Tax Coda Weekly Digest — March 8, 2026
This week showed how operational pressure meets legal boundaries. Congress questioned IRS leadership over data sharing and staffing losses. Courts upheld passport restrictions and denied deductions unsupported by income. Another opinion used the Cohan rule to approximate the basis but stopped short of granting a full exclusion. At the same time, Treasury moved to simplify a notoriously complex foreign currency regime.
IRS CEO grilled over data sharing and workforce cuts
House Democrats questioned IRS CEO Frank Bisignano during a House Ways and Means Committee hearing about the agency’s data-sharing practices and recent workforce reductions. Lawmakers focused on disclosures of taxpayer information to other agencies and the impact of staffing losses on enforcement and taxpayer service.
Why It Matters:
Raises scrutiny over IRS confidentiality safeguards under §6103.
Highlights operational strain from workforce reductions.
Signals continued congressional oversight of IRS governance.
Takeaway:
Operational decisions inside the IRS are becoming a central political issue.
Court rejects passport challenge over trust fund tax penalty
The Tax Court upheld the IRS's certification of a seriously delinquent tax debt subject to trust fund recovery penalties under § 6672. The taxpayer sought to invalidate the passport restriction under §7345 but failed to show the certification was erroneous.
Why It Matters:
Confirms passport restrictions apply to trust fund recovery penalties.
Limits relief absent a clear procedural error.
Reinforces passport certification as a viable collection tool.
Takeaway:
Trust fund penalties can trigger passport restrictions when debts remain unpaid.
Court denies business deductions after taxpayer reports no income
Tracey Yvonne Lucas v. Commissioner
The Tax Court denied business deductions after the taxpayer reported no income from the claimed activity. The Court found insufficient evidence of a profit motive and inadequate documentation supporting the expenses.
Why It Matters:
Reinforces that deductions must tie to income-producing activity.
Shows courts scrutinize businesses reporting persistent losses.
Highlights the evidentiary burden for claimed expenses.
Takeaway:
Deductions rarely survive when income and documentation are absent.
Court allows partial basis increase under Cohan but denies §121 exclusion
The Tax Court applied the Cohan rule to approximate certain basis adjustments when exact records were unavailable. However, the Court denied the taxpayer’s claim for the §121 home-sale exclusion because the statutory ownership and use requirements were not satisfied.
Why It Matters:
Demonstrates courts may approximate costs under Cohan.
Reinforces strict statutory conditions for the §121 exclusion.
Shows partial relief does not guarantee full tax benefits.
Takeaway:
Approximation can increase the basis, but it cannot override statutory exclusions.
IRS announces simplifications and new elections for §987 QBU currency computations
The IRS announced proposed regulatory changes for §987 qualified business unit currency computations. The guidance introduces a simplified “equity and basis pool” method tied to the current-rate election and eases certain compliance requirements.
Why It Matters:
Simplifies one of the most complex foreign currency regimes.
Provides optional methods for taxpayers managing multiple QBUs.
Signals continued effort to modernize international tax administration.
Takeaway:
Treasury is trying to make §987 workable without rewriting the statute.
Overall Takeaway
Operational pressure defined the week. Congress examined agency leadership. Courts enforced strict statutory requirements in deductions, passport restrictions, and home-sale exclusions. Treasury moved in the opposite direction by simplifying a complex international tax rule.