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On May 1, 2026, the Treasury Inspector General for Tax Administration (TIGTA) released a report with a blunt message for the IRS: its current procedures are not sufficient to prevent backdated penalty approvals under section 6751(b). The report grows directly out of the Tax Court’s LakePoint Land II decision, where the Court found that a supervisor had bac
kdated a penalty lead sheet and that IRS Counsel misrepresented the timing to the Court, resulting in sanctions under section 6673(a)(2).

For practitioners handling exams and Tax Court cases, especially syndicated conservation easement (SCE) matters, this report is essentially a roadmap for both IRS vulnerabilities and best practices you should be ready to leverage.

The Focus: Section 6751(b) in SCE Cases

Section 6751(b) was enacted in 1998 as a safeguard to ensure supervisory oversight of many civil penalties and to prevent penalties from being used as a “bargaining chip” in audits. It generally requires written approval of the initial penalty determination by the immediate supervisor of the IRS employee proposing the penalty, with exceptions for certain automated and basic failure‑to‑file or pay penalties.

Following the LakePoint decision, the IRS and Chief Counsel launched a special review in August 2023 of 1,268 SCE cases—829 docketed and 439 nondocketed—to assess compliance with section 6751(b). SCE transactions were chosen because the IRS has labeled them abusive and has examined or litigated more than 1,200 of them, making them a natural stress test for penalty procedures.

What TIGTA Found: Backdating, Missing Approvals, and Documentation Gaps

TIGTA’s findings will sound familiar to anyone who has litigated 6751(b) issues, but now they are documented in an official oversight report.

·         In the 829 docketed cases, the IRS identified 13 cases that did not comply with section 6751(b) due to lack of valid supervisory approval, and TIGTA agreed with those determinations.

o    In 7 of the 13 cases, supervisors backdated penalty approvals; the IRS conceded more than $68 million in penalties as a result.

o    In the remaining 6 cases, alternative penalties were added after the initial supervisory approval, and the IRS conceded those unapproved alternatives.

·         In the 439 nondocketed cases, the IRS initially reported full compliance, but TIGTA found:

o    6 cases where neither TIGTA nor the IRS could verify timely supervisory approval because key documents, such as explanatory letters to taxpayers, were missing from the case file.

o    Other documentation problems, including multiple versions of penalty lead sheets with identical digital signatures, penalties listed in taxpayer correspondence without a corresponding approved lead sheet, and summary reports reflecting penalties that lacked documented supervisory approval.

TIGTA characterizes these problems as reflecting weak supervisory oversight and systemic documentation and internal control deficiencies in the penalty approval process. The practical risk is clear: if the IRS cannot prove timely approval, penalties may be conceded or struck, and taxpayers’ confidence in the fairness of the system can erode.

TIGTA also flagged five potential unauthorized disclosure issues under section 6103, including instances where correspondence included another taxpayer’s name or TIN. One was self‑reported, and the others were referred to IRS management.

Digital Signatures: A Double‑Edged Sword for IRS (and a Tool for You)

One of the more interesting parts of TIGTA’s report is the discussion of digital signatures and document properties.

Chief Counsel’s internal review discovered cases where penalty lead sheets had been modified after being digitally signed, as shown by electronic document properties, without a new digital signature being applied. That analysis helped drive the IRS’s decision to concede penalties in 6 of the 13 noncompliant docketed cases.

TIGTA emphasizes that:

·         IRS policy does not currently require secure digital signatures that lock the document against changes or force re‑signing after edits.

·         IRS Counsel is not required by the Chief Counsel Directives Manual (CCDM) to conduct electronic document analysis in every docketed case, and current guidance on that is informal.

Yet TIGTA explicitly notes that digital signatures, combined with review of electronic document properties, provide some of the best available evidence of authentic, timely supervisory approvals in litigation. For practitioners, that is both a warning and an opportunity: the existence of digital signatures and metadata cuts both ways, and TIGTA is encouraging the IRS to use them more systematically.

Why Did Backdating Happen? TIGTA’s Diagnosis

TIGTA ties the backdating and documentation problems to two main causes:

·         Employees failed to follow existing policies, procedures, and appropriate practices.

·         The IRS lacked clear, consistent guidance on:

o    When penalties must be approved,

o    How to document penalty changes, and

o    How to hold employees accountable, including an explicit prohibition on backdating.

The LB&I Division conducted disciplinary reviews for several employees in the 13 problem docketed cases, with outcomes ranging from non‑disciplinary counseling letters to written reprimands. TIGTA notes that, given the facts, other categories of misconduct in the IRS Penalty Guide could have supported more serious discipline, including suspensions or removal.

On timing, the report walks through the current legal landscape. Courts have split on when supervisory approval is required, some allowing approval up to assessment and others requiring earlier approval in the examination process. Treasury issued regulations in 2023 that, broadly speaking, permit supervisory approval as late as the notice of deficiency for pre‑assessment penalties and any time up to assessment for post‑assessment penalties. Internal procedures were updated to align with those regulations, including changes to IRM 20.1.1.2.3 in November 2025.

At the same time, TIGTA notes a December 2025 bill—the Fair and Accountable IRS Reviews Act—proposing to amend section 6751(b)(1) to require supervisory approval before any written communication proposing the penalty is provided to the taxpayer, consistent with the National Taxpayer Advocate’s position.

TIGTA’s Five Recommenations – and IRS’s Commitments

TIGTA made five recommendations, and IRS management agreed with all of them.

1.       Promote digital approvals
TIGTA recommends that the IRS promote the use of digital approvals for penalty approval documents to enhance record integrity, accountability, and evidentiary reliability. The IRS agreed and committed to continue promoting digital signatures and other secure electronic methods, tying this to broader communications on penalty procedures.

2.      Standardize penalty procedures and documentation
TIGTA urges the Chief Tax Compliance Officer to work with SB/SE and LB&I to review and revise penalty procedures to ensure consistency in obtaining and documenting supervisory approvals and verifying section 6751(b) compliance. The IRS responded that procedures have already been updated to align with section 6751(b) and Treas. Reg. § 301.6751(b)-1, including revisions to IRM 20.1.1.2.3 (November 25, 2025), and that enhanced review procedures are in place.

3.      Formal 6751(b) checks in all docketed cases
TIGTA recommends adding explicit CCDM procedures requiring Counsel attorneys to verify section 6751(b) compliance in all docketed cases, which may include reviewing electronic document properties and corroborating materials such as activity records and emails. Chief Counsel agreed to update the CCDM accordingly.

4.      Explicitly prohibit backdating and clarify update procedures
TIGTA recommends that SB/SE and LB&I Commissioners:

o    Communicate clearly that backdating penalty approvals is not appropriate.

o    Require penalty approval documents to be dated contemporaneously.

o    Remind employees when supervisory approval is required.

o    Provide guidance on how to update signed documents when changes are needed.

5.       The IRS agreed, stating it will issue a memo advising that penalty approval documents must be contemporaneously dated, that backdating is not appropriate, clarifying timing requirements, and explaining how to properly update signed documents, with an emphasis on securing electronic approval as a best practice.

6.      Operational reviews after sanctions
Finally, TIGTA points out that the IRS did not conduct an operational review after LakePoint, even though the court imposed sanctions for inaccurate statements and a false declaration, while a contemporaneous SCE case (Everest Granite) did trigger an operational review when sanctions were threatened. TIGTA recommends updating the CCDM to require a review whenever a court imposes sanctions against Chief Counsel. Chief Counsel agreed to make that change.

Practical Takeaways for Taxpayers and Practitioners

The TIGTA report has immediate practical implications, particularly in SCE and other penalty‑heavy cases:

·         6751(b) remains a potent defense. TIGTA confirms that even in a focused review the IRS found multiple noncompliant cases and conceded tens of millions of dollars in penalties, largely because of backdating and poor documentation. Practitioners should continue to scrutinize penalty approval timing and documentation in every penalty case.

·         Ask for digital versions and metadata. TIGTA’s emphasis on digital signatures and document properties should encourage defense counsel to seek native electronic versions of penalty approval documents in discovery or informal exchanges, not just PDFs, and to consider their own metadata reviews.

·         Expect evolving IRS procedures. With IRM and CCDM updates underway and a potential legislative change on the horizon, the “when” and “how” of supervisory approval will likely become more formalized and perhaps earlier in the exam timeline. Staying current with IRM 20.1 and related CCDM provisions will be essential.

·         Document your own record. When you receive a proposed adjustment or penalty, preserve the correspondence, envelopes, and any metadata you can. Those timestamps may matter if the IRS later produces an approval that appears to post‑date the communication.

·         SCE cases are the testing ground—but not the end. Although the review focused on SCE transactions, TIGTA’s recommendations and the IRS’s responses are not limited to that area. Expect stricter documentation and more formal 6751(b) checks across all operating divisions.

If you’re representing clients facing significant penalties, this report provides both an advocacy roadmap and a preview of how IRS processes may tighten in the coming years.

Have A Tax Penalty Problem?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

Sources:

1.       https://www.oversight.gov/sites/default/files/documents/reports/2026-01/SAR-2025-09.pdf    

2.      https://www.oversight.gov/sites/default/files/documents/reports/2025-05/GSA-OIG-SAR-Spring-2025_0.pdf        

3.      https://www.energy.gov/sites/default/files/2025-05/OIG Semiannual Report to Congress for period ending March 31, 2025.pdf   

4.      https://www.energy.gov/sites/default/files/2024-05/Semiannual Report to Congress Period Ending March 31 2024.pdf         

5.       https://www.ignet.gov/sites/default/files/files/CIGIE-Annual-Report-News-Release-2_3_2026.pdf

6.      https://www.bia.gov/sites/default/files/media_document/as-ia_foia_logs_july_2024_redacted.pdf          

7.       https://www.oig.dc.gov/sites/default/files/Reports/DCOIG_Report_2026-ES-01.pdf  

8.      https://www.fhfaoig.gov/sites/default/files/CompendiumFebruary2026.pdf  

9.      https://www.doi.gov/sites/default/files/documents/2024-12/sept-24-foia-logredacted.pdf

10.   https://www.hhs.gov/sites/default/files/fy-2026-oig-cj.pdf

11.    https://www.oversight.gov/sites/default/files/documents/reports/2025-04/OIG-A-25-05.pdf

12.   https://www.ignet.gov/sites/default/files/files/CIGIE FY 2026 Congressional Justification.pdf

13.   https://www.hud.gov/sites/default/files/CFO/documents/OIG-GAO-Rec-Report-for-Budget.pdf

14.   https://www.fhfaoig.gov/sites/default/files/CompendiumJanuary2026.pdf

15.    https://nsarchive.gwu.edu/sites/default/files/documents/4060575/Privacy-and-Civil-Liberties-Oversight-Board.pdf

16.   https://www.oversight.gov/sites/default/files/documents/reports/2026-01/SAR-2025-09.pdf 

17.    https://www.oversight.gov/sites/default/files/documents/reports/2025-05/GSA-OIG-SAR-Spring-2025_0.pdf         

18.   https://www.energy.gov/sites/default/files/2025-05/OIG Semiannual Report to Congress for period ending March 31, 2025.pdf   

19.   https://www.bia.gov/sites/default/files/media_document/as-ia_foia_logs_july_2024_redacted.pdf          

20.  https://www.energy.gov/sites/default/files/2024-05/Semiannual Report to Congress Period Ending March 31 2024.pdf     

21.   https://www.oig.dc.gov/sites/default/files/Reports/DCOIG_Report_2026-ES-01.pdf    

   22.   https://www.fhfaoig.gov/sites/default/files/CompendiumFebruary2026.pdf

Read more at: Tax Times blog

On 19 March 2026, the Judicial Committee of the Privy Council handed down its decision in A and 6 others v C and 13 others UKPC 11, the latest and most influential word on the role of protectors in offshore discretionary trusts (the “X Trusts” case). Although the appeal came from Bermuda, the court’s reasoning will be persuasive across the main offshore centers and is already being treated as a roadmap for protector powers in jurisdictions such as Jersey and the Cayman Islands.

For US advisors who routinely plug into foreign trust structures, whether in pre‑immigration planning, asset protection, or global family governance, the case matters for a simple reason: it confirms that a “protector” is often not a mere watchdog, but an independent fiduciary decision‑maker whose consent power can amount to real control. That has direct consequences for US tax classification, attribution and reporting, as well as for risk and governance conversations with clients.

Narrow vs wide protector roles: the JCPC’s answer

The X Trusts litigation crystallized a long‑running debate: when a trust deed requires protector consent to major trustee decisions, what is that consent supposed to involve?

·         Under a narrow model, the protector essentially checks legality and proper purpose: they ensure trustees act within their powers and rationally, but do not substitute their own merits‑based decision.

·         Under a wide model, consent is an independent fiduciary discretion: the protector can veto a proposal they consider contrary to the beneficiaries’ interests, even if the trustees’ decision would pass an ordinary rationality review.

Bermuda’s courts had previously steered toward a narrow view, but the Privy Council reversed course. In X Trusts, it held that where the deed requires protector consent and does not expressly confine that role to legality‑only oversight, the more natural reading is that the protector must exercise an independent fiduciary judgment, the “wider” role. At the same time, the Board stressed that there is no universal presumption: the starting point is the language and context of the specific trust instrument.

Why this matters in a US context

For US planners, the headline is that offshore protectors are now even harder to treat as “window dressing”. The decision underscores that, in many modern deeds, a protector who must consent to core powers (distributions, investments, trustee changes, amendments) is a genuine governance actor. That has several knock‑on implications:

·         Control and grantor status. When a US person (or someone within their “orbit”) holds a robust protector role, the IRS may view that person as having de facto control over distributions or key incidents of ownership, supporting grantor‑trust or retained‑interest arguments. Existing IRS commentary already recognizes that veto and removal powers can be highly significant; this judgment makes it harder to argue that consent rights are purely ceremonial.

·         Attribution and reporting. If a US client or a US‑connected party serves as protector with wide powers, that role can be relevant in assessing whether the trust is a “controlled” foreign entity, whether look‑through rules might apply, and how to describe the governance structure on Forms 3520, 3520‑A, 8938 and related filings.

·         Asset protection optics. Asset protection planners have long relied on foreign protectors to distance US settlors from direct control. X Trusts both validates the importance of that role and highlights the need to ensure that the protector is actually independent and properly documented as such; otherwise, a US court might treat the protector as a proxy for the settlor.

·         Family governance and disputes. Where different family branches occupy trustee and protector seats, X Trusts strengthens the position of protectors as active co‑decision‑makers, which can be a feature or a bug depending on family dynamics and the clarity of the drafting.

In short, if you’re advising US clients on foreign trusts, you now have strong authority to show that protector clauses are not boilerplate; they are central to questions of control, risk and disclosure.

Drafting and review points for US‑facing structures

The Privy Council’s message is not that all protectors must have the wide role, but that ambiguity will be resolved by careful construction of the deed, and that “silence” will not be used to confine them to a narrow, almost symbolic function. For US‑facing work, that suggests a few practical moves:

1.       Be explicit about the protector’s mandate.
Where possible, encourage foreign counsel to state clearly whether the protector is expected to exercise an independent merits‑based discretion or only a legality/proper‑purpose review. Clarity helps when you later need to explain the structure to the IRS, a US court, or a successor advisor.

2.      Align powers with the US tax profile.
If grantor‑trust treatment is desired, a wide protector role held by a trusted non‑US person may be acceptable or even helpful in some designs; if non‑grantor treatment is critical, you may want to avoid giving a US person strong veto or appointment powers over distributions or key incidents of ownership.

3.      Watch who holds the protector role.
X Trusts reinforces that protectors are real fiduciaries whose decisions can change outcomes. A US‑domiciled protector who is closely aligned with the settlor or primary beneficiaries will invite closer scrutiny on control, undue influence and potential agency arguments.

4.      Document information flows and decision‑making.
Because the wide role involves active fiduciary discretion, advisors should ensure that protectors have proper access to information and that key decisions are formally documented. Those records become crucial if a US court or the IRS later probes whether the protector is acting independently or as a rubber stamp.

5.       Review older deeds through a new lens.
Many pre‑existing offshore trusts have generic protector language drafted before the recent wave of case law from Jersey, Bermuda and now the Privy Council. X Trusts is a good prompt to review those instruments and, if necessary, consider variations to align the protector’s role with the family’s tax, governance and succession objectives.

How to use this with clients

For US‑based practitioners, X Trusts is also a useful conversational tool. It lets you:

·         Explain to clients why naming a sibling, advisor or family office executive as “protector” is not a casual decision in an offshore trust context.

·         Justify the time and cost spent coordinating with foreign counsel on the exact protector language.

·         Re‑frame protector discussions from “who gets a title” to “who will shoulder real fiduciary responsibility and potential scrutiny”.

An effective way to position it is: “Offshore courts are now telling us that protectors are governance actors, not mascots. If we’re going to use that role at all, we need to design it with your US tax and risk profile in mind.”

Need Experienced Advice for
Your Offshore Trust?

   Contact the Tax Lawyers at

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

Sources:

   1.       https://www.tridenttrust.com/knowledge/insights/march-2026-landmark-decision-rethinking-the-role-of-the-trust-protector      

2.      https://jcpc.uk/cases/press-summary/jcpc-2024-0094  

3.      https://bm.vlex.com/vid/the-x-trusts-1044668581 

4.      https://www.applebyglobal.com/publications/privy-council-decision-in-x-trusts-redefining-the-role-of-the-protector/     

5.       https://conventuslaw.com/report/bermuda-privy-council-decision-in-x-trusts-redefining-the-role-of-the-protector/     

6.      https://www.youtube.com/watch?v=GoMH8bfjobE

7.       https://www.5sblaw.com/news/the-judicial-committee-of-the-privy-council-jcpc-has-today-handed-down-its-judgment-in-a-ors-v-c-ors-2026-ukpc-11-henry-legge-kc-and-sam-chandler-appeared-for-the-protectors/ 

8.      https://supremecourt.uk/uploads/uksc_2024_0106_judgment_11cb2564b2.pdf

9.      https://www.jcpc.uk/cases/jcpc-2024-0094

10.   https://www.macfarlanes.com/insights/102l30g/macfarlanes-secures-important-judgment-in-bermuda-court-of-appeal

11.    https://supremecourt.uk/cases/judgments/uksc-2024-0047

12.   https://www.linkedin.com/posts/thomas-wk-wong-fciarb-fhkiarb-1a589467_breaking-jcpc-bermuda-activity-7440444777273122816-60oA

13.   https://www.wilberforce.co.uk/case-study/brian-green-kc-and-anna-littler-successful-in-bermuda-court-of-appeal-in-decision-on-breadth-of-standard-form-consent-powers-of-fiduciary-protectors-of-trusts/

14.   https://jcpc.uk/cases/judgments/jcpc-2024-0094

15.    https://www.gov.bm/sites/default/files/X Trusts (Final Judgment).pdf

16.   https://www.walkersglobal.com/en/Insights/2026/03/Consent-as-control-the-rise-of-the-powerful-protector            

17.    https://www.mishcon.com/news/guardian-or-governor-the-narrow-and-wide-views-of-the-trust-protectors-role           

18.   https://www.wealthbriefing.com/html/article.php/accountability-for-protectors-across-jurisdictions:-power,-abuse-and-limits-of-deference-            

19.   https://www.5sblaw.com/news/the-judicial-committee-of-the-privy-council-jcpc-has-today-handed-down-its-judgment-in-a-ors-v-c-ors-2026-ukpc-11-henry-legge-kc-and-sam-chandler-appeared-for-the-protectors/

20.  https://www.ogier.com/news-and-insights/insights/clarifying-the-protectors-role-key-takeaways-from-the-privy-councils-2026-judgment/            

21.   https://www.ogier.com/news-and-insights/insights/the-evolving-role-of-trust-protectors-case-law-developments/   

22.   https://www.conyers.com/publications/view/the-evolution-of-the-watchdog-role-of-protectors/ 

23.   https://www.wolterskluwer.com/en/expert-insights/offshore-trusts-can-offer-asset-protection    

24.  https://www.geigerlawoffice.com/blog/why-trust-protectors-are-the-wave-of-the-future.cfm 

25.   https://actecfoundation.org/wp-content/uploads/Offshore-Trusts-As-Tools-And-Strategies-For-Estates-Of-U.S.-Residents-ACTEC.pdf   

26.  https://www.offshoreaffairs.com/asset-protection/guide 

27.   https://info.wealthcounsel.com/blog/a-trust-protector-and-undue-influence

28.  https://www.hsfkramer.com/notes/pwtd/2023-04/protectors-powers-narrow-or-wide-view-the-bermuda-court-of-appeal-has-its-say

29.  https://www.gov.bm/sites/default/files/FINAL_Judgment_2018_No_40_civ_In_the_Matter_of_X_Trust_with_citation.pdf

30.  https://www.macfarlanes.com/insights/102kzc2/the-emperor-never-had-any-clothes-the-privy-council-abandons-the-shareholder-rul

31.   https://www.tridenttrust.com/knowledge/insights/march-2026-landmark-decision-rethinking-the-role-of-the-trust-protector    

32.   https://www.applebyglobal.com/publications/privy-council-decision-in-x-trusts-redefining-the-role-of-the-protector/    

33.   https://4stonebuildings.com/privy-council-judgment-on-the-role-of-a-protector-in-offshore-trusts/   

34.   https://www.ogier.com/news-and-insights/insights/the-evolving-role-of-trust-protectors-case-law-developments/

35.   https://www.collascrill.com/articles/mind-the-gap-why-the-wider-role-prevails-for-protectors/ 

36.   https://www.mishcon.com/news/guardian-or-governor-the-narrow-and-wide-views-of-the-trust-protectors-role

37.   https://jcpc.uk/cases/judgments/jcpc-2024-0094

38.  https://www.linkedin.com/posts/blake-harris-08a106b_offshoretrust-domestictrust-triggertrust-activity-7425568882314100736-IgF7

    39. https://www.stetson.edu/law/conferences/snt/media/mc_7_krooks_ppt.pdf

Read more at: Tax Times blog

The Tax Court’s recent decision in Arbor Vita Corporation d.b.a. Hemediagnostics v. Commissioner, 166 T.C. No. 5 (Mar. 16, 2026), is a sharp reminder that a timely petition is not enough if your corporate client lacks capacity under state law. For California entities in particular, the case shows that a later “revivor” will not rescue a petition once the IRS has a statute of limitations defense in hand.

The setup: a timely CDP petition by a dead‑in‑the‑water corporation

Arbor Vita is a California biotech corporation that ended up with unpaid federal unemployment tax and penalty liabilities. The IRS filed a Notice of Federal Tax Lien and issued a Collection Due Process (CDP) notice under section 6320. Arbor Vita did what we advise clients to do: it requested a CDP hearing and, after Appeals issued a Notice of Determination on March 6, 2025, it filed a petition with the Tax Court on April 3, 2025—within the 30‑day period in section 6330(d)(1).

There was one fatal problem: California had already suspended Arbor Vita’s corporate powers on July 1, 2024 for state noncompliance, and that suspension remained in place throughout the entire 30‑day filing window. The corporation did not obtain a Certificate of Revivor until September 17, 2025, long after day 30.

The IRS moved to dismiss for lack of jurisdiction, arguing the petition was filed by an entity that lacked capacity to sue.

Capacity, not just timeliness: how Rule 60(c) and California law collide

Tax Court Rule 60(c) tells us that a corporation’s capacity to litigate is determined “by the law under which it was organized,” which, here, is California. Under California law, a suspended corporation “may not prosecute or defend an action” in court until it is revived. That disability is more than a technical defect; it goes to the corporation’s legal existence as a litigant.

Judge Landy held that Arbor Vita lacked the “requisite corporate capacity” when it filed its petition and when the 30‑day CDP period expired. Because capacity is a prerequisite to the court’s ability to entertain the case, the petition was a nullity from the outset.

This is a key practice point: Boechler made the CDP deadline non‑jurisdictional and subject to equitable tolling, but it did not change the need for a valid, capacity‑bearing petitioner. You can have a petition that is timely but still incurable if the filer itself had no legal capacity.

Why California revivor couldn’t save the day

Arbor Vita argued that California’s revivor statute, which generally provides that revival restores the corporation’s powers “as if” they had never been suspended, should relate back and validate the petition. California courts do sometimes treat revivor as retroactively curing a suspension for procedural defects.

The Tax Court was not persuaded. Looking to California authority, including Ninth Circuit precedent in Community Electric Service v. National Electrical Contractors Ass’n, the court emphasized a crucial limitation: revivor cannot be applied in a way that strips an opposing party of an accrued statute of limitations defense.

By the time Arbor Vita obtained its Certificate of Revivor, the 30‑day CDP filing period had long expired and the IRS had a fully vested limitations defense. Allowing revivor to “relate back” in this situation would erase that defense, contrary to California’s own statutory scheme and case law. The court also rejected Arbor Vita’s attempt to analogize to California cases treating notices of appeal more forgivingly on revival, noting that those decisions likewise do not authorize undermining an accrued limitations defense.

Bottom line: state law relation‑back doctrine for revivor stops where the government’s limitations defense begins.

Equitable tolling after Boechler: a limit emerges

Post‑Boechler, many taxpayers have looked to equitable tolling as the safety net for CDP petitions. The Tax Court itself has recognized equitable tolling in other contexts, including Belagio Fine Jewelry, Inc. v. Commissioner, 164 T.C. No. 7 (2025), which held the 90‑day section 7436 deadline is tollable in principle.

Arbor Vita tried to use equitable tolling as a backstop, arguing that its suspension should count as an extraordinary circumstance justifying relief. Judge Landy drew an important distinction: equitable tolling is about extending a limitations period when a party, despite diligence, could not file on time. Here, the petition was filed on time; the defect was that the entity doing the filing lacked capacity at that moment.

Because there was no “late filing” to excuse, there was no limitations period to toll. Equitable tolling could not be used to paper over a capacity problem built into state law. That framing matters for future cases: capacity defects sit outside the Boechler clock.

Practice takeaways for tax professionals

For those of us representing corporations in IRS disputes, Arbor Vita is less about exotic doctrine and more about risk management and checklists.

Here are concrete takeaways:

·         Verify good standing before you file. For any corporate or LLC petitioner, confirm its status with the state of organization (and often the state of principal place of business) before drafting the petition. In California, a quick FTB or Secretary of State check can prevent a jurisdictional disaster.

·         Treat suspended status as a red light, not a yellow one. If the client is suspended, get the revivor completed and documented before filing in Tax Court. Filing “to protect the deadline” while suspended may leave you with a petition the court cannot recognize.

·         Don’t over‑rely on revivor’s relation‑back. State law may allow revival to cure some litigation acts during suspension, but not where doing so would deprive the IRS of an already accrued limitations defense. Arbor Vita shows that CDP and similar short‑window actions fall squarely in that danger zone.

·         Separate timeliness analysis from capacity analysis. After Boechler and Belagio, more deadlines are arguably subject to equitable tolling. That does not relax the separate requirement that the petitioner must exist, have capacity, and meet Rule 60(c) at the time of filing.

·         Update engagement letters and internal procedures. Consider adding explicit language about the client’s responsibility to maintain good standing and authorizing you to verify status. On the internal side, build a “capacity check” into your Tax Court filing workflow.

Example: A California S‑corp with a looming 90‑day deficiency deadline and a quiet FTB suspension for missed state returns. Under Arbor Vita, a petition filed on day 89 while suspended is at serious risk, even if the corporation scrambles to revive a month later. The safer path is to prioritize revivor immediately; if revival truly cannot be completed in time, you may need to consider alternative forums or collection strategies rather than assume a defective Tax Court petition can be fixed after the fact.

Have a Tax Problem?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

Sources:

1.       https://www.currentfederaltaxdevelopments.com/blog/2026/3/16/corporate-capacity-state-law-revivor-and-the-limits-of-equitable-tolling-an-analysis-of-arbor-vita-corporation-v-commissioner                

2.      https://irstaxtrouble.com/can-corporate-suspension-foreclose-u-s-tax-court-review/  

3.      https://news.bloombergtax.com/daily-tax-report/biotechs-tax-court-petition-fails-due-to-suspended-status 

4.      http://www.smbiz.com/sbtc26.html

5.       https://kpmg.com/kpmg-us/content/dam/kpmg/taxnewsflash/pdf/2026/04/26081.pdf

6.      https://jamanetwork.com/journals/jamaoncology/fullarticle/2705607

7.       https://www.currentfederaltaxdevelopments.com/blog/2026/3/16/corporate-capacity-state-law-revivor-and-the-limits-of-equitable-tolling-an-analysis-of-arbor-vita-corporation-v-commissioner                

8.      https://news.bloombergtax.com/daily-tax-report/biotechs-tax-court-petition-fails-due-to-suspended-status   

9.      https://www.jibudocs.com/public/summaries/b0e4ad4d-c667-080d-44a5-2dc7ee1b0389      

10.   https://www.law360.com/tax-authority/articles/2453637/tax-court-tosses-biotech-co-s-case-over-corporate-status

11.    https://irstaxtrouble.com/can-corporate-suspension-foreclose-u-s-tax-court-review/     

12.   https://www.jdsupra.com/legalnews/a-corporation-s-loss-of-capacity-and-5171697/      

13.   https://supreme.justia.com/cases/federal/us/596/20-1472/   

14.   https://www.currentfederaltaxdevelopments.com/blog/2025/4/15/navigating-the-90-day-deadline-for-employment-tax-redeterminations-the-belagio-fine-jewelry-inc-case-and-equitable-tolling 

15.    https://www.thetaxadviser.com/issues/2025/oct/equitable-tolling-does-not-apply-to-excuse-late-filing-of-petition/

16.   https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2024/12/ARC24_PurpleBook_07_StrengthTPR_45.pdf 

17.    https://www.flclaw.net/suspended-ca-corporations-cannot-file-tax-court-petitions/

18.   https://lacba.org/?pg=lacba-news&blAction=showEntry&blogEntry=98562

19.   https://www.linkedin.com/posts/ben-white-8186525_why-so-sirius-fifth-circuit-rejects-functional-activity-7449857278138060800-Muuz

20.  https://ustaxcourt.gov/files/documents/162_TC_243-260.pdf

21.   https://taxaid.com/criminal-tax-law/tax-court-denies-equitable-tolling-to-firm-that-the-supreme-court-allowed-equitable-tolling/

Read more at: Tax Times blog

On April 13, 2026, the IRS and Treasury released proposed regulations under new Internal Revenue Code section 4475, explaining how a new 1% federal excise tax will apply to many cash transfers from the United States to recipients in foreign countries. Although these rules are still proposed, the underlying tax is scheduled to take effect for transfers made after December 31, 2025.

The basics: what is the new remittance tax?

Section 4475 was enacted as part of the “One Big Beautiful Bill Act” and imposes a 1% excise tax on certain remittance transfers from the U.S. to foreign countries. In plain English, this is an extra 1% federal tax that can apply when you send money abroad through a money transfer business or similar service.

Key points:

·         The tax is 1% of the amount of the taxable remittance transfer.

·         It applies to transfers made after December 31, 2025.

·         The sender is legally liable for the tax, but the remittance transfer provider must generally collect it at the time of the transfer.

When does the tax apply?

The proposed regulations make clear that not every international transfer is taxed.

The 1% tax generally applies when:

·         The money is sent from the United States to a recipient in a foreign country.

·         The sender pays the provider using cash, a money order, a cashier’s check, or a similar physical instrument.

The tax does not generally apply to:

·         Transfers funded directly from a bank account (for example, an ACH or wire from your U.S. checking account).

·         Transfers funded by U.S. debit or credit cards, as described in many current summaries of section 4475.

·         Certain transfers from accounts at institutions subject to the Bank Secrecy Act, such as some credit union account withdrawals, which benefit from a specific statutory exemption.

For many families that still rely on cash or money orders to send support abroad, this distinction will matter a great deal: cash at a storefront remittance business may be taxed, while an online transfer funded directly from a U.S. bank account may not.

Who has to collect and pay?

Under the statute and the proposed regulations, the sender owes the tax, but the burden of collection falls on the “remittance transfer provider” (RTP).

·         Providers (think Western Union, MoneyGram, and similar services) must calculate the 1% tax, collect it from the sender, and remit it to the IRS.

·         Providers report the tax on Form 720, Quarterly Federal Excise Tax Return, and make required semimonthly deposits.

·         If the provider fails to collect the tax from the sender, the provider becomes secondarily liable and must pay it itself.

The IRS has already signaled some limited failure‑to‑deposit penalty relief for the first three quarters of 2026 to give providers time to build systems and processes.

Timing, comments, and what’s next

The proposed regulations are open for public comment, with written comments and hearing requests due June 12, 2026. Taxpayers and industry groups can weigh in on definitions, anti‑avoidance rules, and operational issues before Treasury finalizes the regulations.

Despite the “proposed” label, the tax itself is in the Code and scheduled to apply to qualifying remittance transfers after December 31, 2025, with the first deposits due January 29, 2026 and first quarterly Form 720 filings covering the first quarter of 2026.

Practical planning tips

For individual senders:

·         If you routinely send cash abroad using a storefront remittance service, expect to see a new 1% federal tax line added to qualifying transfers in 2026.

·         If possible, consider using bank‑funded or card‑funded transfers that fall outside the cash‑based definition in section 4475, as currently described by IRS guidance and practitioner summaries.

For remittance transfer providers and financial institutions:

·         Inventory your cross‑border products and identify which are funded by cash, money orders, cashier’s checks, or similar instruments.

·         Build functionality to: (1) flag taxable transfers, (2) calculate and collect the 1% from senders, and (3) integrate the data into your Form 720 and deposit processes.

·         Monitor the final regulations and any additional IRS guidance, including potential updates to Form 720 and excise tax deposit rules under 26 CFR part 40.

If you send money abroad or operate in the remittance space, now is the time to understand how these proposed rules work so you are not surprised when the 1% excise tax becomes part of your 2026 reality.

Have a Tax Problem?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

Sources:

1.       https://www.federalregister.gov/documents/2026/04/13/2026-07085/excise-tax-on-remittance-transfers  

2.      https://www.federalregister.gov/documents/full_text/xml/2026/04/13/2026-07085.xml     

3.      https://www.govinfo.gov/metadata/granule/FR-2026-04-13/2026-07085/mods.xml

4.      https://kpmg.com/us/en/taxnewsflash/news/2026/04/tnf-proposed-regulations-excise-tax-on-remittance-transfers.html      

5.       https://rsmus.com/insights/tax-alerts/2025/excise-tax-on-cross-border-remittances.html

6.      https://answerconnect.cch.com/topic/f9a96b801db74045962ae1196ad1f4e9/excise-tax-on-remittance-transfers

7.       https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-new-remittance-transfer-tax-established-under-the-one-big-beautiful-bill     

8.      https://changeflow.com/govping/tax/irs-proposes-rules-for-1-remittance-transfer-tax-2026-04-12     

9.      https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-40

10.   https://www.taxesforexpats.com/articles/expat-tax-rules/remittance-tax.html

11.    https://www.federalregister.gov/public-inspection/2026-07085/excise-tax-on-remittance-transfers

12.   https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202210&RIN=1545-BL98

13.   https://news.bloomberglaw.com/daily-tax-report/irs-issues-proposed-regulations-on-1-percent-excise-tax-on-certain-remittance-transfers

14.   https://www.law.cornell.edu/cfr/text/26/part-40

15.    https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202004&RIN=1545-BO98

16.   https://www.federalregister.gov/documents/2026/04/13/2026-07085/excise-tax-on-remittance-transfers          

17.    https://answerconnect.cch.com/topic/f9a96b801db74045962ae1196ad1f4e9/excise-tax-on-remittance-transfers  

18.   https://kpmg.com/us/en/taxnewsflash/news/2026/04/tnf-proposed-regulations-excise-tax-on-remittance-transfers.html               

19.   https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-new-remittance-transfer-tax-established-under-the-one-big-beautiful-bill                

20.  https://basswoodcounsel.com/sending-money-abroad-guide-obbba-remittance-transfersexcise-tax/   

21.   https://www.taxesforexpats.com/articles/expat-tax-rules/remittance-tax.html              

22.   https://www.simple720.com/blog/one-big-beautiful-bill-act-section-4475-explained    

23.   https://www.americascreditunions.org/blogs/compliance/what-included-remittance-transfer-tax   

24.  https://uniteller.com/ut-blog/remittance-tax-guide/   

25.   https://news.bloombergtax.com/daily-tax-report/irs-issues-proposed-regulations-on-1-percent-excise-tax-on-certain-remittance-transfers

26.  https://mb.ntd.com/treasury-irs-propose-1-percent-remittance-tax-rules-for-money-sent-to-foreign-countries_1138041.html

27.   https://changeflow.com/govping/tax/irs-proposes-rules-for-1-remittance-transfer-tax-2026-04-12

28.  https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-40

29.  https://www.federalregister.gov/public-inspection/2026-07085/excise-tax-on-remittance-transfers

30.  https://www.irs.gov/newsroom/one-big-beautiful-bill-news

31.   https://www.westernunion.com/blog/en/us-remittance-tax/

32.   https://www.facebook.com/blacktaxpro/posts/excise-tax-on-remittance-transfers-what-providers-need-to-knowstarting-january-1/855388700416195/

Read more at: Tax Times blog