Here’s a look at recent tax-related happenings on the Hill, including the U.S. and the European Union (EU) establishing a framework for a trade agreement.
Lately on the Hill
Congress Returns Next Week
Congress has entered its last week of recess and is scheduled to return after the Labor Day holiday. By the end of September, it will need to pass 12 appropriations bills, or a continuing resolution, if it is to keep the government funded. A handful of bills were passed before the recess by either the House or the Senate.
U.S. & EU Establish Trade Agreement Framework in Joint Statement
The United States and the EU have released a joint statement establishing a framework for a trade agreement. Prior to this statement, the U.S. and EU had released separate statements that seemed to agree in principle but varied in their details.
The 19-point joint statement brings clarity to the deal as it continues to further develop and expand “to cover additional areas and continue to improve market access and increase their trade and investment relationship.”
The statement provides that the EU will eliminate tariffs on all U.S. industrial goods while expanding market access for U.S. seafood and agricultural goods. The U.S. will apply the higher of the most favored nation (MFN) tariff rate or 15% on EU goods. Beginning September 1, 2025, only MFN tariff rates will be imposed on the following EU products: unavailable natural resources (including cork), aircraft and their parts, and generic pharmaceuticals and other ingredients and chemical precursors.
The EU also agreed to $750 billion in U.S. energy purchases, $40 billion in U.S. AI chip purchases, $600 billion in investments by European companies into the U.S., and the purchase of military equipment.
The European Commission released a questions and answers sheet explaining details of the agreement from the EU’s perspective. Notably, the sheet states that the agreement “has no impact on Member States’ digital services taxes (DSTs).” These taxes are imposed on multinational companies that generate revenue from the taxing country through digital services but may not have a significant physical presence within such countries. The U.S. has long opposed DSTs as unfairly targeting American companies and may still seek to address the issue before a final agreement is made.1
Tariffs Buoy U.S. Credit Rating & Push India to China
S&P Global Ratings is holding its AA+ credit rating on the U.S., attributing tariff revenue as a stabilizer to the U.S.’ fiscal health as the agency expects negative budgetary effects from the passage of the One Big Beautiful Bill Act (OBBBA).
“Amid the rise in effective tariff rates, we expect meaningful tariff revenue to generally offset weaker fiscal outcomes that might otherwise be associated with the recent fiscal legislation, which contains both cuts and increases in tax and spending,” according to S&P’s report.2
The Prime Minister of India, Narendra Modi, is touting an improved relationship with China as the U.S.’ 50% tariffs on the nation are set to begin on August 27, 2025. “India-China relations have made steady progress guided by respect for each other’s interests,” Modi stated.3 The increased tariff is being imposed by the White House due to India’s importation of Russian oil.
Meanwhile, Treasury Secretary Scott Bessent provided that the current state between China and the U.S. is working. “China is the biggest revenue line in the tariff income—so if it’s not broke, don’t fix it. We have had very good talks with China. I imagine we’ll be seeing them again before November,” Bessent said. Early November marks the end of a pause on higher tariffs between the two countries unless a trade deal is reached or another extension is granted.
In another tariff-related development, the U.S. Department of Commerce released an update to expand the list of goods subject to steel and aluminum tariffs. More than 400 new items were added to the list and are applicable immediately, without exceptions for goods in transit.4
OECD Proposes “Side-By-Side” Tax System With U.S.
The Organisation for Economic Co-operation and Development (OECD) has proposed changes to Pillar Two of the global minimum tax agreement.5
The U.S. had warned that the group should accept U.S. tax measures as compliant with the minimum tax initiative or face retaliatory taxes against “discriminatory foreign countries” with “unfair tax regimes.” A new tax provision to do just this was briefly introduced as part of the OBBBA but later removed after assurances were made from the Group of Seven leadership that U.S. companies would not be subject to global minimum tax measures.
An eligible “side-by-side” tax system would qualify when it imposes a tax that exceeds an agreed-upon rate, taxes income from controlled foreign corporations, and provides a foreign tax credit or an equivalent. Such tax systems would not be subject to the income inclusion rule6 and the undertaxed profits rule.7
Judicial Review
Foreign Tax Credit on Stock Sale Denied by Tenth Circuit; Liberty Global, Inc. v. Commissioner, 10th Cir., No. 24-9004
The Tenth Circuit Court of Appeals upheld a Tax Court ruling characterizing gains from Liberty Global’s sale of stock in 2010 as U.S. source income.
Liberty claimed a $240 million foreign tax credit (FTC) related to a $3.9 billion sale of its stock in a Japanese company. FTCs help to prevent double taxation on multinational companies imposed by both the U.S. and foreign countries on the same income.
Liberty classified $2.8 billion as foreign-sourced capital gain, of which $474 million recaptured prior overall foreign losses. The remaining $2.3 billion was treated as foreign-sourced capital gain, making it eligible for the FTC. The IRS issued a notice of deficiency, asserting that only the portion of gain applied against the overall foreign losses would be foreign sourced while the excess would be classified as U.S. sourced income under Internal Revenue Code Section 865(a).
Section 904(f) governs the recapture of overall foreign losses and does not specifically designate the character of the excess gain. The court determined that the “notwithstanding any other provision of this chapter” clause (f) of this code section was misinterpreted by Liberty as meaning to override other code provisions, i.e., §865(a), when they conflict. However, the court said that the silence of §904(f) in characterizing the excess gain “cannot possibly conflict with any other provisions … There is no conflict through silence.” Therefore, §865(a) applies where §904(f) is silent, characterizing the excess gain as U.S. sourced.
From the Treasury & IRS
Leadership Changes
Deputy Treasury Secretary Michael Faulkender is resigning from his position and reportedly returning to academia. Faulkender also served a brief stint as acting IRS commissioner earlier this year.8
Executive Director of Online Services Karen Howard, Tax-Exempt and Government Entities Division Leader Robert Choi, and Chief of the Direct File Program Bridget Roberts were all placed on administrative leave.9
Jim Wang will take over as acting international tax counsel at Treasury. The position was previously held by Lindsay Kitzinger. Wang has most recently been the Treasury’s deputy international tax counsel.10
Released Guidance
Revenue Ruling 2025-17 provides the September 2025 applicable federal rates (AFR), adjusted AFR, adjusted federal long-term rate and long-term exempt rate, percentages for determining the low-income housing credit, and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or reversionary interest.
Notice 2025-43 sets forth the corporate bond monthly yield curve and corresponding spot segment rates, the 24-month average corporate bond segment rates, and the 30-year Treasury securities interest rates and weighted average rates.
Notice 2025-44 announces Treasury’s intent to issue proposed regulations that would remove disregarded payment loss rules under §1.1503(d)-1(d), remove recent modifications to the dual consolidated loss rules under §§1503(d) and 1.1503(d)-3(c)(3), and extend transition relief for the application of dual consolidated loss rules for certain types of taxes under the “GloBE Model Rules.”
Notice 2025-45 announces Treasury’s intent to issue proposed regulations under §897(d) and (e) modifying the application of rules of certain transactions involving the transfer of U.S. real property interests. Proposed revisions apply to inbound asset reorganizations under §368(a)(1)(F) constituting a “covered inbound F reorganization.”11
FS-2025-05 provides answers to FAQs regarding modifications to clean energy credits as promulgated under the OBBBA. The FAQs cover credits under the following sections: 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D.
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“EU, U.S. Formalize Tariff Agreement in Joint Statement,” taxnotes.com, August 22, 2025.
- 2“U.S. ‘AA+/A-1+’ Sovereign Ratings Affirmed; Outlook Remains Stable On Steady, Albeit High, Deficits,” spglobal.com, August 18, 2025.
- 3“Modi Hails Closer Ties With China as Trump’s Higher Tariffs Loom,” bloomberglaw.com, August 19, 2025.
- 4“Trump Widens Metal Tariffs to Target Baby Gear, Motorcycles,” bloomberglaw.com, August 19, 2025.
- 5“OECD Proposes Changes to Global Tax Deal to Appease US,” bloomberglaw.com, August 21, 2025.
- 6A parent country of a multinational company may tax a subsidiary if the local jurisdiction is imposing a less than 15% tax rate.
- 7A country may tax a multinational company if a subsidiary is not subject to at least a 15% tax rate in both the parent country and the subsidiary’s local jurisdiction.
- 8“Treasury’s Faulkender Stepping Down as Bessent Lauds His Service,” bloombergtax.com, August 22, 2025.
- 9“Three Top IRS Leaders Put on Leave in Second Wave of Removals,” bloomberglaw.com, August 16, 2025.
- 10“Treasury Names Jim Wang Acting International Tax Counsel,” bloomberglaw.com, August 20, 2025.
- 11This applies to transfers or distributions that occur in an F reorganization in which the transferor corporation is a publicly traded foreign corporation and the resulting corporation is a publicly traded domestic corporation.