Capitol Hill Recap: Out for the Summer

Senators are out of DC for the rest of the summer—but before leaving they took care of some house-keeping in the tax code.

The Senate unanimously approved a measure earlier this month to extend the current deduction for unreimbursed personal casualty losses arising in designated federal disaster areas through 2026. With House passage earlier this year, it’s now waiting to be signed into law by President Trump.

Without the legislation, only those with losses exceeding 10 percent of their personal income could use the deduction. The bill also ensures that those receiving certain wildfire relief payments related to federal disasters declared in 2025 and 2026 (such as the 2025 Los Angeles wildfires) can exclude those payments from taxable income.

The tweak is one of a host of small tax administrative reforms, most with overwhelming support from both parties, that has been working its way through the chambers. The hope for many is that lawmakers can put them into a larger bill for passage before the end of the year. The effort is potentially hindered by many controversial issues on the periphery—including the Trump administration’s decision to scrap a program to allow the direct online filing of tax returns to the Internal Revenue Service, or President Trump’s alleged immunity deal against future IRS audits. But while those issues have made the legislative process more complicated, they haven’t yet derailed it.

Otherwise, there don’t seem to be more tax changes on the horizon. Republicans in Congress failed to put together a third partisan spending bill through the reconciliation process over the summer–and what they worked on avoided tax issues in the first place. There were faint hopes that the party leadership could address tax issues in another reconciliation bill after that, but now that prospect is even further away. The lame duck session could give lawmakers time to pass a bipartisan bill on issues like cryptocurrency taxation, but that’s only one issue of many that will be bubbling up in this year’s final weeks. (Including getting the government funded, as the Senate’s bill to extend funding only lasts until Dec. 11.)

Recent Tax Pieces:

IRS Releases Rules to Limit Tax Credits for Immigrants – Erin Slowery and Shannon Najmabadi, Bloomberg Tax ($):

“Under President Trump, the days of illegal aliens collecting taxpayer-funded benefits are over. The federal law is clear, and Treasury is enforcing it,” Treasury Secretary Scott Bessent said in a statement. “American taxpayers should not be forced to foot the bill for benefits going to those who are barred by law from receiving them.”

But many immigrants who are in the US lawfully — including some with certain visas, people with temporary status, and Deferred Action for Childhood Arrivals recipients — won’t be eligible for the tax credits either when the proposed rules are finalized.

Ongoing DEI Purge Prolongs Internal Revenue Manual Roulette – Warren Rojas, Tax Notes ($):

A White House-mandated scrubbing of the IRS’s Internal Revenue Manual has gone from bad to worse for tax guidance seekers, as critical information disappears with no discernible timeline for when — or if — it might ever return.

“The IRS knows, or they should know, what they’re removing and putting back in . . . versus us essentially being stuck with a guessing game,” Nick Xanthopoulos of the Center for Taxpayer Rights told Tax Notes of the hit-or-miss nature of the IRS’s site.

Liberty Global Seen Likely to Appeal Tax Case Loss to High Court – Michael Rapoport, Bloomberg Tax ($):

The IRS has been invoking the economic substance doctrine more often in court cases, as a tool to challenge what it sees as tax abuses. Any move by the Supreme Court to review it — especially the issue of deeming when it’s “relevant” to a particular transaction, important in the Liberty Global case — could have a significant impact.

The entire Liberty Global case was “designed” to go to the Supreme Court, to have the court weigh in on the economic substance doctrine and endorse the view that it isn’t relevant under certain circumstances, said Reuven Avi-Yonah, a University of Michigan law professor.

The key will be whether the telecommunications giant can convince at least four of the nine justices to accept the case for review, as required, said William Byrnes, a Texas A&M University law professor.

Rolling Back Tax Ban on Home Distilling May Lead to High Spirits – Trevor Sikes, Tax Notes ($):

The importance of the constitutional issues and implications raised in these cases extends far beyond home distilling, according to the ban’s opponents.

“Anyone who is concerned that the federal government sometimes assumes powers it doesn’t have — or that the federal government sometimes abuses the powers it does have — should be interested in this suit, because those problems are reflected in it,” Dan Greenberg of the Cato Institute, who represented the plaintiffs in McNutt at the district court level, said.

What the Epstein Files Show About the Opportunity Zone Program – Marie Sapirie, Tax Notes ($):

The Epstein files and other data suggest some apparent initial enthusiasm for investing in the territories that largely never materialized into projects. That raises the question of what precisely the program was intended to accomplish and whether recent changes to it, such as the addition of rural zones and reporting requirements, will help give it a clearer focus.

Public Domain Supervillain of the Week

Every week, a new villain from the Golden Age of comics, who's fallen out of favor.

This week's entry: The Fire Bug.

Debut Year: 1951

Debut Publication: Black Cat #20

Arch-nemesis: The Black Cat (see June 24 post)

Abilities: Orson Arson, a fired movie f/x and pyrotechnics coordinator who took out his revenge by becoming a serial arsonist.

Evil Plan: His costume can shoot flames from the antennas.