The Spirit of Giving: NCBA’s New U.S. Tax Court Calendar Call Program

Kim, a white woman with shoulder-length brown hair, wears a pin and orange dress and blue blazer with a small off-white flower pin. She is seated in her office. By Kimberly B. Tyson

Of the three forums for judicial review of a federal tax dispute, only the Tax Court is a pre-payment forum, meaning a taxpayer can have a tax case heard by the court before paying the tax. In 2024, approximately 80% of the 20,925 petitions filed in the Tax Court were by pro se (self-represented) petitioners. As an institution, the court has recognized bar-sponsored calendar call programs assist petitioners in prosecuting a case, which results in enhanced effectiveness of judicial and administrative procedure. On November 24, 2025, the Tax Court recognized the NCBA as the seventh bar association nationwide to provide pro bono services to the court through a calendar call program. The program is administered under the NCBA Pro Bono program and services calendar calls in Winston-Salem and Columbia, SC (the two cities typically serviced by the IRS Office of Chief Counsel office located in Greensboro).

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Unreimbursed Expenses of Employees and Partners

John, a white man with dark brown hair, wears a pale blue shirt, lime green and blue tie, and black suit. By John G. Hodnette

The 2017 Tax Cuts and Jobs Act included Section 67(h), which eliminated miscellaneous itemized deductions for tax years beginning after December 31, 2017. The 2025 One Big Beautiful Bill Act made that disallowance permanent. One such eliminated deduction is for unreimbursed employee expenses. They include expenses for transportation, travel fares, lodging away from home, business meals, continuing education courses, subscriptions and dues to professional materials and organizations, uniforms, job hunting expenses, and otherwise deductible home office expenses. To have been deductible, such expenses must not have been reimbursed or reimbursable by the business for which the employee worked. Under current law, however, unreimbursed employee expenses are simply nondeductible.

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Remembering Steve Horowitz, 1990-1991 Chair of the Tax Section

Chris, a white man with a shaved head, wears a white shirt, blue tie and black jacket. By Chris Hannum

It is with deep sadness that we share the news of the passing of Steven (“Steve”) Horowitz, a former Chair of our Section (1990–1991) and a respected presence in the North Carolina tax bar for more than five decades. His loss is felt across our professional community, especially by those who practiced with him, learned from him or served alongside him in leadership of this Section.

Steve practiced tax law for more than 56 years, beginning as a trial attorney with the Office of District Counsel of the IRS in Greensboro, and later in private practice in Gastonia and Charlotte. He earned his B.A. and J.D. from the University of Florida and his LL.M. in Taxation from NYU.  Those who worked with Steve remember him as a fierce advocate for his clients and a calm, steady colleague. He set a high standard for preparation and integrity — qualities that influenced many practitioners in this Section, myself included. His contributions to the Tax Section and our profession are immeasurable.

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Recovering Costs and Attorney Fees From the IRS: The Qualified Offer Rules

Brian, a white man with brown hair, wears a white shirt, navy suit and gold tie.By Brian C. Bernhardt

The Qualified Offer rules are part of the broader framework for resolving federal tax disputes. As a general rule, taxpayers who prevail in disputes with the IRS may recover reasonable administrative and litigation costs (“Fees and Costs”) only if the IRS’s position was not substantially justified. However, the Qualified Offer rules create a safe harbor: If a taxpayer makes a Qualified Offer to settle a dispute with the IRS, the IRS rejects it, and the taxpayer later obtains a better result in court, the Tax Court will automatically treat the IRS position as not substantially justified, making it easier for taxpayers to recover their Fees and Costs.

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Welcome from the Tax Section Chair – Introducing Our 2025-2026 Leadership Team

Chris, a white man with a shaved head, wears a white shirt, blue tie and black jacket. By Chris Hannum

Dear Tax Section Members,

I am honored to serve as Chair of the North Carolina Bar Association Tax Section for the 2025-2026 year. Our Section continues to play an important role in advancing knowledge, promoting collegiality, and providing opportunities for professional growth in the field of tax law.

Key Initiatives for 2025–2026

We are working hard to achieve several goals for the coming year, including the following:

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Publicly Traded Partnerships

John, a white man with dark brown hair, wears a pale blue shirt, lime green and blue tie, and black suit. By John G. Hodnette

Section 7704 provides a partnership is a publicly traded partnership if interests in the partnership are (1) traded on an established securities market or (2) readily tradable on a secondary market or the substantial equivalent thereof. A publicly traded partnership is generally taxed as a C corporation. That means it is subject to corporate taxes rather than being a pass-through entity like other partnerships.

The first test about whether the interests of a partnership are traded on an established securities market is fairly easy to apply. The second test is less clear and requires a facts and circumstances analysis. The regulations provide a number of safe harbors for avoiding publicly traded status.

One commonly relied on safe harbor is the private placement exception of Reg. § 1.7704-1(h)(1).   It states a partnership’s interests are not considered readily tradable (and therefore will not fall within the second test) if (1) all partnership interests are issued in transactions that are not required to be registered under the Securities Act of 1933 (i.e., private placements), and (2) the partnership does not have more than 100 partners at any time during the partnership taxable year.  Under Reg. § 1.7704-1(h)(3), a look-through approach applies for certain pass-through entities to prevent a partnership from avoiding the 100-partner limit by using tiered pass-through entities.  This safe harbor provides comfort to most partnerships.

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What is a QSub?

John, a white man with dark brown hair, wears a pale blue shirt, lime green and blue tie, and black suit. By John G. Hodnette

As discussed in my February 2025 blog post Eligible S Corporation Shareholders, corporations generally cannot own the stock of S corporations, even if the owner is itself an S corporation. However, where an S corporation is the 100% owner of another corporation, it can make an election for the subsidiary to be a qualified subchapter S subsidiary (QSub).

Section 1361(b)(3)(A) provides a corporation that is a QSub is not treated as a separate corporation and “all assets, liabilities, and items of income, deduction, and credit of a [QSub] shall be treated as assets, liabilities, and such items (as the case may be) of the S corporation.” That means the S corporation owner of the QSub reports all of the QSubs’s activities on the S corporation parent’s Form 1120S, treating the QSub as a disregarded entity for income tax purposes.

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Federal Income Tax Update

Keith, a white man with brown hair, wears wire-rimmed glasses, a white shirt and black jacket.By Keith A. Wood

I. Wife Not Entitled to Any of Foreclosure Sales Proceeds of Husband’s Marital Home to Pay Husband’s Taxes Since Title was Solely in the Husband’s Name; United States vs. Byers, US Court of Appeals, 133 F 4th 824 (8th Cir. 2025).

Mr. and Mrs. Byers lived in Minnesota in a home titled solely in Mr. Byers’ name. Mr. Byers owed substantial taxes. The IRS sought to foreclose on Mr. Byers’ home to satisfy his tax debt.

Although the home was titled solely in Mr. Byers’ name, Mrs. Byers argued she was entitled to one-half of the foreclosure sales proceeds because the home was a marital homestead under Minnesota law. Under Minneszota homestead exemption law, even if property is owned by one spouse, the non-owner spouse has legal protections to preserve the family homestead. For example, if the homestead owner is married, he cannot convey any portion of the homestead without the signatures of both spouses. Mrs. Byers argued the Minnesota homestead exemption and the Supreme Court’s decision in Rogers, 461 U.S. 677 (1983), gave her a property interest in the home that should be protected from the IRS foreclosure sale.

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Sale of Social Club Assets Upon Liquidation

Steve, a white man with grey hair, wears a white shirt and black suit.David, a white man with brown hair, wears a white shirt and navy suit.By Steven B. Long and David P. Heeren

Since 1916, Congress has exempted from income tax clubs formed to facilitate social interaction among their members. As a result, country clubs, hunting and fishing clubs, college sororities and fraternities, and tennis, swimming, and other sport clubs, among others, are generally exempt from taxation on income derived from their members. IRC § 501(c)(7). The exemption applies to clubs “organized for pleasure, recreation, and other nonprofitable purposes, substantially all of the activities of which are for such purposes and no part of the net earnings of which inures to the benefit of any private shareholder.”

Prohibited inurement under IRC § 501(c)(7) pertains to use of club assets or facilities to generate income from the public rather than club members. For example, use of a tennis club to generate income from the general public attending a national tennis tournament is private inurement by the social club. West Side Tennis Club v. Commissioner, 39 BTA 149 (BTA 1939). In 1976, Congress loosened the rules to allow social clubs to generate up to 35% of their annual revenue from non-member income, such as rents charged to the public and income from investments. S. Rep. No. 94-1318, 94th Cong., 2nd Sess. 4 (1976), 1976-2 C.B. 597, 599; see also H.R. Rep. No. 94-1353, 94th Cong., 2d Sess. 4 (1976). Thus, clubs may rent their facilities to non-members or generate investment income to a limited degree.

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Expanded Benefits for Qualified Small Business Stock Under the OBBB

John, a white man with dark brown hair, wears a pale blue shirt, lime green and blue tie, and black suit. By John G. Hodnette

The gain exclusion benefits for the sale of qualified small business stock (“QSBS”) have grown in popularity in recent years, in part due to the 2017 Tax Act’s reduction of the C corporation tax rate from a marginal rate of 35% to a flat 21%. Congress has now made QSBS even more appealing. Under the One Big Beautiful Bill Act (the “OBBB”), the gain exclusion from the sale of QSBS issued after July 4, 2025, has expanded from $10 million to $15 million per qualifying shareholder. In addition, the $15 million exclusion will be adjusted annually for inflation. For QSBS issued on or before July 4, 2025, the original $10 million gain exclusion still applies.

The OBBB also made changes to the QSBS holding period requirement, providing a phase-in of gain exclusion benefits rather than the previous cliff-vesting approach. For QSBS issued on or before July 4, 2025, no benefits are available for taxpayers who hold the QSBS for less than five years.  For QSBS issued after July 4, 2025, 50% of the gain exclusion is available after a holding period of three years. 75% is available after four years. 100% is available after five years.

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