What Happened

In late May 2026, the Internal Revenue Service reportedly agreed to a settlement that, according to a one-page document released alongside a broader lawsuit resolution, would permanently bar the federal government from examining or prosecuting the current tax filings of a sitting U.S. president, two of his adult sons, and his family business. The arrangement was added to a previously announced settlement of a $10 billion lawsuit tied to the 2018 leak of the president’s tax returns to a major newspaper.

According to reports from The Associated Press and earlier coverage by The New York Times and ProPublica, one of the audits potentially swept into this immunity grant involved an alleged “double-dip” of losses associated with a Chicago skyscraper — a maneuver that, if the IRS had prevailed, could have produced a tax bill exceeding $100 million including penalties. The taxpayer has consistently denied wrongdoing and has described the audit as politically motivated.

Tax professionals quoted in the coverage, including a former IRS Commissioner, called the breadth of the immunity “unprecedented” and warned it may undermine public trust in the fairness of the tax system. Some legal scholars expect the immunity grant itself to be challenged in court.

We do not write this article to take a political position. We write it because every week, our office in Jericho hears from New Yorkers who feel the IRS treats ordinary taxpayers very differently from high-profile ones. That feeling is understandable — and it is a useful starting point for understanding your own rights when an audit notice lands in your mailbox.

Who May Be Affected

The individuals most directly affected by a story like this are not the parties named in the settlement. They are everyday taxpayers who:

• Are currently under IRS examination or expect to be;
• Have used aggressive but arguably legal tax strategies (real estate loss carryforwards, partnership basis adjustments, conservation easements, S-corp reasonable-compensation positions);
• Operate closely held businesses, multi-entity structures, or family LLCs;
• Have received a CP2000 notice, an IDR (Information Document Request), or a 30-day or 90-day letter;
• Are New York residents who also face parallel scrutiny from the New York State Department of Taxation and Finance.

If you fall into any of these categories, the practical takeaway from the headlines is simple: the rules that apply to you are the ordinary rules, and you need to know them.

Tax Issues and Theories That May Apply

IRS audits of complex returns typically focus on a recurring set of issues. Several are echoed in the reporting on the settlement:

• Duplicate use of losses. Claiming the same economic loss twice — once on disposition and again through depreciation or basis carryover — may be disallowed and could trigger accuracy-related penalties under IRC §6662.
• Cancellation of debt (COD) income. When debt is forgiven, the discharged amount is generally taxable unless a specific exclusion (insolvency, bankruptcy, qualified real property business debt) applies. Congress has narrowed several historical loopholes here.
• Net operating loss (NOL) carryforwards. The IRS may examine whether the original loss was properly substantiated, and whether subsequent-year use complies with the limits in IRC §172.
• Valuation positions. Aggressive appraisals on real estate, charitable contributions, or business interests may be challenged and could lead to gross-valuation-misstatement penalties.
• Reasonable compensation and self-employment issues. Closely held S corporations often face scrutiny on whether owner-officer wages are reasonable.
• Civil fraud exposure under IRC §6663. If the IRS alleges a willful pattern, the penalty can reach 75% of the underpayment, and the statute of limitations may stay open indefinitely.

None of these theories is unique to celebrities. Any of them could be raised against a New York small-business owner or high-net-worth individual.

What an Ordinary Taxpayer May Owe — or Recover

If an audit goes against you, the categories of exposure typically include:

• Additional tax on the disallowed item.
• Interest, which compounds daily from the original due date of the return.
• Accuracy-related penalties of 20% (or 40% in some gross-valuation cases).
• Civil fraud penalties of 75%, where alleged.
• New York State tax, interest, and penalties, because the state generally piggybacks on federal adjustments and requires you to report them within 90 days under N.Y. Tax Law §659.

On the other side, taxpayers who prevail or partially prevail in an audit may recover:

• Refunds of tax already paid under protest;
• Statutory interest on overpayments;
• In rare cases, administrative and litigation costs under IRC §7430 when the IRS’s position is not substantially justified.

The story making headlines is, in effect, a settlement that removed all of these outcomes from the table at once. That is not an option realistically available to most taxpayers — which is exactly why preparation matters.

Evidence That Strengthens Your Position in an Audit

Audits are won and lost on documentation. The taxpayers who fare best in our experience tend to walk in with:

• Clean, contemporaneous books and records tied to bank statements;
• Source documents for major deductions (closing statements, invoices, mileage logs, appraisals, donation acknowledgments);
• Basis schedules for partnership and S-corp interests, real property, and securities;
• Engagement letters and contemporaneous memos supporting positions taken on the return;
• Prior-year returns and workpapers showing consistent treatment;
• For real estate professionals, time logs supporting material participation under IRC §469;
• Email and correspondence showing business purpose for related-party transactions.

If you cannot produce a document the examiner asks for, the position attached to it is at risk. Reconstruction is possible but harder — and credibility, once damaged in an examination, is hard to rebuild.

What to Do Next If You’re Facing an Audit

If you have received an IRS notice — or you suspect one is coming — a few conservative steps protect you:

1. Read the notice carefully and note every deadline. A 30-day letter is not a 90-day letter, and your rights differ. The Tax Court petition window in a Notice of Deficiency is jurisdictional and unforgiving.
2. Do not call the examiner before you have a plan. Statements made early in an exam shape the rest of the case.
3. Gather, but do not volunteer, documents. Respond only to what is asked, accurately and on time.
4. Preserve electronic records. Do not delete email, accounting backups, or text threads related to the years under exam.
5. Consider a Power of Attorney (Form 2848). A CPA, enrolled agent, or attorney can speak to the IRS on your behalf so you don’t have to.
6. Mind the New York side. If you settle federal issues, you generally must report the change to New York State within 90 days.
7. Watch the statute of limitations. The IRS may request an extension on Form 872. Sign it only after weighing the strategic tradeoffs.

The people who pay the least in audits are not the people who try to handle them alone. They are the people who get organized early.

Frequently Asked Questions

Can the IRS really grant someone permanent immunity from audit?

According to reports, the recent settlement purports to do exactly that for a narrow set of taxpayers and tax years. Tax scholars have called the arrangement unprecedented, and some have suggested it may be challenged in court as exceeding the Justice Department’s authority. For ordinary taxpayers, no such immunity is realistically available.

How long does the IRS have to audit my New York tax return?

The IRS generally has three years from the date a return is filed to assess additional tax, six years if there is a substantial understatement of income, and no time limit at all if the return is alleged to be fraudulent or was never filed. New York State follows similar rules but has its own statutory provisions, so the deadlines do not always line up.

What should I do the day I receive an IRS audit letter?

First, confirm it is genuine — the IRS initiates audits by mail, not by phone or text. Then note every deadline on the notice, stop discarding any records related to the year under exam, and contact a qualified tax professional before responding. Early decisions tend to shape the entire case.

Will hiring a CPA make the IRS think I’m hiding something?

No. Representation is a standard right under the Taxpayer Bill of Rights, and examiners deal with represented taxpayers every day. In our experience, having a professional handle communications usually produces a cleaner, faster, and more predictable result.

What if I cannot pay the tax the IRS says I owe?

You may be eligible for an installment agreement, a temporary hardship deferral (“currently not collectible” status), or in some cases an Offer in Compromise. Each option has its own qualifications and tradeoffs, and New York State offers parallel programs for state liabilities.

Are aggressive tax strategies illegal?

Not inherently. The line between legitimate tax planning and an abusive position turns on whether the strategy has economic substance, is properly disclosed, and is supported by the relevant statutes and case law. Strategies that may have worked years ago — such as certain debt-for-equity maneuvers — have since been narrowed or barred by Congress.

Do I have to report a federal audit adjustment to New York State?

Yes. New York generally requires taxpayers to report federal changes within 90 days of the final federal determination, and failure to do so can extend the state’s time to assess and add penalties. This is one of the most commonly missed compliance steps after a federal audit closes.

Can I be audited by both the IRS and New York State for the same year?

Yes. Federal and state examinations are independent, although the agencies do share information. It is common for a federal audit adjustment to trigger a corresponding New York adjustment, and occasionally for the reverse to occur.

Original reporting: isp.netscape.com.