A long-time Forum attendee, and a member of the executive committee of a national CPA and consulting firm, responded to our email blast “QOF Investment? Time to Pay the Piper” with a helpful planning suggestion for taxpayers. As discussed in the email blast, December 31, 2026, is a date on which taxpayers who deferred capital gains by investing in Opportunity Zones (“OZs”) must recognize the lesser of (i) the remaining deferred gain or (ii) the investment’s fair market value, taking into account any basis increase. The Forum attendee suggested that taxpayers consider engaging an appraiser to determine the fair market value of their OZ investment as of that date. In doing so, the appraiser may apply appropriate valuation discounts, such as lack of marketability or lack of control, which could result in a value below the remaining deferred gain and, consequently, reduce the amount of gain recognized.

In other news, our home state of Illinois recently passed legislation to decouple from the Federal §1202 exclusion for tax years ending on or after December 31, 2026. This change in position by Illinois will negatively impact Illinois taxpayers who are planning to sell or who have already sold §1202 stock in 2026. Illinois joins the list of states that do not recognize §1202, which historically has included Alabama, California, Mississippi, and Pennsylvania. Whenever §1202 is in play, tax practitioners should determine whether the §1202 exclusion is available (in full or in part) in the applicable jurisdiction.

Finally, the Taxpayer Advocate Service notes that in Kwong v. United States, 179 Fed. Cl. 382 (2025), the Court of Federal Claims rejected the government’s position that the COVID-19 disaster postponement under pre-amendment §7508A(d) was limited by the one-year cap in § 7508A(a) and Reg. § 301.7508A-1(g)(3)(ii), and rejected the argument that the disaster declaration specified only a beginning date. Instead, the court sided with the taxpayer and held that § 7508A(d) operated independently of §7508A(a) and provides an automatic, self-executing postponement for the duration of a federally declared disaster period, plus the statutory 60-day period. Interpreting the declaration’s phrase “beginning on January 20, 2020 and continuing” in conjunction with the termination of the federal COVID-19 emergency on May 11, 2023, the court concluded that the disaster period extended through that date. Accordingly, the automatic postponement period ran from January 20, 2020, through July 10, 2023, 60 days after the end of the emergency declaration, effective May 11, 2023. Consequently, late filing and late-payment penalties (and related interest) assessed for acts treated as timely during that period may have been improper and may be refundable or abatable, potentially impacting tens of millions of taxpayers. Because relief is not automatic and the IRS filed a notice of appeal with the U.S. Court of Appeals for the Federal Circuit on May 15, 2026, the Taxpayer Advocate Service has urged affected taxpayers to file refund claims or protective claims for refund by filing Form 843, Claim for Refund and Request for Abatement, by July 10, 2026, in most cases. That date is important because it is three years after July 10, 2023, the date Kwong treated as the end for the disaster period, and, therefore, may be the deadline for preserving refund claims for penalties and interest that should not have been assessed during the disaster period. The Taxpayer Advocate Service also emphasized the risk that many affected taxpayers may be unaware of this relief opportunity and urged the IRS to promote awareness, extend deadlines, allow electronic filing, and consider automatic relief to ensure fair and consistent treatment. The blog can be found here.

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