Summary
- Health insurance tax credit discussions resume as Congress returns after Thanksgiving
- Notice 2025-72: foreign tax credits and foreign currency under OBBBA repeal of one-month deferral
- Final regulations on user fees for estate tax closing letters
- Notice 2025-70: Request for Comments on OBBBA Tax Credit for Contributions to SGOs
- Johnson Amendment oral arguments in National Religious Broadcasters v. Bessent
Congress resumes appropriations and health care tax negotiations
Congress is returning after the Thanksgiving break for a three-week sprint before leaving for the holidays to focus on the remaining appropriations bills and tax incentives for health care. Most of the federal government is funded with a continuing resolution (CR) through January 30 pursuant to the November 17 law that funded veterans affairs/military construction, agriculture and the legislature through September 30, 2026, the end of the fiscal year.
The expiration at year-end of the increased tax credits for Affordable Care Act (ACA) health insurance premiums enacted in the 2021 American Rescue Plan Act remains the largest disputed issue. Democrats want to make the provision permanent. There were reports that President Trump was planning last week to propose extending the tax credits for several years, but he did not do so after significant pushback from congressional Republicans. Senate Majority Leader Thune (R-SD) promised Democrats a Senate floor vote on a bill addressing the tax credits. It remains to be seen whether Democrats choose a bill to make the tax credit permanent, or a bill containing some modifications that is more likely to attract some Republican support.
Republicans continue to discuss different possible paths to address health insurance issues. Although any bill that could pass the Senate would also likely have the votes to pass the House, Speaker Johnson indicated that he would only put a bill on the House floor that attains a large Republican consensus. House Democrats have been discussing collecting signatures on a discharge petition to force Speaker Johnson to put on the House floor a bill containing some version of the tax credits.
The National Defense Authorization Act (NDAA), setting out defense policy, is considered the must-pass bill before the end of the year. The NDAA sometimes carries non-defense items. There have been discussions about including some items addressing the financial regulatory rules for digital assets, but those negotiations appear to have broken down. It has been relatively rare for tax provisions to be included, but that sometimes occurs and is therefore worth monitoring closely.
Notice 2025-72: foreign tax credits and foreign currency under OBBBA repeal of one-month deferral
On November 25, the Department of the Treasury and the Internal Revenue Service issued Notice 2025-72, providing guidance on the repeal of the election for a one-month deferral by specified foreign corporations (SFCs) in the One Big Beautiful Bill Act (“OBBBA”).
The guidance provides rules for allocating foreign taxes between the short taxable year required by the OBBBA and the following taxable year for foreign tax credit purposes. Absent this guidance, some taxpayers may have faced anomalous and very harsh results. Most prominently, all of a SFC’s foreign taxes for a full year may have been attributed for U.S. tax purposes only to foreign income earned in one month, resulting in the SFC having a loss in the first required year and none of the foreign taxes being creditable.
The guidance also contains rules relating to a transition rule from 2024 final regulations on foreign currency that allowed taxpayers to elect to spread out certain foreign currency gain or loss over 10 years.
In general, the notice provides that taxpayers may elect to allocate foreign income taxes accrued in the first required year between such year and the succeeding taxable year using a closing of the books method or a ratable allocation. For taxpayers making the election under the 2024 foreign currency final regulations, the 10 years in which gain or loss is recognized are pro-rated on a monthly basis. This S&C memo describes the notice in more detail.
Final regulations on user fees for estate tax closing letters
On November 28, Treasury and the IRS issued regulations finalizing interim rules reducing the user fee for the issuance of an estate tax closing letter from $67 to $56. On May 20, 2025, the government had issued identical proposed regulations and an interim final rule on this subject, which was adopted without change by the final regulations. The new fee applies to requests received by the IRS after May 29, 2025. No public hearing on the proposed regulations had been requested.
Notice 2025-70: request for comments on OBBBA tax credit for contributions to SGOs
On November 25, Treasury and the IRS issued Notice 2025-70 announcing an intention to issue proposed regulations with regards to the OBBBA provision creating a tax credit for qualified contributions to scholarship granting organizations (SGOs). Tax Code section 25F, added by Section 70411 of the OBBBA provides a 100% tax credit to individuals for qualified contributions of up $1,700 per year to SGOs.
Among other requirements, an SGO must be a 501(c)(3) organization and be included on the list of eligible SGOs submitted by a State or the District of Columbia that elects to participate under section 25F.
The notice contains a lengthy list of issues on which the IRS and Treasury are requesting comments. Written comments are due by December 26, 2025, although consideration will be given to written comments received after such date if that would not delay the issuance of guidance.
Johnson Amendment oral arguments in National Religious Broadcasters v. Bessent
On November 25, Judge J. Campbell Barker of the U.S. District Court for the Eastern District of Texas heard oral arguments over the proposed consent decree in National Religious Broadcasters v. Bessent regarding the Johnson Amendment. In general, the Johnson Amendment states that 501(c)(3) organizations (including churches) may “not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.” Tax Code section 501(c)(3).
The proposed consent agreement between the plaintiffs and the government states “the Johnson Amendment does not reach speech by a house of worship to its congregation, in connection with religious services through its customary channels of communication on matters of faith, concerning electoral politics viewed through the lens of religious faith.”
Americans United for Separation of Church and State (AU), which filed a motion to intervene as a party in the litigation to oppose the consent agreement, argued that the consent agreement’s interpretation of the Johnson Amendment is erroneous. Among the issues discussed in the arguments was the definition of “its customary channels of communications.” The arguments also featured disagreement over the Anti-Injunction Act (AIA)’s application to the case. The AU argued that the AIA barred the consent decree, a position disputed by the plaintiffs and the government. However, the government agreed with AU that the AIA would apply to the lawsuit if the consent decree was not accepted, a position disputed by the plaintiffs.
The 2025-2026 Priority Guidance Plan for the IRS includes issuing guidance on the Johnson Amendment. This S&C memo described the case and the Johnson Amendment in more detail.