Legislative debates regarding tax policy are escalating during the month of May. This follows early procedural progress in Congress in recent months but a slowing pace as substantive aspects of such bill are negotiated. The framework for tax changes will become much more public as the House Ways and Means Committee begins the process of marking up a draft bill. Other committees in the House are facing their own challenging negotiations, adding stress to the overall legislative process. Tariffs also continue to be an evolving topic, with some tariffs in effect now and looming reciprocal tariffs dates appearing on the horizon. Those developments have refocused businesses on all available tariff-related planning strategies and compliance enhancement efforts. Finally, congressional developments relating to deregulation have gained some traction, but many more developments may be forthcoming shortly.
Read on for a roundup on some of the most significant recent tax policy developments.
- Tax legislation enters a critical phase
- Tariffs and planning strategies begin to take clearer shape
- Deregulation and the Congressional Review Act
Tax legislation enters a critical phase
As 2025 has unfolded, the month of May was increasingly viewed as a critical period for the passage of tax legislation. After securing majorities in both chambers of Congress in the November election, Republican leaders advocated for an aggressive timeline for the completion of legislation adopting tax changes and pursuing other legislative priorities. Early messaging suggested that a bill might be completed during January or by the end of April to coincide with President Trump’s first 100 days in office. More recently, target dates of Memorial Day or the eve of the Fourth of July have been discussed. With the passage of those target dates and limited public progress, all eyes are on Congress during May to see whether tax legislation will advance over the coming months, linger until the end of the year, or even face an uncertain future.
It’s notable that the target dates for 2025 legislation stand in stark contrast to the legislative path of the Tax Cuts and Jobs Act (TCJA). That tax reform bill was enacted in December 2017 during the first Trump administration. Early versions of that bill didn’t begin making traction until late spring or early summer, and negotiations stretched over almost the balance of the calendar year. While Republican leaders have pursued a more accelerated path this year, it remains to be seen if those timing ambitions will be realized.
All eyes are on the committees
Given the timing challenges experienced so far, the rush is on in Congress to begin advancing the legislative process. A crucial step in that process involves hearings among the various House committees to markup their draft portions of the overall bill. The budget resolution adopted by Congress establishes broad parameters for each committee relating to spending and revenue. However, such committees have wide discretion as to how those broad targets will be achieved.
From a tax perspective, the House Ways and Means Committee is the crucial body and will draft tax aspects of the bill. A hearing was initially planned by the Ways and Means Committee for the week of May 5. However, that hearing was pushed back by at least one week. Importantly, the eventual Ways and Means markup will involve a public release of draft legislation. That will be the first concrete evidence of the potential tax changes that are expected to be included in the eventual bill. Although many aspects can, and likely will, change as a bill advances from committee to the House floor, and then to the Senate.
Other House committees are also awaiting hearings to markup their aspects of the bill. Reporting suggests that those negotiations may be even more challenging than the tax aspects, given the fact that many committees are charged with reducing federal spending.
The debt ceiling and tariffs create urgency
At the outset of the legislative process, a debate occurred regarding whether one large bill should be pursued or multiple bills. Ultimately, the choice was made to focus on one bill that would include taxes, as well as many other Republican priorities. However, expanding the scope of this legislative process brings other factors into the equation.
The debt ceiling is one of those other factors. The government is expected to need additional authority to borrow funds in order to meet its obligations at some point this year. Congress could have addressed the debt ceiling through another bill but has chosen not to do so. Thus, an extension of the debt ceiling is slated to be included in the current consolidated legislation. That choice raises the question of when the federal government will actually need additional borrowing capacity. That date, often referred to as the “X date,” is slated to be announced during the month of May. Initial expectations are that such date will be in the late summer or early fall. However, a surprise that results in an earlier date would meaningfully increase pressure on the legislative negotiations.
Trump previously announced a slate of reciprocal tariffs on many countries on April 2. Most of those tariffs were subsequently paused for 90 days, which is set to expire on July 9. Tariffs and tax legislation don’t need to be directly coordinated. However, implementation of pro-business tax changes might factor into the story given the potential widespread impact of tariffs on such businesses. Key tax provisions to watch in this respect would be:
- Modification or repeal of required capitalization of research and development expenditures under Section 174.
- Modification of the Section 163(j) business interest expense deduction to restore the addback of depreciation, amortization, and depletion.
- Restoration of 100% bonus depreciation, with potential enhancements to encourage onshoring.
- Any other new proposals to incentivize production of goods in the United States.
Tariffs and planning strategies begin to take clearer shape
As we discussed last month, U.S. tariffs have shifted the economic and political landscape. The exact parameters of tariffs are expected to evolve over the coming weeks and months. However, it seems reasonably clear that increased tariffs will be an enduring feature of trade policy. With that in mind, the focus has been shifting more specifically to planning strategies for navigating tariffs as well as enhancing tariff compliance procedures.
The interaction of transfer pricing and tariffs
Businesses may be able to stay ahead by revisiting their approach to transfer pricing. This is a hugely complex area of tax law, but it basically requires related parties to ensure their transactions are priced consistently with how those transfers would be priced between parties at arm’s length.
The tariff environment is shifting planning considerations. U.S. tariffs have been low in recent decades, sitting at roughly a 2% weighted average. In that low-tariff environment, it typically made sense for multinational businesses to concentrate their income-producing activities in low-income tax jurisdictions. However, as we enter a higher tariff environment, many businesses will need to reconsider fundamental planning strategies, including options to reduce the import value of goods.
As our transfer pricing practice leader explained in Bloomberg Tax, this could include:
- Shifting some portion of the assembly process to the United States, and potentially even standing up U.S. operations.
- Reevaluating relative risks. To the extent recent tariffs create more risk in the supply chain is on the U.S. side of a given business, reassigning costs accordingly could make sense, and would have the effect of reducing goods’ import value, which in turn would reduce the amount subject to tariffs.
- Reconsidering margins and pricing and evaluating how much room there is for increased costs to be passed along to customers.
- Updating transfer pricing analyses to account for changes in market conditions.
The importance of compliance with shifting tariffs
Good planning starts with compliance. Making sure your business is complying with all the new intricacies as they occur in real time helps to minimize the chance of future assessments and penalties. Plus, the ability to properly handle and adapt to tariffs can distinguish a business in the marketplace and make it a more attractive counterparty for other businesses looking to expand or establish new relationships in the changing environment.
There are a number of steps businesses should consider taking to assess how they’re impacted by tariffs. Establishing some real clarity into how and where tariffs will impact a business is foundational to future planning. The steps range from compiling information through to complying over time and monitoring changes on a rolling basis.
Another important way in which businesses can keep pace with tariffs compliance is by taking steps to ensure they’re properly considering the impact on taxable income. The cost of tariffs should typically be added to the acquisition costs of the property. When that property is inventory, the tariffs should remain on the balance sheet until the inventory is sold to a customer. With that in mind, businesses that are actively planning into the new trade policy environment should consider whether the excess inventory costs create lower of cost or market adjustments or whether a shift toward a LIFO (last-in, first-out) inventory method could help maximize deductions related to recent cost increases due to tariffs. As for property purchased for business use, increased costs should translate into increased cost recovery. Section 179 allows for the first-year expensing of costs, but there are limits on the deduction defined by acquisition costs and taxable income. There is also a real chance that full R&D expensing and 100% first-year bonus depreciation deductions will return in their original TCJA forms before the end of the year.
Deregulation and the Congressional Review Act
The current debate among Republicans over the parameters of the large legislative package discussed above is not the only congressional development with tax implications. Republican lawmakers have already successfully worked together to pass some legislation and send such bills to Trump for signature. Importantly, three of the enacted bills have been grounded in the Congressional Review Act.
What is the Congressional Review Act?
Like budget reconciliation, the Congressional Review Act (CRA) has become an important tool for the majority party to quickly make its policy mark after taking control of both Congress and the White House. The CRA works by providing Congress with a fast-track process to prevent certain administrative rules from taking effect.
The CRA was passed into law in 1996, but was used only once between then and 2017. Matters changed during the first two years of the first Trump administration as Congress invoked the CRA 16 times to block rules. It was similarly used during the first two years of the Biden administration, albeit at reduced volume, with three actions taken.
The CRA involves a three-step process. First, it requires all administrative agencies to submit a report to both chambers of Congress any time it issues a rule. The report must contain the rule’s text, as well as a summary of its purpose and its anticipated revenue impact.
This first step starts the clock for the remaining steps. The second step is a compressed, 60-day review period. In this time, any member of either the House or the Senate can introduce a resolution to block a submitted agency rule from taking effect. Congress has 60 days in which to consider whether to jointly approve the resolution. On the Senate side, the CRA process eliminates the possibility of a filibuster and provides only a limited opportunity for debate.
The 60 days aren’t calendar days. Only legislative days count in the House, and only session days count in the Senate. These kinds of days tend to be less frequent toward the end of each calendar year. This has practical importance for the CRA’s so-called “lookback rule”: where the previous Congress didn’t have a full 60 days to review a submitted rule, the 60-day clock will reset for the following Congress.
The third step is joint approval. Only a simple majority is needed in both chambers. If and when Congress issues a joint resolution disapproving of a rule, the joint resolution goes to the president for signature. CRA actions, like any other law, require the president’s signature before taking effect.
What has happened so far and what to watch for next with the CRA
Trump has so far signed one piece of tax-related legislation through the CRA. The law blocks a rule that would otherwise impose reporting requirements on digital asset brokers who participate in decentralized finance transactions (DeFi transactions). This reporting rule generated considerable attention when adopted, so the CRA effort wasn’t a surprise.
This pace is somewhat surprising. While it’s in line with the numbers from the early days of the Biden administration, it’s significantly less than the 16 times it was used during Trump’s first term (including 13 in Trump’s first 100 days). Whether that fact suggests a lesser emphasis on CRA actions or merely a pragmatic decision given competing priorities is unclear.
Still, there are many resolutions in the Congressional pipeline. Dozens have been introduced. Many of these have at least been added to the chambers’ legislative calendars for action, and some have already passed out of at least one chamber. With the 60-day clock very much ticking, a couple we are watching closely include:
- S.J.Res.39. This resolution would disapprove of the Section 48E and Section 45Y regulations (T.D. 10024; 90 F.R. 4006-4127) finalized less than a week before Trump took office. Those rules implement the modified versions of the Investment Tax Credit (ITC) and the Production Tax Credit (PTC) relating to renewable energy and energy storage technologies. The ITC and PTC have been in place in one form or another for decades. However, the Inflation Reduction Act set expirations for the prior rules under Section 48 and Section 45 and replaced them with new Section 48E and Section 45Y. The new code sections require implementing guidance from the Treasury Department, specifically in relation to the new zero greenhouse gas emission standard. Eliminating the regulations implementing Section 48E and Section 45Y could impose challenges for taxpayers beginning construction of new renewable energy facilities. However, this CRA action, if successful, could also been seen as a prelude to legislative changes involving those code sections.
- H.J.Res.65. This resolution would disapprove of rules from December 2024 (T.D. 10017; 89 F.R. 104419-104425) about the IRS’ procedural requirement for approving penalties on taxpayers. The rules from December 2024 didn’t follow comments that disapproved of the rules and would have made that approval process of IRS penalties.
Where are the limits: Timing and substance
The CRA is designed for speed, and so we could see more movement on these and other resolutions. The 60-day window isn’t easy to measure, and while it most often will apply to very recent rules, like the two resolutions noted above, it need not. That’s because the expedited CRA process begins only after a report, including the rule is submitted to Congress, and sometimes, agencies issue a rule subject to the CRA without also submitting to Congress. This means the 60-day process could start as to any of these rules, depending on whether and when they are submitted.
While it’s built for speed, the CRA’s effect are long-lasting: once a rule is blocked by the CRA joint resolution process, it can’t be reissued again later in “substantially the same form.” And so, when it comes to individual resolutions, lawmakers must give careful, long-term consideration to the rules they are looking to block.
Recently, there has also been debate about the CRA process itself. A rule for purposes of the CRA is more expansive than what counts as a “rule” under the Administrative Procedure Act, the law that governs how agencies make rules. The CRA version of “rule” can include not just those rules that went through the notice and comment process but also interpretive rules and policy statements.
Some kinds of rules are excepted from the CRA process. Any rules of specific application aren’t subject to CRA review. Neither are rules relating to agency management and personnel and rules related to agency procedure and organization. Proposed rules aren’t subject to CRA review. The Government Accountability Office (GAO) is tasked with answering questions about whether an agency action is amenable to CRA review.
But lawmakers have very recently signaled their willingness to avoid the GAO when it comes to using the CRA. House Republicans have passed three resolutions under the CRA that would disapprove of waivers. A statute from the 1970s, the Clean Air Act, allows the EPA to provide waivers to California to enact stricter air quality standards than the federal standards, because the state’s air quality is historically the lowest in the country. The recent CRA resolutions would block those waivers. The GAO and the Senate parliamentarian have advised waivers aren’t “rules” within the meaning of the CRA, members of Congress have expressed that is for the Congress, and not the GAO or the parliamentarian, to ascertain the CRA’s true meaning.
