June 8 Tax Policy Update

Summary

• Third reconciliation bill to fund defense that would include tax provisions still on back burner as Congress focuses on second reconciliation bill to fund ICE and CBP.
• Ways and Means to hold Tuesday hearing on taxation of digital assets; Tax Court rules staking rewards are taxable income upon receipt.
• Deputy Assistant Secretary Kevin Salinger outlines upcoming domestic business guidance.
• Notice 2026-36 previews forthcoming proposed regulations on Section 4960.
• Treasury and IRS issue proposed regulations to revise the effective dates of forthcoming Section 892 regulations.
• Treasury announces Trump Accounts app.
• JCT releases Blue Book describing OBBBA’s tax provisions.
• JCT releases explanations of its Dynamic Stochastic General Equilibrium Model (DSGE).

Congress seems poised to complete the long-running Fiscal Year 2026 appropriations process after the Senate passed a reconciliation bill, S. 2, funding CBP and ICE (but not security for the new White House ballroom) early on the morning of June 5. The House is set to take up the bill this week.

The House has been processing the twelve appropriations bills for FY 2027. The House passed the Agriculture bill, H.R. 8646, on Thursday, several weeks after passing the Military Construction-Veterans Affairs bill, H.R. 8469. The House Appropriations Committee has favorably reported five of the bills, and voted to favorably report two others. On June 5, the DHS and Labor-HHS bills were approved at the subcommittee level and are scheduled for full Committee consideration on Tuesday. The remaining bill, Defense, is scheduled for subcommittee consideration on Thursday.

Early the morning of June 5, the House Armed Services Committee voted to favorably report the National Defense Authorization Act, authorizing $1.15 trillion in defense spending. That is more than $350 billion short of the Administration’s budget request. The Administration may also request a supplemental appropriations bill to address the costs of the Iran war. It seems unlikely additional defense spending can get past the Senate filibuster, leading to the possibility of a third reconciliation bill this Congress focused on defense spending. House Speaker Mike Johnson (R-LA) and Budget Committee Chairman Jodey Arrington (R-TX) have been most bullish on a somewhat expanded bill that would also include tax provisions and various cuts to spending programs. Chairman Arrington stated he would like to report a budget resolution out of committee in June, as such a bill would likely have to come together in the next few weeks to have any chance at moving.

Ways and Means to Hold Hearing on Taxation of Digital Assets; Tax Court Rules Staking Rewards Are Income

On June 9, the Committee on Ways and Means will hold a hearing on “Digital Asset Taxation.”  Press reports indicate that Chairman Jason Smith (R-MO) will soon release discussion drafts or introduce legislation containing seven different digital asset tax provisions. Committee members, Reps. Max Miller (R-OH) and Steven Horsford (D-NV), introduced the bipartisan Digital Asset PARITY Act (H.R. 8899) on May 19 (as detailed in this S&C memo). The witnesses will be:

• Sarah Reilly, Vice President and Senior Tax Counsel, Fidelity Investments;
• Lawrence Zlatkin, Vice President of Tax, Coinbase;
• Jason Somensatto, Director of Policy, Coin Center; and
• Mike Kaercher, Deputy Director, Tax Law Center at NYU Law.

On June 4, the Tax Court issued a Memorandum Opinion, Paschall v. Commissioner, T.C. Memo 2026-46, holding that staking rewards in the form of a cryptocurrency token received from a digital platform constitute taxable income upon receipt because that is when the taxpayer has dominion and control.

DAS Salinger Outlines Upcoming Guidance

On June 4, Kevin Salinger, Deputy Assistant Treasury Secretary for Tax Policy, outlined OBBBA provisions on which Treasury and the IRS plan to issue proposed regulations this summer: the Section 199A pass-through deduction; the Section 174 treatment of R&D expenditures; Section 1062, which provides an election to spread over four years tax from the sale of qualified farmland; and Section 139L, which provides a 25% exclusion on interest earned by banks on loans secured by agricultural real estate.

He said to expect guidance in the third quarter on the foreign entity rules regarding green energy tax credits, and proposed regulations towards the end of the year on section 163(j), 168(k) bonus depreciation, and 168(n) qualified production property.

Notice 2026-36 Previews Forthcoming Proposed Regulations on Section 4960

On June 5, the government released Notice 2026-36 announcing the intention of Treasury and the IRS to issue proposed regulations addressing the excise tax on excess executive compensation for tax-exempt organizations under section 4960, as amended by OBBBA.

Section 4960 generally imposes an excise tax on any applicable tax-exempt organization, or related person or governmental entity, that pays a covered employee remuneration in excess of $1 million in a taxable year or an excess parachute payment. The pre-OBBBA definition of covered employee included the five highest-compensated employees of the applicable tax-exempt organization for a given year or any person who was a covered employee for any preceding taxable year. The OBBBA eliminated the “five highest-compensated employees” rule, and expanded the definition of covered employee to include any employee or former employee receiving remuneration in excess of $1 million.

The notice anticipates the proposed regulations will provide covered employee exceptions for limited hours or nonexempt funds similar to the existing regulations, but would not provide a limited services exception because the expansion of the definition of covered employee moots the purpose of that exception. The notice contains an example providing that an employee who was not a covered employee before 2026 under the pre-OBBBA rules will not be deemed after 2025 to have been a covered employee before 2026 under the new OBBBA rules – although the statute appears ambiguous. The forthcoming regulations would be prospective and would not apply to taxable years beginning before the issuance of final regulations. Until the regulations are finalized, applicable tax-exempt organizations may rely on the rules described in the notice. The notice requests comments by August 4, 2026.

Treasury and IRS Issue Proposed Regulations Revising Section 892 Effective Dates

On May 29, Treasury and the IRS issued proposed regulations revising the effective dates proposed in the December 15, 2025, proposed regulations with respect to the provisions in forthcoming final regulations under Section 892 (described in this S&C memo) addressing when acquiring loans constitutes commercial activity income (CAI) and what constitutes a controlled commercial entity (CCE).

The 2025 proposed regulations contained an effective date of taxable years beginning on or after the date final regulations are issued. Under the new proposed regulations, there are separate, more detailed, and much more robust transition rules for CAI and CCE.

The final regulations regarding CAI would be effective for acquisitions of debt on or after the later of (1) the first day of the acquirer’s first taxable year beginning on or after the date of publication of the final rule or (2) 90 days after publication of the final rule. If there is a binding commitment to acquire debt, the debt is treated as acquired on the date of the binding commitment.

The CCE final regulations would be effective for the acquisition of interests in entities on or after the later of: (1) the first day of the foreign government’s first taxable year beginning on or after the date of publication of the final rule or (2) 90 days after publication of the final rule. The existing rules will continue to apply to interests acquired before the dates above. If there is a binding commitment to acquire an interest, the interest is treated as acquired on the date of the binding commitment. If a government acquires new interests in an entity after the effective date in which it also had interests before the effective date, only the new interests will be subject to the new rule in the final regs.

The proposed regulations request comments by July 31, 2026.

Treasury Announces Trump Accounts App

On May 28, the Treasury Department announced that Trump Accounts will launch on July 4, 2026. Beginning on that date, parents, family members, employers and other eligible contributors may make contributions, subject to annual limits, to Trump Accounts established for eligible children under age 18. Treasury and the IRS previously released proposed regulations under new sections 530A and 6434 of the Tax Code providing guidance on the establishment and administration of Trump Accounts (as discussed in S&C’s March 9 Tax Policy Update).

Parents, guardians and other authorized individuals may open accounts at no cost by submitting Form 4547. Treasury has indicated that account activation emails will be sent to individuals who have registered before the launch date. In addition, a one-time $1,000 Treasury contribution will be available for eligible children born between January 1, 2025, and December 31, 2028, who are U.S. citizens and have a valid Social Security number.

JCT Releases Blue Book Explaining OBBBA Tax Provisions

On May 28, the Joint Committee on Taxation released its General Explanation of the tax law changes enacted in the One Big Beautiful Bill Act (“OBBBA”). The JCT prepares the document in consultation with the staffs of the House Committee on Ways and Means, the Senate Committee on Finance, the Treasury Department’s Office of Tax Policy, and the IRS.

The document suggests that technical corrections may be necessary to clarify the following OBBBA provisions:

• The senior deduction (an above-the-line deduction of $6,000 for individuals 65 years of age or older with modified adjusted gross income under $75,000 ($150,000 for joint filers)) is to be treated as a personal exemption (OBBBA Sec. 70103 and Sec. 151 of the Code).
• The phaseout of the SALT deduction for a married individual filing a separate return ends (at a $5,000 limitation amount) at one-half of the MAGI threshold applicable to other taxpayers (whose phaseout ends at a $10,000 limitation amount) (OBBBA Sec. 70120 and Sec. 164 of the Code).
• For Trump Accounts, the amount excludable from an employee’s income is limited to $2,500 annually, adjusted for inflation, and the exclusion applies only to taxable years ending before the calendar year in which the account beneficiary turns age 18 (OBBBA Sec. 70204 and Sec. 408 and new Sec. 530A of the Code).
• For the original-use requirement of the 100 percent depreciation allowance for qualified production property, rules similar to the syndication rules under Sec. 168(k)(2)(E)(iii) apply (OBBBA Sec. 70307 and Sec. 168 of the Code).
• The 10 percent haircut applies to PTEP distributions made to a taxpayer after June 28, 2025 (OBBBA Sec. 70312 and Secs. 78 and 960 of the Code).
• A corporate taxpayer may deduct charitable contributions only to the extent aggregate charitable contributions exceed one percent of taxable income and do not exceed 10 percent of taxable income. As a result, a taxpayer may deduct charitable contributions equal to no more than nine percent of taxable income in a taxable year (OBBBA Sec. 70426 and Sec. 170 of the Code).

JCT Releases Explanations of Its Dynamic Stochastic General Equilibrium Model (DSGE)

On May 28, JCT released two documents explaining its DSGE model used for producing revenue estimates of federal tax legislation: an overview and a technical description. The DSGE model focuses on how households and businesses respond to federal tax legislation, and how the Federal Reserve reacts to those adjustments. The DSGE model takes into account how households, firms, the federal government, and the Federal Reserve interact, and how those interactions are impacted by federal tax legislation.

JCT uses DSGE, the Macroeconomic Equilibrium Growth model (MEG), and the Overlapping Generations model (OLG) to produce its revenue estimates. MEG focuses on short-term outcomes and assumes that households do not look far into the future. OLG assumes that households systematically plan across their lifetimes and generations, including taking into account the long-term consequences of government debt. DSGE contains features of the other two models, assuming households and firms look to the future to some degree.

JCT welcomes comments from those who “have studied macroeconomic modeling and modeling of the Federal tax system.”