The IRS has issued temporary regulations directing the Treasury Department to automatically open Trump accounts (“auto accounts”) for eligible children who don’t already have one. (Temp. Treas. Regs. §1.530A-1T) The temporary regulations are effective September 30, 2026, and apply to taxable years beginning on or after January 1, 2026.

The Treasury will open the first round on or about October 1, 2026, and periodically after that, so in most cases no one else will need to open an account.

The child’s guardian or legal custodian (or the child after acquiring legal capacity) must then claim the auto account. They must authenticate their identity, establish their authority as a guardian or legal custodian, and provide any required consent under procedures to be determined by the Department of the Treasury.

If an auto account is claimed during the growth period, then the entire account balance will be transferred, trustee-to-trustee, to a claimed initial Trump account or rollover Trump account. If an auto account is claimed after the growth period, then the auto account balance will be transferred to a traditional IRA account.

These auto accounts also have their own subset of rules regarding contributions and investments. Under these special rules, auto account funds can only be invested in a Treasury-established master group trust and can only receive two types of contributions:

• Qualified general contributions; and
• A one-time $1,000 pilot program contribution (if the child is eligible).

It’s important to note that the $1,000 contribution for eligible children will not be automatic. An election to receive a pilot program contribution still must be made by an authorized individual using IRS Form 4547 or through the authorized individual’s IRS account online.

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SB 1435 (Ch.26-236), which cleans up a variety of inadvertent issues that arose as a result of SB 711’s passage in 2025, was signed into law by Governor Newsom. The bill is effective retroactively to the 2025 tax year.

Highlights of the changes made by SB 1435 include:

• Decoupling from the IRC §163(j) business interest expense limitation for Personal Income Tax Law purposes. A drafting error in SB 711 inadvertently conformed California personal income tax law to the IRC §163(j) business interest expense limitation, although it correctly decoupled from the provision for corporation income and franchise tax purposes. This bill corrects that error;
• Clarifying that California only conforms to the current federal treatment of alimony beginning with the 2026 tax year for divorce and separation agreements executed on or after December 31, 2025, or for agreements that existed prior to 2026 if they are modified to specifically incorporate current federal treatment. Under federal law alimony paid is nondeductible by the payor and alimony received is not includable in the recipient’s taxable income for divorce or separation instruments executed after December 31, 2018. The way SB 711 was written it would have applied current federal treatment of alimony for California purposes beginning with the 2027 tax year, even for agreements executed during the 2019 through 2025 tax years;
• Clarifying that the maximum amount of investment income a taxpayer can earn and still be eligible for the California Earned Income Tax Credit is $3,400, regardless of the federally stipulated threshold (which is currently set at $10,000 and adjusted annually for inflation ($11,950 for 2025; $12,200 for 2026));
• Decoupling from the special withholding rules under IRC §1446(f) related to dispositions of partnership interests. This means buyers purchasing a partnership interest from a foreign partner do not have to collect and remit California withholding pursuant to this provision on any gain realized by the seller from the sale; and
• Clarifying that California conforms to the federal technical correction that states that the excess business loss does not include deductions for the trade or business of performing services as an employee.

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The Doug LaMalfa Disaster Tax Relief Act (HR 5366) (the Act) passed both chambers of Congress and is headed for President Trump’s desk, where he is expected to sign the bill into law.

The Act extends the treatment of personal casualty losses and wildfire-related compensation. Its provisions can be divided into two key sections:

• Enhancement of disaster loss deductions; and
• Wildfire relief exclusions.

Enhancement of disaster loss deductions

The Act represents an extension of existing disaster loss deduction rules under IRC §163 by allowing a deduction for qualified net disaster losses plus the portion of other casualty losses that exceed 10% of AGI through the end of 2026. This provision also extends the removal of the 10% of AGI floor for “qualified disaster losses” through the end of 2026.

Additionally, the Act increases the per-event threshold for qualified disaster losses from $100 to $500 and it allows taxpayers who do not itemize their deductions to claim the qualified net disaster loss as an addition to their standard deductions. These provisions are effective for taxable years beginning after December 31, 2024.

Wildfire relief exclusions

The Act creates new IRC §139M, which excludes qualified wildfire relief payments from a taxpayer’s gross income. To be excluded from income, the qualified wildfire relief payment must be related to a federally declared disaster resulting from a forest or range fire declared after December 31, 2024, and before January 1, 2027.

The Act represents an extension of prior tax relief that was available to victims of wildfires through the Federal Disaster Tax Relief Act.

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The Fifth Circuit Court of Appeals has withdrawn and reissued its prior opinion in Sirius Solutions LLLP v. Comm. (165 F. 4th 374 (5th Cir. 2026)). Sirius Solutions, LLLP is now called K Alain, LLLP, so the reissued opinion was released as K Alain, LLLP v. Comm.((5th Cir. 2026) Case No. 24-60240; 2026-23170).

At issue in the case is the meaning of the term “limited partner” for purposes of applying the limited partner exception under IRC §1402(a)(13). Limited partners are not subject to self-employment tax on their distributive share of partnership income.

In its original opinion, issued January 16, 2026, the Fifth Circuit Court of Appeals rejected the Tax Court’s holding in Soroban Capital Partners, LP v. Comm. ((November 28, 2023) 161 TC 12). Sorobanrequires a partner’s earnings to be of an investment nature for the partner to qualify for the limited partner exception. Stated otherwise, even a partner who is defined as a limited partner under state law is still subject to self-employment tax on all their partnership income unless they are a passive investor in the partnership.

The Fifth Circuit’s reissued option under K Alain still rejects the Soroban decision but backs off its black-and-white dictionary definition of a limited partner. Now, the Fifth Circuit holds that a limited partner is a partner who is defined as a limited partner under state law and “who plays no significant role in managing or running [the partnership].” The case has been remanded back to the Tax Court where the facts of the case will be applied to the Fifth Circuit’s renewed definition of a limited partner.

We will keep you informed of any further developments.

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Implementation guidance for employer IRC §128 Trump account contribution programs and IRC §129 dependent care assistance programs (DCAPs) has been issued by the IRS. (REG-101355-26) The proposed regulations address changes made by OBBBA.

The maximum employer contribution exclusion is $2,500 per employee for the 2026 and 2027 tax years and is adjusted for inflation beginning with the 2028 taxable year. (IRC §128(b)) For a married couple, each spouse’s employer can contribute the maximum $2,500.

Key aspects of Trump account contribution programs are laid out in the proposed regulations and include:

• The maximum exclusion is per employee, not per child/dependent;
• If an individual is employed by two unrelated employers, each offering a Trump account contribution program, the maximum aggregate exclusion for the individual remains $2,500;
• Contributions exceeding the maximum exclusion amount are taxable compensation and are subject to FICA, FUTA, and RRTA withholding;
• Eligibility for the Trump account employer contribution exclusion is limited to common-law employees. Unlike the Dependent Care Assistance Program exclusion, self-employed individuals (including partners, sole proprietors, and 2% S corporation shareholders) are ineligible to participate in an employer’s Trump account contribution program, and any contributions to their child’s account is taxable income; and
• Trump account contribution programs cannot limit contributions to Trump accounts held by specific financial institutions.

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We’ve been hearing from practitioners whose clients received penalty notices related to the Los Angeles County fires, even though those clients qualified for the October 15, 2025, postponed filing and payment deadline. The FTB has issued a reminder on how this relief works, along with a link to FAQs to help practitioners resolve these notices for affected clients.

The FTB news flash is available here, and guides practitioners with issues related to disaster relief to contact the FTB by:

• E-mail: FTBLACountyDisasterRelief@ftb.ca.gov; or
• Online: MyFTB.

The news flash states that e-mail is the fastest and most efficient way to resolve account matters related to the Los Angeles County disaster, and includes a link to FAQs related to the disaster:

• FAQs: Help with Los Angeles County fire relief.

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Governor Newsom has signed the following legislation.

SB 180 (Ch. 26-85):

• Conforms to the federal tax treatment of Trump Accounts, retroactive to the beginning of the 2026 tax year. This means earnings on the account are not taxable until distributed. California will also conform to the IRC §128 exclusion of employer contributions to Trump Accounts and the exclusion from a beneficiary’s gross income of qualified contributions from a governmental entity or charitable organization; and
• Extends the California Competes Tax Credit for an additional five years, through the 2034 tax year. The credit, which is administered through the California GO-Biz office and awarded on a competitive basis, provides financial incentives to attract and retain private companies that agree to hire and invest in California.

SB 168 (Ch. 26-81) funds a new $3,500 instant rebate through the MyFirst EV program for any Californian who is purchasing their first electric vehicle from a dealer. The rebate is funded 50% by California and 50% by participating automakers. The total rebate is equal to $3,500 for new EVs with an MSRP of up to $50,000 and $1,750 for used vehicles sold for up to $25,000. According to the Governor’s office the rebate will be available later this summer. We assume the rebate will only be available prospectively but are awaiting additional details.

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The IRS has increased the standard mileage rates for business, medical, and moving expense purposes, applied to expenses incurred on or after July 1, 2026:

• Business mileage: 76 cents per mile (increased from 72.5 cents per mile); and
• Medical and moving mileage: 23.5 cents per mile (increased from 20.5 cents per mile).
  (IRS Announcement 2026-11, modifying IRS Notice 2026-10)

The charitable mileage rate is statutory and remains at 14 cents per mile.

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Beginning this summer, the IRS is phasing in a new Automatic Exemption from Penalty (AEP) program that will replace the first-time penalty abatement program (which is being phased out). AEP will be fully effective for eligible returns with original due dates on or after January 1, 2027. (IR-2026-83)

Under AEP, the IRS will automatically provide penalty relief to qualified taxpayers; taxpayers will no longer have to apply for penalty abatement. If eligible, the IRS will apply AEP and issue a notice confirming that the relief was granted.

Taxpayers qualify if they have a history of timely filing the return and paying any tax due in the three prior years (or 12 consecutive quarters for quarterly returns). When taxpayers qualify, penalties are not assessed during processing for:

• Failure to file;
• Failure to pay; or
• Failure to deposit.

Estimated tax penalties are not available for abatement under either the existing first-time abatement program or under the new AEP.

Not all returns are eligible for AEP. For example, information returns and returns that are filed only in response to specific transactions or infrequent events (such as Form 706, U.S. Estate Tax Return, or Form 709, Gift Tax Return) generally are not eligible.

During the transition from first-time penalty abatement to the AEP program, some qualifying taxpayers may still receive penalty notices for eligible tax year 2025 and 2026 quarterly returns. Taxpayers who believe they qualify may contact the IRS to request first-time penalty abatement.

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The IRS has issued guidance addressing whether contributions to a Trump account constitute completed gifts. (Rev. Proc. 2026-25)

Although contributions to a Trump account made by a person who is not the account beneficiary is a gift of a future interest, the IRS is providing gift tax filing relief for qualified taxpayers. If a taxpayer meets all of the following safe harbor requirements, the IRS will not require the donor to file a gift tax return:

• The taxpayer making the contribution is an individual;
• The only taxable gifts made by the taxpayer during the calendar year are cash contributions to one or more Trump accounts, each made before the calendar year in which the account beneficiary turns age 18;
• The taxpayer’s total gifts during the calendar year to each individual who is an account beneficiary, including contributions to that account beneficiary’s Trump account, do not exceed the annual exclusion ($19,000 for 2026);
• Such contributions to Trump accounts made during the calendar year do not generate for that calendar year either a gift or GST tax liability, after application of the taxpayer’s remaining applicable credit amount against the gift tax, or remaining GST exemption; and
• Disregarding the Trump account contributions made during the year, no gift tax return is filed or is required to be filed for that calendar year by or on behalf of the taxpayer.

The reason this safe harbor is so important is that gifts of future interests ordinarily trigger a gift tax filing requirement, even if the only gifts made by the taxpayer during the year are below the annual gift tax reporting threshold. (IRC §2503(b)(1); Treas. Regs. §25.2503-2(a))

Currently, the IRS processes about 300,000 gift tax return annually and as of June 4, 2026, nearly 6 million elections to open Trump accounts have already been received. The purpose of the safe harbor is to ease the IRS’s administrative burden by preventing the filing of millions more gift tax returns from taxpayers who are, according to the IRS, unlikely to have estates large enough to ever trigger an estate tax liability.

California Trump account tax conformity bill introduced

As part of the latest California budget deal negotiations, AB/SB 180 has been introduced which, if enacted, would include conformity to most aspects of the federal tax treatment of Trump accounts, including the exclusion of employer contributions to employee Trump accounts set up for their qualifying children. It is anticipated that the bill will be passed and signed by the Governor.

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Transitional guidance for Qualified Opportunity Zones (QOZs) has been released by the IRS ahead of proposed regulations implementing the QOZ changes made by OBBBA. (IRS Notice 2026-40)

For QOZ investors, the notice provides that taxpayers who invested in a QOZ fund prior to 2027 must still recognize deferred capital gains in their taxable income no later than December 31, 2026, and cannot defer those gains again.

Despite the mandatory gain recognition on December 31, 2026, the taxpayer continues to hold a “qualifying investment,” which means the taxpayer remains potentially eligible for the 10-year fair market value basis step-up, provided all other requirements are met.

If the taxpayer sells the QOZ fund interest after 2026, any capital gain realized from that sale would then be eligible for a QOZ deferral under the new OBBBA QOZ rules, which allow the taxpayer to defer gain recognition for up to five years from the QOZ fund investment date. However, taxpayers should weigh the benefit of this subsequent sale and the five-year deferral against the benefit of holding the investment for 10 years and getting the FMV step-up.

Additionally, any capital gains that are generated in the latter half of 2026 could qualify for the five-year deferral under OBBBA’s QOZ rules if they are invested in a newly designated QOZ on or after January 1, 2027 (within 180 days of the gain recognition).

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Today, the California Senate joined the Assembly in passing AB/SB 122 that makes the following changes to California tax law. The Governor is expected to sign the bill.

AB/SB 122 proposes to:

• Impose sales and use taxes on purchases of digitally delivered prewritten software, which includes software as a service (SaaS; products such as Slack, Zoom, tax software, etc.), effective January 1, 2027;
• Extend the current $5 million business credit cap (without a percentage-based limit) through the 2029 tax year, and then impose a permanent business credit cap equal to the greater of $5 million or 70% of the total taxes imposed, beginning with the 2030 tax year;
• Reduce the annual tax imposed on new LLCs, limited partnerships, and limited liability partnerships from $800 to $400, but only for their first year of operation for the 2027 through 2029 tax years; and
• Impose a 100% tax on any settlement fund payments received by taxpayers during the 2026 through 2029 tax years from any anti-weaponization settlement fund established by the federal Department of Justice.

The NOL suspension currently in effect was not extended as part of the budget deal, meaning that is currently scheduled to expire at the end of 2026.

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Tax professionals with a POA on file may be receiving alerts from the FTB that inform them that a client notice or other document has been posted. However, some tax professionals may not be able to access the Client Notices page in their MyFTB account.

According to the FTB, although this is a systems issue, it is not impacting all tax professionals. This means some tax professionals can identify which client the notice was sent to, but others are not able to determine this unless they go into each client’s account. Affected practitioners are unable to access the notice or other document unless they know the client’s name and access it through their client’s respective account.

The FTB is working to resolve the issue as quickly as possible.

Tax professionals should not call the FTB Tax Practitioner Hotline for assistance in determining which client was sent the notice, because hotline staff can only access the notice if the tax professional knows the client’s name.

We will work with the FTB to see if the FTB will provide any penalty and/or interest relief if they are unable to resolve this issue quickly.

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Today, the California Legislature is scheduled to vote on a budget deal that could raise over $1.4 billion in new taxes for the 2026–27 fiscal year. There are two competing versions of the tax proposals included in the budget deal (AB/SB 122 vs. AB/SB 176), and at this stage it is unclear which will pass.

Both proposals would, if enacted:

• Impose sales and use taxes on purchases of digitally delivered prewritten software, which includes software as a service (SaaS; products such as Slack, Zoom, tax software, etc.), effective January 1, 2027;
• Reduce the annual tax imposed on new LLCs, limited partnerships, and limited liability partnerships from $800 to $400, but only for their first year of operation for the 2027 through 2029 tax years; and
• Impose a 100% tax on any settlement fund payments received by taxpayers during the 2026 through 2029 tax years from any anti-weaponization settlement fund established by the federal Department of Justice.

Both bills would also make permanent the $5 million cap on business credits, currently scheduled to expire at the end of the 2026 tax year, but in different forms:

• AB/SB 176 would enact a new permanent business credit cap equal to the greater of $5 million or 50% of the total taxes imposed, effective beginning with the 2027 tax year; and
• AB/SB 122 would, in contrast, extend the current $5 million business credit cap (without a percentage-based limit) through the 2029 tax year, and then impose a permanent business credit cap equal to the greater of $5 million or 70% of the total taxes imposed, beginning with the 2030 tax year.

Neither bill would extend the current NOL suspension. This means the NOL suspension continues to be scheduled to expire at the end of the 2026 tax year.

Not included in the budget deal is Governor Newsom’s proposal to conform to the federal tax treatment of Trump accounts. However, this may still be included in subsequent legislation.

Under the California Constitution, the Legislature must pass the budget by midnight tonight.

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The Return Preparer Office (RPO) and the Office of Professional Responsibility (OPR) will be operating under a new Tax Professional Management Office, effective June 28, 2026. (E-news for Tax Professionals, Issue No. 2026-23) According to the IRS, this is being done to simplify and modernize how it interacts with the tax professional community.

This reorganization will not change the distinction between credentialed tax professionals and uncredentialed tax preparers. The RPO and OPR will continue to operate independently and the merger will have no impact on how IRS oversees the tax professional community.

The RPO oversees preparer tax identification numbers (PTINs), enrollment programs, IRS approved continuing education providers, and the Annual Filing Season Program for tax return preparers.

The OPR oversees those professionals who practice before the IRS, such as attorneys, CPAs, and Enrolled Agents to ensure they are in compliance with Treasury Department Circular No. 230, Regulations Governing Practice before the IRS.We do not believe that this merger will not impact the Tax Practitioner Hotline because this is currently overseen by the Taxpayer Services Unit.

We will provide additional information concerning this restructuring as it becomes available.

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