Two obscure tax items have crossed our desks lately. The first involves possible refund claims arising from COVID-19 deficiencies, an issue raised by ongoing litigation in the Kwong matter. Protective refund claims under the Kwong v. United States, due by July 10, 2026, were filed by many of our clients. The IRS is apparently issuing blanket denial or “no-consideration” letters for these refund claims. The National Taxpayer Advocate has urged the Service to stop the denials while the Kwong case is being adjudicated. She advises taxpayers that: “If you received one of these letters, do not ignore it, but don’t assume that it necessarily ends the matter either.” She characterizes the IRS actions as premature denials and urges the Service to identify the taxpayers who received the denials, review the determinations, and take corrective action, if appropriate.
Also, important to investors in certain overseas activities, the first civil penalty related to the Outbound Investment Security Program (OISP) has been levied, a whopping $200,000. Effective January 2, 2025, certain transactions with foreign entities are prohibited to US persons (including businesses organized in the US) and their controlled foreign entities. The Department of the Treasury must be notified of certain other transactions with covered foreign persons engaged in notifiable technologies. These regulations were expanded with the passage of the Comprehensive Outbound Investment National Security (COINS) Act of 2025 in December 2025. The goal of the legislation is to prevent investments by US entities in critical technology sectors within certain countries, originally China but now including Russia, Iran, North Korea, and Cuba. The transactions of concern relate to the following sectors: semiconductor technology and microelectronics; super intelligence (SI) systems; quantum information technologies; high-performance computing and supercomputing; hypersonic systems; and biotechnology. Fortunately, investments in publicly traded securities are expected to be excepted transactions. Rulemaking and enforcement are still developing, but this could be an area of concern for some clients who may be wise to do their due diligence before proceeding with foreign investments. Please contact us if you need assistance.
Article submitted by Lois S. Fried, CPA, CFE, CVA, ABV
