Congress Returns to Unsettled Tax Agenda

Congress returned from recess the week of January 5 with a short window of time to address government spending and no clear resolution for extending Affordable Care Act tax credits or addressing other tax priorities. 

Government funding is set to expire on January 30, but Democrats are not threatening to shut down the government. Lawmakers have made various degrees of progress advancing the remaining spending bills, so a temporary extension of funding will likely be needed for at least some areas of the government. 

House appropriators have proposed only $9.5 billion for the IRS in fiscal year 2026, while Republicans on the Senate Appropriations Committee have offered $11.8 billion, both down from the $12.3 billion the agency received in 2025. 

ACA Tax Credits

The House will vote soon on a three-year “clean” extension of the enhanced ACA premium tax credits after four Republicans joined Democrats to sign a discharge petition on the bill. The Senate has already rejected similar legislation, but House passage could put new pressure on senators. 

Several lawmakers from both parties have expressed hope that a deal on healthcare could emerge in early January. President Donald Trump urged Republican members to be “flexible” on the issue in January 6 remarks. A deal would need to come together very quickly to be practical, as the ACA credits expired on December 31. If any bill moves, it could be a vehicle for other unfinished tax priorities.

Expiring Provisions

Several tax provisions expired at the end of 2025, including the work opportunity tax credit, the seven-year recovery period for motorsports complexes, and expensing for film, television, and theatrical productions. There is less urgency surrounding these incentives than the ACA credits, and retroactive extensions could come later in the year. Lawmakers are also looking for a legislative vehicle to carry bipartisan provisions that would confer tax treaty-like benefits on Taiwan, remove a limitation on the gambling deduction, and address tax administration provisions and retirement incentives. 

Digital Assets

Lawmakers are urgently focused on digital asset legislation. The Senate Banking Committee is planning to hold a markup on a market structure bill in the first half of January, and Ways and Means Committee members Rep. Max Miller, R-Ohio, and Steven Horsford, D-Nev., released a draft bill reforming the tax treatment of digital assets before the holiday recess. The legislation builds on earlier bills from Miller and Sen. Cynthia Lummis, R-Wy., and would:

• Expand wash sale rules to digital asses
• Allow a mark-to-market election
• Extend securities lending rules to digital assets
• Create a general de minimis exception and an exception for certain stablecoins
• Offer a new election for mining and staking for a five-year deferral and ordinary income treatment upon recognition
  
  

The draft bill leaves many issues unresolved and the legislative effort on digital assets is complicated by overlapping bills in different committees across both chambers. The aggressive quarter one timeline could slip, but enactment appears possible at some point this year.

BDO Takeaway: Companies active in digital assets should assess the impact of the legislation. Given the potential for enactment, it may be prudent to consider possible future changes in tax treatment in current investment decisions. 

Second Reconciliation Bill

Republican lawmakers continue to float the possibility of a second reconciliation bill, though President Trump is cool to the idea and there is little agreement about what it should carry. The most likely legislative drivers appear to be a pivot to a Republican healthcare bill if bipartisan talks fail or an effort to provide some kind of “tariff dividend.” Any reconciliation bill would be a potential vehicle for major tax changes and could even include revenue offsets.

Pillar Two Guidance

The OECD on January 5 announced an agreement to implement a “side-by-side” safe harbor that would effectively exempt U.S.-parented multinationals from most of the Pillar Two global anti-base erosion (GloBE) rules. The deal was reached after months of negotiations with the 147 jurisdictions of the OECD/G20 inclusive Framework on Base Erosion and Profit shifting and would need to be implemented in local member countries to take effect.

In addition to the side-by-side arrangement, the 88-page administrative guidance package introduces additional safe harbors, including: 

• A permanent simplified effective tax rate (ETR) safe harbor to simplify compliance and reporting 
• A substance-based tax incentive safe harbor that will eliminate top up tax arising from nonrefundable credits and incentives such as U.S. R&D and energy credits 
• An ultimate parent entity (UPE) safe harbor to replace the transitional UTPR safe harbor for domestic entities.
  
  

The guidance package also extends the transitional country-by-country safe harbor for one year to include tax years beginning on or before December 31, 2027.