Here is a look at recent tax-related happenings on the Hill, including House appropriators advancing the fiscal year (FY) 2027 Financial Services and General Government appropriations bill.
Lately on the Hill
Reconciliation 2.0 Advances With Senate Vote
Senate Republicans are advancing a narrowly focused budget reconciliation plan aimed at ending the partial U.S. Department of Homeland Security (DHS) shutdown by providing multiyear funding for immigration and border enforcement.1 The decision to keep the package narrow comes as internal GOP disagreements grow over whether the effort should remain limited or expand to broader economic priorities. The effort is anchored in the FY 2026 budget resolution, S. Con. Res 33, which sets the reconciliation framework, and now moves to the House for consideration.
The Senate resolution contemplates roughly $70 billion in multiyear immigration enforcement funding and instructs committees to report reconciliation language by May 15, 2026.2 The Senate-passed version of the budget reconciliation resolution does not address any tax-related policies, even as some House Republicans have argued this may be the last realistic fast-track opportunity to add additional priorities before the midterm elections. With a narrow margin in the House, the question now is whether leadership can hold the coalition together around a single-purpose DHS bill or whether demands for a larger package can complicate the path forward.
House Appropriations Advance Fiscal 2027 Bill
House appropriators have moved the FY 2027 Financial Services and General Government (FSGG) appropriations bill through the early markup process, framing it as a roughly $25.3 billion package that is about $1 billion lower than the prior year’s enacted level.3 The House Appropriations Committee later approved the measure and positioned it for floor consideration. Republicans emphasized cost controls and “government efficiency,” while Democrats pressed amendments that would have increased agency funding, including a proposed $1 billion boost for IRS enforcement, which Republicans rejected.4 The committee release also highlighted multiple policy riders, including provisions addressing financial system oversight and constraints on certain IRS-related initiatives referenced during markup discussions.
Agencies Continue Terminating Union Contracts Under Collective Bargaining Exemptions
Multiple federal agencies have canceled collective bargaining agreements in recent weeks, including the IRS, the U.S. Department of Energy, and the Office of the Comptroller of the Currency, among others.5 The cancellations are framed as compounding operational and financial hurdles for unions, including disruptions to dues collection and contract-based grievance processes. Earlier executive actions directed agencies to end union contracts for more than 1 million federal workers based on national security rationales. The White House previously issued a fact sheet describing an executive order using Civil Service Reform Act authority to exempt a list of agencies—including Treasury—from federal collective bargaining requirements on national security grounds.
From the Courts
Economic Substance Doctrine Blocks TCJA Timing-Mismatch Refund Claim (Liberty Global v. United States)
In Liberty Global Inc. v. United States,6 the U.S. Court of Appeals for the Tenth Circuit held that the codified economic substance doctrine (Internal Revenue Code Section 7701(o)) was relevant to “Project Soy,” a multi-step transaction series designed to exploit a Tax Cuts and Jobs Act (TCJA) “last day of year rule mismatch” in the international provisions.7 As described by the court, the plan used integrated steps intended to manufacture tax-favorable results, including generating earnings and profits (E&P) through intercompany transactions and then selling the Belgian affiliate holding company to its U.K. parent at a reported $2.4 billion gain while claiming a §245A dividends-received deduction.8 The Tenth Circuit rejected the taxpayer’s argument that economic substance doctrine is merely an interpretive tool that cannot override the literal terms of the code and affirmed the district court’s denial of the claimed benefits. The decision left the taxpayer unable to obtain the sought-after refund and reinforces that the courts may disregard tax benefits generated by an integrated series of steps when the transactions are economically meaningless apart from tax outcomes.
From Treasury & the IRS
Digital Services Taxes Return to the Trade Spotlight
Digital services taxes (DSTs) resurfaced in trade oversight this week as the U.K. reaffirmed it is maintaining its DST and described the measure as a “fair” and “proportionate” approach to taxing digital business activity in the United Kingdom.9 The issue is also in focus as Congress continues oversight of the administration’s 2026 trade policy agenda, including an April 22 House Ways and Means hearing with U.S. Trade Representative Jamieson Greer. The U.S. has long objected to DSTs as discriminatory, including through prior §301 investigations into DST regimes such as the U.K.’s. President Donald Trump amplified the dispute on April 23, indicating the U.S. could respond with additional tariffs on U.K. goods if the DST remains in place.10 The current dispute is unfolding alongside ongoing U.S.-U.K. economic negotiations.
IRS Criminal Investigation Flags Interest in AI Chat Data
The outgoing head of IRS Criminal Investigation indicated that the division’s interest in emerging technology extends beyond the analytics tools used for case selection and may also include information generated through artificial intelligence (AI) tools, including chat data. The comments highlight that taxpayers and businesses should consider data governance and retention practices for AI tools as enforcement attention evolves.11
Taxpayer Advocacy Panel Releases 2025 Annual Report With IRS Service Recommendations
The Taxpayer Advocacy Panel (TAP) released its 2025 Annual Report describing outreach efforts and recommendations aimed at improving IRS operations, taxpayer communications, and modernization initiatives. The report states TAP submitted 20 project referrals and provided 188 recommendations, including clearer notices, more user‑friendly digital self‑service tools (such as IRS Online Account), streamlined correspondence processes, and reduced wait times through expanded secure chatbot and live‑chat options.
Treasury Signals Guidance & Transition Rule After Medical Marijuana Rescheduled
The U.S. Department of Justice (DOJ) issued an order effective April 22 placing FDA-approved marijuana products and marijuana subject to a qualifying state medical marijuana license in Schedule III of the Controlled Substances Act, while leaving other marijuana—including unlicensed bulk marijuana—in Schedule I.12 Following the DOJ order, Treasury and the IRS announced they plan to issue guidance addressing federal tax consequences, including how §280E applies after rescheduling for activities that no longer involve Schedule I or II controlled substances. Treasury said the guidance is expected to clarify that for businesses with multiple activities, §280E applies only to activities related to trafficking in Schedule I or II substances, including through expense apportionment. Treasury indicated that forthcoming guidance will likely include a transition approach under which the rescheduling would generally take effect beginning with a business’s full first taxable year that includes the DOJ order’s effective date, for activities no longer involving Schedule I or II substances.
Treasury Announces Expansion of Required Nonprofit Reporting
Treasury announced that the IRS plans to revise Form 990 to improve transparency and tax administration for certain §501(c)(3) organizations, including clearer disclosure of government contracts, grants, and fiscal sponsorship arrangements. Treasury said the goal is to improve transparency into sources and uses of funds and address concerns that some fiscal sponsorship structures can obscure operational control and how funds are used.13
Released Guidance
IRS Updates FAQs on Educational Assistance Programs
The IRS updated the frequently asked questions in Fact Sheet 2026-10 on §127 educational assistance programs, including updated discussion of how the rules apply to certain qualified education loans and a modified sample plan reflecting the One Big Beautiful Bill Act (OB3) amendments. The IRS reiterated that employees generally may exclude up to $5,250 of qualifying educational assistance from gross income, and employers should not include eligible benefits in Box 1 of Form W-2 for calendar years 2025 and 2026; beginning with taxable years after 2026, the exclusion amount is adjusted for cost-of-living increases under the OB3. The fact sheet supersedes prior FAQs in FS-2024-22 and includes additional information on reliance.
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 GOP Leaders Leave Tax Out of Reconciliation 2.0,” taxnotes.com, April 22, 2026.
- 2“GOP Advances DHS Funding Plan Amid Divide on Economic Push (2),” news.bloombergtax.com, April 23, 2026.
- 3“House GOP Appropriators Advance Billions in Cuts to IRS, SEC,” news.bloombergtax.com, April 22, 2026.
- 4“House Appropriations Committee Advances Bill to Cut IRS Funding,” taxnotes.com, April 23, 2026.
- 5“Trump Nixes Slew of Bargaining Contracts in Treasury Union Purge,” news.bloombergtax.com, April 23, 2026.
- 6Liberty Global, Inc. v. United States, No. 23-1410 (10th Cir. Apr. 21, 2026).
- 7“Liberty Global $110 Million Tax Plan Fails Substance Test (1),” news.bloombergtax.com, April 22, 2026.
- 8“Government Wins Economic Substance Battle in Liberty Global,” taxnotes.com, April 22, 2026.
- 9“U.K. Justifies Digital Tax After Trump’s Punitive Trade Threat,” taxnotes.com, April 27, 2026.
- 10“U.K. Justifies Digital Tax After Trump’s Punitive Trade Threat,” taxnotes.com, April 27, 2026.
- 11“IRS May Be Coming for Your Artificial Intelligence Chats,” taxnotes.com, April 24, 2026.
- 12“DOJ Medical Marijuana Order Calls for ‘Retrospective’ Tax Relief,” taxnotes.com, April 24, 2026.
- 13“IRS to Revise Tax-Exempt Reporting Form Amid Nonprofit Crackdown,” news.bloombergtax.com, April 23, 2026.