Legislative Lowdown
Crapo, Senate Republicans Continue to Advocate for Use of ‘Current Policy’ Baseline: At a U.S. Chamber of Commerce tax policy summit on March 12, Senate Finance Committee Chairman Mike Crapo (R-ID) advocated for the usage of a current-policy baseline in assessing the budgetary effects of extending the Tax Cuts and Jobs Act (TCJA, Pub. L. 115-97) and other tax priorities of the Trump administration. If permitted by the Senate parliamentarian, the current-policy baseline would allow Congress to make the expiring TCJA tax provisions permanent, with no apparent cost even though as a practical matter they still would be deficit financed. He contended that utilizing the current-policy baseline would allow Congress and the Trump administration to enact more sweeping tax-reform measures and give rise to greater permanence of the tax code, which would help businesses in their tax-planning initiatives.
Chairman Crapo also highlighted during the summit the range of tax priorities under consideration, including the restoration of the three TCJA business provisions (research and development expensing; bonus depreciation; and deductibility of business interest) that began expiring after 2021, as well as President Trump’s campaign tax priorities of eliminating taxes on tip income, overtime wages and Social Security benefits. He also noted that the Senate Finance Committee has received over 200 member recommendations for the tax reconciliation bill, although he was doubtful that many would end up being included given the narrow budget constraints expected in the final resolution.
Currently, the House Republican Conference and its deficit hawks continue to have reservations regarding the current-policy baseline, citing fiscal sustainability implications, and many members continue to favor significant spending cuts to offset lost revenues from the tax package. President Trump met with Senate Republicans on March 13 and expressed his support for the use of the current-policy baseline. In response to an inquiry from Rep. David Schweikert (R-AZ), the Congressional Budget Office released an analysis on March 21 indicating that use of the current-policy baseline would drastically increase the federal debt, and increase the debt-to-GDP ratio to 200% by 2047 and 250% by 2054.
Senate Finance Committee Favorably Reports Faulkender Nomination: On March 14, the Senate Finance Committee held an executive session to consider reporting the nomination of Michael Faulkender to be deputy treasury secretary. His nomination was favorably reported by a vote of 14-13 along party lines, and it will move to the Senate floor, where he likely will be confirmed.
Energy-Tax Mainlines
Ways and Means Committee Begins Reviewing IRS Energy-Tax Credits: Prior to the congressional recess, House Ways and Means Committee Republicans held two closed-door sessions to begin reviewing the major components of the tax reconciliation bill, including the energy tax incentives enacted as part of the Inflation Reduction Act (IRA, Pub. L. 117-169). Although specific details were not released, reports indicate that while some favor a complete repeal of the IRA, an increasing number of Republicans favor taking a credit-by-credit approach and using a scalpel to extract revenue savings while preserving the policy merits of individual credits. Committee members are reported to have weighed in favor of particular credits, including the Section 45Q Carbon Oxide Sequestration Credit, the Section 45Z tech-neutral Clean Fuel Production Credit, and the Section 45X Advanced Manufacturing Production Credit. Additional closed-door sessions are expected in the coming weeks, with Ways and Means Committee Chairman Jason Smith (R-MO) expecting to mark up the committee’s tax title to the reconciliation bill prior to Memorial Day (May 26).
Tax Worldview
Treasury Department Reported to have Delivered OECD Report: The Treasury Department has completed its report concerning options for the United States to respond to countries adopting the Organisation for Economic Co-operation and Development (OECD) two-pillar global tax agreement as well as countries adopting digital services taxes (DSTs). One of President Trump’s initial executive actions, an executive memorandum issued on Jan. 20, directed the treasury secretary and the U.S. trade representative (USTR) to investigate whether foreign countries are not in compliance with U.S. tax treaties or have adopted rules that “disproportionately affect American companies” and deliver findings and recommendations to the president within 60 days.
The directive was expanded by a second executive memorandum directing the treasury secretary, in consultation with the secretary of commerce and the USTR to determine whether any foreign country subjects United States citizens or companies, including in the digital economy, to “discriminatory or extraterritorial taxes, or has any tax measure in place that otherwise undermines the global competitiveness of United States companies, is inconsistent with any tax treaty of the United States, or is otherwise actionable under section 891 of title 26, United States Code, or other tax-related legal authority.” The second directive was set to be completed in the same 60-day period as the Jan. 20 executive memorandum. The White House indicated that the report would not be made public at least initially.
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Initial Estimates Suggest Tax Revenue Could Decrease by 10%: Internal sources from the Treasury Department and Internal Revenue Service (IRS) have predicted that the IRS would see a decrease in tax revenue for the 2025 tax-filing season by more than 10% by the April 15 deadline, compared to 2024, as first reported by The Washington Post. Officials said that efforts by the Trump administration to reduce the IRS workforce directly correlated with this prediction, due to the firings of employees, the reduced likelihood of audits and investigations of wealthy taxpayers and large corporations, and a potential increase in noncompliance by immigrants illegally residing in the United States who normally pay taxes. Other factors may be in play that would allow the IRS to recoup some of this lost revenue, including the potential increased use of penalty-free filing extensions by taxpayers, especially those affected by natural disasters. Nevertheless, the predicted decrease in revenue will tighten funds for Trump administration initiatives and may lead to increased borrowing to fund government operations.
Layoffs Update: 12,000 IRS Employees Have Been Terminated, Though Goals and Employment Statuses Remain Unclear: Current reports indicate that the IRS has lost 12,000 employees as part of the layoffs of probationary employees or employees who accepted the OPM’s “Fork in the Road” deferred resignation offer. Other sources later clarified that the Department of Government Efficiency (DOGE) is seeking to cut about 18,000 (18%) employees, fewer than the 50% reduction initially reported, though DOGE’s goals remain unclear. The terminations could greatly affect the Taxpayer Advocate Services as well as the team running the Direct File program that could see reductions of 25% and 30%, respectively. The Office of the Chief Counsel would see a 15% decrease in personnel, while the IRS Appeals Office could see a reduction of 27%.
However, a federal court order issued on March 13 called for the reinstatement of affected probationary employees, including those at the IRS, by March 17. The employment statuses of affected employees remain unclear and many have not yet returned to their duties and have instead been placed on administrative leave pending the resolution of legal proceedings challenging the layoffs.
Heather Maloy Departs IRS Chief Tax Compliance Officer Role: On March 21, Internal Revenue Service (IRS) Chief Taxpayer Compliance Officer Heather Maloy retired from the agency after signaling her departure days earlier. The chief taxpayer compliance officer oversees several divisions and offices at the IRS, including the Small Business/Self-Employed (SB/SE) Division, the Tax Exempt and Government Entities (TE/GE) Division, and Criminal Investigation. She is expected to be replaced in an acting capacity by Edward Killen, the current commissioner of the TE/GE Division. Killen served in several capacities at the IRS before becoming TE/GE commissioner, including serving as the IRS chief privacy officer and working on a long-term assignment in the IRS Services and Enforcement Affordable Care Act Program Office.
IRS to Reassess IRA Funding, Pause Agency Modernization Initiatives: In a conference call on March 14, an Internal Revenue Service (IRS) “senior career tech executive” stated that the agency would temporarily hold updating its legacy code and other information technology (IT) upgrades as outlined in its most recent strategic operating plan to utilize Inflation Reduction Act (IRA, Pub. L. 117-169) funding. The official stated that the “strategic pause” would allow the agency to adjust its modernization strategies to increase cost efficiency and incorporate newer technologies. It is unclear when this pause would end or whether it is legally allowed under the terms of the IRA.
Trump Appoints Andrew De Mello to Be Acting IRS Chief Counsel: On March 13, President Trump replaced William Paul, the current acting IRS chief counsel, with Andrew De Mello, a lawyer in the Office of the Chief Counsel and a Trump ally. Paul indicated on March 12 in an internal meeting that he would be reassigned because he thinks that allies of Elon Musk, the head of the Department of Government Efficiency (DOGE), are viewing him as uncooperative to DOGE’s goals to reduce IRS personnel. The chief counsel’s responsibilities include crafting IRS regulation and guidance and providing general legal counsel for the agency.
IRS Commissioner Nominee Meets with Senate Finance Committee Republicans: On March 11, Billy Long, President Trump’s nominee to serve as commissioner of the Internal Revenue Service (IRS), met with Senate Finance Committee Chairman Mike Crapo (R-ID) and other Republican members of the Senate Finance Committee. Chairman Crapo issued a press release shortly after the meeting stating that Long’s “decades of real-world experience as a small business owner will serve him well in this role” and he looks forward to considering his nomination. Sens. Thom Tillis (R-NC) and Steve Daines (R-MT) expressed similar sentiments. However, Democrats are still waiting on Long to respond to their inquiries concerning his potential involvement with the Employee Retention Tax Credit (ERTC) through two organizations he worked with. A spokesperson for Ranking Member Ron Wyden (D-OR) also said that Long has not submitted any paperwork related to his nomination and turned down a meeting until the paperwork was finalized.
At a Glance
CTA Update – FinCEN Effectively Makes BOI Reporting Optional for Domestic Companies: On March 21, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued an interim final rule exempting domestic companies from having to report beneficial ownership information (BOI) under the Corporate Transparency Act (CTA), limiting CTA compliance only to foreign reporting companies. The new rule also includes limited exceptions from CTA filing requirements for U.S. persons who are beneficial owners of a foreign reporting company registered to do business in the United States. The new rule will be made effective in the Federal Register this week and FinCEN will issue a final rule later this year after assessing public comments. The rule will provide a reprieve for U.S.-based businesses subject to the reporting requirements, though it is unclear whether Congress will move to codify the new FinCEN interim final rule. Pending legislation (H.R. 736), which would extend the filing deadline until Jan. 1, 2026, would only be relevant to foreign reporting companies under the interim final rule.
Trump Executive Orders on DEI to Likely Affect Research on Racial Biases in Auditing: As part of President Trump’s executive orders to end federal diversity, equity, and inclusion (DEI) programs, the Treasury Department’s Equity Hub received notice that the office’s employees would go on administrative leave. This means that it will be more difficult for the Treasury Department to actively examine and mitigate racial biases in auditing, spurred by a 2023 research study finding that Black taxpayers are audited at disproportionately higher rates compared to other taxpayers. Fixing this bias was one priority of IRS operations during the Biden administration, which included reducing racial disparities in tax enforcement in its 2024 Strategic Operating Plan, and former IRS Commissioner Daniel Werfel stated that the agency was making changes to its systems to select earned income tax credit audits using information not tied to race.
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
The Senate Finance Committee has no tax hearings scheduled for this week.