If you give artwork to charity, the deduction you can claim depends on several factors, including the type of organization receiving the piece and how it will be used. Special substantiation and appraisal rules may apply as well.

Relation to charitable function

Your deduction for a donation of art will generally be reduced if the charity’s use of the work is unrelated to the purpose or function that’s the basis for its qualification as a tax-exempt organization. The reduction equals the amount of capital gain you would have realized had you sold the artwork instead of giving it to charity.

For example, let’s say you bought a painting a decade or so ago for $6,000 and now it’s worth $10,000. You contribute it to a dog and cat rescue organization to auction off at its annual fundraiser. Your deduction is limited to $6,000 because the organization’s use of the painting is unrelated to its charitable function and you would have had a $4,000 long-term capital gain had you sold it.

But what if you donate the painting to an art museum for its collection? In this case, your deduction could potentially be the full $10,000.

Other limitations

Your current-year deduction generally will be limited to 20%, 30% or 50% of your adjusted gross income (AGI). The percentage varies depending on the type of organization and whether the deduction had to be reduced because of the unrelated-use rule explained above. The amount not deductible because of a ceiling may be deductible in a later year under carryover rules.

Beginning in 2026, another limitation applies to charitable contribution deductions. Under the new rule, individuals generally may deduct charitable contributions only to the extent their total donations for the year exceed 0.5% of AGI. The rule can reduce the tax benefit of charitable gifts for taxpayers at all income levels, though the dollar impact will be larger for higher-income taxpayers.

Documentation and appraisals

There are substantiation rules when you donate a work of art. First, if you claim a deduction of less than $250, you must get and keep a receipt from the charity or, if impractical to get a receipt, keep a reliable written record for each item you contributed.

If you claim a deduction of at least $250, but not more than $500, you must get and keep an acknowledgment of your contribution from the charity. The acknowledgment must state whether the organization gave you any goods or services in return for your contribution and include a description and good-faith estimate of the value.

If you claim a deduction of more than $500, but not over $5,000, in addition to getting an acknowledgment, you must maintain written records that include information about how and when you obtained the artwork and its cost basis. You must also complete IRS Form 8283, “Noncash Charitable Contributions,” and attach it to your tax return.

If the claimed value of the artwork exceeds $5,000, in addition to an acknowledgment and completing Form 8283, you must have an appraisal of the piece. This appraisal must be done by a qualified appraiser no more than 60 days before the contribution date and meet other requirements. You then include this information on Form 8283.

If your total deduction is $20,000 or more, you must also attach a copy of the signed appraisal. The IRS may request that you provide a photograph. If an item has been appraised at $50,000 or more, you can ask the IRS to issue a “Statement of Value,” which can be used to substantiate the value.

Avoid the unexpected

If you’re considering donating artwork or other valuable property, contact us before making the gift. We can help you calculate your deduction, document the donation properly and avoid unexpected tax issues.

© 2026

     

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Many modern businesses rely on intangible assets, such as goodwill, trademarks and customer lists. But the IRS doesn’t treat all intangibles the same way. Questions about how these assets are taxed often arise when a business is sold, ownership changes hands, or intellectual property is licensed or transferred.

Generally, intangibles qualify as capital assets that generate capital gains or losses when sold. This treatment is beneficial because federal long-term capital gains tax rates (typically 15% or 20%) are lower than ordinary income tax rates (which can be as high as 37%). However, certain “self-created” intangibles don’t qualify for this favorable treatment. Here’s an overview of this issue.

Close-up on self-created intangibles

Under current federal income tax rules, “self-created” means created by the personal efforts of the taxpayer. Specifically, an intangible asset is considered to be created, in whole or in part, by the personal efforts of the taxpayer if:

• The taxpayer’s efforts affirmatively contributed to the creation of the asset, or
• The taxpayer directed and guided others in performing the work that created the asset.

That’s easy to understand when the taxpayer is a human. It can also extend to corporations, partnerships and limited liability companies (LLCs) that receive contributions of intangible assets from the individuals who created them.

Whether a self-created intangible is treated as a capital or noncapital asset depends on the specific type of intangible.

Self-created noncapital intangibles

When you sell a self-created intangible that’s treated as a noncapital asset for federal income tax purposes, the transaction produces ordinary income or loss rather than capital gain or loss. This unfavorable treatment may apply if, through your personal efforts, you create and personally hold the following types of intangibles:

• Patents,
• Inventions, models or designs (patented or not),
• Proprietary formulas or processes,
• Copyrights, and
• Literary, musical or artistic compositions.

This treatment also applies to letters, memorandums or similar property prepared or produced for you, even though you didn’t actually “create” them.

Substituted basis principle

What happens when the self-created noncapital intangibles listed above are contributed to another taxable entity? The same unfavorable treatment applies if the new owner’s tax basis in the noncapital intangible is determined, in whole or in part, by reference to the basis of the person who created it (or who had letters or memorandums prepared or produced). This is referred to as “substituted basis.”

For instance, when an affected self-created intangible asset is contributed by the creator to a partnership in a tax-free transaction, the partnership takes over the creator’s tax basis in the asset under the substituted basis principle. In this situation, the asset is treated as a noncapital asset owned by the partnership. The same treatment applies to tax-free contributions of noncapital intangibles to LLCs that are treated as partnerships and corporations. Subsequent sales of affected assets will result in ordinary income or losses rather than capital gains or losses.

Self-created capital intangibles

The following types of self-created intangibles are treated as favorably taxed capital assets:

• Goodwill or going concern value,
• Workforce in place,
• Business books and records,
• Business operating systems,
• Customer-based intangibles, such as client or customer lists and lists of prospective clients or customers, and
• Supplier-based intangibles, such as favorable supplier contracts.

Sales of these assets will result in capital gains or losses, not ordinary income or loss. Often, these intangibles are sold with other business assets, so it’s important to properly allocate the total purchase price among the assets acquired — including both capital and noncapital intangibles — based on their fair market values. These allocations should be well supported and documented because buyers and sellers may have differing tax objectives. The IRS may also scrutinize allocations involving intangible assets.

Non-self-created intangibles

How an intangible asset is developed and held affects whether it’s considered a self-created intangible and the tax treatment when it’s sold. IRS Revenue Ruling 55-706 addressed a situation involving a corporate taxpayer that held intangible assets created by several of its employees. According to the guidance, the C corporation’s intangibles were not considered to have been created by the taxpayer’s personal efforts.

Therefore, the intangibles were capital assets owned by the business. The rules regarding varying tax treatment based on the specific type of intangible that apply to self-created intangibles didn’t come into play. Presumably, the result would be the same for intangibles created and owned by a partnership, an LLC treated as a partnership for tax purposes or an S corporation.

Tread carefully

The tax rules for self-created intangible assets are complicated. You can’t do much to avoid the unfavorable federal income tax treatment of self-created noncapital intangibles. But many self-created intangibles are treated as favorably taxed capital assets. If you’re planning to sell or transfer intangible assets, we can help you understand how the rules apply to your situation and identify the potential tax implications before a deal is finalized. Contact us to learn more.

© 2026

     

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Whether you’re relocating for work, retirement, family or lifestyle reasons, state taxes can have a significant financial impact. Taxes vary widely from state to state. And establishing residency for tax purposes may be more complicated than you expect. Before moving, be sure you understand how changing states could affect your overall tax situation.

A variety of taxes to consider

It may seem like a tax-smart idea to simply move to a state with no personal income tax. But to make an informed decision, you must consider all taxes that can potentially apply to a state resident. In addition to income taxes, these may include property taxes, sales taxes and estate taxes.

If the state you’re considering has an income tax, look at the types of income it taxes. For example, some states offer tax breaks for pension payments, retirement plan distributions and Social Security payments.

Some states with low or no income tax have higher-than-average property tax rates or sales tax rates that could offset income tax savings. Even if you’re moving from one no-income-tax state to another, it’s important to look at how your potential property and sales tax expenses in each state compare.

When it comes to estate taxes, the federal estate tax doesn’t apply to many people these days. For 2026, the federal gift and estate tax exemption is $15 million per individual, or $30 million for a married couple (with proper planning). But some states that have an estate tax provide a much lower exemption. And some states have an inheritance tax in addition to (or in lieu of) an estate tax.

Effectively establishing domicile

If you make a permanent move to a new state and want to ensure you’re not taxed in the state you came from, be careful to establish legal domicile in the new location and terminate it in your old one. The definition of legal domicile varies from state to state. In general, domicile is your fixed and permanent home and the place where you plan to return, even after periods of residing elsewhere.

The more time that passes after you change states and the more steps you take to establish domicile in the new state, the harder it will be for your old state to claim that you’re still domiciled there for tax purposes. Five ways to help establish domicile in a new state are to:

1. Change your mailing address at the post office,
2. Change your address on insurance policies, will or living trust documents, and other important documents,
3. Buy or lease a home in the new state and sell your home in the old state (or rent it out at the market rate to an unrelated party),
4. Open and use bank accounts in the new state and close accounts in the old one, and
5. Register to vote, get a driver’s license and register your vehicle in the new state.

If you’re required to file an income tax return in the new state, file a resident return. And file a nonresident return or no return (whichever is appropriate) in the old state. We can help you make these decisions and file these returns.

Plan before you relocate

Moving to another state can affect your taxes in ways that aren’t always obvious. Before you relocate, contact us to review the potential income, property, sales and estate tax implications. We can help you minimize potential negative tax consequences and make the most of any tax advantages offered by the new state.

© 2026

     

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If you’re self-employed, you probably have questions about deducting business expenses on your federal income tax return. Here’s a quick overview of the filing requirements for sole proprietors and independent contractors, and five examples of expense deductions that are commonly overlooked or misunderstood.

Filing basics

Sole proprietors and independent contractors must report their business activity on Schedule C, “Profit or Loss From Business,” of their personal tax returns (Form 1040). Business income includes money earned from customers, side gigs, online sales and other self-employment activities. Income may be reported on Forms 1099-NEC or 1099-K, but you must report all taxable business income, even if you don’t receive a tax form.

Although employees can no longer deduct unreimbursed business expenses, self-employed individuals can offset their business income with various deductions for business-related expenses. This is a major tax advantage for the self-employed.

When evaluating whether costs are deductible, follow this golden rule: Business expenses must be ordinary (common in your industry) and necessary (helpful and appropriate for the business). Of course, you’ll need to keep detailed records to support your business deductions. Obvious examples of potentially deductible expenses are supplies, materials, and, if you have employees, payroll and benefits. Other business-related expenses may also be deductible on Schedule C, though the rules are sometimes confusing. Below are five common examples.

1. Home office

Unlike employees who work remotely, you can deduct the costs for a workspace in your home that’s used regularly and exclusively as your principal place of business. This can include a portion of actual indirect home expenses — such as rent or mortgage interest, insurance, utilities and repairs — based on your business-use percentage. For instance, if you use 10% of your apartment’s square footage for business, you can deduct 10% of your rent.

You can also fully deduct direct expenses (for example, the cost of painting your office) and, if you own your home, claim a depreciation allowance under IRS tables. In lieu of tracking your actual expenses, the IRS also offers a simplified method of $5 per square foot for up to 300 square feet.

2. Education

The costs of refresher courses, continuing education classes, vocational training and other education programs may be deductible if you’re required to take them to maintain or improve skills required for your current trade or business. Qualifying expenses include tuition, books, supplies and fees, and potentially travel costs to attend education programs.

However, costs of education that’s needed to meet the minimum requirements for a trade or business or that qualifies you for a new trade or business generally aren’t deductible. For example, you can’t claim the cost to obtain an undergraduate degree as a business expense.

3. Business meals

You generally can deduct 50% of the costs of business meals if they aren’t “lavish or extravagant.” This applies to food and beverages provided to customers, clients, suppliers, employees, agents, partners or professional advisors — whether established or prospective.

Although entertainment costs aren’t deductible under current law, food and beverages might be deductible even if they’re provided at a nondeductible entertainment activity. But such a deduction is available only if:

• The food and beverage items are separately purchased or identified from the entertainment costs on bills, invoices or receipts, and
• The amount charged for food or beverages reflects the venue’s usual selling price for those items if purchased separately from the entertainment or approximates the reasonable value of those items.

Say, for example, that you take a customer to a World Cup match this summer. The ticket costs aren’t deductible. But if you buy the customer popcorn, nachos and drinks while there, you can deduct half of those costs as long as you have proper documentation, such as the itemized receipt, and records showing who attended and the business purpose.

4. Business travel

If you travel to a temporary location for business purposes, you can deduct your travel expenses, including round-trip airfare, hotel costs and other incidentals (such as tips and cab fares). However, the primary purpose of your trip must be business related. For instance, you might travel to a different city or country to attend a trade show or educational conference.

Beware: Some allocations may be required if a trip combines business and pleasure — for example, if you fly to a location for four days of business meetings and stay for an additional three days of vacation. Only the reasonable cost of lodging and 50% of meals incurred during the business days are deductible. Lodging and meal costs incurred for the personal vacation days aren’t deductible.

On the other hand, with respect to the cost of the travel itself (for example, plane fare), if the trip is primarily for business purposes, the travel cost can be deducted in its entirety, and no allocation is required. Conversely, if the trip is primarily personal, none of the travel costs are deductible.

If your spouse joins you, his or her travel expenses generally aren’t deductible, unless your spouse is your employee and has a bona fide business reason to be there. But the restrictions apply only to additional costs incurred by having your nonemployee spouse travel with you. For example, the expense of a hotel room or for traveling by car would likely still be fully deductible because the cost to rent the room or travel by car alone vs. with another person would be the same, even in a rented car.

5. Business vehicle expenses

If you drive your personal vehicle for business purposes, you may be eligible to deduct some auto-related expenses on Schedule C. The amount of your deduction is based on the percentage of business use.

For example, suppose you use your car 60% for business driving in 2026. That means you can deduct 60% of your vehicle costs — such as gas, repairs and insurance — plus a generous depreciation allowance, subject to certain limits for “luxury cars.” And, if you buy the vehicle in 2026, you may also qualify for a Section 179 deduction and 100% bonus depreciation, subject to applicable eligibility requirements and limitations.

Be aware that the IRS is a stickler for documentation. Briefly stated, you must keep a contemporaneous log listing every business trip and proof of your expenses. Alternatively, you can cut down on recordkeeping by using the standard mileage rate of 72.5 cents per business mile (plus business-related tolls and parking fees) in 2026.

Don’t leave tax savings on the table

Many self-employed taxpayers miss legitimate deductions because they fail to keep adequate records or misunderstand the rules. Tracking expenses throughout the year can make tax filing easier, help ensure you don’t miss legitimate deductions and strengthen your position if the IRS questions a deduction.

We can help you identify qualifying business expense deductions and establish recordkeeping practices that support them. Contact us to start discussing a tax strategy tailored to your small business.

© 2026

     

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Large stock market gains in recent years, coupled with some significant volatility in 2026, have left many investors with portfolios that are out of balance with their desired asset allocation. If you haven’t rebalanced recently, it may be time to do so. But you also must consider the tax implications. Careful planning can minimize the tax cost of rebalancing.

What does rebalancing mean?

When you built your investment portfolio, you took several factors into account, such as your performance goals, risk tolerance and age, to arrive at an allocation across asset classes (such as money market funds, stocks and bonds) and subcategories (such as small-cap vs. mid-cap vs. large-cap U.S stocks and U.S. Treasury vs. municipal bonds). When one asset class (or subcategory) outperforms, it will become a larger portion of your portfolio than your original asset allocation. This situation can potentially increase your risk and cause your portfolio to no longer align with your goals.

To keep your asset allocation in alignment, monitor your portfolio regularly and rebalance it as needed. Rebalancing involves selling some investments in classes that have become overweighted, usually appreciated stocks and mutual fund shares. You then reinvest the proceeds in other asset classes to help achieve your desired allocation. But the gain you recognize from selling appreciated investments will be currently taxable — unless the investments are held in tax-advantaged retirement accounts, such as 401(k)s and IRAs.

Taxable brokerage accounts

When you file your tax return, your recognized capital gains for the year are netted against your recognized capital losses. If your gains in your taxable accounts exceed your losses, you have a net capital gain.

If a net capital gain is from investments held for more than a year, it will be taxed at the federal long-term gains rate. Most individuals will pay 15%, but, depending on your income, the rate could be 0% or 20%. Also depending on your income, you may owe the 3.8% net investment income tax (NIIT) on all or part of your net long-term gain. Depending on your state, you might owe state income tax, too.

If you have a net capital gain from investments held for one year or less, it will be taxed at the short-term gains rate. This is your ordinary federal income tax rate, which may be as high as 37%. You may also owe the NIIT on all or part of your net short-term gain. And, again, you might owe state income tax.

If losses in your taxable accounts for the year exceed your gains, you have a net capital loss. You can deduct the loss against up to $3,000 of ordinary income ($1,500 if you’re married and file separately). Any remaining net capital loss is carried over to next year.

Tax-advantaged retirement accounts

If you sell assets held in a tax-advantaged retirement account, the resulting gains and losses affect your account balance. But they have no tax impact until you start taking withdrawals.

If it’s a non-Roth account, the taxable portion of withdrawals (generally any amount attributable to appreciation or to contributions that were pretax or deductible) will be taxed at your ordinary federal income tax rate. Depending on your state, you may also owe state income tax.

If it’s a Roth account, qualified withdrawals will generally be income-tax-free for federal purposes. This includes withdrawals attributable to appreciation.

Tax-smart strategies

If you have both taxable and tax-advantaged accounts, consider them together when rebalancing your portfolio. For example, let’s say your overall portfolio across brokerage and retirement accounts has become overweighted in large-cap U.S. stocks. You can save taxes for the current year if you sell some of this appreciated stock from a retirement account because the gain won’t be taxed.

Sometimes selling appreciated assets in a taxable brokerage account will be necessary to achieve rebalancing goals. In this case, look to see if there are also assets in that account (or another taxable account) that you can sell at a loss. The recognized loss can offset some or all of your capital gains on the appreciated assets you sell. Remember that selling assets at a loss in your tax-advantaged retirement account won’t provide a current-year tax loss.

If you need to sell appreciated assets in a brokerage account and you won’t be able to recognize enough losses to offset your gains, try to sell assets you’ve held more than one year. That way, the gain will be taxed at your lower long-term gains rate.

Rebalancing involves not only selling assets in classes that have become overweighted but also using the proceeds to buy assets in classes that have become underweighted. As you invest in new assets, consider which assets make more sense to hold in taxable vs. tax-advantaged accounts.

It generally makes sense to hold the investments you think will generate the highest long-term returns in a Roth account, because you can eventually take the resulting income and gains out free of federal income taxes. And if you do a lot of short-term trading that would generate high-taxed short-term gains in a taxable brokerage firm account, it makes sense to do the trading in a tax-advantaged retirement account.

Look beyond current tax consequences

Despite the significant impact taxes can have, don’t make investment decisions — including those related to rebalancing your portfolio — based primarily on current-year tax consequences. You should also consider investment goals, time horizon, risk tolerance, investment-specific factors, fees and the long-term tax consequences. If you have questions or would like more information about investment portfolio rebalancing, contact us.

© 2026

     

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One of the greatest risks to your estate plan is the chance of incurring substantial long-term care (LTC) costs. These costs, for services such as nursing home stays or home health aides, can quickly erode the savings you want to pass on to your family after your death. One solution is to purchase an LTC insurance policy.

Understanding the terms

An LTC policy’s terms dictate the amount of benefits you’ll receive each day or month, up to a defined lifetime maximum or number of years. These limits depend on the type of care provided, such as in-home care or a nursing facility.

LTC policyholders are typically subject to a waiting period of 30 to 180 days before being eligible for benefits (90 days is generally the norm). Important: The shorter the waiting period, the more expensive the policy. Similarly, you can expect to pay more for a policy with higher maximum benefits.

LTC policies generally provide benefits when you can’t perform multiple basic activities of daily living — including bathing, dressing, eating, transferring and managing incontinence — or if you experience cognitive impairment. Generally, once benefits start, premium payments stop. But if you stop paying on the policy first, you usually forfeit any future benefits. Be aware that coverage may be affected by several factors. For example, you may not qualify for coverage because of a pre-existing condition.

What to consider before buying insurance

Factors to consider before purchasing an LTC insurance policy include your:

Financial situation. Do you have the funds to pay for long-term care assistance without jeopardizing your overall financial situation? Take an objective look at your entire financial picture.

Estate planning objectives. An LTC policy may make sense if preserving wealth to pass on to your family is a primary estate planning objective.

Age and health. As you grow older, LTC insurance premiums may rise. Additionally, if you have a pre-existing condition, you may pay higher rates or even be denied coverage. Applying early may increase the likelihood that you won’t be denied coverage and that you’ll pay lower rates. But you’ll probably be paying premiums for more years.

There might be ways to obtain coverage without buying a policy privately. For instance, you may be able to participate in a group policy offered by your employer or another affiliation. This can be especially helpful if health conditions would otherwise cause insurers to charge you high premiums or deny you coverage.

Planning for your (and your family’s) future

An LTC insurance policy offers financial protection and peace of mind. With the escalating costs of extended care, this coverage can also allow you to leave more to your family. As with any major financial decision, carefully compare policy options, costs and benefits to find the best fit for your needs and goals. We can help you evaluate what’s appropriate for your situation.

© 2026

     

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Some small business owners overlook Roth IRAs because they assume their income is too high for them to qualify to make Roth contributions. Others may think their current tax rate is higher than it will be in retirement, making current tax deductions more valuable than future tax-free distributions. However, if you don’t at least consider contributing to a Roth IRA, you may be missing a potentially valuable tax-saving opportunity.

Rules and restrictions

Roth IRA contributions aren’t deductible, but they’re beneficial because you reap tax savings on the back end. (More on that later.) For 2026, the annual contribution limit is $7,500 (up from $7,000 for 2025). If you’ll be 50 or older by the end of the tax year, you can make an additional $1,100 catch-up contribution. The same limits apply to traditional IRAs, and your Roth IRA limit is reduced by any traditional IRA contributions you make for the year.

But your ability to make Roth IRA contributions is phased out if your modified adjusted gross income (MAGI) exceeds certain levels. For 2026, the phaseout ranges are:

• $153,000 to $168,000 for single individuals and heads of households, and
• $242,000 to $252,000 for married couples filing jointly.

If your MAGI falls within the range, your contribution limit is reduced. If it equals or exceeds the top of the range, your ability to contribute is eliminated.

Married individuals who file separately and live apart for the full year are treated as single individuals for the income limitations. However, separate filers who live together at any time during the year are subject to a phaseout range of $0 to $10,000.

Is your income too high to qualify?

At first glance, these figures may cause you to assume you’re ineligible for Roth contributions. But take another look.

When calculating MAGI for Roth IRA eligibility purposes, self-employed individuals may be able to significantly reduce their taxable income through deductions for:

• Certain business expenses, such as rent, home office expenses and computer costs,
• Contributions to a tax-deferred retirement plan, such as a solo 401(k), SEP IRA or SIMPLE,
• Health insurance premiums, and
• Self-employment tax.

These deductions, along with others, are subtracted when calculating MAGI. Therefore, a self-employed person can have relatively high gross income from his or her business while having a much lower MAGI.

The choice between contributing to a Roth IRA or a tax-deferred account isn’t an all-or-nothing proposition. Depending on your situation, you may decide to contribute to both types of accounts, subject to applicable limits. Contributing to a tax-deferred retirement plan provides immediate tax savings. And, because these contributions lower your MAGI, they may put your taxable income below the phaseout limits for Roth IRA contributions.

Additional benefits

The main upside of contributing to a Roth IRA is that qualified withdrawals won’t be taxed. This can be advantageous if you expect to be in a higher tax bracket in retirement or if tax rates increase. Moreover, withdrawals from Roth accounts aren’t counted when calculating the taxable portion of your Social Security benefits.

Another Roth IRA advantage is that you don’t have to take withdrawals at any age, meaning the account can continue to grow tax-free. With a traditional IRA (and other tax-deferred retirement accounts), at age 73, you generally must begin to take required minimum distributions or face a penalty equal to 25% of the amount you should have withdrawn but didn’t. In addition, if your Roth IRA is passed on to your heirs, it can continue to grow tax-free, and their withdrawals generally will be tax-free. However, most nonspouse beneficiaries will be required to deplete the account within 10 years of inheriting it.

Bottom line

A Roth IRA offers many potential benefits, and self-employed individuals may be more likely to qualify to make Roth IRA contributions than other taxpayers with similar gross incomes. But they aren’t right for every situation. We can help evaluate your eligibility and develop a long-term retirement strategy that aligns with your personal and financial goals. Contact us to learn more.

© 2026

     

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Friends, let’s talk about the tax equivalent of a suspenseful season finale. You know that moment when everyone’s arguing about whether the timeline actually started when they think it started? That’s basically the entire SAFE-versus-QSBS debate. And unlike your favorite streaming drama, this cliffhanger comes with a price tag that can run into the millions.

If you’re a founder, an angel investor, or anyone who’s ever signed a “Simple Agreement for Future Equity” (SAFE arrangement), you need to understand exactly when your Section 1202 tax-free clock actually begins ticking. Get it wrong, and you could be planning your tax-free exit party a year or two — or three — too early.

First, the 30-Second Version

Section 1202 is one of the most generous gifts in the entire tax code: sell stock in a qualifying small startup after holding it long enough, and a huge chunk of your gain, sometimes all of it, comes out completely tax-free. But there’s a catch: the clock only starts when you actually own stock. A SAFE isn’t stock. It’s a promise of stock, later. And “later” is exactly where all the trouble hides.

What Even Is a SAFE? (The Layaway Plan Analogy)

Think of a SAFE like putting money down on a layaway plan at a store. You hand over your cash today, and the store promises that when the item you want finally arrives on the shelf, at a price that isn’t even set yet, it’s yours. You don’t own the item the moment you pay. You own a promise. The actual purchase, the actual ownership, happens later, when the item shows up and the price is finalized.

A SAFE works the same way. An investor hands a startup cash today. In exchange, the startup promises that when it later raises a “priced round” (meaning: real investors agree on what the company is actually worth, and issue real stock at a real price), the SAFE holder will get shares too, usually at a discount or a locked-in low valuation, as a reward for going first.

Sounds simple, right? That’s literally the point. SAFEs were invented in 2013 by the startup accelerator Y Combinator specifically to be faster and cheaper than the old-school convertible note. And it worked: SAFEs are now the default way most very early startups raise their first check.

Pre-Money vs. Post-Money SAFEs: Two Flavors of the Same Promise

There are two common versions of this layaway plan, and the difference matters more than most people realize.

Pre-Money SAFE — the bare-bones version.

Picture the original layaway plan: you pay your deposit, and that’s it. You get a receipt. You don’t get to vote on store decisions, you don’t get a cut of the store’s profits while you wait, and if the store goes bankrupt before your item arrives, you’re in line behind everyone else. All you have is a contractual promise. This is the original 2013-era SAFE. The investor has cash out the door and nothing but a piece of paper promising future shares. No dividends, no voting rights, no current ownership of anything.

Post-Money SAFE — the layaway plan with perks.

Now picture a nicer version of that layaway plan: while you wait for your item, the store lets you vote on certain store decisions, gives you a small cut if the store pays out profits, and tells you exactly what percentage of the store’s total value your eventual item will represent. That’s a post-money SAFE (introduced in 2018). It comes with dividend rights, liquidation preferences (so you get paid before common shareholders in a sale), and a clearly locked-in ownership percentage. It looks and feels a lot more like actually owning something today, even though, legally, you may still just be holding a contract.

Why does this distinction matter for taxes? Because the more a SAFE looks and acts like real stock — voting-ish rights, profit-sharing, locked-in ownership — the stronger the argument (though still not a guaranteed winner) that the IRS should treat it as stock from day one. The more bare-bones it is, the weaker that argument gets, and the safer assumption is that nothing happened, tax-wise, until conversion.

So When Does the Clock Actually Start?

Here’s the deal: most tax professionals take the conservative, better-supported position that the clock does not start when you sign a SAFE. It starts only when the SAFE actually converts into real, honest-to-goodness stock at a priced round. Signing a SAFE is like putting your name on the layaway list. Owning stock is like actually walking out of the store with the item in your hands. The IRS cares about the walking-out part, not the waiting-in-line part.

Why does this trip people up so badly? Because nobody checks your math along the way. There’s no form you file when you sign a SAFE, no registration, nothing that tells the government “the clock started here.” The IRS only ever sees this transaction once, years later, when you sell the stock and report the gain. By then, if you guessed wrong about when your clock started, it’s too late to fix it.

A Simple Story to Make This Real

Let’s say you invest in a friend’s startup with a SAFE in early 2024. The company doesn’t do a priced round until 2026, and then finally gets acquired in a great exit in 2030. From your perspective, that feels like a six-year hold. Surely long enough for full tax-free treatment. But if the clock only started at conversion in 2026, your real holding period is just four years, not six. That’s a real difference under the current rules. The gap between a smaller tax-free slice and the full amount. On a big exit, that gap alone can be worth well over half a million dollars in extra tax. It’s not a rounding error. It’s a house.

The IRS Has Basically Shrugged

Here’s the part that should really get your attention. Despite SAFEs being used for over a decade, there is no direct IRS ruling, no regulation, and no court case that says definitively what a SAFE is for tax purposes. Tax professionals have to reason their way to an answer using rules written for entirely different kinds of contracts. The way a judge might use precedent from a completely different type of case because nothing else fits better.

A recent, unusually detailed legal analysis of exactly this question — published in Tax Notes by attorney Jason J. Galek — put it well: the government generally doesn’t see any of this until the investor sells the stock years later and reports it on a tax form, “by this point, the clock can no longer be restarted.” That’s the sobering reality: this is a decision you get to make once, quietly, at the very beginning, with real money riding on getting it right.

New Rules Just Raised the Stakes (Not Just the Rewards)

A major tax law passed on July 4, 2025 (nicknamed the “One Big Beautiful Bill,” or OBBB) sweetened Section 1202 considerably. Before that law, the exclusion was all-or-nothing: hold your stock more than five years, get the whole tax-free benefit; hold it less, get nothing. Now, for stock acquired after that date, there’s a sliding scale:

• Hold at least 3 years: 50% of your gain is tax-free
• Hold at least 4 years: 75% is tax-free
• Hold at least 5 years: 100% is tax-free

Think of it less like a light switch and more like a dimmer. That’s genuinely good news for investors, but it also means the SAFE-timing question now matters at three separate moments instead of just one. Guess wrong about when your clock started, and you might land in the 50% bucket when you thought you were in the 75% or 100% bucket. Every year you shave off matters more now than it used to, not less.

What This Means for You

• If you’re a founder: the sooner you can convert SAFEs into real stock, even a modest early priced round, the sooner everyone’s tax-free clock legitimately starts running. Don’t let SAFEs sit outstanding for years if you can help it.
• If you’re an investor: don’t assume your holding period started the day you wrote the check. Assume, conservatively, it started at conversion, and plan your exit timing accordingly.
• If you’re rolling gain from one QSBS sale into a new investment (a Section 1045 rollover): do not use a SAFE as your replacement investment. If that SAFE later gets treated as a contract rather than stock, your whole tax-deferred rollover can unravel, with interest owed retroactively.
• If certainty matters more than speed: consider asking your lawyers about “SAFE preferred stock”. A hybrid structure that gives you actual chartered stock with SAFE-like economics, sidestepping this whole debate entirely.

What You Need to Do: Action Items

• Treat the day your SAFE converts into real stock, not the day you signed it, as day one of your tax clock, until told otherwise by better authority.
• Push for an early priced round if you’re a founder. It’s the cleanest way to start everyone’s clock running for real.
• Know which set of rules applies to your stock: old flat five-year rule, or new sliding three/four/five-year scale, based on when your stock actually converts.
• Never use a SAFE as a Section 1045 rollover replacement investment. Use real, issued stock.
• Keep meticulous records: the SAFE agreement, the conversion notice, the cap table, all of it. If the IRS ever asks “when did this become stock?” you want a clean paper trail.
• Talk to us before you sign anything, not after. Once the clock starts (or doesn’t), you can’t rewind it.

The Bottom Line

SAFEs are a wonderful tool for getting money into a startup quickly and cheaply. But that speed and simplicity comes with a real cost if nobody’s watching the tax clock. Treat the timing of your SAFE conversion as a genuine planning decision, not paperwork you deal with later, because a shift of just a couple of years in your holding period can be worth real money.

This is exactly the kind of “boring” documentation and timing decision that turns into a very exciting phone call five years from now — either the good kind (a big tax-free exclusion, cake for everyone) or the bad kind (you owed how much?). I’d rather you have the cake.

Got a SAFE on your cap table and an exit somewhere on the horizon? Let’s map out your QSBS timeline before the ink dries on your next round, not after. Reach out to us at info@cordasco.cpa

Grazie Mille, Ciao!

Note: This post draws on and quotes from Jason J. Galek, “SAFEs and Section 1202: When Does the QSBS Clock Actually Start?” Tax Notes, Doc. 2026-19380 (July 23, 2026), a detailed technical analysis of this issue. The views in that article are the author’s own.

     

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Friends, grab your espresso, because the IRS just did something it almost never does: it admitted a program wasn’t working and pivoted, all in the same week. On August 19, 2026, the Service issued Announcement IR-2026-95 , officially establishing a brand new Office of Conservation Easements and, in the same breath, shutting down the uniform settlement letter machine it had only cranked up three months earlier. If you or your partnership ever touched a syndicated conservation easement (SCE), this is HUGE, and not in the “finally, amnesty!” sense. It’s HUGE in the “the rules of engagement just changed again, so pay attention” sense.

Let’s walk through how we got here, what actually changed, and what it means for your wallet.

A Quick History Lesson (Grazie, Uncle Sam)

Conservation easements themselves are nothing new or nefarious. The concept dates back to the 1950s: a landowner agrees to permanently give up development rights on a piece of property, a conservation organization or government body holds that restriction forever, and in exchange the landowner gets a charitable contribution deduction for the value given up. Noble. Straightforward. The kind of tax incentive that actually does what Congress intended.

Then, in the early-to-mid 2010s, some enterprising promoters looked at this clean little provision and said, “Bello, but what if we juiced it?” Here’s the deal on how a syndicated conservation easement typically worked:

1. A promoter buys raw, undeveloped land.
2. The promoter hires an appraiser who conveniently values that land at multiples of the purchase price (we’re talking appraisals that would make a Neapolitan fish market blush).
3. The land goes into a partnership.
4. The partnership donates a conservation easement on the land.
5. The promoter sells partnership interests to high-net-worth investors, marketing a charitable deduction worth 4, 5, sometimes 9 times their investment.

You can see the problem. Congress didn’t create Section 170(h) so people could turn a $100,000 investment into a $450,000 deduction. The IRS agreed, and here’s where the enforcement saga really begins:

• 2016 to 2017 : The IRS designated syndicated conservation easements as “listed transactions” under Notice 2017-10 , triggering mandatory disclosure and putting a target squarely on the promoters’ backs.
• 2019 : SCEs landed on the IRS’s “Dirty Dozen” scam list, and the agency stood up a Promoter Investigations Coordinator, later formalized into the Office of Promoter Investigations in 2021, specifically to chase down the people selling these deals.
• 2020 to 2025 : The IRS rolled out three separate settlement initiatives , each requiring taxpayers to pay the full tax, penalty, and interest liability upfront just to get in the door. About 40% of taxpayers who got an offer took it. The rest kept litigating, and the Tax Court backlog kept growing.
• The Tax Court got brutal . On average, the Tax Court has allowed roughly 6% of the claimed deduction while sustaining a 40% gross valuation misstatement penalty. In March 2026, the Eleventh Circuit in Jackson Crossroads, LLC v. Commissioner affirmed exactly that kind of outcome on a $36.9 million claimed deduction. Ouch.
• December 29, 2022 : Congress finally took away the economic engine of the whole scheme through the SECURE 2.0 Act, adding new Section 170(h)(7). This provision disallows a partnership or S corporation’s conservation easement deduction outright if it exceeds 5 times the sum of the partners’ relevant basis, with narrow exceptions for family partnerships, three-year-plus holding periods, and certified historic structures. Translation: a deal promising you a 4.5-to-1 deduction literally cannot deliver it anymore, full stop.
• The procedural plot twist : In Green Valley Investors, LLC v. Commissioner , the Tax Court held 15-2 that Notice 2017-10 was invalid because the IRS never went through the Administrative Procedure Act’s notice-and-comment process. The Eleventh Circuit agreed in Green Rock LLC v. IRS in 2024. Bottom line though, and I really need you to hear this, that ruling killed a disclosure penalty , not the IRS’s ability to disallow your deduction and slap you with valuation penalties. Don’t confuse a procedural win with a get-out-of-jail-free card.

By 2026, the IRS was staring down more than 1,100 unresolved SCE cases between examination and Tax Court. Holy cannoli, that’s a docket problem.

Act Two: The May 13, 2026 Settlement Offer

Trying to clear the logjam, the IRS announced a new time-limited settlement opportunity on May 13, 2026. Unlike the three prior rounds, this one didn’t require full payment upfront. The terms:

• Charitable deduction: fully disallowed .
• A modest “other deduction” allowed, generally tied to the partnership’s actual out-of-pocket costs (often the cash contributions shown on Schedule M-2).
• A 10% gross valuation misstatement penalty if you accepted within 90 days of your letter.
• Miss that window? You got one more shot: an additional 45 days, but the penalty jumped to 20% .
• Blow past both windows, and you’re left fighting it out administratively based on the hazards of litigation, where the deduction typically shrinks to 5-7% of what was claimed and the penalty balloons to 40% .

Letters went out on a rolling basis. Some of you may have gotten one. Then, three months later, the IRS pumped the brakes.

Act Three: BOOM, a New Office

On August 19, 2026, the IRS said, essentially, “That rolling-letter approach isn’t cutting it.” In its own words, standardized, unsolicited letters with fixed response periods “were not well suited to the full range of conservation easement cases,” because every deal differs by partnership agreement, insurance arrangement, and procedural posture.

So instead of doubling down on the assembly-line settlement letters, the IRS created the Office of Conservation Easements , a centralized unit that will:

• Consolidate the IRS’s technical, valuation, contractual, and procedural expertise on easement cases in one place.
• Coordinate policy, enforcement strategy, and case resolution across the IRS’s operating divisions and the Office of Chief Counsel.
• Serve as an engagement channel for taxpayers, practitioners, land trusts, and historic preservation groups.
• Work with Treasury on administrative and legislative options to strengthen valuation integrity while still supporting Congress’s conservation and historic preservation goals.

Here’s the part I need you to really absorb, because plenty of headlines are going to oversell this: this is not a new, friendlier settlement deal. The IRS explicitly said the transition “does not signal a new or more favorable standardized offer.” What it does mean:

• The IRS will stop issuing any more uniform settlement letters under the May 13 program, effective immediately.
• If you already received a letter and elected to settle, your election stands and will be processed under its original terms.
• If you received a letter but hadn’t yet accepted , your acceptance deadline is officially withdrawn. No more ticking clock on that specific letter. But that doesn’t mean the offer vanished into thin air or got better; it means the process becomes case-by-case going forward.
• If your case is still eligible, you can still request settlement under the May 13 framework, but now you do it through your assigned IRS examination agent or Chief Counsel attorney rather than waiting for an automatic letter, and the standardized terms (10%/20% penalty tiers) remain the reference point unless hazards of litigation warrant something different.

What This Actually Means for You

Let’s be honest: this is a structural and procedural shift, not a mercy rule. Here’s how I’d break down where you might land:

If you accepted a May 13 settlement offer already : Congratulations, your deal is intact. The new office doesn’t unwind it. Keep working with your assigned representative to close it out.

If you received a letter and were sitting on it, deadline looming : Breathe. Your deadline is gone. But don’t let “the clock stopped” turn into “I’ll deal with it never.” The underlying math hasn’t improved, and if anything, dragging your feet risks landing you back in the 40%-penalty litigation bucket if the office reintroduces terms less favorable than the original 10%/20% tiers once it’s operational.

If you’re mid-audit and never got a letter : This is where the new office could actually help you, in theory. A centralized team with real technical depth might mean more consistent, defensible resolutions instead of a lottery based on which examiner drew your file. Reach out proactively through your exam team rather than waiting for a letter that may never come the old way again.

If you’re already in Tax Court litigation : Nothing here changes the trajectory of your case, and nothing here softens the Tax Court’s well-documented skepticism of SCE valuations. The IRS’s own website still warns that taxpayers “should not expect materially different results in ongoing litigation” and flags that Section 6673 sanctions have been imposed on taxpayers and counsel who keep pressing meritless valuation arguments. This is not the moment to get cute.

If you’re a promoter, appraiser, or material advisor : You were never part of the settlement conversation to begin with, and the new office’s charter explicitly includes coordinating enforcement, not softening it. The Office of Promoter Investigations and IRS Criminal Investigation are still very much in business.

Action Items: What You Need to Do

• Do not assume “office created” equals “amnesty.” Treat this as a reorganization of IRS internal machinery, not a policy giveaway.
• If you have an open settlement election, confirm its status with your representative in writing so there’s no ambiguity about whether it’s still being processed on the original terms.
• If your deadline was just withdrawn, use the breathing room to actually run the numbers on settling versus litigating, rather than treating it as a permanent reprieve.
• If you’re under audit with no letter yet, get proactive. Contact your exam team, and once the new office publishes its intake channel, we’ll be watching for it and will pass along contact details immediately.
• Revisit your basis and structure if you’re contemplating any new pass-through conservation contribution. Remember, Section 170(h)(7)’s 2.5x basis cap has already gutted the syndication business model for deals after December 29, 2022, absent one of the narrow exceptions.
• Talk to us before you sign anything. Every one of these cases turns on specific facts: partnership agreements, insurance wraps, appraisal quality, and procedural posture. A one-size-fits-all decision is exactly the mistake the IRS itself just admitted it was making.

Bottom Line

The IRS looked at a backlog of 1,100+ cases, a settlement program that wasn’t clearing the docket fast enough, and decided the fix wasn’t a better form letter, it was better organization. For taxpayers who invested in these deals, that’s a mixed bag: more consistency and expertise potentially, but zero indication of more generous terms, and a clear signal that the agency intends to keep grinding through these cases with sharper tools rather than fewer of them.

Reach out to us at info@cordasco.cpa and let’s map out your specific situation before that next letter (or the absence of one) forces your hand.

Grazie Mille, Ciao!

     

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Here’s the deal: the last thirty days have been a genuine avalanche of federal tax activity, most of it Treasury and the IRS scrambling to operationalize the OBBB (signed July 4, 2025, in case you’d blocked that date out like a bad first date). At the same time, the estate and gift tax world is quietly settling into its new $15 million per person reality. And because tax season never sleeps and neither, apparently, does human creativity when it comes to avoiding an IRS bill, we got some genuinely bizarre and delightful stories this month too. Let’s get into all of it.

The Big Picture (Read This Even If You Skim Everything Else)

• OBBB implementation is in full sprint mode. Treasury and the IRS issued a wave of notices, proposed regulations, and updated FAQs in August covering paid family and medical leave credits, the overtime deduction, backup withholding, business interest expense, Trump Accounts, and more.
• The $15 million estate and gift tax exemption ($30 million for married couples) is now permanent law , and the IRS continues to show taxpayer-friendly flexibility on late portability elections, so more planning runway than we’ve had in years.
• The IRS is done being patient with syndicated conservation easements. A new dedicated office, an ended settlement initiative, and two big appellate losses for taxpayers in August tell you exactly where this is headed.
• Interest rates on unpaid tax stayed at 7% for individuals into Q4 2026, so at least that headache didn’t get worse.
• And yes, a Los Angeles comedian, a serial-litigant attorney, and a pizza-obsessed CPA all made tax news this month. Stick around for those. They’re too good to skip.

OBBBA’s Guidance Tsunami: What Actually Changed for You and Your Business

Let’s be honest, keeping up with OBBB guidance has felt like trying to drink from a fire hose while riding a unicycle. Here’s the condensed version of what landed in the last thirty days that actually matters to entrepreneurs and business owners.

Backup withholding got real. On August 7, Treasury and the IRS finalized regulations under Section 3406 implementing OBBB’s new backup withholding thresholds for third-party settlement organizations (think payment apps and marketplaces). The rules, effective August 10, apply the $20,000/200-transaction de minimis threshold and multi-year lookback retroactively to payments made in calendar years beginning after December 31, 2024. If you run a business that gets paid through third-party platforms, this is a “check your 1099-K situation now, not in March” item.

The overtime deduction FAQs got a major update. On August 6, the IRS refreshed the Section 225 “no tax on overtime” guidance (Fact Sheet 2026-13), clarifying withholding mechanics, requiring qualified overtime to be separately reported on Form W-2 using Box 12 Code TT, and confirming that employers cannot reduce withholding for the deduction unless the employee submits an updated Form W-4. If you have hourly employees clocking overtime, your payroll provider needs to have this dialed in before year-end W-2 prep.

The paid family and medical leave credit under Section 45S got interim guidance. Notice 2026-28, issued August 5, lets employers calculate the now-permanent credit using either qualifying wages paid during leave or premiums for qualifying insurance, and addresses eligibility rules for employees who customarily work at least 20 hours a week. This credit just went from “nice bonus” to “permanent planning tool,” which is exactly the kind of quiet, HUGE development that gets buried under louder headlines.

Business interest expense (Section 163(j)) guidance got a refresh. On August 20, the IRS replaced its December 2025 FAQs with Fact Sheet 2026-14, updating the rules limiting business interest deductions to business interest income plus 30% of adjusted taxable income, plus floor plan financing interest. If you’re running leveraged growth or considering an acquisition, this deserves a fresh look with your advisor, not a “we handled that in 2018 and forgot about it” shrug.

Trump Accounts got both a nondiscrimination proposal and investment guardrails. On August 11, Treasury proposed regulations (REG-101355-26) addressing nondiscrimination rules for Section 128 Trump Account contributions (up to $2,500 per employee, tax-free) and the related Section 129 dependent care assistance expansion (up to $7,500). Then, on August 20, Treasury announced forthcoming rules limiting Trump Account investments during the growth period to low-fee, broadly diversified index funds and ETFs. Translation: this is shaping up to be a real employee-benefit lever for business owners, not just a headline from last summer.

The Saver’s Match program and retirement rollovers got standardization. Notice 2026-48 (August 7) announced intent to propose regulations for the federal Saver’s Match beginning in 2027, and Notice 2026-49 (August 12) rolled out sample forms to simplify direct rollovers between plans and IRAs.

And in disaster relief, Congress finally made things permanent. The Doug LaMalfa Federal Disaster Tax Relief Certainty Act (H.R. 5366) cleared the Senate on August 7 and now sits on the President’s desk. It codifies the enhanced personal casualty loss deduction (usable even by non-itemizers, with the per-event floor raised from $100 to $500) and creates new IRC Section 139M excluding qualified wildfire relief payments from gross income through 2026. If you or a client have ever been on the wrong end of a hurricane, wildfire, or ice storm, this one’s worth flagging.

One piece of genuinely boring good news: the IRS announced on August 21 that interest rates on both overpayments and underpayments hold steady at 7% for individuals going into Q4 2026. Not exciting, but in a world of constant change, I’ll take “no news” as a small mercy.

Estate and Gift Tax: The $15 Million Party Just Keeps Rolling

Here’s where I get genuinely enthusiastic, because this is the kind of durable planning window we haven’t had since before I owned a fax machine (RIP).

The OBBB permanently set the basic exclusion amount at $15 million per individual ( $30 million for married couples ) effective January 1, 2026, with no sunset and ongoing inflation indexing off a 2025 base year. The annual gift tax exclusion holds at $19,000 per recipient ($38,000 with gift-splitting). For years, every estate plan I built had an asterisk next to it: “subject to change when the TCJA sunsets.” That asterisk is gone. Permanently. This is HUGE, and if you haven’t revisited your estate plan since the bill passed, “ciao, let’s talk”.

Two other estate-specific items from the last thirty days worth your attention:

The IRS keeps granting late portability relief, and generously. Two private letter rulings issued in August (PLR 202632013 on August 7 and PLR 202633006 shortly after) each granted a surviving spouse’s estate 120 additional days to file Form 706 and elect portability of a deceased spousal unused exclusion (DSUE) amount. The lesson hasn’t changed in fifteen years: portability is never automatic, the nine-month deadline is real, but the IRS’s Section 9100 relief valve is still open for executors who miss it in good faith. Don’t rely on it. But know it’s there.

Trump Accounts got a gift tax safe harbor for the grandkids’ contributions. Revenue Procedure 2026-25, issued June 29, spells out how contributions to a minor’s Trump Account (capped at $5,000 annually) qualify as completed gifts eligible for the annual exclusion rather than being treated as gifts of a “future interest,” as long as your total gifts to that beneficiary for the year don’t exceed $19,000 and you’re not otherwise required to file a gift tax return. If Trump Accounts are part of your multigenerational gifting strategy, this safe harbor is the fine print you actually need to follow.

The IRS Says “Basta!” to Conservation Easement Games

Now for a story that’s technically a federal tax development but also happens to be the closest thing to a courtroom drama Netflix could option this month.

In August, the IRS created a brand-new Office of Conservation Easements to centralize enforcement strategy and simultaneously pulled the plug on the uniform settlement initiative it launched back in May for syndicated conservation easement deals. Translation: the era of a standardized “pay a 10% penalty and walk away” deal is over, and the agency is doubling down on individualized scrutiny. However, more importantly it gives the IRS the flexibility to individually negotiate settlements based on the specific facts of each case. This should hopefully help clear a lot of these cases.

Two rulings landed in the same window that show exactly why. In Malibu Valley Land, LLC v. Commissioner , the Tax Court let the taxpayer keep its charitable deduction for donative intent on a 298-acre Santa Monica Mountains easement but slashed the claimed value from $32.075 million down to roughly $19.7 million after splitting the property into two zoning-driven valuation zones. Meanwhile, in Mill Road 36 Henry, LLC v. Commissioner , the Eleventh Circuit affirmed the IRS’s position wholesale: a partnership claimed an $8.9 million deduction for a Georgia easement that the Tax Court valued at just $900,000 , a discrepancy so large (over 200%) that the 40% gross valuation misstatement penalty automatically applied, on top of limiting the deduction to a basis of only $416,563 because the land had been held as inventory.

The Bizarre, the Fun, and the “You Can’t Make This Up” Files

The tax world always gives us a gift that has nothing to do with basis or depreciation and everything to do with pure human comedy. August delivered in spades.

The comedian and the $8.7 million. Comedian Carlos Mencia (born Ned Arnel Holness) is fighting 12 felony tax evasion counts filed by LA County DA Nathan Hochman’s brand-new Business Tax Fraud Unit, alleging he failed to report $8.7 million in personal and corporate income between 2019 and 2024, racking up over $300,000 in unpaid California tax. At his August 14 hearing, he showed up in a “Super Funny” T-shirt, watched the Spain-France World Cup match from the courthouse gallery while waiting for his case to be called, and told reporters, “All I did was fail to pay my taxes”. Friends, “I just didn’t pay” is not, in fact, a defense to twelve felony charges, but I appreciate the honesty. He’s since gotten court approval to sell his $4.5 million Encino mansion to help cover the tab. This is the kind of thing that happens when 78 demand letters from the Franchise Tax Board go unanswered.

The attorney who really, really didn’t want to pay. In Percy Squire Co LLC v. Commissioner (T.C. Memo. 2026-112, decided in August), the Tax Court hit attorney Percy Squire, an admitted member of the Tax Court bar no less, with a $10,000 penalty under Section 6673 for filing a frivolous Collection Due Process appeal, his seventh Tax Court petition in fifteen years, complete with claims involving the Telecommunications Act of 1996 and undisclosed cryptocurrency holdings. The court warned that a future repeat could cost him the full $25,000 max. Bottom line: the Tax Court has a memory, and “delay, recycle arguments, repeat” is not a strategy, even if you’re the one wearing the bar card.

The IRS is warning you about a fake portal. In late August, the IRS flagged a phishing scheme mailing physical letters directing digital asset holders to a bogus “Digital Asset Compliance Portal” designed to mimic IRS.gov and harvest personal information. If you hold crypto and get a letter that smells even slightly off, call your CPA before you click anything. The real IRS does not need you to “verify your wallet” on a website that isn’t irs.gov .

And finally, the pizza tracker heard ’round the accounting world. CPA Nicole Davis built a “Tax Return Pizza Tracker” (inspired, naturally, by watching her actual pizza delivery status bar) to give clients real-time updates on where their return sits in the pipeline. It caught on so widely that other software vendors started copying the concept, so this August she trademarked the name and announced plans for a companion app. As a fellow tax and tech geek, I salute anyone who makes “your return is in the oven” a legitimate client communication strategy.

What You Need to Do

• Payroll and HR: Confirm your payroll provider has implemented the updated overtime FAQ requirements (Box 12 Code TT reporting) and Section 45S PFML credit mechanics before year-end.
• Platform-based revenue: If you receive payments through apps or marketplaces, review your 1099-K exposure under the finalized $20,000/200-transaction backup withholding thresholds now, not in April.
• Leverage and M&A plans: Revisit your Section 163(j) business interest position under the new Fact Sheet 2026-14, especially if you’re contemplating an acquisition or a leveraged recap.
• Estate plans: If your documents still assume a shrinking exemption or a 2026 sunset, get them updated to reflect the permanent $15 million/$30 million exemption. This is a “call us this quarter” item, not a “someday” item.
• Portability: If you’re an executor who missed the nine-month Form 706 deadline for a deceased spouse, don’t assume it’s too late. Talk to us about Section 9100 relief before you write it off.
• Conservation easements: If you invested in syndicated conservation easements keep your eyes open for movement in getting these matters resolved. The IRS’s new dedicated enforcement office should help us get these matters finally closed.
• Digital assets: Treat any unsolicited letter about a “Digital Asset Compliance Portal” as fraudulent until proven otherwise.

Grazie Mille, Ciao

Friends, that’s your thirty days. Between OBBB implementation moving at warp speed, a permanently generous estate tax exemption, an IRS that’s clearly ready to close conservation easement casess, and enough real-life courtroom theater to fill a Broadway season, this was not a quiet month in tax. And it won’t be the last one. If any of this touches your business, your estate plan, or your general curiosity about how the sausage (or the pizza) gets made, reach out to us at info@cordasco.cpa. We’d love to talk strategy, not just compliance.

Grazie Mille, Ciao!

     

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