- Congress breaks logjam over DHS funding as House agrees to split off ICE and CBP into skinny budget reconciliation, with the tax outlook still unresolved.
- National Taxpayer Advocate, Erin Collins, urges IRS to allow for more time to claim pandemic-era relief as government continues to dispute deadline extension.
- Treasury and IRS issue temporary rules for dyed fuel refund claims under section 6435.
- Treasury and IRS finalize rules treating tribal fishing rights income as compensation for qualified plan limits.
The logjam over the Department of Homeland Security was finally broken on April 30, when the House voted, by voice vote, in favor of a bill passed by voice vote in the Senate on March 27, to fund DHS, except for ICE and CBP. President Trump signed the bill into law that day.
On April 29, Congress enacted a budget resolution, with a House vote of 215-211 in favor of the measure that had been passed in the Senate on April 23 by a vote of 50-48. The budget resolutions activate the procedural mechanism for a budget reconciliation bill that would only need a majority to pass the Senate under that body’s procedural rules. The budget resolution provides instructions to the House and Senate Homeland Security and Judiciary Committees intended to provide funding to ICE and CBP. The Ways and Means Committee and the Senate Finance Committee were not given instructions under the budget resolution, so tax provisions cannot be included.
Congressional Republicans continue to discuss enacting tax provisions pursuant to an additional budget resolution.
National Taxpayer Advocate Erin Collins Urges IRS to Allow for More Time to Claim Pandemic Relief
On April 30, National Taxpayer Advocate Erin Collins called for the IRS to provide taxpayers additional time to claim refunds related to an extended tax filing deadline enacted by Congress in 2019 for certain federally declared disasters under the Court of Federal Claims’ decision in Kwong. As further detailed in this S&C memo, Kwong held that Section 7508A(d) as enacted in 2019 paused many tax deadlines between January 20, 2020, and July 10, 2023, based on a 2020 declaration by President Trump of a disaster regarding Covid-19 that President Biden did not end until May 11, 2023.
Collins said that tens of millions of taxpayers may be entitled to refunds of penalties (generally, for filing late returns or failing to make estimated tax payments) and interest under Kwong, but generally must file refund claims by July 10, 2026. She said that the deadline should be extended because the complexity and legal uncertainty of the extension would allow very well-advised taxpayers to take advantage of the Kwong ruling, but leave most taxpayers unaware of their ability to claim a refund.
Collins said that the Department of Justice is likely to appeal the decision in Kwong. Treasury and the IRS are continuing to take the position in litigation that the holding in Kwong is mistaken. Ken Kies, Assistant Secretary of Treasury for Tax Policy and Acting Chief Counsel of the IRS said: “[Kwong] is a misreading of the plain language of the statute. We will continue to defend the statutory language as written.”
Treasury and IRS Issue Temporary Rules for Dyed Fuel Refund Claims Under Section 6435
On April 6, the Treasury Department and IRS issued temporary regulations under new Section 6435 concerning refunds for previously taxed dyed diesel fuel and kerosene, effective for eligible dyed fuel removed on or after December 31, 2025. The temporary regulations also serve as the text of accompanying proposed regulations. The guidance provides a narrow view of who may claim the payment: only the taxpayer that both removed the dyed fuel from the terminal and actually paid the underlying Section 4081 excise tax may obtain the refund. The government explains this conclusion on the grounds that, absent a separate statutory appropriation, Section 6435 payments can only be made through the general refund appropriation, which only covers the person that made the overpayment. The regulations also set out the mechanics for claiming relief: taxpayers must file Form 8849 with a separate Schedule 5 and a Section 6435 taxpayer’s report, and the claim must be filed within the normal Section 6511 refund limitations period.
Written or electronic comments and requests for a public hearing on the proposed regulations must be received by June 30, 2026.
Treasury and IRS Finalize Rules Treating Tribal Fishing Rights Income as Compensation for Qualified Plan Limits
On May 4, Treasury and the IRS issued final regulations providing that amounts paid to members of an Indian tribe for services performed in a fishing rights-related activity may be treated as “compensation” for purposes of the Section 415 limits on qualified retirement plan benefits and contributions, even though that income may be exempt from income and employment tax under Section 7873. The rule is intended to give tribal employers and plan administrators clarity that fishing rights-related income can support contributions to qualified retirement plans and can fit within existing safe-harbor compensation definitions. The preamble also confirms that, consistent with Hall v. Commissioner, distributions attributable to contributions based on that income generally are treated as nontaxable return of investment in the contract, while earnings on those contributions remain taxable. The final regulations are effective May 4, 2026, and apply for plan years ending on or after that date.