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## US Tax Court Litigation: Recent Developments (2020–2026)

This analysis provides context for understanding current litigation trends in the US Tax Court, focusing on key regulatory shifts, recent precedents (2020–present), and the impact of the **One Big Beautiful Bill Act (OBBBA)**, P.L. 119-21, signed into law on July 4, 2025.

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### **1. Core IRS Code Sections & Current Interpretations**

#### **Section 170: Charitable Contributions (Conservation Easements)**

*   **Current Interpretation:** Section 170 of the Internal Revenue Code allows taxpayers to deduct charitable contributions, including the donation of conservation easements. Historically, the IRS has often challenged these deductions, citing "technical foot-faults" related to requirements for "extinguishment" (circumstances under which the easement is terminated) and "perpetuity" (ensuring the easement's long-term enforceability). However, the Tax Court has recently shown a trend toward a more substance-over-form approach when examining procedural regulatory compliance, while simultaneously remaining aggressive on valuation disputes.

*   **Key Shift:** A significant development is the **Valley Park Ranch, LLC v. Commissioner (162 T.C. No. 6, 2024)** case. The court addressed the "Proceeds Regulation" (Treas. Reg. § 1.170A-14(g)(6)(ii)), which dictates how proceeds from the sale of property subject to a conservation easement must be distributed if the easement is extinguished. The Tax Court held that this regulation was procedurally invalid under the Administrative Procedure Act (APA), because the Treasury Department failed to adequately respond to significant comments received during the regulation's promulgation in 1986.

#### **Section 174: Research and Experimental (R&E) Expenditures**

*   **Interpretation under OBBBA:** Section 174 of the Internal Revenue Code governs the treatment of research and experimental (R&E) expenditures. Prior to the **One Big Beautiful Bill Act (OBBBA) (P.L. 119-21)**, the Tax Cuts and Jobs Act (TCJA) mandated the amortization of these expenses over five years (domestic) or fifteen years (foreign). The OBBBA introduced **Section 174A**, which effectively restored the immediate deduction of domestic R&E expenditures for tax years beginning after December 31, 2024.

*   **Retroactivity:** The OBBBA allows small businesses (defined as those with gross receipts of $31 million or less) to apply this change retroactively to tax years after 2021. This reverses the TCJA-mandated 5-year amortization for these businesses, potentially resulting in significant tax refunds.

*   **IRS Guidance:** The IRS has issued **Notice 2026-11** to provide interim guidance on applying these new rules. This guidance preserves the definition of R&E from earlier regulations outlined in Notice 2023-63, providing clarity while awaiting further formal rulemaking.

#### **Section 168(k): Bonus Depreciation**

*   **Current Law:** Section 168(k) of the Internal Revenue Code provides for bonus depreciation, allowing businesses to immediately deduct a certain percentage of the cost of qualified property. The **OBBBA** permanently restored **100% bonus depreciation** for qualified property acquired and placed in service after January 19, 2025. This offers a significant incentive for businesses to invest in new equipment and assets.

*   **Transition Rules:** **Notice 2026-11** clarifies the transition rules for applying the restored bonus depreciation. Property acquired before January 20, 2025, but placed in service in 2025, is limited to a 40% bonus depreciation deduction unless specific transitional elections under Section 168(k)(10) are made. This election allows taxpayers to treat the property as if it were acquired after January 19, 2025, thus qualifying for the 100% bonus depreciation.

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### **2. Recent Precedents (2020–Present)**

| Case Title | Year | Issue | Ruling/Impact |
| :--- | :--- | :--- | :--- |
| **Valley Park Ranch, LLC v. Comm'r** | 2024 | Conservation Easements | Invalidated Treas. Reg. § 1.170A-14(g)(6)(ii) under the APA; a significant win for easement donors facing challenges based on proceeds regulation. |
| **Swift v. Commissioner** | 2025 | Micro-Captive Insurance | The Fifth Circuit affirmed the Tax Court's disallowance of deductions related to micro-captive insurance arrangements. The court ruled that the medical malpractice policies at issue failed to meet the "risk distribution" requirement due to the lack of unrelated risks. |
| **Jackson Crossroads LLC v. Comm'r** | 2024 | Section 170(e)(1)(A) | Section 170(e)(1)(A) reduces the deductible amount of a charitable contribution of property to the taxpayer's basis in the property if the property would have generated ordinary income if sold. The Tax Court rejected the IRS's argument that contributed property constituted "inventory" but sustained 40% gross valuation misstatement penalties. |
| **Young v. Commissioner** | 2025 | Hobby Loss (Section 183) | Section 183 limits deductions for activities not engaged in for profit. The Tax Court disallowed ranching losses claimed by the taxpayer, reinforcing the application of the nine-factor test used to determine profit motive. The court focused on the taxpayers' lack of a "business-like manner" in operating the ranch. |
| **Schwarz v. Commissioner** | 2024 | APA / Hobby Loss | The Tax Court granted reconsideration in light of *Loper Bright* to determine whether reliance on certain regulations related to Section 183 was permissible without *Chevron* deference. |

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### **3. Strategic Legal Context: The "APA Era"**

The most significant shift in 2024–2025 Tax Court litigation is the curtailment of *Chevron* deference following the Supreme Court's decision in **Loper Bright Enterprises v. Raimondo (2024)**. *Chevron* deference, stemming from *Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.*, traditionally required courts to defer to a federal agency's interpretation of an ambiguous statute if the interpretation was reasonable.

*   **Impact on Tax Court:** Without *Chevron* deference, Tax Court judges are now more willing to independently scrutinize long-standing Treasury regulations. For example, in **Schwarz v. Commissioner**, the court is re-evaluating whether the Treasury's interpretation of "profit motive" factors under Section 183 exceeds its statutory authority, potentially leading to changes in how hobby loss rules are applied.

*   **Statute of Limitations:** **Corner Post v. Board of Governors (2024)** has potentially opened the door for taxpayers to challenge decades-old Treasury regulations if they only recently "felt the injury" of an audit or deficiency notice. This decision could have broad implications for taxpayers seeking to challenge regulations previously considered settled law.

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### **4. Practical Implications & News**

*   **Pilot Programs:** The IRS recently launched a "Last Chance" Fast Track Settlement (FTS) pilot program (**Announcement 2025-6**) to resolve SB/SE (Small Business/Self-Employed) disputes before they reach the Tax Court. This program aims to provide a faster and more efficient means of resolving tax controversies.

*   **Micro-Captive "Listed Transactions":** Following **CIC Services, LLC v. IRS (2021)**, the IRS has issued new proposed regulations (**2025-01-14**) to formally designate certain micro-captive arrangements as "listed transactions." This designation requires stricter reporting requirements under Section 6707A, which imposes penalties for failing to disclose participation in listed transactions.

*   **Legislative News:** The **One Big Beautiful Bill Act (OBBBA)** has several provisions affecting tax court litigation. First, it includes a new deduction for "Qualified Overtime Pay" (Section 70432). Second, the OBBBA increased the state and local tax (SALT) deduction cap to $40,000 for those earning under $500,000, affecting how individual petitioners calculate their underlying deficiencies.

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**Sources Cited:**
- *Valley Park Ranch, LLC v. Commissioner, 162 T.C. No. 6 (2024)*
- *Jackson Crossroads LLC v. Commissioner, T.C. Memo 2024-111 (2024)*
- *Swift v. Commissioner, No. 24-60270 (5th Cir. 2025)*
- *IRS Notice 2026-11 (Interim Bonus Depreciation Guidance)*
- *IRS Notice 2024-12 (SRE Expenditures)*
- *One Big Beautiful Bill Act (P.L. 119-21, 2025)*
- *Corner Post, Inc. v. Board of Governors of the Federal Reserve System, 575 U.S. 907 (2015)*
- *Loper Bright Enterprises v. Raimondo, 594 U.S. 811 (2021)*