Larger Refunds and Last-Minute Filing Tips
Published April 10, 2026
As the tax deadline approaches on April 15, the Internal Revenue Service (IRS) reports that most of the tax returns filed to date have resulted in a refund. Of those receiving refunds, approximately 80% have been issued within 21 days. As of March 27, approximately 88 million returns have been filed and 63 million refunds have been issued via direct deposit, with an average refund of $3,571.
IRS CEO Frank Bisignano stated, "Tens of millions of Americans are getting their refunds direct deposited in their bank accounts and their returns processed promptly without error or delay."
The number of returns and refunds is down approximately 1% this year. Tom O’Saben is the Director of Tax Content and Government Relations for the National Association of Tax Professionals. O’Saben suggested there are fewer returns being filed because there is "a lack of understanding or guidance" on the One Big Beautiful Bill Act (OBBBA). The confusion is particularly focused on the new deductions for tips and overtime wages. O’Saben noted he had a client who thought that the overtime benefit was a tax credit and not a tax deduction. Taxpayers frequently confuse deductions and credits. The overtime and tip benefits are both tax deductions.
National Taxpayer Advocate Erin Collins observed that there have been large cuts in the number of IRS employees. Collins believes these cuts may impact both customer service and the ability of the IRS to review tax returns. Collins stated, "Effective compliance is not limited to audits and enforced collection; it also requires high-quality customer service, collaborative problem-solving, and the ability to reach fair resolutions without creating hardship.”
The IRS also reminds last-minute tax filers about the helpful tools and resources on IRS.gov. The IRS Free File program is available for qualified taxpayers. There are also information sections on OBBBA deductions for tips and overtime on IRS.gov. Other helpful tools include the Interactive Tax Assistant that can answer taxpayer questions and Publication 17, Your Federal Income Tax to explain the new tax provisions.
Taxpayers who cannot complete their filing by April 15 should pay their estimated taxes owed and extend their filing date to October 15, 2026. Anyone can use IRS Free File to request an extension.
There are some taxpayers who may benefit from an automatic extension. For instance, military members serving in combat zones may file and pay any taxes owed within 180 days after they leave a combat zone. In addition, taxpayers who live in a federally declared disaster area may have a delayed filing date.
IRS Expert Witness Makes AI Errors
In a conservation easement case, the IRS expert valuation witness was questioned about artificial intelligence (AI) errors in his valuation rebuttal documents. The case is Riddle Aggregates LLC v. Commissioner, Dkt. No. 31104-21, which is before Tax Court Judge Kathleen Kerrigan. The taxpayer claimed a $45 million charitable contribution deduction for a conservation easement on 228 acres of land in Morgan County, Alabama. The IRS denied the charitable contribution deduction and a deduction of $355,000 for a fee simple interest gift.
At trial, the IRS offered testimony from appraiser Leslie P. Sellers to rebut the claimed taxpayer valuations. However, taxpayer attorney Daniel A. Rosen discovered problems with the rebuttal reports of Sellers.
The rebuttal valuation reports included errors that were not merely typographical but substantive. There were quotes that were claimed to be from the Uniform Appraisal Standards for Federal Land Acquisitions (UASFLA) that did not match the actual text. There were cites to nonexistent UASFLA section numbers. Additional cites to various page numbers in the publication were not accurate because the topics did not support the claims of Sellers in the rebuttal documents.
Rosen repeatedly asked Sellers if he used AI tools. Sellers noted he did use ChatGPT and Gemini to check on zoning requirements and Grammarly for readability. When he was asked whether these were used in rebuttal reports, Sellers responded, "I do not recall specifically. I may have, but I do not recall."
Sellers noted that, after the rebuttal reports were initially filed, the IRS asked him to review the documents and note any errors. He then reviewed the documents and discovered some of the erroneous citations.
Taxpayer attorney Rosen claimed the rebuttal reports were completely unreliable because of the AI errors. He stated, "Petitioner was left really on the eve of trial to have to pick apart the entirety of every citation and quotation that Mr. Sellers had in his reports to figure out what was real and what was hallucinated." He suggested the reports are not based on "reliable principles and methods."
IRS Attorney Chris Pavilonis suggested the errors simply affect the weight of the reports and not the admissibility. However, Judge Kerrigan stated she was "very concerned" about the AI errors.
IRS attorney Pavilonis withdrew the rebuttal reports after the comments by Judge Kerrigan.
Editor's Note: Appraiser Sellers has testified for the IRS in multiple conservation easement cases. However, the AI errors created an obvious problem for the IRS. When the taxpayer’s attorney highlighted the errors, he cast doubt on the entire rebuttal report filed by appraiser Sellers. This use of AI is becoming commonplace in the legal profession. However, it is essential for counsel to thoroughly check the documents prepared using AI in order to avoid credibility issues when a witness is confronted with AI errors.
$180 Million Charitable Deduction Reduced to $2.2 Million
In Hancock County Land Acquisitions LLC v. Commissioner; No. 12385-20; T.C. Memo. 2026-28, a reported syndicated conservation easement case deduction of more than $180 million was reduced to approximately $2.2 million.
Hancock County Land Acquisitions, LLC (HCLA) had acquired property in rural Mississippi. In August of 2016, HCLA granted a conservation easement to Atlantic Coast Conservancy (ACC). The larger tract containing this parcel had sold for prices per acre ranging from $895 to $2,356 over the past 13 years. On IRS Form 1065, U.S. Return of Partnership Income, HCLA reported a charitable deduction of $180,177,000. This was an appraised value of $763,462 per acre based on a discounted cash flow (DCF) method. The DCF valuation assumed there could be a sand and gravel (S&G) mine on the property.
At trial, the taxpayer did not claim the $180 million valuation but instead reported that the capital raised in the investor offering of $23,374,575 was a correct valuation for the property. Of this amount, $18,247,575 was paid to the property owner for the parcel. The taxpayer argued that the “before value” of the land was at least $18,634,933 or $78,962 per acre after making adjustments for minority interests.
The initial valuation of $180 million was created by appraiser Claud Clark III and based on a S&G mine DCF method. Clark did not testify at trial and there was no expert testimony to indicate that the S&G mine was feasible. The IRS experts claimed the highest and best use was for recreation and agriculture, including timber harvesting.
The syndicated easement promotional materials promised a charitable contribution deduction of $7,477 for every $1,000 invested. Therefore, the claimed valuation was based not on an actual land valuation by a qualified appraiser, but instead on the value created by the investors.
The Tax Court received substantial information about the potential value of comparables. The IRS appraiser reviewed 29 different properties and selected five comparables. The Tax Court determined that the best measure of valuation was comparable sales and noted that the taxpayer did not adequately support the use of the DCF method and therefore the $180 million valuation was disregarded. Based on the five comparables, IRS appraiser Jason Garner suggested the value could be approximately $2,250 per acre.
Taxpayer appraiser Douglas Kenny claimed the Garner appraisal should have used the income approach because the property has the "potential to become income producing due to the subsurface minerals." The taxpayer valuation was dependent on the production of high-quality sand used in the oil fracking process.
The Tax Court reviewed the market and noted that the price per barrel of oil had declined from $100 per barrel in years 2011 to 2013, to $39.50 per barrel in August 2016. Because of this decline, there was no economic potential to produce frac sand for the petroleum industry. Therefore, the valuation method is based on "the price at which it changed hands in an arm’s-length transaction reasonably close in time to the valuation date." The Tax Court noted that the comparables are not perfect, but "they do suggest an order of magnitude that is light years away from the $763,462 per-acre value claimed on HCLA's 2016 return." Based on the five comparables provided by Garner, the court determined that the valuation was $10,000 per acre, or $2.36 million. The conservation easement deduction under a "before and after" method was about $2.2 million.
Taxpayers claimed the valuation should be based on the payments by the investors. However, the Tax Court noted that the investors were not purchasing land. The Tax Court stated, "In substance they were purchasing tax deductions, at a rate of $7,477 for every $1,000 invested." Because this was a tax transaction, the price paid by the investors of $78,962 per acre is not relevant to the actual value. Therefore, the charitable conservation easement deduction is $2,183,000.
HCLA also claimed business expense deductions of $6,128,493. The Tax Court determined that most of the expenses claimed did not benefit HCLA, which was a passthrough partnership. Therefore, they were not "ordinary and necessary" expenses under Section 162.
Because the claimed valuation was a "gross valuation misstatement” under Section 6662(h), there is no reasonable cause defense and the 40% penalty applies. The 20% penalty under Section 6662(a) also applies to the expense deductions because HCLA did not provide their CPA Randy Bowen with all relevant facts regarding the expense items. Therefore, there is no reliance-on-professional-advice as a basis for a defense.
Editor’s Note: The investors incurred a 99% reduction in their charitable deduction and a 40% penalty on the improper tax amount. It is probable that the taxes, interest and penalties will reduce their investments to net losses.
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.”
