Internal Revenue Bulletin No. 2026–6

Bulletin 2026-6: Bonus Depreciation Expanded & Rollover Notices Updated

This edition of the Internal Revenue Bulletin (IRB) contains updates spanning income tax, employee plans, and tax conventions. The most significant items include Notice 2026-11, which addresses the expanded bonus depreciation rules under Section 168(k) following the passage of the 'One, Big, Beautiful Bill Act' (OBBBA), and Notice 2026-13, which provides updated safe harbor explanations for retirement plan rollovers under Section 402(f), reflecting changes from the SECURE 2.0 Act. Rounding out the issue are Revenue Ruling 2026-4, concerning the tax-exempt status of Alaska Railroad bonds under Section 103(a) and related provisions, and Announcement 2026-3, outlining the arbitration roadmap for disputes arising under the U.S.-Spain tax treaty. Finally, the bulletin includes routine updates to federal rates and yield curves.

Permanent 100% Bonus Depreciation & Sound Recordings (Notice 2026-11)

Building on the updates to retirement plan rollovers under Section 402(f) described in Notice 2026-13, which provides updated safe harbor explanations for retirement plan rollovers under Section 402(f), reflecting changes from the SECURE 2.0 Act. Rounding out the issue are Revenue Ruling 2026-4, concerning the tax-exempt status of Alaska Railroad bonds under Section 103(a) and related provisions, and Announcement 2026-3, outlining the arbitration roadmap for disputes arising under the U.S.-Spain tax treaty. Finally, the bulletin includes routine updates to federal rates and yield curves.

Notice 2026-11 addresses the additional first-year depreciation deduction under Section 168(k), as amended by Sections 70301 and 70434(g) of Public Law 119-21, more commonly known as the One, Big, Beautiful Bill Act (OBBBA). The Notice indicates that the Treasury Department and the IRS intend to issue proposed regulations consistent with the interim guidance provided within the Notice, including modifications to § 1.168(k)-2 to include applicable qualified sound recording productions for tax years ending after July 4, 2025.

The OBBBA significantly altered the landscape of Section 168(k), which governs bonus depreciation. Prior to the OBBBA amendments, Section 168(k)(1) allowed an additional first-year depreciation deduction based on the applicable percentage for qualified property acquired after September 27, 2017, and placed in service before January 1, 2027 (with some exceptions for longer production periods). The applicable percentage, however, was set to phase down.

Section 70301 of the OBBBA brought about several key changes. The most notable is the removal of the phase-down of the applicable percentage, replacing it with a permanent 100% additional first-year depreciation deduction for qualified property acquired and placed in service, and specified plants planted or grafted, after January 19, 2025. Specifically, the OBBBA (i) removed the sunset date for qualified property, (ii) removed the requirement that certain longer production period property or aircraft be acquired before January 1, 2027, (iii) eliminated the provision that self-constructed property beginning before January 1, 2027, would meet the acquisition deadline, and (iv) established permanent 100% bonus depreciation for qualified property or specified plants acquired or planted after January 19, 2025.

Further, the OBBBA amended Section 168(k)(10) to allow taxpayers to elect to deduct 40% (60% for certain property with longer production periods or certain aircraft), instead of 100%, additional first-year depreciation for qualified property placed in service, or specified plants planted or grafted, during the first taxable year ending after January 19, 2025. This provides a transition rule for taxpayers who might prefer to spread the deduction over time. This election is pertinent for the first tax year after January 19, 2025, offering an alternative to immediate 100% expensing.

Section 70434 of the OBBBA also amended both Section 181 and Section 168(k). Section 181(a), which previously allowed taxpayers to elect to deduct up to $15 million of aggregate production costs for qualified film, television, or live theatrical productions commencing before January 1, 2026, was amended to include "qualified sound recording productions" commencing before January 1, 2026, in taxable years ending after July 4, 2025, subject to a cost cap of $150,000.

Significantly, OBBBA Section 70434(g) amended Section 168(k) by expanding the definition of qualified property in Section 168(k)(2) to include these qualified sound recording productions for which a deduction would have been allowable under Section 181, without regard to the limitations in § 181(a)(2) and (h). A qualified sound recording production is considered placed in service at the time of its initial release or broadcast, as per the amendment to § 168(k)(2)(H). This opens the door for sound recordings to qualify for bonus depreciation.

The amendments to both Section 168(k) and Section 181 by the OBBBA apply to sound recording productions commencing in taxable years ending after July 4, 2025, the date of the OBBBA's enactment.

Tax practitioners should note the importance of tracking acquisition dates and placed-in-service dates carefully, as these dates determine the applicable depreciation rules. Also, the election under Section 168(k)(10) to use the 40% (or 60%) rate for the transition year requires careful consideration of a taxpayer's overall tax strategy. The expansion to include "qualified sound recording productions" also adds a new dimension to depreciation planning, requiring familiarity with the definitions and limitations under both Section 181 and Section 168(k).

New Safe Harbor Explanations for Plan Administrators (Notice 2026-13)

Following the expansion of bonus depreciation and the updated rollover notices, the IRS has issued Notice 2026-13 to provide updated safe harbor explanations for plan administrators regarding eligible rollover distributions under Section 402(f) of the Internal Revenue Code (IRC). Section 402(f) requires plan administrators of plans qualified under Section 401(a), which outlines the requirements for a qualified pension, profit-sharing, and stock bonus plan, to provide a written explanation to recipients of eligible rollover distributions, as defined in Section 402(c)(4). This explanation informs recipients of their rollover options and the tax implications.

The necessity of this update stems from the SECURE 2.0 Act of 2022, which introduced several changes to Section 72(t), concerning exceptions to the 10% additional tax on early distributions from qualified retirement plans, as defined in Section 4974(c), regarding excise tax on accumulated funding deficiencies. Specifically, the SECURE 2.0 Act added exceptions for emergency personal expenses under Section 72(t)(2)(I), distributions to domestic abuse victims under Section 72(t)(2)(K), and distributions to terminally ill individuals under Section 72(t)(2)(L). The notice provides updated safe harbor explanations to reflect these changes, ensuring plan administrators provide accurate information to plan participants.

Notice 2026-13 provides two distinct safe harbor explanations: one for distributions not from a designated Roth account and another for distributions from a designated Roth account. These explanations replace and modify those provided in Notice 2020-62. The safe harbor explanations clarify the various distribution options available to plan participants, including rollovers to other retirement accounts, and highlight the tax implications associated with each option. The notice also incorporates changes related to required minimum distributions (RMDs) under Section 401(a)(9), including the increased age for determining required beginning dates and the elimination of RMDs for designated Roth accounts within a plan as per Section 402A(d).

For plan administrators, complying with Section 402(f) is critical. Providing the safe harbor explanations ensures they meet their obligation to inform recipients of eligible rollover distributions about their options and the tax consequences. The notice highlights the importance of providing this information within a reasonable timeframe before the distribution is made. While Section 1.402(f)-1, Q&A-2, generally specifies a period of no less than 30 days and no more than 90 days before the distribution, proposed regulations allow for a period of up to 180 days.

It's noteworthy that the Government Accountability Office (GAO) issued a report recommending that the Treasury Department address the timing of Section 402(f) notices. The GAO suggested providing the notice upon a participant’s separation from service to coincide with their decision-making process regarding retirement savings. While not a mandate, the IRS and Treasury Department encourage plan administrators to consider this recommendation, potentially providing a summary of the full notice at separation, with the full notice available upon request.

Plan administrators should also be aware that the safe harbor explanations may be customized to omit information not applicable to their specific plan. This might include sections on after-tax contributions or distributions of employer stock, if those features are not part of the plan's design. Conversely, additional information can be included if it does not contradict the requirements of Section 402(f). The IRS anticipates future updates to the safe harbor explanations to reflect provisions of the SECURE 2.0 Act not yet in effect.

Alaska Railroad Bonds: Government Function vs. Private Activity (Rev. Rul. 2026-4)

Revenue Ruling 2026-4 addresses the tax-exempt status of bonds issued by the Alaska Railroad Corporation to finance aspects of a Liquified Natural Gas (LNG) project. The central question is whether these bonds must comply with the private activity bond rules outlined in §§ 141 through 147 of the Internal Revenue Code (IRC) to qualify for tax exemption under § 103(a), which generally excludes interest on state and local bonds from gross income. Section 141(a) defines a "private activity bond" as a bond that meets either a private business use test (§ 141(b)(1)), a private security or payment test (§ 141(b)(2)), or a private loan financing test (§ 141(c)). If a bond is a private activity bond, it must also qualify as a "qualified bond" under § 141(e) to maintain tax-exempt status, meaning it must be an exempt facility bond under § 142, a qualified mortgage bond under § 143(a), or another type of qualified bond as defined in §§ 144 or 145.

The ruling focuses on the interplay between general tax laws governing municipal bonds and specific provisions within the Alaska Railroad Transfer Act of 1982 (Railroad Act). Section 608(a)(6)(A) of the Railroad Act, in effect on October 22, 1986, states that the continued operation of the Alaska Railroad by a public corporation is considered an "essential governmental function." It further stipulates that revenue from this operation accrues to the state for purposes of § 115(a)(1), relating to income derived from essential governmental functions and accruing to a state. Crucially, it also deems obligations issued by such an entity as obligations of the state under § 103(a)(1) of the Internal Revenue Code of 1954 (the predecessor to the current § 103(a)), but specifically not as obligations falling under § 103(b)(2) of the 1954 Code, which concerned industrial development bonds.

The IRS held that bonds issued by the Alaska Railroad Corporation to finance the construction, acquisition, and improvement of the specified "Property" are considered "Railroad-Related Bonds" and, therefore, do not need to satisfy §§ 141 through 147 to be tax-exempt under § 103(a). The "Property" includes facilities and infrastructure directly related to the LNG Project, such as railroad tracks, port facilities, airports, roads, power generation facilities, and communication infrastructure, all located within Alaska. This determination stems from the fact that the Railroad Corporation's activities are consistent with the operation of the State Railroad as contemplated by the Railroad Act.

However, the ruling emphasizes a critical limitation: the exemption from §§ 141-147 applies only to bonds financing facilities directly related to the LNG project and located within Alaska. It explicitly states that facilities merely using natural gas produced by the project do not qualify as "Property." For instance, if the Railroad Corporation issued bonds to finance a power plant utilizing LNG but lacking any other connection to the project, those bonds would not be considered Railroad-Related Bonds and would be subject to the private activity bond rules. Furthermore, while exempt from §§ 141-147, the bonds must still comply with the arbitrage restrictions of § 148, the registration and other requirements of § 149, and the definitions and special rules of § 150 to qualify for tax exemption under § 103(a). Section 148 defines an "arbitrage bond" as one where proceeds are reasonably expected to be used to acquire higher-yielding investments. Section 149 includes various requirements for tax-exempt bonds, including registration requirements in § 149(a) and restrictions on federal guarantees in § 149(b).

U.S.-Spain Treaty Arbitration Roadmap (Announcement 2026-3)

Announcement 2026-3 publishes the Competent Authority Arrangement between the United States and Spain, designed to implement the arbitration process outlined in paragraphs 5 and 6 of Article 26 of the Convention between the two countries. This convention addresses the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, as signed in Madrid on February 22, 1990, and subsequently amended by the Protocol signed on January 14, 2013, along with the accompanying Memorandum of Understanding.

The core purpose of this arrangement is to facilitate the resolution of disputes arising from potential breaches of the treaty where the Mutual Agreement Procedure (MAP) has failed to produce a resolution. Article 26 of the treaty provides for the MAP, which allows taxpayers to present their cases to the "competent authority" of their country of residence if they believe that the actions of either the U.S. or Spain have resulted in taxation not in accordance with the treaty's provisions. Revenue Procedure 2015-40, provides guidance for taxpayers seeking assistance from the U.S. competent authority under tax treaties. The announcement reflects a broader trend towards mandatory binding arbitration in tax treaties, aimed at resolving disputes more efficiently. This trend has been influenced by recommendations from the OECD's Base Erosion and Profit Shifting (BEPS) project.

This arrangement details the procedural roadmap for initiating and conducting arbitration proceedings, outlining the criteria for eligibility, confidentiality protocols, and the selection process for arbitrators. Key provisions include: cases eligible for arbitration, cases not eligible for arbitration (non-taxpayer specific cases, cases already decided by a court), the definition of the "Commencement Date" for a case (when sufficient information is received by both competent authorities), the process for requesting submission of a case to arbitration, and the maintenance of confidentiality throughout the process. Paragraph IX(E) is of particular importance, as it specifies that each competent authority can submit a proposed resolution, limited to five pages, addressing each adjustment or similar issue. This resolution must reflect all matters previously decided between the authorities. Supporting position papers, up to 30 pages with annexes, can also be submitted. This "baseball arbitration" approach, where the arbitration panel must select one of the proposed resolutions without modification, incentivizes both competent authorities to present reasonable positions.

Rates, Yield Curves, and Admin Corrections

Having established the arbitration roadmap for U.S.-Spain tax treaty disputes, this bulletin also includes routine administrative updates regarding applicable federal rates, pension-related yield curves, and a simple administrative correction.

First, Rev. Rul. 2026-3 provides the applicable federal rates (AFRs) for February 2026. These rates, governed by Section 1274(d), are used for various tax purposes, including:

• Determining the issue price of debt instruments issued for property (§ 1274).
• Calculating the low-income housing credit (§ 42).
• Determining the taxability of golden parachute payments (§ 280G).
• Limiting net operating loss carryforwards after ownership changes (§ 382).
• Accounting for certain payments for the use of property or services (§ 467).
• Allocating income and deductions among taxpayers (§ 482).
• Calculating interest on certain deferred payments (§ 483).
• Determining the treatment of original issue discount on tax-exempt obligations (§ 1288).
• Valuing annuities, life estates, and remainder interests (§ 7520).
• Determining the tax treatment of loans with below-market interest rates (§ 7872).

Specifically, the short-term, mid-term, and long-term AFRs for February 2026 are 3.56%, 3.86%, and 4.70%, respectively (annual compounding). The adjusted federal long-term rate for determining net operating loss limitations under Section 382 is 3.56%. For low-income housing credits for buildings placed in service during February 2026, the appropriate percentage for the 70% present value credit is 7.99%, and for the 30% present value credit is 3.43%. The Section 7520 rate for valuing annuities and other interests is 4.6%.

Next, Notice 2026-12 provides guidance on the corporate bond yield curve used for pension funding under Section 430(h)(2). The spot first, second, and third segment rates for December 2025 are 4.03, 5.17, and 6.11, respectively. The adjusted 24-month average segment rates applicable for January 2026, reflecting the 95% and 105% limitations of the 25-year average segment rates, are 4.75, 5.26, and 5.74 for plan years beginning in 2024 and 2025, and 4.75, 5.25, and 5.74 for plan years beginning in 2026. For multiemployer plans, the 30-year Treasury weighted average rate for plan years beginning in January 2026 is 4.36, with a permissible range of 3.93 to 4.58, as used to determine the current liability under Section 431(c)(6)(B). For minimum present value calculations under Section 417(e)(3)(D), the segment rates for December 2025 are 4.03, 5.17, and 6.11.

Finally, Announcement 2026-4 corrects an outdated phone number listed in Announcement 2000-80 concerning the IRS Independent Office of Appeals customer service line. The correct phone number is (855) 865-3401.