Legislative Lowdown
The Senate Republicans continue to meet internally and with stakeholders regarding the provisions of a reconciliation package (H.R. 1). Senate Majority Leader John Thune (R-SD) made it clear that the Senate will make modifications to the bill in the next two weeks and aim to vote on revisions to the bill, including the tax title during the last week of June. Republicans hope to send a compromise bill to President Trump’s desk by July 4, a goal that is increasingly difficult to achieve. Senate Republicans have yet to determine whether to amend the House-passed package directly on the floor, and Senate Finance Committee Chairman Mike Crapo (R-ID) has said he has not decided whether the committee will mark up the tax portion of the bill. In either event, Senate committees have started to release draft text of their substitute amendments to the bill, and the Finance Committee is expected to release text of the tax title in the next two weeks.
Provisions currently under discussion by Senate leadership include:
- TCJA Business Provisions: While Republicans on the Senate Finance Committee have called for making the three major business provisions of the Tax Cuts and Jobs Act (i.e., expensing of research and development costs, bonus depreciation and deductibility of business interest) permanent, the White House signaled last week that the House’s temporary extensions for five years are preferable.
- Energy Tax Provisions: Senators on and off the Finance Committee continue to examine the stark changes to the Inflation Reduction Act (IRA) energy provisions included in the House bill, with many looking to provide a more orderly transition to the termination of the IRA incentives.
- Estate Tax: Despite championing efforts to repeal the estate tax, Leader Thune has stated that the final bill is unlikely to repeal the tax. He said that the final bill will likely replicate the estate tax provision in the House-passed bill, which permanently increases the estate tax exemption to $15 million for a decedent, and exemption thresholds continuing to be indexed for inflation.
- State and Local Tax (SALT) Deduction: While House Speaker Mike Johnson (R-LA) has urged the Senate to maintain the increased $40,000 SALT deduction limitation, Senate leaders may look to scale back the deduction, as Leader Thune noted that there are no Republican senators “who care much about the SALT issue” because no Republican senator represents the high-tax states of California, New York and New Jersey. Some House Republicans who represent districts in these states have threatened to vote against the bill if the Senate lowers the cap.
CBO Estimates House-Passed Reconciliation Bill to Increase Deficit by $2.4 Trillion: According to a budgetary assessment from the Congressional Budget Office (CBO) released June 4, the House-passed reconciliation package would add $2.42 trillion to the federal deficit over the next 10 years, with a $3.67 trillion decrease in expected revenues and a $1.25 trillion decrease in spending. Republicans have argued that CBO’s projections are inaccurate, claiming that estimates do not account for economic growth generated by the bill’s tax cuts and easing of regulatory burdens, as well as revenue from tariffs.
Energy-Tax Mainlines
Energy Industry Groups Urge Senate Leaders to Extend the Phase-out of the Hydrogen Tax Credit: On June 5, more than 200 industry groups representing the energy and hydrogen industries sent a letter to Senate Majority Leader John Thune (R-SD) and Senate Finance Committee Chairman Mike Crapo (R-ID) urging them to delay the phase-out date of the Section 45V Clean Hydrogen Production Credit to allow facilities commencing construction before 2030 to qualify for the credit. The groups criticized the provision in the House-passed reconciliation package that eliminates the section 45V credit at the end of 2025, warning that if the Senate adopts this measure, “it will drive tens of billions of dollars in planned private-sector investments out of the United States and into other countries.” The groups also stressed that the credit enables energy diversity in the United States and would generate more than $12 billion in annual gross domestic product (GDP), but failing to preserve section 45V would mean “ceding the future of hydrogen to China.”
Kiggans, Fitzpatrick Lead Second Letter on Preserving IRA Energy-Tax Credits: Led by Reps. Jen Kiggans (R-VA) and Brian Fitzpatrick (R-PA), 13 House members sent a bipartisan letter to Senate Majority Leader John Thune (R-SD) and Senate Finance Committee Chairman Mike Crapo (R-ID) on June 6 urging the Senate to “substantively and strategically improve” the clean energy-tax credits addressed in the House-passed reconciliation package. The lawmakers said that they remain concerned with several of the package’s energy-tax provisions due to early sunset dates, “highly restrictive” Foreign Entity of Concern (FEOC) limitations and restrictions on transferability. The letter urges the Senate to make three changes: (1) provide companies more time to reorganize supply chains before Foreign Entity of Concern (FEOC) restrictions go into effect, (2) replace the “placed in service” standard with a “beginning of construction” standard, and (3) allow the transferability of energy tax credits throughout the entire phase-out schedule. The letter follows a May 14 joint statement, also led by Rep. Kiggans, urging these same three changes.
1111 Constitution Avenue
Direct File Uptake Rate Underperformed Expectations, Per IRS Report: According to an Internal Revenue Service (IRS) internal report on the usage of the Direct File program during the 2025 tax-filing season, only 296,531 Tax Year 2024 returns were accepted, far below IRS expectations predicting that between 450,000 and 1.25 million returns would be accepted through the filing platform. The report says that the low uptake rate can be attributed to a “lack of awareness” of the program, as well as media confusion about whether the platform was operational after former de facto head of the Department of Government Efficiency (DOGE) Elon Musk said that he had “deleted” 18F, the programming team that helped develop Direct File. The report also identified the platform’s identity verification tool, ID.me, as a barrier deterring many people from using the platform. The report estimated that the IRS had spent $41 million on Direct File during the 2025 tax-filing season.
18,000 IRS Employees Will Reportedly Leave the Agency Under Deferred Resignation Offer: According to two sources cited in press reports, about 18,000 Internal Revenue Service (IRS) employees will leave the agency under the Office of Personnel Management’s (OPM) second deferred resignation program. About 23,000 employees reportedly applied for the second round of offers. In a statement, a Treasury Department spokesperson said the number of IRS employees grew from 79,431 to 102,309 staff during the Biden administration and that “approximately the same number of employees have left the IRS” due to leadership change. Approximately 5,000 employees accepted OPM’s first round of deferred resignation offers, and the IRS had attempted to fire 7,000 probationary workers, though they have been reinstated for the time being due to a court ruling.
Treasury Department Preparing to Implement Tax Package: At an event on June 3, Deputy Treasury Secretary Michael Faulkender said that “work is already underway” at the Treasury Department to implement expected changes in tax law upon the passage of the reconciliation legislation. He added that the Internal Revenue Service (IRS) is forming “implementation teams” to work to distribute guidance to taxpayers and other stakeholders.
Tax Worldview
Foreign Inbound Companies Raise Concerns about House-Passed Retaliation Provision: Asset managers, financial-sector investors and other stakeholders with foreign inbound investments have raised concerns with a provision in the House-passed reconciliation bill that would allow the United States to retaliate against “unfair” foreign taxes, namely extraterritorial and discriminatory taxes imposed on U.S. multinationals. The provision, which would add section 899 to the Internal Revenue Code, would increase the tax of an “applicable person” of a foreign discriminatory country—generally a foreign individual, business, trust, nonprofit organization or government of a foreign discriminatory country—by 5 percentage points per year up to a maximum of 20 percentage points. Investors assert that the provision may disincentivize foreign investment at a time when investor confidence is already at risk due to the Trump administration’s international trade policies. Senate Majority Leader John Thune (R-SD) has indicated that Senate Republicans are examining and potentially will make modifications to the provision. Democrats’ attempt to strike the provision through a jurisdictional challenge was dismissed by the Senate parliamentarian.
Treasury Department Officials Call on the OECD to Qualify GILTI Under Pillar Two Framework: At a European Parliament tax subcommittee meeting on June 3, two officials from the U.S. Department of the Treasury reportedly demanded that the global intangible low-taxed income (GILTI) be treated as equivalent to the global minimum tax levied under the Organisation for Economic Co-operation and Development (OECD) Pillar Two regime. The officials also discussed outstanding issues related to Pillar Two that U.S. and OECD officials are working to resolve. OECD Center for Tax Policy and Administration Director Manal Corwin said that the ongoing negotiations between the United States and the OECD are primarily meant to determine whether GILTI is “robust” enough to be considered under the OECD framework.
At a Glance
Senate Moves to Advance IRS Nominee Long's Confirmation: On June 10, Senate Majority Leader John Thune (R-SD) filed a motion to invoke cloture on President Trump’s nomination of former Rep. Billy Long to be the commissioner of the Internal Revenue Service (IRS). The Senate is expected to vote to invoke cloture on the nomination at 12 p.m. If cloture is invoked, the Senate may hold up to 30 hours of debate before final confirmation votes can occur.
Hearings and Events
House Ways and Means Committee
On June 11, the House Ways and Means Committee will hold a hearing Treasury Secretary Scott Bessent will testify.
Senate Finance Committee
On June 12, the Senate Finance Committee will hold a hearing on the President’s Fiscal Year 2026 Budget for the Department of the Treasury and Tax Reform. Treasury Secretary Scott Bessent will testify.
Other
On June 11, the Senate Appropriations Subcommittee on Financial Services and General Government held a hearing on the President’s Fiscal Year 2026 Budget Request for the Department of the Treasury. Treasury Secretary Scott Bessent testified.
