We’re under a heat advisory this week in Washington, D.C., and coinciding with the rising temperatures, things are heating up – or boiling over – on Capitol Hill as Republicans continue their push amidst intraparty divide to deliver a major tax legislative victory for the president by July 4, 2025. In addition to serving as your connection to Congress, we also have our eye on several developments out of the IRS.
Tax reform
This week, Senate leadership is preparing to bring the not-yet-released final version of Republicans’ sweeping tax reform and spending bill to the floor for its first procedural vote as early as Friday, June 27, 2025. And if deemed by leadership to be able to pass muster, the up to 20 hours of debate and subsequent process known as “vote-a-rama” could begin soon thereafter and run through the weekend, where senators can introduce an unlimited number of amendments with each voted on in succession. While this timeline remains Republican leadership’s goal, as we know on Capitol Hill, these things are fluid.
On June 16, 2025, the Senate Finance Committee (SFC) unveiled the first draft of its tax package – the headliner of Republicans’ budget reconciliation bill – proposing both similarities and significant changes to the tax subtitle of H.R. 1, commonly referred to as the “One Big Beautiful Bill,” that cleared the House on May 22, 2025. The draft text contains several placeholders as lawmakers continue to iron out some significant remaining issues.
Big three and more
The SFC’s draft text notably proposes permanency for what’s known as “the big three” business provisions - business interest expensing, bonus depreciation, and research and development expensing - whereas the House proposed only temporarily extending these provisions through 2029. Further, the SFC bill has a placeholder retaining the state and local tax (SALT) cap at the current-law $10,000 level, which is expected to rise to $40,000, similar to the House bill but with lower income thresholds and would make permanent the section 199A qualified business income deduction at the current 20% rate instead of the House-proposed 23% rate.
Additionally, the SFC bill proposes significant international tax changes and more lenient adjustments to the House’s phase-out of certain Inflation Reduction Act (IRA) clean energy credits. And while the SFC bill retains the House-approved permanency of individual tax provisions under the Tax Cuts and Jobs Act (TCJA), it proposes several modifications.
Pass-through entity tax
Although the House-approved bill would have prohibited specified service trades or businesses (SSTBs) from deducting state and local income taxes at the entity level, the SFC proposal aims to eliminate the disparity in the House’s bill by prohibiting entity level deductions for all pass-throughs, not just SSTBs. Generally, the proposal would allow a separate pass-through entity tax (PTET) deduction for owners of all pass-through entities (PTEs) up to an amount not to exceed the greater of $40,000 ($20,000 for married filing separately), or 50% of PTET. “Although the SFC Bill restores parity among PTEs, it would result in a tax increase for all PTE owners. Therefore, the AICPA continues to have serious concerns about the inequitable treatment of PTEs compared to corporations,” the AICPA wrote in a June 16 letter to congressional tax leadership.
It’s not all about the SALT cap
Notably, the Senate Judiciary Committee, too, released its text to be included in the reconciliation bill, which in section 302 mirrors the House bill’s language in proposing the most significant limitation on states’ interstate taxing power in over half a century. The proposal would expand the protections afforded to businesses under federal law (P.L. 86-272) by defining “solicitation of orders.” If enacted, this provision would likely have a significant impact on states ability to assert nexus over multiple types of business transactions.
Byrd rule
Currently, the SFC measure is undergoing its so-called “Byrd bath” or “Byrd scrub” under the Senate’s reconciliation process, which aims to remove extraneous provisions and requires, among other things, that provisions have a budgetary effect related to revenue that is not “merely incidental” and won’t increase the deficit generally outside the typical 10-year budget window. While we expect some provisions will result in “Byrd droppings” ultimately axed from the bill, senators can still rewrite these provisions at the last minute to comply with the Senate Parliamentarian’s assessment. These Byrd violations, however, may further delay Republican leadership’s ambitious timeline, especially when pay-fors are involved.
Joint Committee on Taxation
Senate Republicans are working with two very different cost estimates from the nonpartisan Joint Committee on Taxation (JCT) attributable to the upper chamber’s novel no-cost approach of estimating revenue effects relative to a current policy baseline. Under this controversial method, which is expected to be challenged under the Byrd rule, JCT estimates that the Senate bill would cost $442 billion – not including an expected lift in the SALT cap – and in line with the novel notion that extending the expiring TCJA provisions in essence don’t count. Using more traditional accounting methods, however, JCT has preliminarily estimated the tax measure would cost $4.2 trillion relative to a current-law baseline from 2025 through 2034, which is more than House Republicans have agreed to spend.
Looking ahead
Senate Majority Leader John Thune (R-SD) has said the Senate will not recess as planned for the Fourth of July holiday until it has passed the reconciliation bill and sent it back to the House for its approval. Meanwhile, House Speaker Mike Johnson (R-LA) is also asking members to be flexible with holiday plans based on the Senate’s timing. Disagreement amongst Republicans in both chambers on key issues remain, however. Namely, the SALT cap, Medicaid reform, certain IRA clean energy credit phase-outs and the projected increase to the deficit continue to be primary sticking points. Republicans are hoping to avoid sending the bill to conference committee, which would be required to reconcile the two chambers’ bills if the House won’t pass the Senate’s as-is.
Talking points, takeaways, tax package
Baker Tilly’s national tax practice will issue a comprehensive package of the key tax provisions, talking points and takeaways on the Senate’s final legislation once released (and possibly passed) in the coming days.
IRS
New IRS Commissioner
Former Rep. Billy Long (R-MO) was sworn in as the 51st IRS Commissioner on June 16, 2025; he was confirmed by the Senate on June 12, 2025. His term will run through Nov. 12, 2027. Previously, Long served as a U.S. representative for Missouri’s 7th congressional district from 2011 to 2023.
NTA Report to Congress
National Taxpayer Advocate (NTA) Erin M. Collins on June 25 released the Fiscal Year 2026 Objectives Report to Congress, commending the IRS for a largely successful 2025 filing season while also raising concerns about persistent refund delays for victims of identity theft and delays in processing Employee Retention Credit claims. Additionally, Collins highlighted the critical challenges facing taxpayers and the IRS as the agency prepares for implementing new tax legislation and the 2026 tax filing season.
Notably, Collins expressed concern that on the cusp of new tax legislation, the number of IRS tax service employees has been reduced by more than 22% following widespread Trump administration cuts across federal agencies. “The magnitude of these workforce reductions has presented significant challenges, as has the absence of consistent leadership,” Collins wrote. “The agency had five commissioners or acting commissioners during the first four months of the year, and many of its most experienced leaders chose to accept one of the voluntary departure options. This has left the agency with both fewer frontline employees and managers and fewer experienced leaders to carry out its mission.”
The Trump administration’s fiscal year 2026 budget proposal looks to achieve a 20% reduction in appropriated IRS funding, lowering levels to $9.8 billion in annual funding, while allocating no funds for business system modernization.
Pre-Filing Agreement program
The IRS on June 17, 2025, announced enhancements to its Pre-Filing Agreement (PFA) program aimed at providing greater tax certainty for large business and international taxpayers. These improvements signal the IRS’s commitment to expand access to cooperative tax compliance strategies that prevent disputes before they arise. The PFA program aims to provide taxpayers under the Large Business and International Division jurisdiction the opportunity to resolve potential tax issues before filing their return.
Energy community bonus credit guidance
The IRS on June 23, 2025, issued Notice 2025-31 providing information taxpayers may use to determine whether they meet certain requirements under the Statistical Area Category or the Coal Closure Category as described in Notice 2023-29 for purposes of qualifying for energy community bonus credit amounts or rates under sections 45, 45Y, 48, and 48E.
Corporate Alternative Minimum Tax Guidance
The IRS on June 2, 2025, issued Notice 2025-27 offering interim relief and simplification for corporations determining their status under the Corporate Alternative Minimum Tax (CAMT). Generally, by raising the safe harbor thresholds and continuing to allow for a simplified income calculation, the IRS is offering transitional relief before final CAMT regulations are issued.
Form 1099-DA transitional relief
The IRS on June 12, 2025, issued Notice 2025-33 extending for one year the transitional relief (Notice 2024-56) from penalties for brokers who make a good-faith effort but nevertheless fail to report sales of certain digital assets on Form 1099-DA, “Digital Asset Proceeds From Broker Transactions,” or fail to furnish payee statements under section 6045.
The national tax professionals at Baker Tilly are continuing to monitor the bill’s journey in Washington and will continue to release insights and key takeaways.
If you have questions on how this may impact your tax situation, please reach out to your Baker Tilly tax advisor.
