Here is a look at recent tax-related happenings on the Hill, including the Trump administration starting to issue refunds to importers.
Lately on the Hill
Congress Update
With lawmakers largely out of Washington last week, attention shifted to administrative and judicial developments; Congress returns this week for a two‑week legislative session.
Trump Extends EU Trade Deal Deadline to July 4
President Donald Trump said he will give the European Union (EU) until July 4 to implement the U.S.-EU trade agreement, warning that tariffs could rise to “much higher levels” if the bloc does not finalize the deal by that date.1 Ursula von der Leyen, president of the European Commission, said both sides remain committed to implementation and indicated progress toward tariff reductions by early July. The extension follows recent U.S. pressure on the EU’s implementation timeline, including threats to increase tariffs on European autos, as EU lawmakers and member states continue negotiations on the legislation needed to carry out the agreement. For additional background on the U.S.–EU trade deal and related tariff uncertainty, see From the Hill: March 24, 2026: “EU Moves to Revive U.S. Trade Deal as Tariff Uncertainty Persists.”
Importers Begin to See Tariff Refunds
The Trump administration has begun issuing refunds related to the roughly $166 billion in global tariffs that the U.S. Supreme Court declared unlawful earlier this year.2 Only importers that directly paid the duties on goods entering the U.S. are eligible to seek refunds from U.S. Customs and Border Protection (CBP).
According to CBP-reported rollout statistics, tens of thousands of Consolidated Administration and Processing of Entries (CAPE) declarations were submitted in the initial phase; 47,315 passed file validations and covered 11,222,927 entries that passed entry-specific validations and were accepted for processing. Approximately 1,740,000 accepted entries had been liquidated and were in the refund stage of the process. Over the same period, 2,124,394 entries were rejected for failing entry-specific validations.
CBP Warns Importers of IEEPA Refund Scams as CAPE Rolls Out
CBP issued a notice warning that scammers may attempt to solicit importer credentials and financial information in connection with the International Emergency Economic Powers Act (IEEPA) duty refund process under the CAPE system. CBP emphasized that refund requests are submitted only through verified accounts in the Automated Commercial Environment (ACE) Secure Data Portal via a CAPE declaration and noted that CBP generally will not request sensitive information, e.g., passwords or bank account details, via email or text message. CBP also provided indicators of phishing attempts and directed recipients to report suspicious communications to [email protected].
From the Courts
U.S. Trade Court Invalidates §122 10% Global Tariffs
A three-judge panel of the U.S. Court of International Trade granted summary judgment to importer plaintiffs challenging Trump’s February proclamation imposing a 10% “temporary import surcharge” under §122 of the Trade Act of 1974. The challenged action was Proclamation 11012 (February 20, 2026), “Imposing a Temporary Import Surcharge To Address Fundamental International Payments Problems.” The court held that the §122 proclamation was unlawful as applied and entered a permanent injunction barring enforcement against the two importer plaintiffs—Burlap and Barrel, Inc. and Basic Fun, Inc.—and the state of Washington, while emphasizing it was not issuing a universal injunction.3
§122—captioned “Balance-of-Payments Authority”—permits temporary import surcharges, up to 15% ad valorem for up to 150 days, only when “fundamental international payments problems” require special import measures, including to address “large and serious United States balance-of-payments deficits.” In its opinion, the court explained that §122 is a narrow delegation of Congress’s tariff power and evaluated whether the proclamation’s rationale satisfied the statute’s balance-of-payments predicates. Because the remedy is limited to the importer plaintiffs and the state of Washington, the ruling leaves uncertainty for other importers paying the §122 duties pending any appeal or additional litigation. For additional analysis, see our FORsights™ alert: “U.S. Trade Court Invalidates 10% Global Tariffs.”
Tax Court Sustains Enhanced Economic Substance Penalty in Microcaptive Case (Kadau v. Commissioner)
In Kadau v. Commissioner4 , the U.S. Tax Court sustained the IRS’ imposition of an enhanced accuracy-related penalty after concluding that the taxpayer’s microcaptive insurance arrangement lacked economic substance under Internal Revenue Code (IRC) §7701(o).5 Under the economic substance doctrine, a transaction’s tax benefits may be denied if it lacks meaningful non-tax economic effects and a substantial non-tax purpose; failing that standard can also increase penalty exposure. The decision follows the court’s earlier determination that the arrangement did not qualify as insurance for federal income tax purposes.
In this follow-up opinion, the court focused on penalty consequences, concluding that the transaction’s lack of economic substance triggered heightened penalty exposure. The court also addressed disclosure considerations, reinforcing that unsuccessful microcaptive structures may give rise not only to disallowance of claimed tax benefits, but also enhanced penalties when statutory economic substance standards are not satisfied.
From Treasury & the IRS
IRS Signals Openness to Guidance on Stock Purchase Recharacterizations
The IRS signaled openness to issuing guidance on the anti-abuse rules in IRC §304, which can recharacterize certain related‑corporation stock sales as redemptions and, by extension, extend dividend treatment under §302 to some stock sales between commonly controlled corporations.6 At the American Bar Association Section of Taxation meeting on May 7, Robert Liquerman, IRS Office of Associate Chief Counsel (Corporate), said he could see the issue “coming up a lot” and noted this is an area the IRS “would rule on” in the private letter ruling process when questions arise on §304 applicability. Krishna Vallabhaneni, Treasury tax legislative counsel, added that Treasury does not put “a lot of deference … to the form of guidance request,” suggesting flexibility in how stakeholders raise the issue. The discussion underscored uncertainty for some widely held public companies where shareholder overlap and §304 attribution rules can make it difficult to determine whether §304 control exists, prompting suggestions that safe harbors or clearer diligence expectations could reduce uncertainty.
IRS Foreign E‑Filer TCC Process Draws Complexity Concerns
In an IRS May 4 alert (No. 2026‑06), the IRS said it is developing a foreign-filer transmitter control code (TCC) registration solution aimed at addressing authentication constraints for foreign filers whose authorized users lack a U.S. Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN).7 The IRS described the issue as a “significant barrier” and said the new solution is an “alternative method” intended to help affected filers meet information‑reporting obligations “in a timely and compliant manner” as electronic filing shifts toward 2027, including Form 1042‑S and applicable Forms 1099.
IRS Opens 2027 Low‑Income Taxpayer Clinic Grant Application Window
The IRS announced that the Low-Income Taxpayer Clinic (LITC) Program will accept applications for matching grants from qualified organizations from May 6, 2026 through July 6, 2026 for the 2027 grant year. Applications must be submitted electronically by 11:59 p.m. ET on July 6, 2026.
IRS Updates Conservation Easement Site
The IRS announced updates to its conservation easement resources, expanding information related to abusive transactions, recent court decisions, and compliance warnings for investors. The updated materials consolidate guidance intended to assist taxpayers in evaluating conservation easement deductions and understanding enforcement trends.
The IRS reiterated that while the conservation easement deduction was enacted to encourage long-term preservation of land and buildings, the agency continues to identify transactions involving inflated valuations and improper deductions. The IRS also advised that additional guidance related to enforcement and settlement opportunities is forthcoming. The IRS indicated it plans to publish a limited-duration settlement framework for certain conservation easement matters, with additional details to follow.
Released Guidance
Significant Issue Ruling Program for Certain Corporate Transactions: Revenue Procedure (Rev. Proc.) 2026-21 establishes a significant-issue ruling program allowing taxpayers to request private letter rulings on discrete issues arising in certain corporate transactions, including those described in IRC §332, 351, 355, 368, and 1036. The program permits the IRS to rule on germane and specific issues without addressing the overall tax treatment of an entire transaction and modifies prior ruling procedures under Rev. Proc. 2026-1 and Rev. Proc. 2026-3.
ACA Employer Penalty Amounts Indexed for 2027: Rev. Proc. 2026-22 provides the annual inflation adjustments to the applicable dollar amounts used to calculate employer shared responsibility payments under IRC §4980H. The updated amounts apply to taxable years and plan years beginning after December 31, 2026.
2026 Nationwide Average Residential Purchase Prices: Rev. Proc. 2026-23 provides issuers of qualified mortgage bonds and mortgage credit certificates with the nationwide average purchase price for U.S. residences, along with average area purchase price safe harbors for residences located in statistical areas of each state. These figures are used to determine eligibility for certain housing-related tax benefits.
From the States
New York: Court Upholds Regulation Applying P.L. 86‑272 to Internet Activities
A New York appellate court unanimously affirmed the trial court’s decision granting summary judgment for the New York State Department of Taxation and Finance in Am. Catalog Mailers Ass’n v. N.Y. State Dep’t of Taxation & Fin.8 Details on the trial court’s decision can be found in our FORsights article, “New York Trial Court Upholds Expansion of Unprotected P.L. 86-272 Activities to Internet.” The appellate court affirmed the lower court’s decision, reasoning that, on its face, a New York regulation seeking to extend the list of unprotected activities, which would expose a business to New York state tax, under federal Public Law (P.L.) 86-272 to internet activities did not violate the federal law. The decision did seem to open the door to consideration as to whether the regulation could violate P.L. 86-272 as applied to individual taxpayers based upon their facts and circumstances.
Washington: Justices Reject Voter Referendum on Millionaire’s Tax
The Washington Supreme Court denied a request to compel the Secretary of State to process a voter referendum on the state’s new “millionaires’ tax.” The court held that the measure falls within the Washington Constitution’s exception for laws necessary for the support of state government, concluding that the tax generates revenue for existing public institutions and, therefore, is not subject to referendum.9
This newsletter features developing content that is subject to change at any time. It does not constitute legal or tax advice. Consult your professional advisors prior to acting on the information set forth herein.
- 1“Trump Gives EU Until July 4 to Ink Deal, Extending Deadline (2),” news.bloombergtax.com, May 7, 2026.
- 2“Trump Tariff Refunds Start Hitting Importers’ Bank Accounts (1),” news.bloombergtax.com, May 6, 2026.
- 3“Trump’s Latest 10% Tariffs Found Unlawful by US Trade Court (4),” bloomberglaw.com, May 8, 2026.
- 4Kadau v. Comm’r, T.C. Memo. 2026-37, No. 286-21 (U.S. Tax Ct. May 4, 2026).
- 5“Court Adds Economic Substance Penalty in Microcaptive Follow-Up,” taxnotes.com, May 5, 2026.
- 6“IRS Open to Limiting Stock Purchase Recharacterizations,” taxnotes.com, May 8, 2026.
- 7“IRS to Launch New System to Address Foreign E-Filer Concerns,” taxnotes.com, May 5, 2026.
- 8Am. Catalog Mailers Ass’n v. Dep’t of Tax’n & Fin., No. CV-25-0865 (N.Y. App. Div. 3d Dep’t May 7, 2026).
- 9“Washington State Millionaires’ Tax Spared From Voter Referendum,” news.bloombergtax.com, May 5, 2026.