If you’re a California taxpayer filing returns in 2026 or managing an estate or trust, the IRS reorganization and new tax laws create both opportunities and potential pitfalls. This guide helps California residents understand how IRS changes affect personal tax filing, estate administration, and trust taxation.
The IRS Shake-Up: What’s Changing for 2026
Major organizational changes at a critical time:
Just days before the 2026 tax filing season begins, IRS Chief Executive Officer Frank Bisignano announced significant personnel and operational changes:
Leadership changes:
Gary Shapley appointed deputy chief of Criminal Investigation division
Jarod Koopman becomes chief of Criminal Investigation and chief tax compliance officer
Joseph Ziegler named chief of internal consulting
Guy Ficco retiring from Criminal Investigation leadership
Operational priorities:
Enhanced customer service
Improved tax collections
Safeguarding taxpayer privacy
Implementation of major tax law changes from summer 2025 legislation
Challenges ahead:
26% reduction in IRS workforce from prior year layoffs
164 million individual tax returns expected
New tax relief provisions requiring system updates
Concerns about rocky filing season from National Taxpayer Advocate
Why IRS Changes Matter for California Estate Planning
The intersection of IRS operations and California estate administration:
1. Estate Tax Return Filing (Form 706)
Federal estate tax requirements:
Required if estate exceeds $13.61 million (2024, indexed for inflation)
Due 9 months after death (can request 6-month extension)
Complex valuation and reporting requirements
Penalties for errors or late filing
How IRS shake-up affects estates:
Slower processing times:
Reduced staff = longer review periods
Estate tax returns take 6-12 months minimum
Closing letters delayed
Final distributions to heirs postponed
Increased scrutiny:
Criminal Investigation division reorganization
Focus on tax compliance
Valuation disputes more common
Potential audits of large estates
Customer service challenges:
Harder to reach IRS representatives
Questions about estate returns unanswered
Delays in resolving issues
Extended estate administration periods
California example:
Executor filing estate tax return for $15 million Silicon Valley estate:
Filed April 2026
IRS backlogged due to staff reductions
No response for 14 months
Estate remains open, beneficiaries waiting
Executor liability concerns mounting
Additional legal fees accumulating
With reduced IRS staffing, this becomes even more common in 2026.
2. Trust Income Tax Reporting
Trusts must file annual tax returns:
Form 1041 (Fiduciary Income Tax Return) required for:
Revocable trusts after grantor’s death
All irrevocable trusts with income
Complex trust reporting requirements
Coordination with beneficiary K-1 forms
2026 filing challenges:
IRS implementing new tax law changes
System updates may cause processing delays
Increased error rates possible
Trustee penalties for mistakes
California trust taxation:
California also taxes trust income (up to 13.3%)
Separate California trust return required (Form 541)
Residency rules for California trusts
Source income from California
Proper estate planning prevents issues:
Trust provisions that minimize taxable income
Distribution strategies to beneficiaries in lower brackets
Timing of distributions to optimize taxes
Coordination of federal and California returns
3. Gift Tax Reporting (Form 709)
Annual gift tax returns required when:
Gifts exceed $18,000 per person per year (2024 amount)
Gifts of future interests (trusts, etc.)
Gifts splitting between spouses
Gifts to certain trusts
IRS changes impact gift reporting:
Processing delays for gift tax returns
Longer wait for return acceptance
Difficulty confirming proper filing
Potential for lost returns in shuffle
Estate planning strategy:
Use 2026 to maximize gifts before federal exemption potentially drops in 2026 from $13.61 million to ~$7 million. But with IRS in flux, ensure meticulous documentation and tracking.
4. Executor/Trustee Tax Compliance Obligations
Fiduciaries have strict IRS obligations:
Estate executors must:
Obtain employer identification number (EIN) for estate
File final income tax return for deceased (Form 1040)
