Welcome to this week’s edition of Tax Bytes. Our team of tax lawyers is actively monitoring for federal and international tax developments and issues of note. Each week we pull together the items we deem most important to provide updates you need to know for your business.
Tax developments
Treasury and the IRS announce simplifications and new elections for businesses operated in a different currency
The section 987 regulations that were finalized in 2024 after decades of revision are getting yet another makeover. On February 25, 2026, the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) issued Notice 2026-17, announcing their intent to issue new proposed regulations under section 987 (Proposed Regulations), which are intended to simplify compliance with the current regulations, reduce compliance burdens, and narrow the scope of certain rules to limit their effect on ordinary course transactions. More specifically, the Proposed Regulations would:
- Allow an equity and basis pool method election for determining section 987 gain or loss and section 987 income or loss, which is similar to the 1991 proposed regulations, but with annual rather than daily remittance calculations.
- Modify rules for recognition of suspended section 987 losses, so that limits apply only if either the remittance for the year exceeds 5% of the grossed-up equity pool, or the loss that would otherwise be recognized exceeds $5 million.
- Provide an election for CFCs not to recognize section 987 gain or loss, except in respect of certain inbound transactions.
Read our full alert here.
More to follow: IRS and Treasury release Notice 2026-16 providing initial round of interim guidance on 100% special depreciation for qualified production property under the One Big Beautiful Bill Act
On February 20, 2026, the IRS and Treasury issued Notice 2026-16, providing an initial round of guidance on the special depreciation allowance for qualified production property (QPP) under Section 168(n) of the Internal Revenue Code, as introduced by the One Big Beautiful Bill Act (OBBBA). Although taxpayers and practitioners are accustomed to Sections 167 and 168, which address the treatment of depreciable property and bonus depreciation, Section 168(n) introduces QPP to the Code. This provision allows for a favorable election to recover up to 100% of the adjusted basis of QPP, generally defined as nonresidential real property, such as buildings that often contain assets otherwise eligible for bonus depreciation under Section 168(k).
Read our full alert here.
IRS issues Notice 2026-7 providing long-awaited CAMT relief for OBBA R&E catch-up adjustment and more-widely available repairs adjustment among other taxpayer favorable updates
On February 18, 2026, Notice 2026-7, 2026-11 I.R.B. 1 (Notice), was issued to offer comprehensive guidance to taxpayers concerning the implementation of the corporate alternative minimum tax (CAMT). Regarding a taxpayer’s applicable financial statement income (AFSI), which forms the basis for calculating the CAMT, the Notice introduces an AFSI adjustment that accounts for deductible tax repair costs, Section 197 amortization related to certain intangibles, and notably, the amortization of domestic research or experimental (R&E) expenditures pursuant to Section 174. The Notice reflects the Administration’s ongoing commitment to enhancing clarity and streamlining the implementation of the CAMT, reflecting updates incorporating legislative changes from the OBBA. With this guidance, the Administration demonstrates responsiveness to feedback from taxpayers and practitioners, while addressing and mitigating negative consequences arising from taxpayer-beneficial provisions in OB3. This alert provides a brief overview of the Notice and considerations for taxpayers as they continue to make CAMT determinations in this transitory period of evolving guidance.
Read our full alert here.
Potential new opportunities for COVID-19 period interest and penalty refunds following Kwong and Abdo
Recent court decisions in Kwong v. United States and Abdo v. Commissioner interpret IRC §7508A(d) as providing mandatory, automatic relief for tax deadlines during the entire COVID 19 national disaster period—from January 20, 2020 through July 10, 2023. As a result, certain taxpayers may have opportunities to recover underpayment interest and failure to file or failure to pay penalties that accrued during this period, and statutes of limitation for refund claims may remain open. Although the government has indicated it may appeal Kwong, the cases create a potentially time sensitive opportunity for taxpayers to evaluate and preserve refund claims related to COVID 19 disaster period interest and penalties.
Read our full alert here.
Recent Eversheds Sutherland Tax insights
End of treaty relief on German disregarded entity (DRE) to US parent dividends
Could your next German dividend trigger unexpected withholding tax?
The German Federal Tax Office has begun denying treaty relief for dividends paid from a German disregarded entity (DRE) to a US parent company. This marks a significant administrative change for all applications reviewed from January 2026.
In this flash update, Eversheds Sutherland attorneys Pia Dorfmueller, Konstantin Ecker, and Franziska Treiber outline the reasoning behind this approach, the immediate risks for multinational groups, and the key actions organizations should consider as uncertainty continues.
Bargain Sales to Charities: Permanent Injunction Is Just the Beginning
Those who organize aggressive transactions, as well as those who participate in them, often have something in common: They do not think broadly enough when deciding what to do if the Internal Revenue Service or Department of Justice were to start taking enforcement actions. Why? They might point to low audit rates, believe that their tax positions can withstand all scrutiny, expect tax insurance policies to cover bad outcomes, etc. The most common reason is simpler; they often do not appreciate many steps the government regularly takes in combatting what it considers improper transactions. Unawareness of intersecting actions and procedures can lead to big problems. In this article, Partner Hale Sheppard uses bargain sales to charities as a teaching tool, showing what a recent permanent injunction might mean for taxpayers, organizers, appraisers, tax-exempt organizations, and others.
German Real Estate Transfer Tax on Indirect Transfers of (German) Entities
Swiss Tax – The One Pager
[View source.]
