Washington is bracing for a government shutdown as federal funding is scheduled to lapse at midnight on Sept. 30, 2025. With no agreement in sight for keeping the lights on beyond the start of fiscal year 2026 on Oct. 1, 2025, Congress left Washington this week at an impasse.
“We are shutting down,” a Senate Republican senior aide told Baker Tilly on Sept. 26, 2025, while noting the most probable way out of the stalemate is for Democratic senators to accept Republicans’ promise to later negotiate Affordable Care Act (ACA) subsidies.
The House cleared a Republican-led, so-called “clean” continuing resolution (CR) by a 217-212 vote on Sept. 19, 2025, to maintain government funding at fiscal 2024 levels through Nov. 20, 2025. The measure failed in the Senate, however, where bipartisan support is required to reach the 60-vote threshold under regular order. A Democratic proposal also failed.
Democratic lawmakers are demanding, among other healthcare-related priorities, that the CR include the extension of the enhanced premium tax credit for ACA premiums, which expires at year’s-end. But Republicans say those demands are too high for a seven-week stopgap measure.
“The Senate will continue to vote on the House-approved CR until it passes,” the senior aide told Baker Tilly. The Senate is scheduled to return on Sept. 29, 2025, while the House is slated to return after the lights go out on Oct. 1, 2025.
Proposed legislation
Although appropriations are at the forefront on Capitol Hill, we continue to track the progress of important tax-related legislative initiatives.
On Sept. 17, 2025, the House Ways and Means Committee advanced the bipartisan Tax Court Improvement Act (H.R. 5349), a tax-procedure measure which would make several changes to the U.S. Tax Court’s procedural rules, 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. The measure is sponsored by Reps. Nathanial Moran (R-TX) and Terri Sewell (D-AL).
Additionally, Ways and Means 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, decisions have been appealed to multiple circuit courts, 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.
Reconciliation round two. Although talks on Capitol Hill of another reconciliation bill have naturally slowed amidst funding woes, Republicans remain interested in follow-up tax legislation to the recently enacted One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). We will continue to monitor these discussions as they develop.
Treasury and IRS
Paper checks. As discussed in our August 2025 Policy Pulse, Treasury and the IRS are moving forward with ceasing the issuance of paper check refunds. The IRS announced on Sept. 23, 2025, that paper checks for individual taxpayers’ refunds will be phased out beginning on Sept. 30, 2025, as required by Executive Order (EO) 14247. Currently, the IRS continues to accept tax payments in the form of paper checks. For more information, see our recent tax alert.
A group of bipartisan lawmakers are urging the administration to delay the implementation of EO 14247 in a Sept. 17, 2025, letter to Treasury Secretary Scott Bessent. “We believe that digital delivery and paper checks should exist in a complementary manner,” the lawmakers wrote.
Domestic research expenses. Also discussed in last month’s Policy Pulse, on Aug. 28, 2025, the IRS issued guidance in Rev. Proc. 2025-28 for taxpayers to make certain elections and accounting method changes provided under section 70302 of the OBBBA. For a deeper dive and planning considerations, see our recent tax alert.
No tax on tips. On Sept. 19, 2025, Treasury and the IRS provided guidance on the “no tax on tips” provision under the OBBBA. The proposed regulations, issued on Sept. 22, 2025, identify occupations that customarily and regularly receive tips and define “qualified tips” that eligible taxpayers may claim as a deduction.
SECURE 2.0. On Sept. 15, 2025, Treasury issued final regulations (TD 10033), which reflect statutory changes made by the SECURE 2.0 Act of 2022, including the requirement that catch-up contributions made by certain catch-up eligible participants must be designated Roth contributions. The final regulations adopt with some changes proposed rules (REG-101268-24) issued last January.
Generally, the final regulations apply to contributions in tax years beginning after 2026, but some rules are applicable for tax years beginning after 2023.
Baker Tilly’s national tax specialists continue to monitor regulatory guidance and legislative updates in Washington. Subscribe to our tax communications to receive timely updates and the latest insights to help you stay ahead.
Save the date for our Tax Trends: Quarterly tax roundtable webinar on October 9, 2025. You can register here.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.
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