Here is a look at recent tax-related happenings on the Hill, including plans for additional reconciliation bills.
Lately on the Hill
Fall & Spring Reconciliation Bills Planned
Capitol Hill remains quiet as members of Congress continue their state and district work entering the last two weeks of their August recess.
At a Monroe Chamber of Commerce event, House Speaker Mike Johnson (R-LA) foreshadowed what lies in store once the legislature returns. “We’re planning another big bill, reconciliation 2.0, that I’m intending to do in the mid to late fall and then we’re going to have a third one, I hope in the spring.”1
The first reconciliation bill, more commonly known as the One Big Beautiful Bill Act (OBBBA), used the reconciliation process to avoid the need for Democratic votes. The GOP intends to use the maneuver again in passing other fiscal-related legislation.
Democrat CBO Request Shows Distributional Effects of OBBBA
Last week, the Congressional Budget Office (CBO) released an analysis of the OBBBA requested by Democratic leadership, including minority leaders Hakeem Jeffries (D-NY) and Chuck Schumer (D-NY). The analysis found that due to the OBBBA, on the average, U.S. taxpayers will retain more resources over the 10-year estimate window 2026 through 2034.
When looking at the distributional effects, the CBO concluded that households in the lowest 10% of income will see resources decrease by about $1,200 per year or 3.1% of their income. The CBO attributes the decrease primarily to reductions in Medicaid and SNAP benefits.
Households considered middle income are estimated to increase yearly resources by $800, with up to $1,200 for those in the upper middle-income percentile. Those with the highest income are expected to see an increase of $13,600 annually, mainly due to decreased tax liabilities.
Nevada Democrats Urge “Successful Implementation” of “No Tax on Tips”
Nevada lawmakers from the House and Senate wrote to Treasury Secretary Scott Bessent with recommendations for implementing the new “No Tax on Tips” provision of the OBBBA. “Nevadans rely on tips more than any other state in the nation and tax relief has been a critical bipartisan priority,” the letter states.
Recommendations include the continuation of the Gaming Industry Tip Compliance Agreement (GITCA) or a similar program to maintain an easier reporting process, include as tax-exempt tips “auto-gratuities” typically applied for large groups, and to provide withholding adjustments as soon as possible so that tax relief commences this year.
Tariffs Continue Record Revenue While Suspension on Higher Tariffs for China Extended
July tariff revenue numbers are in, amounting to $28 billion, a 273% increase over July 2024. Ten months into the fiscal year, tariffs have brought in $142 billion into Treasury coffers. Bessent, who had originally predicted that tariffs would amount to $300 billion this calendar year, said he may “have to substantially revise that up … well in excess of 1% of GDP.”2
Last week, President Donald Trump extended the suspension of higher tariffs on China a day before the previous extension was to expire. The additional 90-day delay pushes the trade deal deadline to November 10, 2025. According to a White House fact sheet, the current tariff regime against China will remain in place while negotiations continue.
Judicial Review
State Charitable Deductions for SALT Credits Not Allowed, Rules Second Circuit
State of New Jersey, et. al. v. Bessent, 2nd Cir., No. 24-1499
The Second Circuit Court of Appeals ruled against New Jersey’s, New York’s, and Connecticut’s allowance of a taxpayer’s charitable deductions to offset state and local tax (SALT) burdens. The high-tax states implemented the maneuver to circumvent the $10,000 federal limitation on SALT deductions introduced in the Tax Cuts and Jobs Act of 2017.3
The court cited Internal Revenue Code Section 170 “and its implicit quid pro quo principle to allow the … prohibition of a tax deduction where the taxpayer has received a corresponding tax credit from the recipient of a donation.”
From the Treasury & IRS
Released Guidance
Proposed Regulations (REG-108822-25) modify information reporting with respect to sales or exchanges of certain interests in partnerships owning inventory or unrealized receivables. The proposal would eliminate the requirement that information contained in Form 8308 Part IV generally be provided by January 31 of the year following the calendar year in which the exchange occurred. Information contained in Parts I, II, and III would be required to be provided by the later of January 31 of the year following the calendar year in which the exchange occurred or 30 days after the partnership received notice of the exchange.
Notice 2025-42 provides guidance regarding the “beginning of construction” for purposes of determining eligibility for clean energy credits under §§45Y and 48E for the construction of wind or solar facilities. The guidance generally requires taxpayers to have begun physical work on qualifying projects and to maintain a continuous program of construction.
Physical work must be of a significant nature and can include both off-site and on-site work. Examples of off-site physical work may include the manufacture of components, mounting equipment, support structures, and power conditioning equipment. Examples of on-site physical work for wind facilities may include foundation excavation or the pouring of concrete pads. For solar facilities, the installation of racks or other structures to affix photovoltaic panels may constitute physical work.
The guidance is released pursuant to an executive order signed by Trump, instructing Treasury to “ensure that policies concerning the ‘beginning of construction’ are not circumvented … by restricting the use of broad safe harbors.” Under the OBBBA, wind and solar projects must begin construction by July 4, 2026 to be eligible for the credits. Previous guidance from the IRS provided a safe harbor defining the beginning of construction as either the start of physical work or paying at least 5% of the project’s cost. The 5% cost safe harbor is therefore no longer available under the new guidance except for low output solar facilities with a maximum 1.5 megawatt net output.
