Here is a look at recent tax-related happenings on the Hill, including mixed results from state tax measures.
Lately on the Hill
Congressional Sweep by Democrats Resets the Tax Policy Agenda
Democrats’ midterm sweep will give the party control of both the House and Senate when the new Congress convenes in January, ending two years of Republican control in Washington. The shift gives Democrats control of the congressional tax-writing committees and significantly more leverage over tax legislation, while President Donald Trump’s veto power and the lack of a 60-vote supermajority in the Senate will limit their ability to enact their agenda. The election may also give congressional Democrats greater ability to conduct oversight of the administration, including through investigations into tax administration and enforcement.
In 2027, the tax debate is likely to move from large partisan tax packages toward narrower measures that can attract support from congressional Republicans and the Trump administration. Potential areas for agreement include tax administration, housing tax incentives,1 and digital asset taxation. Democrats are also expected to pursue tax policies aimed at affordability, including healthcare and food costs, while seeking to reverse policies benefiting certain businesses and high-income taxpayers.2 Tariffs could also become another major issue as Democrats seek to roll back duties they blame for higher prices, potentially putting pressure on the administration to negotiate trade agreements that reduce tariffs.3
Sen. Ron Wyden (D-OR) is expected to lead the Senate Finance Committee and Rep. Richard Neal (D-MA) seeks to return as chair of the House Ways and Means Committee. Separately from the shift in party control, retirements and election losses are reshaping both tax-writing committees with at least 14 of 40 Republican tax writers (35%) and 7 of 32 Democratic tax writers (22%) expected to leave Congress, with more House races still undecided.4 The departures will cost both parties decades of tax-writing experience as new members and policy priorities come to the committees in January.
Before that change in control, Congress returns for a short lame-duck session with limited time for tax legislation. Government funding, including IRS appropriations, expires December 11, while lawmakers have also been considering bipartisan tax administration proposals and the taxation of digital assets. Some Republicans have called for using their remaining majorities to pursue another reconciliation bill, but the tight legislative calendar, competing priorities, and significant Republican election losses will make that effort difficult.5 The election results may also reduce the prospects of passing aforementioned bipartisan proposals as Democrats gain an incentive to defer major tax issues until they control Congress in January.
House Republicans will also hold leadership elections this week, with Speaker Mike Johnson (R-LA) stepping aside rather than seeking the minority leader post.6
State Tax Measures See Mixed Results
Washington voters rejected an effort to repeal the state’s new 9.9% tax on annual income exceeding $1 million, leaving the tax on track to take effect in 2028, while California voters appear poised to reject Proposition 40, which would impose a one-time 5% tax on billionaire wealth. Colorado voters narrowly approved a graduated income tax structure that replaces the state’s 4.4% flat tax with higher rates for households with more than $500,000 of taxable income, topping out at 8.4% on income above $1 million. A broader look at state election results shows continued interest in taxing higher-income taxpayers, including measures involving millionaires in Massachusetts and Illinois.7
North Carolina voters approved a constitutional amendment reducing the maximum allowable state income tax rate from 7% to 3.5%, effective January 1, 2027, as the state’s scheduled rate reductions are set to bring the flat rate to 3.49% in 2027. Florida voters approved Amendment 3, which will significantly expand the homestead exemption for owner-occupied homes beginning in 2027, a change projected to reduce property tax collections by nearly $9 billion that year.8
CBP Requires CTPAT Validation for Foreign Importers of Record
U.S Customs and Border Protection (CBP) issued an interim final rule (RIN 1685-AA48) requiring foreign importers of record to be Customs Trade Partnership Against Terrorism (CTPAT) validated or use a CTPAT validated customs broker, with a new verification requirement for U.S. importers. Effective January 5, 2027, importers and brokers should review their status and procedures, with approved broker compliance delays ending May 6, 2027.
From the Courts
Liberty Global to Petition Supreme Court Review of Economic Substance Case
Liberty Global plans to ask the U.S. Supreme Court to review its loss in a closely watched $110 million tax-refund dispute involving the economic substance doctrine.9 The case stems from the company’s “Project Soy” strategy, which sought to take advantage of a mismatch in effective dates under the Tax Cuts and Jobs Act of 2017. The Tenth Circuit sided10 with the IRS and disallowed the claimed tax benefits, concluding that the economic substance doctrine could apply when a taxpayer uses Internal Revenue Code (IRC) provisions to obtain a benefit Congress did not intend. Liberty Global disclosed its intent to seek Supreme Court review in its quarterly report, potentially giving the court an opportunity to address when the economic substance doctrine is considered relevant to tax transactions.
Tax Court Denies Unsubstantiated Subcontractor Deduction
The U.S. Tax Court held in Glass Warehouse, LLC v Commissioner11 that the company could not deduct $118,302 in claimed subcontractor expenses for 2019 because it failed to substantiate the expenses. The company claimed that payments to its shareholder-officers were for subcontractor services, but it produced no contracts, invoices, Forms 1099, payroll records, or other reliable evidence showing the nature or amount of those services. The court also upheld an IRC §6662(a) accuracy-related penalty, rejecting the company’s reasonable cause defense because it presented no evidence that it sought or received tax advice regarding its return positions.
Tax Court Denies Charitable Deductions Over Appraisals
Two partnerships lost nearly $46 million in claimed charitable contribution deductions after the U.S. Tax Court found in Murphy Hollows, LLC and Hales Gap, LLC v. Commissioner12 that they failed to obtain qualified appraisals. The court concluded that Murphy Hollow, LLC and Hales Gap, LLC knew facts that would cause a reasonable person to expect their appraiser to falsely overstate the properties’ values, which were reported at $26.7 million and $19.4 million despite the properties being purchased for about $1.8 million and $1 million respectively, about a year before the donations. The court determined the properties were worth approximately $2.1 million and $1.2 million at the time of donation, disallowed the charitable deductions in their entirety, and applied penalties.
From Treasury & the IRS
New Opportunity Zones Designated
The U.S. Department of the Treasury and IRS have designated 6,576 census tracts as Qualified Opportunity Zones, including 2,594 rural census tracts, taking effect January 1, 2027. Read our FORsights™ article, “Opportunity Zones Designations Announced by Treasury & IRS,” for more information.
Released Guidance
2027 Inflation Adjustments: Revenue Procedure 2026-35 provides inflation-adjusted amounts for 2027, including federal income tax brackets, deductions, and credits. For estate and gift tax planning, the basic exclusion amount increases to $15.48 million, while the annual gift tax exclusion increases to $20,000 per recipient. Other notable adjustments include increases to the qualified small business stock thresholds under IRC Section 1202 and the foreign earned income exclusion under IRC §911.
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“Housing Tax Cuts Set to Spur Bipartisan Work in New Congress,” news.bloombergtax.com, November 4, 2026.
- 2“Wyden Atop Senate Finance Ready to Needle Trump Administration,” go.bloombergtax.com, November 4, 2026.
- 3“Debt Limit, Tariffs Top List of Likely Deals in Trump’s New Era,” go.bloombergtax.com, November 4, 2026.
- 4“GOP Poised to Lose Decades of Taxwriting Experience Postelection,” taxnotes.com, November 5, 2026.
- 5“Republicans’ Midterm Wipeout Leaves Lame-Duck Agenda in Flux,” go.bloombergtax.com, November 5, 2026.
- 6“Mike Johnson will step aside as House GOP leader,” politico.com, November 4, 2026.
- 7“Tax-the-Rich Pressure Is Here to Stay as States Debate Policies,” news.bloombergtax.com, November 4, 2026.
- 8“Florida Property Tax Cuts Spark Debate Over Lost Funds,” news.bloombergtax.com, November 5, 2026.
- 9“Liberty Global to Seek Supreme Court Review of Tax-Case Loss,” news.bloombergtax.com, November 3, 2026.
- 10Liberty Global, Inc. v. United States, 10th Cir., No. 23‑1410, April 21, 2026.
- 11Glass Warehouse, LLC v. Commissioner, T.C. Memo. 2026-111, No. 23707-22, November 2, 2026.
- 12Murphy Hollows, LLC and Hales Gap, LLC v. Commissioner, T.C. Memo. 2026-115, No. 9620-21 and No. 13346-21, November 5, 2026.