Congress departed for the August recess without reaching agreement on several outstanding issues, setting up a contentious fall agenda that could make it difficult to move tax priorities forward.
There is bipartisan interest in several tax issues, including digital assets, the work opportunity tax credit, retirement provisions, and conferring tax treaty-like benefits on Taiwan. Republicans have also discussed a second reconciliation tax package that could include tariff refunds for eligible taxpayers. Looming over the outlook is a spending fight that threatens a potential government shutdown at the end of September.
Digital Assets
With broader legislation on digital assets advancing, attention is turning to tax issues. President Donald Trump signed the Genius Act on July 18 to create a regulatory system for stablecoins. The House passed two other digital assets bills, the Clarity Act of 2025 (H.R. 3633), which assigns digital assets to regulatory bodies, and the Anti-CBDC Surveillance State Act (H.R. 1919), which bars the Federal Reserve from issuing a central bank digital currency.
While those three bills were on the floor, the House Ways and Means Subcommittee on Oversight held a hearing to discuss tax issue arising from digital assets. Shortly after, Rep. Max Miller, R-Ohio, released a summary of forthcoming legislation that would make several tax changes to the treatment of digital assets, including:
- Creating a de minimis reporting exception
- Applying wash sale rules to digital assets
- Offering a mark-to-market election
- Clarifying the tax treatment of staking, mining, forks, airdrops, lending agreements, and decentralized finance
The text of Miller’s bill is not yet available, but the provisions appear similar to legislation from Sen. Cynthia Lummis, R-Wyo. Both bills align with a new report from the administration working group on digital asset markets. The report’s fact sheet called on the IRS to publish guidance on wrapping transactions and de minimis receipts, and to address prior guidance on mining and staking. Treasury has already revoked final regulations (T.D. 10021) that required broker reporting of decentralized finance transactions after the regulations were overturned under the Congressional Review Act. The report also supports legislation that would make digital assets a new asset class for tax purposes and would subject them to the wash sale rule.
The big question is whether legislative efforts in this area will be bipartisan. Rep. Steven Horsford, D-Nev., is also pushing legislation in this area and has called on the parties to work together.
Bipartisan Possibilities
Lawmakers are discussing other potential bipartisan tax priorities for the remainder of the year, which could include:
- Extending the work opportunity tax credit
- Extending Affordable Care Act (ACA) premium credit enhancements
- Conferring tax treaty-like benefits on Taiwan
- Enacting another round of retirement changes
- Removing the 90% limit on deducting gambling losses recently enacted as part of the One Big Beautiful Bill Act
The House voted 423 to 1 on January 15, 2025, to approve a bill (H.R. 33) that would provide treaty-like benefits to Taiwan, contingent on Taiwan granting the U.S. reciprocal benefits. The treaty-like benefits under the legislation include:
- Reducing the general dividend withholding rate to 15%
- Reducing the 30% withholding rate on U.S.-source interest and royalties to 10% for nonresident Taiwanese aliens and Taiwanese corporations
- Applying permanent establishment rules to determine effectively connected income
- Exempting certain U.S. wages earned by Taiwanese residents from U.S. tax
Democrats appear more committed to extending the ACA premium credit enhancement than Republicans, through there is some interest from both parties. Republicans can also use the ACA credits as a bargaining chip to try to convince Democrats to agree to other Republican priorities.
President Trump’s recent interest in eliminating capital gains tax on homes could hold some interest for Democrats, though the idea has not yet gained much momentum. Taxpayers are currently eligible to exclude gain up to $250,000 (single filers) or $500,000 (joint filers) from the sale of a primary residence.
Any bipartisan agreement will be extremely difficult in the current climate, and efforts could be undermined by disagreements over other issues.
Tariff Refunds in Reconciliation 2.0
Republicans continue to discuss the possibility of a follow-up reconciliation bill, which could include items such as increasing the Section 199A deduction to 23% and potentially resurrecting the reciprocal tax on “unfair foreign taxes” under Section 899. New to the list of potential provisions are “tariff refunds” that would be issued to eligible individuals. The idea has yet to pick up widespread support among Republicans. A second reconciliation bill would face significant challenges, especially as other issues take precedence.
Government Funding
Senate Majority Leader John Thune, R-S.D., and Senate Minority Leader Chuck Schumer, D-N.Y., left for the August recess after failing to reach agreement on spending or speeding up the consideration of nominees. Thune is considering a rule change to expedite confirmations, which could anger Democrats and foreshadow an even deeper stalemate over spending.
Government funding expires on September 30, and little progress has been made on the annual appropriations bills. The House subcommittee responsible for IRS funding approved a bill on July 21 that would cut the IRS budget from $12.3 billion in fiscal year 2025 to just $9.5 billion in 2026.
Democrats appear reluctant to agree to bipartisan spending agreements for fear that Republicans will later cut funding through the recissions process. The spending fight is likely to be long and contentious and could crowd out other issues. A government shutdown remains possible and could make other bipartisan initiatives difficult.
Filing Season
New IRS Commissioner Billy Long recently said in some of his first comments since being confirmed that Direct File was “dead” and that the 2026 filing season would open later than usual. The IRS later walked back both statements, saying the agency would study Direct File as directed by the OBBBA and “announce the timing” for opening the filing season “in the regular course.”