Tax Policy Update: May 12

Government’s Tax and Budget Developments Take Center Stage

With Congress back from recess, the focus has shifted to budgetary discussions and taxation policies. The priority is a skinny reconciliation bill funding ICE and CBP as per the budget resolution passed on April 29. Furthermore, discussion about another wider reconciliation bill, including tax provisions, is also on the table.

Continuing Budget Talks Amidst Internal Policy Disputes

Republicans in Congress are currently grappling with the challenge of enacting another budget reconciliation bill amid contrasting internal policy views. With House Budget Committee Chairman Arrington (R-TX) and the Republican Study Committee pushing for spending program reductions, concerns have been raised by some Republicans about the implications of these cuts. Furthermore, while some members are advocating for reversing green energy tax credit reductions in the OBBBA, others believe these reductions were not stringent enough. These internal disagreements pose a challenge in finding a consensus, given the current House margin of 217-212 with one Republican-caucusing independent.

Supplemental appropriations for Middle East hostilities could trigger the enactment of an additional budget reconciliation bill. According to Ways & Means Committee Chairman Smith (R-MO), if another budget reconciliation bill is enacted, it will contain tax provisions.

New York’s Controversial Budget Deal

On May 7, Governor Hochul of New York announced the conclusion of a $268 billion budget deal which includes a pied-à-terre tax for the city’s second homes. This is anticipated to generate $500 million a year. However, Assembly Speaker Heastie noted that the announcement was premature with negotiations on significant issues still underway. The budget was initially due on April 1, and interim one-week extension bills have been enacted during the ongoing negotiations.

Upcoming Guidance from Treasury and IRS Officials

Conservation Easements

The IRS announced on May 6 that it will soon launch a program allowing eligible partnerships involved in conservation easement cases to accept a settlement offer from the IRS within a limited timeframe. IRS CEO Frank Bisignano stated: “Congress created the conservation easement deduction to encourage genuine preservation, not to subsidize abusive tax shelters. The updated information on IRS.gov explains why the IRS continues to challenge these transactions and highlights the serious risks taxpayers face when they are sold inflated tax benefits disguised as conservation.”

International

Jim Wang, International Tax Counsel at the Treasury Department’s Office of Tax Policy (OTP), shared on May 8 that the Treasury will release proposed regulations on an election by CFCs regarding the treatment of currency gains and losses by summer. He also revealed that the Treasury plans to issue guidance for the OBBBA international provisions effective in 2025, in time for taxpayer filing in the same year.

Domestic Business and Benefits

Various Treasury officials shared that the department is actively seeking input on forthcoming guidance on several domestic business and benefits-related provisions in the OBBBA. This includes the qualified production property expensing provision, the corporate alternative minimum tax (CAMT) enacted in the 2022 Inflation Reduction Act, the expanded credit for paid family and medical leave under Tax Code section 45S, and more.

New IRS Revenue Procedure Expands PLRs for Corporate Reorgs and Spinoffs

The IRS published Revenue Procedure 2026-21 on May 5, 2026. This procedure outlines an expanded program allowing the Associate Chief Counsel (Corporate) to issue private letter rulings concerning significant issues in corporate reorganizations and spinoffs. The Revenue Procedure lays out the groundwork for taxpayers to request such a ruling, specifying the information to be included in the ruling requests. The program began on May 5, 2026.