Here is a look at recent tax-related happenings on the Hill, including Republican leadership working on another reconciliation bill.
Lately on the Hill
Congress Is Back, Will Address Government Funding & Possible New Tax Bill
Members of Congress returned to the Hill this week, starting a month-long dash to fund the government before the end of the fiscal year on September 30. Temporary funding by a continuing resolution (CR) has been the norm in recent history and this fiscal year is shaping up to be the same.
Republicans are leaning toward continuing current funding levels and passing a “clean” CR, with little to no policy riders, in a challenge to Democrats to oppose it and shut down the government. Fiscally concerned Republicans may be on board to keep current funding levels in place considering the administration’s efforts to reduce government spending in other ways. Last month, the administration requested Congress to rescind $5 billion in funds for the U.S. Agency for International Development (USAID).1
In addition to government funding, Republican leadership is also working on another reconciliation bill to clean up and address other matters not included in the One Big Beautiful Bill Act (OB3). Possible inclusions may address expiring tax credits such as the Work Opportunity Tax Credit, increased limit for gambling loss deductions, or a bigger deduction for pass-through business income.2
Court Rules IEEPA Tariffs Unlawful & EU Takes Steps to Reduce Tariffs
Last week, the U.S. Court of Appeals for the Federal Circuit ruled, in a 7-to-4 decision, that certain tariffs imposed under the International Emergency Economic Powers Act (IEEPA) are illegal.3 This accounts for the tariffs issued by the administration, including wide-ranging reciprocal tariffs on dozens of countries throughout the world and specific additional tariffs on China, Canada, and Mexico.
The court stated, “IEEPA provides that, after declaring a national emergency … the President may ‘investigate, block during the pendency of an investigation, regulate, direct and compel, nullify, void, prevent or prohibit, any … importation or exportation of … any property in which any foreign country or a national thereof has any interest.’ 50 U.S.C. § 1702(a)(1)(B). Notably, IEEPA does not use the words ‘tariffs’ or ‘duties,’ nor any similar terms like ‘customs,’ ‘taxes,’ or ‘imposts.’ IEEPA also does not have a residual clause granting the President powers beyond those which are explicitly listed.”
The dissenting opinion stated, “IEEPA’s authorization of presidential action in this realm is not an unconstitutional delegation of legislative authority under the Supreme Court’s decisions, which have upheld broad grants of authority, including tariffing authority, in this foreign-affairs-related area.”
The tariffs do remain in effect through October 14, allowing for the administration to appeal to the U.S. Supreme Court.
The European Commission has released a proposal to begin implementation of the U.S. and European Union (EU) Joint Statement on a framework for a trade deal. The proposal is to “eliminate tariffs on U.S. industrial goods and provide preferential market access for a range of U.S. seafood and non-sensitive agricultural goods. The second one proposes to prolong the tariff-free treatment of lobster, now including processed lobster.” The agreement had conditioned these actions before the U.S. would reduce tariffs on the automotive sector from 27.5% to 15% retroactive to August 1.
From the Treasury & IRS
Organizational Shake-Up Continues
The U.S. Department of the Treasury is looking to form a centralized division that will be known as the Treasury Common Services Center. The consolidation “will bring together human resources processing, common information technology functions, and operations services like travel and acquisition” of various bureaus throughout the agency. Pete Bergstrom, associate director for Management Division and chief financial officer of the Financial Crimes Enforcement Network, has been tapped to run the division.4
Reports also indicate that the IRS is providing the option to employees who participated in the deferred resignation offer to return to their positions, partially reversing previous efforts to reduce the size of the agency.5
Other IRS leaders are vacating their positions, including IRS Associate Chief Counsel (Corporate) Mark Schneider. The position will be filled by Lisa Fuller, who has served as deputy.6 Also leaving is Trish Turner, who has led the Digital Assets Unit since May.7
Released Guidance
Revenue Procedure 2025-28 was issued related to research and experimental (R&E) expenditures as modified by OB3. For more information, see our FORsights™ alert, “IRS Releases Guidance on Research Cost Deductions.”
Revenue Ruling 2025-18 provides the 2025 fourth quarter interest rates for overpayments and underpayments of tax. The rates are 7% for noncorporate payments, 6% corporate payments, 9% for large corporate underpayments, and 4.5% for corporate overpayments exceeding $10,000.
Draft 2026 W-2 and W-4 forms have been released. The W-2 has new box 12 codes for employer contributions to Trump Accounts, tips, and overtime as established by OB3. Also, a new box 14b to report the Treasury Occupation Code for occupations eligible for the tip income deduction has been added. The W-4 deductions worksheet has been revamped and includes lines for tips, overtime, new car loan interest, senior deductions, etc. Treasury has released a preliminary list of jobs eligible for the tip deduction.
From the States
Colorado has enacted five revenue bills as the state’s legislature seeks to close a budget shortfall for the fiscal year. Among other revenue-generating maneuvers, the bills decouple the state from federal tax benefits, including the qualified business income deduction on state income and foreign-derived intangible income provisions.
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“White House Dares Democrats to Oppose Flat Funding Extension,” bloomberglaw.com, August 29, 2025.
- 2“IRS Funding on Tap as Congress Returns From Summer Recess,” bloomberglaw.com, September 2, 2025.
- 3V.O.S. Selections v. Trump, 25-1812, 25-1813, U.S. Court of Appeals, Federal Circuit.
- 4“Treasury Signals Plan to Merge Administrative Work Into One Unit,” bloomberglaw.com, August 27, 2025.
- 5“IRS Plans to Reinstall Some Workers Who Previously Quit,” bloomberglaw.com, August 22, 2025.
- 6“Schneider Steps Down as IRS Corporate Chief,” taxnotes.com, August 29, 2025.
- 7“IRS Crypto Leader to Leave Amid Agency Executive Departures,” bloomberglaw.com, August 22, 2025.