Legislative Lowdown
Speaker Johnson Kicks Off Discussions for Reconciliation 2.0: House Republicans are laying the groundwork for a second reconciliation bill this fall that aims in part to revive key provisions excluded from the One, Big, Beautiful Bill Act (OBBBA, Public Law 119-21) due to Senate budget rules. Speaker Mike Johnson (R-LA) said the forthcoming bill will be smaller in scope but still focused on core priorities such as reducing federal spending and enhancing government efficiency. Republicans plan to redraft previously included provisions to comply with the Senate’s Byrd Rule and are working with several key committees to address issues in their jurisdictions. Looking ahead, they hope the fall package will serve as a vehicle to complete unfinished policy goals from the first reconciliation bill.
Future Bipartisan Tax Bill Could Include Offsets: Lawmakers on both sides of the aisle are considering whether a bipartisan tax extender bill this year should include offsets, a departure from the longstanding practice of renewing temporary tax provisions without addressing their budgetary impact. Reps. Lloyd Smucker (R-PA) and Blake Moore (R-UT) and Sen. Ron Johnson (R-WI) have voiced support for requiring offsets, reflecting growing concern about budget deficits and the national debt. Key factors will include the provisions under consideration and their projected costs, although House Ways and Means Ranking Member Richard Neal (D-MA) noted that discussions with Senate Republicans on a bipartisan package have so far been minimal.
House FY2026 Commerce, Justice, Science Appropriations Subcommittee Bill Would Officially Abolish DOJ Tax Division: On July 15, the House Appropriations Commerce, Justice, Science (CJS) Subcommittee advanced its fiscal year 2026 appropriations bill, which includes a provision to eliminate the Justice Department’s Tax Division. The bill would reduce funding for general legal activities to $897 million and remove the Tax Division as a distinct line item—mirroring the Justice Department’s budget request to reassign its staff to the civil and criminal divisions. This approach is in contrast with the Senate version, which maintains the division’s funding.
Rep. Miller Releases Details on Effort to Modernize Digital Asset Tax: Rep. Max Miller (R-OH) is preparing to introduce legislation to modernize the tax treatment of digital assets. The forthcoming bill includes provisions such as a de minimis exemption for small crypto transactions, updates to wash-sale rules, and optional mark-to-market accounting for crypto holdings. It also clarifies the tax treatment of mining, staking, airdrops, hard forks and crypto lending—all unique concepts to crypto transactions that have raised issues under existing tax rules. The bill is also expected to allow digital assets to be held in retirement plans. Rep. Miller is currently asking for industry input and views the bill as part of a broader push to strengthen U.S. leadership in next-generation technologies.
Ways and Means Committee Lawmakers Introduce Employee Stock Ownership Bill: Last week, Reps. Tom Suozzi (D-NY) and Mike Kelly (R-PA) introduced the SHARE Plan. The bill aims to encourage companies to distribute at least 5% of their stock to the lowest-paid 80% of their employees by offering a 3% reduction in the company’s federal income tax rate as an incentive. The bill is designed to increase employee stock ownership, which supporters say can enhance productivity. The tax benefits would apply in any year when companies meet minimum stock distribution thresholds, and income from these stock grants would be tax-exempt for employees.
Energy-Tax Mainlines
Ontario Premier Opens Possibility to Reinstate Power Export Tax: Ontario Premier Doug Ford has signaled openness to reinstating a tax on electricity exports to the United States if trade negotiations with the Trump administration do not result in a fair agreement. Earlier this year, Ford implemented a 25% surcharge on power exports to Michigan, Minnesota and New York in response to new tariffs but later withdrew it after President Trump threatened harsher tariffs on Canadian steel, aluminum and autos. With President Trump now warning of additional tariffs if a new trade deal is not finalized by Aug. 1, Ford stated that “everything’s on the table,” including the possibility of renewing electricity export taxes
1111 Constitution Avenue
IRS Updates Fact Sheet on OBBBA Deductions for Overtime, Tips and Seniors: The Internal Revenue Service (IRS) updated its July 14 fact sheet, detailing provisions of the One Big Beautiful Bill Act (OBBBA). Guidance for the no tax on tips deduction will be issued by Oct. 2, 2025, including a list of qualifying occupations and transition relief. For the no tax on overtime deduction, the IRS will also provide transition relief for taxpayers and payors in 2025. Regarding the no tax on car loan interest deduction, the IRS will offer transition relief for interest recipients subject to new reporting requirements.
IRS Commissioner Billy Long Discusses Direct File and New Audit Technology at National Association of Enrolled Agents Tax Summit: IRS Commissioner Billy Long announced that the Direct File tool is “gone,” and is shifting the agency’s priorities toward improving audit transparency rather than maintaining the filing service. Commissioner Long emphasized his focus on making it easier for taxpayers to track audit progress through upgraded IRS technology. While the IRS used Inflation Reduction Act (IRA) funds to modernize systems and pilot Direct File, the program faced strong GOP opposition. Commissioner Long also noted that the IRS is dealing with significant staffing turnover and potential funding cuts but remains committed to implementing the OBBBA effectively and opening the tax season on time.
IRS Issues Interim Guidance to Enhance the Large Business & International Examination Process: Last week, the Internal Revenue Service (IRS) Large Business & International (LB&I) Division published a memorandum announcing three process changes to enhance efficiency and collaboration in large corporate examinations. First, the Acknowledgement of Facts (AOF) Information Document Request (IDR) process will be phased out by 2026, with a transition period allowing taxpayers the option to use it. Second, the memorandum clarifies that Accelerated Issue Resolution (AIR) is now available for Large Corporate Compliance (LCC) cases, enabling quicker resolution of similar issues spanning several tax years. Third, updated Fast Track Settlement (FTS) procedures now require higher-level approval for denials, increased coordination, and emphasize that FTS should always be carefully considered when issues remain unresolved.
TIGTA Releases Report on Compliance for the Fair and Equitable Treatment of Taxpayers: Last week, the Treasury Inspector General for Tax Administration (TIGTA) released a report on an audit to assess whether the Internal Revenue Service (IRS) is complying with Section 1204(b) of the IRS Restructuring and Reform Act of 1998, which requires employee evaluations to include fair and equitable treatment of taxpayers. TIGTA found that the IRS inappropriately marked 10,892 employees as “Not Applicable” for this standard, based on flawed internal guidance that contradicts the law and Treasury Department regulations. Additionally, 65 employees received a “Not Met” rating in FY 2022, but six still received promotions or awards, and most were not removed despite policy receiving an “Unacceptable” overall rating. TIGTA also found IRS training materials lacking clarity and detail. It recommended the IRS enforce compliance with the law, eliminate the “Not Applicable” rating and improve training content. While the IRS agreed with the recommendations, it maintains that some employees can be exempt from this standard if they do not directly interact with taxpayers, which TIGTA disputes, arguing all employees impact taxpayers and must be evaluated accordingly.
Reps. Kelly, Smucker Send Letter to IRS Commissioner Billy Long to Withdraw Revenue Ruling on Partnership Transactions: House Ways and Means Committee Republicans, led by Reps. Mike Kelly (R-PA) and Lloyd Smucker (R-PA), sent a letter to IRS Commissioner Billy Long urging the Internal Revenue Service (IRS) to withdraw Revenue Ruling 2024-14, which is intended to curb tax avoidance through partnership basis-shifting. They argue that the guidance issued under the Biden administration applies the economic substance doctrine too broadly and creates confusion for taxpayers by casting doubt on routine business transactions. They also assert it unfairly targets small businesses and undermines longstanding tax law governing related-party transactions.
DOGE Cuts Could Lead to Delayed Implementation of Trump’s Tax Priorities: The Treasury Department and Internal Revenue Service (IRS) are facing increasing challenges in implementing the One Big Beautiful Bill Act (OBBBA) due to severe staffing cuts. A 25% reduction in IRS personnel has strained the agency’s ability to provide timely guidance, just as taxpayers and businesses seek clarity. High-priority issues include tax breaks on tips, overtime and seniors, a new manufacturing deduction allowing immediate expensing of factory construction, and the phaseout of clean energy tax credits with restrictions on foreign entities of concern. Officials must also address intricate international tax rules, a corporate minimum tax and the launch of “Trump Accounts” for newborn savings. Experts warn that with limited resources and unclear rules, delays and confusion are inevitable.
Tax Worldview
G7 Agreement Unlikely to Have Major Impact on U.S. Competitiveness: Although the United States has opted to maintain its own corporate tax system, namely the global intangible low taxed income (GILTI) regime, rather than align with the OECD’s Pillar Two framework, U.S. multinationals are unlikely to gain a significant competitive edge, at least in the short term. The recent G7 agreement exempting U.S.-headquartered firms from the undertaxed profits rule (UTPR) and income inclusion rule (IIR) once finalized is expected to reduce compliance burdens and avoid double taxation, preserving more U.S. tax sovereignty. However, the exemption framework has raised concerns abroad about an uneven playing field, as tax revenue that might have gone to foreign governments may now be collected in the United States, although U.S. lawmakers contend that such revenues should have been collected by the United States despite the OECD’s global minimum tax regime. Experts note that while the proposed dual system may offer modest short-term relief, it introduces compliance complexity and does not provide a long-term structural advantage.
At a Glance
Sanders, Omar Reintroduce Bicameral Bill to End Oil and Gas Incentives: Sen. Bernie Sanders (I-VT) and Rep. Ilhan Omar (D-MN) reintroduced the End Polluters Warfare Act, which aims to eliminate federal support for oil and gas. The bill withdraws funding for programs that support oil and gas across the departments of Agriculture, Energy, Interior and more. Additionally, it would repeal tax credits for enhanced oil recovery, marginal well production and advanced coal and gasification projects, as well as deductions for pollution control, mine reclamation and compliance with EPA sulfur regulations.
Hearings and Events
House Ways and Means Committee
The House is currently in recess for the district work period and is scheduled to return on Sept. 2.
Senate Finance Committee
The Senate Finance Committee will hold a nomination hearing on July 31 to consider Derek Theurer for the position of assistant secretary for legislative affairs at the U.S. Department of the Treasury.
