This week (July 21-25)

Congress:The House and Senate are in session. The Senate is expected to take up a package of appropriations bills.

On Tuesday, July 22 at 10:15 a.m., the Senate Finance Committee will hold a hearing to consider the nominations of Jonathan McKernan to be Treasury Under Secretary of Domestic Finance and Alex Adams to be Assistant Secretary for Family Support, Department of Health and Human Services. The hearing is to be preceded by an executive session to vote (if the Committee has a quorum) on the nominations of Joseph Barloon to be a Deputy United States Trade Representative (Geneva Office), and Brian Morrissey, Jr., to be General Counsel for the Department of the Treasury.

Also on July 22, the Ways and Means Committee is holding a Joint Health and Oversight Subcommittee Hearing on Medicare Advantage: Past Lessons, Present Insights, Future Opportunities. Ways and Means is also holding two OBBBA-related field hearings July 25-26, in Las Vegas, NV, and at the Ronald Reagan Presidential Library in Simi Valley, CA.

Last week (July 14-18)

Big picture: There is continued attention on what was included in the "One Big, Beautiful Bill Act" (Public Law No. 119-21) two weeks after its enactment, but Washington is now looking beyond the reconciliation bill that consumed the first half of the year and focusing on how to act on tax and other items that were omitted from the package. It was "Crypto Week" in the House, with consideration of bills including the CLARITY Act (H.R. 3633) to establish a regulatory market structure for digital assets, and along with it a Ways and Means subcommittee hearing that evidenced a lot of bipartisan enthusiasm for providing greater clarity on crypto tax issues, which may have an opening for consideration with the OBBBA completed. Funding the government through the appropriations process is the other issue that is top of mind for policy makers. First, Congress passed a budget rescissions package, but, importantly, preparations are under way to consider at least some of the 12 annual appropriations bills ahead of the September 30 expiration of government funding, foreshadowing the difficulty the two parties will have in preventing a government shutdown and potentially compromising to move other bills through Congress.

OBBBA: There continues to be a focus on which industries benefited from provisions in the OBBBA. A story in the Wall Street Journal, "Private Equity Succeeded in Avoiding Major Tax Hits from Trump's Big Bill," said a carried interest tax increase was left out of the bill and the industry benefited from the provision to revert to the EBITDA-based calculation for IRC Section 163(j) interest deductibility and from scrapping the Section 899 retaliatory tax proposal, but, on the negative side, funds could be impacted by ending energy tax credits included in the Inflation Reduction Act and they failed to achieve a new tax break for investments in Business Development Companies (BDCs). "One defeat for the private-equity lobby was its inability to snag a tax cut for investors in BDCs, which are pooled funds designed to lend money to small businesses," the story said. "A provision in the House version of the bill, which was omitted from the final version, would have given backers of these funds, who are typically wealthy people, a 23% deduction on income from their BDC investments by expanding a tax break intended for small-business owners and the self-employed." The focus now is on regulatory implementation of energy tax credit modifications, international tax provisions, Trump proposals like no tax on tips and overtime, and Trump Accounts for children. Punchbowl News reported, "Several … tax changes are sparking attention from specific industries in particular. For example, the new tax on international cash transfers — aka the remittance tax — is another rollout to watch. The Senate narrowed the scope of this new levy, so implementation will impact a narrower set of financial services companies."

There has been speculation about a potential follow-on bill addressing outstanding tax and health issues, Medicaid and other changes cut out of the just-enacted bill to meet reconciliation rules, OBBBA technical corrections, tax extenders like extension of the Work Opportunity Tax Credit (WOTC), and possible retirement items. During a July 16 EY event, Curtis Beaulieu, a senior policy adviser to Speaker Mike Johnson (R-LA), said there is some interest in a SECURE 3.0 bill and some retirement items that could be included were intentionally left out of the OBBBA. (SECURE 3.0 refers to a potential third retirement policy package, following enactment of two prior SECURE bills at the end of 2019 and 2022, respectively.) Beaulieu also said a future bill could increase the current 20% IRC Section 199A pass-through deduction. The House version of the OBBBA would have increased the deduction to 23% but the final bill kept the deduction at 20%.

EY Tax Alerts available related to the new law include:

• "Tax reconciliation will significantly affect individual taxpayers," available here.
• "Final tax reconciliation bill expands small business stock exclusion under IRC Section 1202," available here.
• "New tax law reinvents TCJA's Opportunity Zones as new, permanent program, beginning in 2027," available here.
• "Final tax reconciliation legislation modifies low-income housing credit," available here.
• "Final reconciliation legislation modifies provisions affecting tax-exempt entities," available here.
• "Final tax reconciliation bill makes New Markets Tax Credit permanent," available here.
• "Tax reconciliation legislation significantly affects cost recovery and accounting method provisions," available here.
• "Final reconciliation legislation modifies some IRA energy credits, repeals others," available here.
• "Several changes to compensation and benefits provisions included in final budget reconciliation legislation for FY 2025," available here.
• "Changes to GILTI, FDII and BEAT, among others, included in final reconciliation legislation, but not previously proposed remedy for 'unfair foreign taxes,'" available here.

Crypto: At the July 16 House Ways and Means Oversight Subcommittee hearing, "Making America the Crypto Capital of the World: Ensuring Digital Asset Policy Built for the 21st Century," there was consensus that more rules on the tax treatment of cryptocurrency are needed and members from both parties — Republican Max Miller from Ohio and Democrat Steven Horsford from Nevada — said they are interested in taking the lead on new legislation as Ways & Means to clarify how crypto fits into the tax system. A WCEY Alert is available here.

There were two main issues that were discussed at the hearing:

• Digital assets are treated as property, any transfer or exchange can trigger taxable income, and the industry is pushing for a de minimis rule to exempt transactions under a threshold from taxation and reporting requirements because even buying a cup of coffee requires calculation and reporting of gain or loss, and that discourages the use of digital assets as a medium of exchange; and
• Staking, or the validation of transactions and issuing of rewards that currently must be included in income when the taxpayer gains control and that the industry wants changed to be treated like other created property — taxed at the time of sale, not at the time of creation.

These issues are addressed in the June 30 bill (S. 2207) introduced by Senator Cynthia Lummis (R-WY) — who has been active on the crypto issue generally — that would set a $300 de minimis threshold and $5,000 yearly total cap, provide that digital asset lending agreements are generally not taxable events, revise the wash sale rules as they pertain to digital assets, provide that mining and staking income is not recognized until sale/disposition of produced assets, and exempt charitable contributions from appraisal requirements. Rep. Miller's stated plans for a bill follow a similar issue set as the Lummis bill: de minimis, staking, wash sale rules, mark-to-market elections, charitable contributions, lending, and retirement plan issues.

Global tax: A Belgian court July 17 ruled that plaintiffs including the American Free Enterprise Chamber of Commerce had standing to bring a case challenging the validity of the UTPR under EU law and referred the case to the European Court of Justice. The Daily Tax Report said, "The Belgian Constitutional Court found that the application of Belgium's undertaxed profits rule, including its calculation and allocation, are imposed by the EU's global minimum tax directive." The court doesn't have jurisdiction to rule on a directive, so referred the case to the Court of Justice of the European Union. Tax Notes reported that "Belgium's global minimum tax law, enacted in December 2023, transposed Council Directive (EU) 2022/2523, which implements the OECD global anti-base-erosion (GLOBE) rules in the EU. The GLOBE rules — a core component of pillar 2 of the OECD's two-pillar global tax reform plan — are the income inclusion rule and the UTPR, which work together to ensure that large corporate groups have an effective tax rate of at least 15% wherever they operate." Further, "AmFree had argued that articles 35 and 36 of Belgium's pillar 2 law violated the Belgian constitution, the European Convention on Human Rights, and the Charter of Fundamental Rights of the European Union." A press release said, "AmFree Chamber challenged the Belgian legislation implementing the UTPR provisions, arguing these provisions infringe upon fundamental rights protected by the Belgian Constitution and primary EU law, including the right to property, the freedom to conduct a business, and the principles of equality, non-discrimination, legality, and fiscal territoriality." "The EU's Court of Justice could effectively kill the UTPR within the union if it backs the plaintiffs in the lawsuit," Morning Tax reported today. "But that court's ruling could take up to 18 months, as AmFree noted in its release — which seemingly adds another layer of uncertainty to Pillar 2's path forward in Europe."

Bill intros: Legislation introduced this week includes:

• Senator Rick Scott's (R-FL) bill (S. 2313) to provide an above-the-line deduction for flood insurance premiums
• Rep. Tom Suozzi's (D-NY) bill (H.R. 4466) to establish a recycling property investment credit