Here is a look at recent tax-related happenings on the Hill, including plans for a second reconciliation bill possibly prioritizing non-tax items.
Lately on the Hill
IRS Funding Further Reduced in Proposed Budget
President Donald Trump’s fiscal year (FY) 2027 budget request proposes a $1.4 billion reduction in annual IRS funding, framing the cut as part of a broader plan to “streamline” IRS operations and rely more heavily on technology, while maintaining a high level of customer service and tax administration.1 The request follows recent reductions in IRS funding and sets up another round of negotiations over IRS capacity as Congress considers FY 2027 appropriations.
Separately, the administration is also pushing a broader federal workforce shift toward “skills‑based” hiring: the Office of Personnel Management (OPM) has targeted more than 600 job classifications for review and is already removing degree requirements and moving toward skills-based assessments, a transition OPM expects will take more than a year.2
Second Reconciliation Bill Shifts Focus From Tax
Republicans’ plan for a second reconciliation bill may prioritize non-tax items, such as funding the U.S. Department of Homeland Security; however, House Ways and Means Chair Rep. Jason Smith (R-MO) has said that tax items will not be omitted if a second reconciliation bill moves forward.3 Having already used reconciliation to enact the One Big Beautiful Bill Act (OB3), which included major tax provisions alongside other measures, tax writers are also positioning reconciliation as a potential vehicle for “cleanup” provisions that did not make it into the OB3, such as addressing expired enhanced Affordable Care Act premium tax credits.
IEEPA Tariff Refunds: CBP Reports Progress on CAPE Refund Platform
On March 31, 2026, U.S. Customs and Border Protection (CBP) provided an updated status on its Consolidated Administration and Processing of Entries (CAPE) system intended to support International Emergency Economic Powers Act (IEEPA) tariff refunds, including component progress and expected sequencing for refunds processing.4 For additional details, see our FORsights™ alert on the CAPE update, “Tariff Refund Progress and Timing Update: CAPE System.”
Tariffs on Metals Restructured While Maintaining 50% Rate
The administration said it will keep a 50% tariff on many imported steel, aluminum, and copper products, while simplifying how duties apply to derivative goods. Under the updated framework, certain products generally face 25% or 50% rates, and items with 15% or less steel, aluminum, or copper content are no longer subject to the Section 232 metals tariffs.5
Tariffs Announced on Patented Drugs With Exceptions
The administration said it will impose tariffs of up to 100% on certain patented pharmaceutical products and ingredients under §232, with multiple exemptions and alternative rates. The White House fact sheet describes staged effective dates and pathways to reduced tariffs tied to pricing and onshoring agreements; generics and biosimilars are not covered at this time.6
From the Courts
Johnson Amendment Case Dismissed for Lack of Jurisdiction (National Religious Broadcasters v. Bessent)
The IRS and plaintiff religious organizations jointly sought a consent judgment that would have barred enforcement of the Johnson Amendment, a §501(c)(3) restriction on participating or intervening in political campaigns, against the plaintiffs.7 Judge J. Campbell Barker, Eastern District of Texas declined to approve the proposed settlement and dismissed the case8 for lack of subject‑matter jurisdiction, concluding the requested relief would restrain assessment or collection of federal taxes, which is barred by the Tax Anti‑Injunction Act and the Declaratory Judgment Act’s federal tax bar.9 The court did not reach the underlying constitutional claims and emphasized that jurisdiction cannot be created by government consent; absent an IRS enforcement consequence, the case was not a proper pre-enforcement challenge.10
IRS Allowed to Collect Criminal Restitution in Parallel
In Daugerdas v. Commissioner of Internal Revenue,11 the Seventh Circuit held that the IRS has authority to assess and collect court-ordered criminal restitution tied to tax offenses as a civil liability.12 The court also agreed the IRS is not bound by the criminal court’s restitution payment schedule, meaning the IRS can pursue its own collection tools, including liens, under its civil collection authority. The decision was a question of first impression for the circuit and effectively confirms a “parallel track” for restitution-based assessments.
Professional Employer Organization (PEO) Ineligible for Wage-Based Credits Without Common-Law Employer Status
In Barrett Business Services, Inc. v. Commissioner,13 the U.S. Tax Court held the PEO could not claim wage-based credits, including the Work Opportunity Tax Credit and the Empowerment Zone Employment Credit, for employees because eligibility requires being the common-law employer, not merely the entity handling payroll and employment tax reporting.14
From Treasury & the IRS
Treasury Designates BNY as Financial Agent for Trump Accounts
Treasury designated Bank of New York Mellon (BNY) as a financial agent to support implementation of the new Trump Accounts program.15 Under the designation, BNY will manage the initial accounts and help develop a Trump Accounts app. BNY has partnered with Robinhood to serve as the brokerage and initial trustee for the accounts; Treasury said it will retain control over the app and operations for the initial accounts.
Treasury Highlights Early Season Filing Data on New Deductions
Treasury Secretary Scott Bessent said early returns show heavy use of the OB3’s temporary deductions, including more than 4.6 million taxpayers claiming the “no tax on tips” deduction and roughly 20 million benefiting from “no tax on overtime,” with more than 25% of returns claiming an overtime benefit; the White House promoted similar early-season figures.
Separately, the IRS issued an announcement stating the 2025 filing season is progressing smoothly, highlighting that more than 80% of refunds were issued in under 21 days, with an average refund of $3,571, and that more than 98% of both refunds and returns have been processed electronically, via direct deposit and e-file. The release also encourages taxpayers to include valid banking information and explains that refunds may be temporarily held if direct-deposit information is missing or invalid, with online tools available to update banking details.
Relief for Tax on Tips Rules Pass the Office of Information & Regulatory Affairs (OIRA) Review
Final Treasury and IRS rules identifying which occupations qualify for the “no tax on tips” deduction have cleared the White House regulatory review process, with OIRA marking its review of the final rule concluded on April 1, 2026.16
Released Guidance
Estimated tax underpayment penalty relief for qualifying farmers and fishermen: Notice 2026-24 waived the addition to tax for underpayment of estimated tax for calendar-year 2025 qualifying farmers and fishermen who file and pay in full by April 15, 2026, citing unusual filing complications tied to Form 8995 instructions and software timing. Taxpayers who have already reported and paid the addition to tax may request abatement using Form 843 as described in the notice.
Trump Accounts enrollment update: IR-2026-42 reported elections for more than 4 million children to establish Trump Accounts, including more than 1 million elections for the $1,000 pilot program contribution, based solely on Form 4547 submissions received with individual returns to date. The release reiterates basic eligibility parameters, including the pilot’s birth-year window, and notes contributions can begin July 4, 2026.
Advance Pricing and Mutual Agreement (APMA) annual program report for 2025: Announcement 2026-08 (A-26-08) issued the annual APMA report summarizing the program’s structure and activities during calendar year 2025, including statistical data and high-level descriptions of APAs executed, such as transaction types, methods used, and completion time. The announcement states it is informational and does not provide guidance on applying the arm’s-length standard.
From the States
South Carolina: Restructures Income Tax & Builds a “Phase‑Down” Path (H.4216)
South Carolina enacted H.4216, moving to a two‑bracket personal income tax beginning with tax years after 2025 and establishing rate-reduction triggers designed to lower the top rate over time. The law also introduced a state-specific adjusted income deduction, updated filing thresholds, and capped the Earned Income Tax Credit at $200 per taxpayer.17
Separately, amid federal conformity uncertainty, the South Carolina Department of Revenue (SCDOR) issued an automatic filing extension for 2025 South Carolina individual returns to October 15, 2026, while requiring payment of at least 90% of liability by April 15, 2026 to avoid penalties.
West Virginia: Enacts 5% Personal Income Tax Cut & Conforms to Federal “Trump Tax Cuts”
West Virginia Gov. Patrick Morrisey signed legislation delivering a 5% across‑the‑board personal income tax cut for West Virginia taxpayers, effective for the 2026 tax year, with the Tax Division noting the rate change is codified and retroactive to January 1, 2026.18 Separately, Morrisey signed legislation to align West Virginia’s tax code with the permanent provisions of the federal “Trump Tax Cuts,” including enhancements to the Child and Dependent Care Credit, higher childcare flexible spending account limits, restoration of full bonus depreciation, and an expanded credit for domestic research and experimental investments.
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“Trump White House Pitches $1.4 Billion in Cuts to IRS Budget (1),” bloomberglaw.com, April 3, 2026.
- 2“Trump Team Scraps College Degrees for Hundreds of Federal Jobs,” news.bloombergtax.com, April 3, 2026.
- 3“GOP Shifts Away From Taxes in Push for Second Partisan Megabill,” news.bloombergtax.com, March 31, 2026.
- 4Atmus Filtration, Inc. v. United States, 1:26-cv-01259-RKE, March 31, 2026.
- 5“Trump Restructures Broad Metals Tariffs But Keeps 50% Rate,” news.bloombergtax.com, April 2, 2026.
- 6“Trump Will Impose 100% Tariff on Some Patented Drugs (2),” news.bloombergtax.com, April 2, 2026.
- 7“IRS Johnson Amendment Settlement Gets Nixed in Case Dismissal,” taxnotes.com, April 1, 2026.
- 8National Religious Broadcasters v. Bessent, 2026 WL 884020 (E.D. Tex. Mar. 31, 2026).
- 9“IRS Loses Bid to Approve Deal Allowing Church Political Speech,” news.bloombergtax.com, March 31, 2026.
- 10“IRS to Issue Guidance on Politics in Church After Court Ruling,” news.bloombergtax.com, April 3, 2026.
- 11Daugerdas v. Commissioner of Internal Revenue, No. 25-1055 (7th Cir. Mar. 30, 2026).
- 12“IRS Can Impose Parallel Restitution, Circuit Court Says,” taxnotes.com, March 31, 2026.
- 13Barrett Business Services, Inc. v. Commissioner, 166 T.C. No. 7 (Mar. 30, 2026).
- 14“Professional Employer Org Can’t Claim $9.5M in Work Credits,” taxnotes.com, March 31, 2026.
- 15“Bank of NY, Robinhood Named to Administer Trump Accounts,” news.bloombergtax.com, April 6, 2026.
- 16“Rules on Tips Tax Break Clear White House Regulatory Review,” bloomberglaw.com, April 2, 2026.
- 17“South Carolina Flattens Income Tax, Adopts Phase-Out Strategy,” bloomberglaw.com, March 31, 2026.
- 18“West Virginia Trims Income Taxes 5%, Conforms With Trump Tax Law,” news.bloombergtax.com, April 1, 2026.