Here is a look at recent tax-related happenings on the Hill, including new tariffs imposed on certain unmanned aircraft systems and related components.
Lately on the Hill
Senate Passes Disaster Tax Relief Extension Before August Recess
Just before beginning its August recess, the Senate passed the Doug LaMalfa Federal Disaster Tax Relief Certainty Act (H.R. 5366), sending the legislation to President Donald Trump for signature after previously passing the House. The bill would permanently codify and extend favorable tax treatment for certain disaster-related personal casualty losses arising from major disasters occurring between December 28, 2019 and January 1, 2027, while also codifying and extending the exclusion from gross income for qualifying wildfire relief payments related to the federally declared wildfire disasters occurring before January 1, 2027.
New Tariffs Target Drone Imports
The White House issued a proclamation under Section 232 of the Trade Expansion Act imposing new tariffs on certain unmanned aircraft systems and related components after the U.S. Department of Commerce concluded that heavy U.S. reliance on foreign drone supply chains poses a national security risk. The proclamation generally imposes a 100% tariff on larger drones, drone docking stations, and certain components, and a 25% tariff on smaller drones and additional components, while also creating an incentive program to encourage companies to expand domestic drone manufacturing capacity. The proclamation takes effect on September 3, 2026.
From the Courts
Fifth Circuit Updates Ruling in Limited Partner SE Tax Exception Case
In K. Alain, LLLP v. Commissioner, formerly known as Sirius Solutions, LLLP v. Commissioner before the partnership changed its name, the Fifth Circuit held that the term “limited partner” in Internal Revenue Code (IRC) §1402(a)(13) is “a partner who plays no significant role in managing or running a business.” The court granted rehearing, withdrew its earlier opinion, which held that a limited partner is one with limited liability, and replaced it with a new standard that rejected that Tax Court’s view that the limited partner exception only applies to passive investors. The court remanded the case for further consideration under this new standard. The ruling marks a notable shift from the court’s earlier opinion and could limit the availability of the exception for partners who are involved in a business.
Trade Court Upholds De Minimis Suspension Under IEEPA
In Axle of Dearborn, Inc. v. Department of Commerce, the U.S. Court of International Trade held that the International Emergency Economic Powers Act (IEEPA) authorized the president to suspend the de minimis exemption for low-value imports. The court concluded that the exemption is a “privilege” that the president may “nullify” or “void” under the IEEPA during a declared national emergency, distinguishing the action from the broader tariff authority that the U.S. Supreme Court previously rejected.
Maryland Tax Court Invalidates Digital Advertising Tax
In three related cases involving Apple, Google, and Peacock TV,1 the Maryland Tax Court held that Maryland’s digital advertising gross revenues tax violates the federal Internet Tax Freedom Act (ITFA) and the dormant commerce and due process clauses of the U.S. Constitution, entitling the companies to refunds of taxes paid for 2022. The court concluded that digital and nondigital advertising services are sufficiently similar for purpose of the ITFA, making Maryland’s tax an impermissible discriminatory tax on electronic commerce, and further found that the tax’s reliance on global revenue thresholds and rates unfairly discriminates against interstate commerce.
From Treasury & the IRS
GAO Reports IRS Filing Season Challenges & Service Shifts
A new U.S. Government Accountability Office (GAO) report found that the IRS processed most 2026 tax returns at rates similar to recent years, but paper return processing slowed significantly because of staffing reductions and system issues, leading to longer processing times and delayed paper refund checks. The report also found that taxpayers increasingly relied on IRS online tools, while live phone assistance and in-person services declined as the agency shifted resources toward reducing its correspondence backlog.
Released Guidance
Foreign Currency Gain or Loss of CFCs: Proposed regulations (REG-103844-26) would simplify the application of IRC §987 to controlled foreign corporations (CFCs). The guidance follows Notice 2026-17 and is intended to reduce the administrative burden associated with tracking and recognizing foreign currency gain or loss within CFC-owned foreign branches and disregarded entities. For more information, read our FORsights™ article, “Treasury & IRS Propose Simplified Section 987 Rules for CFCs.”
Charitable Reporting for Certain Trusts: Proposed regulations (REG-109082-25) would eliminate Form 1041-A filing requirements for trusts whose only charitable deduction under IRC §642(c) arises from charitable contributions made by a pass-through entity in which the trust holds an interest. The proposal would also clarify that split-interest trusts satisfy their reporting obligations by filing Form 5227 rather than Form 1041-A.
GENIUS Act Stablecoin: The U.S. Department of the Treasury proposed regulations (FR Doc. 2026-16796) that would implement the GENIUS Act’s restrictions on the issuance, offer, and sale of payment stablecoins in the United States. The proposal would establish rules governing who may issue payment stablecoins, when stable coins may be offered or sold to U.S. persons, and how foreign stablecoin issuers can access U.S. markets.
Section 1256 Qualified Board or Exchange: Revenue Ruling 2026-16 provides the IRS’ determination that ICE Endex, a regulated exchange in the Netherlands, is a “qualified board or exchange” under IRC §1256(g)(7)(C) as long as it maintains a valid Commodity Futures Trading Commission Foreign Board of Trade registration. Effective for contracts entered into on or after September 1, 2026, eligible ICE Endex contracts will be subject to §1256 mark-to-market treatment, with taxpayers permitted to adopt the change on a cut-off basis without filing Form 3115.
SECURE 2.0 Retirement Rollover: Notice 2026-49 proposes sample forms and procedures intended to simplify and standardize retirement plan rollover transactions, including greater coordination between distributing and receiving plans and expanded use of electronic transfers. The guidance also seeks comments on future changes that could phase out participant-delivered rollover checks, establish rollover safe harbors, and encourage a more automated, secure rollover process.
Section 45Q Carbon Sequestration Safe Harbor: Notice 2026-50 expands the IRC §45Q safe harbor established in Notice 2026-1 to cover qualified carbon oxide used as a tertiary injectant in enhanced oil and natural gas recovery projects, and it also allows the safe harbor to be used for recapture determinations when U.S. Environmental Protection Agency (EPA) reporting systems are unavailable.
FinCEN BOI Reporting: Final regulations (RIN 1506-AB67) issued by the Financial Crimes Enforcement Network (FinCEN) permanently exempt domestic entities and U.S. persons from Corporate Transparency Act beneficial ownership information (BOI) reporting requirements, largely adopting the March 2025 interim final rule. The final rule also exempts foreign reporting companies from reporting U.S. person company applicants and eliminates the requirement for U.S. persons with FinCEN identifiers to update previously submitted information, while continuing BOI reporting obligations for certain foreign entities operating in the United States.
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.
- 1Apple, Inc. v. Comptroller, No. 23-DA-OO-0456; Google, LLC v. Comptroller, No. 23-DA-OO-0649; Peacock TV, LLC v. Comptroller, No. 23-DA-OO-0654.