Michael Gray, CPA's Tax and Business Insight
July 2, 2026
© 2026 by Michael C. Gray
ISSN 1539-395X
A monthly report to help you prepare for your financial future, keep more of what you earn by minimizing your taxes, and build an extraordinary business!
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Table of Contents
- Happy Independence Day!
- Family celebrations.
- Be aware of company ESOP cash obligations.
- IRS issues gift tax relief for Trump Savings Accounts.
- IRS issues Qualified Opportunity Zone guidance.
- Entity-based discounted value of a partnership interest disallowed for an estate.
- IRS issues guidance for long-term care distributions from defined contribution retirement plans.
- Digital staking awards were taxable income.
- Federal income tax return extension with a tax estimate is honored.
- California enacts state budget
- Loads of tax and financial planning ideas and information are included in the 2026 Edition of How to Use Roth and IRA Accounts to Provide a Secure Retirement.
- Loads of tax and financial planning ideas and information are included in the 2026 Edition of Employee Stock Options - Executive Tax Planning.
- Do you sell products, services or software to CPAs?
- Attention CPAs-would you like help with marketing your services?
- Attention CPAs-do you need support for tax issues?
- Attention Accountants! Speed up processing your business closings!
- Please share your good experiences with Michael Gray, CPA.
- Financial Insider Weekly past episodes.
- Visit our new book review: Tough Titties
- Follow me on social media!
- Check out my blogs.
- Subscribe/Remove from Michael Gray, CPA's Tax & Business Insight
Independence Day for all Americans! Photo by G. Poulson Happy Independence Day!
"We hold these Truths to be self-evident, that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness--That to secure these Rights, Governments are instituted among Men."
Sometimes it feels like our institutions, including the Supreme Court, have abandoned the ideals upon which our country was founded. From the inception, our governing bodies have mostly favored the wealthy and white individuals. For the 250th anniversary of our country's birth, we should rededicate ourselves to defending those ideals, including writing to our representatives in Congress and protesting, when we believe it's warranted.
Family celebrations.
My son, James Gray, is celebrating his birthday this month. Happy birthday, James!
My daughter, Dawn, and her husband, John Siemer are celebrating their wedding anniversary this month. Happy anniversary, Dawn and John!
Be aware of company ESOP cash obligations.
A private company was doing extraordinarily well, and the value of its stock shot up.
Employee participants in the company's employee stock ownership plan (ESOP) decided it was a great time to redeem their shares. Since the company's stock wasn't publicly traded, the company was obligated to redeem the shares.
The cash requirements were overwhelming. The company went bankrupt.
Most companies can manage a steady stream of redemptions, but a mass redemption by ESOP participants can be overwhelming.
(Checkpoint News, June 3, 2026, "Workers Hit the Jackpot on Company Stock. Then the Company Went Bankrupt" by Denise Lugo.)
IRS issues gift tax relief for Trump Savings Accounts.
Since contributions to Trump Savings Accounts aren't accessible by the beneficiaries (who are children) until they reach age 18, it seems they are gifts of future interests, which are reportable gifts that would at least reduce the lifetime estate and gift exemptions for the donors.
The IRS and the U.S. Treasury have issued a safe harbor that deems the contributions to be present interests that are eligible for the annual per-donee, per donor gift tax exemption. Donors who make contributions to the accounts and don't have other taxable gifts might not be required to file federal gift tax returns to report the contributions.
(Revenue Procedure 2026-25, June 30, 2026.)
IRS issues Qualified Opportunity Zone guidance.
Qualified Opportunity Zone benefits were extended in the One Big Beautiful Tax Bill Act (OBBBA), that was enacted July 4, 2025.
The IRS has announced it intends to issue proposed regulations for changes enacted in OBBBA.
The IRS said in the Notice that taxpayers who hold a qualifying previously acquired opportunity zone investment through December 31, 2026 are required to include in income in the tax year that includes that date the remaining deferred gain is taxable. The gain isn't eligible to be deferred in another Qualified Opportunity Zone investment.
Taxpayers and their advisors who want to use Qualified Opportunity Zones to defer future gains should study the Notice.
(Notice 2026-40, June 18, 2026.)
Entity-based discounted value of a partnership interest disallowed for an estate.
The Fifth Circuit Court of Appeals valued a partnership interest for computing the federal estate tax based on it's underlying assets. The assets were transferred to a limited partnership shortly before the death of the decedent. The court found the purpose of the transfer was solely to avoid federal estate taxes.
The moral of the story is fractional interest planning for business assets should be done well before death.
(Estate of Fields v. Commissioner, 5th Circuit Court of Appeals No. 25-6043, June 8, 2026.)
IRS issues guidance for long-term care distributions from defined contribution retirement plans.
Under the SECURE 2.0 Act of 2022, the 10% early distribution penalty doesn't apply to distributions from defined contribution retirement plans, such as 401(k) plans, that were made directly to pay for long-term care. The IRS has issued temporary guidance about the requirements to make these qualified payments.
In order for a distribution to qualify, the plan administrator must receive a long-term care premium statement. A "long-term care premium statement is a statement provided by an issuer to a defined contribution plan at the request of the owner of the coverage setting for certain specified information".
The issuer of certified long-term care insurance that files a long-term care premium statement must report the long-term care premiums paid on Form 1099-LPS, Long-Term Care Premiums Paid Statement, and furnish a written statement to each individual is required to be set forth on Form 1099-LPS. The payment on behalf of an employee must be reported by the payor on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
An employee may only treat a distribution as a qualified long-term care distribution if the plan permits them.
Unlike certain other distributions, distributions for long-term care can't be repaid to a retirement plan within three years.
Qualified distributions for long-term care aren't subject to 20% federal tax withholding.
Plan administrators and their advisors should study Notice 2026-33.
(Notice 2026-33. May 20, 2026.)
Digital staking awards were taxable income.
The Tax Court ruled that a taxpayer who received digital asset staking awards in the form of additional tokens credited to his digital asset account was required to include them in taxable income.
(Paschall v. Commissioner, T.C. Memo. 2026-46, June 4, 2024.)
Federal income tax return extension with a tax estimate is honored.
The Court of Federal Claims held that a couple's request for an automatic six-month extension of time to file their 2016 federal income tax return was valid.
The IRS claimed the couple's extension request was invalid because they failed to disclose a reasonable estimate of their 2016 income tax liability on the mailed extension form, and refused to apply their 2016 overpayment to their 2017 federal tax liability, because they said the 2016 income tax return wasn't filed on time.
The Court said that the extension request would have been honored if submitted, so it should also be honored when mailed without the tax estimate on paper. Submitting an estimate of the tax liability is optional when the extension request is submitted online.
(Adams-Karp v. U.S., Case No. 1:23-cv-00926-MRS, May 21, 2026.)
California enacts state budget.
On June 27, 2026, Governor Newsom approved California's budget legislation. Among other changes,
- California sales and use tax will apply to purchases of digitally delivered prewritten software, including software as a service, effective January 1, 2017;
- The annual (first year) tax imposed on new LLCs, limited partnerships, and limited liability partnerships will be reduced from $800 to $400 for the 2027 through 2029 tax years;
- A 100% tax would be imposed on any settlement fund payments received by taxpayers during the 2026 through 2029 tax years from any anti-weaponization settlement fund established by the federal Department of Justice. (None has been approved at this time.)
- The $5 million cap on business credits, currently scheduled to expire after the 2026 tax year, would be made permanent.
(Spidell's Flash E-mail, "Increased taxes included in California budget deal", June 15, 2026)
Loads of tax and financial planning ideas and information are included in the 2025 Edition of How to Use Roth & IRA Accounts to Provide a Secure Retirement.
For more information and a 25% discount go to www.rothirainvestingbook.com. Also available at www.amazon.com.
Loads of tax and financial planning ideas and information are included in the 2026 Edition of Employee Stock Options - Executive Tax Planning.
For more information and a 25% discount go to https://www.siliconvalleypublishingcompany.com. Also available at www.amazon.com.
Do you sell products, services or software to CPAs?
Maybe I can help with writing promotional material and marketing ideas. Call me, Michael Gray, at 408-918-3161 or email mgray@taxtrimmers.com.
Attention CPAs-would you like help with marketing your services?
Maybe I can help with writing promotional material and marketing ideas, including encouraging referrals from your current clients. Call me, Michael Gray, at 408-918-3161 or email mgray@profitadvisors.com.
Attention CPAs-do you need support for tax issues?
Michael Gray, CPA can help you with research and guidance on complex tax planning and tax return reporting issues. mgray@taxtrimmers.com.
Attention Accountants! Speed up processing your 2019 business closings!
Do you still have 2019 business income tax returns on extension that need to be done? Check out this trial balance software, EZ Trial Balance, that's super-easy to set up and use. There is a desktop version and an online version. The online version includes consolidations and ratio analysis for analytical review. http://www.eztrialbalance.com
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Financial Insider Weekly past episodes
After eight years of production, I have discontinued producing new interviews for Financial Insider Weekly. Doing the show has been a rewarding experience and I consider back episodes to be my legacy of financial literacy education to our community. Back episodes available at https://www.youtube.com/user/financialinsiderweek.
Michael Gray regrets he can no longer personally answer email questions. He will answer selected questions in this newsletter.
For your questions about dependent exemptions, see IRS Publication 501 at www.irs.gov.
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