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## Tax Law Developments: 2020-2026

This analysis synthesizes current US Tax Court trends, legislative shifts, and IRS administrative guidance from 2020 through early 2026. Key areas of focus include conservation easements, self-employment tax, bonus depreciation, and accuracy-related penalties.

### **I. Conservation Easements & Charitable Contributions (IRC § 170)**

Section 170 of the Internal Revenue Code permits deductions for charitable contributions, including donations of conservation easements. Recent litigation continues to focus on technical compliance with the "protected in perpetuity" requirement, as well as the valuation of donated easements. The IRS has also increased its scrutiny of syndicated conservation easement (SCE) transactions, which the agency considers abusive tax shelters.

*   **Key Case: *Valley Park Ranch, LLC v. Commissioner*, 162 T.C. No. 6 (2024)**

    The Tax Court invalidated Treasury Regulation § 1.170A-14(g)(6)(ii), often called the "proceeds regulation." This regulation dictated how proceeds from the extinguishment of an easement should be distributed, requiring that the donee receive a share proportionate to the easement's value at the time of donation. The court held the regulation procedurally invalid under the Administrative Procedure Act (APA) because the Treasury Department failed to adequately respond to significant comments during the rulemaking process. This decision signals increased judicial scrutiny of older IRS regulations that may not have adhered to current APA standards.
*   **Key Case: *Green Valley Investors, LLC v. Commissioner*, T.C. Memo. 2025-15**

    The court disallowed $90 million in deductions, finding that the deeds improperly reduced the donee’s share of proceeds by the value of post-donation improvements, violating the proceeds regulation in jurisdictions where it remains valid.
*   **Legislative Impact & Regulatory Responses:**

    The **SECURE 2.0 Act of 2022** introduced IRC § 170(h)(7), which generally disallows deductions for partnership or S-corporation easement donations exceeding 2.5 times the partners’ basis. Final regulations implementing this rule were issued in 2024 as **TD 9999**. TD 9999 implements IRC § 170(h)(7), enacted by the SECURE 2.0 Act, and automatically disallows a charitable deduction for any conservation contribution made by a partnership or S-corporation if the contribution exceeds 2.5 times the sum of each partner’s relevant basis in the entity.

    Separately, the IRS issued **TD 10007** in October 2024, officially designating Syndicated Conservation Easement (SCE) transactions as "listed transactions" under Treas. Reg. § 1.6011-9. This designation requires taxpayers and material advisors involved in SCEs to file Form 8886 to report the transaction or face penalties under IRC §§ 6707 and 6707A. TD 10007 was issued to replace Notice 2017-10, which was invalidated by the Tax Court and the 11th Circuit (in *Green Rock, LLC v. IRS*, 11th Cir. 2024) for violating the Administrative Procedure Act (APA). The IRS acquiesced to *Green Rock* in **AOD 2024-01**.

    Furthermore, the **One Big Beautiful Bill Act (OBBBA) of 2025 (P.L. 119-21)**, signed into law on July 4, 2025, did not directly amend the valuation rules of Section 170(h). However, it made permanent the increased standard deduction (raised further to $15,750 for singles / $31,500 for joint filers for 2025). This change, along with new floors for itemized deductions effective in 2026, is projected to reduce the number of taxpayers who will derive a tax benefit from conservation easement donations. The OBBBA also includes Section 70437, creating IRC § 1062, which allows taxpayers to elect to pay net income tax attributable to the gain from the sale of qualified farmland to a "qualified farmer" in four equal annual installments if the land is subject to a 10-year covenant prohibiting non-farming use.

*   **Recent Case Law on Valuation:** The US Tax Court has continued to aggressively challenge overvalued easements. *Ranch Springs, LLC v. Commissioner*, 164 T.C. No. 6 (2025), involved the rejection of a multimillion-dollar deduction based on speculative granite quarrying potential, resulting in a 40% gross valuation misstatement penalty. Similarly, in *Beaverdam Creek Holdings, LLC v. Commissioner*, T.C. Memo. 2025-53, the court found that while quarrying was a potential highest and best use, the taxpayer's income projections were unrealistic, reducing the deduction from ~$22M to ~$200k. *Capitol Places II Owner LLC v. Commissioner*, 164 T.C. No. 1 (2025), denied a $23.9M deduction for a historic building easement because the property had not been certified as a "certified historic structure" by the National Park Service at the time of the donation. *Lake Jordan Holdings, LLC v. Commissioner*, T.C. Memo. 2025-123, reconfirmed the application of valuation misstatement penalties even when basic charitable requirements are met but values are "egregiously" inflated.
*   **Enforcement Climate:** In January 2026, the IRS announced a "final" settlement program for pending SCE cases, offering reduced penalties (5%) and a flat 21% tax rate at the partnership level to clear the Tax Court backlog. Promoters of these schemes continue to face criminal prosecution, with several receiving sentences exceeding 20 years for tax fraud related to SCE valuations in 2025.

### **II. Self-Employment Tax & Limited Partner Exception (IRC § 1402(a)(13))**

Section 1402 of the Internal Revenue Code defines net earnings from self-employment. A major circuit split has emerged regarding whether active "limited partners" must pay self-employment tax on their distributive shares, focusing on the exception outlined in § 1402(a)(13). This provision states that the distributive share of any item of income or loss of a limited partner, other than guaranteed payments described in section 707(c) to that partner for services, shall not be considered as net earnings from self-employment. The core issue is whether the "limited partner" exclusion from Self-Employment Contributions Act (SECA) taxes applies only to passive investors or also to limited partners who actively participate in the business.

*   **Key Case: *Sirius Solutions, L.L.L.P. v. Commissioner*, 2026 WL 125600 (5th Cir. Jan. 16, 2026)**

    The Fifth Circuit vacated a Tax Court ruling that had applied a "functional analysis" test to determine if a limited partner should be subject to self-employment tax. The IRS argued that the § 1402(a)(13) exclusion should only apply to "passive investors." The Fifth Circuit held that a "limited partner" is simply a partner in a limited partnership who has limited liability under state law, rejecting the IRS's passivity test and focusing on the plain language of the statute.

    This ruling creates a significant advantage for taxpayers in the Fifth Circuit (Texas, Louisiana, Mississippi). However, outside of the Fifth Circuit, the Tax Court may continue to apply its functional analysis approach as articulated in *Soroban Capital Partners* under the *Golsen* rule, which requires the Tax Court to follow the precedents of the circuit to which the case is appealable.

    The **Golsen Rule**, established in *Golsen v. Commissioner*, 54 T.C. 742 (1970), dictates that the Tax Court will follow the precedent of the specific U.S. Court of Appeals to which a case is appealable, even if the Tax Court itself disagrees with that precedent.

    The functional analysis test, which the Fifth Circuit rejected, is a judicial standard the Tax Court uses to determine whether a partner in a limited partnership (LP) truly qualifies for the "limited partner" exclusion from SECA taxes. Instead of relying on state law labels, the Tax Court looks at the partner’s actual activities. If a limited partner performs services, exercises managerial control, or is "limited in name only," they fail the functional test and their distributive share becomes subject to the 15.3% SECA tax. Key precedents include *Soroban Capital Partners LP v. Commissioner* (161 T.C. No. 12, 2023), *Soroban* (T.C. Memo. 2025-52), and *Denham Capital Management LP v. Commissioner* (2024).

    Due to the recent circuit split created by *Sirius Solutions*, the Tax Court must now apply different rules based on the taxpayer's location. In the 5th Circuit, the Tax Court must follow *Sirius Solutions* and allow the SECA exclusion for active limited partners. In other circuits, until another circuit rules, the Tax Court will continue to apply its own "functional analysis test" based on its own precedent.

### **III. Capital Expenditures & 100% Bonus Depreciation (IRC § 168(k))**

Section 168(k) of the Internal Revenue Code provides for bonus depreciation, allowing businesses to immediately deduct a significant portion of the cost of qualifying new property. Legislative changes in 2025 have permanently altered the depreciation landscape.

"Qualified property" under IRC § 168(k) refers to the types of assets eligible for the additional first-year depreciation deduction, commonly known as "bonus depreciation." Criteria for eligibility include: (1) it must be MACRS property with a recovery period of 20 years or less; (2) it must be computer software as defined under § 167(f)(1); (3) it must be water utility property as defined in § 168(e)(5); (4) it must be qualified improvement property (QIP), meaning improvements to the interior of nonresidential buildings; and (5) it must be acquired after September 27, 2017.

*   **Legislation: One Big Beautiful Bill Act (OBBBA) of 2025 (P.L. 119-21)**

    The OBBBA permanently reinstated **100% bonus depreciation** for qualified property acquired and placed in service after January 19, 2025. This reversed the scheduled phase-down of bonus depreciation (which had dropped to 40% for 2025) and provides significant tax savings for businesses making capital investments.
    The OBBBA also introduced "Qualified Production Property," allowing 100% expensing for certain 39-year nonresidential real property used in manufacturing or chemical production, provided construction began after Jan 19, 2025.
*   **IRS Guidance: Notice 2026-11 (Interim Guidance)**

    The IRS confirmed that the existing regulatory framework established under the Tax Cuts and Jobs Act (TCJA) remains in place but substitutes the new cutoff date of January 19, 2025, for the availability of 100% bonus depreciation. The deduction now explicitly includes "qualified sound recording productions" for projects commencing in taxable years ending after July 4, 2025, expanding the scope of eligible property.

### **IV. Administrative and Policy Shifts (2025–2026)**

*   **Group Tax Exemptions (Rev. Proc. 2026-8):** The IRS overhauled the framework for 501(c) group exemptions, superseding the 40-year-old Rev. Proc. 80-27. Central organizations must now use electronic filing (Form 8940) and face a transition deadline of **January 22, 2027**, to align their subordinate structures with new governance standards. This change aims to modernize and standardize the process for organizations seeking group exemption status.
*   **Cost-of-Living Adjustments (Notice 2025-67):** Significant increases to retirement limits for 2026:
    *   401(k)/403(b) elective deferral limit: **$24,500**.
    *   Catch-up contribution (age 50+): **$8,000**.
    *   "Super" catch-up (age 60–63 under SECURE 2.0): **$11,250**.

    The SECURE 2.0 Act of 2022 introduced a specialized "super" catch-up contribution limit under IRC § 414(v) for older participants in employer-sponsored retirement plans (401(k), 403(b), governmental 457(b)) who reach age 60, 61, 62, or 63 by the end of the calendar year. For these participants, the catch-up limit is the greater of $10,000 or 150% of the regular catch-up limit for age 50+. In 2025 and 2026, the super catch-up limit is $11,250. Starting January 1, 2026, any participant who earned more than $150,000 (initially $145,000, now indexed) in the prior calendar year must make their catch-up contributions to a Roth (after-tax) account. If the plan does not offer a Roth feature, high earners are barred from making catch-up contributions entirely. Once a participant turns 64, they revert to the standard age-50 catch-up limit ($8,000 in 2026).

### **V. Accuracy-Related Penalties (IRC § 6662)**

Section 6662 of the Internal Revenue Code imposes accuracy-related penalties on taxpayers who underpay their taxes due to negligence, disregard of rules or regulations, or substantial understatement of income tax. Courts are strictly applying the written supervisory approval requirement of **IRC § 6751(b)**, which requires that the initial determination of a penalty be personally approved (in writing) by the immediate supervisor of the individual making such determination. In *Mulu v. Commissioner* (2023) and *Green Valley Investors* (2025), the IRS successfully defended penalties by proving examiners’ immediate supervisors signed approval forms prior to the initial communication of the penalty to the taxpayer. Notably, "gross valuation misstatements" (which trigger a 40% penalty) generally do not allow for a "reasonable cause" defense, meaning that even a good-faith belief in the accuracy of a valuation will not excuse the penalty if the valuation is grossly misstated.