This week (September 7-11)

Congress: The House and Senate are out of session this week for the Labor Day holiday.

President Trump on June 23 sent to the Senate the nomination of James Gadwood, a tax controversy lawyer, to be IRS Chief Counsel. A Senate Finance Committee nomination hearing is expected to be scheduled for September 15.

This Week in Tax Policy won't be published when Congress is gone for the Labor Day recess.

Last week (August 31-September 4)

Big picture: The House returned to session from the August recess this week and approved the Senate-passed continuing resolution (CR) to extend government funding beyond the midterm elections, through December 11. After next week's Labor Day recess, the House is scheduled to return the week of September 14 when the Senate is also back in session for the first time since early August. However, Republican leaders announced that the House will be out after that, giving back the last two weeks in September — votes are not expected in the House during the weeks of September 21 and September 28. With prior plans to be gone for most of October, the chamber isn't planning to be in session after September 17 through the elections. A post-election lame-duck session is currently scheduled to begin November 9.

With just one planned session week, for the House at least, expectations for what Congress can accomplish before the elections have diminished and the list of items to be addressed during the November-December lame-duck session has grown. In addition to government funding, the CR extended surface transportation and veterans' programs through December 11, and Africa and Haiti trade programs through 2028. There has been attention on how the House Ways and Means Committee may approach its portion of the highway bill. Chairman Jason Smith (R-MO) has been quoted as saying the highway bill is one topic under consideration by the Committee, without providing details, though press reports suggest it is unlikely the panel will mark up before the pre-election recess. The tax-writing committees — Ways and Means and the Senate Finance Committee — produce a tax title providing the revenue portion of the surface transportation reauthorization, which is typically on a five-year schedule though there are sometimes temporary patches.

Prospects for tax legislation: Prior to the August recess, the House on July 22 approved a FY2027 budget resolution (H. Con. Res. 113), providing for a $95 billion GOP-only bill focused on defense funding and with some voter ID and farm aid provisions, and reconciliation instructions are not provided to the Ways and Means Committee. That seemed to preclude tax issues from being addressed in the next reconciliation bill, even as some Republican Senators wanted to expand the scope of the bill. Senate Budget Committee Chairman Ron Johnson (R-WI) released a Fiscal Year 2027 budget resolution August 7 with budget reconciliation instructions to a broader set of committees but not to the tax-writing Finance Committee. There has been little public attention on reconciliation of late, raising questions about whether hopes of another GOP-only bill before the elections are fading. Republicans could revive the reconciliation process during the lame-duck session or perhaps focus on a bipartisan bill, which could include tax extenders — including the Work Opportunity Tax Credit (WOTC), a 7-year recovery period for motorsports complexes, expensing rules for film, television, and theater, and the Advanced Manufacturing Investment Credit (CHIPS ITC) that expires at the end of the year — and potentially other issues like US-Taiwan tax relief and tax administration proposals. Such a bill could potentially be attached to a longer-term government funding measure, but the outlook is unclear until after the elections.

Some see under-the-radar movement on narrow tax and trade proposals as proof that bipartisan progress on the issues is possible. Senate Finance Committee Ranking Member Ron Wyden (D-OR) on August 7 received unanimous consent for the Senate to pass H.R. 5366, the Doug LaMalfa Federal Disaster Tax Relief Certainty Act, under which "qualified net disaster losses" would be deductible to the extent they exceed $500 per casualty and without regard to whether aggregate net personal casualty losses exceed 10% of a taxpayer's adjusted gross income. The bill was introduced by Ways and Means member Rep. Greg Steube (R-FL), and was approved by the House, also by UC, on April 27. The Supporting Early Childhood Educators' Deductions (SEED) Act (H.R. 5334) — Ways and Means Committee member Rep. Jimmy Panetta's (D-CA) bill to allow early-childhood educators to deduct classroom expenses from their taxable income — was attached to the Senate-passed sanctions bill. The House had approved the Panetta bill by UC on April 27. An August 13 Punchbowl News story, "Is there a new path for a tax bill?," said government funding challenges "may be raising the pressure to move bipartisan tax and trade items whatever way they can move. It's a trend to watch as tax writers enter a fraught lame-duck session with a lot of unfinished business to wrap up."

Film incentives: In an August 31 social media post, President Trump spoke in favor of "Federal Tax Incentives in order to Make our Movie and Television Production Business GREAT AGAIN, perhaps GREATER THAN EVER BEFORE! The amount of money spent on Tax Incentives will be made up tenfold by the money pouring into the Treasury's coffers. Meetings are being set up with the Leaders of both Parties in order to get this done. It should be Bipartisan … " He subsequently posted: "Great bipartisan response and support in Congress for the Motion Picture, Television, and Entertainment Revitalization Act."

The new push for tax incentives was greeted enthusiastically in Congress. Rep. Laura Friedman (CA), who represents Hollywood in Congress, issued a statement saying, "I agree that our tax incentive legislation needs to pass - and to pass quickly. For more than a year I've been sitting down with Jon Voight, Congressional colleagues, the unions, studios, and producers to build the case for a national film and television tax credit. There's no reason Canada, the UK, or Australia should be taking our jobs. We still have the best crews on the planet. It's time we made it possible for them to stay where they belong: in America." Voight and others had previously discussed plans to help increase domestic film production with President Trump. A Bloomberg Government report, "Trump Floats Hollywood Tax Credits for US Films and Television," said the President "last year floated a 100% tariff on foreign-produced films, but that idea met resistance from some in Hollywood, who countered with plans for expanded tax subsidies instead." A Politico story, "Congress warms to Trump's Hollywood tax credit effort," said, "The film and TV production incentive that is being discussed would include a 20 percent credit for labor both in front of and behind the camera … . It could also include a mechanism requiring that the vast majority of the work would go to U.S. personnel … "

One proposal that has garnered attention is the Creative Relief and Expensing for Artistic Entertainment (CREATE) Act (H.R. 4840, S. 2530), to extend the Section 181 expensing rules for film, television, and theater productions through 2030, sponsored by Ways and Means members Judy Chu (D-CA) and Nicole Malliotakis (R-NY) and Senate Finance Committee members Raphael Warnock (D-GA) and Marsha Blackburn (R-TN). Tax Notes reported that the bill could be a starting point for the legislative effort and that Ways and Means Chairman Jason Smith has already been encouraging members to act on the issue. "Far too much of the tax of the film production is going overseas, and we should not be losing it," Rep. Chu said in the report.

Not everyone is enthusiastic about the idea. An August 31 New York Times story, "Trump Renews Push for Federal Film Tax Credit," said, "Economists who are critical of giving taxpayer money to Hollywood studios say that there is little financial return in doing so and that governments are in a race to the bottom." The story also said, "Technically speaking, most movies shown in American cinemas are produced in the United States, where scripts are written, preproduction planning handled, principal actors cast and footage edited. But Hollywood has increasingly turned to foreign locales for filming because, as with traditional manufacturing, it is often considerably cheaper." A September 4 Wall Street Journal editorial, "Handouts for Hollywood — Really?," opined, "A federal subsidy for entertainment production on its own won't create many jobs or enhance U.S. prosperity."

Ways and Means hearing: The September 2 Ways and Means hearing, "Strategic Partnerships to Secure Critical Resources and Supply Chains," focused on how to protect United States industries from critical mineral supply chain challenges. Some members suggested that tax incentives could play a role. Rep. Steven Horsford (D-NV), whose state holds a significant amount of critical minerals, said "the safest and most secure supply chain is" on US soil, but that requires additional permitting and financing to build mining, processing, and manufacturing capacity facilities. "I plan to introduce legislation to ensure that we are using the tax code to spur these industries right here in America," he said.

The IRC Section 45X advanced manufacturing production tax credit subsidizes the production of critical minerals along with various energy components. The One Big Beautiful Bill Act (OBBBA, P.L. 119-21) scheduled tax credits for critical minerals to gradually phase out from 2031 to 2034. (See Congressional Research Service, here.) Ways and Means Committee member Rep. Blake Moore (R-UT), who sponsors the Critical Mineral and Extraction Tax Parity Act (H.R. 8780) to expand and improve the Section 45X credit, asked about the effect of a tax bill "designed to unlock investment and accelerate project development in the mining industry."

Witness Gracelin Baskaran of CSIS called for extending IRC Section 45X and said expanding the credit would be most welcome. In response to questioning from Rep. Aaron Bean (R-FL), she said, "2031, 2032, 2033 for the phase out is actually very soon, and it doesn't give investors a long-term signal that they need. So, I think taking what we have and just extending the longevity of it will be really critical."

The full WCEY Alert, "Ways & Means Committee holds critical resources hearing," is available here.

Sports tax: On another issue on which Ways and Means members are introducing bills reflecting concerns brought to light in the hearing setting, Reps. Terri Sewell (D-AL) and Danny K. Davis (D-IL) September 2 introduced a bill (H.R. 10236) to require income tax withholding at the source for name, image, and likeness (NIL) payments to independent contractors who are student athletes. NIL tax issues were a main topic of discussion during the June 30 House Ways and Means Committee hearing on tax policy in the sports industry, alongside the issues of tax-exempt stadium bond financing and executive compensation. Chairman Smith said during the hearing, "college athletes are facing a confusing maze of potential tax liabilities brought on by the explosion in the use of" NIL rights. Witness Sam Acho, a former NFL linebacker for the Arizona Cardinals, called for mandatory NIL withholding that goes into a special retirement account for collegiate athletes, as well as mandatory financial education for student-athletes.

International: There was guidance on several topics during the congressional break, including the following.

No tax on auto loan interest: Final regulations regarding the deduction for certain taxpayers for an amount up to $10,000 of qualified passenger vehicle loan interest were released September 4.

The Treasury Department and IRS proposed regulations (REG-119986-25) that would amend existing regulations under IRC Section 501(c)(3) to include rules on racial nondiscrimination by private schools. The proposed regulations would clarify that a private school would not be an organization exempt from federal income tax if it discriminates based on race, color, or national or ethnic origin in administering its educational, admissions, scholarship, athletic, or other policies.

Methods of accounting: Revenue Procedure 2026-32 provides procedures under IRC Section 446 for obtaining automatic consent of the Commissioner of Internal Revenue to change methods of accounting for research or experimental expenditures. Revenue Procedure 2026-32 also provides procedures for obtaining automatic consent of the Commissioner to change methods of accounting for contracts entered into in taxable years beginning after July 4, 2025, to comply with IRC Section 460(e), as amended by the OBBBA, addressing construction contracts.