Yearly Archives: 2026

The U.S. Postal Service adopted a final rule effective December 24, 2025, that changes how postmark dates are determined and it could mean trouble for taxpayers who mail their returns close to the deadline. Under the new framework, a postmark now reflects the date mail is first processed by an automated sorting machine at a regional facility, which may be one or more days later than the date the taxpayer actually dropped it off.

Why This Matters for Tax Filers

Under IRC § 7502's "timely mailing rule," the postmark stamped on a mailed return is treated as the date of delivery to the IRS. This rule has long protected taxpayers who mail returns by the due date but whose returns arrive at the IRS after the deadline. If the postmark falls within the prescribed filing period, the return is deemed timely filed.

The problem is that the USPS's Regional Transportation Optimization (RTO) initiative has increased the likelihood that mail will not arrive at processing facilities on the same day it was collected or dropped off. As a result, a taxpayer who deposits a return in the mail on April 15 could receive a postmark dated April 16 or later, making the return appear late even though it was mailed on time.

The Real-World Consequences

The stakes are significant. A late postmark can trigger denied extension requests, loss of refund claims, or even jurisdictional dismissal of a Tax Court petition. Where the USPS changes produce later postmarks for documents that were mailed on time, a taxpayer may appear to have filed past a statutory deadline with potentially serious consequences.

Best Practices for Paper Filers

The IRS continues to encourage electronic filing as the safest option. For taxpayers who must paper-file, practitioners recommend the following strategies to protect against postmark risk:

·         Use certified or registered mail. Under § 7502(c) and Reg § 301.7502-1, the postmark on a certified mail sender's receipt is treated as the postmark date. This also provides prima facie evidence of delivery to the IRS.

·         Use an IRS-designated private delivery service. The IRS has designated specific services from DHL Express, FedEx, and UPS that qualify under the timely mailing rule. Only enumerated service types qualify, not every service offered by these carriers.

·         Mail earlier. Don't wait until the last day. Build in a buffer of several days before any filing deadline.

·         Request a manual postmark. Visit a USPS retail counter and ask for a hand-stamped postmark at the time of mailing to lock in the correct date.

·         Obtain a certificate of mailing. This provides an additional contemporaneous record of the mailing date.

The Bottom Line for Practitioners

Even before this USPS change, relying solely on a first-class mail postmark was risky. If the envelope is lost between the post office and the IRS, the postmark alone cannot prove delivery. Certified mail with return receipt requested or a designated private delivery service remains the best practice for any time-sensitive IRS submission. With the April 15, 2026 federal filing deadline approaching, now is the time to advise clients who paper-file to adjust their mailing practices accordingly.

 Have an IRS Tax Problem?

     Contact the Tax Lawyers at

Sources:

1.       https://www.taxcontroversy360.com/2026/02/new-usps-postmark-rules-may-impact-tax-filings/

2.      https://economictimes.com/news/international/us/new-usps-postmark-rule-explained-why-mailing-your-tax-return-on-april-15-could-lead-to-irs-penalties/articleshow/128467186.cms  

3.      https://www.kpmcpa.com/usps-postmark-rule-changes-for-tax-filing-deadlines/   

4.      https://thekfordgroup.com/important-2026-irs-filing-payment-changes/

5.       https://www.law.cornell.edu/uscode/text/26/7502 

6.      https://www.grfcpa.com/resource/tax-alert-new-usps-postmark-process/ 

7.       https://www.jrcpa.com/usps-postmark-rule-change-what-it-means-for-tax-filers-and-deadlines/

8.      https://www.morganlewis.com/pubs/2026/01/final-us-postal-service-rules-on-postmarks-may-complicate-taxpayer-filings-for-some-filers    

9.      https://www.usps.com/taxes/ 

10.   https://taxnews.ey.com/news/2016-0666-irs-designates-eight-new-private-delivery-services-that-taxpayers-can-use-to-timely-file-returns

11.    https://www.irs.gov/filing/private-delivery-services-pds

12.   https://www.wolterskluwer.com/en/expert-insights/usps-postmark-changes

13.   https://www.hrblock.com/tax-center/filing/private-delivery-services/

14.   https://hlbgrosscollins.com/news/how-usps-and-irs-changes-may-affect-your-tax-filings

    15.  https://nstp.org/article/usps-announces-changes-postmark-date-system

Read more at: Tax Times blog

A quiet technical reading of the tax code has collided with three and a half years of continuous Covid disaster declarations—and the result may be one of the strangest timing glitches in modern federal tax administration. A recent court decision suggests that, for many taxpayers, key filing and payment deadlines were effectively “off” from January 20, 2020, through July 10, 2023. That raises a big practical question: now what? The case is Kwong v. United States, No. 23‑271T (Fed. Cl. Nov. 25, 2025).

For taxpayers, advisors, and the IRS, this is not an academic curiosity. It goes straight to whether millions in penalties, interest, and possibly tax were ever legally due in the first place.

How We Got Here: Disaster Relief Meets Continuous Emergency

Congress gave the IRS powerful tools to postpone deadlines when there is a federally declared disaster. During Covid, those disaster declarations became effectively nationwide and long‑running. The court at the center of this development took a close look at how those rules interact with a multi‑year, rolling disaster environment.

The key idea is that certain “required deadlines” are tolled during the disaster period for affected taxpayers. When you combine that tolling concept with a disaster period that ran from early 2020 into mid‑2023, you no longer have a modest postponement—you have a multi‑year gap where deadlines may not have run at all. Instead of pushing due dates by a few weeks or months, the interaction of the statutes and declarations appears to have suspended them outright.

In practical terms, that means a taxpayer who filed or paid “late” in 2021 or 2022 may not have been late at all under this reading. The calendar said delinquent; the statute, as interpreted by the court, may say timely.

What Deadlines Are Potentially Affected?

The decision and related commentary focus on a wide array of federal tax time limits, including, for at least some affected taxpayers:

·         Annual filing deadlines, such as the April 15 due date for individual returns.

·         Payment deadlines tied to those filings.

·         Various penalty trigger dates for late filing and late payment.

·         Potentially, certain statutes of limitation for assessment, collection, and refunds, depending on the fact pattern.

It is important to emphasize that the scope is not yet fully settled. Different Code provisions use different timing language. Some deadlines are expressly excluded from disaster relief rules. Others are arguably within the tolling language the court applied. Until appellate courts and IRS guidance draw sharper lines, practitioners are forced to work with a moving target.

The early takeaway, though, is simple: a lot of “late” behavior between 2020 and 2023 might not have been late under this interpretation.

Why Taxpayers and Advisors Are Moving Fast

Once the decision became public, tax attorneys and CPAs began doing what you would expect: running transcripts, pulling penalty summaries, and asking, “Where do we have money on the table?”

There are three immediate drivers of urgency:

1.      Refund opportunity for penalties and interest
If deadlines were tolled, penalties and interest charged for “late” filing or payment during the covered period may be invalid. That opens the door to refund claims or amended returns seeking abatement and repayment.

2.      Uncertain statutes of limitation
Ironically, the same timing rules that may help taxpayers also scramble the normal limitations framework. Advisors are filing protective claims now, before the government or the courts announce narrower readings that taxpayers then cannot retroactively rely on.

3.      First‑mover advantage in a gray area
When the law is unsettled, well‑positioned taxpayers with good records and timely claims often obtain better outcomes than those who wait. Protective claims signal to the government that rights are being preserved and give practitioners room to negotiate or litigate later.

In other words, even if this theory is eventually trimmed back, many taxpayers don’t want to be the ones who did nothing while the window was open.

What This Means for the IRS

No tax agency welcomes a surprise three‑year suspension of its deadlines, especially when it hits at a time of resource constraints and heightened scrutiny. The IRS now faces several immediate challenges:

·         Operational burden of claims
A wave of amended returns and refund claims strains processing capacity and adds complexity to an already difficult filing season.

·         Litigation and appeal decisions
The government must decide whether to appeal the decision, in which courts, and on what theories, knowing that each move sends a signal to taxpayers and lower courts.

·         Need for guidance
At some point, the IRS will have to tell taxpayers and practitioners how it reads the interaction of disaster‑relief rules and the Covid declarations going forward: which deadlines it views as tolled, for whom, and for what periods.

It would not be surprising to see the Service seek a legislative fix—either clarifying that these years were not intended to be fully tolling, or explicitly limiting the reach of disaster‑based extensions in future emergencies. Congress, of course, may or may not act quickly.

Practical Steps for Taxpayers and Practitioners

If you are a taxpayer or advisor trying to decide what to do, a structured approach helps.

1.      Identify the relevant period
Focus on filings and payments that were due, and treated as late, between early 2020 and July 2023. This includes returns, extensions, and associated payments.

2.      Pull IRS account transcripts
For individuals and entities with significant penalties or interest during those years, obtain transcripts and penalty computations. You’re looking for late‑filing and late‑payment penalties, and significant interest that flowed from those supposed delinquencies.

3.      Evaluate fact patterns against the tolling theory
Not every deadline is likely covered, and not every taxpayer will fit the relevant disaster criteria. Work through the specific statutory deadlines implicated in each case, and whether they fall within the court’s reasoning.

4.      Consider protective refund claims
Where there is a plausible position and meaningful dollars at stake, a protective claim preserves the right to a refund while the dust settles. The claim should clearly describe the legal basis, reference the relevant case, and note that the amount may be adjusted as law and guidance evolve.

5.      Document expectations and risks with clients
Clients should understand that:

o   The theory is currently in flux.

o   The government may prevail on appeal or Congress may limit relief.

o   Time and professional fees are being spent to keep their rights alive in a developing area, not to pursue a guaranteed result.

This kind of candid discussion avoids “found money” expectations and frames the project as risk management and opportunity capture.

What To Watch Next

In the coming months, several developments will be critical:

·         Appellate decisions that either affirm, narrow, or reject the broad tolling interpretation.

·         IRS administrative guidance that may support some limited relief while resisting the more sweeping consequences.

·         Possible legislative action clarifying how disaster‑relief timing rules should and should not operate in the context of nationwide, long‑term emergencies.

For practitioners, this episode is a reminder of how much turns on the fine print of timing rules and cross‑references in the Code. For taxpayers, it is an unexpected second look at years they thought were closed—or hopeless.

If you work with clients who incurred meaningful penalties or interest between 2020 and 2023, now is the time to review accounts, identify potential cases, and decide where protective claims make sense. 

The tax deadlines may have been “off” for three years, but the opportunity to correct what happened during that period won’t stay open forever.

 Have an IRS Tax Problem?

     Contact the Tax Lawyers at

Sources:

1.      https://www.wsj.com/politics/policy/tax-deadline-waiver-changes-ab456be5         

2.      https://www.goingconcern.com/monday-morning-accounting-news-brief-eyers-complain-pettily-about-a-colleagues-gift-accountants-grow-impatient-about-ai-threats-2-16-26/          

3.      https://www.morningstar.com/news/dow-jones/202602162264/dow-jones-top-financial-services-headlines-at-11-am-et-tax-deadlines-accidentally-got-turned-off-for-three-years-now-what-financial   

4.      https://www.wsj.com/personal-finance/taxes/irs-staffing-cut-tax-filing-a9a53467

5.      https://www.wsj.com/us-news

6.      https://www.wsj.com/articles/SB924030345400955852

7.      https://www.facebook.com/WSJ/

8.      https://www.wsj.com/articles/irs-grapples-with-decades-old-computer-systems-1524086705

9.      https://www.wsj.com/articles/irs-experiencing-computer-failure-across-several-systems-1454542333

10.  https://www.linkedin.com/posts/the-wall-street-journal_tax-deadlines-accidentally-got-turned-off-activity-7429107757057753088-09HZ

11.  https://x.com/WSJ/status/2023357645130764418

12.  https://x.com/RichardRubinDC/status/2023372233658257830

13.  https://x.com/WSJ/status/2023336913915007176

14.  https://www.wsj.com/articles/irs-experiencing-computer-problems-1523982788

15.  https://www.wsj.com/personal-finance/taxes

16.  https://irstaxtrouble.com/covid-19-extended-tax-deadlines-longer-than-many-realized/

17.  https://www.taxcontroversy360.com/2025/12/major-update-potential-refund-opportunity-for-interest-and-penalty-amounts-accrued-during-covid-19-federally-declared-disaster/

18.  https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2023cv0267-38-0

19.  https://www.wsj.com/politics/policy/tax-deadline-waiver-changes-ab456be5

20.  https://tax.thomsonreuters.com/news/irs-suspends-certain-compliance-programs-due-to-covid-19/

21.  https://www.portebrown.com/newsblog-archive/covid-19-tax-relief-roundup-of-postponed-federal-tax-deadlines

22.  https://www.irs.gov/newsroom/irs-reminds-taxpayers-who-filed-for-extensions-of-the-oct-15-deadline

23.  https://www.thetaxadviser.com/issues/2024/sep/abdo-could-provide-relief-for-other-missed-deadlines/

24.  https://www.foxrothschild.com/publications/irs-shutdown-backlog-may-trigger-collection-refund-chaos

25.  https://assets.kpmg.com/content/dam/kpmg/us/pdf/2024/04/tnf-tax-court-abdo-farah-apr2-2024.pdf

26.  https://www.irs.gov/newsroom/irs-announces-tax-relief-for-victims-of-milton-various-deadlines-postponed-to-may-1-2025-in-all-of-florida

27.  https://www.everycrsreport.com/reports/LSB11038.html

28.  https://turbotax.intuit.com/tax-tips/tax-relief/irs-tax-penalty-abatement-and-relief/c0xDLC8Qm

29.  https://www.irs.gov/instructions/i8915f

30.  https://www.paulweiss.com/insights/client-memos/internal-revenue-service-postpones-april-15-federal-income-tax-payment-and-tax-return-filing-deadlines

31.  https://law.justia.com/cases/federal/district-courts/federal-claims/cofce/1:2023cv00267/47175/38/        

32.  https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2023cv0267-38-0        

33.  https://www.govinfo.gov/app/details/USCOURTS-cofc-1_23-cv-00267/USCOURTS-cofc-1_23-cv-00267-0

34.  https://www.jdsupra.com/legalnews/kwong-decision-provides-opportunity-for-6536283/

35.  https://irstaxtrouble.com/covid-19-extended-tax-deadlines-longer-than-many-realized/

36.  https://www.taxcontroversy360.com/2025/12/major-update-potential-refund-opportunity-for-interest-and-penalty-amounts-accrued-during-covid-19-federally-declared-disaster/

37.  https://www.casemine.com/judgement/us/591485afadd7b049344c9e87

38.  https://www.vorys.com/publication-supreme-court-finds-broad-government-authority-to-dismiss-fca-cases

39.  https://michellawyers.com/wp-content/uploads/2012/10/Kwong-v.-Bloomberg_Petition-for-Rehearing-En-Banc_95.pdf

40.  https://cmblaw.ca/news-and-media/the-perils-of-failing-to-coordinate-settlement-of-cross-border-securities-class-actions-kwong-v.-ianthus-capital-holdings-inc.html

41.  https://dockets.justia.com/docket/federal-claims/cofce/1:2023cv00267/47175

42.  https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2023cv0267-38-0        

43.  https://law.justia.com/cases/federal/district-courts/federal-claims/cofce/1:2023cv00267/47175/38/        

44.  https://www.govinfo.gov/app/details/USCOURTS-cofc-1_23-cv-00267/USCOURTS-cofc-1_23-cv-00267-0

45.  https://irstaxtrouble.com/covid-19-extended-tax-deadlines-longer-than-many-realized/

46.  https://www.taxcontroversy360.com/2025/12/major-update-potential-refund-opportunity-for-interest-and-penalty-amounts-accrued-during-covid-19-federally-declared-disaster/

46. https://www.jdsupra.com/legalnews/kwong-decision-provides-opportunity-for-6536283/

Read more at: Tax Times blog

The federal government has quietly built an integrated enforcement machine that links employment tax, immigration status, and even the security of U.S. citizenship itself. For practitioners, that means facts that once lived in separate silos—payroll practices, N‑400 answers, and criminal exposure—now interact in ways that can be life‑changing for clients.

In June 2025, DOJ’s Civil Division formally elevated denaturalization to one of its five top enforcement priorities, instructing lawyers to “prioritize and maximally pursue” revocation of citizenship wherever the law and evidence allow. The memo singles out, among others, undisclosed felonies, participation in criminal enterprises, and financial fraud—including tax and PPP fraud—as preferred targets, making any inconsistency between a client’s criminal/tax history and their N‑400 a potential citizenship case rather than “just” a criminal or tax problem.

At the same time, the April 7, 2025 IRS–ICE Memorandum of Understanding authorizes ICE, under IRC §6103(i)(2), to request taxpayer identifying information and selected return data in support of criminal immigration cases. Although formally “targeted,” the agreement is already being challenged in court by immigrant‑serving organizations who argue that it erodes long‑standing expectations of tax confidentiality and will chill compliance, especially among ITIN filers. For employers, the MOU is widely expected to fuel more payroll tax audits and joint investigations focused on unauthorized workers.

Denaturalization itself is pursued through civil actions under 8 U.S.C. §1451(a), which allows revocation if citizenship was illegally procured or obtained by willful misrepresentation or concealment of material facts. DOJ has used cases like United States v. Borgono to show that even “technical” omissions—such as failing to disclose pre‑naturalization involvement in a fraud scheme later prosecuted criminally—can cost a client their citizenship years after the fact. The burden is “clear, convincing, and unequivocal,” but there is no right to appointed counsel, and the government can reach back to conduct that would have been material to the original naturalization decision.

For High‑Net‑Worth Clients, The Loss Of Citizenship Can Also Be A Tax Event. 
The expatriation regime under IRC §877A generally treats certain individuals as selling all of their property the day before expatriation, subject to a mark‑to‑market tax above a statutory exclusion. Legislative explanations make clear that denaturalization is treated as the expatriation date for §877A purposes, notwithstanding the “relation‑back” doctrine under 8 U.S.C. §1451(a), so the tax consequences are forward‑looking from the judgment date. That alignment creates a narrow and sensitive window for any pre‑denaturalization planning, especially when spouses or children could themselves face derivative denaturalization under the immigration laws.

For practitioners in tax, immigration, and criminal defense, the practical takeaway is straightforward: you can no longer advise in one domain without at least screening for exposure in the others. Every N‑400, every employment tax problem involving unauthorized workers, and every criminal plea by a naturalized client is now a potential denaturalization and expatriation case in disguise—and the agencies talking to each other makes it more likely those threads will be pulled.

 Have an IRS Tax Problem?

     Contact the Tax Lawyers at

Sources

1.       https://www.wilmerhale.com/en/insights/client-alerts/20250613-doj-civil-division-issues-enforcement-priorities-memorandum   

2.      https://www.hklaw.com/en/insights/publications/2025/04/irs-and-ice-memorandum-of-understanding-will-drive-tax     

3.      https://www.justice.gov/archives/opa/press-release/file/1060906/dl?inline=    

4.      https://www.govinfo.gov/content/pkg/USCOURTS-flsd-1_18-cv-21835/pdf/USCOURTS-flsd-1_18-cv-21835-0.pdf    

5.       https://ogletree.com/insights-resources/blog-posts/doj-civil-division-sets-enforcement-priorities-to-advance-administrations-policy-objectives/  

6.      https://files.epi.org/uploads/IRS_ICE_MOU-April-2025.pdf     

7.       https://www.gtlaw-insidebusinessimmigration.com/department-of-justice/doj-civil-division-prioritizes-denaturalization-in-new-enforcement-memo/    

8.      https://forumtogether.org/article/denaturalization-fact-sheet/  

9.      https://www.brookings.edu/wp-content/uploads/2025/12/IRSDATA_12_04_2025_ImplementationPlan_IRS_ICE_FOIA_August2025.pdf  

10.   https://www.nytimes.com/2018/07/23/us/denaturalize-citizen-immigration.html 

11.    https://www.justice.gov/civil/media/1404046/dl?inline    

12.   https://www.mayerbrown.com/en/insights/publications/2025/06/doj-civil-division-announces-five-enforcement-priorities

13.   https://www.aila.org/library/policy-brief-denaturalization-and-the-administration-s-targeting-of-u-s-citizens

14.   https://www.irs.gov/pub/opr-taxpros/2025-7-requesting-irc-6103-information-from-the-OPR.pdf

15.    https://immpolicytracking.org/policies/doj-memo-sets-civil-division-enforcement-priorities-on-dei-antisemitism-gender-procedures-sanctuary-policies-and-denaturalization/

16.   https://www.hklaw.com/en/insights/publications/2025/04/irs-and-ice-memorandum-of-understanding-will-drive-tax  

17.    https://www.gtlaw-insidebusinessimmigration.com/department-of-justice/doj-civil-division-prioritizes-denaturalization-in-new-enforcement-memo/  

18.   https://www.crowell.com/en/insights/client-alerts/whats-old-is-new-again-the-expansion-of-sharing-tax-information-and-the-effect-on-employment-and-immigration-cases  

19.   https://www.wilmerhale.com/en/insights/client-alerts/20250613-doj-civil-division-issues-enforcement-priorities-memorandum  

20.  https://www.mayerbrown.com/en/insights/publications/2025/06/doj-civil-division-announces-five-enforcement-priorities 

21.   https://www.americanimmigrationcouncil.org/blog/ice-irs-data-sharing-agreement-court/

22.   https://lawblogs.uc.edu/ihrlr/2025/05/29/from-taxpayer-to-target-understanding-the-consequences-of-irs-data-sharing-with-ice/

23.   https://www.visalawyerblog.com/trump-administration-reveals-irs-deal-with-ice-to-aid-in-mass-deportations/

24.  https://forumtogether.org/wp-content/uploads/2025/05/IRS-ICE-Immigration-Data-Sharing-Agreement-Explainer.pdf

25.   https://www.foley.com/insights/publications/2025/10/irs-permitted-to-share-tax-data-with-ice-considerations-for-employers/

26.  https://files.epi.org/uploads/IRS_ICE_MOU-April-2025.pdf

27.   https://www.justice.gov/archives/opa/press-release/file/1060906/dl?inline=

28.  https://forumtogether.org/article/denaturalization-fact-sheet/

29.  https://www.govinfo.gov/content/pkg/USCOURTS-flsd-1_18-cv-21835/pdf/USCOURTS-flsd-1_18-cv-21835-0.pdf

30.  https://www.nytimes.com/2018/07/23/us/denaturalize-citizen-immigration.html

31.   https://www.justice.gov/civil/media/1404046/dl?inline

32.   https://taxprofblog.aals.org/2025/11/22/ice-and-the-irs-updates-after-court-filings/

33.   https://taxpolicycenter.org/taxvox/new-ice-irs-data-sharing-agreement-has-three-problems

34.   https://onlabor.org/the-irs-ice-deal-threatens-all-workers/

35.   https://www.epi.org/policywatch/ice-and-irs-reach-agreement-to-share-taxpayer-information-of-suspected-undocumented-immigrants/

36.   https://fedscoop.com/judge-blocks-irs-ice-data-sharing-agreement/

37.   https://www.foxrothschild.com/events/criminal-tax-employment-tax-enforcement-immigration-denaturalization

38.  https://news.bloomberglaw.com/us-law-week/falsifying-a-tax-return-can-cost-your-citizenship-under-trump

39.   https://www.forbes.com/sites/virginialatorrejeker/2025/09/08/uscis-updated-view-citizenship--denaturalization-tax-compliance--moral-character/

40.  https://globalreferral.group/denaturalization-could-open-the-door-the-u-s-exit-tax/

41.   https://www.imidaily.com/north-america/doj-now-using-past-tax-mistakes-to-strip-us-citizenship/

42.  https://thehill.com/opinion/immigration/5703262-denaturalization-legal-ethical-issues/

43.   https://news.bloombergtax.com/tax-insights-and-commentary/tax-expatriations-may-result-from-denaturalization-initiative

44.  https://truthout.org/articles/trump-administration-sets-goal-to-denaturalize-thousands-of-us-citizens-in-2026/

45.   https://www.npr.org/2025/06/30/nx-s1-5445398/denaturalization-trump-immigration-enforcement

46.  https://www.youtube.com/watch?v=I5bTXKFirrY47.    

Read more at: Tax Times blog

In late January 2026, the Western District of Michigan entered final judgment awarding Perrigo roughly 89 million dollars in tax refunds after rejecting the IRS’s attack on the company’s cross‑border omeprazole structure. The decision, following a detailed September 2025 opinion, offers rare, taxpayer‑friendly guidance on both the economic substance doctrine and Section 482 discounted cash‑flow transfer pricing.

What happened in Perrigo?

Perrigo, a global OTC manufacturer, partnered with unrelated Israeli company Dexcel to bring a generic OTC omeprazole product to the U.S. market under a 2005 supply and distribution agreement. In 2006, Perrigo shifted the contract rights from a U.S. affiliate (L. Perrigo Company, “LPC”) to a disregarded LLC owned by an Israeli partnership, then subcontracted U.S. distribution back to LPC, as part of a broader globalization initiative.

Years later, the IRS audited 2009–2012 and argued that:

·         The intercompany assignment lacked economic substance and should be ignored, and

·         In the alternative, Section 482 allowed the IRS to reallocate virtually all the Israeli entity’s income back to the U.S. entity using an ex‑post DCF analysis.

Perrigo paid the asserted liabilities and filed a refund suit; the court ultimately sided largely with Perrigo, culminating in the January 27, 2026 final judgment.

Economic substance: more than just tax savings

The court found that the contract assignment had real economic substance and was not a sham, even though tax minimization was an important driver. Several facts carried the day:

·         The restructuring was part of a company‑wide globalization strategy for its growing international business, not a one‑off tax play.

·         Perrigo sought and followed sophisticated professional advice in designing the structure.

·         Evidence supported that the assignment actually occurred in 2006, notwithstanding later‑executed documentation with retroactive effective dates, which the court viewed as common in large multinationals.

The IRS emphasized that the Israeli LLC had minimal employees and thin capitalization at the outset, arguing it could not realistically bear risk or perform substantive functions. The court rejected that narrative, concluding that enough risk and responsibility were genuinely shifted to sustain the transaction under the common‑law economic substance and sham‑transaction doctrines (the case did not apply codified section 7701(o)).

Section 482: ex‑ante vs. ex‑post DCF

On the transfer‑pricing side, the court took direct aim at the government’s Section 482 methodology. The IRS expert priced the assignment using a DCF method heavily grounded in ex‑post information and sought a royalty equivalent of about 21.5 percent, effectively pulling back nearly all of the foreign affiliate’s income.

The court instead endorsed Perrigo’s basic DCF approach, with modifications, stressing that:

·         Arm’s‑length pricing must be determined on an ex‑ante basis—using information known or reasonably knowable at the time of the transaction.

·         Financial projections prepared for non‑tax business purposes as of November 2006 were an appropriate starting point.

·         Ex‑post actual distribution costs and differentiated discount rates were not appropriate inputs in this context.

After the court’s adjustments (including rejecting fully loaded actual distribution costs and multiple discount rates), the resulting implied royalty was about 11.12 percent—roughly double Perrigo’s litigating position of 5.25 percent, but still far closer to the taxpayer than to the Service. The court described the government’s Section 482 position as arbitrary and capricious.

Practical takeaways for multinationals

For tax directors and advisers, Perrigo offers several concrete lessons:

·         Economic substance is still about facts and narrative: a well‑documented business strategy, contemporaneous advice, and real allocation of risks and responsibilities can overcome aggressive sham‑transaction theories, even when tax is a significant motive.

·         Documentation timing matters—but is not fatal: back‑dated‑effective intercompany agreements executed within the same fiscal year are not automatically suspect if supported by other credible evidence of when the transaction occurred.

·         Build transfer‑pricing files around ex‑ante evidence: projections, board materials, and non‑tax business cases contemporaneous with the transaction will be central when a court is asked to choose between taxpayer and IRS DCF models.

·         Expect continued IRS reliance on economic substance and ex‑post data, but be prepared to challenge those approaches using Perrigo as persuasive authority, particularly in the context of intangible‑related restructurings.

If you’d like, I can turn this into a fully polished, client‑branded post for your firm site, including a short “What this means for you” box aimed at U.S.‑based multinationals considering or defending cross‑border restructurings.

Sources:

1.       https://www.courtlistener.com/docket/6597422/perrigo-company-v-united-states/  

2.      https://taxnews.ey.com/news/2026-0397-district-court-judge-approves-final-judgment-in-case-on-economic-substance-doctrine  

3.      https://taxnews.ey.com/news/2025-2161-district-court-finds-pharmaceutical-company-entitled-to-refund-of-taxes-upholds-companys-argument-on-economic-substance-doctrine   

4.      https://www.millerchevalier.com/publication/perrigo-opinion-upholds-economic-substance-intercompany-assignment-contract-rights        

5.       https://insightplus.bakermckenzie.com/bm/dispute-resolution/united-states-district-court-upholds-economic-substance-of-intercompany-transactions-in-perrigo        

6.      https://legalblogs.wolterskluwer.com/international-tax-law-blog/understanding-the-2025-perrigo-decision-through-the-lens-of-a-craps-game/   

7.       http://southernvoice.org/wp-content/uploads/2025/05/SV_GSP_Completo_v2.pdf

8.      https://www.sec.gov/Archives/edgar/data/1012477/0001144204-16-087705.txt

9.      https://du.lv/wp-content/uploads/2024/12/Soc_zin_04.12.2024.pdf

10.   https://www.wieringernieuws.nl/index.php?pagina=Column&optie=Detail

11.    https://www.govinfo.gov/content/pkg/ERP-2024/pdf/ERP-2024-other.pdf

12.   https://www.europarl.europa.eu/RegData/etudes/STUD/2022/729533/EPRS_STU(2022)729533_EN.pdf

13.   https://www.njoag.gov/wp-content/uploads/2026/02/2026-0203_Novartis-Complaint-Bates-Stamped.pdf

14.   https://journals.librarypublishing.arizona.edu/arizlrev/article/10287/galley/9161/download/

15.    https://assets-us-01.kc-usercontent.com/1eeb16db-4934-006e-40a6-38fa91285ebb/2f167feb-05e5-4a3a-ad5f-415e5a5a685f/PMC 620 Declaration of Joseph H. Meltzer in Support of Motions for Final Approval of Settlement and Attorneys_ Fees, Expenses and Service Awards.pdf

16.   https://www.courtlistener.com/docket/6597422/perrigo-company-v-united-states/ 

17.    https://taxnews.ey.com/news/2026-0397-district-court-judge-approves-final-judgment-in-case-on-economic-substance-doctrine 

18.   https://taxnews.ey.com/news/2025-2161-district-court-finds-pharmaceutical-company-entitled-to-refund-of-taxes-upholds-companys-argument-on-economic-substance-doctrine 

19.   https://www.millerchevalier.com/publication/perrigo-opinion-upholds-economic-substance-intercompany-assignment-contract-rights 

20.  https://insightplus.bakermckenzie.com/bm/dispute-resolution/united-states-district-court-upholds-economic-substance-of-intercompany-transactions-in-perrigo 

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