This Week (July 27-31)

Congress: The House is out until August 31, but the Senate is scheduled to remain in session for two more weeks.

There have been reports that the Senate Finance Committee could hold a markup to consider a bipartisan tax administration package reflecting the Taxpayer Assistance and Service Act introduced by Chairman Mike Crapo (R-ID) and Ranking Member Ron Wyden (D-OR) in February. It was previously reported, weeks ago, that the markup was on hold due to Democratic members' insistence on offering an amendment related to the IRS immunity deal.

Last Week (July 20-24)

Big picture: During the chamber's last scheduled week in session prior to the August recess, the House passed several measures, including a Fiscal Year 2027 budget resolution with reconciliation instructions (but not for tax) and a continuing resolution (CR) to extend government funding through December 4. Without reconciliation instructions to the Ways and Means Committee, it appears that acting on outstanding tax issues and any new starters will have to wait at least until a lame-duck session of Congress following the November 3 midterm elections. The Senate is scheduled to be in session for another two weeks prior to the recess but the outlook for a budget resolution/reconciliation plan and a CR to extend government funding is unclear. Deputy Assistant Secretary for Tax Policy Kevin Salinger is set to replace Ken Kies as Acting Treasury Assistant Secretary for Tax Policy, according to the Daily Tax Report (DTR), which said he would also take on the Acting IRS Chief Counsel role. Democrats are requesting more information related to circumstances of the personnel change. The House Ways and Means Committee approved four nonprofit bills without the bipartisan cooperation present in other markups, including on tax administration bills.

Reconciliation: Tax issues were shut out of a Reconciliation 3.0 package, at least in the manner that such a package was provided for under an FY2027 budget resolution approved by the House on July 22. Reconciliation instructions for a $95 billion bill — focused on defense funding and with some voter ID and farm aid provisions — are only provided to the Agriculture, Armed Services, Intelligence, and House Administration committees. Ways and Means Committee Chairman Jason Smith (R-MO) had pushed for tax issues to be included, and Budget Committee Chairman Jodey Arrington (R-TX) had long wanted spending-cut offsets, but both were excluded, at least in part because of the anticipated difficulty of getting the measure through the Senate. The budget resolution and follow-on reconciliation bill face challenges even without those provisions. Majority Leader John Thune (R-SD) said on July 23 he does not currently have 50 votes for the budget resolution, and there is some resistance to addressing the voter ID issue. While reconciliation allows legislation meeting certain revenue parameters to pass the Senate with a simple-majority vote, rather than the 60 votes necessary to overcome a filibuster, both the budget resolution and the reconciliation bill require Senate "vote-a-ramas" of limitless amendment votes on issues germane to the underlying measures. Leader Thune may want to avoid tough votes for his members on Democratic-authored amendments ahead of the midterm elections.

There has been some reporting about the promise of another GOP-only bill, Reconciliation 4.0, during the lame-duck session that could include savings in social safety net programs that were dropped from the current effort, and perhaps other proposals. "We're working with them to give them more tools to go after that kind of fraud," Majority Leader Steve Scalise (R-LA) said of Federal agencies in a BGOV story, "Scalise previews fourth reconciliation bill aimed at fraud."

Tax: During a July 22 markup, the House Ways and Means Committee approved four nonprofit bills:

• Rep. Lloyd Smucker's (R-PA) Fiscal Sponsorship Transparency Act of 2026 (H.R. 9721), to require reporting by certain charitable organizations relating to fiscal sponsorship arrangements, which was approved on a 23-15 vote
• Rep. Blake Moore's (R-UT) Fair Treatment of Religious Organizations Act of 2026 (H.R. 9722), to ensure fair treatment of certain charitable organizations, approved 23-16
• Rep. Nicole Malliotakis' (R-NY) Stopping Foreign Influence in Elections Act (H.R. 9771), to impose penalties on political committees that accept foreign contributions, approved 23-16
• Rep. Dave Schweikert's (R-AZ) Foreign Funding Transparency Act (H.R. 9772), to require disclosure by certain tax-exempt organizations of information relating to foreign contributions, approved 23-18

In an opening statement, Chairman Jason Smith (R-MO) described rapid growth in tax-exempt organizations over the past four decades and said, "As more money flowed into this sector, it has become a prime target for misuse and abuse … " Ranking Member Richard Neal (D-MA) said affordability proposals would have been a more appropriate markup topic rather than Republican bills. The Committee defeated several Democratic amendments.

Treasury personnel: Unrelated to the bills, Reps. Lloyd Doggett (D-TX) and Brad Schneider (D-IL) took the opportunity to question the circumstances of the reported departure of Treasury Assistant Secretary for Tax Policy Ken Kies. In a related development, Senate Finance Committee ranking member Wyden issued a news release, "Wyden, Senate Democrats Call for Independent Investigation Into Political Interference in IRS Audits Following Departure of Top Trump Tax Official," describing an effort calling on "independent investigators at the Treasury Department to open an investigation into whether Trump administration officials are violating federal laws that prohibit political influence over federal tax audits."

Nominations: The Senate Finance Committee approved four Treasury nominations July 23, all on party-line 14-13 votes:

• Francis Brooke to be Deputy Secretary of the Treasury
• Erin Browne to be Under Secretary of the Treasury for International Affairs
• Sriprakash Kothari to be Assistant Secretary of the Treasury for Economic Policy
• George McMaster to be Assistant Secretary of the Treasury for Financial Markets

Financial products: In a July 22 social media post, Treasury Secretary Scott Bessent said Treasury and IRS are "examining Wall Street tax products that may exploit the tax code and tax strategies" and that the government "will not turn a blind eye to abusive Wall Street tax dodges or tolerate products designed to exploit our federal tax code." A July 21 Reuters story, "US Treasury flags Wall Street tax strategies as potentially abusive," said, "The products under scrutiny include so-called 351 conversions, box-spread exchange-traded funds, products that offset ordinary income, and funds that avoid dividend income by flipping between other ETFs … "

DSTs: While not a main topic of discussion, during his opening statement at the July 22 hearing on the President's 2026 trade policy agenda, Senate Finance Committee Chairman Mike Crapo (R-ID) said "a growing array of discriminatory measures in the form of digital services taxes, online content requirements and data localization target U.S. digital firms and restrict U.S. competition. These pose an existential threat to American innovation."

Bill introductions: On July 22, Ways and Means Committee member Mike Carey (R-OH) introduced the S Corporation Modernization Act (H.R. 9840), with a news release enumerating the bill's provisions:

• Allowing S corporations to elect an inside basis adjustment following the death of a shareholder, similar to partnerships
• Modernizing passive investment income rules by raising the threshold for the so-called "Sting Tax" and repealing the automatic loss of S corporation status after three years
• Expanding employee ownership opportunities by treating employee owners similarly to ESOPs for shareholder limitation purposes
• Allowing IRAs to own S corporation stock under rules comparable to other qualified retirement plans
• Preserving suspended losses when S corporation shares transfer upon a shareholder's death
• Repealing Section 409A to reduce unnecessary complexity surrounding deferred compensation
• Increasing the shareholder limit for S corporations from 100 to 250 to better reflect today's business environment

Rep. Carey also introduced a bill (H.R. 9841) to modernize rules related to publicly traded partnerships.

On July 23, Ways and Means member Rep. Nicole Malliotakis (R-NY) introduced a bill (H.R. 9906) to provide an elective exception from the volume cap on tax-exempt bonds for certain exempt facility bonds for qualified residential rental projects.

International tax: The Office of Information and Regulatory Affairs within the White House Office of Management and Budget (OMB) posted that it had received for review on July 20 Treasury/IRS proposed rules on Foreign Derived Deduction Eligible Income and Net CFC Tested Income Under Section 250.

IRS: Revenue Procedure 2026-28 relieves tax-exempt foreign participating member associations of the Fédération Internationale de Football Association (FIFA) that are competing in the 2026 FIFA World Cup from the requirement of having to file a Form 990-series annual information return or notice for tax years in which they have no gross income from sources within the United States or effectively connected with the conduct of a trade or business within the United States other than income related to participation in the 2026 FIFA World Cup.