The House voted 215-211 on April 29 to approve a budget resolution that lays the groundwork for a second reconciliation bill that would generally not allow for tax provisions. The budget resolution already passed the Senate on April 23 and does not need to be signed by the president.
Republicans are planning to use the reconciliation process to fund customs, border security, and immigration enforcement for up to three years outside the appropriations process. The budget resolution provides no reconciliation instructions for the taxwriting committees, so tax provisions will not be considered germane and would need 60 votes to survive in the Senate.
Republican leadership intentionally kept the budget resolution narrowly focused to try to expedite passage of a reconciliation bill by President Donald Trump’s June 1 deadline. The narrow resolution deprives Republican members of a potential legislative vehicle to carry tax provisions and other legislative priorities.
Republican leadership told members they would have an opportunity to pass a third reconciliation bill based on the 2027 government fiscal year beginning on October 1. Such a bill could potentially carry tax provisions but would face significant challenges. Legislation will only become more difficult as the midterm election nears, and Republican members are divided over a broad range of competing priorities, including healthcare provisions, defense spending, affordability measures, indexing capital gains to inflation, tax revenue offsets, and voter identification legislation.
Republicans might also face challenges passing the border and immigration reconciliation bill, given their narrow majorities in both chambers. Many Republicans expressed doubt over the prospects of a third reconciliation bill and sought to expand the current budget resolution to accommodate a wider range of Republican priorities. The passage of the budget resolution should indicate enough support for the underlying reconciliation bill, but opposition could surface. The budget vote had to be held open for hours while leaders worked to flip Republican “no” votes.
BDO Takeaway
Tax provisions are not part of the reconciliation process at this point. If a third reconciliation bill comes together, tax proposals could be considered, but enactment would be difficult. There may still be some opportunities for bipartisan tax legislation, including on digital assets, retirement provisions, extenders, Taiwan tax treaty-like benefits, or tax administration bills.
Crypto Tax Legislation
Ways and Means Committee Chair Jason Smith, R-Mo., said April 26 that a markup of legislation reforming the tax treatment of digital assets could come “very soon.”
“We’ve been putting together months of work,” Smith said. “We’re at the one-yard line.”
Smith is still negotiating with Democrats on the issue and said he would not move a bill unless he can secure bipartisan support.
“It needs to be bipartisan or I have no desire to move it,” Smith said.
BDO Takeaway
A Ways and Means markup of a bipartisan bill could provide much-needed momentum to the effort to reform the tax treatment of digital assets. Ways and Means Committee Members Max Miller, R-Ohio, and Rep. Steven Horsford, D-Nev., recently released an updated draft of their bill, but some crypto advocates immediately criticized it for limiting de minimis transaction relief to stablecoins and failing to include mining rewards in a five-year deferral election for staking rewards. The broader legislative effort for digital asset reform is also stuck in a stalemate between banks and the crypto industry over stablecoin regulation. A compromise on the issue might need to emerge in the Senate for any tax legislation to move.
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