- Appropriations process inches ahead, including House Appropriations Committee approval of bill with significant IRS funding reductions
- Sullivan & Cromwell’s Don Korb’s IRS Chief Counsel nomination hearing set for this week at the Senate Finance Committee
- Assistant Secretary for Tax Policy Ken Kies to meet with Committee on Ways and Means Republicans on OBBBA implementation
Appropriations
Several different possible approaches to funding the government are beginning to come into focus. The White House, in an approach likely to be backed by House conservatives, is advocating a clean continuing resolution (CR) through at least mid-February of next year. Republicans in the Senate and House appropriators are advocating a shorter-term CR through mid-November. Congressional Democrats have indicated some support for this approach. Congress has historically passed very large omnibus funding bills under the pressure of a Thanksgiving or end-of-year deadline – which is the reason the appropriators favor a short-term CR bumping up against those deadlines, and the White House opposes that approach.
Speaker Johnson advocated a formal conference between the Senate and the House on the Military Construction – Veterans Affairs bill, which has been passed in different forms by the two chambers. The conference might also include the Legislative Branch and Agriculture appropriations bills passed by the Senate.
Separately enacting each of the 12 appropriations bills has been a longstanding demand of House Republicans who complain that omnibus packages combining all 12 appropriations bills into one package do not give Congress adequate opportunity to review spending, and result in much higher spending levels.
Appropriators want a short-term CR to give them more time to reach agreement on an omnibus spending bill. The White House believes such approach will likely result in increased spending levels, and thus prefers a CR. It remains to be seen whether Senate Democrats are willing to agree to a long-term CR. A government shutdown starting on October 1 remains a real possibility.
IRS Appropriations
On Wednesday, September 3, the House Appropriations Committee voted 35-28 to favorably report the Financial Services and General Government appropriations bill for the 2026 fiscal year. The total amount of funding in the bill is $23.3 billion, a cut of $2.9 billion from the current fiscal year 2025 level. IRS funding would be $9.5 billion, a drop of $2.8 billion. Under the bill, IRS taxpayer services would remain at $2.8 billion. IRS enforcement would drop to $3 billion, down from $5.4 billion. The Senate Appropriations Committee has yet to take up this appropriations bill.
Another 2025 tax bill?
Speaker Johnson continues to talk up the possibility of another reconciliation bill this year, which he said would be just as beautiful as the OBBBA, but not as big. Any such reconciliation bill would likely include significant tax provisions, but not nearly on the scale of the OBBBA. Senate Republicans appear to be less enthusiastic about doing another reconciliation bill.
Tax provisions could also find a path forward this year in a bipartisan package. A top priority for Democrats is extending or making permanent the increased premium tax credits enacted in the 2021 American Rescue Plan Act for Affordable Care Act plans currently set to expire starting the beginning of next year. Congressional Republican leadership and Committee on Ways and Means Chairman Smith (R-MO) have thus far expressed reservations about extending the credit.
However, this week Rep. Jen Kiggans (R-VA) introduced bipartisan legislation to extend the credit through 2026. The bill already has 11 Republican and four Democratic co-sponsors. Moreover, on Thursday, Speaker Johnson sounded a much more ambiguous note about whether the House might be willing to approve an extension.
Personnel
The Senate Finance Committee will hold a hearing on Wednesday, September 10, to consider the nomination of Don Korb, Of Counsel at Sullivan & Cromwell, to be Chief Counsel of the IRS.
Republican Senators supportive of the green energy tax incentives continue to hold up several of President Trump’s nominees for the Treasury Department. Derek Theurer, nominated to serve as the Assistant Secretary of Treasury for Legislative Affairs, who had his Senate Finance Committee nomination hearing in July, was added to the list. This explains why he was not included in the group of nominees that the Senate Finance Committee voted to approve on Thursday.
The acting head of the IRS Large Business and International Division (LBI), Jennifer Best, is leaving the IRS. She will be replaced as acting head by Mabeline Baldwin, who is the director of the Eastern Compliance Practice Area.
Occupations eligible for “No Tax on Tips”
On September 2, the Treasury Department released a document dated August 27, listing “Occupations that Customarily and Regularly Received Tips on or Before December 31, 2024” and thus eligible for the “no tax on tips” provision enacted by the OBBBA.
The document has five columns: Treasury Tipped Occupation Code (TTOC), TTOC Occupation Title, TTOC Occupation Description, TTOC Illustrative Examples, and Related Standard Occupational Classification (SOC) System Code(s). First on the list of 68 qualifying occupations is TTOC:101, Bartenders; Mix and serve drinks to patrons, directly or through waitstaff; Barkeep, mixologist, taproom attendant, sommelier; SOC Code 35-3011.
The list is preliminary and subject to change in upcoming proposed regulations. However, Treasury and the IRS “anticipate that the official proposed list will be substantially the same as this preliminary list.”
Committee tax activity
The Senate Finance Committee and the Committee on Ways and Means have not scheduled any tax hearings for next week. However, press reports state that the Committee on Ways and Means will hold a closed-door discussion with Assistant Secretary for Tax Policy Ken Kies to discuss Treasury’s efforts to issue guidance under the OBBBA.