California Research Credits, a Tax Court Deadline Ruling,and New 2027 Tax Limits: This Week in Tax Law
Federal and California Tax Law Update | Week Ending November6, 2026
This week's federal and California tax developments offer several important lessons for businesses, investors, and tax practitioners.
The U.S. Tax Court reaffirmed that certain partnership audit deadlines may be subject to equitable tolling, rejecting the IRS's request to reconsider an earlier ruling. California's Office of Tax Appeals issued a taxpayer-favorable decision allowing research credits to offset corporate alternative minimum tax. The IRS also released significant inflation-adjusted thresholds for 2027.
Meanwhile, California voters appear to have approved the permanent extension of higher income-tax rates, while a proposed billionaire wealth tax faces likely defeat.
Here are the developments that warrant closer attention.
Tax Court Rejects IRS Challenge to Partnership Filing-Deadline Ruling
November 2, 2026 | Kings Road Property, LLC v. Commissioner,167 T.C. No. 14
The Tax Court issued another important decision concerning the deadlines for challenging IRS partnership adjustments.
Under the centralized partnership audit regime enacted by the Bipartisan Budget Act of 2015 (BBA), a partnership generally has 90 days to petition the Tax Court after the IRS issues a final partnership adjustment.
In an earlier September 21 decision, the Court held that this deadline under IRC §6234(a) is not jurisdictional and may be subject to equitable tolling.
Equitable tolling permits a court, in limited circumstances, to excuse an otherwise untimely filing when a litigant diligently pursued its rights but extraordinary circumstances prevented timely action.
The IRS sought reconsideration, arguing that the Court's interpretation conflicted with decisions involving the former TEFRA partnership audit regime.
Judge Benjamin Buch rejected that argument. The Court emphasized that the BBA substantially revised the prior partnership audit framework. Although the statutory filing deadlines use similar language, the administrative structures differ materially.
The November 2 decision denied reconsideration. It did not newly establish equitable tolling or determine the underlying partnership tax liability; it preserved the Court's earlier ruling.
Why It Matters
This is a significant procedural development for partnerships facing substantial IRS adjustments.
A missed 90-day deadline may not invariably foreclosejudicial review under the BBA regime, although equitable tolling remains an exceptional remedy requiring proof of the relevant circumstances.
Practitioners should continue treating statutory deadlines as mandatory filing targets rather than relying on potential equitable relief.
Tax Court opinion, 167 T.C.No. 14, subject to appellate review.
California Allows Research Credits to Offset CorporateAlternative Minimum Tax
Published November 2, 2026 | Appeal of Medivation, Inc.,2026-OTA-532P
A potentially consequential California tax decision addresses whether corporations may use research and development tax credits to reduce California alternative minimum tax (AMT).
Medivation, a San Francisco biopharmaceutical company, claimed research credits under Revenue and Taxation Code §23609 to offset $122,069 in 2015 corporate AMT liability.
The Franchise Tax Board disallowed the offset, asserting that research credits could not reduce AMT.
The Office of Tax Appeals disagreed. Relying on the precedential Board of Equalization decision Appeal of NASSCO Holdings, Inc., 2010-SBE-001, the OTA concluded that the
statutory definition of “tax” in R&TC §23036(d)(1) includes corporate AMT for purposes of the research credit.
The OTA rejected the FTB's request to depart from NASSCO and reversed the proposed assessment.
Although the substantive decision was issued January 27, 2026, it was publicly released in the OTA's November 2 publication batch. The FTB's petition for rehearing had been denied September 10.
Why It Matters
California continues to impose corporate AMT, making the availability of research credits against that liability potentially valuable to research-intensive businesses.
Affected corporations should review research-credit carryforwards, pending assessments, and open tax years to determine whether the ruling supports a refund claim or adjustment. Applicable statutes of limitation and other credit restrictions remain important.
The substantive OTA opinion is currently designated pending precedential, not formally precedential. The rehearing order is nonprecedential. The underlying NASSCO authority remains precedential.
Read the official Medivation opinion (PDF).
Tax Court Reinforces Documentation Requirements for Closely Held Corporations
November 2, 2026 | Glass Warehouse, LLC . Commissioner,T.C. Memo. 2026-111
In another decision involving a California business, the TaxCourt disallowed approximately $118,000 in claimed subcontractor expenses paid to shareholder-officers who also received salaries.
The taxpayer failed to substantiate the services allegedly performed in exchange for the additional payments.
The Court also rejected a reasonable-cause defense to an accuracy-related penalty where the taxpayer had not adequately established the advice it received from its tax professional or the information supplied to that adviser.
Why It Matters
The decision reinforces a familiar but consequential principle: payments to shareholders must be properly characterized and substantiated.
Closely held corporations should maintain contemporaneous records supporting compensation, consulting arrangements, and other related-party expenses.
Reliance on a CPA does not automatically establish reasonable cause for an inaccurate return.
California Election Results Could Reshapre Long-TermTax Planning
November 3–6, 2026 | Statewide Ballot Measures
California's November 3 election produced several potentially significant tax-policy outcomes.
Proposition 3, which would permanently extend existing additional income-tax rates on high-income individuals, has been projected to pass by the Associated Press. Those higher rates were previously scheduled to expire in 2031.
As of November 6, the proposed one-time billionaire wealth tax under Proposition 40 was trailing, while Proposition 42, which would restrict new state taxes on personal-property ownership and certain retroactive taxes, was leading.
Why It Matters
The apparent approval of Proposition 3 eliminates the planned expiration of California's higher income-tax rates, assuming the election result is certified. It does not itself impose an additional rate
increase for 2026.
Propositions 40 and 42 present separate questions concerning the future of asset-based and retroactive taxation.
These are preliminary election results, not certified outcomes. Proposition 40 has not become law, and Proposition 42's potential constitutional restrictions must not yet be treated as operative.
Official Voter Information GuideCalifornia FTB CLarifies Business-Loss Limites a a New Energy Infrastructure Credit
November 2, 2026 | FTB Tax News
The Franchise Tax Board's November publication confirmed two important matters.
First, California's excess business loss limits for 2026 are $320,000 for single taxpayers and married taxpayers filing separately, and $640,000 for joint filers.
California does not conform to the 2025 federal changes making the §461(l) limitation permanent, and its treatment of disallowed losses differs from the federal net-operating-loss rules.
Second, the FTB described California's Eligible Transmission Project Tax Credit, enacted under Senate Bill 254 in September 2025.
The credit generally equals 20% of qualified expenditures, up to $20 million per taxpayer per tax year, for eligible transmission projects approved through designated state programs. It is available for qualifying tax years beginning in 2026 through 2035.
Why It Matters
High-income business owners must calculate excess businessl osses separately for federal and California purposes.
The transmission credit creates a substantial incentive for qualifying infrastructure developers, but it is not generally available for ordinary solar or battery installations.
The FTB's November publication explains the implementation of previously enacted law, rather than announcing newly enacted legislation.
FTB November 2026 Tax News.
The Bottom Line
This week's develpoments underscore the importance ofdistinguishing substantive tax liability from procedural rights, administrative guidance, and emerging tax policy.
For businesses, the most immediate issues involve partnership litigation deadlines, California research-credit utilization, and related-party documentation. For investors and affluent taxpayers, the 2027 federal thresholds and California's evolving tax landscape merit particular attention as year-end planning begins.
Disclaimer: This article is provided for general informational purposes only and does not constitute legal or tax advice. Judicial decisions, administrative guidance, and election results may change or be subject to further review. The application of tax law depends on individual facts and circumstances. Consult qualified legal and tax counsel before taking action.