Legislative Lowdown
Government Shutdown Outlook: On Sept. 29, House and Senate majority and minority leaders, also known as the “Big 4,” met with President Trump to discuss the imminent federal government shutdown. The meeting ended without an agreement, leaving the government on track to shut down on Tuesday at midnight for the first time in over five years. Senate Minority Leader Chuck Schumer (D-NY) and House Minority Leader Hakeem Jeffries (D-NY) pressed for a broader deal that includes extending the enhanced Advance Premium Tax Credits (eAPTCs), reversing health care cuts from the One, Big, Beautiful Bill Act (OBBBA, P.L. 119-21) and limiting the Office of Management and Budget’s (OMB) ability to rescind congressional funding unilaterally. Minority Leaders Schumer and Jeffries said President Trump appeared open to bipartisan talks on some issues but agreed with Senate Majority Leader John Thune (R-SD) and Speaker Mike Johnson (R-LA), who pushed for a “clean” stopgap funding bill that would fund the government through Nov. 21 and provide time for potential negotiations along with a final appropriations deal for FY 2026. Behind the scenes, Minority Leader Schumer reportedly considered a short-term extension as a possible compromise but publicly insisted on immediate action to avoid the shutdown.
On the agency side, the Treasury Department released its contingency plan for the Internal Revenue Service (IRS) and departmental offices in case a deal is not reached. Due to supplemental funding from the Inflation Reduction Act (IRA, P.L. 117-169) available through 2031, the IRS will be able to maintain operations for five business days under the contingency plan. The contingency plan also notes that all employees are funded by these multiyear appropriations and therefore are exempt from furlough, remaining on duty during the shutdown. The plan outlines that, if needed, shutdown activities would take no more than half a day to implement. It also emphasizes that operations (i.e., taxpayer services), enforcement and IT will remain fully staffed and funded.
Additionally, a shutdown is not expected to affect the work of the Office of Tax Policy (OTP) and IRS Chief Counsel significantly with respect to implementation of the One, Big, Beautiful Bill Act (OBBBA), although external engagement with stakeholders may pause until funding resumes.
Earlier this month, OMB issued a memo instructing federal agencies to prepare for potential mass layoffs if a government shutdown occurs. The memo contemplates that agencies may issue Reduction in Force (RIF) notices for employees working on programs whose funding would lapse, considering long-term workforce reductions aligned with administration priorities. The Office of Personnel Management (OPM) provided guidance emphasizing that layoffs could be revised once funding is restored and that employees may receive 60 days’ notice before any separation takes effect.
Energy-Tax Mainlines
Electric Vehicle Tax Credit Comes to an End: As of Oct. 1, consumers can no longer claim federal tax credits for new, previously owned or qualified commercial clean vehicles. The OBBBA’s enactment in July accelerated the phaseout and termination of several clean energy incentives, including sections 25E, 30D and 45W. Taxpayers who entered into a binding contract and made payment before the Sept. 30 deadline may still claim the credit once the vehicle is placed in service. The next clean vehicle incentive scheduled to expire is the alternative fuel vehicle refueling property tax credit, which will end on June 30, 2026.
Investment Strategies Shift Toward Clean Energy Projects Qualifying Under Expired Tax Credits: To avoid uncertainty in investment strategies, some investors are directing more capital toward clean energy projects that began construction before the Section 48 Investment Tax Credit (ITC) expired at the end of 2024. Banks and corporations are classifying Section 48-eligible projects as lower risk because they are shielded from the added uncertainties of the Section 48E Clean Electricity ITC under the OBBBA. At an industry conference, tax credit investment leaders noted that developers who started projects earlier are now prioritized by investors, with institutions focusing exclusively on Section 48 credit opportunities in the near term.
1111 Constitution Avenue
Treasury Department/IRS Issue 2025-2026 Priority Guidance Plan: On Oct. 1, the Treasury Department and the Internal Revenue Service (IRS) released the 2025-2026 Priority Guidance Plan (PGP) that addresses the tax guidance priorities for the next year. The plan identifies 105 guidance projects that the Treasury Department and IRS will prioritize from July 1, 2025, through June 30, 2026, focusing on implementing the One, Big, Beautiful Bill Act (OBBBA), deregulation and burden reduction, tribal tax issues, digital assets and the SECURE 2.0 Act.
Key upcoming OBBBA regulations in the plan include guidance on deductions for overtime pay, car loan interest and qualified business income, along with permanent expansions of the standard and child tax deductions. The plan also addresses energy tax credits, noting the accelerated phaseout of several clean energy credits after 2025, including the Residential Clean Energy Credit and Energy Efficient Home Improvement Credit, with deadlines for wind and solar projects extending through 2027. The Clean Fuel Production Credit is extended through 2029 but with more stringent domestic content and ownership requirements, while electric vehicle credits face earlier phaseouts. The PGP also continues to anticipate guidance on the section 45U production credit for existing nuclear facilities.
IRS Issues Proposed Rulemaking for Tipped Income Deduction: On Sept. 22, the Treasury Department and the Internal Revenue Service (IRS) issued proposed regulations for the “No Tax on Tips” provision enacted under the One, Big, Beautiful Bill Act (OBBBA). The provision allows workers in occupations that customarily and regularly received tips to deduct up to $25,000 in qualified tips per year from their income beginning in 2025 through 2028. The deduction is available to both employees and self-employed individuals, regardless of whether they itemize deductions, but phases out for taxpayers earning above $150,000 ($300,000 for joint filers). “Qualified tips” are defined as voluntary, customer-paid cash or charged tips, but exclude mandatory service charges like auto-gratuities and certain service business categories.
Some of the occupations eligible for the tip deduction include:
- Hospitality: housekeeper, bellhop, concierge, hotel desk clerk, valet
- Food Service: waiter/waitress, bartender, host, busser, chef, cook, baker, dishwasher, fast food worker
- Entertainment & Events: casino dealer, gambling attendant, dancer, musician, DJ, performer, usher, ticket taker, coat/lobby attendant
- Personal Appearance & Wellness: hairdresser, barber, nail technician, massage therapist, spa attendant, tattoo artist, fitness instructor, yoga instructor
- Transportation & Delivery: taxi driver, rideshare driver, valet attendant, tow truck driver, pizza/grocery/delivery driver, parking garage attendant
- Home Services: house cleaner, gardener, landscaper, handyman, plumber, electrician, appliance installer/repairer, locksmith, road assistance worker
- Recreation & Leisure: ski instructor, skydiving pilot, golf caddy, recreation guide
- Digital Content & Media: online video creator, podcaster, content creator
The proposed rule also provides examples and reporting requirements. The public-comment period is open until Oct. 22, 2025. A public hearing is scheduled for Oct. 23, 2025.
Treasury Department Releases Interim Guidance on CAMT: The Treasury Department and Internal Revenue Service (IRS) issued two new pieces of interim guidance, Notices 2025-46 and 2025-49, addressing the Corporate Alternative Minimum Tax (CAMT) enacted under the Inflation Reduction Act (IRA). Notice 2025-46 provides rules for domestic corporate transactions, financially troubled companies and consolidated groups, clarifying how AFSI and CAMT basis should be determined. Notice 2025-49 expands taxpayer flexibility, overhauls reliance rules and introduces targeted AFSI adjustments covering fair value items, utilities, tonnage tax, insurance company NOLs and goodwill amortization.
IRS Workforce Reductions Affecting OBBBA Implementation: The Internal Revenue Service (IRS) Office of Chief Counsel is facing significant staffing shortages after more than 350 attorneys resigned from the office. The departures have left leadership gaps across several divisions as the agency works towards implementing the One, Big, Beautiful Bill Act (OBBBA). With limited resources, the office is prioritizing guidance on notable provisions such as tip income and overtime deductions and R&D expenses, while other projects may be delayed or dropped. The division also plays a key role in litigation and the administration’s deregulatory push will most likely see delays as new hires join. While core deadlines are expected to be met, competing legacy priorities from previous laws, like the Inflation Reduction Act (IRA) and the government shutdown will complicate an already strained rollout.
IRS to Begin Transitions to Paper Checks: In accordance with the President Trump’s Executive Order (EO) from March titled “Modernizing Payments To and From America’s Bank Account,” the Internal Revenue Service (IRS) will begin to phase out tax refunds on paper checks starting on Sept. 30. While most taxpayers already receive refunds via direct deposit, around 7% still get paper checks. The IRS plans to provide detailed guidance for filing 2025 taxes before the 2026 filing season begins and will continue to accept paper checks from taxpayers until then. The IRS encouraged taxpayers without bank accounts to consider opening one or using prepaid debit cards or digital wallets, with some exceptions available for those who lack access to electronic payment systems.
In response to the IRS announcement about the transition, Sens. Angus King (I-ME), Susan Collins (R-ME) and Jeanne Shaheen (D-NH) in addition to Reps. Jared Golden (D-ME) and Chellie Pingree (D-ME) sent a letter to Treasury Secretary Scott Bessent and Office of Management and Budget Director Russ Vought urging a delay in implementing the EO. They argue that the accelerated timeline risks harming older and disabled Americans, veterans, small-business owners, farmers, rural and tribal communities and the domestic forest products industry, which relies heavily on demand for paper. They also emphasize that millions remain without bank accounts or lack reliable broadband, making electronic payments inaccessible. The lawmakers called for extending the timeline, enhancing outreach efforts, ensuring waivers are available and requesting detailed information on waiver processes, stakeholder engagement, fraud protections and interagency coordination.
IRS Extends Third Deferred Resignation Offer to Employees: The Internal Revenue Service (IRS) has extended a deferred resignation offer to select employees currently on administrative leave, allowing them to remain on paid leave until they permanently leave the agency on Dec. 31. This is the third instance in which the IRS has extended the offer and the number of employees offered or who have accepted this most recent offer has not been disclosed. Earlier in the year, about 21,000 IRS employees accepted similar deferred resignation offers. The agency has also placed employees on administrative leave in waves, including senior leadership and IT staff. After a significant number accepted the offers and left over the summer, the IRS has begun hiring again and has invited some employees who previously had intentions to leave to return.
Tax Worldview
U.S. Companies Highlight Importance for the OECD Tax Agreement: In the past few weeks, U.S. multinational companies have expressed concerns to Congress and the Trump administration that the pace of negotiations with the Organisation for Economic Co-operation and Development (OECD) to revise the global minimum tax framework, known as Pillar Two, is moving too slowly. Without a timely agreement, including provisions allowing for a “side-by-side” exception for the U.S. international tax system, these companies argue that the 15% global minimum tax will impose significant compliance costs. The side-by-side approach was part of a deal reached in June between the United States and the G-7 countries, leading to the removal of the proposed Section 899 “revenge tax” from the OBBBA.
U.S. business groups have also raised concerns with the Treasury Department regarding Australia’s new Pillar Two country-by-country reporting requirement and the Australian government’s intention to release such reports to the public. Concerns have been raised that the disclosures will affect privately held companies and information about U.S.-parented multinational groups, rather than just Australian subsidiaries.
Relatedly, as negotiations continue to stall, some countries like Kenya, France and Spain have implemented or maintained digital services taxes (DSTs) on technology companies as temporary measures, while others, such as India and Canada, have repealed their DSTs following pressure from the Trump administration.
Treasury Department, IRS to Release International Tax Guidance by Year-End: At an event last week, Huzefa Mun, a Treasury Department attorney, said four pieces of guidance addressing near-term international tax provisions from the One, Big, Beautiful Bill Act (OBBBA) are expected to be released by year-end. Priority areas include changes to the foreign-derived deduction eligible income (FDDEI) rules under Section 250, revisions to the elimination of the one-month deferral rule for controlled foreign corporations under Section 898(c) and guidance on the changes to Sections 951 and 960(b) relating to transition rules and foreign-earned income credits. The Treasury Department and the Internal Revenue Service (IRS) are also weighing how stewardship expenses should be allocated under the revamped Net CFC Tested Income (NCTI) regime (the successor to GILTI), while broader changes under the law will be taken up in 2026 through proposed rulemakings.
At A Glance
CAMT Reemerges in Corporate Tax Planning Strategies: The One, Big, Beautiful Bill Act (OBBBA) made several provisions from the Tax Cuts and Jobs Act (TCJA, P.L. 115-97) permanent, including immediate deductibility of research and development expenditures. However, the restored R&D benefit may now conflict with the 15% corporate alternative minimum tax (CAMT) enacted under the Inflation Reduction Act (IRA) for some companies, as unamortized deductions from 2022 through 2024 trigger CAMT liability. Energy and technology firms warn they could lose access to hundreds of millions of dollars in credits, while business groups argue the restriction weakens incentives for domestic R&D. Business groups are urging Republican lawmakers and the Trump administration to pursue fixes through legislation or Treasury Department guidance.
Warren Presses JCT on Bonus Depreciation Under OBBBA: On Sept. 29, Sen. Elizabeth Warren (D-MA) sent a letter to the Joint Committee on Taxation (JCT) expressing concern about the permanent extension of 100% bonus depreciation enacted in the One, Big, Beautiful Bill Act (OBBBA), which is estimated to cost $362.7 billion over 10 years. She highlighted that the provision primarily benefits large corporations and contends that the provision will result in little economic stimulus. Sen. Warren asked JCT to provide information on which industries and companies benefited most from bonus depreciation between 2018 and 2022, how it may affect tax liabilities in 2025 and 2026, the types of assets written off and the effects of the provision’s retroactive application.
Hearings and Events
House Ways and Means Committee
The House is out of session this week.
Senate Finance Committee
The Senate Finance Committee held a full committee hearing to examine the taxation of digital assets on Wednesday, Oct. 1 at 10 a.m. (EDT).