The Internal Revenue Service has launched a new automatic penalty relief program and a federal court has invalidated a significant global intangible low-taxed income regulation, marking major shifts in US tax enforcement.
The IRS announced its new Automatic Exemption from Penalty program on July 8, 2026, describing it as a systemic administrative relief initiative expected to begin operating this summer.
The AEP program will replace the long-standing First Time Abate administrative relief process, applying to eligible original returns beginning with tax year 2025 and 2026 quarterly returns.
Taxpayers generally qualify for AEP if IRS records show timely filing and payment for the prior three years, or 12 consecutive quarters for those filing quarterly returns.
For qualifying taxpayers, the IRS will not assess failure-to-file, failure-to-pay, or failure-to-deposit penalties during processing, providing meaningful relief from common compliance costs.
The program covers certain business and employment tax returns, including Forms 1065, 1120, 940, 941, 943, 944, 945, and CT-1, among others.
AEP will fully replace First Time Abate for eligible returns with original due dates on or after January 1, 2027, though some qualifying taxpayers may still receive penalty notices during the transition period.
On July 9, 2026, the Treasury and the IRS issued final regulations in Treasury Decision 10052, addressing transfer-for-value rules and information reporting requirements related to life insurance contract transactions, including certain corporate reorganisations.
The final regulations treat a section 1035 exchange, standing alone, as not constituting a transfer of the newly issued life insurance contract, generally retaining the approach set out in the 2023 proposed regulations.
The IRS also published Internal Revenue Bulletin 2026-29 on July 9, 2026, covering inflation adjustment factors for several key energy-related tax credits, including the zero-emission nuclear power production credit and the clean hydrogen production credit.
Notice 2026-41 provides a section 45V inflation-adjusted applicable amount of $0.656 before applying the lifecycle greenhouse gas emissions percentage, alongside section 45Z amounts of 22 cents and $1.09 for transportation fuel produced and sold in calendar year 2026.
Notice 2026-43 adds two new substances to the list of taxable substances under the Superfund chemical substances tax, effective October 1, 2026, for tax purposes and April 1, 2023, for certain refund claim purposes.
In a separate and significant development, the US Court of Federal Claims handed taxpayers a notable victory on July 2, 2026, in Keysight Technologies Inc. and Subsidiaries v. United States.
The court held that the Treasury lacked authority to issue the GILTI disqualified basis rule, which had denied certain amortization and depreciation deductions arising from gap-period related-party transfers.
The court rejected the government’s argument that its general statutory authority allowed it to rewrite allocation rules to prevent what it viewed as an unintended benefit for fiscal-year taxpayers.
The decision is considered a concrete example of how the Loper Bright ruling is reshaping judicial evaluation of regulatory validity, with statutory ambiguity alone no longer sufficient to compel courts to defer to Treasury interpretations.
The court was direct in stating that allowing the Treasury to define statutory terms it views as ambiguous, without a specific congressional grant of authority, would represent exactly the kind of agency overreach Loper Bright was designed to prevent.
Taxpayers with affected GILTI computations are advised to review their return positions and consider protective claims, given that further government litigation to preserve the regulation remains likely.