Cordasco & Company

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.

     

Related Stories

• From Rolling Letters to a Real Office: What the IRS’s New Conservation Easement Unit Means for You
• The Tax World’s Last 30 Days: OBBBA’s Guidance Tsunami, the $15 Million Estate Tax Party, and a Comedian Who Watched the World Cup From the Courthouse Gallery
• IRS issues guidance on QOZ program changes

 

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!

     

Related Stories

• SAFEs and Section 1202: When Does the QSBS Clock Actually Start?
• The Tax World’s Last 30 Days: OBBBA’s Guidance Tsunami, the $15 Million Estate Tax Party, and a Comedian Who Watched the World Cup From the Courthouse Gallery
• IRS issues guidance on QOZ program changes

 

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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The Qualified Opportunity Zone (QOZ) program provides tax incentives to invest in designated low-income communities across the United States. Tax law changes enacted last year made the program permanent and altered it, with implications for investors under both the original and renewed programs. With proposed, and eventually final, regulations on the way, the IRS has released some transitional guidance for investors, Qualified Opportunity Funds (QOFs) and Qualified Opportunity Zone businesses (QOZBs).

QOZ basics

The QOZ program was created by the Tax Cuts and Jobs Act (TCJA). It generally allows taxpayers to defer — and possibly reduce or eliminate — short- or long-term capital gains from the sale of their investments by reinvesting the gains in a QOF within 180 days.

QOFs must maintain at least 90% of their assets in QOZ property. Qualifying investments include those in QOZBs and in new or substantially improved commercial buildings in QOZs.

Under the TCJA, the tax benefits from investing in a QOF are generous. Taxes on the “rolled over” capital gains are deferred until the earlier of 1) the sale or exchange of the taxpayer’s investment (an “inclusion event”), or 2) December 31, 2026. Investors receive a 10% step-up in basis for the investment after five years, so only 90% of the rollover gain is taxable. After seven years, the step-up increases to 15%. Gains on investments left in a QOF for at least 10 years are fully tax-exempt.

The One Big Beautiful Bill Act (OBBBA) established a permanent QOZ program with rolling 10-year QOZs. The first round of newly designated zones eligible for investment will begin January 1, 2027. It’s expected that about 6,500 new zones will be designated. The original QOZ designations generally expire on December 31, 2028.

Under the permanent program, rollover gains can still be deferred, with a 10% step-up at year five. At that point, though, the rollover gains must be recognized. And the additional step-up at seven years has been eliminated. But the permanent exclusion of gains on the QOF investment itself after 10 years remains intact, for up to 30 years after investment. The OBBBA also created a new kind of QOZ for rural areas, with a 30% step-up on the rollover gain after five years.

What’s in the guidance?

The guidance in IRS Notice 2026-40 addresses several issues of concern, including:

Treatment of existing QOF investments. Investors who hold a qualifying investment through December 31, 2026, must include the amount of remaining rollover gain from the investment in their income for the tax year that includes that date. Notably, they can’t defer that gain by rolling it into a new QOF.

Existing QOF investors can opt to continue to hold those investments. If investors reach the 10-year holding period and satisfy certain requirements, they can elect to adjust the basis at sale or disposition to the investment’s fair market value at that time, thus eliminating taxable gains after the date of the original investment.

The treatment of gains on an inclusion event that occurs before December 31, 2026, differs from that of gains where the investment is still held on December 31, 2026. In the former situation, the recognized gains may be eligible for deferral by making a new qualifying investment within 180 days. But the clock on the 10-year step-up in basis will start over and run from the date of the new investment.

Tangible property acquired after 2026. Under the OBBBA, property acquired by a QOF or QOZB after December 31, 2026, generally can’t be treated as QOZB property unless it’s acquired for use in a QOZ designated after July 4, 2025. That means tangible property acquired after 2026 generally can’t qualify as QOZB property if it’s in one of the originally designated QOZs.

However, the guidance outlines two exceptions that allow tangible property acquired by QOZBs after 2026 in an original QOZ to qualify:

• Working capital safe harbor. The safe harbor applies if an entity acquires the property under a written working capital plan that was adopted before December 31, 2026. The QOZB also must have received at least 10% of the estimated working capital assets designated by the plan before December 31, 2026, and expended at least 5% by that date.
• Ordinary course of business exception. This exception applies when a QOF or QOZB acquires tangible property in an existing QOZ, in the ordinary course of its business, to replace existing tangible business property (if other requirements are met). Covered replacements include the replacement or modernization of property necessary for the business. Property acquired to expand a business or transition to a new business doesn’t qualify.

QOZBs and QOFs that are active in existing QOZs should ensure they can satisfy one of these requirements before the end of 2026.

Seize the opportunities

In addition to the above, the IRS guidance provides transitional rules, including safe harbors for how QOFs and QOZBs can continue to treat a location as if it were in a QOZ after an existing designation expires. Questions? We can provide further details on the new QOZ guidance and explain how it can benefit your tax situation.

© 2026

     

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Friends, we need to talk about a Supreme Court case that doesn’t have “tax” anywhere in its name but is quietly reshaping how the IRS and Treasury do business. I’m talking about Loper Bright Enterprises v. Raimondo — a fishing-rights case, of all things, that torpedoed a 40-year-old legal doctrine and, in the process, handed taxpayers a shiny new weapon against Treasury regulations they don’t like.

What Actually Happened in Loper Bright

Let’s start with the fish. Loper Bright involved a group of Atlantic herring fishermen challenging a National Marine Fisheries Service rule that made them pay for at-sea federal monitors. Nothing about tax. Everything about the Chevron doctrine — the 1984 rule from Chevron U.S.A. Inc. v. Natural Resources Defense Council that told federal courts: if a statute is ambiguous, defer to the agency’s “reasonable” interpretation of it.

In June 2024, in a 6-3 decision written by Chief Justice Roberts, the Court didn’t just tweak Chevron . It killed it. Outright. “Chevron is overruled,” the opinion states flatly. The Court held that the Administrative Procedure Act requires judges to exercise “independent judgment” when deciding whether an agency acted within its statutory authority and courts may no longer defer to an agency’s reading of an ambiguous statute simply because the statute is ambiguous. Statutes, the majority insisted, have “a single best meaning,” and it’s the judiciary’s job, not the bureaucracy’s, to find it.

Here’s the nuance worth knowing, because the devil (or should I say, il diavolo) is always in the details: the Court didn’t eliminate all deference. Courts can still give weight to an agency’s interpretation under the older, gentler Skidmore deference standard. Basically, if the agency’s reasoning has the “power to persuade”. And where Congress has expressly delegated discretionary authority to an agency, courts must still respect that delegation, while making sure the agency stays within its lane. So it’s not chaos with no guardrails. It’s chaos with fewer, blurrier guardrails. Which, frankly, might be worse.

Why This Is HUGE for Tax

Here’s the part that should make every one of my clients sit up straight. The Internal Revenue Code is riddled with delegations of authority to Treasury, both narrow, section-specific grants and the sweeping general grant in Section 7805(a), which lets Treasury “prescribe all needful rules and regulations for the enforcement of this title”. For four decades, when the IRS issued a regulation interpreting an ambiguous Code provision, courts largely deferred to it under Chevron . That deference gave Treasury enormous latitude to fill gaps, close perceived loopholes, and, let’s be honest, sometimes stretch statutory language further than Congress ever intended.

Loper Bright changes that calculus dramatically. Courts must now independently interpret the statute and ask whether the regulation is the best reading of the Code, not merely a reasonable one. If a Treasury regulation goes further than the statutory text actually supports, it’s now considerably more vulnerable to being struck down.

We already have the receipts. In October 2025, the Eighth Circuit sided with 3M in its long-running battle over Section 482 transfer pricing regulations, expressly invoking Loper Bright to bypass deference to the IRS and go straight to the statutory text. The court noted “the legal landscape has changed” since the Tax Court’s 2023 ruling against 3M, a ruling issued back when Chevron was still the law of the land. That’s nearly $24 million in royalty payments at stake, decided differently because the deference rulebook flipped. This is not academic. This is real money, real regulations, and real precedent falling.

Where the Battlegrounds Are Forming

Tax scholars and practitioners are converging on a few areas where Loper Bright is most likely to bite:

• Transfer pricing (Section 482): The 3M case is the tip of the iceberg — multinational taxpayers now have a credible new avenue to challenge IRS allocation authority when the statutory hook feels thin.
• Regulations built on general “needful rules” authority (Section 7805(a)): Broad, catch-all Treasury regulations not tied to a specific statutory delegation are the softest targets.
• Long-standing, contemporaneous regulations: Ironically, older regulations issued close in time to the statute’s enactment may actually fare better , since the Court signaled sympathy for interpretations that echo the “power to persuade” of Skidmore and the old National Muffler
• State tax administration: Many states modeled their own deference doctrines on Chevron . Expect state revenue departments to face copycat challenges as taxpayers borrow the Loper Bright

The “But Wait, There’s More” Twist

Here’s where it gets deliciously. Loper Bright didn’t arrive alone. It landed alongside Corner Post, Inc. v. Board of Governors of the Federal Reserve System , a companion ruling on the statute of limitations for challenging federal regulations. Together, these two cases don’t just make regulations easier to challenge on the merits, they also extend the window for bringing those challenges in the first place. That’s a one-two punch: more grounds to sue, and more time to do it.

Bottom line: nobody — not the IRS, not Treasury, not the courts themselves — knows exactly where the new lines will settle. As one commentator memorably put it, Loper Bright “loosed chaos into many areas of administrative law, including tax,” and it will take years of litigation for the contours of the new standard to firm up.

What You Need to Do

This isn’t a “wait and see” moment for high-net-worth business owners and growth companies. It’s a “know your exposure” moment. Here’s my action list:

• Audit regulatory reliance. If your tax position depends heavily on a Treasury regulation (rather than the Code itself), understand whether that regulation is grounded in an explicit statutory delegation or a broader, more general grant of authority. The latter is now shakier ground.
• Revisit closed transfer pricing positions. If you operate cross-border and have unresolved Section 482 issues, the 3M precedent is a live development worth discussing with counsel.
• Don’t assume every unfavorable regulation is now toast. Loper Bright is not a blanket taxpayer victory. It cuts both ways, and courts may also strike down regulations taxpayers currently rely on for favorable treatment.
• Watch pending litigation closely. Cases working through the Tax Court and circuit courts over the next 12-24 months will define the real-world contours of this decision far more than the opinion’s text alone.
• Build flexibility into structuring decisions. In an environment where regulatory certainty has diminished, entity structuring and transaction planning should account for a wider range of possible regulatory outcomes.

After 40 years of watching Congress and the courts play tug-of-war with the tax code, I can tell you this is one of the more consequential structural shifts I’ve seen since the 1986 Tax Reform Act rewired the entire system. It won’t show up on your 1040 next April, but it will absolutely shape how aggressively Treasury can write the rules you live under for decades to come.

Grazie mille, ciao and if you want to talk through how Loper Bright might affect a specific regulation you’re relying on (or fighting), reach out to us at info@cordasco.cpa.

     

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