Week of September 21, 2026
Several developments this week deserve attention from taxpayers and tax practitioners. The U.S. Tax Court issued an important precedential decision allowing equitable tolling of a partnership filing deadline, California enacted a new standalone post-production tax credit, the IRS requested additional guidance concerning the next generation of Opportunity Zones, and courts issued useful decisions concerning IRS mailing procedures and California local tax elections.
Tax Court Allows Equitable Tolling of the BBA Partnership Petition Deadline
The most significant federal tax decision of the week is Kings Road Property, LLC v. Commissioner, 167 T.C. No. 11 (Sept. 21, 2026).
Under the centralized partnership audit regime enacted by the Bipartisan Budget Act of 2015, a partnership generally has 90 days after the IRS mails a Final Partnership Adjustment to petition the Tax Court under Internal Revenue Code § 6234.
Kings Road filed its petition 16 days late.
Ordinarily, that might appear fatal. But the circumstances were unusual. The partnership’s counsel had been actively monitoring the examination and contacted the IRS to determine whether the Final Partnership Adjustment had been issued. IRS personnel advised counsel that it had not. In fact, the IRS had already mailed the notice, and the notice was later returned as undeliverable.
The Tax Court held that the § 6234(a) filing deadline is subject to equitable tolling and concluded that Kings Road had demonstrated both reasonable diligence and extraordinary circumstances sufficient to excuse the late filing.
Why It Matters
This is a precedential Tax Court opinion and an important development in partnership controversy.
It does not mean that taxpayers can routinely obtain relief from missed filing deadlines. Equitable tolling remains an extraordinary remedy. But Kings Road provides a concrete example of the type of record that may support relief: contemporaneous efforts to monitor the case, communications with the IRS, incorrect information from IRS personnel, and problems with delivery of the statutory notice.
For practitioners, the practical lesson is straightforward: document every communication concerning the issuance and mailing of jurisdictionally significant—or potentially jurisdictionally significant—notices.
California Enacts a New Standalone Post-Production Tax Credit
California enacted a substantial new entertainment-industry tax incentive on September 19.
AB 2319 creates the California Post-production Tax Credit, adding Revenue and Taxation Code §§ 17053.98.5 and 23698.5.
Beginning with taxable years in 2027, qualifying taxpayers may receive credits generally equal to 35% to 50% of qualified California post-production expenses. The program is intended to cover activities such as editing, sound, music, visual effects, and finishing.
Importantly, a production does not necessarily have to conduct its principal photography in California to qualify. The Legislature specifically designed the new program to capture post-production work from projects that either filmed elsewhere or otherwise failed to qualify for California’s existing film-production credit. The statute also includes a mechanism allowing qualifying taxpayers to elect a refund when the allowable credit exceeds tax liability.
California simultaneously enacted SB 186, which modifies the existing Film and Television Tax Credit program. Among other changes, the legislation increases the refundable portion of Film Tax Credit 4.0 from 90% to 95%, accelerates the refund schedule, and provides additional relief for certain independent productions.
Why It Matters
These changes materially increase the potential value of locating entertainment production and post-production activity in California.
The standalone post-production credit is particularly notable because it separates post-production incentives from the location of principal photography. That may create planning opportunities for productions that film elsewhere but can economically move editing, sound, visual effects, or related work into California.
These provisions are now enacted California law, not merely proposals.
IRS Requests Additional Guidance on the New Opportunity Zone Regime
On September 22, the IRS released Notice 2026-55, requesting comments regarding implementation of the amended Opportunity Zone rules under § 1400Z-2.
The 2025 federal tax legislation significantly modified the Opportunity Zone regime for investments made after December 31, 2026. Among other changes, the amended statute provides a five-year gain-deferral period, a 10% basis increase after a qualifying five-year holding period, and a larger 30% basis increase for qualifying rural Opportunity Fund investments.
Notice 2026-55 asks taxpayers and practitioners to identify areas requiring additional guidance, including working-capital safe harbors, operating businesses, reinvestment of proceeds, debt-financed distributions, partnership and S corporation issues, the new 30-year limitation applicable to certain long-term investments, and rules affecting rural and tribal Opportunity Zones.
Comments are requested by November 23, 2026.
Why It Matters
Notice 2026-55 does not itself change the substantive tax law. It is a request for comments that will inform future Treasury regulations and administrative guidance.
Nevertheless, it provides a useful roadmap of the issues Treasury and the IRS are actively considering as the redesigned Opportunity Zone regime takes effect in 2027. Taxpayers planning QOF transactions for 2027 and later should expect additional guidance in several of these areas.
Defective IRS Mailing Records Do Not Necessarily Invalidate a Deficiency Notice
In Lindsey v. Commissioner, T.C. Memo. 2026-94 (Sept. 24, 2026), the Tax Court addressed what happens when the IRS cannot rely on its usual proof that a statutory notice of deficiency was properly mailed.
The IRS conceded that its Form 3877 was incomplete and therefore insufficient to obtain the usual presumption of proper mailing.
That did not end the case.
The Court considered other evidence, including IRS administrative records, testimony concerning mailing procedures, the certified-mail number, and Postal Service tracking information. Taken together, the evidence established that the notice had entered the mail stream.
Because the taxpayer’s petition was filed after the applicable deadline, the Court dismissed the case.
Why It Matters
A defective Form 3877 can be valuable evidence for a taxpayer challenging the validity of a deficiency notice, but it is not necessarily dispositive.
The absence of a properly completed mailing record may eliminate the IRS’s evidentiary presumption, while still allowing the government to prove mailing through other contemporaneous evidence.
Lindsey is a Tax Court memorandum opinion, rather than precedential regular Tax Court authority, but its evidentiary analysis is useful in deficiency and statute-of-limitations disputes.
California Court Clarifies Proposition 218’s Emergency Exception
Finally, the California Court of Appeal issued a published decision in Holtz v. Moreles, H053842 (Sept. 23, 2026), addressing when a local government may use Proposition 218’s emergency exception to place a general tax before voters at a special election.
Article XIII C of the California Constitution generally requires local general taxes to be presented at a regularly scheduled general election. An exception applies when the governing body unanimously declares an emergency.
The Sixth District Court of Appeal upheld Santa Clara County’s emergency declaration relating to projected funding reductions affecting healthcare and safety-net programs and affirmed the use of a special election for a five-year 0.625% general sales tax.
Why It Matters
Because the opinion is published, it provides precedential guidance concerning what may constitute an “emergency” under Proposition 218.
The decision does not establish that every fiscal shortfall qualifies. The factual record and the governing body’s unanimous findings remain important. But the opinion supplies additional guidance for both local governments considering tax measures and taxpayers evaluating potential challenges to them.
The Bottom Line
This week’s decisions illustrate two recurring themes in tax practice.
First, procedural rules remain critical—but courts are increasingly distinguishing between deadlines that are truly jurisdictional and those that may permit equitable relief in extraordinary circumstances.
Second, both federal and California tax incentives continue to evolve rapidly. California’s new post-production credit is already law, while the next generation of Opportunity Zone regulations is still being developed.
Taxpayers contemplating transactions involving partnerships, Opportunity Zones, California production incentives, or contested IRS notices should evaluate these developments before relying on prior assumptions about the applicable rules.
This article is provided for general informational purposes only and does not constitute legal, tax, or accounting advice. Application of tax law depends on the particular facts and circumstances of each taxpayer.
#BBA partnership petitions #film credits #Opportunity Zone