Here’s a look at recent tax-related happenings on the Hill, including the latest developments with the reconciliation bill.
Lately on the Hill
Senate Passes H.R.1
At approximately noon today, the Senate passed its bill. It now will move to the House Rules Committee, which is scheduled to meet this afternoon. This committee released text of the bill which is available here.
“Byrd Bath” Process in Senate
Senate Parliamentarian Elizabeth MacDonough ruled that several provisions in the Senate bill were not being in compliance with the Byrd Rule. Most notably, the parliamentarian axed key changes to Medicaid that the Republicans were counting on as critical spending cuts in the bill.1 Senate Majority Leader John Thune decided not to overrule the parliamentarian’s rulings but vowed to rework the provisions to include it in the bill.
MacDonough also axed the following tax provisions, which may be reworked in the final bill:
- Restriction of Obamacare tax credits for immigrants
- Tax credits for organizations that provide money for children to attend private schools
- Exemptions for religious universities from an endowment excise tax
- Removal of taxes on silencers and certain guns
- Mandates surrounding the Earned Income Credit (EIC) that require parents to prove child eligibility
- Increases to penalties for revealing confidential taxpayer information2
The parliamentarian did not take issue with the “current policy” baseline utilized by the Senate Republicans that maintains that extending the 2017 Tax Cuts and Jobs Act (TCJA) tax cuts does not add to the deficit.3
Section 899 Pulled From OBBBA Bills
Treasury Secretary Scott Bessent asked the House and the Senate to remove the controversial Section 899 from their versions of the OBBBA as he brokered a deal to shelter the U.S. from the so-called discriminatory taxes in the Organization for Economic Co-operation and Development’s (OECD) Pillar Two agreement.4 Via a statement released by Canada on behalf of G-7, G-7 counties confirmed that the U.S. would be exempt from the Pillar Two taxes. See our alert for more information.
Congressional Budget Office (CBO) & Joint Committee on Taxation (JCT) Released Estimated Bill Impact
The JCT estimated that the Senate version of the OBBBA would decrease federal revenue by $4.4 trillion over a 10-year period.
U.S. Cancels Trade Talks With Canada (or Did It)
The U.S. called off trade negotiations as a result of Canada’s digital services tax (DST) and threatened to enact another round of tariffs against the country if it did not repeal the tax.5 Shortly thereafter, Canada rescinded its DST taxes, targeting the U.S. in an effort to get back to the negotiating table.6
Judicial Review
In a 6–3 decision, the U.S. Supreme Court limited the ability of lower courts to issue universal or nationwide injunctions. The ruling maintains that the three courts that issued nationwide injunctions against President Donald Trump’s executive order related to birthright citizenship exceeded their constitutional authority. Applicable court cases under nationwide injunctions will return to lower courts to be decided on their merits.
From the Treasury & IRS
Senate Confirms Kies as Treasury Policy Chief
The Senate confirmed Kenneth Kies as assistant secretary for tax policy. The 53–45 party-line vote made Kies the third person to serve as both chief of staff for the JCT and assistant secretary for tax policy at the Department of the Treasury.7
Long Sworn in as IRS Commissioner
The IRS swore in Billy Long as the 51st IRS commissioner on June 27 after the Senate confirmed him on June 12.8 Long will serve as the IRS commissioner through November 12, 2027. Long succeeded Acting Commissioner Michael Faulkbender as the IRS chief.
National Taxpayer Advocate Issues Midyear Report
The National Taxpayer Advocate, Erin Collins, issued her midyear report to Congress concerning the IRS via IR-2025-71. The report summarizes the results of the 2025 filing season while exploring critical challenges facing the Service and taxpayers. The report highlighted issues related to employee retention credit claims, identity theft, and impending tax changes ushered in through upcoming legislation. Collins also issued recommendations for the 2026 tax year and lauded the Service’s successes during the year.
Released Guidance
The IRS released Notice 2025-31, which lists the information needed to determine if taxpayers qualify for the energy community bonus credit. The notice outlines the requirements to qualify for the credit under the Statistical Area Category and the Coal Closure Category via updated schedules.
On July 1, Treasury withdrew two proposed regulations that would have significantly modified the treatment of built-in gains and losses in §382 transactions. The proposed regulations would have eliminated the §338 method and mandated the use of the §1374 method of Notice 2003-65 in the computation of NUBIG and NUBIL. Under Notice 2003-65, the §338 method generally provides significant benefits to taxpayers with a net unrealized built-in gain. The proposed regulations would have also made significant changes to how liabilities were treated in the determination of built-in gain.
- 1“Thune Says He Won’t Overrule Senate Referee on Medicaid Cut,” thehill.com, June 26, 2025.
- 2“A Running List of Policies Rejected from the Republican Megabill,” nytimes.com, June 30, 2025.
- 3“Democrats Accuse GOP of Nuking Senate Rules to Pass Trump Megabill,” thehill.com, June 29, 2025.
- 4“Treasury Deal Halts ‘Revenge Tax’ that Spooked Wall Street,” bloomberglaw.com, June 26, 2025.
- 5“Trump Ends Canada Trade Talks in Retaliation Over Digital Tax,” bloomberg.com, June 27, 2025.
- 6“Canada Drops Digital Services Tax to Restart US Trade Talks,” bloomberg.com, June 30, 2025.
- 7“Senate Confirms Kies to Top Treasury Tax Role,” taxnotes.com, June 27, 2025.
- 8“Billy Long Sworn in as IRS Commissioner,” taxnotes.com, June 23, 2025.