Legislative Lowdown
Senate Completes Vote-a-Rama to Advance ‘Plan B’ Reconciliation Legislation: On Feb. 20 and 21, the Senate held a “vote-a-rama” to consider amendments and passed the chamber’s FY 2025 budget resolution, S.Con.Res.7. The final vote was 52-48, with Sen. Rand Paul (R-KY) joining Democrats in opposing the resolution. Senators took roll call votes on 25 amendments and approved only two—one offered by Sen. Mike Lee (R-UT) that would increase spending efficiencies by reducing federal regulations on outlays, and a second from Sen. Dan Sullivan (R-AK) that would protect Medicare and Medicaid. Eight additional amendments failed by voice vote, for a total of 33 considered amendments. Brownstein’s tracker of filed amendments can be accessed here.
Many of the amendments offered by Democrats concerned the taxation of wealthy individuals, all of which failed due to Republican opposition. Amendments were also offered on a range of issues from affordable housing and food assistance to defense and other federal funding programs.
Meanwhile, House Republicans continue to pursue a one-bill approach to budget reconciliation, focused on tax extensions along with significant spending cuts, energy and immigration reforms and a $4 trillion increase in the debt limit. The Senate version of the budget resolution is the first of an intended two-bill reconciliation approach with the first bill focusing on energy and immigration. President Donald Trump endorsed the House’s single-bill strategy ahead of the Senate’s vote-a-rama, expressing his preference for “one big, beautiful bill.” Senate Budget Committee Chairman Lindsey Graham (R-SC) subsequently reframed the Senate’s two-pronged reconciliation effort as a “Plan B” option in case the House falls short in passing its single budget resolution measure. The House Rules Committee considered the rule for managing the House’s debate on the budget resolution (H.Con.Res.14) on Feb. 24, setting up floor action this week.
Ways and Means Committee Considering Business SALT Deduction Limitation: As a potential offset against the cost of extending the Tax Cuts and Jobs Act (TCJA, Pub. L. 115-97), some Republicans on the House Ways and Means Committee are considering limiting the state and local tax (SALT) deduction for businesses. The scope of potential state and local taxes that could be included in the proposal—income, real estate, sales and industry-specific taxes—remains unclear. Similarly, details on how or the extent to which such taxes would be limited have yet to emerge. Initial discussions suggest that support for such a proposal may be gaining traction, but some Republicans representing districts in high-tax states such as California, New York and New Jersey may not be willing to limit business SALT in exchange for providing additional relief on the individual SALT deduction, which was capped at $10,000 by the TCJA. Similarly, states like Texas and Florida would see a significant impact if real estate taxes were capped, as would many states that are home to the oil and gas industry that impose extraction taxes and severance fees, for example. Unlike individual SALT, most state and local taxes in the business sector represent an ordinary and necessary cost of doing business.
Tax Worldview
Trump Issues Memorandum to Counter Digital Service Taxes: On Feb. 21, President Trump issued an executive memorandum titled “Defending American Companies and Innovators From Overseas Extortion and Unfair Fines and Penalties.” The memorandum directs the U.S. trade representative (USTR), secretary of commerce and secretary of the treasury to investigate whether other nations impose taxes, regulations or other barriers that unfairly discriminate against U.S. companies, often tech companies. The memorandum specifically targets countries that impose a digital services tax (DST), including France, Austria, Italy, Spain, Turkey, the United Kingdom and Canada. The agencies are also directed to identify other countries’ trade and regulatory practices that undermine U.S. growth, intellectual property and global competitiveness. USTR is directed to recommend appropriate actions, including tariffs, to counter such unfair practices in its report outlined in the “America First Trade Memorandum,” which is due April 1. Additionally, USTR, in consultation with the secretary of commerce and the senior counselor to the president for trade and manufacturing, are tasked with establishing a process that allows U.S. businesses to report foreign tax or regulatory practices that disproportionately harm U.S. companies.
In addition, the treasury secretary is directed, in consultation with the commerce secretary and the USTR, to determine whether any foreign countries are subjecting U.S. citizens or companies to discriminatory or extraterritorial taxes, which can include DSTs. The treasury secretary is also required to assess whether any countries have tax measures in place that otherwise undermine the global competitiveness of U.S. companies, are inconsistent with any U.S. tax treaties, or are otherwise “actionable under section 891 of title 26, United States Code, or other tax-related legal authority.” Section 891, a provision that has been in the tax code since 1934 but never used, allows the president, on a finding that U.S. citizens or corporations are being subject to discriminatory or extraterritorial taxes, to double the U.S. tax rates applicable to citizens or corporations of the offending foreign country up to a maximum of 80%. The memorandum directs that the treasury secretary shall include the results of assessments as part of the report required by the presidential memorandum “The Organization for Economic Co-Operation and Development (OECD) Global Tax Deal,” which President Trump signed on Jan. 20.
The memorandum is expected to tee up retaliatory measures against countries that impose DSTs and other discriminatory or extraterritorial taxes on U.S. companies, although it does not provide a timeline for when any retaliatory measures, such as tariffs or increased tax rates, would be imposed.
1111 Constitution Avenue
IRS Begins Layoffs as Part of Federal Workforce Reduction Initiatives: On Feb. 20, the Internal Revenue Service (IRS) started the process of laying off more than 6,700 employees as part of the Trump administration’s efforts to reduce the size of the federal workforce. The layoffs follow earlier initiatives to terminate all federal employees on probationary periods, though IRS managers noted that employees “deemed critical to filing season” would not be terminated or laid off. The layoffs will most greatly affect enforcement operations and the ability for the IRS to collect unpaid and past-due taxes. White House officials have downplayed the effects of the layoffs, with National Economic Council Director Kevin Hassett saying that he wants to ensure that employees are “productive and effective,” with unproductive employees being removed. Treasury Secretary Scott Bessent said that layoffs may increase “as we improve IT [information technology] at the IRS.”
However, Democrats have criticized the layoffs and firings as a method of allowing wealthy taxpayers to skirt accountability and compliance, with House Ways and Means Committee Ranking Member Richard Neal (D-MA) saying that the IRS personnel reductions will “[give] a free pass for the administration’s rich friends while leaving everyday Americans to suffer from strained services.” Senate Finance Committee Ranking Member Ron Wyden (D-OR) said that the cuts would be “devastating to ongoing efforts” to audit wealthy taxpayers and large corporations. On Feb. 18, Ranking Member Wyden, along with other Finance Committee Democrats wrote a letter to Secretary Bessent, Office of Management and Budget Director Russell Vought, Office of Personnel Management Acting Director Charles Ezell, and IRS Acting Commissioner Douglas O’Donnell, urging them to not implement mass layoffs at the IRS so that the agency would be able to process tax returns, assist taxpayers, continue enforcement and maintain modernization operations.
IRS Acting Commissioner to Retire: On Feb. 25, Internal Revenue Service (IRS) Acting Commissioner Douglas O’Donnell announced that he would retire from the agency on Feb. 28. O’Donnell has served the IRS in various roles since 1986, having become acting commissioner most recently after the resignation of former IRS Commissioner Daniel Werfel on Jan. 20. His resignation also comes during the 2025 tax-filing season and amid thousands of layoffs and terminations at the IRS (discussed above). IRS Chief Operating Officer Melanie Krause will become acting commissioner after O’Donnell’s departure. President Trump has nominated former Congressman Billy Long to become the new IRS commissioner, but his nomination has not yet been considered by the Senate Finance Committee.
Federal Workers Instructed to List Weekly Tasks: Per a post on social media platform X by Elon Musk, senior advisor to the president and administrator of the Department of Government Efficiency (DOGE), federal government employees must reply to an email by the Office of Personnel Management (OPM) listing approximately five bullet points detailing what they accomplished last week “consistent with President [Trump’s] instructions.” Failure to respond to the email, as Musk wrote, “will be treated as a resignation.” It is unclear whether Musk has the legal authority to request this information. Further, Musk has received pushback with departments and agency heads instructing employees not to comply with the email instructions, including Federal Bureau of Investigation Director Kash Patel, Director of National Intelligence Tulsi Gabbard and the Department of Defense X account. However, Treasury official John York reportedly told Internal Revenue Service (IRS) employees to abide by Musk’s directive, while cautioning against revealing “confidential, privileged, [or] otherwise non-public work in their replies. Musk appeared to double down while extending the deadline for employees to respond, writing another post on X on Feb. 24 saying that employees will “be given another chance,” and that “failure to respond a second time will result in termination."
At a Glance
Corporate Transparency Act Reporting Requirements Reinstated: On Feb. 18, the U.S. District Court for the Eastern District of Texas lifted the remaining injunction against the implementation of the Corporate Transparency Act (CTA) in Smith v. U.S. Department of the Treasury. As a result, the CTA’s beneficial ownership information (BOI) reporting requirements are back in effect. Following the court’s action, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued Notice FIN-2025-CTA1 extending the filing deadline by 30 days, to March 21. While FinCEN suggested that an additional extension may be provided, companies required to report should contact their legal advisors as soon as possible and gather the necessary information to report their beneficial ownership in case the March 21 deadline is maintained. Relatedly, legislation (H.R. 736) to extend the CTA filing deadline to Jan. 1, 2026, passed the House by a vote of 408 to zero on Feb. 10. The Senate has yet to schedule action on the legislation or similar legislation introduced by Sen. Tim Scott (R-SC), the chairman of the Senate Banking, Housing, and Urban Affairs Committee.
Hearings and Events
House Ways and Means Committee
On Feb. 25, the House Ways and Means Subcommittee on Trade will hold a hearing on “American Trade Enforcement Priorities.”
On Feb. 26, the House Ways and Means Committee will hold a markup of H.R. 1491, the Disaster Related Extension of Deadlines Act; H.R. 517, the Filing Relief for Natural Disasters Act; and H.J.Res. 25, disapproving the rule submitted by the Internal Revenue Service related to “Gross Proceeds Reporting by Brokers That Regularly Provide Services Effectuating Digital Asset Sales.”
Senate Finance Committee
The Senate Finance Committee has no tax hearings scheduled for this week.