Federal Income Tax Update
By I. Conservation Easement Deed did not Constitute a CWA because it did not Contain a Merger Clause; Martin vs. Commissioner, TC Memo 2026-39.
A. Contemporaneous Written Acknowledgement Requirement.
Under Section 170, no charitable contribution deduction of $250 or more is allowed unless the donee organization provides a contemporaneous written acknowledgement (“CWA”) to the donor. A CWA must state whether the charitable donee provided any goods or services in connection with the donation. Section 170(f)(8)(B)(ii). The donor must receive the CWA no later than the tax return due date for the year of the donation. Usually, a CWA simply states the donee organization provided no goods or services to the donor in exchange for the donation.
Often, conservation easement deeds are signed by the donee organization to evidence the donee’s agreement to comply with certain conditions of the easement grant. If the donor fails to obtain a CWA from the donee, can the deed itself constitute a CWA?
B. Deed Fails to Qualify as a CWA because it Contained No Merger Clause.
The Martins granted a conservation easement to Highland City, Utah, pursuant to a letter agreement about the Martins’ planned donation. The Martins and Highland City signed and recorded a deed of conveyance and subsequently executed Form 8283 that was attached to the Martins’ 2018 tax return. Neither the letter agreement, the Form 8283, nor the deed specifically stated that the Martins received no goods or services from Highland City in exchange for the conservation donation. The Martins’ deed stated Highland City provided “$10 and other good and valuable consideration” for the donated property rights. The IRS argued “for other good and valuable consideration” left open the possibility that the donee had agreed to provide other goods or services to the Martins.
The court noted that courts have allowed a deed to serve as a CWA if the deed contained a merger clause. See Big River Development LP, TC Memo 2017-166. A merger clause typically states that the deed constitutes the “entire agreement of the parties with respect to the subject matter hereof” or reflects “the entire agreement of the parties and that any prior or simultaneous correspondence, understandings, agreements, and representations are null and void upon execution hereof, unless set out in this instrument.” The Martins’ deed, however, did not contain a merger clause. Accordingly, the court denied the entire charitable contribution deduction, finding that there was no valid CWA.
II. At Least for now, Limited Partners do not have to be Passive Investors to Avoid Self-Employment Taxes; Sirius Solutions, LLLP, 165 F.4th 374 (5th Cir. 2026).
The Fifth Circuit Court of Appeals has rejected the functional analysis test in determining whether a limited partner must be a passive investor to avoid self-employment tax on distributive shares of partnership income. Sirius Solutions LLLP, a limited liability limited partnership, provides consulting services. Sirius’ limited partners claimed their distributive shares of partnership income were exempt from self-employment tax because they were state law limited partners and thus were limited partners for purposes of Section 1403(a)(13). The Tax Court ruled only passive investors can qualify as limited partners for self-employment tax purposes, and courts must apply a functional analysis test to determine whether the limited partners function as passive investors.
On appeal, the Fifth Circuit held if limited partners of a limited liability limited partnership have liability protection under state law, the limited partners meet the definition of limited partners in Section 1403(a)(13) regardless of whether those limited partners provide services to the partnership or participate in management of the partnership’s affairs.
III. Common Law Mailbox Rule does not Apply to Late Filed Refund Claims; Estate of Josephine A. Mayer vs. US, 2026 WL 1243304.
The executor of the Josephine Mayer Estate alleged he filed a 2016 fiduciary income tax return via certified mail on October 15, 2017. During 2016, the estate paid almost $450,000 of estimated federal income tax. The 2016 return reflected overpayment and a refund of $60,000 due to the estate. The executor claimed he filed another copy of the return on May 16, 2019, in response to a letter from the IRS advising it had not received the 2016 income tax return for the estate. The IRS claimed it did not receive the second return either. The executor filed the 2016 return a third time on October 27, 2022. The IRS acknowledged receiving that return but disallowed the $60,000 refund claim because the 2016 return refund request was outside of the normal three-year statute of limitations. The estate sued for a refund.
The court dismissed the suit on the basis that Section 7502 permits only two ways to establish that a refund request was timely filed. Those exclusive methods are (1) a postmarked envelope or (2) a postmarked registered or certified mail receipt. Courts in the Second Circuit (where this case was located) have interpreted Section 7502 as precluding any other method of proving timely mailing, such as testimony or other credible evidence. Dempsey, 2026 WL 380773; Chiulli vs IRS, 2005 WL 579885. Since the executor could not prove timely filing by producing a postmarked envelope (which would be in the possession of the IRS anyway) or a registered or certified mail receipt, the executor’s refund claim failed.
IV. Postal Service Announces Changes to Postmark Dating Procedures.
On December 24, 2025, the United States Postal Service added a section to its Domestic Mail Manual announcing changes on how domestic mail is postmarked. The new Section 608.11 states the official USPS postmark date “does not necessarily indicate the first day that the USPS had possession of a mail piece.” Accordingly, it is possible mail can be dropped off at the post office on one day and not receive a postmark until several days later. The Domestic Mail Manual states a person may request a manual postmark at a retail location that will reflect the date mail is deemed to be accepted at that USPS location.
Keith Wood is an attorney with Carruthers & Roth, P.A. in Greensboro, North Carolina.