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A comprehensive research dossier has synthesized current legal developments, precedents, and regulatory interpretations relevant to US Tax Court cases and federal tax law for the period 2020–2026. This analysis highlights key trends and potential pitfalls in contemporary tax practice, especially concerning **Listed Transactions**, **Private Letter Rulings (PLRs)**, and **Section 355** corporate divisions. As of early 2026, the tax landscape has been significantly altered by the **One Big, Beautiful Bill Act (OBBBA)**, signed into law on July 4, 2025. This legislation made many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) permanent and introduced new adjustments.

### **I. Core Precedents and Appellate Splits (2020–2026)**

#### **1. Self-Employment Tax & Limited Partners (IRC § 1402)**

A significant circuit split has emerged regarding whether active "limited partners" are exempt from self-employment (SE) tax under Section 1402 of the Internal Revenue Code (IRC § 1402(a)(13)). Section 1402 defines net earnings from self-employment and outlines exceptions to this tax.

*   **Key Case:** *Sirius Solutions, L.L.L.P. v. Commissioner*, No. 24-60240 (5th Cir. 2026).
*   **Holding:** The Fifth Circuit rejected the IRS's "functional analysis" test, ruling that the plain meaning of "limited partner" applies to any partner in a state-law limited partnership with limited liability, regardless of their activity level.
*   **Precedent Split:** This directly conflicts with the Tax Court’s position in *Soroban Capital Partners LP v. Commissioner* (T.C. Memo 2023) and *Denham Capital Management LP v. Commissioner*, which utilized a functional test to tax active participants.
*   **Source Document:** Fifth Circuit Opinion (Jan 18, 2026); *Soroban Capital Partners LP v. Commissioner*, 161 T.C. No. 12 (2023).

The core tax issue is whether the exemption from self-employment tax for limited partners, as outlined in IRC § 1402(a)(13), should be determined based on a functional analysis of their activities or a literal interpretation of their status under state law. The Fifth Circuit's decision in *Sirius Solutions* favors the latter, creating a clear conflict with the Tax Court's stance. Taxpayers should be aware of this split and its potential impact on their self-employment tax obligations.

#### **2. Economic Substance Doctrine (IRC § 7701(o))**

Courts are refining the "relevance" threshold before applying the two-part statutory test for economic substance, as codified in Section 7701(o) of the Internal Revenue Code (IRC § 7701(o)). Section 7701(o) provides that a transaction has economic substance only if it changes the taxpayer's economic position in a meaningful way (objective test) and the taxpayer has a substantial non-tax business purpose for entering into such transaction (subjective test).

*   **Key Case:** *Patel v. Commissioner*, T.C. Memo. 2025-12 (Nov 12, 2025).
*   **Holding:** The Tax Court unanimously held that the IRS must first determine if the economic substance doctrine is "relevant" to a transaction before applying the objective/subjective tests. This creates a hurdle for the IRS in challenging tax-motivated transactions that are otherwise explicitly permitted by law.
*   **Related Litigation:** *Liberty Global Inc. v. United States* (10th Cir., pending 2026), which addresses whether the "relevance" inquiry is a mandatory preliminary step.
*   **Source Document:** Tax Court Opinion *Patel v. Commissioner*, T.C. Memo. 2025-12; IRC § 7701(o).

The core tax issue is whether the IRS can automatically apply the economic substance doctrine or if it must first demonstrate that the doctrine is relevant to the specific transaction. The *Patel* case suggests the latter, potentially limiting the IRS's ability to challenge certain tax-motivated transactions.

#### **3. Research & Development (R&D) Credits (IRC § 41)**

The Tax Court has signaled a "zero tolerance" policy for poor documentation in R&D claims relating to Section 41 of the Internal Revenue Code (IRC § 41), which provides a credit for increasing research activities.

*   **Key Case:** *Phoenix Design Group, Inc. v. Commissioner*, T.C. Memo. 2024-112.
*   **Holding:** Disallowed credits for multiple engineering projects due to lack of contemporaneous documentation and failure to prove a "process of experimentation." The court also upheld 20% accuracy-related penalties.
*   **IRS Guidance:** The IRS extended the 45-day grace period for taxpayers to "perfect" R&D refund claims through January 10, 2026.
*   **Source Document:** T.C. Memo. 2024-112; IRS News Release IR-2024-298 (Nov 25, 2024 extension).

The core tax issue here is the stringent documentation requirements for claiming the R&D tax credit. Taxpayers must maintain thorough and contemporaneous records to substantiate their claims and demonstrate a genuine "process of experimentation," or risk disallowance and penalties. The IRS provided taxpayers a 45-day grace period to "perfect" research credit claims for refunds, as announced in IRS News Release IR-2024-298 on November 25, 2024. This extension allowed taxpayers to refine and provide necessary information before the IRS made a final determination, reflecting leniency in the "perfection" phase while upholding high substantiation standards. Taxpayers have until January 10, 2026, to finalize existing claims, but new claims filed in 2026 must meet full substantiation requirements upon first filing.

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### **II. Regulatory Updates and Federal Register Entries**

#### **1. Conservation Easements (IRC § 170(h))**

New regulations have moved from litigation-heavy enforcement to strict reporting requirements surrounding conservation easements under Section 170(h) of the Internal Revenue Code (IRC § 170(h)). Section 170(h) defines the requirements for a qualified conservation contribution to be deductible. The IRS has formally identified syndicated conservation easements and "substantially similar" transactions (including fee simple transfers) as **Listed Transactions**, which are transactions the IRS deems to be tax avoidance schemes or similar to them.

*   **Final Regulations:** T.D. 10007 (89 FR 81342, effective Oct 8, 2024).
*   **Summary:** Because syndicated conservation easements are now Listed Transactions, participants must file Form 8886, Reportable Transaction Disclosure Statement, or face significant penalties.
*   **Legislative Context:** The SECURE 2.0 Act added § 170(h)(7), which automatically disallows deductions exceeding 2.5 times the sum of the partners' relevant basis.
*   **Source Document:** T.D. 10007; SECURE 2.0 Act of 2022 § 605.

The core tax issue is the IRS's intensified scrutiny of conservation easements, particularly syndicated transactions. By designating them as Listed Transactions and enacting legislative limitations on deductions, the IRS is attempting to curb perceived abuses in this area. This designation as a listed transaction requires disclosure under IRC § 6011 and Treas. Reg. § 1.6011-4(b)(2) and can trigger penalties for non-disclosure under IRC § 6707A.

#### **2. Micro-Captive Insurance (IRC § 831(b))**

The IRS has finalized regulations to close loopholes in small insurance company elections related to Section 831(b) of the Internal Revenue Code (IRC § 831(b)). Section 831(b) allows certain small insurance companies to elect to be taxed only on their investment income.

*   **Final Regulations:** T.D. 10029 (90 FR 3559, effective Jan 14, 2025).
*   **Summary:** Designates certain micro-captive arrangements as Listed Transactions and others as "Transactions of Interest." 
*   **IRS Notice:** Notice 2025-24 provided a limited penalty waiver for taxpayers who disclosed these transactions by July 31, 2025.
*   **Source Document:** T.D. 10029; IRS Notice 2025-24.

The core tax issue revolves around the IRS's crackdown on micro-captive insurance arrangements. The agency's actions aim to prevent taxpayers from improperly using these structures to avoid or evade taxes.

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### **III. Administrative and News-Related Context**

#### **1. Impact of *Loper Bright* & *Jarkesy***

The Supreme Court's 2024 decisions in *Loper Bright Enterprises v. Raimondo* and *SEC v. Jarkesy* have fundamentally shifted the landscape of tax litigation.

*   **Loper Bright Enterprises v. Raimondo (2024):** Overruled *Chevron* deference. Courts now independently interpret tax statutes rather than deferring to "reasonable" IRS interpretations. Cases like *3M Co. v. Commissioner* (8th Cir.) are currently testing the validity of long-standing transfer pricing regulations under this new standard.
*   **SEC v. Jarkesy (2024):** Taxpayers are increasingly challenging the IRS's authority to impose civil penalties (like those for FBAR or fraud) without a jury trial, citing Seventh Amendment concerns.
*   **Source Document:** *Loper Bright Enterprises v. Raimondo*, 144 S. Ct. 2244 (2024); *SEC v. Jarkesy*, 144 S. Ct. 2117 (2024).

The core issue is the diminished deference afforded to IRS interpretations of tax law and the constitutional challenges to the IRS's penalty assessment authority. These developments empower taxpayers to more aggressively challenge IRS positions in court.

#### **2. "One Big Beautiful Bill Act" (OBBBA) of 2025**

This legislation introduced significant changes to the tax code effective for 2026.

*   **IRC § 1(j):** The OBBBA made permanent the seven individual income tax rates originally established under the 2017 Tax Cuts and Jobs Act (TCJA).
*   **IRC § 179:** The OBBBA increased immediate expensing limits to $2.5 million for property placed in service after 2024, incentivizing capital investment.
*   **IRC § 6676:** The OBBBA introduced heightened penalties for erroneous Employee Retention Credit (ERC) claims made after July 2025. This section, pertaining to the erroneous claim for refund or credit, subjects taxpayers to increased scrutiny for non-compliant ERC claims.
*   **Source Document:** Public Law 119-21 (July 4, 2025); Rev. Proc. 2025-32 (Inflation Adjustments).

The core tax issue is the combined impact of these legislative changes on taxpayers, from individual income taxes to business expensing and the increased risk associated with improper ERC claims. Revenue Procedure 2025-32 provides the official inflation adjustments for over 60 tax provisions for the 2026 tax year, incorporating the statutory changes from the OBBBA. The OBBBA also made the 20% Qualified Business Income (QBI) deduction under Section 199A permanent. Furthermore, under Section 6651, the minimum late-filing penalty has increased to $535, making timely extension filings (Form 4868) essential even if no tax is owed.

#### **3. Corporate Private Letter Rulings (PLRs)**

The IRS has significantly expanded access to Private Letter Rulings (PLRs) for corporate reorganizations. A Private Letter Ruling (PLR) is a written statement issued to a taxpayer that interprets and applies tax laws to the taxpayer's specific set of facts. While PLRs provide certainty for the taxpayer requesting the ruling, under IRC § 6110(k)(3), a PLR may **not** be used or cited as precedent by other taxpayers or IRS personnel. It is binding only on the IRS with respect to the specific taxpayer who requested it. Despite this limitation, tax practitioners often use PLRs as "unofficial" guidance to glean insights into the IRS's current stance on specific issues and the representations the agency requires for a favorable outcome.

*   **Rev. Proc. 2025-30:** Reopened the door for rulings on Section 355 transactions (spinoffs) regarding "device" and business purpose requirements, which were previously "no-rule" areas. Section 355 governs the tax-free distribution of stock and securities of a controlled corporation to its shareholders.
*   **Specific PLR Example:** PLR 202441010 (July 5, 2024) granted a full no-gain-or-loss ruling under Section 368(a)(1)(A). Section 368(a)(1)(A) defines a type A reorganization, a statutory merger or consolidation.
*   **Source Document:** Rev. Proc. 2025-30; PLR 202441010.

The core tax issue is the IRS's willingness to provide guidance on complex corporate reorganizations through PLRs, reducing uncertainty for taxpayers undertaking these transactions. For nearly two decades, the IRS considered the "device" and "business purpose" requirements to be **"no-rule" areas**, as confirmed in Rev. Proc. 2003-48, because these were inherently factual issues. However, Rev. Proc. 2024-3 significantly expanded the scope of issues the IRS will rule on, effectively ending many "no-rule" designations for corporate reorganizations to "facilitate sound tax administration."

### **Summary Table for Researchers**

| Topic | Primary Source Document | Key Code Section | Status/Trend |
| :--- | :--- | :--- | :--- |
| **Active Limited Partners** | *Sirius Solutions* (5th Cir. 2026) | § 1402(a)(13) | **Split:** Functional vs. Plain Text |
| **Conservation Easements** | T.D. 10007 (2024) | § 170(h)(7) | **Listed Transaction** status |
| **Economic Substance** | *Patel v. Comm.* (T.C. 2025) | § 7701(o) | Requires **"Relevance"** threshold |
| **R&D Credits** | *Phoenix Design* (T.C. 2024) | § 41 | Strict **Documentation** required |
| **Whistleblower Awards** | *Whistleblower 11099-13W* (T.C. 2026)| § 7623(b) | Defines **"Collected Proceeds"** |

This research dossier summarizes the regulatory framework, recent legal developments, and procedural shifts regarding **Listed Transactions**, **Private Letter Rulings (PLRs)**, and **Section 355** corporate divisions.

---

### 1. Listed Transactions: Definition and Legal Landscape
A **Listed Transaction** is a specific type of "reportable transaction" that the IRS has identified as a tax avoidance scheme or one that is "substantially similar" to such a scheme.

*   **Definition & Authority:** Under **Treas. Reg. § 1.6011-4(b)(2)**, these transactions are identified by notice, regulation, or other published guidance. Taxpayers must disclose participation via **Form 8886**, Reportable Transaction Disclosure Statement, and material advisors must file **Form 8918**, Reportable Transaction Registration Statement.
*   **Significance:** Participation triggers heightened scrutiny and severe penalties for non-disclosure under **IRC § 6707A**. Section 6707A imposes penalties on taxpayers who fail to disclose their participation in listed transactions.
*   **Recent Precedents (APA Challenges):**
    *   **Mann Construction, Inc. v. United States (6th Cir. 2022):** The court held that the IRS violated the **Administrative Procedure Act (APA)** by identifying listed transactions through sub-regulatory notices (e.g., Notice 2007-83) rather than through formal notice-and-comment rulemaking.
    *   **Green Rock LLC v. IRS (11th Cir. 2024):** Affirmed that Notice 2017-10 (syndicated conservation easements) was invalid because it did not adhere to APA procedures.
    *   **IRS Response (AOD 2024-01):** In early 2025, the IRS issued an **Action on Decision** acquiescing to these rulings. The agency has shifted to using **Proposed Regulations** to identify new listed transactions (e.g., micro-captive insurance, monetized installment sales) to ensure APA compliance.

The IRS's shift to using Proposed Regulations stems from challenges under the Administrative Procedure Act (APA). Cases like *Mann Construction, Inc. v. United States* (6th Cir. 2022) and *Green Rock LLC v. IRS* (11th Cir. 2024) found that the IRS violated the APA when identifying listed transactions through sub-regulatory notices without formal notice-and-comment rulemaking.

---

### 2. Private Letter Rulings (PLRs): Precedent and Limitations
A **PLR** is a written statement issued to a specific taxpayer that interprets and applies tax laws to that taxpayer's specific facts.

*   **Significance:** They provide certainty for complex, high-stakes transactions (e.g., spin-offs) where a mistake could lead to dual-level taxation (corporate and shareholder).
*   **Limitations as Precedent:** Under **IRC § 6110(k)(3)**, a PLR may **not** be used or cited as precedent by other taxpayers or IRS personnel. It is binding only on the IRS with respect to the specific taxpayer who requested it.
*   **Practical Use:** Despite the lack of formal precedential value, practitioners use PLRs as "unofficial" guidance to understand current IRS thinking and the types of representations the agency requires for a favorable outcome.

---

### 3. Section 355: 'Device' and 'Business Purpose' Requirements
To qualify for tax-free treatment under **Section 355**, a corporate division must satisfy several stringent tests, including the "Device" and "Business Purpose" requirements.

#### A. The 'Device' Restriction (Section 355(a)(1)(B))
*   **Purpose:** To prevent the "bailout" of earnings and profits (E&P) at capital gains rates rather than as ordinary dividends.
*   **Interpretation:** The IRS looks at "all facts and circumstances," particularly post-distribution stock sales. A planned sale of stock shortly after the division is considered strong evidence of a "device."

#### B. The 'Business Purpose' Requirement (Treas. Reg. § 1.355-2(b))
*   **Purpose:** The transaction must be motivated by a "real and substantial non-federal tax purpose" germane to the business of the corporation.
*   **Common Examples:** "Fit and focus" (separating businesses that conflict), raising capital, or resolving shareholder disputes.

#### C. Historical 'No-Rule' Areas
For nearly two decades, the IRS considered the "device" and "business purpose" requirements to be **"no-rule" areas** (confirmed in **Rev. Proc. 2003-48**).
*   **Reasoning:** The IRS viewed these as **inherently factual** issues. Determining "subjective intent" (e.g., whether a business purpose is the *primary* motivator) was deemed too resource-intensive for the national office to rule on prospectively. Taxpayers were instead required to provide "representations" of compliance, with the actual determination left for audit.

---

### 4. Recent Procedural Shifts (2024–2025)
The IRS has recently overhauled its ruling policy for Section 355 transactions to provide more "front-end" certainty while imposing stricter data requirements.

*   **Rev. Proc. 2024-3:** This procedure significantly expanded the scope of issues the IRS will rule on, effectively ending many "no-rule" designations for corporate reorganizations to "facilitate sound tax administration."
*   **Rev. Proc. 2024-24 & Notice 2024-38 (May 2024):** These provided a new framework for Section 355 ruling requests:
    *   **Stricter Scrutiny on Retentions:** The IRS now frames any retention of stock by the parent corporation as creating a **rebuttable presumption** of a tax avoidance plan.
    *   **Retention Business Purpose:** Taxpayers must establish that the business purpose for retaining stock is not "speculative" or contingent on future events.
    *   **News Context:** In late 2025, the IRS **withdrew** certain proposed technical regulations related to Section 355 (REG-112261-24) following critical public feedback, indicating that this area remains in high flux as the agency balances enforcement against administrative feasibility.

The IRS's stance on Section 355 rulings is constantly evolving. Rev. Proc. 2024-24 and Notice 2024-38 introduced stricter scrutiny on stock retentions, while the IRS later withdrew certain proposed technical regulations (REG-112261-24) after public feedback, signaling ongoing adjustments to its approach.

### Summary Table for Analyst Use

| Topic | Primary Authority | Recent Precedent / Guidance | Key Implication |
| :--- | :--- | :--- | :--- |
| **Listed Transaction** | IRC § 6011; Reg § 1.6011-4 | *Green Rock LLC v. IRS* (2024) | Listing must now follow formal APA notice-and-comment. |
| **Section 355 Device** | IRC § 355(a)(1)(B) | Rev. Proc. 2024-3 | IRS will once again rule on device issues after a long hiatus. |
| **Section 355 Business Purpose** | Reg § 1.355-2(b) | Rev. Proc. 2024-24 | Focus on whether the purpose is "non-speculative" and "germane." |
| **PLR Precedent** | IRC § 6110(k)(3) | Annual Rev. Proc. 1 | Bind the IRS for one taxpayer only; no third-party reliance. |