Here is a look at recent tax-related happenings on the Hill, including the Senate Finance Committee advancing a bipartisan package aimed to improving IRS administration and taxpayer service.
Lately on the Hill
Senate Advances Government Funding Bill
The Senate has advanced bipartisan legislation that would fund the federal government through December 11, 2026, providing a temporary extension ahead of the September 30 expiration of current funding. Senate leadership is expected to pass the measure this week ahead of their August recess.1
The continuing resolution (CR) would generally maintain current funding levels while including adjustments for programs involving disaster relief, nutrition assistance, housing, transportation, and certain defense activities. The legislation does not provide any meaningful tax content. On July 21, the House passed its own CR before beginning its prolonged August recess and will return later in the month to consider the Senate’s proposal.
Bipartisan Tax Administration Bill Advances
The Senate Finance Committee voted 26 to 1 to advance the Taxpayer Assistance and Service Act (S. 3931), a bipartisan package containing more than 60 provisions aimed at improving IRS administration and taxpayer service.2 Committee Chair Mike Crapo (R-ID) said the legislation “modernizes and streamlines IRS operations, strengthens taxpayer rights and delivers a more taxpayer-first system,” while Ranking Member Ron Wyden (D-OR) described the package as containing “common-sense changes that will streamline the tax system and bring our tax code into the 21st century.” The measure now heads to the full Senate, where its prospects for further consideration remain uncertain.
Several provisions stand out for taxpayers and practitioners. The bill would require the IRS to provide real-time information on phone wait times and processing backlogs and expand online taxpayer accounts to give taxpayers and authorized representatives access to returns, notices, correspondence, and document uploads. It would also significantly expand U.S. Tax Court jurisdiction, including allowing the court to hear certain refund claims, while strengthening Taxpayer Advocate Service independence through additional hiring authority and access to IRS information. The legislation also includes a major return preparer compliance package, imposing new standards for preparers, expanding penalties for misconduct, and authorizing the IRS to suspend or revoke preparer tax identification numbers in cases involving incompetence, fraud, or other misconduct.
From the Courts
Pre-Acquisition NOLs Limited in Consolidated Group
In HBM Holdings Co. v. Commissioner,3 the Tax Court held that a consolidated group could not use net operating loss (NOL) carryovers inherited by its parent under Internal Revenue Code (IRC) Section 381 from a liquidated disregarded entity to offset the income of other group members. The court concluded that the liquidated entity was a predecessor of the parent for purposes of the separate return limitation year (SRLY) rules, causing the losses to remain subject to SRLY restrictions. The court also rejected the taxpayer’s argument that the group’s founding members constituted an SRLY subgroup, leaving the consolidated NOL deductions disallowed for the years at issue.
Gift Tax Upheld on Siblings’ Transfer of Trust Interests
The Tax Court held in Lewis v. Commissioner4 that two siblings made taxable gifts exceeding $35 million each when they relinquished their remainder interest in an $117 million qualified terminable interest property (QTIP) trust and allowed their father to receive the trust assets. The court rejected arguments that the gifts should be valued lower because their father held a limited power of appointment. Instead, the court concluded that the father’s power of appointment did not diminish the value of the transferred interest and upheld the IRS’ gift tax valuation.
Businesses Challenge New §301 Tariffs
Two businesses filed a complaint in Burlap and Barrell, Inc. v. Jamieson Greer5 challenging the Trump administration’s newly imposed tariffs on goods from 60 countries. The complaint filed in the U.S. Court of International Trade argues that the tariffs exceed the authority granted under §301 of the Trade Act of 1974, were imposed through an arbitrary and capricious process, and effectively attempt to preserve a broad tariff regime that courts previously invalidated under other statutory authorities.
Massachusetts Court Backs Single-Sales-Factor Apportionment
The Massachusetts Appeal Court upheld in Skechers USA, Inc. v. Commissioner of Revenue6 the state’s classification of Skechers as a manufacturing corporation, finding that the company’s involvement in the footwear production process extended far beyond design and marketing. The court emphasized Skechers’ role in creating detailed product specifications, directing materials selection, overseeing testing and quality assurance, reviewing prototypes, and supervising production through third-party factories. Based on those activities, the court concluded that Skechers was substantially engaged in manufacturing and was, therefore, required to use Massachusetts’ single-sales-factor apportionment method. The decision reinforces that a company can be treated as a manufacturer even when it outsources physical production, provided it maintains significant control over product development and the manufacturing process.
From Treasury & the IRS
IRS Signals Upcoming Cost-Sharing Regulation Update
The IRS expects to release proposed regulations soon updating the IRC §482 cost-sharing rules to reflect changes by the One Big Beautiful Bill Act (OB3), including the restoration of immediate deduction for domestic research and experimental (R&E) expenditures under IRC §174A.7 IRS Associate Chief Counsel (International) Peter Blessing said the revisions will address how the revised R&E rules interact with transfer pricing cost-sharing arrangements.
IRS Warns of Crypto Phishing Scam Using Fake Tax Notices
The IRS Criminal Investigation unit warned that scammers are mailing fake IRS notices with QR codes that direct cryptocurrency holders to a fraudulent website, where victims are asked to provide personal information on a made-up digital asset compliance portal.8 According to investigators, the operation appears to be part of a sophisticated international phishing scheme designed to steal identities and gain access to crypto assets.
OIRA Reviews Car Loan Interest Deduction Regulations
Final regulations implementing the car loan interest deduction enacted under the OB3 have been submitted to the Office of Information and Regulatory Affairs (OIRA) for review, marking the next step toward issuance of the guidance. Proposed regulations (REG-113515-25) were issued in early January.
FOIA Documents Outline IRS Deferred Fee Audit Strategy
IRS training materials obtained through a Freedom of Information Act (FOIA) request show the agency is expanding enforcement efforts involving deferred legal fee arrangements, particularly cases in which attorneys can access deferred amounts through loan structures.9 The materials outline several legal theories the IRS may use to challenge these transactions and signal continued compliance activity in this area.
Treasury, DOJ Fill Key Tax Leadership Roles
The Senate advanced the nomination of Francis Brooke for Treasury deputy secretary. Brooke currently serves at Treasury and previously held economic policy roles in the White House and on Capitol Hill.10 Additional advancements were made for Erin Browne for undersecretary for international affairs, Sriprakash Kothari for assistant secretary for economic policy, and George McMaster for assistant secretary for financial markets. Final confirmations are expected this week.
Separately, Francesca Ugolini will fill a role at the U.S. Department of Justice (DOJ) as director of the appellate section within the new tax litigation branch.11 Ugolini previously led the DOJ Tax Division’s appellate section and most recently served as special counsel to Tax Court Chief Judge Patrick Urda.
Released Guidance
Foreign Tax Credits on PTEP Distributions: Proposed regulations (REG-115145-25) would implement international tax changes enacted under IRC §§898(c) and 960(d)(4), including rules for allocated foreign taxes following the repeal of the one-month deferral election and the treatment of foreign taxes related to global intangible low-taxed income (GILTI) previously taxed earnings and profits (PTEP). The IRC §898 guidance is generally taxpayer friendly, providing several elective rules that offer flexibility depending on a taxpayer’s facts, including elections for partnership creditable foreign tax expenditures (CFTEs), relevant succeeding-year taxes, income-group-specific allocation percentages, and an election to avoid allocation entirely. The guidance does not permit taxpayers to use any reasonable allocation method of their choosing, instead retaining a prescribed methodology intended to promote consistency and administrability. The IRC §960 proposed regulations generally adopt prior notice guidance and would require taxpayers to separate §951A PTEP into pre-June 29, 2026 and post-June 28, 2026 baskets for foreign tax credit purposes.
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 overwhelmingly advances stopgap funding bill aimed at preventing shutdown,” thehill.com, August 3, 2026.
- 2“Senate Finance Committee OKs Sweeping Tax Administration Bill,” taxnotes.com, July 31, 2026.
- 3HBM Holdings Co. v. Commissioner, T.C., No. 19735-23, No. 3881-24.
- 4Lewis v. Commissioner, T.C., No. 2459-22.
- 5Burlap and Barrell, Inc. v. Jamieson Greer, No. 1:26-cv-03345.
- 6Skechers USA, Inc. v. Commissioner of Revenue (No. 25-P-928).
- 7“Revisions to Cost-Sharing Regs Are Coming, IRS Says,” taxnotes.com, July 31, 2026.
- 8“Scam Artists Are Posing as IRS Agents to Drain Crypto Wallets,” news.bloombergtax.com, July 30, 2026.
- 9“Documents Reveal IRS Playbook for Deferred Legal Fees,” taxnotes.com, July 28, 2026.
- 10“Treasury Deputy Secretary Nominee Advances to Senate Vote,” taxnotes.com, July 31, 2026.
- 11“DOJ Veteran to Oversee Unit Tasked With Civil Tax Case Appeals,” news.bloombergtax.com, July 28, 2026.