Summary
- Budget reconciliation, appropriations, and the legislative tax agenda.
- Federal gas tax holiday proposals gain traction amid Iran-related gas price spike and congressional action on September 30 expiration of Highway Trust Fund.
- IRS releases settlement offer for conservation easement cases, previews more settlement offers.
- Treasury and IRS signal forthcoming guidance.
- Treasury and IRS schedule hearing for proposed crypto regulations.
Budget Reconciliation, Appropriations, and the Legislative Tax Agenda
Before Congress leaves for the week-long Memorial Day recess, it is attempting to finish Fiscal Year 2026 appropriations through a budget reconciliation bill, progress on Fiscal Year 2027 appropriations, and determine whether to begin another budget reconciliation bill that would likely include tax provisions. The week will also feature a House mark-up of a highway and infrastructure bill ahead of the expiration of the Highway Trust Fund authorization on September 30. The final bill usually includes tax components, which would go through the Committee on Ways & Means and the Senate Finance Committee.
Over the weekend, the Senate conducted a “Byrd Bath” on the provisions of a budget reconciliation bill funding ICE, CBP and security for the new White House ballroom, pursuant to the budget resolution enacted by Congress on April 29. In this process, Elizabeth MacDonough, the Senate Parliamentarian, decides whether portions of the bill comply with the Senate budget reconciliation rules (named after the late former Senator Robert Byrd (D-W.VA)).
The House Appropriations Committee has scheduled additional mark-ups of Fiscal Year 2027 funding bills for this week. The House has yet to take up the Financial Services bill, containing funding for the IRS and the Treasury Department, which was approved along partisan lines on April 22 by the Appropriations Committee, and reported favorably on April 24.
Republicans continue to explore an additional budget reconciliation bill that would likely include significant tax provisions. Prospects for such a bill remain very uncertain. Although Ways & Means Committee Chairman Smith (R-MO) has said that if another reconciliation bill is going to move forward, the bill would include tax, he has also expressed skepticism about the prospects of such a bill, given the very narrow majority Republicans hold in the House. On the other hand, Chairman Smith has spoken more optimistically about the possibility of a bipartisan tax package.
On May 20 at 10 a.m., the Tax Subcommittee of the Committee on Ways and Means held a hearing titled, “Your Paycheck, Returned: How the Working Families Tax Cuts Delivered for Americans.” The invited witnesses are: Clark Saunders, Adoptive Parent of Two and Public School Teacher; Sultan Stipho, Server, Buck and Rider Restaurant; Darcy Michalek, Owner, Michalek Properties; Jason Alexander, Mechanical Maintenance Worker, Optimus Steel; Donald Schneider, Deputy Head of U.S. Policy, Piper Sandler; and Kahryn Anne Edwards, Ph.D., Labor Economist and Public Policy Consultant.
According to news reports, Secretary Bessent will testify at a Senate Finance Committee hearing on June 3 and at a Committee on Ways and Means hearing the next day.
The Senate Finance Committee is planning a June mark-up of S. 3931, the Taxpayer Assistance and Service Act, according to news reports. The bill is further described in this S&C memo.
Federal Gas Tax Holiday Proposals Gain Traction Amid Iran-Related Gas Price Spike and Congressional Action to Address September 30 Expiration of the Highway Trust Fund
President Trump said this week that he supports suspending the federal gasoline tax “for a period of time.” Such a suspension would require congressional action. The tax partially funds the Highway Trust Fund (“HTF”), whose authorization is set to expire September 30.
The Transportation and Infrastructure (“T&I”) Committee has set May 21 to mark-up a highway funding bill, which has usually been bipartisan. On the evening of May 17, T&I Chairman Graves (R-MO) and Ranking Member Larsen (D-WA) released a 1005-page bill they plan to formally introduce soon.
It is likely that the tax-writing committees will also have a role to play in any HTF legislation, including revenue measures to help fund the expenditures in the bill. Jurisdictional issues between the committees can sometimes be complex. For example, the T&I bill would impose annual “registration fees” on electric vehicles ($130) and plug-in hybrid vehicles ($35), although these fees could also be imposed as excise taxes under the Tax Code, which would be in the jurisdiction of the tax writing committees. The bill’s somewhat unusual provision, that “[i]t is the sense of [T&I]” that these fees should be deposited into the HTF, is likely due to the Ways & Means Committee having exclusive jurisdiction in the House over tax writing.
The Highway Trust Fund is funded by federal fuel taxes and transportation-related excise taxes. The fuel tax is 18.4 cents per gallon on gasoline and 24.4 cents per gallon on diesel fuel. The gasoline tax brought in more than $23 billion in 2023, while the diesel tax brought in almost $11 billion. The HTF is also funded by excise taxes on heavy vehicles and heavy-duty tires. These levels were set in 1993 and are not adjusted for inflation. Since 2000, highway account expenditures have increasingly exceeded revenues, with the gap filled by general appropriations. The fuel taxes are currently set to decrease to 4.30 cents per gallon after September 30, 2028.
Two principal legislative approaches have emerged. Senators Mark Kelly and Richard Blumenthal have backed S. 4032, the Gas Prices Relief Act, with Representative Chris Pappas sponsoring a similar House measure (H.R. 7919), to suspend the federal fuel tax through October 1. Separately, Senator Hawley introduced the Gas Tax Suspension Act (S. 4485) to suspend the federal fuel tax for 90 days, with the president authorized to suspend the tax for an additional 90 days. The bills would offset lost Highway Trust Fund revenue with transfers from general funds.
The national average gasoline price was approximately $4.52 per gallon as of last Monday, about 50% higher than levels reported before the escalation of the Iran conflict, and the administration has also released oil from the Strategic Petroleum Reserve and pursued measures relating to oil flows through the Strait of Hormuz.
Noting the relatively small size of the gas tax compared to the increase in prices, former Trump administration officials David Eisner and Mark Rosen argued last week for “A Wartime Gasoline Rebate That Strengthens America’s Hand” of $1.50 per gallon.
IRS Releases Settlement Offer for Conservation Easement Cases, Previews More Settlement Offers
On May 13, the IRS announced a settlement offer for taxpayers with conservation easement deductions under audit or docketed in the Tax Court. Eligible partnerships should expect to receive a letter from the IRS informing them that the offer will be valid for 90 days following receipt of the letter.
The terms of the offer would disallow all charitable contribution deductions and apply a gross valuation misstatement penalty of 10%. An “other deduction” will be available in an amount determined by the IRS, which generally will approximate the partnership’s out-of-pocket costs. Unlike prior settlement offers, upfront payment will not be required. Interest will continue to accrue as required by law.
There is a 45-day window after the expiration of the 90-day period during which the gross valuation misstatement penalty will rise from 10% to 20%. After 135 days from the issuance of the letter, cases generally will be litigated or resolved on a hazards-of-litigation basis.
Certain conservation easement cases are not eligible: (1) cases that have been tried and are awaiting opinion; (2) cases on appeal in a U.S. Circuit Court of Appeals; (3) cases that have already settled; (4) partnerships that have agreed to be bound by another case, if that test case is awaiting decision; (5) cases where trial is set to commence within 30 days of the date of the announcement, May 13; and (6) cases designated as test cases, unless all bound cases have settled or have agreed to settle under this initiative.
Partners in TEFRA partnerships should expect to receive an IRS notice stating the amount owed by each investor. BBA partnerships that did not elect to push out the liability will be responsible for payment. If the partnership is unable to pay, the investors will receive IRS notices stating the amounts owed. If the partnership elected to push out the liability, the partnership must furnish statements to investors and the IRS describing the adjustments and amounts being pushed out, and the investors must take those adjustments into account.
The IRS states that in past litigation the IRS has generally prevailed, and that cases before the Tax Court have generally resulted in a charitable contribution deduction of just 5–7% of the original amount claimed and a 40% gross valuation misstatement penalty.
Ken Kies, Acting IRS Chief Counsel (and Assistant Secretary for Tax Policy), said “I would just say, for taxpayers who are getting advised on this, think long and hard about our settlement initiative. It is clearly better than most taxpayers will do if they choose to litigate.”
Kies said that the IRS is considering broad settlement initiatives in other areas as well. In particular, Kies stated that the IRS has been looking at controversies involving captive insurance and the economic substance doctrine.
Treasury and IRS Signal Forthcoming Guidance
Treasury officials have indicated that additional guidance is expected by the end of the year on several significant provisions of the 2025 One Big Beautiful Bill Act, including guidance on the pass-through deduction under Section 199A, executive compensation by tax-exempt organizations, business meals and entertainment, and Section 1202 qualified small business stock, among other areas. Section 199A generally allows eligible non-corporate taxpayers a deduction tied to qualified business income, subject to wage, basis, taxable-income, and specified-service-business limitations. Section 1202 permits partial or full exclusion of gain from qualified small business stock, with the currently codified rules reflecting revised holding-period and exclusion-percentage mechanics. Section 4960 imposes an excise tax on certain excess compensation paid by applicable tax-exempt organizations, including remuneration over $1 million and certain excess parachute payments.
Treasury also said that it does not anticipate further guidance this year on the corporate alternative minimum tax (CAMT) and that it intends to propose CAMT regulations in 2027 that would largely replace the proposed CAMT regulations issued in September 2024.
Deputy Assistant Secretary for Tax Policy Kevin Salinger provided background on the CAMT guidance issued by the Trump administration, most recently Notice 2026-7, stating that CAMT “was not intended to be a parallel corporate tax system that captures every difference between book and tax. It was pitched at the time as a targeted guardrail for a very limited set of very large corporations that were engaged in aggressive tax planning.”
Treasury and IRS Schedule Hearing for Proposed Crypto Regulations
IRS and the Treasury have scheduled a hearing for Wednesday, July 8, on proposed regulations for the furnishing of payee statements by brokers to customers engaged in digital asset transactions. Requests to speak and discussion topic outlines are due on Thursday, May 28.