Summary
- Congress still processing second reconciliation bill to fund ICE and CBP, while designing a third reconciliation bill to address defense appropriations, spending cuts and tax provisions.
- Treasury finalizes information reporting regs for partnership hot asset reporting.
- Reps. Max Miller and Steven Horsford introduce bipartisan digital tax legislation, as Ways and Means Committee holds briefing in effort to build a committee product.
- House passes Tax Court due process reform legislation.
- Assistant Secretary for Tax Policy and Acting IRS Chief Counsel Ken Kies fires warning shot at qualified small business stock stacking.
Several possible avenues for advancing significant tax legislation this year are emerging, while the House passed a bill addressing IRS collection due process concerns.
When Congress returns from the Memorial Day recess in the first week of June, it will resume work on a reconciliation bill to close out the appropriations process for FY 2026 by funding ICE and CBP. The Senate had been expected to take up the bill on May 21, followed shortly thereafter by the House, but Senate Majority Leader John Thune (R-SD) delayed the vote because of internal disagreements amongst congressional Republicans.
The House Appropriations Committee has now sent 7 of the 12 traditional appropriations bills for FY 2027 to the full House, after approving the Energy-Water and Legislative bills on May 20. Two of the other bills, Interior-Environment and Transportation-HUD, were approved at the subcommittee level on May 21. The bills have been partisan, except for Military Construction-Veterans Affairs, the only bill already considered by the full House, which passed by a vote of 400-15. The three remaining bills have been the most difficult to reach agreement on in recent years: Defense, Homeland Security, and HHS-Labor-Education. The Senate Appropriations Committee has yet to take action on any of the 12 bills for FY 2027. The Senate’s historical practice and procedural rules effectively require bipartisan agreement because appropriations bills generally require the 60 votes needed to get past the filibuster.
House Speaker Mike Johnson (R-LA) and Budget Committee Chairman Jodey Arrington (R-TX) have been examining whether to move forward simultaneously with an additional reconciliation bill. Any such bill is likely to center around defense spending, accompanied by a variety of spending cuts and tax provisions. Chairman Arrington is urging the House to pass a budget resolution for such a bill in June. Despite the difficulties Republicans are encountering in passing a second reconciliation bill this Congress (the first was the OBBBA), another reconciliation bill is a real possibility because it may be the best option to address the White House’s request for additional defense funding. It appears that the Senate will not have 60 votes to approve appropriations for the costs of the Middle East war ($29 billion according to May 12 testimony by Jules Hurst, DoD’s acting Comptroller). The White House has not yet sent Congress a request for a defense supplemental, but Appropriations Committee Chairman Tom Cole (R-OK) has said that war-related funding will be needed by August. In addition, it does not appear there are 60 votes in the Senate for the White House’s FY 2027 request of $1.5 trillion, a proposed 44-percent increase from FY 2026, which could therefore also be included in a reconciliation bill.
On May 22, the House Transportation and Infrastructure Committee marked-up and voted to favorably report the BUILD America 250 Act (H.R. 8870). The bill would reauthorize for five years the Highway Trust Fund, currently set to expire on September 30. The bill had very broad bipartisan support in committee, resulting in a vote of 62-2. The Committee on Ways and Means and the Senate Finance Committee traditionally add tax components to the highway funding bill.
Miller-Horsford Bipartisan Tax Legislation Introduced in House of Representatives
Reps. Max Miller (R-OH) and Steven Horsford (D-NV), members of the Committee on Ways and Means, introduced the bipartisan Digital Asset PARITY Act (H.R. 8899) on May 19 to clarify and simplify the tax treatment of digital assets, especially stablecoins. The bill follows the release of two discussion drafts by the pair (please see prior S&C coverage here and here), and is intended to make digital payment technology easier to use for consumers and investors. Its central stablecoin provision would create a deemed-basis rule for regulated stablecoins designed to maintain a $1 value, so ordinary stablecoin payments, such as buying coffee, would not trigger tax or reporting burdens.
The bill would apply that deemed-basis rule only to stablecoins compliant with the GENIUS Act. It would also clarify tax rules for digital assets used in charitable contributions, lending agreements, and trading by foreign investors on U.S. platforms. In addition, it would extend wash sale rules to digital assets and provide a five-year tax deferral for staking and mining rewards, expanding on an earlier draft that limited the deferral mainly to passive validators.
The bill does not include a general de minimis exemption for small digital asset transactions. The deemed-basis rule protects stablecoins from triggering gain or loss treatment for small transactions using cryptocurrencies. However, there is not a comparable rule for other forms of cryptocurrency, like Bitcoin. Instead, the bill directs Treasury to study the issue and recommend possible legislative or regulatory changes within one year.
Chairman Jason Smith (R-MO) said he has been working on building support from Committee Republicans on a bill, but ultimately wants to move a bill in this area on a bipartisan basis. The Committee on Ways & Means held a closed-door briefing on digital taxation on May 21. Following the briefing, several Democratic members of the Committee said that they are open to legislating in this area, but are still learning more about digital assets and are not close to backing tax legislation at this point in time.
Treasury Finalizes Information Reporting Regs for Partnership Hot Asset Reporting
On May 19, Treasury and the IRS finalized regulations that give partnerships more time to provide reportable hot asset gain or loss information to partners. The final regulations adopt the regulations proposed in 2025 without change. The newly finalized regulations amend section 1.6050K-1 and provide partnerships additional time to furnish the information required in Part IV of Form 8308, “Report of a Sale or Exchange of Certain Partnership Interests,” to affected partners. Previously, the regulations to section 6050K required partnerships to provide a fully completed copy of the Form 8308 to each transferor and transferee partner by the later of January 31 of the year following the calendar year in which a section 751(a) exchange occurred, or 30 days after the partnership received notice of the exchange.
Treasury and the IRS noted in the preamble to the final regulations that they had received comments on the requirement that partnerships determine their gain or loss from a deemed sale under section 751 and the transferor partner’s share of that amount. Tax professionals explained that partnerships often could not complete those calculations by the January 31 furnishing deadline because key data, such as finalized financial statements and purchase price allocations, may not be available that early. Partnerships must still file a completed Form 8308, including Part IV, with their Form 1065, and must provide the relevant section 751 information to transferor partners through Schedules K-1.
House Passes Tax Court Due Process Reform Legislation
On May 19, the House passed by voice vote the Taxpayer Due Process Enhancement Act (H.R. 6506), a bipartisan bill sponsored by Reps. Nathaniel Moran (R-TX) and Terri Sewell (D-AL), aimed at strengthening taxpayer protections in IRS collection disputes. The bill would change collection due process procedures by suspending the limitations period for filing refund or credit claims while Tax Court proceedings are pending, barring the IRS from offsetting annual overpayments against the disputed liability, and expanding Tax Court jurisdiction to review determinations and existing tax liabilities. Please see prior S&C coverage here.
Treasury and IRS Forecasts Guidance Aimed to Discourage QSBS Stacking
On May 20, Assistant Secretary of Treasury for Tax Policy and Acting IRS Chief Counsel Ken Kies issued a warning with regards to certain planning involving the section 1202 qualified small business stock (QSBS) exclusion: “Let me just warn you: We don’t like stacking, OK? Just want to give you a little tip, [j]ust keep an eye out for” guidance that would either limit or ban QSBS stacking. Section 1202 provides a partial gain exclusion for qualified small business stock, provided certain holding periods are observed. Section 1202(h) provides that QSBS transferred by gift retains its status in the hands of the transferee, preserving the partial gain exclusion benefit. This feature has been utilized by some taxpayers to gift QSBS to certain trusts, which spreads out ownership of the corporation among multiple owners and multiplies the available gain exclusion from the eventual sale of QSBS.