Executive Summary

The IRS Bulletin No. 2026-15 arrives amid a period of heightened regulatory flux, where long-standing provisions intersect with evolving legislative priorities and emerging economic realities. This bulletin consolidates a series of consequential updates spanning employee benefit plan funding rules, digital asset compliance, corporate tax elections, and housing credit allocations—each reflecting broader trends in tax administration, financial markets, and legislative intent.

Among the most impactful developments are the IRS’s annual adjustments to corporate bond yield curves under Section 417(e)(3)(D) and Section 430(h)(2), which directly influence defined benefit pension plan funding and lump-sum distribution calculations. These adjustments occur against a backdrop of rising interest rates, which have compressed pension funding deficits in recent years but now threaten to reverse that trend. Concurrently, the IRS continues to refine guidance on Section 163(j)—the business interest limitation—amid ongoing debates over its interaction with bonus depreciation under Section 168(k), particularly as the phase-down of 100% bonus depreciation accelerates. The agency also extends temporary relief for digital asset identification, a concession to the persistent challenges of tracking cost basis in a rapidly evolving crypto ecosystem, while finalizing regulations that expand the definition of qualified nonpersonal use vehicles to include unmarked emergency response vehicles. Rounding out the bulletin is a call for public input on the 2026–2027 Priority Guidance Plan, signaling the IRS’s intent to prioritize guidance on digital asset reporting, corporate tax elections, and housing credit allocations in the coming year.

Deep Dive: Section 417(e)(3)(D) and Section 430(h)(2) – Pension Plan Funding and Lump-Sum Distributions

The Rule: What Rates Are Updated and How Are They Calculated?

Section 417(e)(3) governs the calculation of lump-sum distributions from defined benefit pension plans, requiring the use of segment rates derived from a corporate bond yield curve to determine the present value of accrued benefits. Specifically, Section 417(e)(3)(D) mandates that these segment rates be used to discount future benefit payments to their present value, ensuring that the lump-sum amount offered to participants is actuarially equivalent to the annuity they would receive. The IRS publishes these rates monthly, and they are segmented into three distinct periods—short-term (0–5 years), mid-term (5–20 years), and long-term (20+ years)—to reflect the varying risk profiles of pension liabilities.

The yield curve is used to derive the spot segment rates, which are critical for determining the present value of pension liabilities. The spot segment rates for February 2026 are as follows:

Segment	Rate (%)
Short-term	4.12%
Mid-term	4.35%
Long-term	4.89%

These rates reflect the immediate market conditions as of February 2026 and are used to discount future benefit payments to their present value. The 24-month average segment rates, calculated by averaging the spot segment rates over the preceding 24 months, are used to determine the minimum funding requirements for single-employer defined benefit plans under Section 430. The 24-month average segment rates for March 2026 are:

Segment	Rate (%)
Short-term	3.98%
Mid-term	4.21%
Long-term	4.75%

The use of 24-month averaging was temporarily extended by the American Rescue Plan Act of 2021 Section 9705 to reduce funding volatility, and this relief remains in effect for 2026. The 30-year Treasury rate, which is used in conjunction with the corporate bond yield curve to determine the discount rate for certain pension calculations, stands at 4.52% for February 2026.

The IRS provides these rates to ensure consistency and transparency in pension plan valuations, allowing plan sponsors and actuaries to apply uniform assumptions in their calculations.

The Context: Politics, Industry, and History

The adjustment of segment rates under Sections 417(e)(3)(D) and 430(h)(2) is a technical but consequential process that balances actuarial fairness with fiscal prudence. Historically, the IRS has updated these rates monthly to reflect changes in corporate bond yields, which are themselves influenced by broader economic conditions, including Federal Reserve policy and inflation expectations. The American Rescue Plan Act of 2021 temporarily smoothed these rates by allowing the use of 24-month averages, a measure designed to mitigate the volatility caused by the COVID-19 pandemic and its aftermath. This relief was intended to provide stability to pension plans struggling with low interest rates and market uncertainty.

The recent rise in interest rates, driven by Federal Reserve tightening to combat inflation, has introduced a new dynamic. While higher rates reduce the present value of pension liabilities—thereby easing funding requirements for employers—they also increase the lump-sum payouts offered to participants, as lower discount rates result in higher present values. This creates a tension between the interests of plan sponsors, who seek to minimize funding obligations, and participants, who may prefer larger lump-sum distributions. The IRS’s role in this process is to ensure that the calculations remain actuarially sound and compliant with statutory requirements, even as economic conditions shift.

Industry stakeholders, including pension actuaries and plan sponsors, have long advocated for stability in these rates to avoid abrupt changes in funding requirements. The temporary smoothing provided by the American Rescue Plan Act was a response to this need, and its continuation in 2026 reflects ongoing efforts to balance flexibility with fiscal responsibility. Meanwhile, the political landscape has seen debates over the appropriate level of pension funding, with some lawmakers pushing for further relief for struggling plans, while others emphasize the need for long-term solvency.

The Implication: What do practitioners need to know?

For practitioners, the updated segment rates have immediate and long-term implications for both plan sponsors and participants. Plan sponsors must recalculate their minimum funding requirements using the new 24-month average rates, which may result in lower contributions if rates have risen significantly. However, they must also consider the impact on lump-sum distributions, as higher rates reduce the present value of liabilities but increase the lump-sum payouts offered to participants. This dual effect requires careful planning to avoid cash flow disruptions or unexpected funding shortfalls.

Participants receiving lump-sum distributions will see their payouts adjusted based on the new rates. While higher rates may reduce the lump-sum amount in some cases, the overall trend of rising rates could lead to more favorable outcomes for those retiring in 2026 compared to previous years. Practitioners should advise clients to review their pension plan documents and actuarial assumptions to ensure compliance with the updated rates and to assess the financial impact on both sponsors and participants.

Additionally, the IRS’s continued use of 24-month averaging provides a buffer against volatility, but plan sponsors should monitor interest rate trends closely. If rates continue to rise, funding requirements may decrease further, but lump-sum payouts could become more expensive. Conversely, a reversal in rate trends could lead to higher funding obligations and lower lump-sum values. Practitioners should also be aware of the interplay between these rates and other pension-related provisions, such as the Pension Benefit Guaranty Corporation (PBGC) premiums, which are tied to underfunding levels.

Deep Dive: Section 163(j) and Section 168(k) – Business Interest Limitations and Bonus Depreciation

The Rule: What is the IRS updating?

The IRS is refining its guidance on Section 163(j), the business interest limitation, which caps the deductibility of business interest expenses to 30% of adjusted taxable income (ATI). This provision, introduced by the Tax Cuts and Jobs Act of 2017, was designed to limit the tax benefits of excessive leverage, particularly for highly indebted businesses. However, the IRS has faced challenges in clarifying how Section 163(j) interacts with other tax provisions, particularly Section 168(k), which allows for bonus depreciation. The phase-down of 100% bonus depreciation, which began in 2023 and will continue through 2026, has added complexity to this interaction, as bonus depreciation reduces taxable income and, consequently, ATI.

The IRS’s updates to Section 163(j) guidance aim to address these challenges by providing clearer rules for calculating ATI, particularly in the context of bonus depreciation. The agency has emphasized that while bonus depreciation reduces taxable income, it does not reduce ATI for purposes of Section 163(j), as ATI is calculated without adding back depreciation, amortization, or depletion. This clarification is critical for businesses that rely on both bonus depreciation and interest deductions, as it affects their ability to maximize tax benefits.

Additionally, the IRS has finalized regulations that expand the definition of qualified nonpersonal use vehicles to include unmarked emergency response vehicles. This change reflects a recognition of the evolving needs of first responders and public safety agencies, who often use unmarked vehicles for undercover operations or specialized tasks. The inclusion of these vehicles in the definition of qualified nonpersonal use vehicles ensures that they qualify for favorable tax treatment, such as accelerated depreciation and expensing under Section 179.

The Context: Politics, Industry, and History

The interaction between Section 163(j) and Section 168(k) has been a subject of ongoing debate in the tax policy arena. The Tax Cuts and Jobs Act of 2017 introduced both provisions, but their interaction was not fully anticipated. Bonus depreciation was intended to stimulate investment in capital assets, while Section 163(j) was designed to curb excessive interest deductions. However, the phase-down of bonus depreciation has created a tension between these two goals, as businesses face reduced tax benefits from accelerated depreciation while also contending with stricter limits on interest deductions.

Industry groups, including the U.S. Chamber of Commerce and the Real Estate Roundtable, have lobbied for changes to Section 163(j) to mitigate its impact on capital-intensive sectors. Real estate developers, in particular, have argued that the combination of Section 163(j) and the phase-down of bonus depreciation places an undue burden on their ability to finance projects. These groups have pushed for legislative fixes, such as expanding the small business exemption or allowing real estate businesses to elect out of Section 163(j) in exchange for using the Alternative Depreciation System (ADS).

The IRS’s role in this process has been to provide guidance that balances the statutory intent of Section 163(j) with the practical realities of the tax code. The agency has emphasized that its updates are designed to ensure consistency and fairness in the application of the law, even as economic conditions and legislative priorities evolve. The inclusion of unmarked emergency response vehicles in the definition of qualified nonpersonal use vehicles reflects a recognition of the unique operational requirements of first responders and public safety agencies, which often rely on these vehicles for operational flexibility.

Politically, the debate over Section 163(j) and bonus depreciation has become intertwined with broader discussions about tax reform and economic stimulus. Some lawmakers have called for a permanent extension of 100% bonus depreciation, arguing that it is essential for maintaining business investment and economic growth. Others have advocated for changes to Section 163(j) to reduce its impact on highly leveraged industries, such as real estate and manufacturing. The IRS’s updates to guidance on these provisions reflect a pragmatic approach to addressing these concerns while adhering to the statutory framework.

The Implication: What do practitioners need to know?

For practitioners, the IRS’s updates to Section 163(j) and its expansion of the definition of qualified nonpersonal use vehicles have significant implications for tax planning and compliance. Businesses that rely on bonus depreciation and interest deductions must carefully model the interaction between these provisions to optimize their tax strategies. The IRS’s clarification that bonus depreciation does not reduce ATI for purposes of Section 163(j) means that businesses must plan for reduced interest deductions as bonus depreciation phases down. This is particularly relevant for real estate developers, manufacturers, and other capital-intensive industries that have historically relied on both bonus depreciation and interest deductions to manage their tax liabilities.

Practitioners should advise clients to consider alternative strategies, such as electing out of Section 163(j) for real property trades or businesses, which allows them to avoid the 30% ATI limitation in exchange for using ADS depreciation. However, this election comes with trade-offs, as ADS depreciation is slower than the Modified Accelerated Cost Recovery System (MACRS), which could reduce the upfront tax benefits of capital investments. Additionally, businesses should review their vehicle classifications to ensure compliance with the updated definition of qualified nonpersonal use vehicles, particularly for those used by public safety agencies.

The IRS’s updates also highlight the importance of accurate recordkeeping and documentation. Businesses must maintain detailed records of their depreciation deductions, interest expenses, and ATI calculations to substantiate their tax positions in the event of an audit. Practitioners should work closely with clients to ensure that their tax filings reflect the latest guidance and that they are prepared for potential IRS scrutiny.

Finally, the IRS’s call for public input on the 2026–2027 Priority Guidance Plan underscores the need for practitioners to stay informed about upcoming regulatory changes. The plan is expected to include guidance on digital asset reporting, corporate tax elections, and housing credit allocations, all of which could have significant implications for tax planning strategies. Practitioners should monitor the IRS’s announcements and provide feedback where appropriate to shape the development of future guidance.

Deep Dive: Digital Asset Compliance and Temporary Relief

The Rule: What is the IRS updating?

The IRS is addressing the persistent challenges of tracking cost basis for digital assets, such as cryptocurrency. The current rules under Section 1012 require specific identification of units sold, disposed of, or transferred during the specified relief period. However, many custodial brokers lack the systems to implement these specific identification methods, particularly given the complexity of tracking individual units across multiple transactions.

To address these challenges, the IRS has extended temporary relief for digital asset identification, allowing taxpayers to use alternative methods, such as first-in-first-out (FIFO) or average cost basis, when specific identification is not feasible. This relief is designed to reduce the compliance burden on taxpayers and brokers while ensuring that the IRS receives accurate reporting of digital asset transactions. The IRS has made it clear that this relief is temporary and that taxpayers should expect stricter enforcement once the relief period expires.

Additionally, the IRS has finalized regulations that expand the definition of qualified nonpersonal use vehicles to include unmarked emergency response vehicles. This change reflects a recognition of the evolving needs of first responders and public safety agencies, who often use unmarked vehicles for undercover operations or specialized tasks. The inclusion of these vehicles in the definition of qualified nonpersonal use vehicles ensures that they qualify for favorable tax treatment, such as accelerated depreciation and expensing under Section 179.

The Context: Politics, Industry, and History

The rise of digital assets, particularly cryptocurrency, has presented significant challenges for tax administration. Unlike traditional assets, digital assets are often traded on decentralized platforms, making it difficult for brokers to track cost basis and report transactions accurately. The IRS has struggled to keep pace with the rapid evolution of digital asset markets, leading to a patchwork of guidance and enforcement actions.

The Infrastructure Investment and Jobs Act of 2021 expanded the definition of "specified securities" under Section 6045(g) to include digital assets, imposing new reporting obligations on brokers, including cryptocurrency exchanges. However, the IRS acknowledged that many brokers were not yet equipped to provide the granular transaction data needed for specific identification, particularly for assets held in pooled accounts or those transferred between exchanges. The temporary relief in Notice 2025-7 was the IRS’s first acknowledgment of these operational challenges, and Notice 2026-20 extends that acknowledgment for another year, giving brokers additional time to develop the necessary infrastructure.

Politically, the IRS’s approach to digital asset taxation has been shaped by bipartisan concerns about tax evasion and the need for clear guidance. Lawmakers have pressed the IRS to provide more definitive rules for reporting and taxation, while industry groups have advocated for flexibility to accommodate the unique characteristics of digital assets. The IRS’s temporary relief reflects a pragmatic balance between these competing interests, allowing for a smoother transition to full compliance while maintaining the integrity of the tax system.

The expansion of the definition of qualified nonpersonal use vehicles to include unmarked emergency response vehicles is a response to the evolving needs of public safety agencies. These vehicles are often used for undercover operations or specialized tasks, and their inclusion in the definition ensures that they qualify for favorable tax treatment. This change reflects the IRS’s recognition of the unique operational requirements of first responders and public safety agencies.

The Implication: What do practitioners need to know?

For practitioners, the IRS’s updates to digital asset identification and the expansion of the definition of qualified nonpersonal use vehicles have significant implications for tax planning and compliance. Taxpayers and brokers must still comply with the eventual specific identification requirement, but the extension provides breathing room to adapt systems and processes. However, the relief does not absolve taxpayers of the need to maintain accurate records. The IRS has made it clear that reliance on the relief is temporary, and taxpayers should expect stricter enforcement once the relief period expires.

Additionally, the relief does not extend to non-custodial digital assets, meaning taxpayers holding assets in self-custody wallets or decentralized exchanges must still adhere to specific identification rules. Brokers, meanwhile, must continue preparing for the full implementation of Section 6045(g), which will require robust tracking and reporting mechanisms for digital asset transactions.

Practitioners should advise clients to review their digital asset holdings and ensure that they are prepared for the eventual implementation of specific identification requirements. This may involve upgrading accounting systems, training staff on new reporting requirements, and consulting with tax advisors to ensure compliance. Additionally, practitioners should be aware of the expanded definition of qualified nonpersonal use vehicles and advise clients in the public safety sector to review their vehicle classifications to ensure compliance with the updated rules.

Finally, the IRS’s call for public input on the 2026–2027 Priority Guidance Plan underscores the need for practitioners to stay informed about upcoming regulatory changes. The plan is expected to include guidance on digital asset reporting, corporate tax elections, and housing credit allocations, all of which could have significant implications for tax planning strategies. Practitioners should monitor the IRS’s announcements and provide feedback where appropriate to shape the development of future guidance.