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This week (September 25-29)

Congress: The House and Senate are both in session, ahead of the September 30 expiration of government funding. The next Senate vote, at 5:30 p.m. on Tuesday, September 26, will be on a procedural motion related to the Securing Growth and Robust Leadership in American Aviation Act (H.R. 3935), the CR legislative vehicle.

The Senate Finance Committee has noticed a hearing for Thursday, September 28 (at 10 a.m.) to consider nominations including Marjorie A. Rollinson to be Chief Counsel for the Internal Revenue Service and an Assistant General Counsel in the Department of the Treasury.

The Senate Budget Committee has scheduled a hearing, "Medicare Forever: Protecting Seniors by Making the Wealthy Pay Their Fair Share," Wednesday, September 27 (at 10 a.m.).

Last week (September 18-22)

Government funding: House Speaker Kevin McCarthy (R-CA) sent members home without voting on a continuing resolution (CR) and with one legislative workweek to go before a government shutdown if both chambers don't pass the same government funding patch CR by September 30. The focus of conservative holdouts has shifted from demands regarding the contents of a CR to opposing that type of short-term patch in favor of moving the remaining (in the House) 11 of 12 appropriations bills through regular order, which leaders in both chambers and the White House have long said couldn't be accomplished by the deadline. Sending members home for the weekend, with the condition that they could be brought back in the event of any breakthrough, came after Republicans were again unable Thursday to attain the requisite votes on the rule for consideration of the Department of Defense (DOD) spending bill. Holdouts were Reps. Andy Biggs (R-AZ), Dan Bishop (R-NC), Matt Rosendale (R-MT), Eli Crane (R-AZ), and Marjorie Taylor Greene (R-GA), with the latter two fresh objectors to the measure. It was the second failed rule vote this week, with previous 'no' votes Reps. Ken Buck (R-CO) and Ralph Norman (R-SC) having come around to support the procedural "rule" step that was once routine but now deployed by conservatives as a form of protest. Speaker McCarthy had earlier tried to move the proposed House CR, to extend government funding through October 31, further to the right in a bid to win the votes of conservative holdouts, proposing to adhere to FY2022 spending of $1.471 trillion and possibly creating a debt commission, in addition to the previous iteration's inclusion of a Republican-authored border security measure. The focus is increasingly on Rep. Matt Gaetz (R-FL), a late holdout on the January Speakership election who repeatedly threatened Speaker McCarthy's ouster last week. Politico Playbook offered very succinct reporting about Gaetz proposing consideration of full-year appropriations bills one by one and his leadership of the 'never-CR' group of members. "The House has really abandoned the McCarthy CR strategy today and has embraced the Matt Gaetz strategy of single subject spending bills," he said. To that end, the House Rules Committee was scheduled to meet regarding the procedural parameters for consideration of the appropriations bills on DOD, State, Agriculture, and Homeland Security. The Wall Street Journal reported Gaetz as saying, "I'd rather work through those contentious items through the appropriations process than just try to figure out what's the next ornament to hang on a continuing resolution." The report cited Rep. Mike Lawler (R-NY), one of the 18 House Republicans in a Biden-won district, as eyeing a backup plan, if a CR vote doesn't happen, to work with Democrats to circumvent McCarthy and put an alternative on the floor if needed to minimize the length of a shutdown. "If there is not going to be a CR coming out of the House Republican caucus then I will move forward with the discharge petition," Lawler said.

Partnering with Democrats has not been a viable option for Speaker McCarthy given conservatives' vow to oust him from the position over such an approach, but bipartisan escape routes from a potential shutdown could be expected to surface ahead of the shutdown deadline. The bipartisan Senate prerogative for a CR is spending at the current FY2023 level, omission of controversial policy provisions, and likely addition of Ukraine and disaster funding. Senate Majority Leader Chuck Schumer (D-NY), who had his own struggles last week in moving a three-bill appropriations package that some conservative members there want considered one by one, took a procedural step on a bill that could be used as a vehicle for a CR. Punchbowl News: "McCarthy will have a choice to make. Will he bring up the Senate-approved CR and pass it with a mix of Democratic and Republican votes? Will he try to amend it and see if the Senate will bite? (They probably won't.) Or will he ignore it and shut the government down?"

IRS in shutdown: In the event of a shutdown, the IRS may not stop working, according to a September 18 Bloomberg Daily Tax Report (DTR) story. It said the IRS likely will use funds from the Inflation Reduction Act (IRA), which allocated $80 billion in funding to the agency that was subsequently cut back, to remain fully operational if the government shuts down. It was thought that supplemental funding would keep the agency in business. However, a later Federal News Network report on September 21 cited the National Treasury Employees Union (NTEU) as saying IRS will "partially close" if Congress triggers a lapse in appropriations. An NTEU email warned the IRS is "severely limited" in its use of IRA funding to keep the agency fully open.

2023 tax bill: An eventual long-term spending package that most likely would not come together until later this year, if it does come together, is the likely vehicle for outstanding tax and health items. In a Wednesday Punchbowl News interview, House Ways & Means Committee Chairman Jason Smith (R-MO) laid out his priorities for a tax extenders package before the end of the year, expressed optimism that he can work with Democrats on the Child Tax Credit (CTC), and said he planned to reintroduce his legislation to make permanent the TCJA's doubling of the credit to $2,000. Democrats are seeking a further CTC expansion, closer to what was in effect for 2021, as a condition of supporting business tax items like a return to R&D expensing from the (also TCJA-enacted) 5-year amortization that took hold in 2022. Republicans have noted the disparity in cost of the two items: about $25 billion for an R&D fix through 2025, compared to $100 billion per year for the 2021 CTC regime. No word yet on whether a more generous approach to business tax provisions could help end the impasse.

Budget: House Budget Committee Chairman Jodey Arrington (R-TX) September 19 released an FY2024 "budget resolution [that] balances the federal budget in 10 years and reduces deficits by $16.3 trillion over that same timeframe, resulting in a $130 billion surplus by FY2033 … [and] focuses on restoring America's fiscal health by right sizing the bloated bureaucracy, reversing Biden's spending." A summary said the resolution allows for Ways & Means-authored legislation that "extends pro-growth tax reforms and improves the tax code," and for "legislation related to promoting American medical innovation if such a measure would not increase the deficit for the period of fiscal years 2024 through 2033." Budget resolutions are nonbinding and offer no procedural advantages unless reconciliation instructions are included, which is not applicable in this case. It is possible that releasing a fiscal roadmap at this point may be useful in demonstrating to conservatives the intention to reduce spending. Politico Morning Tax noted that the resolution, which was considered in Committee Wednesday, "is largely silent on other big questions on taxes — like how Republicans might pay for TCJA extensions, or how much they'd want to offset at all."

Global tax: Tax Notes reported, "House Republican taxwriters are hoping other countries will delay implementation of pillar 2 of the OECD global tax deal while they separately encourage leaders to implement versions of the United States' global intangible low-taxed income regime." Weeks after the GOP members' trip to Europe, the report cited Rep. Ron Estes (R-KS) as saying they are also focusing on what work can be done outside the OECD, including encouraging countries to follow the US lead in implementing something similar to GILTI. "There doesn't have to be any additional work on the part of OECD for countries to implement their own version of GILTI, and I would encourage them to do that," Estes said.

FTC regs: After providing relief over the summer from some components of foreign tax credit (FTC regulations) through the end of the year, the IRS is considering extending the period in which taxpayers can rely on old foreign tax credit rules, according to another DTR report. "The IRS also plans to issue guidance by the end of 2023 on how the foreign tax credit will work with the pending 15% global minimum tax, said Anthony Ferrise, an IRS senior international adviser on cross-border activities. He was speaking at an IRS/Tax Executives Institute conference in New York on Wednesday." In July, Treasury/IRS announced that taxpayers could apply the former regulations' more permissive standards for determining whether a tax was a creditable net income tax under IRC Section 901 and the current IRC Section 903 "in lieu of" tax rules without regard to the attribution requirement for tax years ending on or before December 31, 2023. An EY Tax Alert has details.

IRA guidance tracker: This table describes select IRS guidance related to the Inflation Reduction Act.

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