By the time you get this newsletter, I should be heading back to Pennsylvania. But I’m writing this week from San Francisco, where I'm attending a conference to talk about taxes. While I'm here, I couldn't resist a little sightseeing, including a trip to see Alcatraz.

From the shore, Alcatraz looks almost peaceful. It's hard to imagine that the island was once home to some of America's most notorious criminals, including Al Capone. I knew about Capone's time on The Rock, but I didn't realize that another famous gangster, Mickey Cohen, had also served time there. Both ended up behind bars because of federal tax convictions.

Their stories bookend Alcatraz's history as a federal prison. Capone arrived in 1934, shortly after it opened, and Cohen left in 1963, just before it closed. Being here inspired me to take a closer look at how federal tax investigators helped bring down two men whose other criminal activities had proved difficult to prosecute.

And speaking of notorious characters, Halloween was just a few days ago. While the costumes may be (mostly) packed away, there are still a few ghosts and zombies lurking in the tax code.

Congress has a habit of creating temporary tax provisions, letting them expire, and sometimes bringing them back from the dead. The federal estate tax, corporate alternative minimum tax, and deduction for research expenses have all had some interesting afterlives. I took a look at five tax provisions that just won't stay buried—see which ones you remember “dying.”

And then there's the other thing that tends to linger after Halloween: candy. If your house looks anything like mine after trick-or-treating, you may be wondering what to do with all those leftover sweets. 

Of course, you could just eat them (I'm not judging). But you could also bring some to the office, donate it to charity, or use it to pay for services. And that's where things get interesting from a tax perspective. Giving someone a bag of candy as a gift generally doesn't create a tax problem, but using that same candy to pay for services could result in taxable income. I came up with 13 ways to put those extra sweets to use, along with the potential tax consequences.

Moving from Halloween to another seasonal reminder, we're also in the middle of open enrollment at many workplaces. While you're reviewing health insurance and other benefits, don't forget to check your beneficiary designations. It's easy to assume that your will controls who inherits your assets, but that's not necessarily true for retirement accounts, life insurance, and other assets that pass directly to named beneficiaries. An outdated designation could mean your money ends up somewhere you didn't intend. Take a few minutes to review the primary and contingent beneficiaries on your accounts, and make any necessary updates now.

Finally, a Pennsylvania sportsmen's club recently learned that making millions of dollars isn't always good news—at least when it comes to taxes. For decades, the club operated as a tax-exempt recreational organization, offering its members a place to hunt, fish, and enjoy the outdoors. But after leasing its mineral rights to a natural gas company, the club began collecting millions in royalties, attracting the attention of the IRS. The question wasn't whether the royalties were taxable (the club agreed they were), but whether earning so much money from outside sources had changed the nature of the club. The IRS said yes and revoked the club's tax exemption, a decision that the U.S. Tax Court has now upheld.

Let’s talk more tax.

A reader asks:  I have a question about employee sign-on and recruitment bonuses. Are there restrictions on paying these bonuses in the year before employment begins? For example, a hospital might recruit a medical resident who won't begin working there until after completing residency. My position is that these payments are wages because they're related to employment, so we temporarily add the individual to payroll and withhold taxes accordingly. Is that correct?

Taxgirl says: I think you're on the right track. There's no federal tax rule that requires an employer to wait until an employee's first day of work to pay a signing bonus. The IRS addressed the tax treatment of these payments in Revenue Ruling 2004-109, concluding that bonuses paid to establish an employer-employee relationship are wages. Notably, the ruling involved a professional baseball player who received a signing bonus under his first contract. The IRS determined that the payment was wages even though the bonus wasn't contingent on the player's future performance.

The same principle applies to your example. If a hospital offers a medical resident a signing bonus in exchange for agreeing to work there after residency, the payment would ordinarily be treated as wages, even if the resident doesn't begin working until the following year. The hospital should generally process the payment through payroll, withhold applicable employment taxes, and report it on Form W-2 for the year it's paid.

One quick note: Signing bonuses are typically treated as supplemental wages, and withholding rules can vary depending on whether the individual has received regular wages from that employer. In particular, the optional flat 22% federal withholding rate generally isn't available if the employer hasn't withheld income tax from the individual's regular wages in the current or preceding calendar year.

The kiddie tax is exactly what it sounds like—a tax on kids. Sort of. The kiddie tax rules were put in place to prevent parents from shifting investment income to their children to take advantage of lower tax rates. Under the kiddie tax rules, certain unearned income, like interest, dividends, and capital gains, may be taxed at the parents' tax rates instead of the child's. Earned income—like wages—can still be taxed at the child’s rate.

For 2026, the kiddie tax generally applies when a child's unearned income exceeds $2,700. The first $1,350 is generally covered by the child's standard deduction, and the next $1,350 is taxed at the child's applicable tax rate. Income above that amount may be taxed at the parents' rate, which is often higher. The rules generally apply to children under age 18, as well as 18-year-olds and full-time students ages 19 through 23 who don't cover more than half of their own support with earned income.

Long before Alcatraz became a federal prison and home to at least two tax felons, the island was home to something else that made history. What was it?

A. The first federal customs house in California

B. The first U.S. Mint west of the Mississippi

C. The first U.S. military hospital on the West Coast

D. The first operating lighthouse on the West Coast

Find the answer at the bottom of this newsletter.

This week, get to know Terry Lemons, a former journalist who spent 26 years at the IRS, working with six IRS Commissioners and creating the agency's Dirty Dozen tax scams list. Terry, who retired from government service in 2025, talks about how he ended up doing public relations for the IRS, why he thinks tax simplification would be popular inside the agency, and what tax issues deserve more attention. He also shares his thoughts on AI, his love of donuts, and his latest project: a book about the St. Louis Cardinals and the 1926 World Series. I've had the pleasure of sharing the stage with Terry quite a few times, and I think you'll enjoy getting to know him.

If you know someone who should be featured in a future Getting To Know You Tuesday, you’ll find nomination and submission information at the bottom of the post.

Consider Tax-Gain Harvesting. With tech and AI stocks taking a hit recently, now might be a good time to review your investment portfolio. We've talked about tax-loss harvesting, which involves selling investments at a loss to offset taxable gains. Tax-gain harvesting works in reverse: You sell long-term appreciated investments to recognize gains, ideally while you're in a lower tax bracket. For 2026, taxpayers with taxable income up to $49,450 ($98,900 for married couples filing jointly) may qualify for a 0% federal tax rate on long-term capital gains. If you're eligible, you could sell appreciated shares, potentially pay no federal capital gains tax, and reinvest at a higher cost basis. Just remember that the income thresholds include your gains, and state taxes may still apply.

December 7, 2026 — Medicare Open Enrollment Ends. Last day to make changes to Medicare Advantage and Part D prescription drug plans for 2027.

December 15, 2026 — Marketplace Coverage Deadline. Enroll through HealthCare.gov by this date for coverage beginning January 1, 2027.

December 31, 2026 — Year-End Tax Planning Deadline. Generally the last day to make charitable contributions and complete Roth conversions for the 2026 tax year.

December 31, 2026 — Required Minimum Distributions (RMDs) Deadline. Generally, taxpayers age 73 and older must take their RMDs from traditional IRAs and certain retirement accounts by year-end. 

November 9-10 — AICPA National Tax Conference, Washington, DC + virtual. Federal tax developments, IRS priorities, and legislative changes. Speakers include National Taxpayer Advocate Erin Collins and my former Forbes writing colleague, Tony Nitti.

November 15-20 — NYU Institute on Federal Taxation, New York City. Focus on tax controversies, partnerships, trusts and estates, international tax, and more. 

IRS reports record $5.6 trillion in tax collections for fiscal year 2026. The agency says collections increased nearly 5% from the prior year, while total refunds increased more than 20%. The IRS also reported that approximately $38 billion in tax revenue was protected from identity theft refund fraud and that payments through individual IRS Online Accounts increased 57%.

California man sentenced for $13 million tax refund scheme. Marvin Charo Collins was sentenced to three years in federal prison after filing more than 15 false tax returns claiming over $13 million in refunds. He successfully obtained a $682,768 refund, which he used to purchase a house, a Maserati, and more than $300,000 in gold and silver. He was also ordered to pay $682,768 in restitution.

Tax Court rejects IRS request to reconsider partnership filing deadline ruling. In Kings Road Property, LLC v. Commissioner, the Tax Court declined to revisit its earlier determination that the deadline for challenging certain partnership adjustments under the Bipartisan Budget Act may be subject to equitable tolling. That means qualifying taxpayers may have an opportunity to pursue a case even after the usual filing deadline has passed. 

North Carolina man pleads guilty in pandemic tax credit fraud case. Kareem Highsmith pleaded guilty to making fraudulent claims against the government in a case involving pandemic-era employment tax credits, including the Employee Retention Credit (ERC) and paid leave credits. He faces a maximum sentence of five years in prison.

The tax world is full of interesting people. Here’s who’s making news.

Cherry Bekaert expands its New England presence with the acquisition of Sansiveri, Kimball & Co., a Rhode Island-based accounting and advisory firm, bringing more than 60 professionals into the organization and expanding its capabilities in industries including construction, real estate, manufacturing, healthcare, and nonprofits.

Wiggam Law welcomes former IRS attorney Richard “Rick” Reiter as a senior attorney on its tax litigation team, bringing more than 24 years of legal experience, including work on more than 300 U.S. Tax Court cases representing both taxpayers and the government.

Weil, Gotshal & Manges is winding down after 95 years, a stunning collapse for one of the country's largest law firms, which employed approximately 1,200 attorneys and generated more than $2 billion in annual revenue before a wave of partner departures and failed merger talks led to the decision.

Answer: D. The Alcatraz lighthouse began operating on June 1, 1854, becoming the first lighthouse on the West Coast. It helped guide ships through the Golden Gate into San Francisco Bay, decades before the island became famous as a federal prison.

And here's a little tax trivia to go with your tax trivia: Organizations dedicated to preserving historic lighthouses may qualify for federal tax exemption under section 501(c)(3). The National Historic Lighthouse Preservation Act of 2000 also allows certain historic lighthouses to be transferred to qualifying organizations at no cost, provided they meet preservation and public access requirements.

Last week, I asked whether giving a tax return to an IRS employee who specifically requested it counts as filing. Most of you (60%) said yes, and you weren't alone. Some federal judges agreed with you.

But in Seaview Trading, LLC v. Commissioner, the Ninth Circuit ultimately sided with the IRS, ruling that providing a return to an IRS employee wasn't enough when the return never reached an authorized filing location. That meant the IRS could disallow a $35.5 million partnership loss years after receiving copies of the return.

The lesson? Just because the IRS has your return doesn't necessarily mean you've filed it. Where and how you submit a return matters, especially when the statute of limitations is at stake.

A quick note: This week's newsletter includes an ad from The Deep View, a newsletter covering AI news and developments. Sponsorships like this help keep Taxgirl free for everyone.

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