Summary
- Congress returns to weigh DHS reconciliation funding and possible tax legislation and hold key IRS budget hearings.
- Treasury and IRS issue final regulations addressing OBBBA provision on tips.
- Treasury and IRS issue proposed regulations addressing OBBBA excise tax on remittances.
- IRS Publishes Rev. Proc. 2026-14, providing guidance on Qualified Opportunity Zone designations.
This week, the Congress returns from its two-week recess with reconciliation on the agenda as a method to fund at least part of the Department of Homeland Security. Appropriations for DHS lapsed on February 14, but DHS employees are currently being paid through executive actions. Congress is considering funding DHS except for ICE and CBP pursuant to a bill that passed the Senate, and funding ICE and CBP in a reconciliation bill, or just funding all of DHS through a reconciliation bill.
The DHS reconciliation bill may not contain other provisions, in which case Congress is seriously considering also taking up a separate reconciliation bill containing other provisions, or the DHS reconciliation bill would also contain other provisions. Members of the Committee on Ways and Means, including Chairman Smith, have said that if there is another reconciliation bill, tax provisions will be included.
The Senate Finance Committee has scheduled Frank Bisignano to testify on April 15, 2026, at 10:00 a.m. at a hearing on the IRS’s 2026 filing season and IRS operations. OMB Director Russ Vought is also scheduled to testify on the president’s FY 2027 budget request before the House Budget Committee on April 15, 2026, at 10:00 a.m., and before the Senate Budget Committee on April 16, 2026, at 10:00 a.m.
Treasury and IRS Issue Final Regulations Addressing OBBBA Provision on Tips
On Friday, April 10, Treasury and the IRS issued final regulations (TD 10044) that provide guidance for section 224 related to the deduction for qualified tips. The One Big Beautiful Bill Act (OBBBA) introduced section 224, which provides a new income tax deduction for “qualified tips” that are received during the taxable year by individuals in an occupation that customarily and regularly received tips on or before December 31, 2024. The deduction is capped at $25,000 per year and phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers). The rule is set to sunset on December 31, 2028. The rule provided the Secretary of Treasury to publish a list of occupations that customarily and regularly receive tips. Please see the following S&C publication for more on the OBBBA no-tax-on-tips provision.
The final regulations kept a fixed, exhaustive list of tip-eligible occupations tied to work that customarily received tips on or before December 31, 2024, rather than creating an open-ended list that could be expanded later through a safe harbor or periodic updates. It also confirmed that mandatory charges generally do not count as qualified tips. This means automatic gratuities and service charges do not qualify, while a payment can count if a customer truly has a choice, including the ability to leave a tip at all.
Treasury and the IRS did not remove any professions that appeared in the proposed rules, but they did add or clarify many. New additions include floral designers, visual artists, and gas pump attendants. They also made clear that the list covers things like app-based delivery drivers and rideshare drivers, banquet staff under wait staff, doormen under baggage porters and bellhops, eyelash technicians within the beauty category, and certain outdoor guides and senior-care workers. They further clarified that assistants and apprentices can qualify when they are doing the same kind of work as the listed profession.
The rule also gives more guidance on what counts as a real tip in newer or less traditional settings. For example, the IRS said a payment to a digital content creator is not a tip if it is required to unlock or access content, but it can be a tip if it is an optional payment made after access is already available. Small digital acknowledgments, like highlighted comments or similar low-value online recognition, do not by themselves turn a tip into something else. The same common-sense approach appears in the point-of-sale examples: tip screens are acceptable only when the customer can reduce the amount to zero; otherwise, the payment is not truly voluntary.
The IRS confirmed that tips generally must be reported on the right tax forms to qualify, that partners usually cannot claim the deduction on amounts reported to the partnership rather than the individual, and that managers cannot treat pooled tips as qualified tips, though they may qualify for direct tips when actually performing listed tipped work. The regulations also provided for anti-abuse rules, which say that an amount is not a qualified tip if, based on the facts and circumstances, it is really wages or payment for goods or services relabeled as a tip. The rules also create an automatic, non-rebuttable bar when the employee’s employer is the payor, or where the recipient has a direct ownership interest in the payor.
Treasury and IRS Issue Proposed Regulations Addressing OBBBA Excise Tax on Remittances
On Friday, April 10, Treasury and the IRS issued a notice of proposed rulemaking (REG-114499-25) providing guidance on section 4475, which was enacted in the OBBBA and imposes a 1% excise tax on remittance transfers made by a sender after December 31, 2025, through a remittance transfer provider. For purposes of the excise tax, a remittance transfer is an electronic transfer of funds requested by a sender located in any State, territory, or possession of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or any political subdivision thereof, to a designated recipient in a foreign country. The tax applies broadly to individuals making remittance transfers; there is no exception for U.S. citizens or residents. The remittance transfer tax does not apply, however, if the funds are withdrawn from an account held at a covered financial institution subject to the Bank Secrecy Act or if the payment is funded with a debit or credit card issued in the United States. For a more complete discussion, please see this prior S&C publication.
The proposed guidance would introduce new definitions and clarify when the tax is imposed and what portion of a transfer is subject to tax. The proposed definitions generally align section 4475 with the Electronic Fund Transfer Act (EFTA) (15 U.S.C. §§ 1693-1693r), with one exception. Specifically, the EFTA provides a safe harbor under which a person is deemed not to provide remittance transfers for a consumer in the normal course of business if the person provided 500 or fewer remittance transfers in the previous calendar year. That safe harbor would not apply for purposes of the remittance transfer excise tax.
The tax would attach when the remittance transfer is made, which occurs at the earlier of when the transfer is initiated or when the sender pays the remittance transfer provider. The proposed rules provide that the tax applies whether or not the transferred amount is ultimately disbursed to the designated recipient. They also provide that, if a transfer is cancelled or expires and the remittance is refunded, the sender may claim a refund of the remittance transfer tax.
The proposed rules also narrow the exception for withdrawals from covered financial institutions. Treasury would not treat cashing a check to fund a remittance transfer as a withdrawal for purposes of that exception. Instead, those transactions would be subject to the excise tax. The rules also clarify the amount subject to tax: the total amount provided by the sender, together with any promotional bonuses, would be included, while service charges and state taxes would be excluded.
Comments are requested by Tuesday, June 12, 2026.
IRS Publishes Rev. Proc. 2026-14, Providing Guidance on Qualified Opportunity Zone Designations
On April 6, the IRS issued Rev. Proc. 2026-14, which provides guidance on how each state’s chief executive officer (generally, the governor) may nominate population census tracts for designation as Qualified Opportunity Zones (QOZs). Section 1400Z-2 permits taxpayers to elect to defer certain gains from gross income if those gains are invested in a Qualified Opportunity Fund (QOF). In general, the rules allow investors to defer eligible capital gains by reinvesting those gains in a QOF within 180 days after the gains are recognized. Only the gain portion of the amount invested is eligible for deferral and for the special tax treatment applicable to future appreciation; a return of basis is not itself eligible for those benefits. The amount of tax benefit depends in part on how long the investment is held and whether the applicable statutory requirements are satisfied.
Section 1400Z-1 authorizes Treasury to designate a census tract as a QOZ if the tract is a low-income community and is nominated by the chief executive officer of the state in which the tract is located. The One Big Beautiful Bill Act amended section 1400Z-1 in several respects, including by narrowing the definition of low-income community, removing the rule for contiguous tracts, and limiting the number of QOZ designations during each designation period, a 90-day period that occurs once every 10 years. The revenue procedure standardizes the data and administrative framework for the 2027 designation round. Treasury identifies eligible census tracts using recent Census data and provides both an official appendix and an online mapping resource on which states may rely when making nominations. The revenue procedure is intended to promote both state discretion and consistent federal administration in selecting QOZs for the next designation period.