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Congress Weighs FY2026 Funding for IRS, OECD and DOJ Tax Division: As Congress returns this week, lawmakers face a four-week window to resolve differences over government funding for fiscal year 2026 (FY2026). This includes disputes regarding Internal Revenue Service (IRS) funding, U.S. contributions to the Organisation for Economic Co-operation and Development (OECD), and the Justice Department’s plan to reorganize its Tax Division. House appropriators have proposed significant cuts to IRS funding, elimination of OECD funding, and redistribution of Tax Division lawyers across other divisions, while Senate appropriators appear more inclined to maintain current funding levels and keep the Tax Division intact. The Trump administration has also proposed substantial IRS budget reductions alongside increased user fees to offset enforcement cuts. The House Appropriations Committee is scheduled to mark up the FY2026 Financial Services and General Government Appropriations bill on Sept. 3. This bill includes funding for the Treasury Department and additional government agencies.
The Path Forward for Reconciliation 2.0: Following the passage of the One, Big, Beautiful Bill Act (OBBBA, Public Law 119-21), Congress faces a range of additional tax proposals upon returning from recess. The impending expiration of enhanced Affordable Care Act premium tax credits at the end of 2025 could prompt legislative action, with Democrats seeking to maintain the credits to prevent increased health care costs. Several options are under consideration, including a second reconciliation bill, a bipartisan standalone bill or a year-end extenders package. Potential measures may also include restoring the full gambling loss deduction, revising double taxation on Americans abroad, expanding retirement plan tax incentives for nonprofits, adjusting capital gains treatment for home sales, clarifying tax treatment for digital assets, and extending the advanced manufacturing credit for semiconductors.
IRS Releases Guidance on Clean Energy Credits: On Aug. 15, the Treasury Department and Internal Revenue System (IRS) issued Notice 2025-42, setting new rules for determining when construction begins on wind and solar projects seeking tax credits under Sections 45Y and 48E of the One Big Beautiful Bill Act (OBBBA). The guidance allows developers to establish the “beginning of construction” date solely based on the Physical Work Test, which requires measurable on-site or off-site construction of a “significant physical nature” (e.g., foundation work, racking installation or customized component manufacturing under binding contracts), eliminating the previous 5% safe harbor except for limited small-scale solar projects. Developers must also satisfy a continuity requirement, either demonstrating consistent progress based on the facts and circumstances, with certain excusable delays, or completing the project within four years. The guidance is effective for projects beginning on or after Sept. 2.
IRS Releases Updated Guidance on R&E Expensing: On Aug. 28, the Internal Revenue Service (IRS) published “Revenue Procedure 2025-28,” providing procedural guidance for taxpayers transitioning to the restored permanent deduction for research and experimental (R&E) costs under Section 174A. The procedure details methods for taxpayers, notably small businesses, to utilize transition benefits, such as immediately deducting eligible domestic research expenses for tax years beginning after Dec. 31, 2021, and the option to amortize expenses over at least 60 months. Special provisions allow eligible small businesses to apply deductions retroactively through amended returns or administrative adjustment requests, subject to time limits. The guidance also clarifies accounting method changes and includes relief provisions to enable companies to comply with the new rules enacted as part of the One Big Beautiful Bill Act (OBBBA).
Policy shifts may reshape tax strategy for high-net-worth families. Learn how Congress’ next moves could affect your portfolio, estate plan and legacy strategies.
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