HMRC Launches Strengthened Tax Whistleblower Reward Scheme- A New Era for UK Tax Compliance
The United Kingdom has officially launched its Strengthened Reward Scheme for tax whistleblowers, marking a historic transformation in the country’s approach to combating serious tax avoidance and evasion.
Announced on November 28 by His Majesty’s Revenue and Customs (HMRC), the new program adopts a US-style incentive model that could deliver multi-million-pound rewards to individuals who report high-value tax fraud.
A Fundamental Shift in UK Tax Enforcement
The new scheme represents a dramatic departure from the UK’s previous informer payment system, which has long been criticized for offering minimal, discretionary awards that failed to incentivize reporting of serious tax crimes.
Under the old model governed by the Commissioners for Revenue and Customs Act 2005, HMRC paid out just £978,256 to all informants combined in the 2023/24 fiscal year—a figure dwarfed by the UK’s estimated £46.8 billion tax gap.
The Strengthened Reward Scheme changes everything. It supplements the existing 2005 Act by creating a parallel pathway specifically designed for high-value cases involving large corporations, wealthy individuals, and offshore or tax avoidance schemes.
Key Features of the New Program
According to HMRC’s official guidance released today, the scheme includes several groundbreaking enhancements:
US-Style Percentage-Based Rewards
The most significant change: whistleblowers can now qualify for rewards between 15% and 30% of the tax collected if their information leads to the collection of at least £1.5 million in tax (excluding penalties and interest). This mirrors the highly successful IRS whistleblower program, which has recovered over $7.4 billion in unpaid taxes since 2007.
No Upper Cap
Unlike many reward programs, there is no maximum limit on payments. A tip that leading to the recovery of £100 million could yield a reward of £15 million to £30 million for the whistleblower, creating a genuine incentive for insiders with knowledge of massive fraud schemes to come forward.
Clear Qualification Guidelines
HMRC has published transparent criteria for what constitutes a qualifying disclosure and the factors that determine the final reward percentage, including the quality of information provided and the degree of assistance offered during the investigation.
Enhanced Process
The new system provides clearer pathways for reporting, with HMRC committing to notify whistleblowers when their report is received and to contact them if more information is needed or if they are eligible for a reward.
Who Can Qualify?
To be eligible for a reward under the Strengthened Reward Scheme, several conditions must be met:
You can qualify if:
Your information leads to the collection of at least £1.5 million in tax
The information is original, specific, and not already known to HMRC
You are not the taxpayer involved in the evasion or someone who planned the fraudulent activity
You are not a current or former civil servant who obtained the information through your employment
You cannot qualify if:
You obtained information through government employment
You are acting anonymously (anonymous reports are accepted but cannot receive payment)
You are acting on behalf of someone else
The information could have been identified through HMRC’s routine processes
You are required by law to disclose or not disclose the information
Why This Matters
The UK’s tax gap—the difference between tax owed and tax collected—stood at £46.8 billion for the 2023/24 fiscal year, representing approximately 5.3% of total tax liabilities. Much of this gap stems from sophisticated schemes by large corporations and wealthy individuals that are extremely difficult for authorities to detect without inside information.
Research has consistently demonstrated that financial incentives dramatically increase whistleblower reporting. A landmark 2010 study found that in US industries with substantial monetary rewards for whistleblowers, employees exposed 41% of fraudulent activity, compared to just 14% in those without such incentives — a stark 27-percentage-point difference.
The Royal United Services Institute (RUSI), in its report “The Inside Track,” concluded that financial rewards are empirically proven to drive greater insider reporting, provide actionable intelligence, and deter economic crime.
Important Considerations
While the new scheme represents a major advancement, HMRC emphasizes that rewards remain discretionary and are not guaranteed. This differs from the US model, where qualifying whistleblowers have a statutory right to payment.
Experts advise potential whistleblowers to:
Seek experienced legal counsel before making a disclosure
Consider negotiating a written agreement with HMRC regarding award terms
Understand that tax investigations can take years to complete
Never attempt to gather additional information or let anyone know about the report
Do not make multiple reports on the same activity
How to Report
Individuals with information about serious tax avoidance or evasion can report through HMRC’s official reporting system at www.gov.uk/report-tax-fraud. All information provided will be treated as private and confidential. Reports should include:
Detailed description of the activity (up to 1,200 characters)
How you know about the activity
Your relationship to the individual or business
Duration of the fraudulent activity
Total value or estimation
Description of supporting information available
Looking Ahead
However, the program’s ultimate success will depend on HMRC’s commitment to honoring its reward promises and the government’s willingness to strengthen anti-retaliation protections for whistleblowers who risk their careers to expose wrongdoing.
For individuals considering reporting tax fraud, the message is clear: the UK has fundamentally changed how it values and rewards those who help protect the public treasury.
This article was authored by Joseph Orr
Tax Consulting Firm Permitted to Challenge Final Micro-Captive Reporting Regulation
Ryan, LLC v. Internal Revenue Service[1] is the latest example of success in overcoming procedural hurdles to challenge the validity of a US Department of the Treasury (Treasury) regulation. In a recent opinion, the US District Court for the Northern District of Texas held that:
Ryan has standing to challenge the validity of the Treasury’s final regulations[2] that require disclosure of certain transactions engaged in by businesses and their “micro-captive insurance companies” (MCICs).
Ryan sufficiently pleaded its claim that the final regulations under challenge were “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” and must be set aside under the Administrative Procedure Act (APA).[3]
The court’s opinion confirms that nontaxpayer actors may have standing to challenge Treasury regulations. The case is also another example of a plaintiff reaching the merits stage of a challenge to a Treasury regulation in the aftermath of Loper Bright v. Raimondo.[4]
Background
Ryan is an advisor to businesses seeking to establish and maintain MCICs. “Captive” insurance companies are specialized insurance companies that exist to insure the entities that own them. When the owning entities make premium payments to the captive, the premiums do not need to include commissions or other fees associated with traditional insurers, making captives an attractive option especially when coverage is unavailable or costly through traditional insurers. Certain small captive insurance companies, commonly called MCICs, qualify for favorable tax treatment. Under section 831(b), MCICs are not taxed on the first $2.2 million in premiums paid by their owner-insured. The Internal Revenue Service (IRS) has increased its scrutiny of the captive insurance industry because of concerns that these arrangements may be exploited for fraud and abuse.
The Treasury’s new regulations
Section 6707A requires the disclosure of certain “reportable transactions,” defined as transactions that, in the IRS’s determination, have a “potential for tax avoidance or evasion.” A “listed transaction” is a type of reportable transaction in which the taxpayer is presumed to have engaged in the transaction for the purpose of tax avoidance or evasion.[5] A “transaction of interest” is a reportable transaction designated by the IRS as having a potential for abuse but is not presumed abusive.[6] These designations create heavy reporting requirements by taxpayers and their advisors (e.g., Ryan).
Under the Treasury’s new regulations, a micro-captive insurance transaction is defined based on a loss ratio factor and a financing factor. The loss ratio factor is the ratio of the captive insurance company’s cumulative insured losses to the cumulative premiums earned over a specified period, typically the most recent 10 taxable years (or all years if less than 10). The financing factor refers to whether the captive insurance company participated in certain related-party financing arrangements within the most recent five taxable years, such as making loans or other transfers of funds to insureds, owners, or related parties. A transaction is classified as a “listed transaction” if the MCIC’s loss ratio is below 30% for the previous 10 taxable years and it provided related-party financing during the previous five taxable years. A transaction is classified as a “transaction of interest” if the MCIC’s loss ratio is below 60% for the previous 10 taxable years or it provided related-party financing during the previous five taxable years.
A review of the Ryan, LLC v. IRS timeline
Ryan filed its complaint in January 2025, seeking to have the final regulations set aside on the grounds that they are substantively and procedurally invalid. On April 28, 2025, the government filed a motion to dismiss the complaint, contending that Ryan lacked standing to challenge the regulations’ validity and had otherwise failed to state a claim upon which relief could be granted.
On November 5, 2025, the district court denied in part the government’s motion to dismiss and issued an opinion. Therein, the court ruled that Ryan did have standing to challenge the regulations. The court rejected the government’s contention that Ryan lacked the “zone of interests” required to state a claim under the APA, in part because it found that the final regulations would discourage potential clients from engaging Ryan, thus hampering its profitability.
Following its ruling on standing, the court rejected the government’s contention that Ryan had failed to state a claim under section 706 of the APA. The crux of Ryan’s allegation was that the final regulations are arbitrary and capricious because the Treasury issued the rules without justifying to the interested public how the relevant facts and data supported its view that MCICs pose a heightened risk of tax avoidance or evasion. In Ryan’s view, the Treasury also neglected to explain why the criteria used for making its determinations that particular transactions should be “listed transactions” or “transactions of interest” (i.e., loss ratios and related-party financing) are effective in distinguishing abusive transactions from legitimate ones. Ryan will now have the opportunity to litigate its contention on the merits in the next phase of the litigation.
Practice point: In 2024, the Supreme Court of the United States overruled the doctrine of regulatory deference set forth in Chevron. Ryan is now the latest case since Loper Bright in which a federal court has permitted a regulatory challenge to proceed on its merits. The Northern District of Texas, like several other courts before it, has recognized the responsibility federal courts have under Loper Bright to exercise their independent judgment when deciding statutory meaning. Ryan also underscores how taxpayers and their allies who are negatively affected by a regulation should carefully consider whether the Treasury engaged in due reasoning and consideration, as such regulations may be susceptible to invalidation on the ground that they were issued without adherence to the procedural safeguards provided under the APA.
Suzanne Golshanara, a law clerk in the Washington, DC, office, also contributed to this post.
_________________________________________________________________________________
[1] No. 3:25-CV-0078-B, 2025 BL 396822 (N.D. Tex. Nov. 5, 2025).
[2] Treas. Reg. §§ 1.6011-10 and -11.
[3] 5 U.S.C. § 706(2)(A).
[4] 603 U.S. 369 (2024).
[5] See Treas. Reg. §§ 1.6011-4(b)(2).
[6] See Treas. Reg. §§ 1.6011-4(b)(6).
FinReg Monthly Update November 2025
Welcome to the FinReg Monthly Update, a regular bulletin highlighting the latest developments in UK, EU and U.S. financial services regulation.
Key developments in November 2025:
Asset Management / Wealth Management
17 November – Liquidity Management RTS: The European Commission has adopted Delegated Regulations containing regulatory technical standards (RTS) on liquidity management tools under the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD) and the UCITS Directive (2009/65/EC).
17 November – Fund Valuation Standards: The International Organization of Securities Commissions (IOSCO) published a consultation report on updated recommendations on valuing collective investment schemes.
17 November – Depositary Supervision Review: ESMA published a report on the outcome of a peer review of the supervision of depositary obligations.
Sustainable Finance / ESG
20 November – SFDR 2.0 Legislative Proposal Launched: On 20 November 2025, the European Commission officially launched their legislative proposal for the updates to the Sustainable Finance Disclosure Regulation (“SFDR”). In a significant departure from the current SFDR disclosure regime, the European Commission proposes a categorisation regime for funds in its place. Please refer to our dedicated article on this topic here.
13 November – CSRD / CSDDD Simplification Mandate: On 13 November 2025, the European Parliament adopted its negotiating mandate on the European Commission’s Omnibus proposal to reduce the scope of the Corporate Sustainability Due Diligence Directive (EU) 2024/1760) and the Corporate Sustainability Reporting Directive ((EU) 2022/2464). Please refer to our dedicated article on this topic here.
13 November – NGFS Climate Scenario Guide: The Network for Greening the Financial System (NGFS) published an updated version of its guide to climate scenario analysis for central banks and supervisors.
11 November – Taxonomy Delegated Acts Review: The European Commission has published calls for evidence (CfEs) on two proposed Delegated Regulations amending the Taxonomy Climate Delegated Act ((EU) 2021/2139) and the Taxonomy Environmental Delegated Act ((EU) 2023/2486). Please refer to our dedicated article on this topic here.
10 November – ESRS ‘Quick Fix’ Regulation: Commission Delegated Regulation (EU) 2025/1416 amending Delegated Regulation (EU) 2023/2772 as regards the postponement of the date of application of the disclosure requirements for certain undertakings (referred to as the Quick Fix Regulation) was published in the Official Journal of the European Union, on 10 November 2025.
7 November – NGFS Climate Scenario Notes: The Network for Greening the Financial System (NGFS) published a series of explanatory notes to clarify and improve the usability of its long-term climate scenarios.
5 November – EBA Environmental Scenario Analysis: The EBA published a final report (EBA/GL/2025/04) on guidelines on environmental scenario analysis under the CRD IV Directive (2013/36/EU).
4 November – Updated SFDR Q&A: The Joint Committee of the European Supervisory Authorities (ESAs) published an updated version of its questions and answers (Q&A) (JC 2023 18) on the SFDR (EU) 2019/2088) and on Commission Delegated Regulation (EU) 2022/1288, which supplements the SFDR with regard to RTS on content and presentation of information (SFDR Delegated Regulation).
Securities / Capital Markets
28 November – Bond and Derivatives SI Regime: The FCA published a policy statement (PS25/17) on removing the systematic internaliser (SI) regime for bonds, derivatives, structured finance products and emission allowances.
27 November – Credit Builders and Data Collection: The FCA has published its regulation round-up for November 2025. Among other things, the FCA outlines its findings from a review of credit builder products, explains how it is standardising the way it collects financial data at the authorisation gateway and summarises its work on improved digital forms.
27 November – UK EMIR Margin Amendments: The PRA and the FCA published a joint policy statement on changes to the UK bilateral margin requirements for non-centrally cleared derivatives under UK EMIR (648/2012) (PRA PS23/25 / FCA PS25/16), which take the form of amendments to the binding technical standards (BTS) in the UK onshored version of Commission Delegated Regulation (EU) 2016/2251, supplementing UK EMIR.
21 November – FCA Fees and Levies Consultation: The FCA published a consultation paper on policy proposals for its regulatory fees and levies for 2026/27 (CP25/33).
21 November – UK Transaction Reporting Reforms: The FCA published a consultation paper (CP25/32) on proposed improvements to the UK transaction reporting regime.
20 November – Regulated Activities Amendment Order: The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2025 (SI 2025/1205) has been published on legislation.gov.uk.
19 November – Market Conduct Codes Recognition: The FCA published an updated version of its webpage on recognised industry codes to reflect the fact it has extended its recognition of the FX Global Code, the UK Money Markets Code and version 2 of the Global Precious Metals Code.
19 November – Equity Consolidated Tape Consultation: The FCA published a consultation paper on the proposed framework for introducing an equity consolidated tape (CT) in the UK run by a consolidated tape provider (CTP) (CP25/31).
12 November – Neo-Brokers Final Report: The IOSCO published its final report on neo-brokers.
5 November – FCA Intragroup EMIR Changes: The FCA published a consultation paper (CP25/30) proposing changes to its BTS on the intragroup exemption regime under UK EMIR (648/2012). The relevant BTS are the UK version of Commission Delegated Regulation (EU) 2016/2251 (BTS 2016/2251) and the UK version of Commission Delegated Regulation (EU) 149/2013 (BTS 2013/149).
5 November – UK EMIR Intragroup Amendments: HM Treasury published a draft version of the Over the Counter Derivatives (Intragroup Transactions) Regulations 2026, together with a policy note.
3 November – Overseas Recognition Regime Regulations: The Financial Services (Overseas Recognition Regime Designations) Regulations 2025 (SI 2025/1147) published on legislation.gov.uk.
3 November – Berne Agreement FCA Guidance: The FCA published guidelines for firms on the Berne Financial Services Agreement.
Financial Crime / Conduct / Sanctions
27 November – FOS 2026/27 Plans Consultation: The Financial Ombudsman Service (FOS) published a consultation paper on its proposed plans and budget for 2026/27.
26 November – SFO Compliance Programme Guidance: The Serious Fraud Office (SFO) published updated guidance on evaluating corporate compliance programmes in England, Wales and Northern Ireland. The guidance outlines six scenarios where the SFO assesses an organisation’s compliance programme, including decisions on prosecution, deferred prosecution agreements (DPAs), compliance terms or monitorships in DPAs, defences under the Bribery Act 2010 and the Economic Crime and Corporate Transparency Act 2023, and sentencing considerations.
21 November – Updated SARs Best Practice: The National Crime Agency published UKFIU SARs best practice guidance on how to use the SAR portal to submit a SAR to the UKFIU, how to help reporters submit a high-quality SAR and how to help reporters seek a defence under Proceeds of Crime Act 2002 (POCA) and the Terrorism Act 2000.
17 November – JMLSG AML/CTF Consultation: The Joint Money Laundering Steering Group (JMLSG) published, for consultation, proposed revisions to Part I of its anti-money laundering (AML) and counter-terrorist financing (CTF) guidance for the financial services sector.
14 November – FCA Regulatory Failure Investigations Policy: The FCA published a statement of policy on statutory investigations into regulatory failure and producing reports.
11 November – FCA Financial Crime Review Findings: The FCA published the findings from a multi-firm review focused on firms’ business-wide risk assessment (BWRA) and customer risk assessment (CRA) processes. The firms involved in the review included building societies, platforms, e-money firms and wealth management firms.
5 November – Financial Inclusion Strategy: HM Treasury published its new financial inclusion strategy, which sets out a national plan aimed at removing barriers to financial participation and building financial resilience.
5 November – BNPL Credit Broking Exemption: The Financial Services and Markets Act 2000 (Regulated Activities, etc.) (Amendment) (No 2) Order 2025 (SI 2025/1154) has been laid before Parliament and published on legislation.gov.uk with an explanatory memorandum. The Order will exempt domestic premises suppliers from credit broking regulation when they offer certain buy-now-pay-later (BNPL) credit products to customers.
3 November – Central Sanctions Enforcement Hub: A new sanctions enforcement action collections page launched by the Foreign, Commonwealth and Development Office (FCDO), the Office of Financial Sanctions Implementation (OFSI), and the Office of Trade Sanctions Implementation (OTSI).
Cryptoassets / Payments
27 November 2025 – IRSG Response on Crypto Consultation: The International Regulatory Strategy Group (IRSG) published its response to the FCA’s September 2025 consultation paper on the application of its Handbook to regulated cryptoasset activities (CP25/25).
26 November – Stablecoin Sandbox Cohort: The FCA publisheda new webpage announcing the launch of a special cohort within its Regulatory Sandbox for firms issuing stablecoins.
25 November – EP Resolution on AI in Finance: The European Parliament adopted a resolution on the impact of AI on the financial sector.
20 November – Property (Digital Assets) Bill: On 19 November 2025, the Property (Digital Assets etc) Bill passedits third reading in the House of Commons with no amendments. It is now awaiting Royal Assent.
18 November – Confirmation of Payee Compliance Report: The Payment Systems Regulator (PSR) published a compliance report on Specific Direction 17, which relates to the confirmation of payee system.
12 November – Tokenised Asset Markets Report: The Investment Association, together with the Investment Management Association of Singapore, published a report examining the challenges and opportunities in tokenised asset markets across the UK and Singapore.
11 November – Tokenisation of Financial Assets Report: The IOSCO published a final report (FR/17/25) discussing observations from a monitoring exercise conducted by its Fintech Task Force to determine how tokenisation and distributed ledger technology (DLT) is being developed and adopted in capital markets products and services.
10 November – BoE Systemic Stablecoins Consultation: The Bank of England (BoE) published a consultation paper on regulating sterling-denominated systemic stablecoins for UK payments issued by non-banks.
7 November – Retail Payments Infrastructure Strategy: HM Treasury published an update on the work of the Payments Vision Delivery Committee.
Artificial Intelligence / Digital Regulation
18 November – DORA Critical ICT Providers List: The ESAs published a list of designated critical ICT third-party service providers under the Regulation on digital operational resilience for the financial sector ((EU) 2022/2554) (DORA).
12 November – ECON Report on AI in Finance: The European Parliament’s Committee on Economic and Monetary Affairs (ECON) published a report on the impact of AI on the financial sector.
5 November – HM Treasury AI Skills Commission: HM Treasury published a letter to the Financial Services Skills Commission (FSSC) from Lucy Rigby MP, Economic Secretary to the Treasury, commissioning the FSSC to research and produce a report on AI skills needs, training and innovation in financial services.
Prudential / Remuneration
28 November – PRA Credit Union Assessment: The PRA published a letter it has sent to directors of credit unions, setting out the key findings from its 2025 assessment of these firms and the actions it expects firms to take.
26 November – MIFIDPRU Reporting Quality Review: FCA published its finding following a review of MIFIDPRU Reporting Quality.
26 November – FCA Reviews Data Quality in MIFIDPRU Prudential Reporting: The FCA published its findings on the quality of prudential regulatory reporting by MIFIDPRU investment firms, identifying good practice as well as areas for improvement including inconsistent data, incorrect firm classification and errors in reporting units.
25 November – IAIS Global Monitoring Exercise: The International Association of Insurance Supervisors (IAIS) published an updated version of its global monitoring exercise (GME) document for the period 2026-28, as well as a new set of ancillary risk indicators for the individual insurer monitoring (IIM) assessment methodology within the GME.
21 November – ComFrame and ICS Consultation: The IAIS published a consultation on developing its common framework for the supervision of internationally-active insurance groups (IAIGs) (ComFrame) to reflect the international capital standard (ICS). The related materials are available on the IAIS consultation webpage.
21 November – Joint Internal Model Authorisations ITS: Commission Implementing Regulation (EU) 2025/2338, amending Commission Implementing Regulation (EU) 2016/100 which contains implementing technical standards (ITS) on the joint decision process for internal models authorisation under the Capital Requirements Regulation (575/2013) (CRR), has publishedin the Official Journal of the European Union.
20 November – FSB Global Stability Priorities: The Financial Stability Board (FSB)published a letter from Andrew Bailey, FSB Chair, to G20 finance ministers and central bank governors ahead of their meeting on 22 and 23 November 2025.
18 November – EIOPA Macroprudential RTS: EIOPA published two final reports (report 1and report 2) containing draft RTS on new macroprudential tools that have been introduced under the Solvency II Directive (2009/138/EC), as amended by the Solvency II Amending Directive ((EU) 2025/2).
12 November – PRA Leverage Ratio Threshold: The PRA published a policy statement (PS22/25) on changes to the retail deposits threshold for application of the leverage ratio requirement.
7 November – CVA Risk Supervision Peer Review: The EBA published a peer review follow-up report analysing the effectiveness of the supervisory practices of competent authorities regarding their assessment of credit valuation adjustment (CVA) risk of the institutions under their supervision.
6 November – Market Risk Framework Consultation: The European Commission published a targeted consultation on the application of the market risk prudential framework.
3 November – Third-Country Branches Authorisation Guidelines: The EBA published a consultation paper on draft guidelines relating to the authorisation of third-country branches (TCBs) under the CRD IV Directive (2013/36/EU), as amended by the CRD VI Directive ((EU) 2024/1619).
Commission Payments / Motor Finance
5 November – Motor Finance Redress Scheme Update: The FCA published a statement providing an update on the progress and timing of its consultation (CP25/27) on a possible motor finance consumer redress scheme. The consultation deadline has been extended to 12 December 2025.
EU Financial Markets
28 November – MiCA Data Standards Statement: ESMA published a statement (ESMA75-1303207761-6284) on technical specifications for implementing a number of data standards and format requirements under the Regulation on markets in cryptoassets ((EU) 2023/1114) (MiCA).
24 November – AI Act Implications Factsheet: The EBA published a factsheet on the implications of the Artificial Intelligence Act ((EU) 2024/1689) (AI Act) for the EU banking and payments sector.
20 November – SFDR and PRIIPs Amendments Proposal: The European Commission adopted a proposed Regulation amending Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector and Regulation (EU) 1286/2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs Regulation), and repealing Commission Delegated Regulation (EU) 2022/1288 (SFDR RTS) (COM(2025) 841 final) (2025/0361 (COD)).
19 November – CRR Market Risk Call for Evidence: The European Commission published a call for evidence on a delegated act on the own funds requirements for market risk under the Capital Requirements Regulation (575/2013) (CRR).
14 November – Gibraltar Market Access Extension: The Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2025 (SI 2025/1182) have been published on legislation.gov.uk, together with an explanatory memorandum.
U.S. Matters – Private Funds
20 November – CFTC: The US Senate Committee on Agriculture, Nutrition and Forestry advanced President Trump’s nominee for CFTC Chairman, Michael Selig, in his confirmation process. The nomination will now move to the full US Senate for consideration.
17 November – SEC Exams: The SEC’s Division of Examinations released its 2026 exam priorities. The SEC’s Division of Examinations’ priorities included adherence to fiduciary standards of conduct, particularly in business lines serving retail investors and focused on issues involving emerging technologies like artificial intelligence.
17 November – Rule 14a-8:The SEC’s Division of Corporation Finance published a statement that, during the 2025-2026 proxy season, it will generally not respond substantively to no-action requests from companies intending to rely on any basis for exclusion of shareholder proposals under Rule 14a-8, other than requests to exclude a proposal under Rule 14a-8(i)(1), which is typically used by companies seeking to exclude “ESG” related proposals.
12 November – U.S. Government Shutdown Ends:President Trump signed a bill to fund the government, ending the longest U.S. government shutdown in history and reopening the U.S. federal government. The SEC has resumed its operations, but SEC staff are currently working through a backlog of items received during the shutdown (e.g., reviewing new filings, resuming ongoing exams, etc.). The bill only funded the government until January 30, 2026, meaning the parties will need to reach agreement on an additional extension soon in order to avoid another shutdown.
Nathan Schuur, Robert Sutton, Rachel Lowe, Sasha Burger, Sulaiman Malik, and Michael Singh contributed to this article
Tax Considerations in Insolvency Cases
Tax issues exist in most insolvency, bankruptcy, receivership, and debt workout cases (‘Insolvency Cases’). The failure to address and plan for tax issues can adversely affect multiple persons in an Insolvency Case and can completely undermine the success of the debtor’s debt or equity restructure plan, the debtor’s bankruptcy or non-bankruptcy plan of reorganization, or the debtor’s bankruptcy or non-bankruptcy plan of liquidation.
Tax mistakes can result in (1) increased tax liability to the debtor entity (or individual), to creditors, to owners of pass-through income tax entities discussed below (‘PTEs’) and other persons in an Insolvency Case, (2) imposition of tax penalties and interest, (3) loss of tax refunds, (4) loss or recapture of tax credits, (5) loss or reduction of valuable current or future tax benefits, and/or (6) reduced recoveries for creditors. In certain cases, a responsible person including but not limited to a fiduciary such as a trustee, receiver, assignee, or a disbursing agent, can be personally liable for the failure to pay current or delinquent taxes in an Insolvency Case.
“Even a well‑crafted restructuring can fail if the tax implications aren’t fully mapped,” notes Robert Richards of Dentons.
Although this article will primarily discuss certain federal income tax issues, debtors, creditors, fiduciaries and other parties in an Insolvency Case should also address the potential application of other federal, state, local, and foreign tax issues, including but not limited to employment/payroll taxes, sales and use taxes, property taxes, excise taxes, withholding taxes, transfer taxes, gross receipt taxes and fees, value added taxes, and tariffs.
What Is a Pass‑Through Entity?
Pass‑through entities (PTEs) are structures where business profits and losses are taken into account on the owners’ personal tax returns rather than at the entity level. This includes partnerships, most limited liability companies (LLCs), and S‑corporations. The approach provides flexibility and avoids double taxation but creates complex implications when the business becomes insolvent. For instance, an S‑corporation’s election or an LLC’s partnership status might seem like paperwork at startup, but can determine who ultimately bears the tax burden when debts are canceled or assets are sold.
Partnerships vs. S‑Corporations
While partnerships and S‑corporations share the pass‑through concept, their tax treatment in distress differs:
A partnership can dissolve automatically if it drops to a single owner, creating a disregarded entity and new tax implications. Equity contributions are generally tax‑free under Section 721, but the liquidation or reclassification of a partnership interest can trigger gain recognition.
S‑corporations, on the other hand, can have a single owner without losing their pass‑through status, but they face strict eligibility rules. If an ineligible shareholder, like a non‑resident alien or another corporation, acquires stock, the entity immediately becomes a C‑corporation. That reclassification can create double taxation just when liquidity is tight.
Entity‑Level Transactions
Transactions that occur at the entity level, like asset sales, recapitalizations, or debt modifications, ripple through to individual owners. Because each owner has a different tax profile, these effects can be uneven. Some may recognize gains, while others generate losses or lose the ability to use existing deductions.
“A restructuring lawyer must understand owner-level tax implications when planning entity‑level moves,” advises John Harrington of Dentons.
Even small adjustments, such as converting debt to equity or changing capital structure, can change owner basis and alter future tax liability. Net operating loss limitations, capital loss carryovers, and passive‑activity rules all influence how much tax relief each owner can claim. Before any restructuring is finalized, advisors should model the impact at both the entity and owner levels.
Cancellation‑of‑Indebtedness Income
Perhaps the single most under-appreciated concept in restructuring is cancellation‑of‑indebtedness income, or CODI. When a lender forgives, reduces, or modifies a borrower’s debt, the forgiven amount can be treated as taxable income. For example, if a business owes $1 million and a creditor agrees to accept $600,000 in full payment, the remaining $400,000 may create CODI.
“The impact of CODI can catch business owners off guard, creating unexpected and potentially significant tax liabilities,” warns Stephanie Drew of RubinBrown.
The Internal Revenue Code provides several exceptions under Section 108, including the bankruptcy and insolvency exclusions. In a bankruptcy case, debt discharge may be excluded from income. If the taxpayer is insolvent but not in bankruptcy, CODI can also be excluded up to the amount of insolvency. However, these rules apply differently for corporations and pass‑through entities. For partnerships and LLCs taxed as partnerships, the determination of insolvency happens at the partner level; for S‑corporations, it occurs at the entity level.
This phantom income problem underscores the need to evaluate CODI early in the process, ideally before any settlement or debt modification is finalized. Even when CODI is excluded, the taxpayer must often reduce tax attributes, such as net operating losses, credits, or asset basis, under Section 1017. That means today’s relief can limit tomorrow’s deductions.
A Word of Caution for Receivers, Trustees, and Officers
When a receiver, trustee, or assignee takes control of a business, they inherit not only its assets but also its tax responsibilities. Failing to file required returns or remit trust‑fund taxes, such as payroll withholdings or collected sales tax, can lead to personal liability. Courts have held fiduciaries liable for negligence or willful disregard in handling tax matters.
“Even well‑intentioned receivers can find themselves in the IRS’s crosshairs if filings fall through the cracks,” notes Richards.
Managing Tax Risk in Restructuring
The most effective restructuring plans are the ones that balance tax preservation with legal strategy. Doing so ensures not only compliance but also the preservation of value for owners and creditors alike.
When faced with a complicated case like those mentioned here, remember to:
Engage tax counsel early: Model the tax consequences of any debt workout or restructuring before documents are signed.
Model CODI exposure: Determine who bears the tax cost, i.e., the entity or the owners. Evaluate eligibility for bankruptcy or insolvency exclusions.
Confirm entity classification: Ensure elections are current and that ownership changes haven’t terminated S‑status or partnership treatment.
Document insolvency: Keep a contemporaneous record of assets and liabilities to support the insolvency exclusion under Section 108.
Review basis and at‑risk rules: Owner basis affects loss deductibility; liability reductions may lower basis and create unexpected income.
Coordinate with state tax rules: Many states have distinct treatment for CODI and pass‑through taxation, including special PTE taxes.
Avoid timing mismatches: Ensure that income and deductions align across tax years and owners.
Communicate with stakeholders: Lenders, accountants, and counsel should share models and assumptions to prevent conflicting tax outcomes and minimize tax leakage.
This article was originally published on December 1, 2025, here.
IRS Failures Stall Efforts to Curb Offshore Tax Evasion
The Internal Revenue Service (IRS) estimated the gross tax gap for the 2022 fiscal year to be an astounding $696 billion. The IRS defines the gross tax gap as the difference between tax owed and the amount paid on time. While already grave on its own, the severity is even worse in context as the 2022 tax gap is up $200 billion from the $496 billion amassed between the years 2014 and 2016.
A major driver of the rise is offshore tax evasion, one of the most difficult forms of noncompliance to detect. An IRS case study found that such evasion among top earners “went almost entirely undetected,” underscoring how limited the agency’s current enforcement tools have become.
A 2021 report by the Department of Treasury estimated that, between 2006 and 2013, $33 billion of underreported income pervaded each year’s tax gap projections when taking offshore assets into consideration. The Committee for a Responsible Federal Budget concluded the value nears $46 billion for 2019. With tax evasion only worsening, an effective solution has never been more pressing.
The Swiss Bank Program
In 2013, the Department of Justice and the IRS joined forces to create the Swiss Bank Program, launched as a direct result of the “actionable information brought to the IRS” through its Whistleblower Program. Leveraging the fear of detection triggered by the Whistleblower Program, the program provided “a path for Swiss banks to resolve potential criminal liabilities in the United States” by disclosing their illicit activities and paying the ensuing penalties.
The program yielded substantial success: 84 banks came forward and over $1.36 billion in penalties were issued. With the last resolution taking place in 2015, however, the program has since closed. While some initiatives to prosecute offshore tax evasion live on, dedicated efforts are lacking. Notably, the DOJ’s Offshore Compliance Initiative has also been placed in the archives.
The Swiss Bank Program must not only be reinstated but expanded to other parts of the world in order to tackle the reality of tax evasion’s ubiquity.
The Progressing and Regressing of the IRS Whistleblower Program
Founded in 1867, it wasn’t until 2006, though, that the IRS Whistleblower Program was put into full force. Almost immediately after its revitalization, submissions “skyrocketed,” Dennis Ventry recalls – a proliferation which has only continued.
These steady advancements, however, are accompanied by deficiencies. Debilitating the program are conspicuous delays in decisions and significant cut-backs in awards. In an article entitled “Lost Opportunities: The Underuse of Tax Whistleblowers,” authors Webber and Davis-Nozemack underscore that, as of 2015, the IRS faced a backlog of more than 22,000 cases and awarded only about 100 whistleblowers each year. The underwhelming number of awards compared to the number of reports appears to remain as, in a 2024 report, the IRS issued only 105 awards. Webber and Davis-Nozemack concluded that the IRS “does not seek all available information and assistance from whistleblowers.” The IRS even recognizes its shortcomings, addressing processing times and increasing its “focus on improving the IRS Whistleblower Program.”
Although the Whistleblower Program time and again proves crucial in exposing corruption, the IRS’ sweeping disregard for its whistleblowers could disincentive future informants from coming forward.
With the Swiss Bank Program no longer in effect, the success of the IRS Whistleblower Program garners even greater importance. The IRS program should resolve its shortcomings and use tactics similar to those of the Swiss Bank Program to target offshore tax evasion.
IRS Whistleblower Program Improvement Act
In light of the program’s defects, both Republican and Democratic Representatives and Senators came together to draft the IRS Whistleblower Program Improvement Act of 2023. The bill, guided by an appreciation of the “essential role” whistleblowers play in uprooting “tax cheating schemes,” details the major features of the program that need reform. Notably, the bill enforces the use of De Novo reviews, in which courts can take a “fresh look at the record” on appeals, prohibits reductions in awards due to budget sequestration, ensures anonymity for whistleblowers, and mandates that whistleblowers receive their award within one year of filing.
Conceived over two years ago, however, the bill remains unfulfilled. What’s more, a previous bill, the “IRS Whistleblower Improvement Act of 2021,” equally awaits action. Stalling, and even turning a blind eye to, the implementation of a solution to the inefficiencies of the Whistleblower Program and, in turn, the tax evasion crisis is wholly unjustified.
The absence of programs like the Swiss Bank Program and the mounting delays in the IRS Whistleblower Program have left authorities with few tools to uncover offshore tax evasion. Despite bipartisan bills aimed at repairing these gaps, Congress has not advanced IRS Whistleblower reforms. Advocates caution that, without meaningful action, the United States risks forfeiting billions more each year as offshore tax evasion continues with little deterrence.
Water Legislation from the 89th Texas Legislature
The 89th Texas Legislature advanced several water infrastructure measures during the 2025 legislative session. Most importantly, Senate Bill 7 and House Joint Resolution 7 were passed to expand the tools available for statewide water planning, financing, and project coordination. Texas voters also approved Proposition 4 on Nov. 4, 2025, establishing a dedicated revenue stream for the Texas Water Fund. Together, these actions will create long-term support for water supply development, wastewater and flood infrastructure, and future planning needs across the state.
Texas Water Infrastructure and Supply Planning
Senate Bill 7 makes several updates to the Texas Water Code to strengthen statewide coordination for water supply planning and infrastructure development. The legislation establishes a Water Supply Conveyance Coordination framework, directing the Texas Water Development Board to facilitate joint planning among project sponsors, governmental entities, utilities, and other relevant participants.
The bill also directs the board to develop statewide guidance, standards, and best practices for project design, materials, and system interoperability. To support this work, the agency is authorized to procure professional and consulting services and convene advisory committees to assist in planning and implementation.
Senate Bill 7 expands the range of eligible projects financed through the Texas Water Fund to include desalination, water reuse, out-of-state water acquisition, and other initiatives to diversify the state’s water sources. These projects expand the state’s available water resources by developing alternative water supplies. The bill also broadens funding priorities to include water and wastewater infrastructure, permit-ready projects, water conservation strategies, water loss mitigation, statewide water awareness initiatives, and technical assistance for applicants.
Voter-Approved Dedication of Sales Tax Revenue to the Texas Water Fund
House Joint Resolution 7 proposed a constitutional amendment dedicating a portion of state sales and use tax revenue to the Texas Water Fund, which funds statewide water, wastewater, flood, and conservation infrastructure administered by the Texas Water Development Board. Texas voters overwhelmingly approved this amendment as Proposition 4 on Nov. 4, 2025.
Beginning Sept. 1, 2027, the resolution requires the comptroller of public accounts to deposit up to one billion dollars each fiscal year into the Texas Water Fund once state sales and use tax collections exceed $46.5 billion. The first $46.5 billion in revenue each year will continue to flow into general revenue, with the next one billion dollars dedicated to the Texas Water Fund and maintained in a separate account.
The legislature may, by concurrent resolution adopted by a record vote of a majority of the members in each chamber, direct the comptroller to allocate deposited funds to programs the Texas Water Development Board administers, including the State Water Implementation Fund for Texas, the New Water Supply for Texas Fund, and other authorized accounts. The amendment prohibits using the allocated funds to finance infrastructure transporting non-brackish groundwater, except in limited cases involving aquifer storage and recovery projects. Allocations cannot be modified during the first 10 fiscal years they apply. The legislature may also suspend these allocations during a declared state disaster, allowing temporary redirection of funds with the intent to restore them to the Texas Water Fund when practicable. These provisions will remain in effect until Aug. 31, 2047.
This legislation, culminating in the voter-approved constitutional amendment, creates a long-term funding stream to ensure Texans have the water needed for the continued population and business growth that Texas continues to see each year. This provides opportunities for an array of new water projects, which can serve as another component of the state’s ongoing economic development.
IRS Guidance on Claiming the New Tax Deduction for Tips and Overtime Pay
Takeaways
For tax years 2025 -2028, the One Big Beautiful Bill Act (OBBBA) allows employees to take an above-the-line tax deduction on qualified overtime pay and qualified tips.
On November 21, 2025, the Internal Revenue Service (IRS) released IRS Notice 2025-69, which explains how individual taxpayers can calculate and claim these deductions for the tax year 2025, even if their employer does not provide any separate documentation identifying which portions of overtime or tip income may qualify for the deduction.
Related Links
IRS and Treasury Guidance
IR-2025-82 (IRS announces no changes to individual information returns or withholding tables for 2025 under the One, Big, Beautiful Bill Act)
IR-2025-92 (Treasury, IRS issues guidance listing occupations where workers customarily and regularly receive tips under the One, Big, Beautiful Bill)
IR-2025-110 (Treasury, IRS provide penalty relief for tax year 2025 for information reporting on tips and overtime under the One, Big, Beautiful Bill)
IRS Notice 2025-62 (Relief from Certain Penalties Related to Information Reporting Required in Connection with No Tax on Tips and Overtime)
IR-2025-114 (Treasury, IRS provide guidance for individuals who received tips or overtime during tax year 2025)
IRS Notice 2025-69 (Guidance for Individual Taxpayers who received Qualified Tips or Qualified Overtime Compensation in 2025)
Jackson Lewis Resources:
Federal OBBBA Round-Up: What Employers Need to Know Now – Jackson Lewis
OBBBA’s Tips + Overtime Tax Break: Reclassification Considerations, Reporting Requirements, Industry Impact + More – Jackson Lewis
IRS 2025 Penalty Relief: A Break for Employers under OBBBA’s Tax Reporting for Tips and Overtime
Background
Employer reporting obligations: The OBBBA requires employers to report on Form W-2 both
the portion of an employee’s pay that is qualified overtime compensation, and
the portion constituting qualified tips along with the employee’s qualifying tip-earning occupation.
However, under IRS Notice 2025-62, the IRS announced that it generally will not be enforcing these separate reporting obligations for the 2025 tax year. Formal W-2 reporting changes will begin in 2026.
Article
IRS Notice 2025-69 provides examples and calculation methods for determining deductible amounts of qualified tips and qualified overtime when the employer does not provide a separate accounting. Furthermore, the Notice grants transition relief from the restriction limiting the tip deductions to only those tips received in a “specified service trade or business.”
Even though separate reporting is optional in 2025 and the Form W-2 has not yet been revised for the new tax reporting obligations, the IRS still encourages employers to provide this information voluntarily, such as by posting on an online portal, providing additional written statements, or using Box 14 of Form W-2 to show qualified overtime pay. Employers that do not provide such additional information should anticipate employee inquiries during the 2025 tax filing season and consider proactive communication and support.
Executive Compensation Today
Executive compensation is far more than a paycheck; it reflects a company’s values, its long-term strategy, and its governance culture, and in this way, can affect the legal, financial, and operational domains within an organization. With increasing regulatory scrutiny and rising expectations from shareholders, companies must design compensation frameworks that are competitive, compliant, and aligned with sustainable performance.
The Components of Executive Compensation
A strong executive compensation framework blends fixed pay, performance incentives, equity, and supplemental benefits to create a package that supports organizational goals.Base salary and annual bonuses remain the foundation of executive compensation packages, offering stability and rewarding near-term achievements. However, cash alone cannot create long-term alignment. Companies, therefore, rely heavily on performance-based and equity incentives to reinforce sustainable results.
Equity Compensation
Equity remains one of the most influential tools for driving executive behavior. Equity awards take many forms, including restricted stock, stock options, stock appreciation rights (SARs), and ‘phantom equity.’ These instruments place executives in a position where their financial outcomes correspond with shareholder value. Elizabeth Richert of Much Shelist, P.C., points out that there is a growing shift in compensation plan structure that conditions equity on performance rather than simply time.
Deferred Compensation
Deferred compensation plans allow executives to shift income to a later time, typically at separation or retirement. However, these arrangements must comply with IRS §409A regulations.
“409A is very broad, very strictly enforced,” warns Andrea Powers of Donelson, Bearman, Caldwell, & Berkowitz, PC. “Even administrative mistakes can trigger substantial penalties, including immediate taxation.”
Perks and Supplemental Benefits
Contemporary executive benefits may include relocation reimbursement, commuter allowances, supplemental disability insurance, executive health programs, and enhanced retirement benefits. While less flamboyant than the perks of earlier decades, these benefits continue to influence recruiting and retention efforts.
Pay for Performance
Choosing the Right Metrics
‘Pay for performance’ remains the norm, but selecting the proper metrics by which to measure performance is critical.
Common financial metrics include revenue growth, EBITDA, earnings per share, cash flow, and total shareholder return. Each metric will have its own limitations, of course, and so it is important to use a diverse set of metrics. For instance, market swings often distort total shareholder return, making it an imperfect standalone measure. And as Daniel Cotter of Aronberg Goldgehn observes, only a small percentage of the stock price can be attributed to management’s actions in a given year.
Non-financial metrics include innovation and product development, customer satisfaction and retention, employee culture and turnover, compliance and safety, and ESG-related performance.
Most experts recommend using five to ten metrics with a mix of short-, medium-, and long-term targets. This avoids overweighting any single factor and encourages balanced performance.
Benchmarking
Benchmarking executive pay against relevant organizations helps maintain competitiveness.
Here, Neil Lappley of Lappley & Associates, Ltd. stresses the importance of choosing appropriate peers: “You need to sort out what makes sense in terms of competitors in size and geography.”
Peer groups are typically selected based on:
Industry sector
Revenue range
Geographic scope
Talent-market competition
Compensation committees play an essential role in designing and administering executive pay and rely on these comparisons to ensure pay is reasonable and aligned with market standards.
Their responsibilities include:
Hiring and supervising compensation consultants
Selecting performance metrics and plan structures
Evaluating risk created by compensation plans
Overseeing proxy disclosures
Ensuring legal and regulatory compliance
Committees must also keep shareholder perceptions in mind as executive compensation remains a frequent target of shareholder activists seeking governance changes.
The Regulatory and Legal Landscape
Securities law, tax regulations, and exchange rules form the backbone of compensation governance.
Securities Law
The Sarbanes-Oxley Act imposes significant restrictions, including:
A ban on most executive loans
Accelerated reporting of insider trades
Enhanced disclosure and internal control obligations
These measures curtailed compensation practices that once contributed to perceived inequities or abuses.
The Dodd-Frank Act remains one of the most significant compensation-related laws. Its key provisions include:
‘Say-on-Pay’ shareholder votes
Disclosure of the CEO-to-median-employee pay ratio
Mandatory clawback requirements
Independence standards for compensation committees
Detailed pay-for-performance disclosures
Tax Regulations
Tax law greatly shapes compensation strategy. Noncompliance can result in immediate income inclusion, excise taxes, and reputational damage. Relevant tax code regulations include:
83: Property transferred in connection with performance of services
162(m): Deduction limits on executive pay
409A: Deferred compensation
457: Deferred compensation for tax-exempt organizations
Stock Exchange Regulations
NYSE and NASDAQ require compensation committees to maintain strict independence, evaluate consultant independence, and approve equity plans transparently. Even private companies often emulate these standards to strengthen governance and prepare for potential public offerings.
Differences Across Employer Types
Public Companies: Public companies face the greatest scrutiny due to SEC reporting obligations, ‘Say-on-Pay’ votes, and exchange requirements. Their disclosures must clearly articulate how compensation supports performance.
Private Companies: Private companies enjoy more flexibility but still must consider tax compliance, investor expectations, and competitive pressures. Negotiation between executives and owners is typically more individualized.
Nonprofit and Tax-Exempt Organizations: Tax-exempt organizations face special rules under IRS §457 regulations and private inurement laws. Board members may even face personal liability for approving excessive pay, making documentation and benchmarking essential.
Best Practices for Effective Compensation Design
Executive compensation shapes organizational performance, culture, and public perception. When designed thoughtfully, it reinforces long-term value creation, legal compliance, and shareholder confidence. In the end, compensation should motivate leaders to build long-term performance. With balanced incentives and strong governance, companies can implement compensation plans that achieve exactly that.
Best practices include:
Aligning incentives with long-term strategic goals
Combining financial and non-financial metrics
Avoiding overreliance on any single metric
Using multi-year performance cycles
Evaluating peer groups and metrics annually
Maintaining strict tax law compliance
Keeping documentation clear and thorough
Communicating expectations transparently to executives
To learn more about this topic, view Executive Compensation. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested in reading other articles about governance.
This article was originally published here.
©2025. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.
New York Tax Court Approves Section 1031 “Drop & Swap” Transactions
Earlier this year, a New York City Administrative Law Judge found that the taxpayers’ sale of a tenancy-in-common (“TIC”) interest in real estate qualified for section 1031 “like-kind exchange” treatment even though the underlying property had been owned that very same day by a partnership, which distributed the property to its partners on the day of the sale in a “drop & swap” transaction.[1] The IRS did not audit the transaction. Although this is only a New York Division of Tax Appeals administrative law judge opinion, the decision (which is based entirely on federal authorities) is thoughtful,[2] and the fact pattern is very common.
I. Facts.
Benjamin Hadar, Ruth Shomron, and a third, unnamed partner were partners in a partnership called “Upwest”. Upwest held a rental apartment building on Central Park West that was purchased in the 1980’s. The building had appreciated significantly but was not producing a lot of revenue. Hadar and Shomron wanted to do a like-kind exchange, but the third partner wanted to cash out. (She had a higher basis in her partnership interest because she had inherited that interest from her brother, who had died in 2002.) The three partners agreed to have Upwest distribute the property to the partners as TIC interests, and each would sell their TIC interest. Hadar worked with a broker to find a purchaser but made clear that the individual partners would be the sellers, and not Upwest. On June 9, 2015, Sugar Hill Capital Partners (“Sugar Hill”) agreed to buy the building for $65 million. The letter of intent was not addressed to Upwest. The offer was accepted.
Upwest entered into a sale contract with an LLC organized by Sugar Hill.
The three partners formed single-member LLCs to receive their TIC interests, and Hadar and Shomron each found replacement properties for purposes of their respective like-kind exchanges (Hadar and Shomron wished to invest in different properties). Shomron notified the bank holding a mortgage on the property of the plan to sell the property as TIC interests, and the bank did not object.
On January 28, 2016, the LLCs entered into a TIC agreement.
On February 1, 2016, Upwest distributed TIC interests to the LLCs and assigned the sale contract to those LLCs. In addition, a deed for the transfer from Upwest to the LLCs was recorded with the NYC Department of Finance. Hadar’s and Shomron’s TIC interests were transferred to a qualified intermediary.
The same day, the TIC interests were sold to Sugar Hill for $65 million. Sugar Hill wired Hadar’s and Shomron’s shares of the proceeds to the qualified intermediary. The qualified intermediary subsequently purchased replacement properties for each of Hadar and Shomron.
II. The Decision.
The judge held that section 1031 requires that the taxpayer in a like-kind exchange must continuously hold its interest in the exchanged property for investment but found that this continuing investment requirement was satisfied by the TIC interests, and the fact that the property was distributed on the same day as the sale did not invalidate the like-kind treatment.
The NY Division of Tax Appeals argued that the distribution immediately before the sale did not convey the “benefits and burdens” (the TICs did not receive any of the rental income or incur any of the rental expenses) and that Upwest should be treated as the owner. (The Division argued that the partners should have held the property for a minimum of two months before selling.) The judge rejected this argument because (i) section 1031 does not impose a holding period requirement, (ii) the partners followed the form of their transaction (“during the brief moment that the Tenants in Common held title to the CPW property, they assumed all obligations of Upwest arising under the Sale Contract pursuant to the Assignment of Contract of Sale”), and (iii) the purchaser had been informed that the sellers were the Tenants in Common, and not Upwest.
The Hadar case is noteworthy in its statement that section 1031 does not require a minimum holding period, as well as its focus on the taxpayers’ adherence to their form for each step of the transaction. However, Hadar is a New York case and has no precedential value in other states or for federal income tax purposes. The IRS has never directly addressed the issue and, therefore, taxpayers and their advisors should approach these transactions with caution.
[1] All references to section are to the Internal Revenue Code.
[2] Because the starting point of determining an individual’s New York personal income tax liability is the taxpayer’s federal gross income, the ruling found it appropriate to look to federal law in addressing the substantive questions at issue in the case.
Japan’s Tax Authority Recognizes VAT Exemption for Satellite Launch Services
In recent years, Japan’s space industry has been expanding, with new initiatives emerging across a wide range of sectors, including satellite communications, remote sensing, debris removal, space resource exploration, and space travel. A common and indispensable foundation for all of these activities is “access to space,” for which satellite launch services play a critical role. Consequently, the development of satellite launch service businesses might be regarded as a fundamental driver of growth for Japan’s space industry.
While satellite launch services involve important technological and regulatory considerations, they also raise tax-related issues. In particular, the consumption tax (VAT) treatment of launch services has been a key point of attention.
Against this backdrop, the Tokyo Regional Taxation Bureau (TRTB) published a written response to an inquiry regarding whether satellite launch service is subject to the VAT. The TRTB confirmed that such services are exempt from the VAT as a qualifying export exemption under Japan’s Consumption Tax Act (the VAT Act).
In this GT Alert, we provide an overview of the TRTB’s response and discuss its practical implications.
Continue reading the full GT Alert.
Blockchain+ Update — End of a Shutdown and the Beginning of an Era
The government shutdown of the last month and a half stopped a lot of the momentum that had been developing dead in its tracks. There was no movement on market structure with Congress, little ability for regulatory agencies to issue guidance, no ability for the SEC to review registration statements for products and little ability to fill longstanding vacancies that need to be filled to drive progress. While there were not many developments during the shutdown, the end of the shutdown appears to have kicked off additional activity that might still result in significant progress through the end of the year.
Detailed breakdowns of these developments, their implications for businesses going forward and a few other updates on crypto-law topics are discussed below.
Mike Selig Nominated for CFTC Chair: October 25, 2025
Background: Mike Selig has been nominated for CFTC Chair. Most recently, Selig has been the Chief Counsel of the SEC Crypto Task Force. The nomination comes after the nomination of Brian Quintenz was pulled, reportedly due to complaints by certain leaders in the crypto ecosystem.
Analysis: This about as pro-crypto as a nominee could have been. It will be interesting to see the direction he takes the CFTC, particularly in the absence of comprehensive market structure regulation. Unlike Quintenz’s nomination that was repeatedly delayed, the Senate Agriculture Committee moved quickly to set a confirmation hearing.
SEC Chair Teases Taxonomy: November 12, 2025
Background: SEC Chair Atkins gave a landmark speech that seems to be breaking the ground for a more comprehensive overhaul of how securities laws apply to digital assets. First, he clarified the rather commonsense notion that something that was once the subject of an investment contract – orange groves, beavers or cattle embryos to name a few – can cease to be subject to an investment contract as circumstances change. Second, he proposed a taxonomy for digital assets that would be divided into (1) digital commodities (or network tokens) that derive their value from the operation of a crypto platform or network, (2) digital collectibles that represent or convey rights in things, (3) digital tools that perform a function such as verifying identity and (4) tokenized securities, which would be securities. Only the last category would be regulated by the SEC. Third, he laid out what the SEC’s expected approach would be to digital asset regulations.
Analysis: While this is significant progress, it still leaves open a number of major questions that hopefully will be answered in the upcoming months and years. Does the SEC believe a token itself can inherently be or not be a security, rather than being a piece of code that may or may not be associated with a set of rights? Will the agency continue with the “embodiment theory” of tokens that seemed to have been largely rejected by the courts in the later stages of the SEC’s earlier crusade against participants in the digital assets ecosystem? Should there be broad buckets of asset classes where people are developing instruments utilizing new technologies that defy classification? If a tokenized security is just a thing that would have been a security if not tokenized and we’re still relying on the Howey test, have we necessarily moved beyond the morass in large part created by the SEC of the prior six years? This contrasts somewhat with our own proposal submitted on behalf of The Digital Chamber that proposed much narrower categories and a somewhat more fluid approach, though a lot of the principles still align.
Briefly Noted:
Government Back Up and Running: After 43 days, the federal government got its act together for just long enough to end the longest government shutdown in US history. Most regulatory agencies were operating on a skeleton crew, so this also means agencies developed a backlog on normal procedures to get government approvals or reviews for things like registration statements. The SEC came out with this handy dandy FAQ on how to handle certain things that did or didn’t move forward during the shutdown.
SEC Releases Exam Priorities: The SEC’s Division of Examinations, which examines broker-dealers, investment advisers and certain other registered intermediaries, released its annual list of exam priorities. For the first time since the Hinman Speech, digital assets are not one of the enumerated exam priorities, although there is a more general priority regarding the use of emerging financial technologies.
IRS Releases Staking Guidance for ETFs: A new revenue procedure released by the IRS established a safe harbor for “investment trusts” and “grantor trusts” under tax law to be able to stake cryptoassets without jeopardizing their special tax status.
Market Structure Keeps Moving: The Senate Agriculture Committee released a discussion draft that included a lot of placeholders, including an entire “seeking further feedback” section for decentralized finance. The Brookings Institute proposed a merger of the SEC and CFTC to best regulate crypto. Nothing has moved on the House side with respect to the Clarity Act that it passed that does not closely resemble the discussion drafts coming out of the Senate. While Sen. Tim Scott has stated they’re targeting a vote on a market structure bill before the end of the year, it’s hard to see how this would come together so quickly when lawmakers appear to still be so far apart.
Ninth Circuit Enjoins California Climate Risk Disclosure Law as CARB Moves Forward with Implementation
Ninth Circuit Grants Motion Requesting that SB 261 Be Enjoined Pending Appeal
On November 18, 2025, the U.S. Court of Appeals for the Ninth Circuit issued a two-sentence order granting a motion to enjoin enforcement of SB 261 (“Climate-Related Financial Risk”). See Chamber of Commerce of the United States of America et al. v. California Air Resources Board et al., Case No. 25-5327 (9th Cir.), Doc. 44. The underlying motion had requested that the Ninth Circuit enjoin CARB from applying or taking any action to enforce SB 261 or SB 253 (“Climate Corporate Data Accountability Act”) against the Chamber’s members and members of the co-plaintiff associations pending appeal. The appeal concerns a lower court order denying injunctive relief during the pendency of plaintiffs’ constitutional challenge to SB 253 and 261. Last month, the Ninth Circuit assigned the motion for junction to a merits panel and scheduled argument for January 9, 2026, causing the plaintiff associations to seek emergency relief from the U.S. Supreme Court in light of the upcoming January 1, 2026, compliance deadline for SB 261.
The Ninth Circuit provided no explanation of the decision to grant the plaintiffs’ motion for injunction as to SB 261, but presumably the upcoming compliance deadline was a consideration. In light of this development, the U.S. Chamber and its co-petitioners withdrew their emergency petition filed last week with the U.S. Supreme Court. Oral argument before the Ninth Circuit is still scheduled for January 9, 2026, where the lower court’s denial of the request to preliminarily enjoin SB 253 and 261 will be at issue.
The Ninth Circuit’s order does not address whether the scope of the injunction is limited to the plaintiffs in the litigation or whether SB 261 enforcement is enjoined more broadly. CARB was asked during the public workshop it held on SB 261 and 253 implementation (summarized below) on the same day of the Court’s order whether it would pursue enforcement of SB 261 as to non-parties to the litigation, in light of the Court’s order. A CARB attorney responded during the workshop that the issue is still under review because the order had just been issued.
CARB Holds Public Workshop on SB 253 and 261 Compliance and Implementation
Also on November 18, 2025 (contemporaneous with the Ninth Circuit order issuance), CARB held a public workshop to present new information on compliance deadlines and substantive obligations under SB 253 and 261. In anticipation of the workshop, CARB posted updated SB 253 and 261 guidance to its resources page, including updated FAQs and a final version of the SB 261 Compliance “Checklist.”
Key takeaways from the workshop and the updated guidance documents are as follows:
SB 261 Compliance for “Early-Stage” Analysis. The updated Checklist emphasizes that companies in the early stages of evaluating climate-related risks may begin by disclosing how those risks relate or may be relevant, even if no material risks have been identified or actions taken. CARB “encourages” such companies to include in their disclosures a description of gaps, limitations, and assumptions made as part of their assessment of climate-related issues. CARB’s staff stated during the workshop presentation that they do not expect companies to be developing new data or methods for the first reports due January 1, 2026—rather, staff emphasized a “provide what you have” approach to discharging the reporting obligation.
SB 253 Deadline and Enhanced Enforcement Discretion for Initial Reports. CARB plans to propose an August 10, 2026, deadline for the first reports due under SB 253, covering Scope 1 and 2 emissions (see updated FAQ # 3). CARB also re-enforced the “report what you have” message of its December 2024 enforcement discretion notice but signaled additional leniency—stating in the workshop and its updated FAQs that, if an entity was not collecting data or planning to collect data at the time the enforcement discretion notice was issued, it is not expected to submit Scope 1 and 2 reporting data in 2026. Instead, such entities “should submit a statement on company letterhead to CARB, stating that they did not submit a report, and indicating that in accordance with the Enforcement Notice, the company was not collecting data or planning to collect data at the time the Notice was issued” (see FAQ # 19). Further, CARB stated that it will not require limited assurance for SB 253 data submissions due in 2026 (see FAQ # 20).
Implementation Fees. CARB expects to issue invoices for the implementation fees authorized under both SB 253 and 261 on September 10, 2026, and emphasized that fees will be assessed on an entity-specific basis. Fees will be equal for all reporting entities, and each covered entity in a corporate family will trigger a separate fee obligation. The first phase of CARB regulations—expected to be published late 2025-early 2026, with Board approval and adoption expected in the first quarter of 2026—will largely be focused on the administration of the fee provisions of the laws, in addition to codifying the SB 253 compliance deadline.
Applicability. CARB also provided additional guidance on how companies should evaluate whether SB 253 and 261 apply to them, although ultimately such clarifications will not have legal effect until CARB completes its rulemaking process next year. Nonetheless, CARB specified that:
“Doing business in California” for purposes of SB 253 (and potentially SB 261) will be defined by reference to the “doing business” definition in California Revenue & Tax Code (RTC) § 23101, but only paragraphs (a) and (b)(1) & (2) of that section, meaning that only the in-state sales thresholds would be relevant to determining whether an entity is “doing business,” not the property or payroll thresholds.
Annual revenue will likely be defined by reference to the RTC § 25120(f)(2) “gross receipts” definition (see FAQ # 4). Thus, annual revenue for purposes of SB 253 and 261 applicability would be verifiable in a company’s FTB tax filings (g., Form 100, Schedule F, Line 1a “gross receipts” for corporations, see Workshop Presentation Slide 21).
Parent-Subsidiary Relationship. CARB clarified during the workshop that “parent-subsidiary relationships do not determine which entities are regulated” (Workshop Presentation Slide 26), and, where a parent entity has a subsidiary doing business in California, the parent will not be automatically deemed to be doing business in California—rather, “[i]nclusion criteria should be assessed on an individual company basis,” and both the parent and the subsidiary should “assess their own compliance obligations based on the criteria outlined in the statute” and CARB’s proposed definitions summarized above (FAQs # 12-13).
Unfortunately, for most companies, the Ninth Circuit ruling and new CARB guidance come late in the compliance planning process and create much uncertainty about next steps. There is not a uniform answer as to how to proceed, as each company is differently situated in terms of preparation, corporate structure, and other factors.
Hannah Flint contributed to this article