This week (March 23-27)

Congress: The House and Senate are in session before a planned two-week recess March 30-April 10. The Senate may be in over the weekend to hold votes related to the SAVE Act voter ID bill, the continued DHS shutdown, and the nomination of Senator Markwayne Mullin (R-OK) to be DHS Secretary. Senate Majority Leader John Thune (R-SD) has suggested the recess could be in peril if DHS funding is not restored.

Last week (March 16-20)

Big picture: Foreign policy, the continued shutdown of the Department of Homeland Security (DHS), and voter ID issues dominated the discussion in Congress this week, but a supplemental war funding request may be boosting prospects for a second budget reconciliation bill. The $200 billion request by the Pentagon is raising questions about whether it whether it can pass the 218-214 Republican-controlled House and if Republicans will need to use the budget reconciliation process given expected opposition from Democrats (and a 60-vote threshold in the 53-47 GOP-controlled Senate). Other items could be added, and tax issues could come into play. Some members want to use provisions targeting waste, fraud, and abuse in federal programs to pay for another reconciliation bill, while others are wary of that approach ahead of the midterm elections. In the background, the next, best opportunity for tax issues to be considered could be a bipartisan tax package during a lame-duck session of Congress following the midterm elections. And tax administration remains an issue of interest in both the Senate and House, where some new legislation has been introduced.

Reconciliation: After reconciliation was discussed during a House Republican policy retreat in Florida last week, the outlook for a second bill further evolved this week as Administration officials made the case for additional war funding that is likely to be opposed by Democrats, leading to the possibility of a party-line bill. The Hill newspaper said in a March 20 story, "GOP grapples with $200B Iran funding request from Trump, Hegseth," that to use the reconciliation process, "Republicans must get near-unanimous support in a slim House GOP majority — a tall task for even the most populist GOP priorities — while contending with demands from their own members to offset the cost of such a funding boost with cuts elsewhere." Still, "Some Republicans are excited about the prospect of a Pentagon request serving as a catalyst that will push the party to pursue a second reconciliation bill that they can pack with other GOP priorities, as a follow-up to their spending and tax cut megabill last year." In a March 20 Semafor story, Sen. Tim Sheehy (R-MT) said that with Democrats likely to oppose war funding, "It's probably going to have to be a party-line reconciliation push, unfortunately." Axios reported March 19 that "GOP leaders have struggled to build consensus around a 'reconciliation 2.0' package. But injecting a must-pass defense spending bill into the equation will give Speaker Mike Johnson the urgency he needs to bring it to the floor." The report said, "House Budget Chair Jodey Arrington (R-Texas), one of the most vocal backers of reconciliation 2.0, has floated using tariff revenue, cuts to government programs and changes to Affordable Care Act cost-sharing reduction payments as potential offsets."

Outlook: Amid the continued talk of a second reconciliation bill, there is reporting that a lame-duck session bipartisan bill may still provide the strongest prospects for tax legislation. A March 18 Tax Notes story, "A Bipartisan Lame-Duck Package Has Best Tax Bill Odds This Year," said a bipartisan tax-extenders deal during the post-election period is the most likely scenario for a possible tax package in 2026, and the handful of provisions including extenders like the Work Opportunity Tax Credit (WOTC) may be enough to propel a tax extenders package in 2026. Like other bipartisan attempts in recent years, "A vehicle emerging after the midterms won't be immune from politics either, according to Lisa Wolski of EY, as the results of the election may sour the mood for one party working with the other." Wolski was also cited as saying a proposal for a tax bill with bipartisan extenders could be met with resistance from Democrats if it does not also deal with the expired enhanced ACA credits.

Income inequality: In the latest in a series of income-based tax proposals released by Democratic Senators, on March 17, Senator Ed Markey (D-MA) introduced the Equal Tax Act (S. 4122) to equalize treatment of capital gains and earned income. A press release said the bill would:

• Limit the lower preferential tax rate for long-term capital gains and dividends to incomes under $1 million
• End the stepped-up basis loophole and disrupt the "buy, borrow, die" strategy used by the wealthy to avoid taxation - by treating capital gains as realized at the time of gift or death, with exclusion allowances of up to $1 million in gains
• Enact a lifetime limit of $1 million on the use of like-kind exchanges for real estate
• Limit the pass-through deduction to incomes under $1 million
• Protect family farms and small businesses

Tax administration: On March 18, Ways and Means Committee members Dave Schweikert (R-AZ) and Don Beyer (D-VA) introduced a bill (H.R. 7971) to provide for modernization and technological improvements of services provided by the Internal Revenue Service. Another Schweikert bill (H.R. 7972) would require IRS

to establish a fellowship program to recruit qualified data scientists "to partner with tax law specialists and provide insights and identify emerging and complex issues in tax administration, ranging from data acquisition and quality through developing advanced analytics, statistics, and models to improve core tax administration activities in services and enforcement."

IRS: Notice 2026-20 released on March 18 extends for an additional year temporary relief allowing eligible taxpayers to use certain alternative methods for making an adequate identification with respect to units of a digital asset held in the custody of a broker that are sold, disposed of, or transferred.

Revenue Procedure 2026-17 released March 18 provides guidance on the withdrawal of elections to be excepted real property, utility or farming trades or businesses under IRC Section 163(j)(7) for purposes of the business interest limitation and to make a late election under IRC Section 168(k)(7) to be exempt from bonus depreciation.

DSTs: Digital services taxes (DSTs) were mentioned during a March 17 House Ways and Means Trade subpanel hearing on World Trade Organization (WTO) issues, with witnesses suggesting it is important for the United States to express how damaging European data policies are for US companies and that DSTs are discriminatory, including potentially through a Section 301 investigation against the European Union. Separately, Ways and Means Committee member Rep. Ron Estes (R-KS) was cited as re-upping his call for the U.S. to combat DSTs — an issue he has been consistently drawing attention to since at least July 2025, shortly after enactment of the "One Big Beautiful Bill Act" — and saying a resolution against DSTs will be reintroduced in the House. "This really is one of those few bipartisan areas," Estes said at an event hosted by conservative groups, the Bloomberg Daily Tax Report said. "What we plan to do with that resolution is intentionally remind governments that we have every tool available."