Here is a look at recent tax-related happenings on the Hill, including the U.S. Supreme Court hearing arguments on tariffs.
Lately on the Hill
Democrat Cadre Splits, Voting to End Shutdown
Eight Senate Democrats joined Republicans to advance legislation necessary to end the government shutdown. House members are returning to the Capitol after a nearly two-month-long hiatus to take up the measure in the next day or so.
The House Republican majority will narrow further as Rep. Adelita Grijalva (D-AZ) is due to be sworn in, bringing the balance of power to 219 Republicans to 214 Democrats. Only two votes can be lost by Republicans to pass legislation without Democrat support. Whether the swearing-in ceremony will occur before or after the continuing resolution (CR) is voted on remains to be seen. The slim margin of power still provides some doubt as to whether the CR package will ultimately pass.
The CR extends government funding until January 30, 2026, providing Congress time to negotiate any remaining fiscal year (FY) 2026 appropriation bills. Three of the total 12 appropriation bills are included in the agreed-upon legislation and will be funded through the end of the FY September 30, 2026, including: Agriculture, Legislative Branch, and Military Construction and Veterans Affairs. The CR also provides back pay to furloughed government employees and rehires those who were laid off.1
Democrats fell short in achieving their key demands: a permanent extension of expiring healthcare tax credits and curbing President Donald Trump’s efforts to institute spending rescissions, although Senate Majority Leader John Thune (R-SD) did promise to allow a floor vote on the tax credit.
From the Courts
U.S. Supreme Court Hears Arguments on Tariffs
Last week, the U.S. Supreme Court heard arguments on Trump’s imposition of tariffs under the International Emergency Economic Powers Act (IEEPA).2 Read our FORsights™ article, “Tariff Supreme Court Hearing: Now What?,” for a recap of arguments and possible next steps for the case.
U.S. Tax Court Cancels Various Trial Sessions
The U.S. Tax Court has canceled special trial sessions during the week of November 17 occurring in Denver, Detroit, New York, and San Francisco due to the government shutdown. Other sessions occurring that week will still occur as scheduled. This is the third round of canceled sessions the court has made since the government shutdown began on October 1.3
From Treasury & the IRS
IRS Brings Back Employees & Details of Shutdown Layoffs Revealed
The IRS made several moves related to its workforce this past week.
The IRS Criminal Investigation division posted job openings for 24 special agents in support of the D.C. Safe and Beautiful Task Force established by executive order. According to the post, “The Criminal Investigator plans and conducts investigations relative to criminal statutes of tax administration and financial crimes,” “Performs other investigative and enforcement duties,” and “Obtains, evaluates, integrates, and recommends action on information items to identify large areas of noncompliance.”
Court filings made by the U.S. Department of the Treasury revealed that of 1,399 workers fired on October 10, the largest cuts included 527 working in exam and collection duties, 489 working in information services, and 297 “in shared service jobs like communications, protection of taxpayer information, and procurement.”4
The IRS also reinstated 112 employees that had been furloughed in preparation for the next tax filing season. Most of the employees work with chief counsel and chief counsel financial officer offices. Forty-five lawyers also returned to work on guidance related to the One Big Beautiful Bill Act (OB3).5
Joshua Wu has been selected to head the U.S. Department of Justice’s new civil tax branch as the agency revamps its tax division.6 Jennifer Hodge will lead the criminal tax branch. Wu previously served as deputy assistant attorney general for appellate and review in the tax division while Hodge has been serving as deputy assistant attorney general over the Office of Enforcement Operations and the Narcotic and Dangerous Drug Section.7
Released Guidance
Notice 2025-62 grants penalty relief for taxable year 2025 related to new information reporting requirements introduced by the OB3 for deductions on qualified tips and qualified overtime compensation. This relief applies to failures in separately reporting tips, occupations, and overtime amounts on required returns and statements, recognizing that payors and employers may lack systems to comply during this transition year. While penalties under Sections 6721 and 6722 will not be imposed for these omissions in 2025, filers must still provide complete and correct aggregate payment information and are encouraged to furnish detailed data to help employees claim deductions. Guidance is forthcoming for individual taxpayers and how they can claim the deductions.
From the States
Alabama Details OB3 Conformity
On October 31, 2025, Alabama published guidance on its conformity to the OB3. According to this guidance, the state decouples from several of the tax credit provisions, such as the extension and enhancement of increased child tax credit and many of the §45 clean energy credits, in the OB3 when it comes to individual income tax. Alabama also effectively conforms to the treatment of Trump Accounts under §530A because while the state textually decouples from this section, these accounts are treated in the same manner as accounts under §408(a), which Alabama conforms to. In addition, Alabama decouples from the “no tax on tips” and “no tax on overtime” provisions.
The same can also be said for Alabama’s conformity to the OB3 when it comes to corporate income tax. Alabama decouples from many of the OB3’s credit provisions, such as the §45 clean energy credits and the foreign tax credit. However, Alabama does this because it instead allows these credits as a deduction in the calculation of corporate taxable income. This is also true for Alabama’s conformity for the OB3’s provisions relating to financial institutions’ excise tax.
Illinois Rejects Some OB3 Provisions & Makes SALT Cap Workaround Permanent
On October 31, Illinois passed House Amendment 1 of Senate Bill (SB) 1911. As amended, this bill decouples from §168(n), which was created under the OB3 to allow for an accelerated depreciation deduction of qualified production property. This bill also states that Illinois conforms to the OB3’s provisions regarding net controlled foreign tested income (NCTI).
SB 1911 also removed the sunset date for Illinois’ state and local tax (SALT) deduction cap workaround, therefore making this item permanent. The workaround, which became law, allows pass-through entities to pay an elective tax of 4.95% of the entity’s net income for a year. The partners and shareholders of the electing entities then receive a state income tax credit equal to the amount of the tax paid on their pass-through income.
Washington, D.C., Decouples From OB3 Changes
On November 4, 2025, the D.C. Council passed B26-0457. This bill decouples Washington, D.C., from certain deductions provided for in the OB3, including the deduction for overtime and tips, business deductions, deduction for personal car loan interest, and the additional $6,000 senior deduction. The bill also modified the standard deduction so that it is $15,000 for single filers, $22,500 for head-of-household filers, and $30,000 for married joint filers or surviving spouses. As a result of these actions, the council made an amendment to the bill that would expand Washington, D.C.’s child tax credit by $1,000 for single filers making below $75,000 and joint filers making below $90,000. It also temporarily increased the earned income tax credit from 85% of the federal EITC to 100%.
This bill is still subject to congressional review; therefore, it has not taken effect yet.
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“Senate Advances Plan to End Shutdown After Some Democrats Agree,” bloombergtax.com, November 10, 2025.
- 2Trump v. V.O.S. Selections, 25-250 and Learning Resources v. Trump, 24-128.
- 3“Tax Court Cancels Third Wave of Trial Sessions,” taxnotes.com, November 10, 2025.
- 4“IRS Workers in Collections Take Biggest Hit in Shutdown Firings,” bloombergtax.com, November 5, 2025.
- 5“IRS Recalled Handful of Workers From Shutdown Furloughs,” bloomberglaw.com, November 6, 2025.
- 6“Latham & Watkins Attorney Set to Lead New DOJ Civil Tax Unit,” bloomberglaw.com, November 7, 2025.
- 7“Justice Department Veteran to Lead New Criminal Tax Section,” bloomberglaw.com, October 27, 2025.