Key Takeaways
- Tax bill timing updates.
- ERC claims addressed in tax bill.
- SALT debate continues.
- IRS continued reduction in workforce.
- Investigation into IRS nominee donors.
- National Bike to Work Day!
House Budget forging ahead with megabill markup - Jennifer Scholtes and Meredith Lee Hill, Politico:
House Republicans are sticking with their plan to hold a crucial committee vote needed to launch their party-line tax and spending package for floor debate — despite last-minute objections from fiscal hawks. The House Budget Committee will hold its morning markup Friday, as scheduled, and GOP leaders expect the panel to approve the bill after members deliver their opening statements.
GOP tax bill on track to add more than $2.5 trillion to U.S. deficit - Jeff Stein, Washington Post:
That fiscal hit has triggered criticism from House conservatives, who have at times vowed to vote against legislation that adds to the national debt, which is already over $36 trillion. But House Speaker Mike Johnson (R-Louisiana) may have trouble reducing the bill’s price tag, as that would require either making fewer tax cuts or steeper spending cuts in ways unpalatable to his conference.
W&M Chair Doesn’t Expect Senate to Make Big Changes to Tax Bill - Katie Lobosco, Tax Notes ($):
One reason Smith said he is confident is because his committee included a lot of senators’ priorities in the bill. He cited a tax-advantaged savings account for children, with an initial $1,000 contribution from the government, which is based on a bill from Sen. Ted Cruz, R-Texas.
The House bill would also expand a tax credit for employer-provided child care and make permanent a tax credit for employers who provide paid family and medical leave. Both of those provisions have had support from Republican senators.
But some moderate Republican senators have expressed concerns about other provisions in the package, like the elimination and phaseout of many clean energy tax credits created by the Inflation Reduction Act and cuts to Medicaid
The House bill would also expand a tax credit for employer-provided child care and make permanent a tax credit for employers who provide paid family and medical leave. Both of those provisions have had support from Republican senators.
But some moderate Republican senators have expressed concerns about other provisions in the package, like the elimination and phaseout of many clean energy tax credits created by the Inflation Reduction Act and cuts to Medicaid
Tax Bill’s ERC Repeal Seen as Blow to Filers Awaiting Claims - Benjamin Valdez, Tax Notes ($):
Tucked into the massive tax package advanced by the House Ways and Means Committee is a provision long sought by several lawmakers that would retroactively block ERC claims filed after January 31, 2024, and extend the statute of limitations on assessment for the credit to six years, allowing the IRS extra time to audit claims.
SALT Debate
SALT could stall GOP’s comprehensive tax bill - Kay Bell, Don't Mess With Taxes:
Business SALT worries: Individual property owners aren't the only ones unhappy with the proposed changes to the SALT deduction.
Another provision in the new tax bill would limit a SALT deduction workaround for some pass-through businesses that was created in many states after the 2017 tax law change.
Another provision in the new tax bill would limit a SALT deduction workaround for some pass-through businesses that was created in many states after the 2017 tax law change.
Why a $10,000 Deduction Is Blocking the G.O.P.’s $3.8 Trillion Tax Bill - Benjamin Oreskes, New York Times:
The SALT deduction has become an outsize stumbling block for Republicans trying to pass a $3.8 trillion tax proposal that would extend President Trump’s 2017 tax cuts and roll back subsidies for clean energy, among other things.
A group of Republican House members, mostly from New York, New Jersey and California, have vowed to vote no on the package unless the cap, which helped pay for the 2017 cuts and expires this year, is raised or abolished. And even among the holdouts, there is dissension — something that drew attention on Tuesday night during a Republican caucus meeting with Speaker Mike Johnson.
A group of Republican House members, mostly from New York, New Jersey and California, have vowed to vote no on the package unless the cap, which helped pay for the 2017 cuts and expires this year, is raised or abolished. And even among the holdouts, there is dissension — something that drew attention on Tuesday night during a Republican caucus meeting with Speaker Mike Johnson.
IRS
Reduction in Force Could Target IRS Chief Counsel Offices - Lauren Loricchio, Tax Notes ($):
More than 300 attorneys in the IRS Office of Chief Counsel, which interprets, administers, and enforces tax laws, have submitted requests for the second deferred resignation program — an opportunity to resign and be placed on paid administrative leave through the end of September, according to a person familiar with the matter.
Some attorneys in the IRS chief counsel’s office say Trump administration efforts to shrink the federal workforce have damaged morale to the point that it is hindering the office’s ability to fulfill its mission.
Some attorneys in the IRS chief counsel’s office say Trump administration efforts to shrink the federal workforce have damaged morale to the point that it is hindering the office’s ability to fulfill its mission.
Senate Taxwriters Investigate Donors to Trump’s IRS Nominee - Benjamin Valdez, Tax Notes:
In seven letters sent to seven different individuals on May 15, Senate Finance Committee member Elizabeth Warren, D-Mass., ranking member Ron Wyden, D-Ore., and member Sheldon Whitehouse, D-N.Y., demanded information on donations the individuals made to the dormant campaign account of Long’s failed 2022 Senate bid in January, a month after his nomination to lead the IRS was announced by President Trump.
In the Courts
Tax Court Memo 2025-45: Stevens v. Commissioner - Key Takeaways on Interest Deductions and Penalties in Complex Financial Transactions - Ed Zollars, Current Federal Tax Developments:
The Court upheld the disallowance of the interest deductions for tax years 2014, 2015, and 2016, finding that the underlying notes did not constitute true indebtedness because they were structured to be eliminated upon exercise of the associated option or become a nullity if the option expired. The Court also sustained the 20% accuracy-related penalties for negligence for these years and the 20% excessive-refund-claim penalty for 2013, rejecting the petitioners’ arguments for reasonable cause and finding the penalties were properly approved by a supervisor. This case underscores the critical importance of genuine economic substance and risk in debt instruments and highlights the challenges taxpayers face in establishing reasonable cause based on professional advice when benefits appear "too good to be true" or the reliance on the advice is questionable.
Tax Trouble
Florida financial advisor sentenced for promoting illegal tax shelter and stealing client funds - IRS (defendant name omitted):
Beginning in late 2013, Defendant conspired with others to promote an illegal tax shelter whereby clients would claim false tax deductions for so-called “royalty payments” to fraudulently reduce their taxes. In reality, the “royalty payments” were merely a circular flow of money designed to give the appearance of genuine business expenses. Typically, a client would send money to bank accounts controlled by Defendant and his co-conspirators, who then sent the money, minus a fee, to a different bank account that the client controlled. Tax shelter participants retained control of the money they transferred, while falsely deducting the transfers as business expenses on their tax returns.
In total, Defendant and his co-conspirators helped clients prepare tax returns that claimed over $106 million in false tax deductions, which caused a tax loss to the IRS of approximately $37 million. Defendant and a co-conspirator, who was a relative, collectively earned approximately $3 million in fees from the scheme.
In total, Defendant and his co-conspirators helped clients prepare tax returns that claimed over $106 million in false tax deductions, which caused a tax loss to the IRS of approximately $37 million. Defendant and a co-conspirator, who was a relative, collectively earned approximately $3 million in fees from the scheme.
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