Four Million IRA Accounts for Children
Published April 3, 2026
On March 31, 2026, the Internal Revenue Service (IRS) announced that more than four million tax-favored accounts for children have been established since newly authorized in 2025. Of those accounts, one million qualified for a $1,000 government contribution to the plan. Children residing in zip codes with a median income under $150,000 and who are not eligible for the $1,000 funding, may also qualify for a $250 contribution from two private donors. The accounts are referred to as Trump Accounts under Sec 530A.
IRS CEO Frank J. Bisignano noted, "The IRS has been working closely with the Treasury Department to make the election process as simple and easy as possible by permitting taxpayers to fill out a one-page form when they file their tax return. Families with eligible children born between 2025 and 2028 just need to check the box on a form to stake their claim for the $1,000 contribution."
Contributions to plans set up through the program may not begin until July 4, 2026. In addition to the $1,000 government contribution for children born from January 1, 2025, to December 31, 2028, parents and other qualified donors may contribute up to $5,000 each year to an account. Employers may contribute up to $2,500 per year for children of employees.
If a child receives a $1,000 government contribution as well as contributions from others totaling $5,000 each year, the tax-free growth may be significant. For example, if the index fund earns 6%, the account could be valued at $191,000 by age 18. If the beneficiary transitions the Trump Account to an IRA at age 18 and the index fund continues with steady investment returns, the balance could grow substantially by retirement age.
The account’s investment must be in index funds with low expenses. The maximum expense permitted for eligible index funds is 0.10%. With the low cost for the index fund and tax-free growth, modest contributions can produce a very significant fund by retirement. As is true with other IRA funds, there are exceptions that allow early distributions for education or purchase of a first home.
40% Penalty on Conservation Easement Deduction Upheld
In Jackson Crossroads LLC v. Commissioner; No. 25-10744; No. 25-10745 (11th Cir. 2026), the Eleventh Circuit affirmed a Tax Court decision. Two partnerships claimed $36.9 million in conservation easement deductions. The Tax Court reduced the deductions to approximately $2.74 million and assessed a 40% gross valuation misstatement penalty under Section 6662(h).
In 2011, Russell Bennett and Carlton Walstad formed Greencone Investments, LLC. Subsequently, Greencone and another partnership acquired property near Social Circle, Georgia for $5.2 million. After property transfers, partnerships Jackson Crossroads, LLC and Long Branch Investments, LLC deeded conservation easements to the Oconee River Land Trust on December 16, 2016.
The Internal Revenue Service (IRS) issued Notices of Final Partnership Administrative Adjustment (FPAAs), disallowed the deductions and assessed penalties. In the alternative, the IRS claimed that the easement value was a total of $1,138,000.
The Tax Court conducted a trial to determine valuation. Taxpayers claimed that a granite mine was the highest and best use for Jackson Crossroads and an industrial center was the primary use for Long Branch. The taxpayer presented an income method deduction by appraiser Robert Fletcher that estimated the potential value of the granite. In addition, mining consultant Nicholas Proctor supported the granite mine claim.
IRS expert Kevin Gunesch determined that a granite quarry would require upfront expenditures of $34 million and produce a negative cash flow. IRS appraiser Andrew Sheppard determined that the highest and best use for the property was agricultural/low-density residential/recreational use. Sheppard also noted there were no existing zoning or permits for a granite mine.
Taxpayer appraiser George P. Galphin, Jr. claimed an industrial park could be constructed on the Long Branch property. Appraiser Douglas Kenny claimed that the property could sell for $13,815,000. IRS appraiser Andrew Sheppard contested the viability of the industrial site. The highest and best use for Long Branch was agricultural and residential purposes.
Both parties submitted comparable sales. The Tax Court determined that the five comparable properties selected by IRS appraiser Sheppard were preferable to the properties provided by the taxpayer. As a result, the Tax Court determined the appropriate deductions were $1,169,797 for Jackson Crossroads and $1,571,226 for Long Branch for the conservation easements. The Tax Court also held that the 40% Section 6662(h) gross valuation misstatement penalty was applicable.
The Eleventh Circuit noted the Tax Court findings supported the evaluation from the IRS appraiser. The property was purchased for $5.2 million in 2015 and the claimed tax deduction in 2016 was approximately $40 million.
An IRS determination is presumed correct unless it is "excessive, erroneous, or arbitrary." Because the taxpayer did not show that this was the case, there was no burden shifting. While there was industrial development in the region in 2020, the Tax Court determined that this subsequent development was not relevant to the 2016 valuation.
The taxpayer claimed that the discounted-cash-flow model of the IRS appraiser was not reliable. Taxpayer expert Dr. Richard Capps claimed the $34 million upfront capital expenditure for a granite mine was overstated and, instead, the cost would be $7 million. The lower upfront cost would improve the economic potential of a granite mine. However, the taxpayer failed to adequately support that claim, and the Tax Court correctly determined that the Jackson Crossroads property was best used for agricultural or residential purposes.
Taxpayer also contested the comparables used by IRS appraiser Andrew Sheppard. However, the Eleventh Circuit determined the Tax Court was correct in assessing the quality of Sheppard’s comparables.
Because the claimed valuation was greater than 200% of the correct amount, the gross misstatement penalty was applicable. Since there is no defense of good faith for a taxpayer subject to the gross valuation overstatement under Section 6664(c)(3), the penalty was sustained.
Johnson Amendment IRS Settlement Rejected
In National Religious Broadcasters v. Scott Bessent; No. 6:24-cv-00311, the United States District Court for the Eastern District of Texas rejected a proposed consent judgment and dismissed the settlement on the Johnson Amendment.
There is an income tax exemption for qualified exempt organizations under Section 501(c)(3). As part of that exempt status, the nonprofit is subject to limitations on its activities. The qualifying nonprofit must not engage in activities that involve "propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and [the organization] does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office."
The last phrase was added to the code in 1954 and has been termed the "Johnson Amendment."
The plaintiffs are two Texas churches that brought suit and contended that the Johnson Amendment violates the First Amendment rights to freedom of speech and free exercise of religion. They further claimed it fails the equal-protection and due process requirements of the Fifth Amendment and violates the Religious Freedom Restoration Act (RFRA).
While the IRS initially moved to dismiss the complaint for lack of standing, the plaintiffs filed an amended complaint. Subsequently, there was a change of administration and the IRS then joined with the plaintiffs to move for a consent judgment. There was action by an outside entity to intervene, and the District Court permitted it to file an amicus curiae brief.
The District Court considered the proposed relief and held that it is barred by the Anti-Injunction Act (AIA) and the Declaratory Judgment Act (DJA). As a result, the Court does not have jurisdiction.
The IRS claimed the AIA does not limit the federal court’s jurisdiction if there is a consent agreement between the parties. However, the District Court stated, "Federal courts are courts of limited jurisdiction. They possess only that power authorized by Constitution and statute, which is not to be expanded by judicial decree." The subject matter jurisdiction is dependent upon the nature of the claims and parties and not related to consent of the parties. If the court does not have jurisdiction, consent of the parties is not relevant.
The AIA generally prohibits suits that restrain or have an impact on tax collection. The exempt organizations claim the Johnson Amendment is unconstitutional and seek relief that precludes the IRS from enforcing the amendment.
However, tax-exempt status under Section 501(c)(3) affects the deductibility of gifts under Section 170(c)(2). Therefore, the relief would have a direct impact on federal tax administration and potential tax collection. Any limitation on enforcement may impact a nonprofit’s tax-exempt status, which in turn impacts the deductibility of a donor’s income tax deductions on gifts.
There is a limited exception to the AIA. However, to qualify, the plaintiff must demonstrate certainty that the government would not ultimately prevail and that irreparable harm will occur with no adequate legal remedy. Because the taxpayer would have the opportunity to challenge a tax assessment, there is still a potential judicial remedy.
Therefore, because the consent agreement is not within the jurisdiction of the District Court under the AIA, the case is dismissed.
Editor's Note: The Johnson Amendment has been strongly criticized by many leaders of religious organizations. However, there are other nonprofits who believe that the Johnson Amendment is an appropriate guardrail to prevent political activity by nonprofit organizations. While the IRS seems unlikely to enforce the Johnson Amendment at present, this issue is likely to arise in future proceedings.
Applicable Federal Rate of 4.6% for April: Rev. Rul. 2026-7; 2026-15 IRB 1 (16 March 2026)
The IRS has announced the Applicable Federal Rate (AFR) for April of 2026. The AFR under Sec. 7520 for the month of April is 4.6%. The rates for March of 4.8% or February of 4.6% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2026, pooled income funds in existence less than three tax years must use a 4.0% deemed rate of return. Charitable gift receipts should state, “No goods or services were provided in exchange for this gift and the nonprofit has exclusive legal control over the gift property.”
