Only 11 days in, and it’s already shaping up to be a busy December in Washington, D.C., with several tax-related legislative developments and a steady pour of tax reform guidance from Treasury and the IRS. And tensions remain high on Capitol Hill as Congress races against the clock to handle numerous time sensitive legislative issues before year-end. Under the current political climate – with less than two weeks left on the congressional calendar – it appears increasingly unlikely lawmakers will reach requisite bipartisan agreement on government funding and other tax-related legislation before adjourning until the new year.
“With a big nominations package, the National Defense Authorization Act (NDAA), and uncertainty on healthcare, it’s hard to see anything else getting floor time,” a senior Senate staffer told Baker Tilly National Tax on Dec. 10, 2025. “It’s been a long year, and members will be running for the airport on the 19th.”
Let’s unpack it.
Appropriations negotiations stall
We won’t bury the lede. Depending on the success of bipartisan appropriations and tax-related healthcare negotiations, another potential shutdown showdown looms on Jan. 30, 2026. The longest federal government shutdown ended after 43 days on Nov. 13, 2025, with the passage of a bipartisan continuing resolution (CR) and minibus fiscal year 2026 appropriations package. The three-bill minibus includes funding through fiscal year 2026 (Sept. 30, 2026), for Military Construction and Veterans Affairs, Agriculture, and Legislative Branch appropriations. For all other federal agencies, including Treasury and the IRS, whose funding is allocated under the nine remaining annual appropriations bills, the CR provides stopgap funding at current levels through Jan. 30, 2026.
NDAA. A top priority further stalling appropriations, though not a funding issue itself, has been the NDAA – annual defense policy legislation authorizing and directing spending for defense programs. This is typically a bipartisan process without financial or tax-related provisions, but with bicameral disagreements and even intraparty misalignment, progress has been slowed. However, on the evening of Dec. 10, 2025, the House passed the annual NDAA. The Senate is expected to pass the House-approved measure.
Affordable Care Act (ACA) premium tax credit. Also adding to the gridlock is the largest policy issue contributing to the last government shutdown (and its end): the ACA’s enhanced premium tax credit under the American Rescue Plan Act of 2021 and the Inflation Reduction Act of 2022, which is scheduled to expire at year-end. And it is not just Republican and Democratic lawmakers at odds on how best to move forward; intraparty disagreement among Republicans is further complicating the issue.
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That said, however, there is bipartisan, bicameral consensus that the anticipated healthcare premium hikes would have devastating consequences for many and is an important issue that must be addressed. To that end, several proposals have been put forth in both the House and the Senate, though lawmakers have yet to reach agreement. House leadership has not signaled support for any of the House-introduced proposals extending the credit, and the issue is quickly becoming both a policy and political problem for Republicans with midterm elections less than 11 months away.
House Speaker Mike Johnson, (R-LA) is reportedly preparing to introduce his own healthcare plan next week, but enough Republicans have already rallied to force a floor vote via discharge petition on a bill to extend the enhanced subsidies, essentially bypassing Johnson’s control of the floor and the issue. Additionally, five Republicans are supporting another Democratic-led discharge petition for a bill that would extend the credit for one year. This situation is developing and is expected to stretch into the new year.
Additionally, Senate leadership is bringing The Health Care Freedom for Patients Act (S. 3386), introduced on Dec. 8, 2025, by Senate Finance Committee Chair Mike Crapo (R - ID) and Sen. Bill Cassidy (R-LA), to the floor for a vote on Dec. 11, 2025. The measure would essentially aim to replace the enhanced premium tax credit with a federally funded Health Savings Account (HSA). It is expected to fail without the seven votes needed from Democratic senators to reach the 60-vote threshold.
Notably, the Senate is also expected to vote on a Democratic proposal, the Lower Health Care Costs Act (S. 3385), to extend the enhanced premium credit for three years. It is expected to receive some Republican support from those who have been vocal against letting the enhanced credit expire, but it is unlikely to garner the 13 Republican votes needed to succeed.
Looking ahead
All things considered, the prospects for a tax extenders bill or other tax legislation by year-end, or even early 2026, remain uncertain if not unlikely. While there are bipartisan tax priorities waiting to be addressed, such as extending the Work Opportunity Tax Credit, expensing for qualified production costs for film and sound recording, and repealing the One Big Beautiful Bill Act’s (OBBBA) (P.L. 119-21) limitation on the deduction of gambling losses, Congress tackling them before next year would be a tall order. Baker Tilly National Tax will continue to monitor these developments and provide timely updates accordingly.
Legislation with legs
On Dec. 1, 2025, the House advanced two bipartisan bills aimed at improving tax administration. The measures now head to the Senate.
The Tax Court Improvement Act (H.R. 5349), a tax procedure measure, would make several changes to the U.S. Tax Court’s procedures, including enhancing authority of special trial judges and clarifying the application of equitable tolling in deficiency cases. Following the U.S. Supreme Court’s holding in Boechler v. Commissioner, 596 U.S. 199 (2022), several circuit courts have held the Tax Court’s deficiency jurisdiction is also subject to equitable tolling.
Additionally, the House advanced the Fair and Accountable IRS Reviews Act (H.R. 5346), which would change existing requirements for IRS employees seeking to propose certain penalties against taxpayers. Currently, IRS employees must obtain approval from an “immediate supervisor” prior to any “initial determination” with respect to a proposed penalty, both of which are not statutorily defined, resulting in varying benchmarks. Because the Tax Court is a court of national jurisdiction, related decisions have been appealed to multiple circuit courts of appeal, resulting in a circuit split.
The proposed bill aims to resolve the issue and states the supervisory approval of a penalty required under section 6751(b)(1) is timely only if the IRS employee proposing the penalty obtains written approval before any written communication to the taxpayer with respect to such penalty. Additionally, the bill would define the term “immediate supervisor” as the person to whom the IRS employee making the determination directly reports. The bill would be effective for notices issued and penalties assessed after Dec. 31, 2025.
IRS Math Act. On Dec. 1, 2025, President Trump signed into law the bipartisan IRS Math and Taxpayer Help Act (P.L. 119-39), which aims to simplify IRS notices that inform taxpayers of alleged mistakes on their tax filings. The Senate passed the measure on Oct. 20, 2025, by unanimous consent, as covered in our October 2025 Policy Pulse. The House cleared the measure on March 31, 2025.
Under the new law, the IRS would be required to provide specific information on a notice related to a math or clerical error, send a notice related to an abatement of taxes assessed due to a math or clerical error, provide procedures for requesting such an abatement, and implement a pilot program for sending notices of a math or clerical error.
IRS
Treasury and the IRS have maintained a steady outpouring of guidance since the OBBBA’s enactment, and the guidance drops aren’t expected to slow down. Several noteworthy items and indicators are included below.
HSAs. On Dec. 9, 2025, the IRS issued Notice 2026-5, which provides guidance on the OBBBA’s expanded HSA eligibility with regard to telehealth and remote care services, bronze and catastrophic plans treated as high-deductible health plans, and direct primary care service arrangements.
Trump accounts. On Dec. 2, 2025, the IRS issued Notice 2025-68 announcing upcoming regulations and providing guidance regarding Trump Accounts, which are a new type of individual retirement account (IRA) for eligible children enacted under the OBBBA. However, many tax professionals quickly noted that more guidance is needed regarding the administrative complexity of these new IRAs, particularly for employers’ contributions.
On Dec. 1, 2025, Sens. Cory Booker (D - NJ) and Ted Cruz (R - TX) sent a letter to Fortune 1000 CEOs encouraging them to support these new Trump accounts. “This initiative was deliberately designed to allow contributions not only from family, friends, and philanthropists, but also from employers who wish to invest in the future of their employees’ children,” the senators wrote.
International tax law guidance. On Dec. 4, 2025, the IRS issued the last three of a four-part series of anticipated notices, announcing its intent to publish proposed regulations on several international tax law provisions under the OBBBA.
Notice 2025-75 announces forthcoming proposed regulations regarding the transition rule for dividends under OBBBA section 70354(c)(2). The transition rule modifies the application of section 951(a)(2)(B) of the Internal Revenue Code for certain taxable years of foreign corporations beginning before Jan. 1, 2026.
Notice 2025-77 announces forthcoming proposed regulations on OBBBA section 70312, providing guidance on the effective date and application of section 960(d)(4) of the Internal Revenue Code.
Notice 2025-78 announces forthcoming regulations regarding the new rules for calculating DEI. This notice primarily addresses the meanings of intangible property, “any other property of a type,” and sale or other disposition for section 250.
Notice 2025-72, issued on Nov. 25, 2025, announces forthcoming regulations and provides guidance on the allocation of foreign income taxes resulting from the removal of the one-month deferral election under section 898 and the recognition of pretransition gain or loss under section 987.
Baker Tilly National Tax will be issuing tax alerts on these international tax law developments in the coming days and weeks.
Basis-shifting reporting regs. Proposed regulations aimed at withdrawing the final reporting rules for partnership related-party basis adjustment transactions are now under review with the Office of Management and Budget’s Office of Information and Regulatory Affairs as of Dec. 4, 2025. As discussed in our July 2025 Policy Pulse, Treasury and the IRS announced in Notice 2025-23, released last April, that proposed regulations would be issued that would remove final regs (T.D. 10028), which identified several types of partnership related-party basis adjustment transactions as reportable transactions of interest. Further, it alerts taxpayers that Notice 2024-54, in which Treasury and the IRS announced the intent to issue future proposed regs that would have reduced or eliminated the benefits of basis-shifting transactions between related parties, will also be withdrawn.
Excise tax on repurchase of corporate stock. On Nov. 24, 2025, the IRS published final regulations (TD 10037) on the 1% excise tax on companies’ stock repurchases, indicating, among other things, that Treasury and the IRS won’t adopt the controversial “funding rule," as proposed and discussed by Baker Tilly last year. Baker Tilly National Tax will issue a tax alert on this development in the coming days.
Economic Outlook
On Dec. 10, 2025, the Federal Reserve for the third consecutive time lowered the target range for the federal funds rate by a quarter of a percentage point to a new target range of 3.5% to 3.75% percent. The cut was largely expected, following concerns of a weakening labor market and limited insight into the economy from the government shutdown.
“Uncertainty about the economic outlook remains elevated,” the Federal Open Market Committee (FOMC) said in a Federal Reserve-issued FOMC statement. However, there were three dissents in a normally united committee, indicating this may be the last consecutive cut for now.
Year-end planning
The experienced tax professionals at Baker Tilly have provided comprehensive insights for the 2025 year-end tax planning season, analyzing recently enacted federal, state and international tax provisions to help you navigate these complexities with confidence. Explore practical steps you can take now to reduce your 2025 tax burden and position yourself for success in 2026 and beyond.
