Here is a look at recent tax-related happenings on the Hill, including the Senate failing to pass a bill to extend current levels of federal funding.
Lately on the Hill
Federal Funding Fails in Senate With Only Days to Spare
Members of Congress began their weeklong recess last week without passing a continuing resolution to keep the government funded beyond September 30. They will return on September 29 with just two days to work out a deal.
Legislation was passed in the House in a 217-to-212 vote last Friday, which saw two Republicans, Thomas Massie (R-KY) and Victoria Spartz (R-IN), vote against it and one Democrat, Jared Golden (D-ME), vote for it. The bill extends current levels of funding until November 21, 2025, giving more time for legislators to work out a deal.
The votes fell well short of the 60-vote threshold needed in the Senate, however, when the chamber struck it down hours later in a 44-to-48 vote. Two Republicans, Rand Paul (R-KY) and Lisa Murkowski (R-AK), voted against the bill and one Democrat, John Fetterman (D-PA), gave his support. Eight senators were not present for the vote.
A separate continuing resolution drafted by Democrats also failed, which would have seen the government funded through October 31, extended the enhanced Premium Tax Credit for health insurance, and restored Medicaid funding cut in the One Big Beautiful Bill Act (OB3).
Republican leaders reportedly told representatives in the House there was no need to return to Washington until after the shutdown deadline, pressing Democrats to accept the House-passed resolution or face a shutdown.1
W&M Bipartisan Bills Address Penalty Assessments & Tax Court Services
Two bills advanced out of the House Ways and Means Committee (W&M) on unanimous bipartisan votes dealing with IRS penalties and U.S. Tax Court operations.
The Fair and Accountable IRS Reviews Act requires that no penalty can be assessed by an IRS agent to a taxpayer until approved, in writing, by the agent’s immediate supervisor or higher-level official designated by the Secretary of the Treasury. The law would be effective for notices issued and penalties assessed after December 31, 2025.
The Tax Court Improvement Act would allow the Tax Court to issue third-party subpoenas before hearings, waive certain deadlines for filing a deficiency petition, and expand the role of special trial judges. The act also sets forth recusal requirements.2
U.S., Canada, & Mexico Prepare for USMCA Review
Canadian Prime Minister Mark Carney and Mexican President Claudia Sheinbaum met in Mexico City to tout their working relationship and shore up their approach in negotiating with the U.S. on trade.
“North America is the economic envy of the world,” said Carney. “Part of the reason for that is the cooperation between Canada and Mexico, both of us and the United States. We complement the United States. We make them stronger. We are all stronger together.”3
The trilateral United States-Mexico-Canada Agreement (USMCA) will be under review next year as part of a six-year mandatory review requirement baked into the trade deal. The review will begin on July 1, 2026.
In preparation for the joint review, the Office of the U.S. Trade Representative has launched a period for public comments on the USMCA ending November 3, 2025. A public hearing has been scheduled for November 17, 2025.
White House Restricts H-1B Visas
A new proclamation has been issued by President Donald Trump to stem what the administration views as an “abuse” of the H-1B program to bring skilled workers to supplement the American workforce.
“Some employers, using practices now widely adopted by entire sectors, have abused the H-1B statute and its regulations to artificially suppress wages,” the proclamation reads, “resulting in a disadvantageous labor market for American citizens.”
Nonimmigrant workers entering the U.S. under a H-1B visa will be required to also make a $100,000 payment with their applications. The U.S. Department of Labor and U.S. Department of Homeland Security are instructed to issue guidance for verification, enforcement, audits, and penalties, according to the fact sheet accompanying the proclamation.
From the Courts
Supreme Court Sets Date to Review Tariff Ruling. Trump v. V.O.S. Selections, 25-250 & Learning Resources v. Trump, 24-1287.
The U.S. Supreme Court has agreed to consider, on an expedited basis, the U.S. Federal Circuit Court of Appeals’ August ruling on the legality of the Trump administration’s tariffs under the International Emergency Economic Powers Act (IEEPA) on November 5, 2025.
Cannabis Wages Disallowed in Calculating Pass-Through Business Deduction. Savage v. Commissioner, T.C., No. 21606-22 & 21607-22.
The Tax Court decided that W-2 wages disallowed for deduction under Section 280E could not be treated as W-2 wages when determining the qualified business income deduction under §199A.
Section 280E disallows deductions for trades or businesses trafficking in controlled substances prohibited by federal law. Section 199A provides a deduction for owners of pass-through entities, which may be limited by the amount of W-2 wages paid by the business, among other things. In certain scenarios, taxpayers with higher W-2 wages may receive a higher deduction against their pass-through business income.
According to the ruling, petitioners invoked the plain statutory language of §199A(b)(4)(A) to include all wages reported on W-2s issued by the business. The court said petitioners ignored §199A(b)(4)(B), which states, “Such term shall not include any amount which is not properly allocable to qualified business income for purposes of subsection (c)(1).”
As the deduction for wages was not included in qualified business income, it could not be included in W-2 wages to calculate the limitation of the qualified business income deduction.
From Treasury & the IRS
Treasury & IRS Developing New Strategic Operating & Priority Guidance Plans
The IRS has told the Government Accountability Office (GAO) that Treasury and the IRS are developing new strategic operating plans to “align agency efforts with the current administration’s priorities.” The plans will cover fiscal years 2026 to 2030. Treasury’s plan is expected by February 2026 with the IRS’ coming the following summer.4
Meanwhile, Treasury expects to release its priority guidance plan by the end of the month or in early October. According to Deputy Assistant Secretary for Tax Policy Kevin Salinger, the plan will include OB3 implementation, deregulatory priorities including two more notices on the corporate alternative minimum tax, a section on digital assets, and other priorities.5
IRS’ Office of Chief Counsel Hiring Attorneys
More than 60 positions are available as the IRS’ legal division has seen hundreds of employees depart since the beginning of this year. More than 40 locations are available for candidates from Los Angeles to Washington, D.C.6
Released Guidance
Proposed regulations (REG-110032-25) have been released identifying occupations that customarily and regularly received tips on or before December 31, 2024, and provide a definition of “qualified tips” for purposes of the income tax deduction for qualified tips. The proposed regulations would define “qualified tips” as “amounts received as cash tips by an individual in an occupation that customarily and regularly received tips on or before December 31, 2024, subject to certain limitations.” Furthermore, cash tips include those received through a mandatory or voluntary tip-sharing arrangement and all cash-based exchanges such as by credit card, gift card, and tokens, i.e., casino chips. Not included would be payments such as event tickets, services, and most digital assets not exchangeable for cash.
Shortly before the proposed regulations were released, the Office of Information and Regulatory Affairs (OIRA) completed its review of the preliminary list of jobs eligible for OB3’s “no tax on tips” provision. The proposed regulations do not make any changes to the preliminary list.
Revenue Ruling 2025-19 provides the October 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 2025-47 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.
From the States
On June 16, 2025, Gov. J.B. Pritzker signed Illinois’ fiscal year 2026 budget bill into law enacting significant sales tax changes, including two amnesty programs. The Tax Delinquency Amnesty Program includes all state taxes collected by the Illinois Department of Revenue between July 1, 2018 and July 30, 2024. The amnesty window will soon begin on October 1, 2025 through November 17, 2025.
If an audit was recently completed or will be completed prior to the close of general amnesty on November 17, 2025, taxpayers must pay the full amount of the audit tax liability during the amnesty window to qualify. Furthermore, cases pending with the Board of Appeals may qualify. All outstanding or amended returns must be filed and payment in full must be submitted by the end of the amnesty window to remain eligible.
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“Government shutdown looms after Senate rejects House-passed stopgap funding bill,” thehill.com, September 19, 2025.
- 2“W&M Advances Bills on Tax Court Procedure and IRS Penalties,” taxnotes.com, September 18, 2025.
- 3“Canada, Mexico Pledge Coordination on Trade Pact Review With US,” bloomberglaw.com, September 18, 2025.
- 4“Trump-Era IRS Strategic Operating Plan to Come By Summer 2026,” bloomberglaw.com, September 16, 2025.
- 5“Priority Guidance Plan Just Weeks Away, Treasury Official Says,” bloomberglaw.com, September 18, 2025.
- 6“IRS Move to Hire Attorneys After Mass Resignations,” taxnotes.com, September 19, 2025.