covers individual retirement annuities, Section 408(h) addresses custodial accounts, Section 408(k) details SEP arrangements, and Section 408(p) outlines SIMPLE IRA plans.

2. The Context:

The SECURE 2.0 Act, enacted as part of the Consolidated Appropriations Act of 2023, made significant changes to retirement plan rules. Section 501 of the SECURE 2.0 Act addresses the deadlines for amending retirement plans and annuity contracts to reflect the provisions of the Act. Stakeholders have communicated to the Treasury Department and the IRS that IRA custodians and providers require additional time to amend IRAs, SEP arrangements, and SIMPLE IRA plans for compliance with the SECURE Act, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and the SECURE 2.0 Act itself. This extension is primarily due to the custodians awaiting model language from the Treasury Department and the IRS to ensure proper implementation of the complex provisions.

3. The Implication:

This extension provides tax practitioners and custodians with more breathing room to update the governing instruments of IRAs, SEPs, and SIMPLE IRA plans. It allows them to carefully consider the implications of the SECURE 2.0 Act and incorporate the necessary changes without undue pressure. It is important for practitioners to note that Section 501 provides that a plan or contract will be treated as being operated in accordance with its terms during a specified period, even if an amendment is made after the original deadline, as long as certain conditions are met. Namely, the amendment must be adopted by the extended deadline, apply retroactively to the effective date of the relevant SECURE 2.0 Act provision, and the plan or contract must be operated as if the amendment were in effect during the period beginning on the effective date of the SECURE 2.0 Act provision and ending on the amendment adoption date.

Rev. Proc. 2026-12: Disclosure Rules Updated for Energy Credits

Following the extension of the SECURE 2.0 amendment deadline, the IRS has updated disclosure rules related to accuracy-related penalties. Rev. Proc. 2026-12 updates the annual guidance on what constitutes adequate disclosure on a taxpayer’s income tax return to reduce the understatement of income tax under Section 6662(d), which concerns the substantial understatement aspect of the accuracy-related penalty. It also addresses avoiding the tax return preparer penalty under Section 6694(a), pertaining to understatements due to unreasonable positions with respect to income tax returns. This revenue procedure does not apply to other penalty provisions, including the disregard provisions of the Section 6662(b)(1) accuracy-related penalty, the Section 6662(i) increased accuracy-related penalty in the case of non-disclosed noneconomic substance transactions, and the Section 6662(b)(7) and (j) increased accuracy-related penalty in the case of undisclosed foreign financial asset understatements. If an item or position is not included in this revenue procedure, disclosure is adequate only if made on a properly completed Form 8275, Disclosure Statement, or Form 8275-R, Regulation Disclosure Statement, as appropriate, attached to the return for the year or to a qualified amended return as described in Treasury Regulation § 1.6664-2(c). The revenue procedure applies to any income tax return filed on 2025 tax forms for a taxable year beginning in 2025, and to any income tax return filed in 2026 on 2025 tax forms for short taxable years beginning in 2026.

The key update in Rev. Proc. 2026-12 is the incorporation of Section 6662(m), which was added to the Internal Revenue Code by Section 70512 of Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly known as the "One, Big, Beautiful Bill Act" (OBBBA). The OBBBA, a legislative response modifying the Inflation Reduction Act (IRA), introduced specialized penalty regimes targeting foreign influence in the energy sector, providing a special rule for determining whether a substantial understatement of income tax exists due to the disallowance of applicable energy credits. Specifically, the OBBBA, through Section 6662(m), aims to ensure domestic energy security by penalizing taxpayers who overstate the Material Assistance Cost Ratio (MACR) leading to an unwarranted claim of "Applicable Energy Credits." These credits include Section 45X (Advanced Manufacturing Production Credit), Section 45Y (Clean Electricity Production Credit), and Section 48E (Clean Electricity Investment Credit).

Under Section 6662(d)(1), a "substantial understatement" of income tax generally exists if the amount of the understatement exceeds the greater of 10% of the tax required to be shown on the return for the taxable year or $5,000. However, for taxable years beginning after July 4, 2025, Section 6662(m) dramatically changes the threshold for taxpayers subject to disallowance of applicable energy credits. In such cases, a substantial understatement of income tax for the taxable year is determined by substituting "1 percent" for "10 percent" in Sections 6662(d)(1)(A) and (B), and without regard to Section 6662(d)(1)(C), which provides a special rule for taxpayers claiming a Section 199A deduction (qualified business income).

The implication for tax practitioners is clear: taxpayers claiming energy credits now face a significantly stricter penalty threshold. The revenue procedure mandates adherence to 2025 form instructions for returns filed in 2025 and certain short-year returns filed in 2026, emphasizing the importance of accurate and verifiable information. The reduction of the substantial understatement threshold from 10% to 1% for applicable energy credits increases the likelihood of penalties for even minor errors related to these credits. Taxpayers must accurately calculate and substantiate their eligibility for these credits, particularly regarding the Material Assistance Cost Ratio (MACR) and compliance with the "Prohibited Foreign Entity" (PFE) rules introduced by the OBBBA.

OPR Disciplinary Sanctions

Following the updated disclosure rules for energy credits and the stringent accuracy requirements, the IRS also actively enforces ethical and professional conduct standards through the Office of Professional Responsibility (OPR). Announcement 2026-5 details recent disciplinary actions taken against tax professionals for violations of Treasury Department Circular No. 230, which governs practice before the IRS. Circular 230 outlines the duties and restrictions for attorneys, Certified Public Accountants (CPAs), Enrolled Agents, Enrolled Actuaries, Enrolled Retirement Plan Agents, and appraisers, as well as disciplinary sanctions for non-compliance. The announcement also extends to unenrolled, unlicensed tax return preparers who participate in the IRS’s Annual Filing Season Program (AFSP) and thus agree to abide by Circular 230's standards.

Disciplinary sanctions can include:

1. Disbarment from practice before the IRS, rendering an individual ineligible to practice before the IRS as defined at 31 C.F.R. (Circular 230) § 10.2(a)(4) for a minimum of five years, pending reinstatement.
2. Suspension from practice before the IRS, making the individual ineligible to practice before the IRS as defined at 31 C.F.R. (Circular 230) § 10.2(a)(4) during the suspension and until reinstatement.
3. Censure, which is a public reprimand that does not affect eligibility to practice, though the OPR may impose conditions on future practice.
4. Payment of a monetary penalty, applicable to individuals or their employers who knew or should have known of the sanctioned conduct.
5. Disqualification of an appraiser, barring them from presenting evidence in Treasury or IRS proceedings and rendering their appraisals without probative value.
6. Ineligibility for limited practice, which can result in the revocation of AFSP credentials for unenrolled preparers who violate Circular 230, per Revenue Procedure 2014-42.

The announcement lists several practitioners who have been sanctioned, including Bijan Kohanzad, an Enrolled Agent from Encino, California, and Bennett A. Ababio, an Enrolled Agent from Bowie, Maryland, both of whom were suspended by consent. Roy C. Hoffman, a CPA from Valley Stream, NY was also suspended by consent. "Suspended by consent" indicates that, rather than face formal disciplinary proceedings, the individual agreed to the suspension, often for an indefinite term, subject to conditions and a future opportunity to petition for reinstatement upon demonstrating compliance with the consent agreement and current fitness to practice.