Incoming Senate Majority Leader John Thune (R-SD) and House Ways & Means Committee Chairman Jason Smith (R-MO) met on 11 December to discuss plans for the budget reconciliation process in 2025. There has been some disagreement among House and Senate Republicans on whether there should be one large reconciliation bill or two bills.

If there are two bills, Republican House and Senate leaders remain split as to whether tax will be covered in the first or second bill. Chairman Smith has taken the position that tax should be part of the process early on. Budget reconciliation rules allow two packages in 2025 — one using the FY2025 budget resolution, and another budget resolution for FY2026 — to pass the Senate with a simple majority.

It is accepted that President-elect Trump will make the final decision on how to proceed in terms of where tax will be addressed in the two reconciliation bills.

Congress plans to adjourn for the winter recess at the end of next week and still needs to pass an extension of government funding beyond the current 20 December 2024 expiration. This will most likely happen through a continuing resolution to carry funding through sometime in March 2025.

Senate Democrats reportedly are also still hoping to pass a US-Taiwan tax relief bill before the end of the year. The Taiwan bill originally was included in the 2024 House-passed Tax Relief for American Families and Workers Act (H.R. 7024) that stalled in the Senate. H.R. 7024 included the United States-Taiwan Expedited Double-Tax Relief Act (H.R. 5988), which would provide double-tax relief under the Internal Revenue Code and, separately, authorize the President to negotiate and enter into a tax agreement with Taiwan. More than 100 bipartisan members of Congress signed a letter to congressional leaders on 6 December requesting that legislation be passed by year-end to address double taxation of investments between the US and Taiwan.

Treasury and the IRS on 10 December released 325-page final regulations (TD 10016) under IRC Section 987 with guidance on determining income and currency gain or loss for a qualified business unit (an IRC Section 987 QBU). The final regulations generally maintain the structure of the 2023 proposed regulations, including the foreign exchange exposure pool (FEEP) method, current rate election and annual recognition election. They generally apply to tax years beginning after 31 December 2024 and only to corporations and individuals. As the regulations do not generally apply to partnerships, taxpayers must apply a reasonable method consistent with IRC Section 987 to partnerships, pending future guidance.

Under the final regulations, taxpayers must compute pre-transition gain or loss, with certain modifications. Taxpayers that did not apply an eligible pre-transition method must determine pre-transition gain or loss for tax years beginning before the transition date and beginning after 7 September 2006 (the date the proposed IRC Section 987 regulations were published in the Federal Register).

Accompanying proposed regulations (REG-117213-24) provide an election to simplify the computation of unrecognized IRC Section 987 gain or loss by allowing taxpayers to elect to translate a group of frequently recurring transfers between an IRC Section 987 QBU and its owner using the yearly average exchange rate (rather than the spot rate applicable on the date of each transfer). The proposed regulations also would simplify the computation of unrecognized IRC Section 987 gain or loss for taxpayers making this election. A Tax Alert is forthcoming.

The IRS, in Announcement 2024-42, indicated that the US and Norway entered into a competent authority agreement relating to Article 20 of the US-Norway income tax treaty. The arrangement confirms that Article 20 (Investment or Holding Companies) does not apply to a US investment company that qualifies as a regulated investment company under IRC Sections 851 and 852. A Global Tax Alert is forthcoming.

The IRS announced it is requesting comments on Rev. Proc 2015-41, which addresses advance pricing and mutual agreement applications. The IRS is specifically requesting comments on the burdens associated with requesting an advance pricing agreement; the comments are due 4 February 2025.