The tax landscape in 2026 is anything but quiet. From a surprising court ruling that could put money back in millions of taxpayers' pockets, to expiring EV charger credits, an enhanced adoption tax credit, and ongoing scrutiny of conservation easement schemes — there's a lot to track. Our team at DRDS CPAs has reviewed the latest guidance so you don't have to. Here's what you need to know right now.
1. Millions May Be Owed COVID-Era Tax Refunds
Here's something you may not have heard: a 2025 Court of Federal Claims decision — Kwong v. U.S. — could entitle you to a refund of penalties and interest you paid to the IRS during the COVID-19 disaster period. The court interpreted federal disaster-relief statutes to mean that the IRS should not have assessed late-filing, late-payment, or estimated-tax penalties — nor charged interest on underpayments — for the period beginning January 20, 2020 and ending July 10, 2023.
Who could be affected? Potentially anyone who paid IRS penalties or interest during that window — individuals, small businesses, large corporations, estates, and trusts alike.
Critical Deadline: Most taxpayers must file Form 843 with the IRS no later than July 10, 2026 to seek a refund or abatement. This deadline is fast approaching — act now if your potential refund amount is significant.
What should you do?
Check whether you paid penalties or interest to the IRS during the COVID period. The fastest way is through your IRS online account. The National Taxpayer Advocate recommends attaching transcripts to your Form 843.
This form cannot be e-filed. If you've already paid the penalties or interest, file a refund claim. If amounts were assessed but not yet paid, request abatement. Note: Form 843 must be submitted on paper.
Since the IRS has appealed the Kwong decision to the Court of Appeals for the Federal Circuit, filing a "protective claim" preserves your rights while the case works through the appeals process. Write "Protective Refund Claim Pursuant to Kwong Case" on the form.
The IRS has said it believes Kwong was wrongly decided and will not voluntarily issue refunds. If your potential refund is large, it's worth getting professional help to navigate the process correctly.
2. Adoption Tax Credit Gets a Major Boost
Good news for families planning to adopt. The adoption tax credit has been significantly enhanced for 2026. Here are the key numbers:
| Detail | Amount / Threshold |
|---|---|
| Maximum qualified expenses per child | $17,670 |
| Refundable portion of credit (2026) | Up to $5,120 |
| Phase-out begins (modified AGI) | $265,080 |
| Phase-out ends (credit fully eliminated) | $305,080 |
A key change included in the "One Big Beautiful Bill": up to $5,120 of the adoption credit is now fully refundable — meaning you can receive that amount as a refund even if you have no income tax liability. This amount will be adjusted for inflation annually.
Carryforward Note: The IRS initially took the position that 2025 carryforward credits couldn't be refunded, but reversed course. IRS Commissioner Frank Bisignano confirmed that pre-2025 adoption expense carryforwards for 2025 returns are refundable up to $5,000 per qualifying child. If you filed a 2025 return and were affected, the IRS is working on a post-filing remedy — watch for updates.
3. The 3.8% Net Investment Income Surtax Is Catching More Taxpayers
The 3.8% Net Investment Income (NII) surtax — enacted under the Affordable Care Act — applies to taxpayers whose modified AGI exceeds specific thresholds. Here's the problem: those thresholds have never been adjusted for inflation since the tax first took effect in 2013.
NII includes dividends, capital gains, taxable interest, annuities, and certain passive activity income. The number of 1040 returns reporting this surtax has grown from 3 million in 2013 to 7 million for 2022 returns — and it continues to climb. Similarly stagnant: the 0.9% additional Medicare payroll tax thresholds, and the home-sale exclusion ($250,000 / $500,000 for joint filers) — unchanged since 1997 despite dramatic real estate appreciation.
Planning Opportunity: If your income is approaching these thresholds, proactive strategies — like tax-loss harvesting, Roth conversions, or charitable giving — can help manage your NII exposure. Talk to a CPA before year-end.
4. Mileage Rates & Gas Tax: What Could Change Midyear
With gasoline prices rising sharply in 2026, there is a real possibility the IRS will issue a midyear standard mileage rate adjustment — something it has done in 2008, 2011, and 2022 when pump prices spiked significantly. The current 2026 IRS mileage allowances are:
- Business driving: 72.5¢ per mile
- Medical travel / military moves: 20.5¢ per mile
- Charitable trips: 14¢ per mile (fixed by law — will not change)
On the legislative side, calls for a temporary suspension of the 18.4¢-per-gallon federal gasoline tax face significant opposition in Congress due to Highway Trust Fund concerns and deficit implications. State-level gas tax holidays are considered more likely in the near term.
5. EV Charger Tax Credit: Act Before June 30, 2026
Hard Deadline — June 30, 2026: The federal tax credit for installing an EV charger expires at the end of this month. If you've been planning to install one at home or at your business, time is running out.
Credit equals 30% of the cost of equipment and installation, capped at $1,000. Must purchase the charger and place it in service in your main home by June 30, 2026.
Credit is the lesser of 6% of cost (up to 30% if project requirements are met) or $100,000 per charger. Must install on business premises and pay for it by June 30, 2026.
6. Conservation Easement Settlements: IRS Is Moving
If you or your business participated in a syndicated conservation easement donation, the IRS is now offering limited settlement opportunities. These arrangements — typically involving pass-through entities like partnerships, LLCs, or trusts — have been a major source of IRS enforcement activity for years.
The Tax Court currently has around 740 pending conservation easement cases, with another 400 under IRS examination. Courts have been highly skeptical of inflated land valuations, with the government prevailing consistently — and on average, the Tax Court has allowed only about 6% of the originally claimed deduction.
Settlement Terms (for eligible entities):
- Full disallowance of the charitable contribution deduction
- One-time write-off permitted for out-of-pocket costs
- 10% gross valuation misstatement penalty (vs. the normal 40%) if accepted within 90 days
- Penalty increases to 20% if accepted during the 45-day reconsideration window
Most cases currently in litigation or under review involve pre-2022 tax returns. A 2022 federal law now bars pass-through entity owners from claiming a conservation easement deduction exceeding 2.5 times their investment. If you received a settlement letter from the IRS, you have 90 days to respond — and you should consult a tax attorney or CPA immediately.
7. Got an IRS CP53E Letter? Here's What to Do
The IRS is sending out more CP53E notices this filing season than ever before. These letters are typically sent to taxpayers whose returns show a refund due, but where the bank information provided was invalid, missing, or rejected. Since the IRS has largely stopped issuing paper refund checks in favor of mandatory direct deposit, CP53E notices are becoming more common.
However, the IRS is also sending some CP53E letters in error — including to filers who owed taxes and weren't due a refund at all. If you received one:
- Check your IRS online account to verify whether the notice applies to your situation.
- If received in error — for example, you paid taxes with your return and aren't owed a refund — the IRS's National Taxpayer Advocate says you can safely ignore it and should not respond.
- If it's valid, follow the instructions to update your bank account information through your IRS online account.
Need Help Navigating These Changes? The window for some of these opportunities — including COVID-era refund claims and the EV charger credit — is closing fast. Our CPAs at DRDS are here to review your situation and help you act before deadlines pass. Schedule a consultation today — free for new clients.
Sources: IRS National Taxpayer Advocate, Kwong v. U.S. (Court of Federal Claims, 2025), Kiplinger Tax Letter Vol. 101, No. 11 (May 21, 2026). This article is for informational purposes only and does not constitute tax advice. Please consult a qualified tax professional for guidance specific to your situation.
