Circulated biweekly to business clients since 1925
Reported from Washington, D.C. • kiplinger.com • Vol. 101, No. 18

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Washington, August 27, 2026

Dear Client:

Roth IRAs are popular savings investments. Finance-savvy individuals are funding Roth IRAs by doing conversions from their traditional IRA to a Roth IRA and/or making yearly Roth contributions.

Here are the general tax consequences. Although you can’t deduct contributions to a Roth IRA, the money in the account grows tax-free. Generally, subject to the first five-year rule discussed below, payouts of earnings after age 59½ are not taxable. You can also withdraw contributions at any time on a tax-free basis and without having to pay a penalty. Payouts of earnings before 59½ are hit with a 10% fine.

But be sure you understand the two fairly complex Roth IRA five-year rules.

The first rule impacts many more Roth IRA owners than the second one.

It determines whether distributed earnings are tax-free. Under this rule, payouts of earnings after 59½ aren’t taxed if at least five tax years have passed since the owner first funded a Roth IRA. Here, the five-year clock starts on Jan. 1 of the year you first put money into any Roth IRA, through a contribution, rollover or conversion. It doesn’t restart for later payins, conversions or newly opened Roths.

Here are three scenarios to help illustrate the effect of this first rule:

Scenario 1: You are 63 and you funded your first Roth IRA two years ago. In 2026, you take a distribution. You will be taxed on the earnings part of the payout because the five-year clock began on Jan. 1, 2024, and five years haven’t yet passed.

Scenario 2: You are 64 and you funded your first Roth IRA in Nov. 2021. You take a distribution in Sept. 2026. Your withdrawal will be fully tax-free because the five-year clock began Jan. 1, 2021, and you took the payout in Sept. 2026.

Scenario 3: You are 71, and you first funded a Roth IRA through a conversion in 2017. You also did subsequent Roth conversions in 2018 through 2025, and you plan to do so again this year. For purposes of this five-year rule, your five-year clock began Jan. 1, 2017, so you can take tax-free Roth withdrawals. Note that here, the five-year clock doesn’t restart for your subsequent Roth IRA conversions.

The second five-year rule is far less common. It’s only for Roth conversions…

And whether the 10% early distribution fine hits pre-age-59½ distributions. Under this rule, if someone under 59½ does a Roth conversion, and later takes a payout within five years of the conversion and before turning 59½, then the amount of withdrawn conversion principal is hit with the 10% penalty for pre-59½ payouts. This is an anti-abuse rule to prevent people from circumventing the 10% penalty by first doing a Roth conversion and soon thereafter taking the money out of the Roth. That’s because the 10% early withdrawal penalty doesn’t hit Roth IRA conversions. Under this second five-year rule, each conversion has its own separate five-year period, which differs from the first five-year rule above. So if you do multiple Roth conversions, there are multiple five-year periods, even if each conversion is done into the same Roth that you owned for years. But remember it doesn’t apply to payouts taken after 59½.

IRAs & PLANS

Here are three important rules to know if contemplating an IRA rollover.

First, the distribution must be recontributed within 60 days or it is taxed. IRS offers relief if you deposit the withdrawn funds into the IRA after the 60 days, and you self-certify that you qualify for a waiver of the 60-day rule in certain cases. The late rollover must be for one of 12 reasons, and the rollover must be completed within 30 days after the reason for failing to do it timely in the first place ceases. If you don’t satisfy the requirements for self-certification of the late IRA rollover, you will have to request a private letter ruling from IRS and pay a user fee.

Second, you must roll over the same property that you received from the IRA. For example, if you took a cash distribution, then cash must be deposited in a rollover. If the payout was 75 shares of Apple stock, those same shares must be put back.

Third, don’t violate the one-rollover-every-12-months rule. This rule applies on an aggregate basis to all your IRAs, not on an IRA-by-IRA basis. IRA owners with multiple accounts can make unlimited trustee-to-trustee transfers between IRAs in a 12-month period, because these direct transfers aren’t considered rollovers. Ditto if an IRA owner is given a check payable to the new IRA for his or her benefit.

IRS gives a fraud victim additional time to do an IRA rollover. The taxpayer was lured into a fraudulent scheme by scammers accusing her of financial crimes. They convinced her she would be imprisoned unless she sent them bail money. So she transferred funds from her traditional IRA to a foreign bank account owned by the scammers. The IRA owner eventually realized she was a scam victim and contacted governmental authorities to report it. In a private letter ruling, the Revenue Service granted her relief for more time to put the withdrawn funds back into her IRA, since the 60-day period for doing a tax-free rollover had passed.

Sponsors of 401(k) plans get guidance to simplify the rollover process. IRS offers a set of rollover procedures and sample forms that plan sponsors can use when handling rollovers of workplace retirement account funds to a participant’s IRA or to a workplace retirement plan with another employer. Note that this guidance does not apply to IRA-to-IRA transfers. IRS Notice 2026-49 has the complete details.

Firms that request IRS employee plan letter rulings must use Form 15662…

And file the request and payment electronically through www.pay.gov. The changes, which apply to letter ruling requests submitted on or after Sept. 4, replace the prior rules, which generally required these types of letter ruling requests, along with a check for the user fee, to be mailed or delivered to a specified address.

DISASTERS

A tip for victims of 2025 natural disasters that occurred after July 4, 2025:

Know the new rules for deducting personal losses from damaged property. Legislation passed by Congress and expected to be signed soon by President Trump provides easings for personal disaster loss write-offs akin to those given to victims of disasters in 2018 through July 4, 2025. The relief involves disaster losses incurred before Jan. 1, 2027. Individuals can deduct these so-called “qualified disaster losses” in excess of a $500 threshold without regard to the 10%-of-adjusted-gross-income offset that generally applies. The relief is available to filers who claim standard deductions and to individuals who itemize deductions on Schedule A of their federal tax returns.

Consider whether to file a 2025 amended return on Form 1040-X. If you had a disaster loss last year after July 4, 2025, and you used the old tax rules when preparing your 2025 tax return, you can amend it by filing Form 1040-X to take advantage of the new law. And remember, if you suffer a disaster loss in 2026, you can claim it on your 2025 or 2026 federal tax return, which gives you flexibility to deduct the loss in the year that delivers the greatest tax benefit to you. Again, you would use Form 1040-X to amend your 2025 return to claim the 2026 loss.

TAX DISPUTES

Is the 90-day Tax Court petition filing deadline mandatory in deficiency cases?

The Tax Court takes the view that the 90-day filing due date is mandatory, and it regularly tosses cases in which taxpayers miss the statutory filing deadline.

Four appeals courts say no. The statutory deadline is nonjurisdictional, and the Tax Court can waive the 90-day period for late filings in deficiency cases if the Court decides, based on the facts, that there are equitable reasons for the delay.

Take this example. A couple filed their Tax Court petition four months late because they didn’t get a timely notice of deficiency. The 8th Circuit appeals court reviewed the statutory language and joined the 2nd, 3rd and 6th Circuit Courts of Appeals in ruling that the 90-day Tax Court filing deadline in deficiency cases isn’t jurisdictional and can be extended based on the facts (Maniktala, 8th Cir.).

One appeals court says yes in this case in which a taxpayer filed his petition in the Tax Court 143 days past the 90-day due date. The 1st Circuit appeals court first ruled that the 90-day filing deadline was not jurisdictional. But it then split with its sister appellate courts in deciding that the filing deadline is still mandatory and not subject to equitable tolling. It thus affirmed the Tax Court’s dismissal of the case, much to the chagrin of the taxpayer (Kyick Holdings, 1st Cir.).

Maybe the Supreme Court will ultimately address the appeals court split.

An LLC that filed a late Tax Court petition gets a bit of good news:

The late filing doesn’t automatically result in a dismissal of its case. After IRS examined the LLC under its centralized partnership audit regime, it mailed a notice of final partnership adjustment to the firm on Aug. 11, 2022. The partnership filed a Tax Court petition on Nov. 13, 2023, way past the 90 days required under the applicable tax statute. The Service wanted the case dismissed because of the late filing, but the Tax Court ruled that the late filing in and of itself doesn’t deprive the Court of jurisdiction (Big Apple Tompkins Realty, 167 TC No. 7). Note that the statute relied on in this case is a different federal statute from the one requiring that a Tax Court petition be filed within 90 days after a notice of deficiency.

DONATIONS

An IRS settlement program for abusive easement participants is over. In May, the Service started sending letters to certain pass-through entities that engaged in abusive donations of conservation easements. Those letters detailed settlement terms and gave the entity 90 or more days to accept or reject them. Agency officials thought at the time that this could help reduce the number of conservation easement cases on the Tax Court docket. The easement transactions generally involve pass-through entities, such as partnerships, LLCs and trusts, offering an abnormally large charitable deduction to investors by inflating the value of the land on which the easement is donated. IRS has ended the settlement program.

IRS is now taking another approach to abusive easement donations.

It’s establishing the Office of Conservation Easements within the agency. IRS says the new office will coordinate policy, enforcement and case-resolution strategy, and centralize technical expertise. The office will work with various stakeholder groups, including IRS’s Office of Chief Counsel, Dept. of Treasury officials, taxpayers, practitioners, and organizations dedicated to conservation and historic preservation.

CTA

Final regs narrow the beneficial ownership information (BOI) reporting rules. The 2021 Corporate Transparency Act required small corporations, LLCs and other state-recognized entities to report certain information about themselves and their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). Litigation ensued, President Trump took over the White House, and in March 2025, FinCEN issued proposed regs saying that U.S. firms are exempt from filing BOI reports. FinCEN has now published final regulations that mainly follow the proposed rules. U.S. companies are exempt from filing BOI reports. Also, foreign companies that are required to file reports needn’t report the BOI of U.S. company applicants.

IN CONGRESS

A Senate bill would move up the electronic filing deadline for some 1099 forms and other third-party information returns. In July, the Senate Finance Com. approved a bill that includes numerous fixes to IRS’s administration and procedures for the purpose of enhancing taxpayer and tax professional dealings with the agency. One bill provision would accelerate the e-filing deadlines for information returns reporting dividends, interest income, retirement plan and IRA distributions, and Social Security benefits. Currently, these returns must be e-filed with IRS by March 31. The bill would move the e-filing date up to Jan. 31. Note that payers are already generally required to provide these forms to payees no later than Jan. 31.

PREPARERS

Cyberthieves continue to prey on preparers in their quest for taxpayer data. Every tax pro is a potential victim of these increasingly sophisticated crooks, whose aim is to steal client data to seek fraudulent refunds from false return filings. They use e-mails and texts to trick tax pros into giving up e-Services credentials, passwords, centralized authorization file numbers, preparer tax ID numbers and more.

Having a data security plan is mandatory for paid tax return preparers. IRS provides help in this area…a template of a written information security plan, sometimes referred to as a WISP, that preparers can use as a starting point and conform to their own situation. IRS Publication 5708 has complete details.

Let’s review the preparer e-filing rules, which have been around since 2011. Preparers who expect to file more than 10 Forms 1040, 1040-SR, 1040-NR or 1041, or any combination of those during the year, must electronically file them with IRS.

There are three escape hatches. First, clients can opt out of e-filing. Returns that clients mail to IRS aren’t treated as filed by the preparer and don’t count against the 10-return cap. Clients opt for this in writing. Preparers must keep a copy of the signed statements in their file and attach Form 8948 to the tax return that the client mails to IRS. Note that preparers can provide filing instructions, addressed envelopes, stamps, etc., as long as the client actually mails the return.

Second, preparers can request a hardship waiver on Form 8944. Preparers seeking a hardship waiver must generally send the 8944 to IRS by Feb. 15 of the year for which a waiver is sought. These waivers are valid for one calendar year.

Third, there are a few very narrow administrative exemptions. For example, one is for preparers who are members of certain religious groups who oppose e-filing.

TAX CREDITS

Proposed regs would deny refundable credits to certain immigrants. The rules would make the earned income credit, American Opportunity Tax Credit and the refundable portion of the child tax credit and the adoption credit no longer available to illegal aliens. The proposal says that these income tax credits are federal public benefits, and as a result, immigrants who aren’t “qualified aliens” under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 can’t claim the credits on their federal income tax returns. Qualified aliens include green card holders, grantees of asylum, certain refugees and some others. For a joint return, only one spouse must be a U.S. citizen, resident or qualified alien.

IRS wants to quickly finalize these rules. It’s giving people until Oct. 5, 2026, to submit comments on the proposal prior to a scheduled hearing on Oct. 14, 2026.

Also, look for legal challenges to any final rule. Some lawyers allege that denying refundable tax credits to immigrants requires congressional action.

Yours very truly,

Joy Taylor, Editor

August 27, 2026

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