Capitol Hill Recap: Lights, Camera...Tax Breaks!

President Donald Trump suggested Monday that some targeted tax breaks could turn Hollywood’s fortunes around.

Following a meeting with conservative actor Jon Voight, Trump posted on Truth Social a call for both parties to pass federal tax incentives to rescue the film industry—to make the movie business “GREAT AGAIN.” The announcement got a rare nod of approval from California Democratic Sen. Adam Schiff, usually one of Trump’s loudest critics, who said he supported using tax incentives to “bring back these good-paying jobs that we’ve lost to other countries.”

Is this a serious proposal, or some show-biz smoke and mirrors?

Despite some Democratic buy-in, the odds of Congress enacting a new federal hiring incentive, for movie-making or any other business, are likely small. There’s limited time on the calendar to do much legislating before the November elections, and the later lame duck period already has a packed agenda.

There are some bipartisan areas of agreement on taxes, but those are mostly low-cost administrative items. A new hiring incentive, no matter how it’s crafted, would likely need some heavy offsets to avoid increasing the deficit further. (While Trump promised that the cost of the new incentive would be “made up tenfold by the money pouring into Treasury’s coffers” from new jobs, that’s likely not how the Congressional Budget Office would estimate it.) In the current political environment, for both parties to agree on a new revenue-raising measure sounds like a Hollywood fantasy.

But, if the modern moviemaking business has one rule, it’s that it’s always easier to green-light a sequel, reboot or adaptation, than to come up with an original idea.

While creating a new federal tax break may be far-fetched, the push could shine a light on the recently expired tax benefit for certain filmmaking activities. Sec. 181 allows taxpayers to immediately deduct, up to $15 million, costs from qualified “film or television production,” “live theatrical production,” and—thanks to the 2025 One Big Beautiful Bill Act—”sound recording production.” That break can be valuable, especially for smaller producers who can’t afford to wait to claim the deduction through Sec. 168(k), which covers some of these costs but can only be accessed when the production is placed into service or released.

The Sec. 181 tax benefit is one of several that expired at the end of 2025, including the Work Opportunity Tax Credit, Empower Zone tax incentives, and the enhanced Obamacare premium tax subsidies. While movement on a bipartisan bill to extend some or all of these provisions has been slow, there’s still interest in getting something done by the end of the year.

The Obamacare subsidies may be the biggest hurdle to overcome, as Democrats have pushed hard to extend them as currently designed, while Republicans have proposed to rework them entirely. So far, negotiators from both parties have been unable to find a way to make both parties happy.

But in Tinseltown, anything is possible.

Recent Tax Pieces:

Audit Revenue Has Plummeted under Trump, Watchdog Finds – Andrew Duehren, The New York Times ($):

The amount of money the Internal Revenue Service collected from audits dropped dramatically last year after the Trump administration pushed out many of the agency’s employees, according to a watchdog report released on Monday.

The report from the Treasury Inspector General for Tax Administration, called TIGTA, showed that I.R.S. audits brought in $6.5 billion in fiscal year 2025, a 35 percent decrease from the $10 billion that audits elicited the previous year. That plunge came after President Trump, at the start of his second term, moved to reduce the size of the federal work force, a push that resulted in the I.R.S. losing roughly 30 percent of its staff dedicated to audits.

That stark reduction in staffing levels had been expected to curb the federal government’s ability to conduct the time-intensive investigations sometimes needed to collect the taxes that people and companies owe. The report, which includes data running through Sept. 30, 2025, the end of the fiscal year, is among the first official assessments of that effect.

IRS Softens on Businesses in Wake of Agency Worker Exodus – Erin Slowey, Bloomberg Tax:

Businesses — both large corporate taxpayers and partnerships — have historically been an Achilles heel in collections for the agency that is plagued by underfunding. There was a glimmer of aggressive enforcement of these taxpayers after an infusion of cash from the 2022 tax-and-climate law.

But the short-lived effort was riddled with kinks that the Internal Revenue Service didn’t get the chance to work out.

In the following years, both annual and extra funding would be curtailed, with the Trump administration bringing more business-friendly moves and scaling back regulations after complaints from businesses.

Evaluating the Post-OBBBA Energy Credit Market – Marie Sapirie, Tax Notes ($):

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.

Bipartisan Tax Bill This Year Gets Low Odds From Former Aides – Chris Cioffi, Bloomberg Tax ($):

The House Ways and Means Committee stockpiled legislation that has bipartisan buy-in before lawmakers left for their summer break, and the Senate Finance Committee advanced a package of tax administration fixes in a near-unanimous vote.

But the path to agreement can be derailed by discussions of the reconciliation procedure to move partisan legislation. That would leave little time at the end of the year to extend or pass high-profile legislation such as expiring government funding, along with the highway and farm bills.

“Once you get into a lame duck, especially if there’s been a flip in one or both chambers, you get very much into a ‘what do we absolutely have to do before we can leave?’” Kumar said.

Long-Delayed Tax Bill Comes Due for Opportunity Zone Investors – Richard Rubin, The Wall Street Journal ($):

Investors in the Opportunity Zone program—the first Trump administration’s tax incentive to push capital into low-income areas—approach a critical date Dec. 31. That is when they must include long-deferred capital gains in taxable income. The ticking clock has set off a planning flurry as advisers help clients minimize the hit from ending deferrals that started as far back as 2018.

Wealthy Americans are harvesting losses, considering accelerated charitable deductions and analyzing whether their Opportunity Zone investments have declined in value, advisers say. Still, for many, significant payments for tax year 2026 are unavoidable.

“There will be, I will imagine, a very sizable tax bill across OZ investors,” said Jason Watkins, a partner at accounting firm Novogradac & Company.

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 Frog.

Debut Year: 1942

Debut Publication: Smash Comics #32

Arch-nemesis: Wildfire (see October 29 post)

Abilities: A discharged soldier long mocked for his frog-like looks, he decided to commit to the bit and attacked his former platoon-mates in a full frog costume.

Evil Plan: No special abilities, but he uses henchmen and a harpoon to do a lot of damage.