Here is a look at recent tax-related happenings on the Hill, including an ongoing government shutdown to begin October.
Lately on the Hill
Government Funding Showdown
What a week! Coming short of the 60 votes needed to pass the Concurring Resolution (CR) to fund the government, the start of October ushered in the beginning of the shutdown. Even with three last-minute Democratic votes from Sens. Catherine Cortez Masto (D-NV), Angus King (I-ME), and John Fetterman (D-PA), Senate Majority Leader John Thune fell short of the eight Democratic votes he needed to clinch passage of the CR.1
The big sticking point for the Democrats remains healthcare (including the Premium Tax Credit). During this time, it’s possible that President Donald Trump could make cuts to the federal workforce. In fact, Press Secretary Karoline Leavitt stated that layoffs are “likely going to be in the thousands.”2 Partnering with Russ Vought, director of the U.S. Office of Management and Budget (OMB), this possibility of layoffs continues as the government remains shuttered.
So where does that leave the IRS? The IRS released its “lapsed appropriations contingency plan” just before the shutdown. Included in the document is its plan to use Inflation Reduction Act (IRA) dollars to pay approximately 75,000 employees for five days to keep things running. Of course, with the October 15 tax deadline looming, the question remains: What happens after that five-day window? The contingency plan does not indicate any employees would be retained “to perform activities expressly authorized by law, to discharge of the President’s constitutional duties and power, nor to protect life and property” after the IRA funds are utilized.
It is unclear whether the shutdown will affect IRS exams, delay hiring talent for filing season, or push back form updates. Historically speaking, the process of issuing guidance to support tax legislation persists regardless of shutdown threats, meaning that the IRS could still pursue its “2025-2026 Priority Guidance Plan.” The document lists its game plan for tackling needed guidance to support the One Big Beautiful Bill Act (OB3), “deregulation and burden reduction,” 501(c)(3) issues, tribal tax issues, digital assets, the Secure 2.0 Act, and more.
Tariffs – Furniture, Pfizer, & Films
The tariff landscape continues to evolve, with Trump making moves with lumber, pharmaceuticals, and potentially movies.
Trump’s proclamation on September 29 implemented additional tariffs on “imports of timber, lumber, and their derivative products,” coming in at:
- 10% for softwood timber and lumber
- 25% for certain upholstered wooden products (raising to 30% as of January 1, 2026)
- 25% for kitchen cabinets and vanities (raising to 50% as of January 1, 2026)
Effective as of 12:01 a.m. ET on October 14, 2025, the proclamation is made under Section 232 claiming its necessity for national security. Notably, this move allows for the tariffs to remain in place regardless of the U.S. Supreme Court hearing about the International Emergency Economic Powers Act (IEEPA) tariffs on November 5. Further, agreements with the U.K., EU, and Japan will be honored despite the proclamation. With some exceptions, these tariffs would be in addition to existing duties already in place, compounding the impact on the industry. Review the Lumber and Timber 232 Annex for more.
Trump also issued a fact sheet about his “Most-Favored-Nation” pricing plan and the related agreement with Pfizer. In return for an exemption from pharmaceutical-specific tariffs for three years, Pfizer will provide drugs to Medicaid participants at prices equivalent to the “lowest paid by other developed nations.” These drugs can be purchased on a new government website, TrumpRx.gov, which has yet to launch.
Next to be addressed is the movie industry. In his Truth Social post,3 Trump said that he “will be imposing a 100% Tariff on any and all movies that are made outside of the United States.” No further official documents have been released on the topic yet, but this is not the first time the president has commented on the performance of the American film industry. With tariffs applying to goods and not services, however, it will be interesting to see how this one unfolds.
Digital Assets
The Senate Finance Committee met last week to discuss crypto-related legislation, supported by the Joint Committee on Taxation’s document, “Examining the Taxation of Digital Assets.” Coming on the heels of the GENIUS Act and other digital asset bills earlier this year, there seems to be some bipartisan support for tax legislation in the area. Senate Bill 2207 has been introduced by Sen. Cynthia Lummis (R-WY), and it has been co-sponsored by two of her Republican colleagues on the Senate Finance Committee. Aimed at aligning the treatment of digital assets with other financial instruments, the bill contains a number of topics, including:
- Tax deferral from mining and staking until the sale of the digital asset
- Exemption for taxpayers earning less than $5,000 annually of capital gains from personal use transactions
- Implementation of the 30-day wash sale rule
Tax writers at the hearing acknowledged that the second point will be one to watch for, citing both the practical burden of tracking small transactions but also the opportunity the exemption could provide to bad actors. Further, the comment period for the proposed regulations surrounding the GENIUS Act has been extended until November 4, 2025.
EV Credits Terminate, but Automakers Soften Impact
Various electric vehicle (EV) credits previously implemented by the Inflation Reduction Act were terminated last Tuesday, a change made by the OB3. However, some of the largest automakers are implementing programs to soften the impact of losing the $7,500 federal tax credit.4 Depending on the model and company, automakers are accomplishing this in different ways. Whether by applying deals to leases or cash discounts, those considering an EV purchase could benefit from the new opportunities despite tax changes.
From the Courts
Transfer Pricing Case Goes Against IRS
The U.S. Court of Appeals for the Eighth Circuit reversed the U.S. Tax Court’s decision in 3M Company v. Commissioner of Internal Revenue, No. 23-3772 (8th Cir. 2025). Brazilian law capped the royalty payment amount a Brazilian subsidiary could legally pay to a foreign parent, so 3M did not allocate around $24 million for royalties to its U.S. parent company. Even so, the IRS did reallocate this amount with an argument centered on Regulation 1.482-(h)(2) and the resulting “blocked income rule.” Despite agreeing that this sum would have mirrored an arms-length (“unrelated entity”) payment amount, as stated in the opinion, “the dispute here focuses on whether the IRS can reallocate unpaid royalties that Brazilian law prevented 3M do Brasil from paying.” Ultimately, based on the flexibility afforded from Loper Bright Enterprises v. Raimondo, the Eighth Circuit concluded that the IRS cannot.
Downward Attribution & Subpart F Inclusion
The decision made in Altria Group Inc. v. United States, No. 3:23-CV-002935 demonstrates the impact that OB3 truly can make on companies in the United States. In this case, the court decided against Altria, stating that it should pick up a Subpart F inclusion for its indirect ownership of two subsidiaries of Anheuser-Busch InBev SA/NV (of which it owned around 10%). For the period in question, §958(b)(4) includes attribution rules that would treat these two subsidiaries as controlled foreign corporations, thereby imputing Subpart F income to Altria. Note that OB3 has repealed the downward attribution rules that required this pickup from Altria, so moving forward, entities with similar structures will not have the same result.
Released Guidance
R&D Announcement: 2025 Form 6765 Section G Optional
Announcement IR-2025-99 addressed multiple aspects of the research credit. Not only is the comment period for the draft instructions of Form 6765 extended through March 31, 2026, but Section G of the form is optional for all filers for tax year 2025. In addition, the research credit claim transition period is extended through January 10, 2027.
Final Regulations: Interest Capitalization for “Designated Property” Improvements
TD 10034 accomplishes a few things with relation to interest capitalization requirements for “taxpayers making improvements to real or tangible personal property that constitute the production of designated property” (amending the current regulations under §263A(f)):
- Removes the associated property rule (and similar rules in §1.263A-11(e)) from interest capitalization requirements for this activity
- Clarifies the mid-production purchase rule (under §1.263A-11(f))
- Modifies the definition of “improvement”
- Alters other rules within the §263A(f) regulations
Rural Opportunity Zones Defined
Notice 2025-50 addresses the newly available “rural” opportunity zones implemented by the OB3. Areas qualify as rural if they are “any area other than a city or town with a population greater than 50,000, and any urbanized area contiguous and adjacent to a city or town with a population greater than 50,000.”6 The Notice also addresses the 50% substantial improvement threshold for qualified opportunity zones.
CAMT Proposed Regulations Issued
Notice 2025-46 was issued, clarifying “the application of the corporate alternative minimum tax (CAMT) to domestic corporate transactions, financially troubled companies (troubled companies), and tax consolidated groups.” This interim guidance comes with the expectation that the current proposed regulations on the matter will be revised.
Private Letter Ruling Process Altered
Revenue Procedure 2025-30 alters the process for private letter rulings after September 29, 2025, specifically for §355 transactions, e.g., tax-free distribution stock of a controlled corporation. Note that in last week’s From the Hill, we explored the revocation of Proposed Regulations in this area.
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“Three key Democratic senators to watch in the government shutdown standoff,” nbcnews.com, October 4, 2025.
- 2“Federal shutdown layoffs could be in the ‘thousands,’ Leavitt says,” foxnews.com, October 2, 2025.
- 3Donald J. Trump, truthsocial.com, September 29, 2025.
- 4“Automakers Extend $7,500 EV Discount After Federal Subsidy Expires.” bloomberg.com, October 1, 2025.
- 5“Altria Loses Litigation on Downward Attribution of Foreign Stock,” taxnotes.com, October 2, 2025.
- 6“Treasury, IRS provide guidance for Opportunity Zone investments in rural areas under the One, Big, Beautiful Bill,” irs.gov, September 30, 2025.