Republicans are planning to take the first steps toward a second reconciliation bill the week of April 20, but Republican leadership is pushing to keep it narrowly focused and free of tax provisions.
Republicans are turning to reconciliation due to a stalemate between Republicans and Democrats over funding for the Department of Homeland Security. President Donald Trump and congressional Republican leaders are seeking to use reconciliation to fund customs, border security, and immigration enforcement for up to three years outside of the appropriations process. Congress would then separately pass a bipartisan appropriations bill to restore funding for the rest of the Department of Homeland Security.
Senate Republicans hope to release a draft budget resolution the week of April 20, and Senate Majority Leader John Thune, R- S.D., wants to keep the reconciliation bill narrowly focused to finish it by Trump’s June 1 deadline. “To execute on it and do it with any kind of speed, you’ve got to keep it really tight,” Thune told reporters on April 13.
But some Republicans are pushing to expand the legislation to include healthcare provisions, address other defense spending priorities, and even use tax provisions to pay for the bill. Thune has responded by warning members that giving the tax writing committees any reconciliation instructions could allow Democrats to force tough votes on tax amendments. Adding other issues could also threaten the near-unanimous consensus Republicans will need to pass the bill using their narrow majorities.
Republicans have also discussed using a third reconciliation bill for other priorities that would be based on the government fiscal year beginning October 1, 2026. Legislation will only become more difficult as the midterm election nears, however, and Republicans remain divided over their priorities.
BDO Takeaway
Republicans appear unlikely to add tax provisions to the reconciliation bill at this point, but it is not entirely off the table. The first step in the reconciliation process will be to draft a budget resolution, which could come as early as this week. If no reconciliation instructions are provided to the Senate Finance Committee, the bill would not be able to carry a tax title. Regardless, there will likely be an effort to address bipartisan tax priorities in a year-end package after the election. Lawmakers are also still considering bipartisan tax legislation on digital assets.
Digital Assets
Ways and Means Committee members Rep. Max Miller, R-Ohio, and Rep. Steven Horsford, D-Nev., have released an updated draft of their bill to reform the tax treatment of digital assets. The new version translates their earlier release into full legislative language, and includes provisions that would:
- Expand wash sale rules to digital assets
- Apply constructive sale rules to digital assets
- Extend securities lending rules to digital assets
- Allow a mark-to-market election for traders and dealers of digital assets
- Create a de minimis exception for certain stablecoin personal transactions, and a general exception for gain or loss on stablecoins
- Offer a new election to defer staking rewards for five years, with ordinary income treatment upon recognition
For more details on the provisions of the bill, see Congress Working to Reform Tax Treatment of Digital Assets.
The new version of the bill was immediately criticized by some digital asset advocates for limiting the de minimis exception for personal transactions to stablecoins, while excluding Bitcoin and other cryptocurrencies. The bill was also criticized for offering the five-year deferral election only to staking rewards while excluding mining rewards.
BDO Takeaway
The prospects for digital asset legislation this year appear to be waning, and the Miller-Horsford draft has diminished in importance. Ways and Means Chair Jason Smith, R-Mo., has not accepted the draft bill as the framework for his committee, and has now indicated he plans to produce his own bill. The broader legislative effort around digital assets is also at a stalemate between banks and the digital asset industry over stablecoin regulation. Lawmakers would likely need to reach agreement on a broader market structure bill for any tax bill on digital assets to advance. Several Senate lawmakers are preparing to make one final effort to broker an agreement over the next few weeks.
The Miller-Horsford draft is meaningful as an initial template on the tax issues, but it is far from a final product. Taxpayers should not assume any new guidance or legislation will be completed this year and should rely on existing guidance to make determinations on the tax treatment of digital asset transactions.