This week (January 20-24)

Congress: The House and Senate are in session. Inauguration Day is January 20.

The House Ways & Means Committee has scheduled a Member Day Hearing on Matters Within the Committee's Tax Jurisdiction for Wednesday, January 22 at 10 a.m.

Last week (January 13-17)

Tax bill revenue: The focus in Washington remains on setting the stage for the Republican-controlled Congress and Trump White House to enact a budget reconciliation bill (or bills) to extend expiring Tax Cuts & Jobs Act (TCJA) provisions and address other priorities. Decisions will soon be required about a revenue target and if and how tax changes or spending cuts will offset the cost of TCJA extensions and potential new starters, and there is a general effort underway to identify what changes are politically viable. There isn't unanimity among Republicans on revenue offsets. Senate Majority Leader John Thune (R-SD), Senate Finance Committee Chairman Mike Crapo (R-ID), and House Ways & Means Chairman Jason Smith (R-MO) have called for a current policy baseline under which extensions of current tax provisions don't need to be offset. However, conservative members have seemingly linked spending reductions to tax cut extensions and called for TCJA provisions to be offset, and House Budget Committee Chair Jodey Arrington (R-TX) says a current policy baseline doesn't change the practical impact of a tax bill unaccompanied by other changes. "I don't get caught up in the CBO accounting," he said in a January 15 Washington Post story. "What I get caught up in is any real impact to the deficit and what we have to do to mitigate that. Either way you do it, even if you assume current policy, there's still an adverse impact to the deficit." A previously circulated House Budget Committee memo listed broad categories and ballpark revenue expectations, outlining potentially over $3 trillion in health care changes, including repealing major Biden health rules, Medicare and Medicaid changes including "equalizing" Medicaid payments for the able-bodied, and "reimagining" the Affordable Care Act; Temporary Assistance for Needy Families (TANF) and Supplemental Nutrition Assistance Program (SNAP) changes; and between $225 billion-$525 billion in tax changes, including rolling back energy tax credits.

A much more detailed House Budget Committee list of possible revenue proposals, many of which do not seem politically viable, was circulated on January 17 and included as tax options:

• Endowment tax expansion to 14% Rate (raising $10 billion) and changes in applicability
• Changes to the $10,000 state and local tax (SALT) deduction cap, some of which cost money
• Eliminating the business SALT deduction (raising $310 billion)
• Eliminate nonprofit status for hospitals (raising $260 billion)

Duration: There has been speculation that the duration of TCJA extensions could be trimmed to reduce the cost. Punchbowl News reported that during a tax briefing to the House Republican Conference January 15, Ways and Means Chairman Smith "laid out how much it would cost to do a four-year extension of the Trump tax cuts in reconciliation versus what it would take to make them permanent." Morning Tax January 16 suggested a current policy baseline that presumes no cost for extension would perhaps offer the only hope for the provisions to be made permanent, though each of the provisions would need to be modified in some respect to meet the budget reconciliation requirement that proposals have some revenue impact. It has been noted previously that reconciliation rules don't typically allow an increase in deficits beyond the budget window. The TCJA relied upon revenue-raising provisions (including some taking effect in the later years of the budget window) to enable permanency of the TCJA corporate rate cut, thus clearing the prohibition on decreasing revenue in years beyond the budget window.

Ways & Means hearing; The Ways & Means Committee held an hours-long hearing on "The Need to Make Permanent the Trump Tax Cuts for Working Families" January 14 that resumed the relitigating of the TCJA Republicans and Democrats engaged in prior to the election, during hearings last year, and essentially for the entire period since the law was passed at the end of 2017. Chairman Jason Smith said if Congress fails to act to extend TCJA provisions expiring at the end of 2025, 26 million small businesses will be hit with a 43.4% top tax rate if the IRC Section 199A 20% passthrough deduction isn't extended. Committee Democrats including Ranking Member Richard Neal (D-MA) and Reps. Lloyd Doggett (D-TX) and Mike Thompson (D-CA) criticized the effort among Republicans to use a current policy baseline that avoids paying for tax cut extensions, and also President-elect Trump's promise of increased tariffs and the cost burdens they could impose on US consumers.

NAM study: Ways & Means Chairman Smith, Finance Committee Chairman Crapo, and others held a news conference related to a National Association of Manufacturers study conducted by EY that projected that allowing the individual TCJA provisions to expire would result in 5.9 million lost US jobs, $540 billion in foregone wages, and nearly $1.1 trillion in foregone gross domestic product.

Bessent hearing: The January 16 Senate Finance Committee hearing with Treasury Secretary nominee Scott Bessent largely focused on differing views between Republicans and Democrats on extending expiring TCJA provisions as well as President-elect Trump's intention to implement new tariffs. Bessent gave several arguments in favor of extending TCJA provisions, including that small businesses that are passthroughs need an extension of the IRC Section 199A deduction to grow and hire. He refuted assertions that the benefits of the bill were skewed to the wealthy and the notion that there could or should be an income cutoff for any extension, as there was in the January 1, 2013, extension of the Bush tax cuts. He said tariffs may be useful as a remedy for unfair trade practices by an industry or country, as a revenue raiser, and as a negotiating tool by President-elect Trump. In response to Senator James Lankford's (R-OK) questions regarding the global minimum tax under Pillar Two of the OECD project and Treasury's message to other countries if they try to implement taxes on US businesses, Bessent said any country that adopts Pillar Two in the near term will find it a "grave mistake," the taxation of US companies is a sovereign issue and authority lies in Congress, and he'll work with members to undo a "terrible policy."

Global tax: At the 2025 D.C. Bar Tax Conference January 16, outgoing Treasury Deputy Assistant Secretary for International Tax Affairs Scott Levine said the US has continued to prioritize one of the key issues still facing Pillar Two, the R&D tax credit, and has made it clear to negotiating partners that it is very important that the US R&D credit is on equal footing with other, similar credits, regardless of whether they are refundable or nonrefundable. Looking at the big picture of the US involvement in the project, he said on one hand the US under the new Administration could "walk away from the table and attempt to just dismantle Pillar Two with the threat of retaliatory measures, etc.," making the playing field unlevel again. "Alternatively, and this is what I hope happens, is the incoming Administration can take the baton and negotiate … and they can smooth out the rough edges that still need to be smoothed out … " Levine said. "And, if we can do that, I think this would be a real success story."

The OECD January 15 released three packages of Administrative Guidance:

• Guidance including a "Central Record" of legislation adopted into the domestic law of implementing jurisdictions that have met transitional qualification status under Pillar 2 and the Model Rules. This is the so-called peer review list.
• Guidance under Article 9.1 of the Model Rules relating to certain deferred tax assets that arose prior to the application of the global minimum tax as a result of certain government arrangements with taxpayers or following the introduction of new corporate income taxes. This guidance also notes that the OECD continues to work on additional guidance on the types of "related benefits" provided by jurisdictions that will be treated as refunds of tax and thus reducing a taxpayer's effective tax rate.
• Guidance under Articles 8.1.4 and 8.1.5 of the Model Rules relating to how the global information return (GIR) should be completed when there is a difference between the Model Rules and local jurisdiction legislation, and which underlying basis should be used to complete the data points in the GIR.

Taiwan: The House January 15 approved 423-1 the United States-Taiwan Expedited Double-Tax Relief Act (H.R. 33), to provide special rules for the taxation of certain residents of Taiwan with income from sources within the United States. Rep. Thomas Massie (R-KY) was the only "no" vote for the bill. There is likely only one "no" vote preventing unanimous consent (UC) passage in the Senate — Rand Paul, a longtime privacy hawk who opposes a bulk exchange of data — and it's unclear whether leaders may overcome his objection with some agreement for an amendment vote, as has been the case with his opposition to tax treaties, or otherwise devoting time on the Senate floor. The bill does not incur a revenue cost and scores at $0, so it can't be included in the reconciliation process, which is how most tax business is set to get done this year.

Executive compensation: The IRS and Treasury Department on January 14 issued proposed regulations (REG-118988-22) under IRC Section 162(m), concerning the deduction limitation for covered employee compensation in excess of $1m for publicly held corporations. The proposed rules are intended to implement changes made by the American Rescue Plan Act that expand the scope of covered employees. The statutory changes are applicable to tax years beginning after December 31, 2026.

Energy tax: The IRS on January 16 in Notice 2025-08 updated the elective safe harbor for the domestic content bonus credit under IRC Sections 45, 45Y, 48 and 48E for qualified facilities, energy projects and energy storage technology that was established in Notice 2024-41.