Legislative Lowdown
House Passes Reconciliation Package, with Senate Expected to Make Changes: On May 22, the House of Representatives passed H.R. 1, “The One, Big, Beautiful Bill Act,” legislation authorized under the FY 2025 concurrent budget resolution (H. Con. Res. 14). The bill includes a broad range of tax-and-spending provisions developed by 11 House committees. Title XI, the Ways and Means Committee’s tax title, includes tax provisions adopted by the committee on May 14, after a 17-hour markup. Concurrent to the passage of the bill, the House also released a combined committee report on H.R. 1, with Book 1 covering Titles I through X and Book 2 covering Title XI. The Joint Committee on Taxation (JCT) estimated that the tax provisions in the bill will cost a net $3.8 trillion over the next 10 years. Brownstein’s updated section-by-section summary of the House-passed reconciliation package is available here.
The legislation now moves to the Senate, where lawmakers are expected to make significant changes to address Senate priorities, including:
- Modifications to spending and Medicaid cuts;
- Longer sunsets and other revisions to the energy-tax credits;
- More administrable foreign entity of concern (FEOC) limitations;
- Changes necessary to comply with the Senate’s “Byrd Rules”;
- Moderation of the tax increases on nonprofits and foundations;
- Modifications of the state and local tax (SALT) deduction limitation;
- Permanent extension of the business provisions in the Tax Cuts and Jobs Act;
- Expansion of Opportunity Zones; and
- Possible additional revenue raisers.
White House Releases Additional Details on FY26 Budget Request, with Cuts to IRS: On May 30, the Trump administration released the Technical Supplement to the 2026 Budget (“Appendix”), which follows the May 2 release of the president’s recommendations on discretionary funding levels for fiscal year 2026 (“Skinny Budget”).
The proposed budget sets the FY2026 funding for the Internal Revenue Service (IRS) at $9.8 billion, with substantial cuts to the agency’s budgets for enforcement and systems modernization. The proposal outlines $3.6 billion for taxpayer services, $3.6 billion for enforcement, $2.6 billion in operations support, and no proposed funding for business systems modernization. The budget proposals will inform the appropriations process in Congress, but the severity of the cuts, especially to the IRS, are unlikely to be enacted given that the appropriation process requires bipartisan support, at least in the Senate.
Energy-Tax Mainlines
Musk, Tesla Criticize Clean Energy-Tax Credit Cuts in House Reconciliation Package: Responding to the passage of H.R. 1, Elon Musk, who recently left the Trump administration and returned to Tesla Energy, the company’s division for solar and battery manufacturing, wrote in a post on social media platform X that “abruptly ending the energy tax credits would threaten America’s energy independence and the reliability of our grid.” The post urged Congress to adopt a “Sensible wind-down” of the Section 25D Residential Clean Energy Credit and the Section 48(e) Energy Credit bonus for low-income communities. Adding to his criticism of the bill for not embracing DOGE cuts, Tesla CEO and former Special Advisor to the President Elon Musk added that the bill affects tax credits for electric vehicles and solar energy while maintaining oil and gas tax incentives.
1111 Constitution Avenue
Sen. Whitehouse Leads Letter Questioning IRS Cuts and Enforcement: On May 28, Sens. Sheldon Whitehouse (D-RI), Ron Wyden (D-OR), Richard Blumenthal (D-CT), Ben Ray Luján (D-NM), Jack Reed (D-RI), Bernie Sanders (I-VT), Chris Van Hollen (D-MD), Raphael Warnock (D-GA), Elizabeth Warren (D-MA) and Peter Welch (D-VT) sent a letter to Treasury Secretary Scott Bessent requesting that his department analyze how cuts to Internal Revenue Service (IRS) personnel and enforcement services may affect oversight and audits of high-income taxpayers. The lawmakers stated that Secretary Bessent had claimed that fewer auditors at the IRS would not reduce revenue collection, following up on a report by the Treasury Inspector General for Tax Administration (TIGTA) finding that the IRS reduced its enforcement staff by 31% due to firings and deferred resignations of agency employees. The senators requested Secretary Bessent to answer several questions concerning whether the department has analyzed the effects of the loss of revenue agents on revenue collection, customer service and modernization.
Treasury Department, IRS Issue Interim CAMT Guidance as Department Looks to Finalize Rules: On June 2, the Treasury Department and Internal Revenue Service (IRS) issued Notice 2025-27, providing interim guidance on the application of the Corporate Alternative Minimum Tax. The guidance provides an optional simplified method for determining applicable corporation status, with companies with an average annual financial statement income under $800 million being allowed to determine that they are not within the scope of the tax. The guidance also provides relief under certain specific additions to tax regarding a corporation’s CAMT liability.
The guidance comes as the Treasury Department and the IRS are still continuing to finalize overall CAMT guidance, with Treasury Office of Tax Policy Attorney-Advisor Angela Walitt saying that they are “working on [guidance] actively.”
Tax Worldview
Treasury Deputy Assistant Secretary: Retaliatory Tax Provision to Help U.S. Multilateral Tax Negotiations: Speaking at a conference on May 29, Treasury Deputy Assistant Secretary for International Affairs Rebecca Burch said that the provision in the House-passed reconciliation bill, which allows the United States to retaliate against “discriminatory” foreign taxes, would enable the United States to negotiate more effectively on international and multilateral tax policy. Burch said that the provision, which would add new section 899 to the Internal Revenue Code, would “remind [countries] that there could be a problem” if they adopt a digital services tax, undertaxed profits rule or diverted profits tax, and it could be “the ultimate backstop to the U.S. position.” She said that section 899 would protect the United States from both short-term and long-term retaliatory threats. The Joint Committee on Taxation’s latest revenue table estimates that section 899 would generate $116.3 billion in revenue over the next 10 years, although the provision is projected to lose revenue in the final two fiscal years due to expectations of lower foreign investment in the United States resulting from that provision.
Canadian Tax Official Signals Willingness to Negotiate with United States on Multilateral Taxes: Speaking at a conference on May 28, Canadian Department of Finance official Trevor McGowan said that his department is primarily focusing on “coexisting” with the current U.S. tax regime. This position would allow the United States to maintain its 15% global intangible low-taxed income (GILTI) tax alongside the Organisation for Economic Co-operation and Development (OECD) global minimum tax, rather than result in continued tariff retaliation between Canada and the United States. The OECD is reported to be considering the United States’ request that GILTI be recognized as consistent with the global tax agreement, which would allow the U.S. tax system to coexist among countries adopting the Pillar Two global minimum tax regime.
At a Glance
Bessent Discusses Trump Administration’s Efforts to Review Harvard’s Tax-Exempt Status: In a television interview on May 23, Treasury Secretary Scott Bessent said that President Trump is “moving forward” with efforts to revoke the tax-exempt status of Harvard University, claiming that Harvard is not compliant with rules that allow an organization to have tax-exempt status. Following Bessent’s remarks, the Treasury Department issued a statement saying that “tax-exempt status is a privilege and not a right, and it is up to the established processes of the IRS to ensure that any nonprofit is abiding by its legal obligations to retain such a designation.”
Hearings and Events
House Ways and Means Committee
The House Ways and Means Committee has no tax hearings scheduled for this week.
Senate Finance Committee
On June 3, the Senate Finance Committee held an executive session to consider reporting the nomination of William Long to be the commissioner of the Internal Revenue System. His nomination was favorably reported by a 14-13 vote along party lines.