Tax policy is front and center as 2025 begins to unfold. Election victories in November 2024 provided Republicans with control of the presidency and Congress for the next few years. The new, Republican-led Congress began its work in early January, and the second Trump administration took office last week. Initial areas of focus for the government include early legislation, consideration of executive branch nominations, and a flurry of executive orders from President Trump. However, a key issue requiring congressional attention is the debate over the looming expiration of the Tax Cuts and Jobs Act (TCJA) at the end of 2025. At the same time, the IRS and Treasury have recently addressed both long-standing priorities as well as those promoted by the outgoing Biden administration. The courts have also continued to be active in influencing some of the larger tax policy debates that have been brewing.
Read on for a roundup of some of the most significant recent tax policy developments:
- Tax legislative outlook: Setting expectations for the months to come
- Recent developments on the TCJA extension
- Key players in Congress and the second Trump administration
- Tax policy actions (so far) in the second Trump administration
- Congress acts on tax relief for prior disasters
- Regulatory update from the Biden and Trump administrations
- Where do things stand with the Corporate Transparency Act?
Tax legislative outlook: Setting expectations for the months to come
The looming expiration of the TCJA at the end of 2025 is a key factor driving tax legislation this year. That process is also an opportunity for the Trump administration and Republican leadership in Congress to pursue their stated policy goals. However, tax legislation is notoriously complicated, and the process this year will be no exception. Narrow Republican majorities in the House and Senate are expected to dictate the legislative vehicle that will be utilized. The term, “budget reconciliation,” will be used a lot in the coming months, which is a streamlined legislative process allowing Congress to pass legislation through a simple majority in each chamber. While Republicans generally support a broad extension of the TCJA, the narrow majorities give added significance to the votes — and policy goals — of each Republican member. Additionally, the national debt has increased significantly in the past decade, and some in Congress are expected to focus on restraining future tax cuts in the name of fiscal discipline. This all sets the stage for challenging path for an extension of the TCJA and any other tax priorities.
See below for a series of articles focusing on the general framework of how the election results will impact the continued debates around the expiration of the TCJA, what to expect for both individual and business-related tax provisions, and how the various energy tax incentives included in the Inflation Reduction Act (IRA) may be impacted in the process. Tax planning around the timing of recognizing income/deductions and for M&A transactions are also discussed.
- Election results set the stage for extension of Trump tax cuts (Nov. 21, 2024)
- The 2025 outlook for individual tax legislation (Nov. 21, 2024)
- 2025 tax legislation: The future of business tax (Nov. 21, 2024)
- Inflation Reduction Act tax credits: A complicated path in 2025 (Dec. 10, 2024)
- Tax accounting methods: Income and expense planning in uncertain times (Dec. 19, 2024)
- M&A deal implications of 2025 tax legislation (Jan. 27, 2025)
Recent developments on the TCJA extension
The 119th Congress was seated on January 3, and the Trump administration began on January 20. Despite that limited time in office, Republican leadership has begun setting the stage for the coming legislative process. Here are the notable developments that have occurred so far.
- Budget reconciliation: It’s expected that Republicans in Congress will use the budget reconciliation process to try to extend many of the TCJA’s provisions. While reconciliation seems inevitable, there’s already an apparent divide within Republican leadership as to exactly how that process will unfold. Trump has signaled his support for one, large bill touching on tax measures, as well as border security, immigration, defense, and other policies. House Speaker Johnson (R – LA) also favors a single bill. But Republicans’ Majority Leader in the Senate, John Thune (R – SD), other Senate leaders, and the Freedom Caucus in the House, would prefer to wait to address tax items in a second package, while focusing on other priorities in an early legislative package.
- Timelines: So, the timing of reconciliation is also both important and uncertain. Speaker Johnson is attempting to pave the way for a quick reconciliation process, in keeping with Trump’s aim to act on his broader policy initiatives within the first 100 days of office. Johnson has laid out a schedule to fellow Republicans that calls for the budget resolution for reconciliation to be done by the end of February, with a view toward Republicans in both chambers pulling together a package for Trump’s signature in mid-to-late April. Although the current lack of consensus about the parameters of a first legislative package (does it include tax?), and policy debates among individual members of Congress suggest a more elongated process for the completion of one or more bills.
- The hunt for budget offsets has begun: Concerns about the impact of tax cuts on the national debt are driving considerable focus on potential tax measures that could help offset or pay for an extension of the TCJA. The House Budget Committee’s list of potential “pay-for” items is now publicly available and identifies a laundry list of policy measures that are within the jurisdiction of the Ways and Means Committee. That document also includes some tax cut proposals, but is expansive in scope, including changes to:
- Renewable energy type credits under the IRA.
- The employee retention credit.
- Measures directed at the tax treatment of universities and hospitals.
- The deduction for state and local taxes (the SALT cap).
- Some measures from Trump’s campaign, like excluding tips from tax.
- A few more ambitious measures like lowering the corporate tax rate to 15% and shifting the United States away from an origin-based system, meaning tax treatment would depend on where goods are consumed, not where they are produced.
Key players in Congress and the second Trump administration
The complex process for tax legislation will be influenced by both individual members of Congress and those in key positions within congressional leadership and the executive branch. Those include:
Congressional leadership
Mike Johnson (R – LA) has retained his role as speaker and will play a significant role in tax legislation. However, his election to that post wasn’t without its own complications. Johnson has served as speaker since October 2023, and was generally expected to continue in that role. It was initially uncertain whether Johnson would obtain sufficient support during the first vote on January 3 to continue, but he ultimately did so by a vote of 218-215-1 secured with Trump’s support. The potential hesitation of some members to support Johnson underscores the fact that every vote within the House Republican conference will be important moving forward.
John Thune (R – SD) is the new majority leader in the Senate. His elevation to that role was more streamlined than in the House as there appears to be broader consensus within the Senate GOP ranks. Thune also has prior experience on key committees, including the Finance Committee.
Tax committee leadership
The House Ways and Means Committee is responsible for drafting tax legislation. Jason Smith (R – MO) will continue in his role as chair of that committee, which he initially took over at the beginning of the last congressional session in January 2023. Smith has been active on the tax legislative front, including being a driving force behind a bipartisan tax package, the Tax Relief for American Families and Workers Act (TRAFWA), last year. That bill wasn’t ultimately enacted, but it included key provisions that will be part of the TCJA extension discussion this year.
In the Senate, the Finance Committee has jurisdiction over tax matters. Mike Crapo (R – ID) has succeeded Ron Wyden (D – OR) as chair of that committee. Crapo previously served as the ranking member of the Finance Committee, so he has key experience with tax matters.
Department of the Treasury
Trump nominated Scott Bessent, a former hedge fund manager, to be his Treasury Secretary. Following a hearing in the Senate Finance Committee, Bessent was confirmed by the Senate on January 27. Michael Faulkender has also been nominated by Trump to be deputy Treasury Secretary. Faulkender previously served as assistant secretary for economic policy during the first Trump administration and is currently awaiting Senate confirmation. Both Bessent and Faulkender have already expressed support for some Trump’s early tax policy proposals, including the imposition of potentially broad tariffs.
Treasury is also expected to add two key members with tax expertise ahead of the 2025 legislative process, pending Senate confirmation. Derek Theurer has recently served as policy advisor to Johnson but is expected to join Treasury. He previously served as chief tax counsel to the House Ways and Means Committee. Ken Kies has also been nominated as assistant Treasury Secretary for tax policy. Kies has considerable tax experience as a lobbyist, chief of staff for the Joint Committee on Taxation, and as a staffer on the House Ways and Means Committee.
Internal Revenue Service commissioner
Trump has nominated Billy Long, a former member of the House, to be Commissioner of the IRS. The prior commissioner, Danny Werfel, resigned, effective January 20, and Long’s nomination is awaiting confirmation in the Senate. In the interim, the IRS will be operating with an acting commissioner.
Tax policy actions (so far) in the second Trump administration
The Trump administration officially began on January 20, but a lot has happened so far, mostly through executive orders. Here’s a rundown of key tax policy developments coming out of the Trump administration in the past week:
- OECD global tax deal. It has been abundantly clear that many Republicans aren’t supportive of the Organization for Economic Co-operation and Development’s (OECD) global tax reform efforts. Pillar 1 would reallocate part of the profits of multinational companies to where they sell products and services while Pillar 2 would impose a 15% minimum tax on global profits. The U.S. Treasury has taken some steps to begin to implement Pillar 1, but minimal progress has been made on the implementation of Pillar 2. In an executive order, the Trump administration has (1) directed that a notification be provided to the OECD that “any commitments made by the prior administration on behalf of the United States with respect to the Global Tax Deal have no force or effect within the United States absent an act by the Congress adopting the relevant provisions of the Global Tax Deal”; and (2) to investigate whether any foreign countries aren’t in compliance with any tax treaty with the United States, or have (or are likely to place) tax rules that are extraterritorial or disproportionately affect American companies, and to develop and present a list of options for protective measures or other actions that the United States should adopt or take in response to such noncompliance or tax rules. While it was unlikely that there would have been any movement in the United States on the OECD’s Pillar 1 or Pillar 2 efforts under the current Trump administration anyway, this executive order further reiterates that point. The second part seems to be designed to prevent retaliation from other countries by referencing Section 891, which states that tax rates could double for companies and citizens from countries the president finds imposing “discriminatory or extraterritorial taxes.” The executive order doesn’t provide specifics on how anything could be implemented so there will continue to be uncertainty on specifics in this area.
- “2-for-1” regulation policy. Trump reinstituted the executive order, first issued at the beginning of his first administration, requiring that at least two prior regulations be identified for elimination whenever a new regulation is issued. When this “2-for-1” rule was in effect during Trump’s first administration, it didn’t appear to have a significant impact on the tax regulatory process given that continual changes to the Internal Revenue Code cause many regulations, or portions of regulations, to become less relevant over time. As such, there are likely easy targets for an effort like this without having to substantively change the tax regulatory landscape overall.
- Pause on disbursement of IRA funding. Another executive order directs all agencies to pause the disbursement of funds appropriated by the IRA or the Infrastructure Investment and Jobs Act and prepare reports reviewing such programs in light of policy goals articulated by the order. IRA funding for electric vehicles is a particular area of focus, with the order making specific reference to the National Electric Vehicle Infrastructure Formula Program and the Charging and Fueling Infrastructure Discretionary Grant Program. The scope of this order was subsequently clarified to note its parameters. This order is the first step in the expected examination of the IRA for potential modification. However, this order isn’t expected to impact tax credit claims, which are administered differently from grant and loan programs.
- IRS hiring freeze. The Trump administration has instituted a governmentwide hiring freeze, with a variety of exceptions, effective January 20. For most of the government, this freeze will last until a plan is submitted “to reduce the size of the federal government’s workforce through efficiency improvements and attrition.” This report is supposed to be submitted by April 20. However, even when this report is submitted, the hiring freeze will remain in place for the IRS “until the Secretary of the Treasury, in consultation with the director of OMB and the administrator of USDS, determines that it is in the national interest to lift the freeze.” The IRS has worked to ramp up its enforcement and customer service efforts, so this hiring freeze will likely have a significant impact on those efforts.
- Return to office mandate. The Trump administration has also issued an executive order requiring that employees of executive branch agencies return to the office. Agency heads are directed to take “take all necessary steps to terminate remote work arrangements and require employees to return to work in-person.” Over the past several years, the IRS has heavily utilized remote work for portions of its workforce as it has expanded its recruiting efforts outside of its footprint where it maintains service centers. This mandate has the potential to shrink the IRS’ workforce if employees are unable to return to the office and don’t otherwise get excepted from the requirement. When combined with the hiring freeze, this could pose cause even more difficulty for the IRS.
Congress acts on tax relief for prior disasters
The 118th Congress might not have passed much in the way of tax legislation, but one of it last actions was the passage of the Federal Disaster Relief Act of 2023. Don’t let the 2023 in its name mislead you. While this bill took more than two years to get across the finish line (hence the outdated name), it provides more than $5 billion in tax benefits to disaster victims for disasters that occurred in 2021 through the early part of 2025.
What’s included in the legislation?
- Qualified disaster loss deductions: Most recently, personal disaster losses from presidentially declared disasters were only deductible to the extent they exceeded 10% of adjusted gross income (AGI) and only then as an itemized deduction. Congress has previously provided relief so that disaster losses could be treated as an above-the-line deduction (i.e., available to those who don’t itemize), not subject to the 10% of AGI limit (but still subject to a $500 floor), and allowed as a deduction for alternative minimum tax purposes. However, the last time Congress did that, it only covered disasters occurring prior to 2021. This bill extends that rule for presidentially declared disasters occurring from 2021 through Dec. 12, 2024, as long as the disaster is declared by Feb. 10, 2025.
- Exclusion of wildfire payments: In general, any amount received by a taxpayer is included in taxable income unless a specific provision of tax law would exclude it from income. Under this bill, payments received as compensation for losses/damages, additional living expenses, lost wages, personal injury, death, emotional distress, or other similar reasons are excluded from taxable income. To qualify, the payments must be related to a federally declared wildfire disaster declared in 2015 or later, and the payments must be received in 2020 through the end of 2025. To ensure that refunds are available for the earlier tax years covered by this provision, the statute of limitations for refunds would be extended through Dec. 12, 2025, but only for these particular refunds.
- Exclusion of East Palestine, Ohio train derailment payments: Under this provision, taxable income excludes payments received by an individual as compensation for loss, damages, expenses, loss in real property value, closing costs with respect to real property (including realtor commissions), or inconvenience (including access to real property) resulting from the East Palestine, Ohio train derailment that occurred on Feb. 3, 2023. This covers amounts received from any government agency or Norfolk Southern Railway and its subsidiaries, affiliates, insurers, or other similar agents.
What to do now?
Taxpayers affected by any of this relief should consider filing refund claims if the tax return for that year has already been filed. Since these provisions extend back as far as 2020, and only wildfire payments are provided any relaxation of the statute of limitations, it will be critical for refund claims to be filed expeditiously. The IRS hasn’t yet commented on whether any specific procedures should be followed with respect to these refund claims. If no specific guidance is available at the time that a refund claim is filed, then normal refund claims procedures should be followed (i.e., amended returns in most circumstances).
The $5 billion of refunds attributable to this legislation was initially estimated in late 2023 when this legislation was initially introduced in Congress. The number of disasters that have occurred in 2024 and 2025 likely means that there are tens of billions of dollars in tax refunds available for disaster victims around the country right now.
How might this impact current fires in California?
The wildfire payment income exclusion could be very impactful for recent fires in the Los Angeles region in California. Those fires have been federally declared, so all amounts received through the end of 2025 would qualify for the exclusion. However, the qualified disaster loss provision discussed above only covers disasters with an incident date through Dec. 12, 2024. The incident date for the Los Angeles fires is Jan. 8, 2025, so it wouldn’t be covered by this legislation. Additional disaster relief for California is currently being debated in Congress, so it’s possible that additional tax relief will be provided in the future.
Regulatory update from the Biden and Trump administrations
When a presidential administration is changing, it’s common for the Treasury Department to put a high priority on getting many of its pending guidance projects across the finish line. The Biden administration was no exception. Since the election, the Treasury Department has issued 20 sets of final regulations and 28 sets of proposed regulations. There are many noteworthy projects that will be highly impactful to affected taxpayers. These include guidance on IRA energy credits, the treatment of partnership liabilities as basis, corporate spinoffs, the corporate alternative minimum tax, and the reportable transaction treatment of certain abusive transactions.
How will the Trump administration and the new Congress react?
To the extent that any regulation is proposed (rather than final), Trump’s Treasury Department will decide whether and how to advance the regulations into a final form. The Trump administration has put a temporary freeze on the issuance of any regulations until the new Treasury secretary is appointed and able to review those regulations. Once the freeze is lifted, the new Treasury secretary could choose to withdraw a proposed regulation, finalize it largely as is, finalize it with substantial modifications, or simply leave it proposed and take no further action.
Final regulations are a different story since they are generally effective at the time they are published in the Federal Register. A new administration cannot simply withdrawal a final regulation but must go through a formal regulatory process that involves issuing a new proposed regulation to withdrawal the previous final regulation, soliciting comments from the public, and then taking final action. This process typically involves many months.
Congress can also take action on recently finalized regulations through the Congressional Review Act (CRA). The CRA permits Congress to pass a bill that effectively nullifies the final regulation. This process can only effectively cover final regulations issued in the 60 legislative days preceding the end of the Congressional session, which would go back into early August 2024 (this includes many more regulatory projects than those listed below since that list just covers post-election regulations). So, all of the final regulations published after the election would be covered by the CRA. To invoke the CRA, a new Congress must act quickly because it only gets a couple of months to do so. Such efforts are already underway. For example, Sen. Ted Cruz (R-TX) has introduced a CRA challenge to remove the decentralized finance reporting requirements for digital assets (TD 10021, 12/30/24).
If Congress does invoke the CRA, it’s able to block the final regulation with a simple majority vote in each chamber. That is, a filibuster in the Senate is not permitted. However, this isn’t the end of the story, particularly for tax regulations. Most tax laws are effective when they are enacted and regulations are used to flesh out details that were too nuanced for Congress to create, fill in holes in the statutory language, or clarify interactions with other parts of the tax law. In any case, the statute is still often fully effective even if a regulation is removed. While a new administration is able to issue new regulations after Congress invokes the CRA on a previously issued regulation, that process also takes a great deal of time. This leaves an extended window when no regulations exist to interpret the statute. This can create ambiguities in how the law should be applied between the rescinding of one regulation and the promulgation of another that might make it more complicated for some taxpayers who no longer have specific rules to follow, but also provide more flexibility for others who didn’t like what the original regulation provided.
Where do things stand with the Corporate Transparency Act?
The Corporate Transparency Act (CTA) was originally enacted in January 2021. The CTA imposed a new requirement for the reporting of beneficial owners of applicable reporting companies to the U.S. government in an effort to provide information to support law enforcement efforts around money laundering and other financial crimes. Reporting wasn’t required until early 2024, but many entities had until Jan. 1, 2025, to file their reports.
Many entities and organizations have been litigating the constitutionality of the CTA over the past several years. The results in the courts have been mixed, but any decisions concluding that the CTA is unconstitutional had been limited to the parties in such cases. However, in December 2024, the federal district court for the Eastern District of Texas issued an injunction preventing the government from enforcing the CTA on a nationwide basis. After some dramatics throughout the month of December, the U.S. Supreme Court entered an order granting the government’s application to stay the nationwide injunction until the Fifth Circuit resolves the appeal. The Supreme Court’s order, however, didn’t cause FinCEN — the agency tasked with administering the reporting — to change course. That’s because there’s already a second case out of Texas’ Eastern District. In that second case, the district court judge ordered a stay of the reporting rule. Given this second case, FinCEN — as of Jan. 25, 2025 — has indicated on its webpage that reporting isn’t required, although reporting may continue reporting voluntarily.
Read our article for more details on these developments and what entities should do in the meantime.
