Month: July 2026

On July 20, 2026, the US Tax Court issued a consolidated opinion in Lewis v. Commissioner and McDougall v. Commissioner, T.C. Memo. 2026-58, addressing how to value taxable gifts arising from the early termination of a residuary trust. The decision has meaningful implications for high-net-worth (HNW) and ultra-high-net-worth (UHNW) planning, particularly for QTIP trusts, spousal lifetime access trusts (SLATs), and negotiated trust modifications used by cross-border families.

The court’s holdings. The Tax Court reached three interrelated conclusions. First, the value of the taxable gifts made upon termination of the residuary trust must be determined by ignoring the possible exercise of a testamentary limited power of appointment held by a beneficiary. In other words, a mere theoretical power to redirect assets at death does not reduce the current gift tax value. Second, the value must be determined under state law principles governing the underlying property interests rather than by mechanical application of the actuarial tables prescribed under section 7520 of the Internal Revenue Code. Where state law produces a different valuation than the section 7520 tables, state law controls in this context. Third, the value of the gifts must be reduced by any avoided gift tax reimbursement obligations under section 2207A that would otherwise have applied. This preserves for the taxpayer the economic benefit of reimbursement obligations that no longer need to be satisfied.

Broader significance. Coming just months after the One Big Beautiful Bill Act made the 15 million dollar federal estate and gift tax exemption permanent effective 2026, the decision arrives at a moment when many HNW and UHNW families are actively revisiting trust structures, considering early terminations, and evaluating whether to accelerate transfers. The Lewis and McDougall framework provides important guidance in three respects. It confirms that testamentary limited powers of appointment do not automatically diminish gift tax value in early termination scenarios. It reinforces that state law valuation principles have real teeth in federal transfer tax analysis and that mechanical reliance on section 7520 actuarial tables is not always appropriate. And it offers a taxpayer-favorable framework for netting out section 2207A reimbursement obligations that were rendered moot by the termination.

Practical implications. For clients considering trust modifications, decantings, or terminations, the decision counsels careful state law analysis of the underlying property interests, particularly where the trust is governed by a jurisdiction (such as Delaware, South Dakota, Nevada, or Florida) with well-developed trust law. Advisors should not assume the section 7520 actuarial tables control every valuation question. For QTIP trust planning and portability elections, the interaction between section 2207A reimbursement obligations and gift tax value is now clearer and can be integrated into modeling of trust modification proposals. For cross-border families with US resident beneficiaries or US-situs trust property, the decision is particularly relevant because it may inform how foreign trust migrations, changes of situs, or early terminations are structured to manage US gift tax exposure. Coordination between US trust counsel, Portuguese and Brazilian tax counsel, and family office professionals is advisable before undertaking any material trust modification in the current environment.

Source: KPMG US; Wealth Management

Two developments this week signal continued aggressive US merger enforcement notwithstanding a generally more permissive environment for technology M&A in the first half of 2026.

Edwards and Genesis: record HSR penalty. On July 13, 2026, the DOJ, acting on behalf of the FTC, filed a complaint and proposed final judgment in the US District Court for the District of Columbia against Edwards Lifesciences Corporation and Genesis MedTech Group Limited. The agencies alleged that the parties intentionally structured Edwards’ 2024 acquisition of JC Medical, Inc. (a transcatheter aortic valve replacement, or TAVR-AR, company) from Genesis to avoid the notification and waiting-period requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Specifically, the parties agreed to a 115 million dollar purchase price for JC Medical (just below the then-applicable HSR reporting threshold of 119.5 million dollars) while contemporaneously arranging a 25 million dollar Edwards investment in Genesis. The agencies concluded that, viewed together, the two transactions exceeded the HSR threshold and required filing.

Terms of the settlement. Edwards will pay a 10 million dollar civil penalty and Genesis will pay a 2 million dollar civil penalty. The combined 12 million dollar penalty is the largest ever imposed for a failure to file under the HSR Act, materially exceeding prior records. The proposed final judgment further requires Edwards to implement a five-year antitrust compliance program (with a designated compliance officer, mandatory training, and annual certifications), to provide the FTC with 30 days’ prior notice before acquiring any interest in any firm that sells, is in US clinical trials for, or holds an FDA Investigational Device Exemption for a TAVR-AR device, and to submit to broad agency inspection rights. Both parties denied wrongdoing.

Enforcement message. The agencies applied a “but-for” test in evaluating the deal structure, asking whether the transaction was structured for the purpose of avoiding or delaying HSR filing. The theory of the case is that a legitimate business purpose does not immunize an avoidance structure from enforcement. This settlement, together with the DOJ’s ongoing case against KKR for allegedly incomplete Item 4(c) HSR filings and 2025 gun-jumping penalties against crude oil producers, confirms that HSR enforcement is a growing priority at both agencies. Combined with the fact that the maximum daily HSR penalty now stands at 53,088 dollars per party per day of violation, the risk profile for HSR compliance failures has increased materially.

Paramount and Warner Bros. Discovery: state-led antitrust challenge and TRO. Separately, on July 13, 2026, twelve state attorneys general filed suit to block the approximately 110 billion dollar merger of Paramount and Warner Bros. Discovery, alleging that the transaction would harm competition in US media, streaming, film, and content markets. On July 20, 2026, a federal judge issued a temporary restraining order pausing the merger pending further proceedings. Notably, the DOJ Antitrust Division had earlier cleared the transaction after an eight-month investigation without requiring divestitures, meaning the state challenge proceeds in the absence of federal opposition. Paramount has sought recusal of the assigned judge and has offered to briefly delay closing while the emergency proceedings continue. A federal hearing on the state AGs’ emergency motion was scheduled to precede any final court determination.

Practical implications. For M&A practitioners and cross-border clients, three points are worth emphasizing. First, HSR reporting analysis must consider the substance of related transactions, not merely the form of the primary purchase agreement. Contemporaneous side investments, contingent payments, and structured consideration can be aggregated by the agencies. Second, for medical device, life sciences, and technology deals near the HSR threshold, prudent counsel should proactively file even in close cases, particularly where regulatory scrutiny of the sector is elevated. Third, the Paramount case confirms that state attorneys general remain a significant merger enforcement channel, capable of obtaining preliminary relief even where federal agencies have cleared the transaction. Clients should factor state AG risk into deal timelines, closing conditions, and antitrust risk allocation clauses.

Source: Arnold and Porter Advisory; A&O Shearman; Axinn Viewpoints; Federal Trade Commission; NPR; CNBC; Reuters

On July 15, 2026, the US Tax Court issued its decision in Siemens Medical Solutions USA, Inc. and Consolidated Subsidiaries v. Commissioner, 167 T.C. No. 5, holding that Siemens was entitled to the full 100% dividends-received deduction under section 245A of the Internal Revenue Code for a 2019 dividend received from its Dutch subsidiary, and invalidating Treasury’s Temporary Treasury Regulation section 1.245A-5T, known as the Extraordinary Disposition Rules. The decision is the third in a recent line of cases (following Keysight Technologies and Varian Medical Systems) in which federal courts have struck down Treasury regulations attempting to close TCJA transition-period gaps not addressed by Congress.

Statutory background. The Tax Cuts and Jobs Act of 2017 introduced three interlocking regimes to transition the United States toward a partially territorial system: section 245A (100% dividends-received deduction for foreign-source dividends from specified 10-percent-owned foreign corporations, effective for distributions after December 31, 2017); section 965 (mandatory repatriation tax on accumulated foreign earnings as of December 31, 2017); and section 951A (GILTI, applicable to CFC taxable years beginning after December 31, 2017, since renamed NCTI under the July 2025 legislation). For fiscal-year taxpayers, these differing effective dates created a narrow window in which certain foreign earnings could escape both section 965 and GILTI while remaining eligible for the section 245A deduction on later distribution. Treasury sought to close this gap through the Extraordinary Disposition Rules, which disallowed 50% of the section 245A deduction on dividends paid out of an extraordinary disposition account.

The court’s holding. Applying the post-Loper Bright framework in which agency regulations no longer receive Chevron deference, the Tax Court found the statutory text of section 245A unambiguous and held that Treasury could not add a new limiting condition that Congress did not enact. The court emphasized that “Treasury, not Congress, was concerned” about the tax-free gap, and that concerns about tax policy cannot override the plain meaning of the statute, even under the rulemaking authority in section 245A(g) or the general authority in section 7805(a). The result is that Siemens is entitled to the full section 245A deduction, and the Extraordinary Disposition Rules are invalid.

Companion decisions. The Siemens decision follows two other recent taxpayer wins. In Keysight Technologies, Inc. and Subsidiaries v. United States (Fed. Cl. July 2, 2026), the Court of Federal Claims invalidated the GILTI disqualified basis rule under Treas. Reg. section 1.951A-2(c)(5), holding that Treasury lacked statutory authority to disallow amortization deductions arising from transition-period related-party transfers. Keysight is seeking a refund of nearly 108 million dollars for tax years 2020 through 2022. In Varian Medical Systems (2024), the Tax Court invalidated Treas. Reg. section 1.78-1, which had targeted a related section 78 and 245A mismatch. Together, the three decisions form a consistent pattern: courts are unwilling to permit Treasury to rewrite clear statutory rules to close policy gaps, even when the resulting outcomes may be inconsistent with the transition regime’s overall design.

Practical implications. For US multinationals and inbound-outbound clients, the takeaways are significant. First, taxpayers with pending or unresolved section 245A, GILTI, or NCTI issues should review return positions, consider protective refund claims where the statute of limitations is a concern, and prepare for likely further government litigation seeking to preserve or reissue the affected regulations. Second, the decisions signal broader vulnerability for Treasury regulations relying primarily on general rulemaking authority under section 7805(a) rather than a specific statutory delegation. Third, planning for fiscal-year CFC structures, dividend distributions from foreign subsidiaries, and cross-border restructurings should account for the fact that the Extraordinary Disposition Rules and the GILTI disqualified basis rule are, at least for now, no longer enforceable as written. Multinational clients in Brazil, Portugal, and the EU with US corporate parents or US shareholders should coordinate with US tax counsel on how these developments affect their group tax positions.

Source: Sullivan and Cromwell; Current Federal Tax Developments; Law360; Holland and Knight

On July 17, 2026, the US Department of Justice announced a three-year deferred prosecution agreement (DPA) with The Scoular Company, a Nebraska-based agricultural commodities firm, involving alleged bribes paid to Mexican government officials in connection with cross-border trade in agricultural products. According to secondary summaries, the resolution carries penalties and forfeiture totaling more than 10 million dollars, and it fits within DOJ’s post-Blanche Memo enforcement framework focused on foreign bribery tied to organized crime, cartels, and cross-border trafficking risks.

Broader significance. This resolution is notable on several fronts. First, it is one of the higher-profile FCPA resolutions of 2026 and confirms that, notwithstanding the Administration’s earlier pause and recalibration of FCPA enforcement priorities, the DOJ continues to pursue cross-border corruption cases that intersect with US national security, cartel-related enforcement, and border-integrity policy. Second, the fact pattern involves a US corporate parent, alleged payments to foreign officials, and cross-border commercial trade, which is precisely the profile that triggers heightened DOJ scrutiny under current policy. Third, the DPA structure signals continued willingness by DOJ to resolve corporate FCPA matters through negotiated agreements when cooperation and remediation are meaningful, rather than pushing to indictment or trial.

Practical implications. For clients with cross-border operations touching the United States, Brazil, Mexico, or other jurisdictions with active DOJ interest, the takeaways are direct: robust FCPA compliance programs remain essential, third-party due diligence on customs brokers and logistics counterparties is a high-risk area, and voluntary self-disclosure combined with genuine remediation continues to matter in penalty outcomes. Multinationals should also revisit internal accounting controls, books-and-records processes, and training for personnel operating at borders and in customs-adjacent roles.

Source: Morgan Lewis

On July 7, 2026, the Federal Reserve Board voted 6 to 1 to issue a Notice of Proposed Rulemaking modernizing Anti Money Laundering and Countering the Financing of Terrorism (AML/CFT) program requirements for Board supervised banks. Governor Michael Barr was the sole dissent. The proposal was filed as Docket No. R-1835 (RIN 7100-AG78), amends 12 CFR Part 208 (Regulation H), and was published in the Federal Register on July 9, 2026. The comment period closes September 8, 2026.

On July 15 and 16, the Office of the US Trade Representative issued the final Section 301 action against Brazil, imposing a 25% tariff on substantially all Brazilian goods entering the United States starting July 22, 2026. This is the first major action under the Trump administration’s second term tariff strategy and the most consequential US-Brazil trade measure in decades.

The action follows USTR’s June 1, 2026 determination that certain Brazilian acts, policies and practices are unreasonable and burden or restrict US commerce under Section 301(b) of the Trade Act of 1974. The determination targets a broad set of Brazilian practices, including digital trade rules, electronic payment services regulation, preferential tariff arrangements with third countries, anti corruption enforcement, intellectual property protection, ethanol market access, and illegal deforestation. USTR received more than 360 written comments and heard from 77 witnesses across two days of public hearings on July 6 and 7, 2026 before issuing the final action.

Product coverage and exclusions. The 25% tariff applies to thousands of Brazilian product lines, but USTR carved out significant exclusions for goods that are strategically important to US industry or difficult to substitute: petroleum and petroleum products, coffee, spices, beef, orange juice, nuts, aircraft and aircraft parts, and products already subject to Section 232 duties (steel, aluminum, copper, autos). Notably, Brazilian ethanol is not exempt and will bear the full 25% duty. This is a politically charged outcome given US refiners’ long dependence on Brazilian sugarcane ethanol for RFS compliance.

Second wave possible. A parallel USTR Section 301 investigation is expected to conclude in the following week and could add another 12.5% tranche, bringing the effective tariff burden on Brazilian goods to 37.5%. That would put Brazil at or above the tariff level applied to China and would make Brazil the second highest tariffed US trading partner, despite the US historically running a trade surplus with Brazil, a point Brazilian officials have emphasized in condemning the action.

Brazil’s response. The Brazilian government has publicly condemned the measure and pledged to respond. Retaliatory action is expected via WTO dispute settlement and, potentially, targeted Brazilian tariffs on US exports. The action arrives at a delicate political moment domestically in Brazil and will materially affect exporters in industrial machinery, chemicals, footwear, textiles, processed foods, wood products and specialty agriculture, sectors that fall outside the exclusion list.

Immediate action items for exposed companies. With the July 22 effective date only days away, importers of Brazilian goods should:

• Accelerate entries currently in transit where feasible to lock in pre tariff duty treatment;
• Map product HTS codes against the exclusion list carefully, since the boundary between excluded and covered categories will drive substantial cost differences;
• Evaluate first sale valuation, tariff engineering and country of origin substitution options;
• Reassess supply agreements, most of which incorporate no automatic price adjustment mechanism for new Section 301 duties;
• Monitor USTR for a product exclusion request process, which historically follows Section 301 actions and can offer meaningful relief for specific inputs.

For clients with cross border operations between Brazil, the US, and third jurisdictions (including Portugal and other EU points), rerouting analyses should be run cautiously. USTR has signaled it will treat transshipment aggressively under the President’s June 3 executive order on customs enforcement.

Finally, the July 24 expiration of the temporary Section 122 10% baseline tariff is now converging with this Section 301 action to reshape the entire US tariff architecture. Brazil is the first country to see a durable, country specific replacement tariff, and, per USTR and the administration, dozens of additional Section 301 actions are queued behind it.

Source: USTR; Reuters; NYT; CNN; Guardian

On July 16, the US Securities and Exchange Commission proposed Regulation E-Delivery, a rulemaking that would fundamentally restructure how investment funds, broker dealers and public issuers deliver disclosures and required communications to investors. The proposal would make electronic delivery the default delivery method across most SEC disclosure regimes, replacing today’s patchwork of consent based e-delivery frameworks that still treat paper as the presumptive channel under many rules.

Under the current regime, issuers, funds and intermediaries generally must obtain affirmative investor consent (through mechanisms grounded in the SEC’s 1995 and 2000 interpretive releases) before delivering prospectuses, annual reports, proxy materials and account statements electronically. That has produced meaningful friction: dual document production, inconsistent consent tracking across account types, and higher printing and mailing costs, particularly for fund complexes and retail broker dealers with large legacy books. Regulation E-Delivery would flip the default. Electronic delivery would be presumed, with a clear investor right to opt out and continue receiving paper, and standardized notice and access mechanics designed to work across issuer, fund and intermediary settings.

For fund complexes, broker dealers and public issuers, the practical implications are significant. Investor communications workflows, vendor contracts (transfer agents, print and mail providers, proxy service firms), account opening disclosures and periodic statement delivery would all need to be re-engineered. Compliance programs will need to build robust opt-out tracking, ensure accessibility for investors without reliable internet access, and calibrate disclosures around beneficial owner versus registered holder relationships. The proposal also has second order consequences for the proxy ecosystem, as electronic by default proxy materials could shift participation dynamics.

The rule is now in the comment period following publication, and the SEC has invited input on scope (which disclosure regimes should be covered), the mechanics of the opt-out, and transition timing. Fund sponsors, broker dealers, transfer agents and public issuers should begin inventorying disclosure delivery obligations now, mapping which documents fall inside and outside the proposal’s scope, and identifying vendor and systems dependencies that will need to be revised if the rule is adopted substantially as proposed.

Source: SEC

In an 8-K filed July 1, 2026, The Kroger Co. disclosed an agreement to acquire family-owned regional grocer Giant Eagle, Inc. for approximately $1.65 billion — $1.25 billion in cash plus roughly $400 million in assumed liabilities. Giant Eagle operates stores across Ohio, Pennsylvania, West Virginia, Maryland, and Indiana.

Deal Structure and Regulatory Path

Kroger said it expects the transaction to close in 2027, subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act. The company anticipates making “limited Giant Eagle store divestitures” to obtain regulatory approval. Kroger’s board approved the transaction unanimously.

Context

The announcement marks Kroger’s return to sizeable dealmaking after its far larger, roughly $24.6 billion merger with Albertsons was blocked by courts and abandoned in late 2024. That deal was the subject of a June 25, 2026 ruling by the Delaware Court of Chancery in ongoing litigation between Kroger and Albertsons over the collapsed transaction.

(Source tag: The Kroger Co., Form 8-K, July 1, 2026)

The Department of the Treasury and the Internal Revenue Service issued Revenue Procedure 2026-14 providing guidance to the Chief Executive Officers of any State, the District of Columbia, and U.S. territories regarding the procedure for nominating population census tracts to be designated as Qualified Opportunity Zones (QOZs) under the One Big Beautiful Bill (OBBB). The nomination period opened on July 1, 2026 and will last 90 days, subject to a single 30-day extension. The first round of QOZ designations under the OBBB will take effect on January 1, 2027, with subsequent designation cycles every 10 years.

New Criteria and Rural Benefits

To be eligible for QOZ designation for 2027, a census tract must qualify as a low-income community (LIC). The OBBB makes the QOZ tax incentive permanent and adds tax benefits specific to investments made into QOZs that are comprised entirely of a rural area. According to Treasury and the IRS, there are 25,332 population census tracts qualifying as LICs eligible for nomination, of which 8,334 tracts are comprised entirely of a rural area.

Nomination Caps

The number of population census tracts in a State that may be designated as QOZs may not exceed 25 percent of the number of LICs in the State. If a State contains 25 to 99 LICs, then 25 eligible population census tracts may be designated. If a State contains fewer than 25 LICs, then all eligible population tracts within the State may be designated. The IRS release is IR-2026-45.

(Source tag: Internal Revenue Service Newsroom / Rev. Proc. 2026-14)

The Federal Trade Commission announced on July 1, 2026 that it is seeking public comment on a proposed policy statement addressing concerns that AI companies may be manipulating the behavior of their AI systems in ways that conflict with reasonable consumer expectations for objectivity and accuracy. The proposed statement describes how AI companies that distort their systems’ outputs to achieve undisclosed ideological objectives could be deceiving consumers in violation of Section 5 of the FTC Act, which prohibits businesses from engaging in “unfair or deceptive” conduct. The public will have until July 31, 2026 to submit comments. The Commission vote authorizing the Federal Register notice was 2-0.

Chairman’s Statement

Chairman Andrew N. Ferguson said: “The FTC wants to hear from businesses and consumers about their experiences and concerns regarding the subversion of AI systems for ideological ends. This crucial input will help the Commission formulate a final policy that advances President Donald Trump’s goal of expanding America’s global dominance in artificial intelligence.”

State Law Preemption Concerns

The proposed policy statement also addresses the legal implications of state laws that require alteration of the “truthful outputs of AI models.” The statement cites Colorado’s Artificial Intelligence Act as an example of a state law that appears to coerce companies into altering the output of their AI models to comply with and advance the state’s ideological objectives. The Commission stated that such state-law compulsion may itself run counter to consumers’ reasonable expectations about the effectiveness and suitability of AI systems for various tasks.

(Source tag: Federal Trade Commission Press Release)