Tax News & Views Cleans the Budget Bill Fishbowl Roundup

Interest-rate spike would push megabill cost to $2.8T, CBO says in ‘dynamic’ score - Jennifer Scholtes, Politico:

The sweeping domestic policy package House Republicans passed last month would increase the U.S. deficit by $2.8 trillion over a decade when considering economic effects, according to Congress’ nonpartisan scorekeeper.

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CBO did find that the legislation would modestly boost economic growth over a decade, by 0.5 percent on average. But those effects would be swamped by the costs of higher interest rates, forecasters found, which would boost payments on the national debt by an estimated $440 billion over that time. Over five years, inflation would increase “by a small amount” because of the bill, the budget office predicts.

Fast For the Fourth?

Republicans hope for negotiated megabill deal early next week - Burgess Everett, Semafor:

Vice President JD Vance’s Capitol visit on Tuesday helped rally Republican senators to stick to the self-imposed July 4 timeline for Senate passage. Senate Majority Leader John Thune has repeatedly told members the Senate will stay in session until it gets done — which is what leaders often do to spur a result.

The moment he signals a delay in plans, Republicans will lose all of their momentum. Mullin said by Sunday, June 29, anyone seeking to delay the bill will start to lose steam. Their hope is to have a finished deal with all of the sections of the bill by Monday or Tuesday.

Tax Bill Lacks Votes as Senate Aims for SALT, Medicaid Deals - Erik Wasson, Alicia Diaz and Steven Dennis, Bloomberg via MSN:

Republican leaders are aiming for quick negotiations over needed changes to the newly unveiled Senate tax bill which lacks the votes to secure majorities in both chambers as written.

The prospect of prolonged talks with holdouts in both the conservative and moderate wings of the party threaten Senate Majority Leader John Thune’s goal of passing President Donald Trump’s tax-cut legislation by July 4.

The threats to Senate’s July 4 reconciliation rush - Andrew Desiderio, Laura Weiss and John Bresnahan, Punchbowl News:

First, Senate Republicans need to race through time-consuming reconciliation procedures that could throw a wrench into their plans. Behind the scenes, they’ll need to hash out all the complicated political challenges plaguing the bill. And they don’t have much room to lose votes in either chamber.

The Byrd Bath. The main procedural hurdle for Senate Republicans to clear is wrapping up the “Byrd Bath.” That’s when Democratic and GOP aides each argue their case to the Senate parliamentarian about whether provisions in the bill adhere to the chamber’s Byrd Rule, which governs the reconciliation process.

Senate GOP’s Medicaid Cuts Mean New Trouble for Trump Megabill - Siobhan Hughes, Richard Rubin and Olivia Beavers, Wall Street Journal:

Senate Republicans’ plan to extract more savings from Medicaid as part of their revised tax and spending package triggered a backlash within the party, raising concerns that leaders could miss their self-imposed deadline of getting the bill to President Trump’s desk by July 4.

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Some GOP senators said they were caught off guard by the steep reductions and indicated they could be deal breakers.

We Shall All Be Changed

Expect More Changes in Reconciliation Tax Bill, Senators Say - Cady Stanton and Doug Sword, Tax Notes ($):

“This is a proposal; nothing is finalized,” said Sen. Markwayne Mullin, R-Okla. “Everything is on the table. We’re working through every aspect. There isn’t any finalized text yet. . . . We’re going through everything to make sure we can get 51 votes.”

Sen. Lisa Murkowski, R-Alaska, who previously wrote to Senate Majority Leader John Thune, R-S.D., cautioning against repeals of IRA clean energy credits, said she’s still dissecting the bill but expects changes to it.

“I don’t think it’s going to stay in this form,” Murkowski said.

Senate SALT Provisions

Senate Tax Bill Tightens Limits on SALT Cap Workarounds - Kristen Parillo, Tax Notes ($):

The Senate Finance Committee’s draft tax portion of the Republican reconciliation bill, released June 16, would require partnerships and S corporations to treat passthrough entity taxes (PTETs) as separately stated items and would impose an individual-level limitation on a passthrough owner’s separately stated share of PTETs.

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The Senate Finance Committee’s bill departs from the House bill by adding PTETs to the list of taxes subject to the SALT cap, which the committee would set at $10,000 (the cap that’s scheduled to sunset at the end of 2025). That amount is significantly lower than the $40,000 cap in the House-passed bill, although an explanation for the provision in a section-by-section breakdown of the Senate bill makes clear that the number isn’t final.

The Finance Committee’s version also differs by requiring partnerships and S corporations to treat PTETs as separately stated items and establishing an individual-level limitation for a partnership or S corporation owner’s separately stated share of PTETs. That limitation would allow an individual PTE owner to deduct any unused portion of their SALT cap, plus the greater of $40,000 of their allocation of the PTET or 50 percent of their allocation of the PTET.

Senate Tax Bill Revives SALT Workaround Used by Doctors, Lawyers - Michael Bologna, Bloomberg ($):

In a major deviation from the House approach, the Senate Finance Committee proposal drops language cutting professional service providers out of pass-through entity tax regimes, PTETs, found in many states. This distinction would ensure that millions of businesses providing accounting, legal, consulting, medical, and financial services can keep taking the PTET deduction like any other trade or business.

“They are allowing a limited PTET deduction for each owner of a business, regardless of industry,” Kyle Pomerleau, a federal tax policy senior fellow at the American Enterprise Institute, said in an emailed message. “This contrasts with the House version that kills the deduction for service businesses, but allows an unlimited deduction for non service businesses.”

Other Tax Bill Items: Estate Tax, College Tax, Overtime, Clean Energy

Trump Bill Would Raise Estate Tax Exemption to $15 Million and Make It Permanent - Ashlea Ebeling, Wall Street Journal. "The bill passed in the House last month and the Senate Finance Committee proposal released Monday both would permanently allow people to hand their heirs $15 million without paying a dime. Under the current rules laid out in the 2017 tax law, today’s nearly $14 million exemption would expire at year-end and drop by about half."

Rich Colleges Would Face Lower Tax Hike Under Senate Bill - Amanda Albright, Bloomberg via MSN. "Private universities with at least 500 students that have endowments of $2 million per pupil or more would pay an excise tax of 8% under the new bill released by the Senate Committee on Finance. The levy would be placed on net-investment income earned by the endowments. That’s much lower than the 21% rate that was included in the House proposal, which passed the chamber in May."

No tax on overtime: Senate GOP’s bill could limit proposed tax break - Addy Bink, The Hill:

In the House bill, the tax break would remove income taxes on the overtime pay premium for over 80 million hourly workers. For qualifying overtime, this would be a temporary full deduction of the overtime pay employees receive, ending after 2027.

Under the current version of the Senate’s bill, however, overtime pay would be deductible up to $12,500 or $25,000 for joint filers through 2028, The Hill reports. Tax breaks on tipping and car loan interest would also be capped.

Senate Republicans double down and target clean energy in draft tax bill - Alexa St. John, Associated Press:

Language included Monday in the reconciliation bill from the Senate Finance Committee would still phase out — though more slowly than House lawmakers envisioned — some Biden-era green energy tax breaks.

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On the chopping block are tax credits for residential rooftop solar installations, ending within 180 days of passage, and a subsidy for hydrogen production. Federal credits for wind and solar would have a longer phaseout than in the House version, but it would still be difficult for developers to meet the rules for beginning construction in order to receive the credit.

Senate Tackles International Tax

Senate GOP Opts for International Tax Regime Redesign - Jonathan Curry, Tax Notes ($):

New in the Senate version of the One Big Beautiful Bill Act, released late June 16, is the proposed permanent extension of the look-through rule for controlled foreign corporations that was set to expire at the end of this year. The Senate bill also would replace the 20 percent foreign tax credit "haircut" for global intangible low-taxed income with a 10 percent haircut and restore limitations on the downward attribution of stock ownership.

Senate Republicans, unlike their House counterparts, also opted to propose substantial changes to the three key international tax provisions established by the 2017 Tax Cuts and Jobs Act: the GILTI regime, the foreign-derived intangible income regime, and the base erosion and antiabuse tax.

The bill would adjust the rates of all three provisions so that they land at 14 percent. The BEAT rate would be adjusted up to 14 percent, the FDII deduction would be set to one-third of the 21 percent corporate tax rate, and the GILTI rate would get to 14 percent by way of a 60 percent inclusion rate and the 10 percent FTC haircut. The House bill would simply have eliminated the scheduled sunsets and their associated rate changes to maintain the status quo, otherwise leaving the provisions largely untouched.

Senate Delays and Scales Back ‘Revenge Tax’ in Trump Bill - Steven Dennis and Ye Xie, Bloomberg via MSN:

The provision, officially known as Section 899 and informally known as the “revenge tax,” was drafted by House Republicans and supported by the White House to counter several European countries, Canada, Australia and more nations from taxing US firms in a way those lawmakers argue is discriminatory.

The Senate’s version of the bill released late Monday would delay that new tax until 2027 for calendar-year filers and raise it by 5 percentage points a year until it hit a 15% cap.

The House version of the tax would take effect sooner and rise to 20% over four years on individuals and firms from targeted countries, raising an estimated $116 billion over 10 years help offset the rest of the President Donald Trump’s massive tax and spending package.

Deduction for Leaving Shire

AbbVie Can Get Deduction For $1.6B Payment, Tax Court Says - Natalie Olivo, Law360 Tax Authority ($):

Tax Court Judge Emin Toro backed AbbVie's decision to treat as an ordinary deduction the $1.6 billion so-called break fee it paid in 2014 to Shire PLC after a failed merger with the Irish biotechnology company. In granting summary judgment to AbbVie, which had agreed to pay the break fee if the deal fell through, Judge Toro held that the Internal Revenue Service incorrectly classified the payment as a capital loss under Internal Revenue Code Section 1234A(1).

In general, Section 1234A(1) applies when a gain or loss stems from the termination of a right or obligation "with respect to property" that currently is — or would be, upon acquisition — a capital asset in the hands of the taxpayer.

Termination Fees and Capital Loss Treatment: Insights from AbbVie v. Commissioner - Ed Zollars, Current Federal Tax Developments. "A pivotal point in the Court’s analysis was that the Break Fee was triggered by the withdrawal of the AbbVie board’s recommendation in support of the combination, not by AbbVie’s failure to complete the combination itself."

Tax Administration

DOJ Division Breakup Stokes Concern of Weakened Tax Enforcement - Erin Schilling, Bloomberg ($):

The department plans to transfer the tax division’s enforcement work to respective criminal and civil divisions as part of its broader reorganization plan, which also includes axing thousands of positions. Without a designated tax division, it could mean less internal backing for tax enforcement funding and inexperienced attorneys defending the government in tax cases, lawyers said.

While the DOJ said the move was a way to provide more oversight in tax enforcement and more effectively distribute resources in its budget request to Congress for next fiscal year, others who previously worked inside the division see it as a way to weaken efforts against tax avoidance. Former DOJ attorneys and IRS officials decried an earlier proposal to spread tax division attorneys among US Attorneys’ offices across the country.

IRS Issues Applicable Federal Rates (AFR) for July 2025 - Bailey Finney, Eide Bailly. "The Section 382 long-term tax-exempt rate used to compute the loss carryforward limits for corporation ownership changes during July 2025 is 3.71%."

Blogs and Bits

IRS problems recording electronic tax payments leads to erroneous notices - Kay Bell, Dln't Mess With Taxes. "The IRS says individual taxpayers who electronically paid tax reported due on their recently filed returns may see payments on their accounts as pending, although the IRS has received payment through their banking institution."

The Impact of Transfer Pricing on Management Accounting and Incentives - Chad Martin, Eide Bailly. "There are many variations, but the principle stands: when designing TP policies, transfer pricing advisors should not stop at providing a benchmarking study for tax purposes. They must understand the Company’s business requirements and develop a methodology that fits both business and tax needs."

Eleventh Circuit: Partnership's Conservation Easement Deduction Was Limited to Basis - Parker Tax Pro Library. "The Eleventh Circuit affirmed the Tax Court and held that the amount of the charitable deduction a partnership could claim for its donation of a conservation easement was limited to its adjusted basis in the easement under Code Sec. 170(e) and Code Sec. 724(b) because the easement property was an inventory item in the hands of the partner that contributed the property."

"I want a check, I don't think electronic payments are secure."

Four Charged In Scheme To Steal Tens Of Millions Of Dollars In Treasury Checks From The Post Office - Kelly Phillips Erb, Forbes. "The superseding indictment (a new indictment that replaces a previous one in a criminal case) alleges that, between June 2023 and September 2024, Irby and Tucker, while working as USPS mail processing clerks, stole thousands of envelopes containing U.S. Treasury checks from mail sorting machines at the USPS Philadelphia Processing and Distribution Center."

There are worse things than giving the government your bank account information.

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Tax News & Views Cleans the Budget Bill Fishbowl Roundup

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Joe B. Kristan, CPA