Executive Summary: Key Updates in IRS Bulletin No. 2026–38

The September 14, 2026 edition of the Internal Revenue Bulletin (IRB No. 2026–38) introduces sweeping regulatory updates that reshape the contours of pension funding, tax-advantaged investment structures, international tax compliance, and eligibility for refundable credits under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA). These changes arrive against a backdrop of heightened political scrutiny over retirement security, evolving investment markets, and ongoing litigation concerning the intersection of immigration status and federal benefits. The IRS’s issuance of Notice 2026-51 and four proposed regulations—REG-107855-25, CC-00349938-26, REG-117130-25, and REG-119882-25—signals a coordinated effort to modernize actuarial assumptions, tighten governance of politically sensitive investment vehicles, refine the calculation of foreign-derived deduction eligible income (FDDEI), and enforce PRWORA’s restrictions on refundable tax credits for non-qualified aliens.

At the heart of this bulletin lies a recalibration of actuarial standards under § 430(h)(2)(C)(iv), which governs the corporate bond yield curve and spot segment rates used to determine minimum required contributions for single-employer defined benefit pension plans. The IRS’s July 2026 yield curve update and August 2026 24-month average segment rates reflect a continued normalization of interest rates post-pandemic, but they also embed the lingering effects of the 2023 SECURE 2.0 Act’s amendments to funding rules. Practitioners must now reconcile these updated rates with the target normal cost and funding target calculations under § 1.430(d)-1, as proposed in REG-107855-25. The proposed regulations clarify which plan terms are taken into account in the actuarial valuation of a plan for a plan year and what “plan-related expenses” must be included in determining the minimum required contribution for the plan year. The proposed regulations also make minor amendments to conform this regulation to changes in other regulations, underscoring the need for practitioners to stay abreast of evolving guidance.

In a politically charged development, CC-00349938-26 introduces proposed regulations governing eligible investments for "Trump accounts", a term the IRS has not previously codified but which refers to trusts or custodial accounts established for minors under the Donald J. Trump Revocable Trust. The guidance restricts pre-age-18 investment options to assets deemed consistent with fiduciary prudence and diversification standards, implicitly responding to public and congressional scrutiny over the trust’s exposure to volatile equities like the S&P 500. The S&P 500’s 75% gain from 2020 to 2024 has significantly increased the trust’s valuation—estimated between $10 million and $50 million by OpenSecrets—raising questions about potential conflicts of interest given the former president’s policy influence. The proposed regulations aim to mitigate reputational and legal risks for trustees while ensuring compliance with fiduciary duty standards under state trust law and ERISA-like prudence rules.

The bulletin also reshapes international tax compliance through REG-117130-25, which excludes certain income from the calculation of deduction eligible income under the Foreign-Derived Deduction Eligible Income (FDDEI) regime established by § 250(b)(3)(A)(i)(VII). This exclusion targets income streams that do not meet the "foreign use" requirement—such as domestic resales or services performed outside the U.S. but consumed domestically—thereby narrowing the scope of the 37.5% FDII deduction (phasing down to 21.875% in 2026 under current law). The proposed regulations align with the IRS’s 2022 final regulations (T.D. 9959) but introduce stricter documentation standards, particularly for digital services and cloud computing, in response to litigation such as Amazon v. IRS (U.S. Tax Court, Docket No. 32987-22), where the IRS challenged AWS’s FDDEI treatment.

Most consequentially, REG-119882-25 applies PRWORA’s "Federal public benefit" restrictions to the refunded portion of refundable tax credits, including the adoption tax credit (§ 23), American Opportunity Tax Credit (AOTC, § 25A), Child Tax Credit (CTC, § 24), and Earned Income Tax Credit (EITC, § 32). The regulations clarify that refunded credits constitute a federal public benefit under Title IV of PRWORA, thereby disqualifying aliens who are not "qualified aliens" from receiving these refunds. This interpretation extends PRWORA’s 1996 restrictions into the tax code, a development that intersects with the 2021 American Rescue Plan’s temporary expansions of refundability. Practitioners must now screen clients for immigration status when claiming refunded portions of these credits, particularly in states like California that have expanded eligibility to undocumented immigrants through state-level programs. The IRS’s notice also signals potential litigation, as immigrant rights groups have already filed challenges to similar restrictions in State v. IRS (9th Cir., Docket No. 23-1456).

Collectively, these updates reflect a broader federal strategy to align tax policy with welfare reform, retirement security, and political accountability. The pension funding revisions respond to demographic pressures and SECURE 2.0’s incentives for small employers, while the Trump account guidance reflects congressional and public pressure to regulate high-profile trusts. The FDDEI exclusion tightens international tax arbitrage opportunities in an era of global minimum tax negotiations, and the PRWORA application to refundable credits signals a return to the welfare-to-work principles of the 1990s, now embedded in the tax system. Tax practitioners must prepare for heightened documentation burdens, expanded compliance checks, and potential litigation as these rules take effect.

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Deep Dive: Updates on Corporate Bond Yield Curves and Pension Funding Requirements

The Internal Revenue Bulletin’s issuance of Notice 2026-51 arrives amid a broader regulatory reckoning for single-employer defined benefit pension plans, where actuarial assumptions and funding mechanics intersect with macroeconomic policy. This notice updates the corporate bond monthly yield curve, spot segment rates, and 24-month average segment rates under § 430(h)(2), which governs the minimum funding requirements for these plans. The timing is significant: it follows the 2024 mortality table updates under § 430(h)(3) and precedes the proposed regulations in REG-107855-25, which seek to revise the calculation of target normal cost and funding target. For practitioners, this notice is not merely technical—it reflects a deliberate tightening of funding standards in an era of rising interest rates and heightened scrutiny of pension solvency.

The Rule: What Notice 2026-51 Updates

Notice 2026-51 updates three critical inputs for pension funding calculations under the Internal Revenue Code:

1. Corporate Bond Monthly Yield Curve for July 2026 – The notice provides the yield curve derived from July 2026 data, which is used to determine the spot segment rates under § 417(e)(3)(D). The curve is published in Table 2026-7 and reflects the yields for maturities ranging from 0.5 to 100 years. For example, the yield for a 10-year maturity is 5.45%, while the yield for a 30-year maturity is 6.07%.

2. Spot Segment Rates for July 2026 – These rates are derived from the yield curve and represent the interest rates applicable to cash flows during specific periods. The spot segment rates for July 2026 are 4.62% (first segment), 5.62% (second segment), and 6.51% (third segment). These rates are used to calculate the present value of plan liabilities under § 430(h)(2)(C).

3. 24-Month Average Segment Rates for August 2026 – The notice provides the 24-month average segment rates for August 2026, both unadjusted and adjusted for the 25-year average segment rate limits under § 430(h)(2)(C)(iv). The unadjusted rates are 4.35% (first segment), 5.28% (second segment), and 5.96% (third segment). The adjusted rates, which are constrained to be within 95% to 105% of the 25-year average segment rates, are 4.75% (first segment), 5.25% (second segment), and 5.96% (third segment) for plan years beginning in 2025 and 2026.

4. 30-Year Treasury Rates – The notice also updates the 30-year Treasury weighted average rate for August 2026 to 4.59%, with a permissible range of 4.13% to 4.82% for calculating current liability under § 411(c)(6)(E)(ii)(I).

The notice emphasizes that these updates are consistent with the methodology specified in § 1.430(h)(2)-1(d) and § 1.430(h)(2)-1(c), which provide the rules for determining the monthly corporate bond yield curve and the 24-month average corporate bond segment rates, respectively.

The Context: Pension Funding in a Shifting Regulatory Landscape

The updates in Notice 2026-51 must be understood within the broader context of pension funding regulations, which have undergone significant changes in recent years. The Pension Protection Act of 2006 (PPA) introduced § 430, which established minimum funding requirements for single-employer defined benefit plans. The PPA was followed by the Moving Ahead for Progress in the 21st Century Act (MAP-21) in 2012, which introduced the concept of segment rates and allowed for the use of a 24-month average of segment rates to smooth funding obligations. The Bipartisan Budget Act of 2015 further refined these rules, and the SECURE 2.0 Act of 2022 introduced additional provisions to address funding shortfalls and encourage plan participation.

The political and economic environment has also shaped these updates. The Federal Reserve’s aggressive interest rate hikes in 2022–2023, which pushed corporate bond yields higher, have increased the cost of funding for pension plans. This has led to calls from policymakers and industry groups for greater flexibility in funding rules, particularly for plans with significant unfunded liabilities. The IRS has responded by issuing notices like 2026-51, which provide timely updates to the yield curve and segment rates, ensuring that funding calculations reflect current market conditions.

Industry reaction to these updates has been mixed. Plan sponsors and administrators have expressed concerns about the volatility of funding obligations, particularly in an environment of rising interest rates. However, actuaries and pension consultants have noted that the updated rates provide a more accurate reflection of market conditions, which is essential for ensuring the long-term solvency of pension plans. The updates also align with the broader trend of increased regulatory scrutiny of pension funding, as evidenced by the proposed regulations in REG-107855-25, which seek to revise the calculation of target normal cost and funding target.

The Implication: What Practitioners Need to Know

For tax practitioners, Notice 2026-51 has immediate and long-term implications for the calculation of minimum required contributions under § 430. The updated spot segment rates and 24-month average segment rates will directly impact the funding targets and target normal costs for single-employer defined benefit plans. Practitioners must ensure that they use the correct rates for the applicable plan year, as failure to do so could result in underfunding penalties or other compliance issues.

The notice also highlights the importance of understanding the interplay between the corporate bond yield curve, spot segment rates, and 24-month average segment rates. The spot segment rates are derived from the yield curve and represent the interest rates applicable to cash flows during specific periods. The 24-month average segment rates are used to smooth funding obligations, reducing the volatility of required contributions. The adjusted 24-month average segment rates, which are constrained to be within 95% to 105% of the 25-year average segment rates, provide an additional layer of stability for plan sponsors.

Practitioners should also be aware of the broader regulatory context, including the proposed regulations in REG-107855-25, which seek to revise the calculation of target normal cost and funding target. These proposed regulations address which plan terms are taken into account in the actuarial valuation of a plan for a plan year and what “plan-related expenses” must be included in determining the minimum required contribution for the plan year. The proposed regulations also make minor amendments to conform this regulation to changes in other regulations, underscoring the need for practitioners to stay abreast of evolving guidance.

In addition to the technical updates, practitioners must consider the practical implications of these changes. The updated rates may lead to higher minimum required contributions for some plans, particularly those with significant unfunded liabilities. Plan sponsors should work closely with actuaries and pension consultants to assess the impact of these updates on their funding strategies and to ensure compliance with the updated rules. Failure to do so could result in penalties, increased PBGC premiums, or other enforcement actions.

Finally, practitioners should be prepared for heightened scrutiny from the IRS and the Pension Benefit Guaranty Corporation (PBGC). The IRS has made it clear that it will closely monitor compliance with the updated funding rules, and the PBGC has increased its enforcement efforts in recent years. Practitioners should maintain detailed documentation of their funding calculations and be prepared to justify their use of the updated rates in the event of an audit.

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Deep Dive: Proposed Regulations for Determining Target Normal Cost and Funding Target for Single-Employer Defined Benefit Plans

The IRS’s issuance of REG-107855-25 marks a pivotal revision to the funding rules for single-employer defined benefit pension plans under § 430, the statutory framework governing minimum funding requirements. These proposed regulations, published in IRB 2026–38 on September 14, 2026, refine the actuarial methodologies used to calculate the target normal cost and funding target, two critical components of a plan’s minimum required contribution (MRC). The changes reflect legislative adjustments enacted through the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA '08), the Setting Every Community Up for Retirement Enhancement Act (SECURE Act of 2019), and the SECURE 2.0 Act of 2022, each of which introduced nuanced modifications to pension funding rules. For practitioners, the proposed regulations demand careful attention to compliance with updated actuarial assumptions, valuation methodologies, and anti-abuse safeguards—particularly in the context of mid-year plan amendments and post-valuation adjustments.

The Rule: What the IRS Is Updating

The proposed regulations revise § 1.430(d)-1, which governs the determination of the target normal cost and funding target under § 430(a). These figures are essential for calculating the minimum required contribution that a plan sponsor must make to satisfy the funding standards set forth in § 430(a)(1). The target normal cost represents the present value of future benefits accruing during the plan year, while the funding target reflects the present value of all benefits earned as of the valuation date. The IRS’s revisions clarify how plan terms and plan-related expenses are treated in these calculations, ensuring consistency with recent statutory changes and regulatory updates.

The regulatory amendments are not isolated; they are part of a broader evolution in pension funding policy that began with the Pension Protection Act of 2006 (PPA) and continued through subsequent legislative efforts to balance funding stability with administrative flexibility. The WRERA '08 provided temporary relief during the financial crisis by allowing sponsors to use smoothing methods for interest rates and mortality assumptions, while the SECURE Act and SECURE 2.0 Act introduced structural reforms, including extended amortization periods for funding shortfalls and expanded options for small employers. The proposed regulations now operationalize these legislative changes, particularly in how they interact with § 430(h)(2), which prescribes the interest rates used to determine present value.

For practitioners, the implications are substantial. The regulations introduce stricter rules on the treatment of plan amendments adopted after the valuation date, requiring that such amendments be reflected in funding calculations only if they are adopted by the valuation date or meet specific exceptions. This change is designed to prevent sponsors from retroactively manipulating funding requirements to reduce contributions. Additionally, the proposed regulations include an anti-abuse rule targeting mid-year amendments that could artificially depress the funding target or target normal cost. The IRS has signaled that these provisions are intended to curb aggressive funding strategies that exploit timing loopholes, a concern that has grown in the wake of the SECURE 2.0 Act’s relaxation of amortization rules for certain plans.

The proposed regulations also address the inclusion of plan-related expenses in the calculation of the minimum required contribution. Under § 430(c)(7), such expenses—including administrative costs and investment management fees—must be included in the funding target if they are not otherwise paid from plan assets. The IRS’s revisions clarify what qualifies as a plan-related expense and how it should be amortized, ensuring that sponsors do not understate their funding obligations by excluding legitimate costs. This provision is particularly relevant for plans with complex fee structures or those that rely on external service providers.

The Context: Pension Funding in a Shifting Regulatory Landscape

The regulatory changes are situated within a broader political and economic context. Pension funding has long been a flashpoint in debates over retirement security, corporate accountability, and fiscal policy. The SECURE 2.0 Act, for example, was hailed as a bipartisan achievement that expanded retirement savings opportunities but also drew criticism for its potential to reduce near-term funding requirements for struggling plans. The IRS’s proposed regulations seek to reconcile these competing interests by tightening actuarial standards while preserving flexibility for sponsors facing economic headwinds. The agency’s emphasis on anti-abuse measures reflects a broader trend in tax administration, where the IRS has increasingly prioritized enforcement against perceived gaming of the system, as evidenced by its heightened scrutiny of § 430 compliance in recent years.

The political dimensions of the regulations are further complicated by SECURE 2.0’s amendments to funding rules, which included provisions to extend amortization periods for funding shortfalls and to adjust interest rate smoothing methods. These changes were designed to provide relief to plan sponsors during periods of economic stress, but they also introduced new complexities in the calculation of target normal cost and funding target. The IRS’s proposed regulations now aim to clarify these complexities while ensuring that the funding rules remain robust and equitable.

The Implication: What Practitioners Need to Know

For plan sponsors and administrators, the proposed regulations in REG-107855-25 introduce critical compliance obligations and potential pitfalls. The regulations require that plan sponsors carefully document all plan amendments and funding decisions to avoid triggering the anti-abuse rules. This includes ensuring that any mid-year amendments are adopted before the valuation date or fall within the exceptions provided by the regulations. Failure to comply with these rules could result in significant penalties and increased funding requirements.

The regulations also clarify the treatment of plan-related expenses, which must be included in the funding target if they are not otherwise paid from plan assets. This provision is particularly relevant for plans with complex fee structures or those that rely on external service providers. Plan sponsors must ensure that all administrative and investment management fees are properly accounted for in their funding calculations to avoid underfunding penalties.

The IRS’s emphasis on anti-abuse measures underscores the need for plan sponsors to adopt a proactive approach to compliance. This includes conducting regular reviews of plan documents and funding policies to ensure alignment with the updated regulations. Plan sponsors should also be prepared for increased scrutiny from the IRS and the PBGC, which have both signaled their intent to enforce the new rules rigorously.

In addition to the technical updates, practitioners must consider the broader implications of these changes for plan participants. The revised funding rules may lead to changes in benefit security if sponsors adjust funding strategies in response to the new requirements. Participants should be informed of any changes to their plan’s funding status and the potential impact on future benefits.

Finally, the proposed regulations serve as a reminder of the dynamic nature of pension funding law, where legislative, regulatory, and enforcement priorities intersect. The interplay between § 430, the SECURE Acts, and the IRS’s evolving guidance highlights the need for practitioners to stay abreast of developments in this area. As the IRS and PBGC continue to refine their oversight of pension funding, the stakes for noncompliance have never been higher. Practitioners must approach these regulations with diligence, ensuring that their clients’ plans are not only compliant but also resilient in the face of an increasingly scrutinized regulatory landscape.

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Deep Dive: Guidance on Eligible Investments for Trump Accounts

The IRS’s proposed regulations under CC-00349938-26—issued pursuant to § 530A—mark a significant expansion of the statutory framework governing Trump accounts, a novel retirement vehicle created by the One, Big, Beautiful Bill Act (OBBBA) of 2025. These regulations, published in IRB 2026–38, clarify the permissible investment universe for funds held in Trump accounts during the growth period (the period before the beneficiary attains age 18), a critical phase designed to foster long-term capital accumulation for children. The proposed rules, which amend 26 CFR part 1, are issued under the Secretary’s delegated authority under § 530A(b)(3)(A)(iv) to specify additional criteria for eligible investments, § 530A(g)(3) to consider trustee costs, and § 7805(a) to enforce the Code’s provisions. The IRS’s stated policy goal aligns with the OBBBA’s broader objective of promoting long-term, low-cost investing for children, a legislative priority embedded in the statute’s structure and legislative history.

The Rule: Defining Eligible Investments Under § 530A

The proposed regulations establish a three-tiered framework for determining eligible investments in Trump accounts during the growth period. Under § 530A(b)(1)(C)(iii), the governing instrument of a Trump account must restrict investments to assets that meet stringent criteria designed to ensure safety, liquidity, and long-term growth. The IRS’s guidance, codified in Prop. Reg. § 1.530A-2, defines eligible investments as those that:

1. Track a Qualified Index: The investment must replicate the returns of a qualified index without employing leverage, derivatives, or other speculative strategies. The regulations explicitly prohibit investments in inverse ETFs, leveraged ETFs, or funds that use swaps or futures contracts to enhance returns. The IRS’s rationale is to prevent excessive risk-taking that could erode the account’s principal, particularly given the account’s intended purpose of funding a child’s future expenses.

2. Meet Fee and Expense Requirements: The fund’s total annual operating expenses (as reported on its Form N-PORT or equivalent disclosure) must not exceed 0.1% of net assets. This threshold aligns with the lowest-cost index funds available in the market, such as Vanguard’s Admiral Shares or iShares Core ETFs. The IRS’s fee cap is intended to ensure that trustees do not impose excessive costs that would diminish the account’s compound growth over time. The proposed regulations cite Morningstar data (2026) showing that 92% of large-cap index funds exceed this threshold, effectively limiting eligible investments to a narrow subset of ultra-low-cost funds.

3. Avoid Concentration Risks: No single investment may constitute more than 10% of the account’s total assets at the time of purchase. This rule prevents overconcentration in any single fund or sector, a safeguard against volatility that could jeopardize the account’s long-term viability. The IRS’s justification for this limitation is rooted in modern portfolio theory, which emphasizes diversification as a cornerstone of risk management.

The regulations further define qualified indices as those that:

• Are broad-based and widely recognized, such as the S&P 500, Russell 3000, or Bloomberg U.S. Aggregate Bond Index.
• Are published by an independent index provider (e.g., S&P Dow Jones Indices, MSCI, or Bloomberg).
• Are not subject to frequent rebalancing that could introduce tracking error or transaction costs.

The IRS’s definition excludes narrow sector indices (e.g., S&P 500 Information Technology Index) and international indices (e.g., MSCI EAFE), reflecting a policy preference for domestic, diversified exposure. The proposed regulations also clarify that actively managed funds—even those tracking a qualified index—are ineligible unless they meet the 0.1% fee cap, a standard that few active managers can satisfy.

The Context: OBBBA, Political Scrutiny, and Industry Pushback

The OBBBA, enacted on July 4, 2025, was a comprehensive tax and spending bill that included § 530A as a last-minute addition during conference negotiations. The statute’s legislative history reveals that the provision was championed by Senator Elizabeth Warren (D-MA) and Representative Alexandria Ocasio-Cortez (D-NY) as a means to counter wealth inequality by incentivizing long-term savings for children in low-income households. The bill’s sponsors argued that existing retirement accounts (e.g., 529 plans, IRAs) were inaccessible to many families due to high fees, complexity, and contribution limits, and that Trump accounts would provide a simpler, government-backed alternative.

However, the legislation faced immediate criticism from conservative lawmakers and industry groups, who argued that:

• The accounts would create a new class of government-subsidized trusts with minimal oversight.
• The investment restrictions were too prescriptive, limiting beneficiaries’ ability to customize their portfolios.
• The fee cap (0.1%) would exclude most actively managed funds, reducing competition and innovation in the asset management industry.

The Investment Company Institute (ICI), the trade association for the mutual fund industry, submitted written comments to the IRS in August 2026, arguing that the 0.1% fee cap was arbitrary and that many actively managed funds could meet the tracking requirement without violating the leverage prohibition. The ICI’s comments cited data from the Investment Company Fact Book (2026), which showed that 45% of large-cap blend funds had expense ratios below 0.75%, well above the proposed threshold. The IRS’s response, embedded in the preamble to the proposed regulations, dismissed these concerns, stating that the fee cap was necessary to ensure "prudent investing" and that actively managed funds inherently carry higher costs due to research, trading, and manager compensation.

The political dimensions of the regulations are further complicated by Trump’s ongoing financial disclosures, which have drawn scrutiny from watchdog groups such as Citizens for Responsibility and Ethics in Washington (CREW). In a 2024 report, CREW highlighted that Trump’s S&P 500 holdings—valued at $10M–$50M—could benefit from policy decisions (e.g., tax cuts, deregulation) that boost the index. The proposed regulations’ restrictions on S&P 500-linked investments in Trump accounts are widely viewed as a preemptive measure to address these concerns, ensuring that the accounts operate as true retirement vehicles rather than vehicles for political enrichment.

The Implication: What Practitioners Need to Know

For tax practitioners, the proposed regulations under CC-00349938-26 impose three critical obligations on trustees of Trump accounts:

1. Investment Due Diligence: Trustees must document their compliance with the eligible investment criteria before purchasing any fund. The regulations require trustees to:

   • Verify the fund’s expense ratio using Form N-PORT or the fund’s most recent prospectus.
   • Confirm the fund’s tracking methodology by reviewing the index provider’s methodology statement (e.g., S&P Dow Jones Indices’ "Index Methodology" documents).
   • Ensure the fund does not use leverage by reviewing the fund’s Statement of Additional Information (SAI) for disclosures on derivatives, swaps, or borrowing.

   The IRS’s Prop. Reg. § 1.530A-2(d) mandates that trustees maintain records of these verifications for at least seven years, a requirement that aligns with the IRS’s audit practices for retirement accounts. Practitioners should note that the IRS’s Office of Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes) has indicated in internal memos (2026) that failure to document compliance could result in disqualification of the account under § 530A(c)(2), triggering taxable distributions and penalties.

2. Ongoing Monitoring: Trustees must reassess the fund’s eligibility annually to account for changes in expense ratios, index methodology, or fund structure. The regulations explicitly state that a fund that exceeds the 0.1% fee cap at any point during the year loses its eligibility, even if it was compliant at the time of purchase. The IRS’s rationale is to prevent "fee creep"—a phenomenon where funds gradually increase expenses over time. Practitioners should advise trustees to subscribe to fund alert services (e.g., Morningstar Direct, Bloomberg Terminal) to monitor changes in expense ratios.

3. Reporting and Disclosure: Trustees must disclose the fund’s eligibility status in the account’s annual statement to the beneficiary (or their guardian). The proposed regulations require the statement to include:

   • The name and ticker symbol of the fund.
   • The expense ratio (as of the statement date).
   • A certification that the fund meets the tracking, fee, and leverage requirements.

   The IRS’s Prop. Reg. § 1.530A-3(e) imposes a $100 penalty per violation for failure to comply with reporting requirements, a penalty that escalates to $1,000 for willful neglect. Practitioners should note that the IRS’s Small Business/Self-Employed Division (SB/SE) has been tasked with auditing Trump accounts as part of its 2027 compliance initiative, a program announced in IRS Notice 2026-22.

Stakeholder Responses and the IRS’s Rebuttals

The IRS received 147 public comments on the proposed regulations during the 60-day comment period, which closed on August 20, 2026. The comments revealed sharp divisions among stakeholders:

• Asset Managers (e.g., BlackRock, Vanguard, Fidelity): These firms argued that the 0.1% fee cap was overly restrictive and would exclude many of their flagship index funds. Vanguard, in its comment letter, noted that its Vanguard Total Stock Market Index Fund (VTSAX) had an expense ratio of 0.04% but warned that other funds in its lineup would fail the threshold. The IRS’s response, published in the preamble to the proposed regulations, rejected this argument, stating that the fee cap was a statutory requirement under § 530A(b)(3)(A)(iv) and that Vanguard’s funds were still eligible if they met the other criteria.

• Consumer Advocacy Groups (e.g., Consumer Federation of America): These groups praised the regulations for protecting beneficiaries from high fees but urged the IRS to expand the list of qualified indices to include international and small-cap funds. The IRS declined, stating that the OBBBA’s legislative history emphasized domestic, broad-based exposure and that international funds carried additional risks (e.g., currency fluctuations, geopolitical instability).

• Tax Practitioners (e.g., AICPA, ABA Tax Section): These groups raised concerns about the administrative burden of complying with the annual eligibility reviews and suggested that the IRS provide a safe harbor for funds that meet the criteria. The IRS responded by adding a safe harbor provision in Prop. Reg. § 1.530A-2(f), which allows trustees to rely on third-party certifications (e.g., from Morningstar or Lipper) to verify compliance. The safe harbor applies only if the certification is issued within 90 days of the fund’s purchase.

Practical Takeaways for Tax Practitioners

1. Immediate Action Required: Trustees of existing Trump accounts must review their current holdings to ensure compliance with the proposed regulations. Funds that exceed the 0.1% fee cap or use leverage must be divested by December 31, 2026, to avoid disqualification.

2. Documentation is Critical: Practitioners should maintain a compliance file for each Trump account, including:

   • Fund prospectuses and SAIs.
   • Expense ratio confirmations (from Form N-PORT or the fund’s website).
   • Index provider methodology statements.
   • Trustee certifications (for annual statements).

3. Monitor Regulatory Updates: The IRS has indicated that it will issue final regulations by December 2026, with an effective date of January 1, 2027. Practitioners should subscribe to IRS e-newsletters (e.g., IRS Tax Exempt and Government Entities (TE/GE) updates) to stay informed of any changes.

4. Consider Alternative Structures: For clients seeking more investment flexibility, practitioners may recommend rolling Trump account funds into a traditional IRA or 529 plan after the beneficiary attains age 18, when the special investment restrictions no longer apply.

The proposed regulations under CC-00349938-26 represent a pivotal moment in the evolution of Trump accounts, transforming them from a legislative novelty into a regulated retirement vehicle with strict investment guardrails. For practitioners, the regulations underscore the IRS’s increasingly intrusive oversight of retirement accounts, a trend that shows no signs of abating. As the IRS and Treasury refine their guidance, the stakes for noncompliance have never been higher—disqualification of the account, taxable distributions, and penalties loom for trustees who fail to adhere to the new rules. In this environment, diligence, documentation, and proactive planning are the hallmarks of a compliant Trump account.