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Laura Gavioli

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Although many of the procedural rules for auditing partnerships at the federal level have changed under the Bipartisan Budget Act of 2015 (the “BBA”), some principles—like the effect of actual notice—remain the same. Under the BBA, the IRS proposes partnership-level adjustments in a Notice of Proposed Partnership Adjustment (“NOPPA”) and later finalizes them in a Notice of Final Partnership Adjustment (“FPA”). If the IRS issues the FPA after the statute of limitations expires, the partnership can seek to invalidate it as untimely.

A reviewed Tax Court opinion filed March 9, 2026—Mammoth Cave Property, LLC v. Commissioner, No. 5401-24, 166 T.C. No. 4—shows the limits of “defective notice” arguments when the partnership actually received the NOPPA and participated in the process.

Relief from underpayment interest, failure-to-file penalties, and failure-to-pay penalties—as well as relief from IRS filing deadlines that arose during the COVID-19 pandemic—may be possible under two recent federal cases from the US Tax Court and the US Court of Federal Claims. Specifically, the recent Kwong decision indicates that the period of the COVID-19 federally declared disaster extended from January 20, 2020 to July 10, 2023. Filing deadlines that would have normally occurred and interest and penalties that would have normally accrued during this period may have been suspended under the reasoning articulated in Kwong. Taxpayer deadlines for seeking relief are fast approaching, and the time to review pandemic-era tax filings and tax accounts is now.

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.

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…

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…