Here’s a look at recent tax-related happenings on the Hill, including executive orders delaying the implementation of 25% tariffs on Canada and Mexico, and China announcing retaliatory tariffs on U.S. goods.
Lately on the Hill
Two executive orders were issued on February 3 entitled “Progress on the Situation at our Southern Border” and “Progress on the Situation at our Northern Border.” These orders have delayed the implementation of the 25% tariffs introduced in the executive orders issued on February 1 until March 4, 2025 in response to actions taken by Canadian and Mexican leaders. On February 10, President Trump signed proclamations to reinstate a 25% tariff on steel imports and raise tariffs on aluminum imports to 25% under Section 232 of the Trade Expansion Act of 1962.
Following the 10% tariff imposed on Chinese goods signed on February 4, China’s Customs Tariff Commission announced retaliatory tariffs on U.S. goods.1 The new tariffs include a 15% tariff on coal and liquefied natural gas and a 10% tariff on crude oil, agricultural machinery, and pickup trucks. The Chinese tariffs on U.S. goods were set to take effect February 10.
In reaction to these developments, the U.S. Postal Service (USPS) temporarily paused the acceptance of packages from China and Hong Kong. In response, President Donald Trump signed the Amendment to Duties Addressing the Synthetic Opioid Supply Chain in the People’s Republic of China executive order on February 5. This order amended the original order signed on February 1 to provide for a duty-free de minimis exception for packages valued under USD $800.
Update on Budget Reconciliation Process & Tax Bill
While House Republicans struggle to release a budget resolution, it is becoming increasingly likely that the budget reconciliation process will be divided into two separate bills, with tax legislation addressed in the subsequent bill.
On February 6, Trump met with certain Republican lawmakers to discuss his key tax priorities2, including the elimination of the carried interest tax break and expansion of the state and local tax deduction. The carried interest tax loophole currently allows certain investors to pay taxes on their income at capital gains tax rates rather than ordinary income tax rates. In addition, the president indicated his support for ending the current practice of sports team owners using large losses from their teams to offset other taxable income on their personal tax returns. He also reiterated his campaign promises to eliminate tax on tips, Social Security payments, and overtime pay.
Chair of the Senate Budget Committee, Sen. Lindsey Graham (R-SC), announced the release of the Senate’s Fiscal Year 2025 Budget Resolution on Friday, February 7. Key highlights of the budget resolution include funding for border security initiatives, such as completion of the border wall and increased investment in detention facilities, U.S. Immigration and Customs Enforcement officers, and border patrol agents. In addition, the budget focuses on revitalizing the military, with an emphasis on expanding the Navy, strengthening air defenses, and overhauling America’s nuclear defense strategy. Furthermore, the budget aims to facilitate energy independence by encouraging energy production through on and offshore lease sales. The cost allocated for these efforts is projected to be offset by an equivalent reduction to annual spending.
Other Draft Legislation Introduced This Week
The EITC Modernization Act aims to expand eligibility for the Earned Income Tax Credit (EITC) to include caregivers and independent students. The act proposes to increase the maximum credit available to taxpayers with no dependents from $600 per year to $1,200 per year. In addition, it introduces an option for recipients to receive their benefits on a monthly basis. Support for the act follows a resolution in the House Ways and Means Committee to raise awareness of the EITC and the launch of the IRS’ EITC awareness campaign, as announced in IR-2025-20.
The Achieving Choice in Education (ACE) Act seeks to enhance existing federal tax incentives for state-level school choice legislation. This act proposes to double the annual allowance for tax-exempt 529 account distributions to $20,000 per year, enact a gift tax exclusion of up to $20,000 per year for contributions to 529 accounts, and adjust federal tax exemptions on municipal bonds based on state school choice laws.
The Disaster Mitigation and Tax Parity Act of 2025 aims to exclude from gross income any qualified catastrophe mitigation payment received from a state-based catastrophe loss mitigation program.
Judicial Report
The U.S. government has filed a motion in U.S. District Court in response to a preliminary injunction that seeks to halt the IRS from issuing summary denials on the Employer Retention Credit (ERC). The plaintiffs argue that the IRS’ approach to disallowing ERC claims en masse through the use of an automated process violates the Fifth Amendment.
The Financial Crimes Enforcement Network (FinCEN) has announced that if the U.S. District Court order grants a stay against the nationwide injunction issued in Smith, et al. v. U.S. Department of the Treasury, it will consider modifications to the beneficial ownership reporting (BOI) requirements.3 In addition, FinCEN intends to extend the reporting deadline for all companies by 30 days. Currently, reporting companies are not required to file BOI information with FinCEN; however, information may continue to be submitted voluntarily while the injunction remains in place. This situation continues to evolve; please review the latest alert on the FinCEN website for the most up-to-date guidance.
From the Treasury & IRS
The IRS recently released updated Practice Units on several topics, including Liquidating Partnership Distributions, Partnership Interest Outside Basis, and Recourse and Nonrecourse Partnership Liabilities. The updates were published by the IRS’ Large Business and International (LB&I) division to provide additional support to taxpayers in complying with the complex partnership rules under Sections 731, 705, and 752.
This newsletter features developing content that is subject to change at any time. It does not constitute legal or tax advice. Consult your professional advisors prior to acting on the information set forth herein.
- 1 “Announcement of the State Council Tariff Commission on imposing additional tariffs on some imported goods originating from the United States,” mof.gov.nc, February 4, 2025.
- 2“Trump Will Seek to End Carried Interest, Expand SALT in Tax Bill,” news.bloomberglaw.com, February 6, 2025.
- 3“FinCEN hints at BOI reporting changes in court Filing”, journalofaccountancy.com, February 6, 2025.