On February 10, 2026, Judge Jed Rakoff of the Southern District of New York ruled in United States v. Heppner that documents generated through a consumer version of Anthropic’s Claude AI were not protected by the attorney-client privilege or the work-product doctrine under the circumstances presented. The decision appears to be the first to squarely address privilege and work product claims arising from a non-lawyer’s use of a consumer-grade insecure, non-enterprise AI tool for “legal research,” as well as the potential consequences of inputting privileged information (provided to an individual by counsel) into an AI tool. However, putting the novelty of the AI context aside, Judge Rakoff grounded his analysis in traditional privilege principles: that disclosure of privileged communications to a third party in circumstances that undermine confidentiality (here, the corporation operating the AI tool) may result in waiver. And that an AI tool is just that – a tool, not an attorney. Accordingly, this decision reinforces the importance of only using properly secured AI tools with confidential or privileged information and for decisions about using AI in the privileged context to be made by those who best appreciate the risks involved: i.e., lawyers.
Fifth Circuit in Sirius Solutions Reverses Tax Court and Exempts Limited Partners from Self-Employment Tax
On January 16, 2026, in Sirius Solutions, L.L.L.P. v. Commissioner,[1] No. 24-60240 (5th Cir. Jan. 16, 2026), the U.S. Court of Appeals for the Fifth Circuit reversed the Tax Court and held that, for self-employment tax purposes, a “limited partner” means “a partner in a limited partnership that
Treasury and the IRS Release Final and Proposed Regulations on Section 892
I. Introduction
On December 15, 2025, the U.S. Department of the Treasury (“Treasury”) and the Internal Revenue Service (the “IRS”) published final regulations (the “Final Regulations”) and proposed regulations (the “Proposed Regulations”) under section 892.[1] The Final Regulations finalize, with modifications
How Relevant Is It? The Economic Substance Doctrine According to Liberty Global and Patel
I. Introduction
Should courts respect a transaction for tax purposes, when it otherwise complies with the technical requirements of the Internal Revenue Code and regulations? When should a court take the next step and consider the economic substance of a transaction and its motivations?
In two highly-awaited court decisions
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
Proposed Regulations Remove Look-Through Rule for Domestically Controlled REITs
I. Introduction
On October 20, 2025, the U.S. Department of the Treasury (“Treasury”) and the Internal Revenue Service (the “IRS”) issued proposed regulations (the “Proposed Regulations”) that would helpfully revoke the current “look-through rule” for domestic C corporation shareholders to determine whether a “real
Eighth Circuit Affirms Mayo Clinic’s “Educational Organization” Status and UBTI Refund
On July 25, 2025, the U.S. Court of Appeals for the Eighth Circuit affirmed the District Court decision holding that the Mayo Clinic is entitled to an $11.5 million refund of certain unrelated business income taxes imposed on it due to it being an “educational organization” under section 170(b)(1)(A)(ii).[1]
President Trump Signs One Big Beautiful Bill Act into Law
I. Introduction
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (the “Act”) into law.[1] The Act is similar to the Senate Finance Committee’s draft legislative text (the “SFC Bill”) (released on June 16, 2025), with several modifications and omissions. The Act’s key differences from
Tax Court Breaks New Ground on the Deductibility of Termination Fees with AbbVie Ruling
On June 17, 2025, the Tax Court opinion in AbbVie Inc. and Subsidiaries v. Commissioner of Internal Revenue was issued,[1] holding that the approximately $1.6 billion termination fee AbbVie (a Delaware corporation) paid to its abandoned merger partner Shire plc (an Irish company) was properly an ordinary deductible business
The Tax Court in Soroban Holds that Limited Partners Were Too Active To Be Treated As “Limited Partners” and are Subject to Self-Employment Tax
On May 28, 2025, in Soroban Capital Partners LP v. Commissioner (T.C. Memo 2025-52) (“Soroban II”), the Tax Court held the active role of limited partners in a fund manager caused them to fail to qualify as “limited partners” for purposes of section 1402(a)(13) and, therefore, the limited