Republicans this week completed a reconciliation bill to fund customs and immigration, potentially clearing the decks for an attempt at a third reconciliation effort. Taxwriters are demanding tax be included, but a bill appears to be a longshot. Meanwhile, the IRS is focused on guidance on various aspects of the One Big Beautiful Bill Act (OBBBA) as it works to pursue vigorous enforcement in the wake of budget and employee cuts.
Reconciliation
House Republican leadership is discussing the framework of a third reconciliation package but major players continue to express doubts about the possibility of a bill. The upcoming midterm elections make the legislative climate difficult, and Republicans remain deeply divided over their priorities.
House Ways and Means Committee Chair Jason Smith, R-Mo., threatened to withhold support unless his committee is given reconciliation instructions. “I won’t support it unless tax is in it,” he told reporters June 9.
Despite Smith’s demands, he has not revealed his tax priorities for a potential third reconciliation bill. Given the challenges facing such legislation, taxpayers should treat the idea of another reconciliation tax bill as speculative unless Republicans pass a budget agreement in the next several weeks.
OBBBA Guidance Outlook
Treasury Deputy Assistant for Tax Policy Kevin Salinger previewed several guidance projects in comments at a conference in Texas on June 4. The potential projects include:
- Section 199A: Treasury plans to address the changes in the OBBBA and some “lingering issues” in how unadjusted basis immediately after acquisition is shared among partners.
- Section 174A: Procedural guidance is expected on the OBBBA changes, which could also include special rules addressing post-disposition costs under Section 174(d).
- Section 139L: The government is working on guidance for banks and other lenders that make new loans secured by agricultural real estate under the new interest exclusion provision.
- Section 168: The IRS is planning to propose regulations on bonus depreciation under Section 168(k) that will “regify” existing guidance. It is also developing proposed regulations on qualified production property under Section 168(n) that will cover issues not addressed in the initial notice.
Additional guidance under Section 174A would be particularly helpful, given that questions remain over the scope and timing for the election to capitalize research costs. Capitalizing costs can offer benefits to taxpayers with credits, net operating loss carryforwards, interest deduction limits, or international tax considerations.
IRS Enforcement
The IRS data book released June 5 showed the agency closing about 8,000 fewer audits in 2025 compared to 2024, with audit rates continuing to drop on high-income taxpayers.
The IRS lost about a quarter of its workforce in 2025 and has seen its funding cut over the last two years. Further, the president has issued an executive order that could make it easier to terminate some categories of IRS employees, including several chief counsel positions.
Despite budget cuts and modest dips in overall enforcement statistics, the IRS is still vigorously pursuing enforcement actions across a range of select priorities, including partnerships, transfer pricing, research credits, and estate tax planning. Taxpayers should carefully analyze, support, and document sensitive return positions.
Changes to Form 990
Treasury Secretary Scott Bessent appeared before both the Senate Finance and House Ways and Means committees the week of June 8. He largely dodged questions over the anti-weaponization fund and auditing the president’s tax returns but did offer some new information on IRS priorities.
Bessent said the government is considering changes to Form 990 that would require tax-exempt entities to collect and retain more information about grantees.
“We are telling the directors of these foundations of these institutions, ‘You must know your grantee,’” Bessent said. “‘If the money is being used for violent activities, you, as a trustee, as a fiduciary, are in trouble. If it is being used to take away people's civil rights, you are in trouble, and the nonprofit status is in jeopardy.’”
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