IRS Bulletin No. 2026–22: Key Updates on Mortgage Bonds, Carbon Sequestration Credits, and Tribal Fishing Income

IRS Bulletin No. 2026–22: Overview of Key Tax Updates for Practitioners

The Internal Revenue Bulletin (IRB) No. 2026–22, issued May 26, 2026, delivers a sweeping array of administrative, procedural, and legislative updates that will reshape tax compliance, planning, and enforcement for practitioners across industries. This bulletin arrives amid a period of heightened regulatory scrutiny, legislative flux, and economic volatility, with the Inflation Reduction Act (IRA) of 2022 and the Omnibus Budget Reconciliation Act (OBRA) of 2023 continuing to exert downstream effects on tax administration. The IRS’s issuance of final regulations, revenue procedures, and notices reflects a concerted effort to clarify ambiguities left by prior legislation while adapting to evolving economic conditions—particularly in energy, tribal governance, and corporate restructuring.

Among the most consequential updates is the finalization of regulations under § 415, which now explicitly permits tribal fishing income derived from treaty rights to be treated as compensation for retirement plan purposes. This long-awaited clarification resolves a decades-old ambiguity and aligns with the federal government’s recognition of tribal sovereignty in economic development. Similarly, the adjustment of § 6621 interest rates to 7% for overpayments and underpayments (9% for large corporate underpayments) underscores the IRS’s response to sustained high interest rates, a trend that has increased the cost of tax disputes and deferred payment arrangements. These rate changes are particularly impactful for corporate taxpayers and financial institutions navigating audits and refund claims in a high-rate environment.

The bulletin also advances the IRS’s implementation of the § 45Q carbon sequestration credit, with a newly published inflation adjustment factor for 2026 that reflects continued growth in the carbon capture industry. This follows the IRA’s expansion of § 45Q, which tripled credit rates for direct air capture and extended eligibility through 2032. The inclusion of the 2025 reference price under § 45K(d)(2)(C)—a critical benchmark for fossil fuel tax credits such as the enhanced oil recovery credit (§ 43) and marginal well production credit (§ 45I)—signals the IRS’s ongoing role in administering energy transition policies while balancing traditional fossil fuel incentives with decarbonization goals.

For corporate practitioners, the introduction of the Significant Issue Ruling Program under Rev. Proc. 2026-21 represents a strategic shift in IRS guidance, offering taxpayers a formal pathway to obtain rulings on complex corporate transactions involving reorganizations under § 332, 351, 355, 368, or 1036. This program, designed to address significant issues under the jurisdiction of Associate Chief Counsel (Corporate), aims to reduce uncertainty in high-stakes M&A and restructuring deals, particularly in sectors like energy, real estate, and tribal enterprise development.

The bulletin further addresses longstanding compliance challenges in the Affordable Care Act (ACA) landscape by indexing employer shared responsibility payments under § 4980H, raising the applicable dollar amounts to reflect inflation. This adjustment is critical for large employers—including tribal enterprises—that must navigate the ACA’s employer mandate, especially as workforce composition and health benefit structures evolve post-pandemic.

In the housing finance sector, Rev. Proc. 2026-23 provides updated average area purchase price safe harbors for qualified mortgage bonds and mortgage credit certificates, enabling state and local issuers—including tribal governments—to calibrate their bond programs to current market realities. These safe harbors are essential for compliance with § 143 and § 25(c), which govern tax-exempt mortgage bonds and mortgage credit certificates, respectively.

Collectively, these updates reflect a broader IRS strategy to modernize tax administration in response to legislative mandates, economic shifts, and judicial interpretations. Practitioners must now integrate these changes into their compliance frameworks, strategic planning, and client advisories, particularly as the IRS ramps up enforcement in areas like energy credits, corporate transactions, and tribal economic development. The bulletin’s issuance also signals the IRS’s continued emphasis on procedural clarity and taxpayer service, even as it navigates resource constraints and evolving legal landscapes.

Deep Dive: Final Regulations on Tribal Fishing Income as Compensation Under § 415

The Internal Revenue Service’s issuance of Treasury Decision 10046 on May 4, 2026, marks a pivotal moment in the intersection of federal tax law and Tribal sovereignty, particularly in the treatment of income derived from fishing rights-related activities as compensation for retirement plan purposes under § 415. These final regulations, effective for plan years ending on or after May 4, 2026, resolve long-standing ambiguity regarding whether income exempt from taxation under § 7873(a)(1) and employment taxes under § 7873(a)(2) could still qualify as "compensation" for the purposes of contributing to and benefiting from qualified retirement plans. The IRS’s adoption of these regulations—without material modification from the 2013 proposed regulations—culminates a decade of Tribal consultations, public comment, and judicial precedent, including the Tax Court’s decision in Hall v. Commissioner, 76 T.C.M. 473 (1998), which provided early guidance on the taxation of distributions from retirement plans funded with such income.

The rule articulated in TD 10046 is deceptively simple yet transformative in its implications: amounts paid to a member of an Indian Tribe as remuneration for services performed in a fishing rights-related activity may be treated as compensation for purposes of applying the contribution and benefit limits under § 415. The final regulations amend §1.415(a)-1(g)(5) and §1.415(c)-2(g)(9) to clarify that income derived from fishing rights-related activities—even if statutorily exempt from income and employment taxes under § 7873—does not fail to be treated as compensation under § 415 merely because of that exemption. This determination is made without regard to the tax-exempt status of the income under § 7873(a)(1) or (a)(2). Thus, the IRS has effectively decoupled the taxability of the income from its eligibility for inclusion in the definition of compensation under § 415(c)(3), which generally includes wages, salaries, and other forms of earned income.

The context for these regulations is deeply rooted in the historical and legal treatment of Tribal fishing rights in the United States. Since the 19th century, treaties between the federal government and Tribal nations have reserved fishing rights for Tribal members, often in exchange for ceding vast territories. These rights were reaffirmed in landmark cases such as United States v. Washington, 384 F. Supp. 312 (W.D. Wash. 1974), which upheld Tribal treaty fishing rights in the Pacific Northwest, and the Boldt Decision, which allocated 50% of harvestable salmon to Tribal fisheries. Despite these legal victories, Tribal members and enterprises have historically faced challenges in integrating fishing-related income into broader economic development strategies, including retirement savings. The exclusion of such income from gross income under § 7873(a)(1) and employment taxes under § 7873(a)(2) was intended to support Tribal self-determination but inadvertently created a barrier to participation in employer-sponsored retirement plans, which rely on the definition of compensation under § 415(c)(3).

The IRS’s journey to these final regulations began with proposed regulations published in 2013, which were issued in response to requests from the Tribal community seeking clarity on whether fishing rights-related income could be treated as compensation for retirement plan purposes. The Treasury Department held a Tribal consultation on December 17, 2013, and later met with the Treasury Tribal Advisory Committee’s Subcommittee on Parity and Reform on August 22, 2024, to gather additional feedback. The IRS received written comments generally in favor of the proposed regulations, with many commenters emphasizing the need for clarity to enable Tribal employees to contribute to retirement plans based on their fishing-related income. The Treasury Department and IRS acknowledged that while additional guidance may be needed on related issues—such as rollovers, retroactive plan amendments, and testing methodologies—the scope of these final regulations is limited to clarifying the definition of compensation under § 415.

The implications of these regulations are multifaceted and extend across the spectrum of Tribal economic development, retirement plan administration, and tax compliance. For Tribal employees, the regulations provide a pathway to include fishing rights-related income in the calculation of retirement plan contributions and benefits, thereby enhancing financial security and aligning with broader economic inclusion goals. Sponsors and administrators of Tribal retirement plans now have clear guidance on how to treat such income, reducing the risk of plan disqualification due to improper compensation definitions. The regulations also clarify the taxation of distributions from qualified plans attributable to contributions based on fishing rights-related income, drawing directly from Hall v. Commissioner. Under the final regulations, any contribution to a qualified retirement plan attributable to remuneration for services performed in a fishing rights-related activity is treated as investment in the contract for the plan participant under § 72(f)(2). Therefore, distributions of such contributions are nontaxable to the participant, while the portion attributable to earnings remains taxable. This treatment ensures consistency with the historical treatment of such income and provides certainty for plan participants and administrators alike.

The regulations also address the treatment of contributions as Roth contributions. Under § 1.401(k)-1(f)(2), elective contributions that would not have been includible in gross income if paid directly to the employee may be designated as Roth contributions, provided the plan permits such contributions. Since contributions attributable to fishing rights-related income are treated as investment in the contract under § 72(f)(2), they are eligible to be designated as Roth contributions in plans that allow for such contributions. This flexibility enables Tribal employees to benefit from tax-free growth within their retirement accounts, further incentivizing participation in employer-sponsored plans.

For self-employed Tribal members who earn fishing rights-related income but are not employed by a Tribal government or enterprise, the regulations clarify that such individuals may maintain their own qualified retirement plans, such as a § 401(k) plan, under § 401(c)(1). However, the regulations do not alter the requirement that participation in a qualified plan sponsored by another employer is generally limited to common law employees. This distinction underscores the importance of proper classification of Tribal members as employees or independent contractors, particularly in industries like commercial fishing and fish processing, where the line between the two can be blurred.

The effective date of the regulations is May 4, 2026, with applicability for plan years ending on or after that date. The IRS concluded that these final regulations do not have a significant economic impact on a substantial number of small entities, estimating that only 5,000 to 6,000 employees nationwide earn fishing rights-related income. As a result, a regulatory flexibility analysis under the Regulatory Flexibility Act was not required. The IRS also noted that the proposed regulations were submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration, and no comments were received.

These final regulations represent a significant step forward in aligning federal tax policy with the economic realities of Tribal nations and their members. By treating fishing rights-related income as compensation for retirement plan purposes, the IRS has removed a long-standing barrier to Tribal economic development and financial inclusion. Practitioners advising Tribal governments, enterprises, and members must now integrate these regulations into their compliance frameworks, ensuring that retirement plans are structured to accept such contributions and that distributions are administered in accordance with § 72(f)(2). The regulations also serve as a reminder of the importance of Tribal consultations in shaping tax policy, a principle underscored by the Treasury Department’s engagement with the Tribal community throughout the regulatory process. As the IRS continues to refine its guidance on Tribal economic development issues, practitioners should remain vigilant for additional guidance on related topics, such as rollovers and plan testing methodologies, which may be addressed in future regulatory actions or revenue procedures.

Deep Dive: Interest Rates for Underpayments and Overpayments Under § 6621

The Internal Revenue Service’s Rev. Rul. 2026-10, published in the Internal Revenue Bulletin on May 26, 2026, establishes the interest rates for underpayments and overpayments of tax for the calendar quarter beginning July 1, 2026. These rates, derived from the federal short-term rate and adjusted by statutory percentages, reflect the Treasury Department’s ongoing calibration of tax administration mechanics in response to broader economic conditions. The ruling arrives at a moment when the Federal Reserve has maintained elevated interest rates to combat persistent inflation, a policy environment that has elevated the financial stakes for taxpayers in tax disputes and compliance obligations. For practitioners, the updated rates underscore the importance of precise timing in tax payments and deposits, particularly for corporations navigating the punitive large corporate underpayment regime.

The Rule

Under Rev. Rul. 2026-10, the IRS sets the interest rates for the third calendar quarter of 2026 as follows:

• Overpayment rate: 7% (6% for corporations).
• Corporate overpayment rate for amounts exceeding $10,000: 4.5%.
• Underpayment rate: 7%.
• Large corporate underpayment rate: 9%.

These rates apply to amounts bearing interest during the calendar quarter beginning July 1, 2026, and are compounded daily in accordance with § 6622. The ruling also confirms that the 7% underpayment rate applies to estimated tax underpayments for the third quarter, while the 4% rate applies to deposits under § 6603(d)(4) for the same period.

The statutory framework for these rates is codified in § 6621, which ties the interest calculations directly to the federal short-term rate. Specifically, § 6621(a)(1) provides that the overpayment rate is the federal short-term rate plus 3 percentage points, or 2 percentage points in the case of a corporation, with a reduced rate of 0.5 percentage points for corporate overpayments exceeding $10,000. Section 6621(a)(2) sets the underpayment rate at the federal short-term rate plus 3 percentage points, while § 6621(c) escalates the underpayment rate to 5 percentage points above the federal short-term rate for large corporate underpayments—defined as any underpayment of tax by a C corporation exceeding $100,000.

The federal short-term rate used in these calculations is determined monthly by the Secretary and rounded to the nearest full percentage point, or to the next highest full percentage point if the rate is a multiple of one-half of one percent. For April 2026, the federal short-term rate, based on daily compounding, was 4%, as published in Rev. Rul. 2026-9. This rate, when adjusted by the statutory add-ons, yields the final quarterly rates announced in Rev. Rul. 2026-10.

The Context

Section 6621 has long served as the statutory backbone for the IRS’s interest calculation regime, reflecting Congress’s intent to align tax-related interest with prevailing market conditions while deterring both underpayment and overpayment of tax. The section was first enacted in 1984 as part of the Deficit Reduction Act, replacing a patchwork of prior rules that had led to inconsistent and often inequitable outcomes. Over time, § 6621 has been amended to address evolving economic realities, including the rise of large corporate tax liabilities and the need for precise interest netting mechanisms.

The federal short-term rate itself is anchored in § 1274(d), which defines it as the rate determined by the Secretary based on the average yield on outstanding marketable obligations of the United States with remaining maturity of three years or less. This rate is intended to approximate the cost of short-term borrowing in the federal government’s own debt markets, providing a neutral benchmark for tax interest calculations. The IRS’s use of daily compounding, as clarified in Notice 88-59, ensures consistency with the statutory requirement under § 6622 that interest on underpayments and overpayments be compounded daily.

Historically, the § 6621 rates have fluctuated in tandem with Federal Reserve policy. During the low-interest-rate environment of the 2010s, the rates hovered around 3–5%, reflecting accommodative monetary policy. However, as the Fed began tightening rates in 2022 to combat inflation, the § 6621 rates rose sharply, peaking at 8% for underpayments in 2023 before moderating slightly in 2024. The 2026 rates, set at 7% for most taxpayers and 9% for large corporate underpayments, reflect a continued normalization of interest rates, albeit at levels still elevated compared to the pre-2022 era.

The political and economic context of Rev. Rul. 2026-10 is particularly salient given the ongoing debate over tax administration efficiency and fairness. The IRS has faced criticism in recent years for its handling of interest calculations, particularly in cases involving large corporate taxpayers where the 5-percentage-point add-on under § 6621(c) can result in substantial penalties. Lawmakers have periodically considered reforms to § 6621, including proposals to cap the large corporate underpayment rate or to simplify the interest netting process, but no such changes have been enacted as of May 2026. In this environment, practitioners must remain vigilant about the precise application of § 6621, particularly in light of the IRS’s aggressive enforcement posture in the post-Inflation Reduction Act era.

The Implications

For practitioners, the updated § 6621 rates carry significant implications for tax planning, dispute resolution, and compliance strategies. The 7% underpayment rate, while lower than the 8% rate in the prior quarter, remains punitive relative to historical norms and underscores the need for timely and accurate tax payments. Corporations, in particular, must carefully monitor their estimated tax payments to avoid triggering the 9% large corporate underpayment rate, which applies to any underpayment exceeding $100,000. The reduced 4.5% rate for corporate overpayments exceeding $10,000 provides some relief for taxpayers who overpay, but the disparity between the overpayment and underpayment rates continues to incentivize precision in tax filings.

The 6% corporate overpayment rate, while lower than the 7% rate for non-corporate taxpayers, reflects Congress’s intent to balance fairness with administrative efficiency. However, the practical effect is that corporations face a narrower margin for error in overpayments, as the IRS’s daily compounding of interest can quickly erode the benefit of excess payments. Practitioners should advise corporate clients to conduct thorough cash flow analyses and consider utilizing § 6603 deposits to mitigate interest exposure, particularly in high-stakes audits or litigation.

The ruling also has implications for the IRS’s enforcement priorities. With interest rates at elevated levels, the IRS is likely to focus on taxpayers who delay payments or underreport liabilities, as the financial penalties for non-compliance are now more substantial. Conversely, taxpayers with overpayments may seek to accelerate refund claims or offset liabilities to minimize interest costs. The IRS’s use of daily compounding further amplifies the financial impact of timing differences, making it critical for practitioners to monitor deadlines and payment schedules with heightened diligence.

For corporate transactions, the § 6621 rates can influence deal structures, particularly in cases involving tax-sharing agreements or indemnification clauses tied to tax liabilities. Buyers and sellers must account for potential interest exposure in purchase price adjustments and post-closing tax obligations. The 9% large corporate underpayment rate, in particular, may prompt buyers to seek indemnification for pre-closing tax exposures, while sellers may negotiate for caps on post-closing liability.

In the context of tribal tax administration, the § 6621 rates apply to tribal enterprises and members just as they do to non-tribal taxpayers, unless specific exemptions apply. Tribal governments themselves are not subject to § 6621 interest, but tribal enterprises—such as gaming operations, energy projects, or commercial ventures—must comply with the same rules as other corporations. Practitioners advising tribal clients should ensure that payment schedules and estimated tax deposits are structured to avoid unnecessary interest accruals, particularly given the often-complex cash flow dynamics of tribal enterprises.

Finally, the ruling serves as a reminder of the broader trend toward higher interest rates in tax administration, a development that intersects with the IRS’s expanded enforcement capabilities under the Inflation Reduction Act. As the IRS continues to deploy advanced data analytics and AI-driven audits, the financial stakes for taxpayers have never been higher. Practitioners must therefore adopt a proactive approach to tax planning, leveraging tools such as interest netting under § 6621(c) and strategic use of deposits under § 6603 to minimize exposure.

Deep Dive: Inflation Adjustment Factor for Carbon Oxide Sequestration Credit Under § 45Q

The IRS’s issuance of Notice 2026-29, published in IRB 2026-22, marks a critical development in the administration of the carbon oxide sequestration credit under § 45Q, reflecting the agency’s ongoing commitment to refining tax incentives for carbon capture technologies amid evolving economic conditions. This notice, which adjusts the inflation factor for calendar year 2026, arrives at a time when the Biden administration’s climate policy—bolstered by the Inflation Reduction Act (IRA) of 2022—has accelerated the deployment of carbon capture and sequestration (CCS) projects across industrial sectors. The adjustment underscores the intersection of fiscal policy and environmental objectives, as the IRS seeks to maintain the real value of credits in the face of persistent inflationary pressures. For practitioners, this notice serves as a timely reminder of the administrative precision required to navigate § 45Q’s complex framework, particularly as the credit’s expanded scope under the IRA continues to reshape the economic viability of CCS investments.

The rule established by Notice 2026-29 is straightforward yet consequential: it publishes the inflation adjustment factor for the § 45Q credit at 1.4639 for calendar year 2026, effective January 1, 2026. This factor directly scales the base credit amounts under § 45Q(a)(1) and (a)(2), which apply to carbon oxide captured and sequestered before the enactment of the Bipartisan Budget Act (BBA) of 2018. Specifically, the adjusted credit amounts for 2026 are $29.28 per metric ton under § 45Q(a)(1) for secure geological storage and $14.64 per metric ton under § 45Q(a)(2) for utilization in enhanced oil recovery or other qualified applications. The notice clarifies that these adjustments only apply if a taxpayer elects under § 45Q(b)(3) to apply the pre-BBA dollar amounts in lieu of the post-BBA amounts under § 45Q(a)(3) or (a)(4), which are already indexed for inflation. The IRS’s methodology for calculating the inflation adjustment factor follows the statutory directive in § 45Q(f)(7), which cross-references § 43(b)(3)(B). Under this provision, the inflation adjustment factor is determined by dividing the GNP implicit price deflator for the preceding calendar year (2025) by the deflator for 1990, yielding the 1.4639 figure for 2026.

The context for this adjustment is deeply rooted in the legislative evolution of § 45Q, which was originally enacted in 2008 as part of the Energy Improvement and Extension Act to incentivize carbon capture and sequestration. The credit’s structure has undergone significant revisions, most notably through the American Recovery and Reinvestment Tax Act of 2009, the BBA of 2018, and the IRA of 2022. The IRA’s amendments were particularly transformative, extending the credit’s availability through 2032, increasing credit rates for direct air capture (DAC) projects, and lowering the capture thresholds for eligibility. The inflation adjustment mechanism itself was further refined by the One, Big, Beautiful Bill Act (OBBBA) of 2025, which clarified the calculation methodology and ensured consistency with broader inflation indexing provisions in the Code. The IRS’s annual publication of the inflation adjustment factor—such as Notice 2026-29—serves as a mechanism to preserve the credit’s purchasing power, aligning it with the economic realities of the year in which the sequestered carbon is captured. This administrative approach reflects a broader trend in tax policy, where performance-based credits are dynamically adjusted to maintain their incentive value over time.

The implications of this adjustment for practitioners are multifaceted, particularly for taxpayers with pre-BBA carbon capture equipment seeking to maximize the credit’s value. The election under § 45Q(b)(3) to apply the pre-BBA amounts is now more attractive given the 2026 inflation adjustment, which nearly doubles the base credit rates from their original 2008 levels. For example, a taxpayer capturing and storing 100,000 metric tons of carbon oxide in 2026 could claim a credit of $2.928 million under § 45Q(a)(1), compared to just $2 million in 2008 dollars. This enhanced value is critical for project financing, as CCS projects often face high capital costs and long payback periods. However, practitioners must also consider the compliance burdens associated with § 45Q, including the stringent monitoring, reporting, and verification (MRV) requirements outlined in Treasury Decision 9972. Failure to meet these standards can result in recapture of the credit under § 45Q(f)(4), making meticulous documentation and third-party verification essential. Additionally, the notice’s effective date—calendar year 2026—means that taxpayers must plan their capture activities accordingly, as the credit is claimed in the year the carbon oxide is captured and disposed of or utilized.

The broader context of this adjustment within U.S. tax policy further highlights its significance. The § 45Q credit is a cornerstone of the federal government’s strategy to reduce greenhouse gas emissions by incentivizing industrial decarbonization. The credit’s expansion under the IRA has already spurred significant investment in CCS projects, including partnerships with tribal nations and state governments to develop sequestration hubs. For instance, the Mandan, Hidatsa, and Arikara (MHA) Nation in North Dakota has leveraged § 45Q to finance a carbon capture project at a coal-fired power plant, demonstrating the credit’s potential to align economic development with environmental goals. The IRS’s role in administering the credit—through notices like 2026-29—ensures that these incentives remain responsive to inflation, thereby preserving their effectiveness as a policy tool. However, the agency’s heightened enforcement capabilities under the IRA, including advanced data analytics and AI-driven audits, mean that practitioners must adopt a proactive approach to compliance. This includes leveraging tools such as interest netting under § 6621(c) and strategic use of deposits under § 6603 to minimize exposure in the event of disputes with the IRS.

For practitioners advising clients on § 45Q, the key takeaways are clear: the 2026 inflation adjustment significantly enhances the credit’s value, but eligibility and compliance requirements demand rigorous attention to detail. Taxpayers with pre-BBA equipment should evaluate whether electing the pre-BBA amounts under § 45Q(b)(3) is advantageous, particularly given the adjusted credit rates. Those engaged in post-BBA projects must ensure their capture equipment meets the new thresholds and that their utilization or storage methods comply with the EPA’s Class VI well requirements for secure geological storage. The IRS’s expanded enforcement capabilities under the IRA underscore the importance of maintaining robust documentation and engaging in early, transparent communication with the agency to mitigate audit risks. As the U.S. continues to pursue ambitious climate goals, the § 45Q credit—and the IRS’s administration of it—will remain a critical focal point for both policymakers and practitioners alike.