The Tax Law Is Having A Constitutional Moment Edition

The Supreme Court tackled another tax-related case this term, ruling that a New Jersey nonprofit could immediately challenge a state subpoena seeking sensitive donor information, rather than waiting until the government tried to enforce it.

Most public charities are used to reporting major donors confidentially to the IRS on Schedule B, with donor names redacted from public filings. But a separate government demand for donor identities—especially in connection with an investigation—raises concerns. Just being asked to hand over sensitive donor information, the Court found, especially because it could scare people away from donating, is enough to constitute a legal injury.

The Court did not decide whether the subpoena itself is unconstitutional. It only decided that the nonprofit has the right to challenge it now, rather than later. The case will be sent back to the lower court for further proceedings.

With so many rulings in recent headlines, it might feel like the Supreme Court is busier than usual, but that’s not the case. The October 2025 Term is in line with the Court’s recent smaller dockets–it agreed to hear 59 cases, scheduled 58 for argument, and dismissed one case. By late April, it had issued 29 opinions, plus seven decisions without argument. That places it close to recent terms, but still below the larger dockets the Court handled in earlier decades (from 2007 through 2022, the Court averaged about 74.3 opinions per year), although those figures do not include the Court’s emergency or “shadow” docket, where the Court handles applications for immediate relief.

Despite the smaller merits caseload, tax law geeks like me have been delighted to see high-profile tax cases reach the Court. While the Roberts Court hasn’t necessarily taken more tax cases than earlier Courts, the ones it has taken tend to be consequential. The Court has repeatedly used tax as the vehicle for bigger fights: NFIB v. Sebelius on whether the ACA mandate could survive as a tax, Moore v. United States on the Sixteenth Amendment and undistributed earnings, and now, Learning Resources on tariffs and emergency powers. Tax has become a centerpiece for bigger questions about congressional power, executive authority, and constitutional limits.

What unifies these cases is Roberts’s own view, as Chief Justice, that taxation is a uniquely significant congressional power — what he called Congress’s “birth-right power” in Learning Resources. That framing goes back to NFIB, where he upheld the ACA’s shared responsibility payment as a tax even though Congress had framed it as a mandate and penalty, emphasizing that the taxing power can reach even inactivity in ways the commerce power cannot.

Learning Resources also shows the other side. Because the taxing power is so important, Roberts seems reluctant to let Congress hand it over to the executive branch unless Congress speaks clearly. His position appears to be this: taxes are broad and powerful when Congress uses them directly, but courts should be cautious when Congress appears to delegate that power through vague language.

And Learning Resources is still in the news. A federal trade court has struck down President Trump’s latest tariff workaround, rejecting his use of Section 122 to impose a new 10% tariff on most imports. The ruling reinforces the same basic concern from the Supreme Court: The Constitution gives tariff authority to Congress. The courts appear unwilling to let the president use broad emergency statutes to impose sweeping tariffs without clearer congressional authorization.

The power to tax also influences the cost of living—and that’s often a primary consideration when choosing where to rent or buy a home. States and municipalities make decisions about income taxes and property taxes that can drive up (or down) costs and funding related services. As it does every year, Forbes compared nearly 1,000 U.S. locales on everything from housing costs and taxes to healthcare, crime, air quality, and natural hazard risk to sort out the best spots for retirees. Here’s a look at which ones made the top 25 in 2026.

One of those spots was Raleigh, NC (shout out to my home state). You can check out how Forbes selects its top spots and how one couple made their choice to call Raleigh home here.

And finally, in this week’s episode of Tax Notes Talk, Professor Lauren Shores Pelikan tackles another cost-of-living issue: childcare. Her proposal targets the supply side of the childcare problem. Parent-focused credits may help families afford care, but they do not create more childcare slots if there are not enough workers to staff them. Pelikan also notes that private equity investment has not solved the supply problem. Instead, profits often come from consolidation, cost-cutting, and tuition increases rather than expanding access. A federal tax benefit for individual providers, she argues, could build on supply-side support that worked during the pandemic while creating a more permanent, nationwide approach through the tax code.

If you’re a working parent, that likely resonates with you because you know that finding quality childcare can be challenging. Because we had our own firm, we were able to take our kids to work when they were small. Then, we eased the kids into preschool, with them going a few half days a week—that is, until Amelia came home in tears because she found out that her friend, Becky, got to go “EVERY SINGLE DAY.”

Honestly? I understood. My brother’s kindergarten class photo includes me, sitting right smack in the middle, because I insisted on going with him—no way was he having all the fun without me. (And yes, school in rural NC was very different back in the day.)

The reality is that parenting is hard. It’s not just juggling work and school schedules (and later, sports and clubs). It’s trying to sort out different needs and personalities and then crossing your fingers and hoping you’ve done the right thing.

So, this Mother’s Day, give your mom a hug if she’s around. She could use one.

Enjoy your weekend,

Kelly Phillips Erb (Senior Writer, Tax)

This is a published version of the Tax Breaks newsletter, you can sign-up to get Tax Breaks in your inbox here.

Questions

This week, a reader followed up on my answer from last week and asked:

You said that if the real estate is sold, the accumulated depreciation will be recaptured at a flat rate of 25%. Off the top of my head, and without looking it up, my recollection is that only the accelerated depreciation is taxed at 25%, and any depreciation that was claimed using a straight line method would be subject to the normal long-term capital gain rules and brackets, which could be 0%, 15%, or 20%.

If you get a chance, take a second look at those rules.

So, I did. And I still like my answer.

For depreciable real estate, section 1250 governs recapture. Section 1250(a) can recharacterize certain gain as ordinary income to the extent of “additional depreciation,” meaning depreciation in excess of straight-line depreciation.

For most modern residential rental properties and nonresidential real property depreciated under straight-line methods, there is often little or no ordinary-income recapture under section 1250(a) itself, because there may be no “additional depreciation.”

However, Publication 544 explains that long-term capital gain attributable to depreciation on section 1250 property may still be treated as unrecaptured section 1250 gain, generally taxed at a maximum rate of 25% rather than the lower 15% or 20% capital gain rates.

That means that in practice, for most depreciable real estate, total gain is computed as the amount realized minus the adjusted basis. The portion attributable to depreciation deductions is often taxed as unrecaptured section 1250 gain at up to 25%. The remaining gain is generally section 1231 gain/long-term capital gain if the holding-period and use requirements are met.

If the property included components subject to section 1245, or if there was accelerated depreciation or special depreciation on certain improvements, some portion of the gain could be ordinary income recapture instead.

I love the question, because I enjoy thinking about new ways to tackle tax problems, and it’s always (always) a good idea to have more than one set of eyeballs on a matter. Thank you!

Statistics, Charts, and Graphs

The Federal Trade Commission’s latest fraud data show that scams continue to grow, with imposter scams again ranking as the most commonly reported. Imposter scams typically involve fraudsters posing as trusted entities—such as the IRS, Social Security Administration, toll agencies, businesses, or loved ones—and using urgency to push victims into sending money or sharing personal information. In 2025, the FTC received more than one million reports about imposter scams, with reported losses increasing by nearly 20% to $3.5 billion.

Most fraud contacts in 2025 began by text message, which generated the highest volume of reports, including fake toll and government-agency messages. But the biggest dollar losses were tied to social media, where scammers can build trust over time before steering victims into investment, romance, or cryptocurrency schemes.

Scam losses are generally not deductible as personal casualty or theft losses unless tied to a federally declared disaster, though some losses connected to profit-seeking transactions—such as certain investment scams or pig-butchering schemes—may qualify for tax relief. Victims who withdraw money from IRAs or 401(k)s to pay scammers may still owe income tax, and possibly early withdrawal penalties, even though the funds were stolen.

The best defense is to slow down–scammers thrive on urgency. Avoid sending money to online-only contacts, use safer payment methods, report scams, and consider an IRS Identity Protection PIN if personal information may have been compromised.

Taxes From A To Z: R Is For Revenue Ruling

A Revenue Ruling, sometimes abbreviated as Rev. Rul., is an official IRS interpretation of how federal tax law applies to a specific set of facts. Published in the Internal Revenue Bulletin, a Revenue Ruling represents the IRS’s stated position on the tax treatment of a given situation, and taxpayers may rely on it in substantially similar circumstances — though if the facts differ in any meaningful way, the IRS may distinguish its prior ruling.

Revenue Rulings do not have the force and effect of Treasury Regulations, and courts are not required to follow them. Still, they are important administrative authorities that may be cited and relied on as precedent. And they also matter for penalty purposes, since they are recognized authorities in determining whether a taxpayer had substantial authority under section 6662.

(It’s worth noting that Revenue Rulings can be revoked, modified, distinguished, or otherwise affected by later authority, so always check before relying on them.)

Revenue Rulings are typically less individualized than private letter rulings, or PLRs, which are issued to a specific taxpayer in response to a specific request. Unlike Revenue Rulings, PLRs may not be cited as precedent by anyone other than the taxpayer who received them (it’s always the case that unpublished rulings or decisions may not be relied on, used, or cited by IRS personnel as precedent in other cases).

Don’t confuse a Revenue Ruling with a Revenue Procedure, or Rev. Proc., which is a published procedural or administrative instruction. A Rev. Proc. tells taxpayers, practitioners, or IRS employees how to comply with a rule, request relief, make an election, obtain a ruling, use a safe harbor, file something, or follow an IRS process.

Tax Trivia

Carolyn Ann Tavenner of Fort Worth, Texas, passed away on January 27, 2025. She was sometimes regarded as the Mother of what?

(A) All Tax Forms

(B) 1040-EZ

(C) Schedule B

(D) 1099

Find the answer at the bottom of this newsletter.

Positions And Guidance

The IRS has updated its Conservation Easement site with expanded information on abusive conservation easement transactions, recent court decisions, investor warning signs, and the risks of inflated deductions. The agency also says it will soon announce a time-limited settlement opportunity for eligible taxpayers and partnerships involved in these transactions.

Noteworthy

The IRS is accepting applications for 2027 Low Income Taxpayer Clinic matching grants from May 6 through July 6, 2026, with special consideration for applicants serving underserved areas. Eligible organizations may request up to $200,000, and clinics must provide free or nominal-fee services, including representation, taxpayer education, and advocacy.

The IRS is accepting applications for the IRS Advisory Council (IRSAC) through June 5, 2026, for three-year terms beginning in January 2027. The council advises IRS leadership on tax administration issues and is seeking applicants with experience in tax law, taxpayer advocacy, information reporting, online services, and related areas.

New federal student loan rules taking effect July 1 will end unlimited Graduate PLUS borrowing and impose annual and lifetime loan caps, with higher limits reserved for 11 designated professional degree programs. Accounting and some other graduate programs will fall under lower borrowing caps, and the Department of Education declined to classify advanced accounting degrees as professional degrees for this purpose despite a request from the American Institute of Certified Public Accountants (AICPA).

Key Figures

That’s how much a woman who sold her eggs in 2015 was paid. The woman did not report the amount as taxable, arguing unsuccessfully that she was being paid for undergoing the painful procedure of egg removal and that the payment represented damages for physical injuries. The Tax Court agreed in Perez v. Commissioner, 144 T.C. 4 (2015), that the IRS could tax her egg donations as contracted-for services.

The tax treatment of fertility-related settlements remains unsettled, with no IRS guidance directly on point. And Perez is not a perfect fit for settlements involving damaged or destroyed eggs or embryos, where plaintiffs may assert claims for negligence, breach of contract, emotional distress, medical harm, or physical injury. Because most settlements are taxable unless they qualify for the section 104 exclusion for physical injuries or sickness, the complaint, settlement agreement, allocation of damages, and supporting documentation will be especially important.

Trivia Answer

The answer is (B). Carolyn Tavenner was sometimes called the “Mother of the 1040-EZ.”

After 49 years at the IRS, she announced plans to retire on March 2, 2019. Then-IRS Commissioner Chuck Rettig noted that she “was a driving force in creating the Form 1040-EZ, a step that literally made taxes easier for many millions of taxpayers.”

Form 1040-EZ stuck around for nearly four decades and was eliminated, along with Form 1040A, for the 2018 tax year (filed in 2019) to make way for a redesigned, simplified Form 1040, following the Tax Cuts and Jobs Act of 2017.

Worth A Second Look

The links, clips, and tax takes readers loved (and a few you may have missed):

You can find last week’s newsletter here.

Tax Filing Deadlines

📅 May 15, 2026. Deadline for calendar year tax-exempt organizations to file annual reports and returns, including Forms 990, 990-EZ, and 990-PF.

📅 June 15, 2026. Due date for your 2026 Q2 estimated tax payment.

📅 June 15, 2026. Last day for U.S. taxpayers living abroad to file without a further extension (payment was still due April 15).

Tax Conferences And Events

📅 June 2-5, 2026. National Association of Black Accountants Insight 2026: WIN (We Invest Now) Convention & Expo, Aria, Las Vegas, Nevada.

📅 June 3-6, 2026. Tax Retreat—The Anticonference. San Antonio, Texas.

📅 June 8-11, 2026. AICPA Engage. ARIA Resort & Casino, Las Vegas, Nevada, & live online.

📅 June 22-25, 2026. Latino Tax Fest. MGM Grand Hotel & Casino, Las Vegas, Nevada.

📅 July 13-15, 2026. NATP Taxposium. Huntington Convention Center, Cleveland, Ohio.

Feedback

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