Here is a look at recent tax-related happenings on the Hill, including increased prospects for a second reconciliation bill that may focus on healthcare reform.
Lately on the Hill
Healthcare Measures Fail in Senate
Rival partisan bills to address expiring health insurance tax credits both failed in the Senate last week, all but ensuring Americans enrolled in the health insurance marketplace will see their premiums rise significantly in the new year.
The bill put forth by Democrats fell on a 51-to-48 vote that would have kept the current status of the enhanced tax credit for another three years. Four Republicans joined the 47 Democrats in an effort to pass the measure but fell well short of the 60 votes needed.
Several pieces of legislation were considered among Senate and House Republicans. Ultimately, they put forth a bill crafted by Senate Finance Committee Chair Mike Crapo (R-ID) and Finance Committee member Bill Cassidy (R-LA). The measure would have let the tax credit expire but also provided a federal contribution in both 2026 and 2027 of $1,000 to a health savings account (HSA) for those aged 18 to 49 and who earn less than 700% of the federal poverty level. A $1,500 HSA contribution would have gone to those aged 50 to 64.
Add healthcare as a top priority for Congress in January, in addition to an impending government shutdown on January 30 if appropriations cannot be sorted out before then. “At the end of the day, health care is going to be a key theme next year,” said Sen. Thom Tillis (R-NC). “We need a solution to health care.”1
Second Reconciliation Bill May Focus on Healthcare Reform
Shortly after the One Big Beautiful Bill Act (OB3) passed in July, Republicans were already talking about another reconciliation bill. The prospects for one have only increased given the spotlight on healthcare reform lately. Republicans may use the process to pass these reforms without Democratic votes.
President Donald Trump recently said of a second reconciliation bill, “We don’t need it because we got everything. I said why don’t we make it one bill because it’s very hard to get things approved by the Democrats, and it worked out because there was something good for everybody.”2
Trump was likely not considering the healthcare issue as a bipartisan solution, especially in an election year. “I unfortunately have little hope that Democrats as a whole will be able to work with us, given that they are looking at November,” said Rep. Jodey Arrington (R-TX). “That leaves us with the option of reconciliation and a unilateral Republican healthcare bill.”
Disaster-Affected Tax Extension Bill Arrives at President’s Desk
The Senate unanimously passed legislation (H.R. 1491) giving taxpayers more time to claim credits or overpayment refunds when affected by natural disasters. According to the House Ways & Means Committee, “The Disaster Related Extension of Deadlines Act creates parity for the lookback period so that victims of natural disasters have additional time to claim a refund in the same way that those who request a filing extension receive additional time.”
The bill passed out of the House last spring, also by a unanimous vote.
Global Minimum Tax Deal Hits Hurdle in Sprint to Year-End Deal
The year-end goal to finalize the global minimum tax agreement by the Organisation for Economic Co-operation and Development (OECD) took a step back last week as several countries have pushed back on exemptions provided to the United States.3
The Trump administration has warned the OECD that it would implement retaliatory measures should it become subject to “discriminatory foreign countries” with “unfair tax regimes.” In response, the OECD proposed a “side-by-side” tax system for the U.S., exempting it when it imposes taxes that exceed an agreed-upon rate, among other requirements.
China, the Czech Republic, Estonia, and Poland objected to the plan.
“We have not considered this initiative suitable for Estonia from the very beginning, and even less so now, when the US, who initiated this effort, has declined to implement it themselves,” said Estonia’s Finance Minister Jürgen Ligi. “I told my US colleague when asked that we do not want anything other than what they want for themselves.”
Kevin Salinger, Treasury deputy assistant secretary for tax policy, is still hopeful a deal can be reached before the new year: “Our goal remains to reach an agreement before year-end, and we remain hopeful and optimistic that that will happen.” He added, “It is a complex negotiation, as is any negotiation with 140 actors.”4
From the Courts
Jenner v. Commissioner, 11th Cir., No. 25-10014 (Failure to File FBAR Penalties Is Not a Tax)
The Eleventh Circuit Court ruled that although the IRS is delegated to collect penalties for failure to file reports of foreign bank and financial accounts, such penalties must be contested at a U.S. District Court or U.S. Court of Federal Claims, rather than the U.S. Tax Court.5
The appeals court upheld the Tax Court’s dismissal of the case due to lack of jurisdiction. “An FBAR penalty is not a tax, nor is it imposed under the Internal Revenue Code.”
From Treasury & the IRS
FinCEN Illicit Activity Report Extension Under Administrative Review
According to the Office of Information and Regulatory Affairs (OIRA), it has received for review proposed rules that would delay Financial Crimes Enforcement Network (FinCEN) requirements for investment advisors to report suspicious activity to curb illicit financial risks to the U.S. financial system. The delay would extend the requirements from taking effect until January 1, 2028.
Released Guidance
Entities Wholly Owned by Indian Tribal Governments: Final regulations (T.D. 10039) clarify that entities wholly owned by federally recognized Indian tribal governments are generally not recognized as separate entities for federal income tax purposes, while still being treated as separate entities for federal employment and certain federal excise tax purposes.
Tribal General Welfare Benefits: Final regulations (T.D. 10040) establish rules governing when benefits provided by Indian tribal government programs qualify as tribal general welfare benefits that are excluded from an individual’s gross income.
Foreign Government Income: Final and temporary regulations (T.D. 10042) provide guidance under Section 892 on when foreign governments are treated as engaged in commercial activity and when an entity is a controlled commercial entity, clarifying rules on investments, trading, financial instruments, partnership interests, and U.S. real property holding corporations. The regulations apply generally to taxable years beginning on or after their publication date, with taxpayers permitted to apply them to open prior years if applied consistently.
Furthermore, proposed regulations (REG-101952-24) provide new guidance under §892 on when a foreign government’s acquisition of debt constitutes commercial activity and how to determine whether a foreign government has “effective control” of an entity engaged in commercial activities. They establish two safe harbors and a facts‑and‑circumstances framework for identifying debt acquisitions treated as investment rather than commercial activity, and they clarify that partnerships are not “controlled entities” for purposes of this section.
Rate Updates: Notice 2026-2 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.
Additionally, Revenue Ruling 2026-2 provides the January 2026 applicable federal rates (AFR), adjusted AFR, adjusted federal long-term rate and long-term tax-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.
HSA Guidance: Notice 2026-5 explains new rules under the OB3 that expand access to HSAs by permanently allowing pre‑deductible telehealth coverage, treating bronze and catastrophic Patient Protection and Affordable Care Act plans as high‑deductible health plans beginning in 2026, and permitting individuals enrolled in qualifying direct primary care service arrangements to remain HSA‑eligible.
State Opt-In for Scholarship Credit Program: Notice 2026-6 establishes the exclusive method for a state to make an election to become a “covered state” for purposes of the §25F scholarship credit program for calendar year 2027.
Foreign Currency Gain or Loss: The IRS has released draft forms and instructions for elections and transitions related to subsidiary treatment of foreign-currency gains and losses. Form 8964-ELE Section 987 Elections and Form 8964-TRA Section 987 Transition Information are expected to be finalized in early 2026.6
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“Doomed Health Votes Double as Political Weapons for Democrats,” bloomberglaw.com, December 11, 2025.
- 2“Lawmakers Mixed on Trump Dismissal of Second Reconciliation Bill,” taxnotes.com, December 12, 2025.
- 3“China leads resistance to US carve-out on OECD global minimum tax regime,” Financial Times US, December 12, 2025.
- 4“Pillar 2 Exemption Talks Nearing Finish Line, U.S. Official Says,” taxnotes.com, December 12, 2025.
- 5“Tax Court Is Wrong Venue for FBAR Disputes, Appeals Court Says,” bloomberglaw.com, December 8, 2025.
- 6“IRS Issues Draft Forms on Foreign-Currency Gain and Loss Rules,” bloomberglaw.com, December 8, 2025.