- Newsletters

Beginning in 2026, individuals aged 50 and older who earn more than $150,000 in prior‑year-wages will see a significant change in how they can make catch‑up contributions to their workplace retirement plans. Under the SECURE 2.0 Act, these contributions will no longer be eligible for traditional pre‑tax treatment. Instead, they will be required to be made as after‑tax ROTH contributions (if their plan allows). It should be noted that the new rule applies to just the additional catch-up portion; high earners should still consider maxing out the full $24,500 pre‑tax potion thereby allowing for the greatest income deferral.

What Employees Need to Know
Catch‑up contributions allow workers over 50 to save beyond the standard 401(k) limit by contributing an additional $8,000, or up to $32,500 in total for 2026. Historically, these contributions reduced taxable income in the year they were made. Under the new rules, high‑earning participants will pay taxes upfront on just the additional $8,000, but this ROTH contribution piece will grow tax‑free and may be withdrawn tax‑free in retirement, provided the account has been open at least five years and the participant is at least 59½.

Key Takeaways for Taxpayers

We encourage clients to review how these rules may affect their savings strategy, while coordinating with plan administrators to ensure ROTH catch‑up contributions are eligible under their plans effective for 2026. Understanding these changes earlier in 2026 can help prevent surprises come year-end. Don’t hesitate reaching out to your EGP & Company contact for additional information.

Close

The One Big Beautiful Bill Act (OBBBA) introduced a major tax change for workers who earn overtime pay. A new tax provision allows eligible individuals to deduct certain overtime compensation directly on their federal income tax return. This provision is designed to provide meaningful tax relief to workers who rely on overtime to supplement their income.

Below is an overview of how the new deduction works, who qualifies, and what employers need to know as they prepare as the rule takes effect.

What Is the Qualified Overtime Compensation Deduction?
New IRC Section 225 allows individuals to deduct qualified overtime compensation they receive during the tax year, provided the income is properly reported on an information return such as Form W‑2 or other statements. Key features include:

· Maximum deduction: Up to $12,500 per year (or $25,000 for joint filers).

· Above‑the‑line deduction: Reduces adjusted gross income (AGI) and is available in addition to the standard deduction.

· Income‑based phaseout: The deduction is reduced by $100 for every $1,000 by which the taxpayer’s modified AGI exceeds the statutory threshold.

· Reporting requirement: Only overtime compensation reported on required information returns (Forms W‑2 and 1099) qualifies for the deduction.

Who Can Claim the Deduction?

· Employees: Most employees who receive overtime pay under the Fair Labor Standards Act (FLSA) or similar state laws may qualify.

· Independent Contractors: Do not qualify for the overtime deduction, as overtime rules apply only to employees.

What Employers Need to Know
Employers should prepare for several practical implications:

· Payroll systems may require updates. Because the deduction applies beginning January 1, 2025, employers may need to adjust payroll systems. However, given the retroactive nature of the deduction, employers are not required to separately report overtime compensation on 2025 Forms W‑2 to employees.

· Accurate overtime tracking is essential. Employers should ensure their payroll systems accurately track overtime hours and pay, as employees may rely on these records to substantiate their deduction.

· Withholding rules remain unchanged. Overtime compensation remains fully subject to federal income tax withholding, Social Security, and Medicare taxes.

· Employee communications may be needed. Employers may wish to inform employees about the new deduction and how to access their payroll records for substantiation.

Key Takeaways for Taxpayers
This new Qualified Tips Deduction represents a meaningful shift in how tip income is treated for tax purposes. While the deduction primarily benefits workers, employers will need to ensure compliance with the increased reporting rules. For 2025, the IRS has provided a transition period, allowing for a reasonable method to bifurcate between ‘wage’ and ‘tip’ income. In 2026, new tip coding will be afforded to employees within Box-12 of their W-2 forms.

The Overtime Income Deduction provides a new tax benefit for employees who work overtime, but it also introduces new compliance considerations for employers. While reporting obligations remain largely unchanged for 2025, employers should ensure that overtime is calculated correctly, payroll systems maintain accurate records, and employees can access documentation needed to claim the deduction.

We recommend reviewing your current systems, proactive preparation will help minimize administrative burdens and support employees in taking advantage of this new tax benefit. Don’t hesitate reaching out to your EGP & Company contact for additional information.

Close

As we approach the close of the 2025 tax year, proactive planning remains essential. Recent legislative changes enacted under the One Big Beautiful Bill Act (OBBBA) introduces a significant new tax benefit for workers in traditionally tipped occupations. This provision allows eligible individuals to deduct certain tip income directly on their federal tax return. However, there are numerous limitations, restrictions, and constraints.

Below is an overview of how the new deduction works, who qualifies, and what employers need to know as they prepare for implementation.

What Is the Qualified Tips Deduction?
New IRC Section 224 allows individuals to deduct up to $25,000 of qualified tips received during the tax year. This deduction is taken “above the line,” meaning it is available in addition to the standard deduction. To qualify, tips must be:

· Cash tips received in an occupation that traditionally and customarily received tips on or before December 31, 2024.

· Applies to certain occupations as determined by the Secretary of the Treasury.

· Voluntary payments made by customers, not negotiated or mandatory charges.

· Reported to the IRS on an information return such as Form W‑2, Form 1099, etc.

· Not received in a “specified service trade or business” which includes fields such as health, law, consulting, and investment management.

Further, the deduction is subject to an income‑based phaseout. It begins to phase out at $150,000 modified AGI for single filers ($300,000 for joint filers). The deduction is reduced by $100 for every $1,000 of income above these thresholds.

Who Can Claim the Deduction?

· Employees: Most employees in tipped industries—such as restaurants, hospitality, and personal services—may qualify, provided their tips meet the statutory criteria and are properly reported.

· Independent Contractors: Non‑employee workers (e.g., hair stylists renting a booth, self‑employed massage therapists) may also claim the deduction, but only to the extent their tips exceed their deductible business expenses. This ensures the deduction applies only to net tip income.

What Employers Need to Know
Employers should prepare for several practical implications:

· Tips must still be reported. Employees must continue reporting tips to employers, and employers must continue reporting them on Form W‑2.

· Withholding rules remain unchanged. Tips remain subject to federal income tax withholding, as well as Social Security and Medicare taxes.

· Payroll systems may require updates. Because the deduction applies beginning January 1, 2025, employers may need to adjust payroll systems.

· Service charges are not tips. Automatic gratuities -- such as an 18% charge for large parties -- do not qualify as tips (for purposes of this deduction).

· Unreported tips may still be deductible. Employees who fail to report tips to their employer may still claim the deduction by reporting them on Form 4137.

· Non‑employee tip reporting is evolving. Form 1099‑NEC currently has no dedicated line for tips, but the law requires reporting of tipped amounts and whether the occupation is customarily tipped.

Key Takeaways for Taxpayers
This new Qualified Tips Deduction represents a meaningful shift in how tip income is treated for tax purposes. While the deduction primarily benefits workers, employers will need to ensure compliance with the increased reporting rules. For 2025, the IRS has provided a transition period, allowing for a reasonable method to bifurcate between ‘wage’ and ‘tip’ income. In 2026, new tip coding will be afforded to employees within Box-12 of their W-2 forms.

We recommend reviewing your current tip‑reporting procedures, updating payroll systems as needed, and preparing to communicate these changes to employees. Don’t hesitate reaching out to your EGP & Company contact for additional information.

Close

The One Big Beautiful Bill Act (OBBBA) created a new tax‑advantaged savings vehicle known as the Trump Account. These accounts are designed to encourage long‑term savings and investment for American children and operate similarly to traditional IRAs, with several important distinctions. Further additional IRS and Treasury guidance is forthcoming.

The One Big Beautiful Bill Act (OBBBA) created a new tax‑advantaged savings vehicle known as the Trump Account. These accounts are designed to encourage long‑term savings and investment for American children and operate similarly to traditional IRAs, with several important distinctions. IRS and Treasury guidance is forthcoming.

Below is a practical overview for evaluating how Trump Accounts may fit into your individual tax planning.

What Is a Trump Account?
A savings vehicle treated similarly to a traditional IRA. An account is created for the exclusive benefit of an eligible individual, generally a minor child. Once created, it is subject to specific contribution, reporting, and administrative rules. Distributions from the account could likely be taxable, however, exceptions apply. Current guidance makes it clear these accounts are not Roth IRA’s.

Taxpayer may eventually open a Trump Account in various ways: via an online portal at trumpaccounts.gov, with Form 4547 with the 2025 tax return, or potentially additionally prescribed by future IRS Notice(s).

Who Is Eligible?
An “eligible individual” is generally a child who has not reached age 18 by the end of the calendar year, and meets additional criteria to be clarified in forthcoming regulations.

IRS guidance indicates that no contributions may be made until July 4, 2026. Annual contributions are capped at $5,000, indexed for inflation beginning in 2027. Contributions may be made by parents, guardians, or other permitted contributors.

Families with children born between December 31, 2024, and January 1, 2029, and who are a U.S. citizens, and hold a valid social security number can likely receive additional benefits. These individual may participate in the ‘pilot program’ where an one-time governmental $1,000 contribution is seeded for each qualifying Trump account beneficiary.

Tax Treatment
Trump Accounts are modeled on traditional IRAs where contributions may be deductible, subject to income limits (to be clarified in regulations). Earnings grow tax‑deferred. While withdrawals will be subject to rules similar to IRA distributions unless modified by future guidance. Any future ‘nonqualified distributions’ from the account are taxable and may face further penalties (similar to traditional IRA rules).

Trump Accounts represent a new opportunity for families to build long‑term savings for children, with tax advantages similar to retirement accounts. Financial institutions will begin offering Trump Accounts once regulations are finalized. As noted above, future legislation is anticipated further clarifying the accounts. Don’t hesitate reaching out to your EGP & Company contact for additional information.

Close

The IRS has issued proposed and temporary regulations under Code Sec. 530A, regarding general requirements for Trump accounts, the establishment of an initial account, including automatic enrollment by the Secretary of the Treasury, and qualified general contributions. Proposed regulations issued in March 2026 (NPRM REG-117270-25) that provided guidance on establishing Trump accounts, but did not establish automatic enrollment due to time constraints in resolving legal and administrative issues, are withdrawn. The temporary regulations apply to tax years beginning on or after January 1, 2026, and expire on September 30, 2029.

General Requirements and Establishment of an Account

A Trump account is either (1) an initial Trump account, created or organized by the Treasury Secretary for an eligible individual or (2) a rollover Trump account, which is an account created during the growth period and funded by a qualified rollover contribution from the account beneficiary's existing Trump account. The written governing instrument of a Trump account must generally meet the rules of Code Sec. 408(a)(1) through (6) and Code Sec. 530A(b)(1)(C)(i) through (iii). Any person approved by the IRS as of December 31, 2025, to be a nonbank trustee of an IRA would have automatic approval to act as a trustee of a Trump account. The written instrument must clearly identify the account as a Trump account at the time of creation.

The Secretary may make an election to establish an auto account for a qualifying individual. Another person may elect to establish a Trump account for an eligible individual by filing Form 4547 or via the electronic application or webpage made available by the Secretary. A person may claim an auto account pursuant to Temp. Reg. §1.530A-1T(d)(1)(iv) by establishing a claimed initial Trump account and having the funds in the auto account transferred to the claimed initial Trump account. On or about October 1, 2026, the Secretary shall establish an auto account for each person whom the Secretary has determined to meet the requirements of Temp. Reg. §1.530-A-1T(b)(2) to be an eligible individual, and from whom no prior election has been made. Periodic elections to establish accounts for eligible individuals will be made after that date.

Administration of an auto account is the Secretary's responsibility. During the growth period, an account may only accept qualified general contributions under Code Sec. 530A(f) and a $1,000 pilot program contribution. An auto account's only investment must be its equitable interest in the master group trust, which is a trust established for the exclusive benefit of account beneficiaries of auto accounts for purposes of holding investments of those auto accounts and meets the applicable requirements of Rev. Rul. 81-100, as modified, and is exempt from tax under Code Sec. 408(e).

Qualified General Contributions and Qualified Stock Contributions

Temp. Reg. §1.530A-7T establishes the framework for qualified general contributions to Trump accounts. A qualified general contribution must originate from an eligible donor, be accepted by the Secretary through a Treasury acceptance agreement, be made to beneficiaries within an approved class, and be allocated equally among all beneficiaries in that class. An approved class must include at least 5,000 account beneficiaries and include all account beneficiaries who are still in their growth period, reside in the specified geographic location, and born in one or more years identified in the Treasury acceptance agreement.

The regulations also create rules for qualified stock contributions, allowing eligible donors to contribute certain publicly traded stock issued by domestic corporations directly to Trump accounts. Such stock is generally subject to a minimum holding period ending on the earlier of five years after contribution or the beneficiary’s growth period ending.

Contributions made to qualifying Code Sec. 501(c)(3) organizations to fund general funding contributions are deductible under applicable charitable deduction rules, and gifts to eligible donor organizations are treated as qualifying charitable transfers. A Code Sec. 501(c)(3) organization furthers its exempt purposes by making a qualifying general funding contribution, whether directly or through a donor-advised fund. In addition, such contributions are treated as expenditures for charitable purposes and generally are not considered grants or distributions to individuals for purposes of the private foundation and donor-advised fund expenditure responsibility rules.

T.D. 10056

CC-00226466-26

Close

The IRS has released the 2026-2027 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. These special per diem rates include:

1. the special transportation industry meal and incidental expenses (M&IE) rates,
2. the rate for the incidental expenses only deduction,
3. and the rates and list of high-cost localities for purposes of the high-low substantiation method.

The IRS has released the 2026-2027 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. These special per diem rates include:

1. the special transportation industry meal and incidental expenses (M&IE) rates,
2. the rate for the incidental expenses only deduction,
3. and the rates and list of high-cost localities for purposes of the high-low substantiation method.

Transportation Industry Special Per Diem Rates

The special M&IE rates for taxpayers in the transportation industry are:

$80 for any locality of travel in the continental United States (CONUS), and
$86 for any locality of travel outside the continental United States (OCONUS).

Incidental Expenses Only Rate

The rate is $5 per day for any CONUS or OCONUS travel for the incidental expenses only deduction.

High-Low Substantiation Method

For purposes of the high-low substantiation method, the 2026-2027 special per diem rates are:

$329 for travel to any high-cost locality, and
$230 for travel to any other locality within CONUS.

The amount treated as paid for meals is:

$86 for travel to any high-cost locality, and
$74 for travel to any other locality within CONUS

Instead of the meal and incidental expenses only substantiation method, taxpayers may use:

$86 for travel to any high-cost locality, and
$74 for travel to any other locality within CONUS.

Taxpayers using the high-low method must comply with Rev. Proc. 2019-48, I.R.B. 2019-51, 1390. That procedure provides the rules for using a per diem rate to substantiate the amount of ordinary and necessary business expenses paid or incurred while traveling away from home.

Notice 2025-54, I.R.B. 2025-41, 479 is superseded.

Notice 2026-60

Close

For 2027, the Social Security wage cap will be $192,300, and Social Security and Supplemental Security Income (SSI) benefits will increase by 3.6 percent. These changes reflect cost-of-living adjustments to account for inflation.

Wage Cap for Social Security Tax

The Federal Insurance Contributions Act (FICA) tax on wages is 7.65 percent each for the employee and the employer. FICA tax has two components:

a 6.2 percent social security tax, also known as old age, survivors, and disability insurance (OASDI); and
a 1.45 percent Medicare tax, also known as hospital insurance (HI).

For self-employed workers, the Self-Employment tax is 15.3 percent, consisting of:

a 12.4 percent OASDI tax; and
a 2.9 percent HI tax.

OASDI tax applies only up to a wage base, which includes most wages and self-employment income up to the annual wage cap.

For 2027, the wage base is $192,300. Thus, OASDI tax applies only to the taxpayer’s first $192,300 in wages or net earnings from self-employment. Taxpayers do not pay OASDI tax on earnings that exceed $192,300.

There is no wage cap for HI tax.

Maximum Social Security Tax for 2027

For workers who earn $192,300 or more in 2027:

an employee will pay a total of $11,922.60 in social security tax ($192,300 x 6.2 percent);
the employer will pay the same amount; and
a self-employed worker will pay a total of $23,845.20 in social security tax ($192,300 x 12.4 percent).

Additional Medicare Tax

Higher-income workers may have to pay an Additional Medicare tax of 0.9 percent. This tax applies to wages and self-employment income that exceed:

$250,000 for married taxpayers who file a joint return;
$125,000 for married taxpayers who file separate returns; and
$200,000 for other taxpayers.

The annual wage cap does not affect the Additional Medicare tax.

Benefit Increase for 2027

Finally, a cost-of-living adjustment (COLA) will increase social security and SSI benefits for 2027 by 3.6 percent. The COLA is intended to ensure that inflation does not erode the purchasing power of these benefits.

Social Security Fact Sheet: 2027 Social Security Changes

SSA Press Release: Social Security Announces 3.6 Percent Benefit Increase for 2027

Close

The IRS established the IRA Compliance Resolution System (ICRS) to permit IRA owners and custodians to correct failures related to individual retirement arrangements by submitting a request to the IRS. Failures eligible for ICRS include required minimum distribution failures and nonspouse beneficiary rollover failures. The revenue procedure will also govern requests for waivers from the 60-day rollover requirement from IRAs as well as qualified employer-sponsored plans. The revenue procedure is effective May 1, 2027.

Self-Correction Not Available

The new system implements provisions of the SECURE 2.0 Act of 2022, P.L. 117-328, requiring expansion of the Employee Plans Compliance Resolution System (EPCRS) for qualified retirement plans to allow IRA custodians to address eligible inadvertent failures involving IRAs. The new ICRS consists of the IRA Voluntary Correction Program (IVCP), although additional correction programs may be introduced later. Self-correction of IRA failures is not currently available under ICRS. Instead, the IRA custodian or owner must make a submission to the IRS using the provided procedures and pay a fee on the Pay.gov website.

60-Day Rollover Waiver Requests

The procedure also establishes a process for requesting waivers of the 60-day rollover requirement under Code Secs. 402 and 408 through ICRS. During 2027, eligible applicants may request waivers through either ICRS or the existing private letter ruling process. Beginning in 2028, the IRS anticipates that such requests will be permitted only under ICRS.

Waiver requests may involve eligible rollover distributions from IRAs, qualified retirement plans, annuity plans, tax-sheltered annuities and governmental deferred compensation plans. Automatic waivers and waiver relief under previous guidance remains available.

Rev. Proc. 2026-33

Close

The IRS updated the Employee Plans Compliance Resolution System (EPCRS), its comprehensive system of corrections programs for employer-sponsored qualified retirement plans. The updates reflect significant changes to EPCRS made by the SECURE 2.0 Act (P.L. 117-328) and subsequent guidance. Former procedures under Rev. Proc. 2021-30 are modified and superseded. The revised procedures are effective October 22, 2026.

The bulk of the changes in the revised procedures reflect the SECURE 2.0 Act’s expansion of EPCRS’s Self Correction Program component to permit self-correction of eligible inadvertent failures, including plan loan failures. Other changes made by SECURE 2.0 and incorporated into the revised EPCRS include safe harbor corrections under Code Sec. 414(cc) and the recovery of retirement plan overpayments under Code Sec. 414(aa).

Other changes made in the revised revenue procedure include:

References to the availability of a separate compliance resolution system for IRA failures.
Updates reflecting changes to the determination letter and opinion letter programs.
Revisions to correction methods for SEPs and SIMPLE IRA plans.
Revisions to procedures for locating lost participants.
Revisions to the correction principle for failure to obtain spousal consent.
Changes to the Voluntary Correction Program (VCP) and the Audit Closing Agreement Program (Audit CAP), such as revised procedures for a group submission under VCP.

Rev. Proc. 2026-34

Close

The IRS has issued final regulations under Code Sec. 6311 implementing changes made by the Taxpayer First Act. The regulations permit the IRS to pay fees under contracts for processing tax payments by credit or debit card, provided the fees are fully recouped from taxpayers making those payments. The regulations remove restrictions on the IRS’s payment of fees under such contracts and on the imposition of reimbursement fees on persons paying taxes by credit or debit card.

Payment Processing Fees

The regulations authorize the IRS to enter into contracts for receiving tax payments by credit or debit card if the contracts are cost beneficial to the government. Under certain contracts, the IRS may pay fees, charges, or other monetary consideration to payment processors. If the IRS pays fees under these contracts, it must recoup the full amount from taxpayers making payments by credit or debit card. The reimbursement fees are payable at the time of, and in addition to, the tax payment and are limited to the amounts paid by the IRS under the contracts. The IRS must seek to minimize the fees paid under these arrangements.

Under other contracts, the IRS may elect not to pay fees to payment processors. Such arrangements do not prohibit card issuers, financial institutions, or other persons participating in the transactions from imposing their own fees or charges. The IRS may not receive any portion of those fees.

Error Resolution Procedures

Payments of taxes by credit or debit card, including reimbursement fees paid under the regulations, are subject to applicable error-resolution procedures under the Truth in Lending Act, the Electronic Fund Transfer Act, or similar state or local laws. These procedures apply to errors relating to the credit or debit card account but do not apply to disputes, errors, or adjustments concerning the underlying tax liability. Reimbursement fees paid under the regulations are not taxes imposed by the Internal Revenue Code and are not eligible for refund or credit under Code Sec. 6402.

Applicability

The final regulations amend existing regulations under Code Sec. 6311 to implement changes made by the Taxpayer First Act. The rules apply to tax payments and reimbursement fees made on or after the date of publication in the Federal Register.

T.D. 10060

Close

The IRS has issued proposed and temporary regulations providing guidance on the new federal scholarship tax credit under Code Sec. 25F. Beginning after 2026, an individual may claim a nonrefundable federal income tax credit for contributions to certified scholarship granting organizations (SGOs) issuing scholarships to students in K-12 schools. The regulations clarify how the credit is calculated, including the treatment of state tax credits, credit carryforwards, and substantiation requirements. They also establish immediate administrative rules for SGOs and states that opt into the program and identify SGOs.

Credit Eligibility and Calculation

An individual may claim a credit for qualified cash contributions made directly to eligible SGOs. The annual credit is generally limited to $1,700 per taxpayer or $3,400 for married individuals filing jointly. Contributions made through pass-through entities, including partnerships and S corporations, are not eligible for the credit. The taxpayer must reduce the federal tax credit by the amount of any state tax credit attributable to the same contribution before applying the federal limitation. Unused credit amounts may be carried forward for up to five years.

A taxpayer claiming the credit may not claim a charitable contribution deduction for the same contribution and must satisfy specified substantiation and reporting requirements. This includes use of a unique donor identification number on new Form 8525. The taxpayer donor must designate contributions as eligible for the credit at the time they are made. Once made, the designation is irrevocable.

A taxpayer may contribute to an eligible SGO regardless of their state of residence, allowing them to support qualifying SGOs across participating states.

Scholarship Granting Organizations

To qualify as an SGO, an organization must be recognized as a tax-exempt public charity, maintain separate accounts for qualified contributions and scholarship funds, and devote at least 90 percent of required expenditures to scholarships. SGOs must verify student eligibility, ensure scholarship funds are used solely for qualified elementary and secondary education expenses, and adopt procedures to prevent scholarships from benefiting disqualified persons. The regulations also require SGOs to register with the IRS, furnish acknowledgments to contributors, file annual reports, and maintain records demonstrating compliance with federal requirements.

State Participation

A state may elect to participate the federal scholarship tax program either through an advanced election or through the submission of a state SGO list. A state seeking to participate must annually certify eligible SGOs and provide the IRS with information demonstrating that the organizations satisfy federal requirements. The IRS will maintain and publish a nationwide list of eligible SGOs upon which taxpayers may generally rely when making contributions and claiming credits.

Applicability

Taxpayers, SGOs, and states may rely on the proposed regulations for qualified contributions beginning on or after January 1, 2027. The temporary regulations apply on or after September 1, 2026, and expire on October 1, 2029.

T.D. 10057

Proposed Regulations, NPRM REG-117199-25

IR 2026-117

Close

The Treasury Department and IRS have issued proposed regulations under Code Sec. 1062 governing the election to pay tax attributable to gain from qualified sales or exchanges of qualified farmland property in four annual installments. The proposed regulations define qualified farmland property and qualified farmers, provide rules for making the election, and address pass-through entities and acceleration events.

Qualified Farmland Property

Qualified farmland property generally is U.S. real property that was used by the taxpayer as a farm for farming purposes, or leased to a qualified farmer for farming purposes, during substantially all of the 10 years preceding the sale or exchange. The property also must be subject to a covenant prohibiting nonfarm use for 10 years following the sale or exchange. A copy of the covenant must be attached to the taxpayer's return for the taxable year of the sale or exchange.

The proposed regulations provide that certain periods of nonuse will be disregarded in applying the 10-year farming use requirement. These include periods during which property is removed from production under a government program, pursuant to recognized farming practices, or because of unforeseen events outside the taxpayer's control, provided the property continues to be maintained for farming purposes.

Election and Installment Payments

Taxpayers would make the election by filing Form 1062, Deferral of Tax on Gain from the Sale or Exchange of Qualified Farmland Property to Qualified Farmers, and Schedule A (Form 1062). Once made, the election generally may be revoked only by paying the remaining unpaid applicable net tax liability. Each installment payment equals 25 percent of the taxpayer's applicable net tax liability. The first installment generally must be paid by the return due date, determined without regard to the extensions, for the taxable year of the sale or exchange.

Pass-Through Entities and Acceleration Events

Under the proposed regulations, partners, S corporation shareholders, beneficiaries, and other owners generally may make the election with respect to applicable net tax liability arising from a qualified sale or exchange by a pass-through entity. Pass-through entities must furnish Schedule A information and the covenant to owners and beneficiaries and report each owner's allocable share of gain.

The proposed regulations also provide rules accelerating unpaid installment payments following certain events. Acceleration events include failure to timely pay an installment, the death of an individual taxpayer, and certain liquidations, dispositions of substantially all assets, and other specified events involving corporations, trusts, and estates. The proposed regulations also provide procedures under which an eligible transferee may assume the remaining installment obligations in certain transactions.

The proposed regulations would apply to qualified sales and exchanges occurring in taxable years ending after publication of final regulations in the Federal Register. Taxpayers may rely on the proposed regulations for qualified sales and exchanges occurring in taxable years beginning after July 4, 2025, provided they apply the rules consistently and in their entirety. Treasury and the IRS requested comments on the proposed regulations and requests for a public hearing within 60 days after publication in the Federal Register.

Proposed Regulations, NPRM REG-117095-25

IR 2026-115

Close

As the excitement of understanding what artificial intelligence can do for the tax profession starts to subside, the conversation is beginning to shift to risk management and risk assessment. To that end, the American Institute of CPAs has launched a new initiative – the Council on AI Risk in Tax (CART) – to help tax professionals manage risk.

CART was born out of a risk assessment framework recently developed by former IRS Commissioner Daniel Werfel that was published by AICPA after asking representatives of state tax authorities what he could do for them following his departure from the IRS.

“They said, ‘you know Danny, we are seeing so many interesting, exciting demos of AI products that really have paradigm-shifting productivity … but we don’t know what the risks are. We don’t know what questions we should ask ourselves to make sure that, as a tax authority, we are ready to deploy these powerful AI tools responsibly,” Werfel, senior fellow at Johns Hopkins University School of Government & Policy, said in an interview, adding that they also inquired about questions they should be asking vendors about safety features and other risks they should be looking out for.

“I did some immediate research and learned that there wasn’t an AI risk framework or risk register specific to tax,” he added, leading him develop version one of the recently published risk framework.”

From there, he approached AICPA as the place to publish the framework and through those conversations, created CART as a place for tax professionals and state tax administrators to collaborate on AI risk and further refine the framework.

“With AI, it’s obviously new,” Melanie Lauridsen, AICPA vice president of tax policy and advocacy, added. It’s ever evolving. There’s a huge interest. There’s a lot of unknowns, and there’s nothing really out there right now beyond what I have seen what Danny put forward to help guide people in this area.”

The Framework

The published framework states that it is more than a simple list of “relevant risks. The formulation and activation of the list means the organization has learned to:

Define how risks show up in practice;
Assign controls;
Establish indicators; and
Make course corrections as the environment evolves.

In this way the register is part of a broader risk governance framework to help organizations chart a sensible path forward from strategy to implementation.”

The publication includes distinct frameworks for both tax authorities and tax preparers. For tax authorities, the publication highlights 20 risk areas across four categories:

Information integrity – The wrong information reaching taxpayers at scale.
Fairness and legitimacy – Disparate or unfair treatment across groups.
Security and data – Compromised systems, corrupted data, or the exploitation of sensitive taxpayer information at AI systems aggregate, surface, or make newly accessible to band actors.
Institutional capacity – Loss of the knowledge and capacity by the institution needed to govern AI responsibility over time.

For tax preparers, there are 15 risk areas across 5 categories:

Technical – Incorrect or unreliable AI outputs that establish the conditions for downstream errors.
Practice – Failures of professional judgement, documentation, or oversight.
Legal and regulatory – Increased exposure to legal liability (e.g., malpractice claims, regulatory sanctions).
Business – Erosion of client trust and firm relationships.
Workforce and Strategic – Loss of the expertise and institutional knowledge needed to practice responsibly.

The framework “establishes a notional risk register for tax authorities and presents that side-by-side with a distinct register for tax preparers,” the framework document states. “It also identifies important areas of overlap across the two.”

A Living Framework

Werfel noted that this is not intended to be a one-and-done framework, but rather a living document that he anticipates will be updated on a regular basis.

“I wanted to give myself six months of feedback and iteration,” he said. “I told CART at our kickoA meeting [that] once we issue version two after six months, then I think it’s an annual [update] from there. But in this form, version one to version two, I wanted to put a little bit more accelerated because that’s the highest risk point for it missing something big in the risk register itself.”

Lauridsen add that convening CART regularly and discussing risks and best practices associated with those risks and updating the framework “is the right approach” as opposed to trying to build a firm set of standards for risk assessment and risk management of AI.

“We don’t know what it’ll be in a month, two months, much less six months or a year,” Lauridsen said, noting the fast evolution AI is currently experiencing. “I think it would be a disservice to come forward with a standard right now.”

She continued: “Right now, it’s more best practices. Everybody’s trying to get their minds and arms around it and how to implement it.”

Werfel added that the feedback will be very important when the framework goes through future iterations, as the CART members will be able to report back when the framework works and more importantly, when it “missed the bullseye” by the cross section of accounting, law firms, government associations and AI vendors.

“My hope is that if it’s oA bullseye, we’ll hear about it and update it,” Werfel said.

He did not rule out seeing the framework converted into an industry standard somewhere down the line, but for now, the focus is to just keep this a framework that users can use as a best practices guide to assessing risks of AI tools that states and practitioners are considering for implementation.

In the near term, Werfel said that an idea was floated to CART to make a voluntary pledge to follow the framework that CART produces. It would be completely voluntary, but a pledge to follow it would be “hopefully helpful to rally attention to AI risk.”

By Gregory Twachtman, Washington News Editor

Close