This week (February 10 - 14)

Congress: The House and Senate are in session.

On Tuesday, February 11, is the Ways & Means Oversight Subcommittee hearing on "IRS Return on Investment and the Need for Modernization."

Last week (February 3 - 7)

Tax bill: House Republican leaders put renewed urgency this week behind getting the FY 2025 budget reconciliation process underway and having a plan for extending Tax Cuts & Jobs Act (TCJA) provisions expiring at the end of 2025 in one big bill along with spending priorities for the border. Speaker Mike Johnson (R-LA) said House Republican leaders hope to announce as soon as Sunday or Monday a framework for a budget reconciliation bill that would be embodied in an FY2025 budget resolution to be marked up by the House Budget Committee, which is the first step toward unlocking the budget reconciliation process. The renewed effort came after Senate Republican leaders indicated their plan to mark up their own FY 2025 budget resolution next week that would only focus on spending for border issues, with the intention of doing a separate budget resolution later in the year that would focus on tax. President Trump summoned about a dozen House Republican members, representing disparate factions of the House GOP, including the Freedom Caucus group of conservatives, to the White House for a long meeting February 6 that reportedly broke a logjam of differing perspectives. House Budget Committee Chairman Jodey Arrington (R-TX) suggested Thursday night members were close to clinching a deal.

The primary dispute among House Republican members has been the amount of spending cuts that should accompany the budget reconciliation bill, and the related matters of the baseline and duration of tax cut extensions, which will play a big role in the cost of the package. House Majority Leader Steve Scalise (R-LA) was cited by the Wall Street Journal as saying some tax provisions could be proposed to be permanent, and others temporary, and elsewhere said members were closing in on decisions about the budget baseline. Using a current policy baseline that won't require the $4 trillion-plus cost of TCJA extensions to be paid for appeared to be a point of consensus, at least among tax committee chairmen in the House and Senate, but Chairman Arrington and some other Republican lawmakers are dubious of that approach. Tax Notes reported Ways & Means member Dave Schweikert (R-AZ), who has grave concerns about increasing the deficit and what that will mean for interest rates and federal borrowing costs, as saying of a current policy baseline, "It is an intellectual fraud to say, 'Let's ignore the actual law and let's just keep doing what we're doing … '" Speaker Mike Johnson (R-LA) and House Republican committee chairs proposed between $500 billion to $700 billion in spending cuts for an all-in-one reconciliation package, but conservative members want $2 trillion-$5 trillion in spending cuts. Majority Leader Scalise said this week that committees are being directed to propose deeper potential spending cuts under their jurisdictions.

According to White House Press Secretary Karoline Leavitt, in addition to increasing the state and local tax (SALT) deduction cap, President Trump wants to end the preferential tax treatment of carried interest and end "special tax breaks for billionaire sports team owners." Newsweek reported this morning, "Currently, when an owner buys a sports team, a portion of the purchase price is allocated to intangible assets, such as player contracts. Under current Internal Revenue Service rules, such intangible assets can be written off through amortization over 15 years, even if the team remains highly profitable. Other loopholes used by sports team owners include tax-exempt municipal bonds to finance professional sports stadiums. It is unclear how much revenue Trump's tax plan could generate for the U.S. government."

Prior to the White House meeting, a Senate-first approach to the reconciliation process was under development as a fallback option, but there is a recognition that it's easier for the Senate to take up whatever bill the House can pass rather than vice versa. Senate Budget Chairman Lindsey Graham (R-SC) released an FY2025 budget resolution reflecting a two-bill reconciliation strategy (meaning tax would come later) for possible markup next week. The bill is split between border security and defense spending.

OIRA: Tax and other regulations are set to again be reviewed by the Office of Information and Regulatory Affairs (OIRA), within the Office of Management and Budget (OMB), under an executive order signed by the President on January 31. Regulations were reviewed by OIRA during the first Trump administration, and the OIRA Website provided some advance notice of regulations' release, but the practice was discontinued during the Biden administration. The OIRA review does provide stake holders and additional place to go to argue their case on proposed regulations, but it can also lengthen the review process for tax regulations. The Order also requires that whenever an agency promulgates a new rule, regulation, or guidance, it must identify at least 10 existing rules, regulations, or documents to be repealed.

International tax: On February 6, Reps. Randy Feenstra (R-IA) and Joe Morelle (D-NY) introduced the Growing and Preserving Innovation in America Act (H.R. 1062), which would make permanent the reduced Foreign-Derived Intangible Income (FDII) tax rate which, absent congressional action, will increase from 13.125% to 16.4% in 2026.

Rep. Lloyd Doggett (D-TX) February 5 reintroduced The No Tax Breaks for Outsourcing Act (H.R. 995), to:

• eliminate the deductions for global intangible low-tax income (GILTI) and FDII, and apply GILTI on a per-country basis
• repeal the 10% return on tangible investments made overseas for purposes of GILTI and FDII
• treat foreign corporations managed and controlled in the US as domestic corporations
• crack down on inversions by deeming mergers between a US company and a smaller foreign firm to be a US taxpayer (the combined company would continue to be treated as a domestic corporation if the historic shareholders of the US company own more than 50%)
• combat earnings stripping by disallowing an interest deduction for US subsidiaries of a multinational corporation where a disproportionate share of the worldwide group's debt is located in the US entity
• eliminate the tax benefit for foreign oil and gas extraction income

Tariffs: The 25% tariffs on Canadian imports (10% tariffs for energy resources) and 25% tariffs on Mexican imports that were to be effective February 4 under Executive Orders (EOs) signed by President Trump February 1 have been pushed off for 30 days amid further negotiations. The Administration imposed the tariffs citing "the tide of illicit drugs" coming into the US from these countries. President Trump's trade policy has evolved from the first-term focus of trying to improve US economic competitiveness with adversarial nations to targeting allies to try to achieve policy goals. Plus, the President is eyeing tariff revenue to offset tax cut extensions, even if not counted by congressional scorekeepers. An EY Tax Alert is available here.

Other bill introductions:

February 3

• S. 369, to deny certain green energy tax benefits to companies associated with foreign adversaries, Senator Rick Scott (R-FL)
• S. 370, to establish tax credits to encourage individual and corporate taxpayers to contribute to scholarships for students through eligible scholarship-granting organizations and eligible workforce training organizations, Senators Ted Cruz (R-TX) and James Lankford (R-OK)

February 4

• H.R. 917, to make permanent the exclusion from gross income of discharge of qualified principal residence indebtedness, Rep. Julia Brownley (D-CA)
• H.R. 918, to make permanent the deduction for mortgage insurance premiums, Rep. Brownley
• H.R. 919, to codify IRS guidance relating to treatment of certain services and items for chronic conditions as meeting the preventive care deductible safe harbor for purposes of high deductible health plans in connection with health savings accounts, Rep. Vern Buchanan (R-FL)
• H.R. 939, to allow K-12 education expenses to be paid from a 529 account, Rep. Kevin Hern (R-OK)
• H.R. 955, to reform health tax provisions to "create a tax-advantaged account that enables millions of Americans with most types of insurance coverage to save for health care costs through both individual and employer contributions," Rep. Blake Moore (R-UT)

February 5

• S. 429, to enhance the economic and national security of the United States by securing a reliable supply of critical minerals and rare earth elements through trade agreements and strategic partnerships, Senator Todd Young (R-IN)
• H.R. 1003, to modify the carbon oxide sequestration credit to ensure parity for different uses and utilizations of qualified carbon oxide, Rep. Kevin Hern (R-OK)

February 6

• H.R. 1040, to repeal the inclusion in gross income of Social Security benefits, Rep. Thomas Massie (R-KY)
• H.R. 1070, to exclude from gross income certain income from providing real property insurance following certain federally declared disasters, Rep. Clay Higgins (R-LA)
• H.R. 1083, to exclude from gross income gain from the sale of qualified real property interests acquired under the authority of the Readiness and Environmental Protection Integration (REPI) program, Rep. Jimmy Panetta (D-CA)
• H.R. 1103, to permanently extend the new markets tax credit, Rep. Claudia Tenney (R-NY)