Summary
- Prospects for a third reconciliation bill, potentially including tax provisions, remain cloudy as Congress and the White House confront differences on other legislative priorities.
- Committee on Ways and Means holds June 30 hearing on tax issues impacting sports.
- Committee on Ways and Means holds July 1 mark-up on seven tax bills.
- IRS releases ethics guidance on tax practitioner use of artificial intelligence.
- Assistant Secretary for Tax Policy and IRS Acting Chief Counsel Ken Kies talks conservation easements.
- President Trump threatens to impose 100% tariffs on countries implementing digital services taxes as Deputy Assistant Secretary Rebecca Burch reiterates U.S. concerns.
Time is dwindling on the 119th Congress. The House left for an early July 4 recess after its schedule was cut short for a second consecutive week amid internal Republican wrangling. The House and Senate are each scheduled to return next week. The House is scheduled to be in DC for just two weeks before the August recess, and the Senate for four weeks.
On June 24, the White House sent Congress a request for $87.6 billion in supplemental funding, mostly for defense, but also for responding to the Ebola outbreak in Africa and to support American farmers. Congressional appropriators have expressed urgency about enacting these appropriations before August, but the path toward doing so is very uncertain. There were no outward signs of progress on a third reconciliation bill. Speaker Johnson (R-LA) reiterated his support for Congress enacting such a measure. On the other hand, Senate Majority Leader Thune (R-SD) expressed a preference for enacting the supplemental funding through the normal legislative process, leaving reconciliation as a last resort. However, there does not currently appear to be any other legislative path to enact the supplemental funding because the chances for obtaining 60 votes in the Senate appear remote.
The Senate Appropriations Committee has yet to act upon any of the 12 appropriations bills for Fiscal Year 2027. On June 26, the House Appropriations Committee favorably reported the defense funding bill, the last of the 12 appropriations bills for Fiscal Year 2027 to be reported by the Committee. The House has passed two of the bills. The House had been set to debate and vote on two additional appropriations bills the last two weeks. But the bills were shelved after internal disagreements amongst House Republicans prevented the House majority from approving any rules under which to bring bills to the House floor. Certain House Republicans threatened to vote against any rule if Speaker Johnson were to bring the housing bill (the 21st Century ROAD to Housing Act (H.R. 6644)), as passed by the Senate, to the House floor on the suspension calendar instead of through a rule.
President Trump was expected to sign the housing bill in a ceremony at Congress on June 24. But shortly before the signing was to occur, President Trump said he would not sign the bill unless Congress first enacts the SAVE America Act (H.R. 7296) addressing election voting procedures and also containing other priorities of President Trump. The housing bill will become law on July 10 unless vetoed by President Trump.
Ways and Means Committee Holds Hearing on Tax Policy Impacting Sports
On June 30, the Committee on Ways and Means held a hearing on “The Growing Business of Sports: Reviewing Federal Tax Policy in the Multibillion-Dollar Industry.”
The hearing examined a range of tax issues impacting sports that were summarized in a hearing pamphlet from the Joint Committee on Taxation (JCT): A. Tax Treatment of Name, Image, and Likeness Collectives; B. Tax Treatment of College Sports; C. Tax Exemption for Section 501(c)(6) Organizations; D. Tax-Exempt Financing of Sports Facilities; E. Deductibility of Acquired Intangibles Relating to a Sports Franchise; and F. Limitations on the Deductibility of Professional Athlete Salaries Under Section 162(m).
The witnesses were:
- Sam Acho, Former NFL Linebacker, ESPN Analyst, Director of Human Capital at AWM Capital;
- Thad Madden, NIL Tax Consultant, Former IRS Revenue Officer and Fraud Analyst;
- Robert Raiola, CPA, Director, Sports and Entertainment Practice, PKF O’Connor Davis, LLP; and
- Dennis Coates, Ph.D. Economics, Professor at University of Maryland, Baltimore County.
Chairman Smith expressed support for leveling the playing field with regard to 162(m) for sports teams, which currently only applies to the NBA champion New York Knicks, New York Rangers and Atlanta Braves. He noted that parity can be achieved in two ways, one of which would raise significant revenue for the government.
Committee on Ways and Means Holds July 1 Mark-up on Seven Tax Bills
On July 1, the House Committee on Ways and Means considered, and voted to favorably report, as amended, seven tax bills: H.R. 9496, the “End Tax Penalties on American Hostages Act”; H.R. 9500, the “Tax Relief for Fraud Victims Act”; H.R. 9498, the “Taxpayer Advocate Participation Act”; H.R. 9501, the “AI Tax Integrity Act of 2026”; H.R. 9499, the “Protecting Taxpayers from Ghost Preparers Act”; H.R. 7972, the “Taxpayer Workforce Modernization Act”; and H.R. 9504, the “Tax Exempt Hospital Transparency Act.” The mark-up featured spirited partisan debate about the OBBBA, the progressivity of the Tax Code, IRS funding and audit policy, tax-exempt hospitals, and President Trump’s taxes. The amendments in the nature of a substitute were clerical. Committee action on H.R. 7972 and H.R. 9504 fell along partisan lines, while the other bills were approved unanimously or by voice vote.
H.R. 9496 (introduced by Reps. Tenney (R-NY), Titus (D-NV), and Beyer (D-VA)) would postpone certain tax deadlines for U.S. nationals who are unlawfully or wrongfully detained abroad or held hostage abroad. The bill would disregard the period of detention or captivity in determining filing and payment deadlines, penalty and interest accrual, and refund timing, and would extend relief to the individual’s spouse. Eligible individuals who were detained beginning on January 1, 2021, would retroactively be provided similar relief. JCT estimated that the proposal would have a negligible effect on federal receipts.
H.R. 9500 (introduced by Reps. Miller (R-OH) and Suozzi (D-NY)) would repeal section 165(h)(5) that generally prevents deductions for personal casualty losses not attributable to federally or state-declared disasters, and would thus allow individual taxpayers to deduct personal casualty losses, including theft losses, to the extent they exceed 10 percent of adjusted gross income. The bill would also provide relief for taxpayers who suffer theft losses involving fraud, deceit, or misrepresentation, including an election to treat certain fraud-related theft losses as sustained in the year the loss occurred, rather than the year the loss was discovered; extending the limitations period for related refund claims so that the period does not expire earlier than one year after the taxpayer discovers the loss; preventing the lookback rule from limiting the amount of the refund; and waiving penalties regarding, and allowing repayment of, early distributions from qualified retirement plans. The bill would also establish a special rule for pyrrhotite-related personal casualty losses involving damage to a principal residence from deterioration of a concrete foundation adversely affected by pyrrhotite, effective for taxable years beginning after 2020 (with associated statute of limitations relief). The rest of the bill would be effective for tax years beginning after 2025. JCT estimated the bill would reduce revenue by approximately $6.52 billion over 2027–2036.
H.R. 9498 (introduced by Rep. Steube (R-FL)) would authorize the National Taxpayer Advocate to appear as amicus curiae in any action before a U.S. court related to federal tax law in order to present views on issues broadly affecting taxpayer rights. The provision would be effective on the date of enactment. JCT estimated the bill would have a negligible effect on federal receipts.
H.R. 9501 (introduced by Rep. Buchanan (R-FL)) would direct the Secretary of the Treasury to, within 180 days of the bill’s enactment, establish an artificial intelligence pilot project at the IRS to target inaccurate returns, identity theft and fraudulent Earned Income Credit claims, and improperly identified third-party preparers. The bill would also require the Government Accountability Office (“GAO”) to prepare a report assessing the pilot program and submit it to the House Committee on Ways and Means and the Senate Committee on Finance. JCT estimated the bill would have a negligible effect on federal receipts for 2027–2036.
H.R. 9499 (introduced by Rep. Malliotakis (R-NY)) would resolve discordant judicial rulings by limiting IRS authority to extend the statute of limitations for fraud to cases in which the taxpayer is alleged to have committed the fraud, not a spouse or adviser. The provision would be effective for assessments and proceedings initiated after the date of enactment, with JCT estimating a revenue loss of $2 million over 2027–2036. The bill also includes a technical correction to the Disaster Related Extension of Deadlines Act, effective retroactively to the date of that Act’s enactment. Chairman Smith offered an amendment, adopted unanimously, that stripped out a provision that would have ensured that preparer penalties apply both to valid filings and to documents that do not meet the criteria to be treated as valid returns.
H.R. 7972 (introduced by Rep. Schweikert (R-AZ)) would require the IRS to establish, by September 30, 2026, a fellowship program to recruit skilled data scientists, with the program to include at least 10 fellows. The bill would also establish an audit task force staffed by the fellows together with regular IRS employees, and would require Treasury to provide an annual report to Congress on the effectiveness of the fellowship program. The bill would be effective on the date of enactment, and a cost estimate will be provided by the Congressional Budget Office.
H.R. 9504 (introduced by Rep. Murphy (R-NC) and Rep. Smucker (R-PA)) would require all tax-exempt hospital organizations to report additional information on Form 990. Additional requirements would apply to any “large tax-exempt organization,” meaning an organization that is not a critical access hospital or rural emergency hospital and has more than 100 inpatient beds; and any “high-revenue tax-exempt organization,” meaning an organization with annual net patient revenue exceeding $100 million. The bill would also require the GAO, for a one-year period beginning three years after enactment, to study and report to the Ways and Means Committee and Senate Finance Committee on additional Treasury costs to administer the new requirements, additional compliance costs for hospital organizations, and hypothetical income tax liability for the 25 largest revenue tax-exempt organizations if they were subject to income tax. The provisions would be effective on the date of enactment. JCT estimated a negligible revenue effect for 2027–2036.
IRS Releases Ethics Guidance on Tax Practitioner Use of Artificial Intelligence
On June 24, the IRS Office of Professional Responsibility issued an alert addressing ethics issues involving the use of generative artificial intelligence (“AI”) in federal tax practice. The guidance notes that while generative AI may provide efficiency benefits, including cost savings and rapid data analysis, its limitations, such as “hallucinated” outputs, bias, and lack of transparency, create legal and ethical risks. The alert emphasizes that existing Circular 230 obligations—the rules governing practice before the IRS—apply in the AI context, including the duties to exercise due diligence and verify AI-generated output, protect sensitive client information, and maintain adequate compliance procedures. It also notes that practitioners should consider whether fees charged for AI-assisted work appropriately reflect any resulting efficiencies. The alert concludes by warning that improper use of AI tools, including unauthorized use or disclosure of tax return information, may result in civil or criminal penalties or disciplinary action under Circular 230.
Assistant Secretary for Tax Policy Ken Kies Talks Conservation Easements
On June 25, Assistant Secretary for Tax Policy and IRS Acting Chief Counsel Ken Kies discussed the government’s settlement initiative in conservation easement cases (described in this S&C memo). He said that the IRS has sent settlement offers to 300 taxpayers, and plans to send such offers to an additional 800 taxpayers. The Tax Court currently has 700 conservation easement cases. He did not say how many taxpayers have accepted the offer.
President Trump Threatens 100% Tariffs Against Countries Enacting DSTs as Deputy Assistant Secretary Rebecca Burch Reiterates U.S. Concerns
On June 26, President Trump threatened 100% tariffs on “any and all Goods” from any country imposing digital services taxes (DSTs) on American companies. President Trump said that “[n]umerous European Countries have been discussing the imminent implementation of such Taxes” and that some “are close to actually doing this.” He said that such tariffs would be “immediately imposed” and “will supersede Trade Deals…whether implemented, signed, or not.” It is not clear whether this statement also applies to DSTs that are already in place.
On June 23, Treasury Deputy Assistant Secretary for International Tax Affairs Rebecca Burch said that the U.S. is open to discussions at the OECD concerning the digital economy and base erosion. She reiterated that the talks must start from the beginning and cannot use Pillar One as a starting point. She said that the discussions should start out by identifying existing deficiencies, if any, in how taxing rights are currently allocated and that the United States is not willing to start with the premise that there should be a reallocation of which country has primary taxing rights over income from digital services. She also reiterated the strong U.S. opposition to DSTs.