Episode 2: Tax Bill Passes the House

In this week’s Tackling Tax, we’ll take an in-depth look at the reconciliation tax package.

Episode Transcript

(00:00):
On this episode, we'll look into the tax package,
what provisions are included and where we stand today.
We welcome Marc Gerson, the Tax Policy Practice co-lead
for Miller and Chevalier,
and Heather Alley, the leader
of the Washington National Tax Office here at Forvis Mazars.
From your one stop for tax updates and analysis, I'm Iris.

(00:23):
And I'm Devin. It's Wednesday, May 28th
and this is Tackling Tax.

(00:48):
Welcome everyone to the second episode of Tackling Tax.
If you missed the first episode,
you can take a look at the recording
on our website. We have an informative discussion about
tariffs, both from a U.S. and a foreign perspective.
So if you are new here, you might be wondering
what you can expect from the series.

(01:09):
Tackling Tax is a place
for your latest on all things policy and strategies.
So Devin and I, along with our guests,
will bring you updates and perspectives,
but in a way that you can actually use
and hopefully understand.
So, every other week we will start our episode with a recap
of what's going on in the tax world, followed
by various segments featuring guests who are everything from

(01:32):
industry experts to university scholars,
and, of course, some of our firm leaders.
So with that, let's dive right into our Fast
Four stories of the week.
To kick this segment off, we wanted to point out
that normally we would be recapping everything from this
week about the tax bill.

(01:53):
It is undoubtedly the biggest thing going on
in tax right now.
That being said, given our discussion later about the tax
package, our Fast Four stories are gonna focus on some
topics, maybe less top of mind, but just as interesting.
So for our first story, we turn to a different piece
of legislation, one focused on cryptocurrency.
Last Monday, the Senate advanced with a 66 to 32 vote,

(02:17):
a bill that establishes a regulatory framework
for stablecoins.
Because stablecoins are pegged
to the U.S. dollar in this bill,
they're designed to have a stable value.
Hence the name stablecoin.
Coming off the heels of a failed attempt two weeks ago,
bipartisan negotiations created a version
that garnered a necessary 60 votes for the passage.
Now, from a tax perspective,

(02:38):
digital asset transactions occurring
through a broker will be required
to be reported on forms 1099DA, beginning
with transactions that occur on or after January 1st, 2026.
There is a de minimus threshold of $10,000
for qualifying stablecoins, but
otherwise reporting is going to be required.
We will be having the leader of our cryptocurrency practice,

(03:00):
Nik Fahrer, on the show in a few episodes
to take a deeper dive into stablecoin.
So if that's something you're interested in, stay tuned.
For the second story,
Billy Long had his confirmation hearing
to be the IRS Commissioner last week, which turned out
to be quite the heated event.
By its conclusion, influential congressmen argued both

(03:23):
for and against Mr.
Long's nomination, but the actual vote
is yet to be scheduled.
So stay tuned.
As a continuation from our Fast Four
in the last episode, employment numbers continue
to drop across various government organizations.
The Taxpayer Advocate Service has seen over 20%
of their employees except resignation offers
with the National Taxpayer Advocate Erin Collins

(03:44):
anticipating that this could go as high as 25%
and that some TAS offices only have a couple employees left.
Additionally, the IRS Independent Office
of Appeals is now down 425 employees, up from the 300 we
reported on just two weeks ago,
and this number is still expected to increase.

(04:04):
So Devin, is there any indication on
how these organizations plan
to meet tax taxpayer demand among all of this?
I can't speak for them all, and I don't
want to talk about AI.
I am sure that's gonna be utilized,
but what I can tell you is the IRS just issued a directive
requiring IRS probationary employees to return to work

(04:24):
by May 23rd.
This comes after almost 7,000
of these probationary employees were fired
and then reinstated per federal court ruling.
Whether they remain hired from here, only time will tell.
So with that, our last topic is actually a
request from us to you.
We want to hear about what you are most interested in.

(04:45):
What questions do you have for us?
What are your biggest concerns? What myths can we bust?
We'll take all of your submissions,
get insight from the appropriate subject matter specialists,
and then air our answers on a future show.
To submit, navigate to our website,
which you can see the address on your screen now,
and scroll down to nearly the bottom of the page.

(05:06):
You'll see a big picture of our lovely leader, Heather
Alley, with an option to, quote, "email
Heather." Please click that option and submit your question
or topic in the resulting popup form.
We look forward to hearing from you.
We call this segment Words from Washington.

(05:28):
As a look into what's happening on Capitol Hill,
today we are taking a deeper dive into the reconciliation
package currently in the Senate.
I would like to note that this legislation changes rapidly
and we were recording this conversation on the
morning of May 27th.
Right now, the bill has passed the House floor,
but we do not yet have texts from the Senate on adjustments
or additional proposals.

(05:49):
For more details on the tax bill, be sure you're subscribed
to our tax FORsights.
We issue same-day alerts alongside our legislative tracker,
made available on our website.
So with that background, I'd like to extend a warm welcome
to our guests today, Marc Gerson and Heather Alley.
Mark Gerson is the Practice co-Lead of Tax Policy for Miller

(06:12):
& Chevalier, a law firm in Washington, D.C.
His practice focuses on federal tax policy,
providing strategic advice and representation to clients
before Congress, the U.S. Department of Treasury, and the IRS.
Prior to joining Miller
& Chevalier, Mark served as majority tax counsel
to the U.S. House of Representatives Committee

(06:33):
on Ways and Means.
Heather Alley is the fearless leader
of the Washington National Tax Office here at Forvis Mazars.
She has been a partner with the firm for over 18 years
and currently lives in Charlotte, North Carolina.
Prior to her leadership of WNTO, she was the leader
of the Tax Technical Group
with the firm's risk management team,
the Professional Standards Group.

(06:55):
She specializes in federal tax policy
with a special affinity
for all things Section 174 and methods.
Thanks, Iris. I would like to say it's interesting
how several years ago
I think tax accountants were considered pretty boring,
and now you just introduced me
as a fearless leader having to deal with tax.
So now apparently it takes courage to deal with tax changes.

(07:17):
Always, especially the way you do it. You do it great.
So, with that, I think, Devin,
are you gonna maybe kick us
off with some questions for Heather?
Absolutely. Marc, Heather, thank you so much
for joining us on Tackling Tax.
We are very excited to have you.
Heather, I'd like to start with you.
There's been a lot going on lately, to say the least.

(07:38):
Could you maybe give us a broad overview
of what's happening right now,
what tax legislation's being considered,
and what's the current status of the bill?
Sure. So I think as most people are aware,
what's happening right now is that
with the prior Act, Tax Cuts
and Jobs Act, there were a number of provisions

(07:59):
that were tax payor favorable,
and some that were maybe less favorable revenue raisers
that were all kind of magically coming
to an expiration date here in 2025.
So part of the impetus behind tax legislation currently
is to kind of head off, perhaps, tax increases
or unfavorable changes
that are perceived to be headed our way.

(08:19):
And then in addition to that,
what they've done is added in a number of other provisions.
There were three big business provisions
around interest, bonus depreciation, and research
and experimental expenditures, which
experienced a change beginning in 2022 as kind
of revenue raisers to make the Tax Cuts and Jobs Act work.
I think they would like to reinstate some

(08:42):
of those favorable tax provisions.
So they've included those in the bill,
and then also they're looking out at some other provisions
that are on the administration's agenda,
things they would like to see kind of above and beyond.
So we see a little bit of all of that
in the current bill. The current bill did just
as Iris mentioned, pass the house
very narrowly, by one vote, right?

(09:03):
So it made its way out the door
and now it's headed to the Senate.
And a lot of what people ask about is, you know,
the reconciliation process.
Why are we talking about the reconciliation
process all the time?
And I think the magic of
that actually happens in the Senate.
So reconciliation legislation, unlike other types

(09:24):
of legislation, has special rules around it
when it gets to the Senate. In the Senate,
you can pass it usually with just a simple majority
strictly because there's rules that allow you
to end cloture.
There's only 20 hours of debate.
Whereas other legislation debate goes on
until you can get a 60 person vote for cloture.

(09:44):
So right now we're headed to the Senate.
I think we'll see, and Marc may have some comments around
that, as to what that may look like,
but we'll see if they're going to introduce it to the floor
for a vote or, you know, some of the people we had talked
to in the Senate were talking about working on their own
bill, whether they will have their own version of the bill
they'll try to bring out of committee
and bring to the floor. So,

(10:05):
Heather, you mentioned less debate.
Does that, how does filibuster fit?
That's a word that happens in the Senate, right?
How does that fit into it, too?
Yeah, so the Senate's kind of known
as the chamber of debate.
So when you bring a bill to the floor, they'll continue
to debate until you achieve that 60 vote majority in order

(10:26):
to end debate
and then actually bring it to a vote on the legislation.
And so that would be, to filibuster would be
to continually debate and debate
and debate in an attempt to try to, you know,
keep legislation from coming to the vote,
in the Senate.
And so once you can in that debate, you know,
all legislation can be passed in the Senate

(10:47):
with just a majority vote.
I think some people think it requires 60,
but the 60 is actually just to stop the debate
so you can get to the vote.
So hence the magic of budget reconciliation legislation
because it enters the Senate floor with a set clock already
of 20 hours,
and then at the end of 20 hours of debate,

(11:07):
there will be kind of a submission
where everybody can submit amendments
and frequently you'll hear it called Vote-a-rama,
where they just kinda run through those amendments to see
what the bill will be and vote on the bill.
So it sounds like we have an idea
how long it'll take once it gets to the Senate.
When will the Senate actually be voting on this?
Well, I think that's to be determined, right?

(11:30):
So once it actually goes to the floor, you'll have
that 20 hours for debate,
but the question is, what comes to the floor, I think,
and so Marc may wanna chime in here as well,
but you know, my understanding is they
have a couple options.
They could bring the bill to the floor
and they might offer as an amendment
and substitution for the bill some other provisions

(11:51):
to get their own changes into it,
and I think those would mainly be crafted by leadership
or as I mentioned, you know, in speaking with people
in the Senate, they were working on kind of their own bill.
So the other option is that they go through committees
and they actually kind of have their own bill
that they bring to the floor
for a budget reconciliation.

(12:11):
You know, I think the consideration there is we have a
narrow majority overall,
but we do have a couple seats, right?
Not just one seat, but if you're working through committees,
there are a lot of committees that would have
to touch this bill, and
the majority there may be very narrow, as in one person.
So, that may be a more difficult process
and I think, you know, which way they decide

(12:32):
to go will influence when they actually
bring the bill to the floor.
So, Marc, I don't know,
do you have any additional insight on that sort
of process and thoughts?
Yeah, I think the, certainly, thank you, Heather.
I think the balance the Senate has to draw here is
that on one hand, as you mentioned,
the bill passed the house with a very, you know,

(12:53):
narrow majority of one vote.
And that had a lot to do with, you know, balancing the needs
of the, you know, house fiscal conservatives
who were primarily interested in spending cuts,
with the SALT coalition of members
who are very interested in relief from the individual SALT
cap and folks who are concerned about the deficit.

(13:13):
So they have this very narrow balance that enabled them
to pass the house by one vote.
On the other hand, the Senate wants
to put its own fingerprints on the bill
and certainly will have changes and has different goals
and objectives and priorities.
And so they're trying to balance all of that
to get something that could actually
pass the House once again and then be enacted into law.

(13:38):
I think they are unlikely for some,
of the reasons you mentioned, to go
through a committee markup process like we saw in the House.
It's time consuming.
They, as you mentioned,
they have very narrow majorities on the committees
and I think they don't wanna provide Democrats
with more opportunities to criticize the bill
because they don't, you know, need them

(13:58):
to ultimately pass it.
And so what I imagine they will do is kind of
behind closed doors, you know,
the committee chairman will work on their respective pieces,
but then, as you mentioned, we will see leadership
put forth an amended version of the House bill.
I don't think they'll start fresh.
I think they'll take the house bill, they'll amend it,

(14:19):
they won't go through committee, it'll go on the floor
where it only needs the 51 votes as opposed to 60 votes
and then it'll go back to the House
and then it'll be a question of
what happens in the House.
I think House leadership has cautioned the Senate
that it was very difficult to pass this bill
and it's unlikely they can pass it again

(14:41):
with significant changes.
I think the president has been all over the board as far
as his view of what the Senate should do with the bill,
but you know, as of today kind
of endorses the Senate putting its mark on it.
And so a lot ... the fate of this bill
and really the fate of Trump's agenda
and maybe the midterm elections really depends on

(15:02):
how this bill gets processed by the Senate
and can it ultimately be enacted.
So you mentioned, oh, go ahead.
I was just gonna say, I think Mark makes a good point
as, you know, we have the, going through the Senate,
unlikely, I would say, that the Senate is going
to just take the House bill and pass it, right?
And so then there's a another step yet in the process

(15:25):
before we get to the president's desk for any kind
of signature, which is, we will likely have kind
of two different versions of the bill at best.
And both the Senate
and the House will have to work together to come up
with one cohesive bill they agree on,
and it'll be subject to vote in both.
So, you know, I think a lot of times that maybe it's,

(15:46):
it's seen that the Senate's in the driver's seat on
legislation. I would say the narrow majority
is probably in the House this time.
I mean, it's gonna control a lot
because they're gonna have to send anything back
through the House for that second vote.
And you know, as we saw kind of
with the bill coming out now, they had a bit
of a hard time getting it out of budget and rules committee

(16:06):
and onto the floor for the vote there
because there were tight, tight margins
and there were, you know,
some dissenting views on different things even within
the party itself, the Republican Party.
So to that point, Marc, there, it wasn't an easy pass
as Heather mentioned, right,
out of the House. So what were some of the,
the sticking points, like what were the holdups in the House

(16:28):
and will those be the same for the Senate, do you foresee?
Yeah, so I think there were a number of areas.
One is the level of spending cuts, you know, primarily
to social safety net programs like Medicaid
and SNAP, which is, you know, another term
for the food stamp program.
And I think you had kind of the, you know, kind
of fiscal hawks in the House who wanted deep, deep cuts

(16:52):
and that caused some consternation
with more moderate members of the party.
And that will certainly be an issue in the Senate
where there are a lot of moderate Republicans
who I think are already expressing concerns about,
particularly, the cuts on Medicaid.
The individual SALT Act deduction, which was a priority

(17:12):
for, you know, House Republicans from New York, New Jersey,
California, ran up against those fiscal conservatives
who are concerned about the costs.
And then I also think that,
so I think those were kind of the two primary things.
I think another would be the IRA credits, which,

(17:34):
you know, there's a combination
of termination phase out additional restrictions.
I think the fiscal hawks wanted those, you know,
very deep cuts on the IRA green energy credits as well.
And these will all be issues, you know,
know once it gets to the Senate.
Does the Senate have to play with the same price tag

(17:55):
or do they have a different sort
of baseline that they're working with?
Right, so it's a great question.
So the House, the total package on the tax package was
3.8 trillion,
and that is done under what's called a Current Law Baseline.
Mm-hmm. And one of the primary kind of fundamental tenets of
that is that extending all the TCJA provisions

(18:18):
that were expiring at the end of the year
that Heather mentioned are viewed
as having a deficit impact.
The Senate is working under what's called a Current Policy
Baseline, which assumes that all of those
TCJA provisions can be extended without having a deficit
impact, so they don't have to effectively pay for them.

(18:40):
And so they are working with a $1.5 trillion
targeted tax package,
but again, they don't have to pay
for the TCJA extensions as part of it.
So that, I mean, that's interesting to me. Right.
'cause ultimately it's gonna go back
to the House as Heather mentioned.
So, like, that seems like a conflict just sort of inherently.

(19:01):
I mean, we've heard about all of these different,
different possible pay-fors
before the House came out
with their text and all this stuff.
We heard about things like C-SALT,
we heard about things like carried interest going away.
I mean, is that, is there any chance
that those things would get re-implemented
or the fact that, you know, the House already passed this
with their sort of higher

(19:22):
or, you know, floor, for the funding?
Like, are those, do we have
to worry about those topics coming back?
Yeah, I think that's a great question
because, certainly,
when the House was considering this bill,
we heard about all these, you know, potential major tax,
you know, kind of broad-based tax increases on the wealthy,
like a millionaire's tax

(19:44):
and on businesses, you mentioned carried interest,
you mentioned the corporate SALT
or business SALT limitation,
and none of those were included in the package.
Instead, we primarily have very targeted tax increases on
specific industries like green energy,
university endowments, private foundations.

(20:05):
I think there's a general view that
because of the baseline that the Senate package
will not need to rely on as many revenue offsets.
So you could see a reduction of
what it was included in the House,
but at the same time, I think
because the package is still yet to be determined,
I don't think you can declare victory on any

(20:27):
of those revenue offsets not being further considered.
I think particularly carried interest
because it's something that the president has endorsed.
Mm-hmm. I think there will continue to be risk on that
until, you know, the bill's enacted.
You know, one thing that occurs to me
as you're talking Marc about the use of kind

(20:48):
of current policy baseline is, you know, we'll probably need
to watch the Senate Parliamentarian, I guess, pretty closely
because if we're taking that kind
of baseline policy approach,
we have actually in the Senate, the Byrd Rule, right?
That anything that's in budget reconciliation legislation
has to have a budgetary impact.

(21:08):
And I think we saw the House kind of cast an eye to that
where, you know,
even these extender provisions have some sort
of little tweak, so they're not just extenders, to try
and make them fit in the Byrd Rule even under a
policy baseline.
But I think what we'll need to be looking at is,

(21:29):
you know, how the Parliamentarian comes down on whether
those are maybe sufficient enough
to truly have a budgetary impact.
I don't know if you've considered kind of those,
those provisions and thoughts, but it seems ... Yeah,
No, I think, I think that's a very important point.
And the issue is
that under a Current Policy Baseline, kind
of straight extension of the provisions is not viewed

(21:50):
as having a revenue impact,
which runs against the reconciliation rule
that every provision has
to in fact have a non-incidental effect on the budget.
And I think you're correct
that the House did do some tweaks to the bill to try
to make them compliant with the Byrd Rule,
particularly on the international rates, GILTI,

(22:11):
FIDI and beat.
There were some small changes on the rates.
We saw the proposed MAGA accounts change
to Trump accounts,
and I think that continual process
of all the provisions having
to have a revenue effect is really important to monitor
because it does create on the margins these risks

(22:32):
and opportunities for as provisions are being tweaked either
to be taxpayer favorable or taxpayer unfair.
Thank you, Marc and Heather. I know
clients are very interested in a lot of the different topics
that did and did not make it into the bill.
Heather, what are some of the client,
or what are some of the topics
that your clients are particularly concerned with?

(22:54):

You know, I think it varies just depending on
the different clients in the firm.
You know, a lot of them were very concerned about whether
they were gonna have
an increase in their tax bill undue changes.
I know 199A, the business deduction
for pass-throughs is one that was focused for a lot

(23:15):
of individuals who are in pass-through businesses.
And so I think they're probably excited to see that
that provision was extended
and made permanent under the bill as it is now.
And also that the amount
of the deduction was even boosted a little bit.
The business provisions that came in
that I mentioned before as revenue raisers.

(23:37):
So bonus depreciation
being continued at 100 percent was of interest
for a lot of our business clients.
Ability to deduct research
and experimental expenditures.
And on the interest limitation, the shift from
EBITDA to EBIT kind of unwinding that back to EBITDA
so they could deduct more of their interest.

(23:58):
Those were three closely watched
and of-interest things for our clients.
And so, you know, on that front,
those did get included in the bill,
although they didn't get included on a permanent basis.
So we're kind of back to another five-year favorable,
at least under the current bill,
and then you kind of hit a cliff

(24:20):
or a wall on those yet again, similar to
what we hit in 2022.
So there's a little maybe mixed feelings of that;
they would definitely prefer that would be permanent
and, you know, what does that look like in the future?
And then there are a number of things in the bill
that I think will be of interest.
You know, I don't think clients really had them on their
radar because they're just kind of net new

(24:43):
and I don't know that they had been highly mentioned.
So, you know, I think in the interest of onshoring,
President Trump had mentioned, you know, reduced rates
for manufacturers, which we did not see in the bill,
but what we do see are some provisions
kind of in that space.
And so, you know, one of the things I think will be
of interest to clients is if you're building a facility

(25:05):
that's gonna be a manufacturing facility, there's kind
of like bonus depreciation for your facility.
So real property that's used in a qualified
production activity, you're gonna be able
to immediately expense that
or that portion of the building
that's used in that activity.
And then another one is there's an increase in some

(25:27):
of the favorable things for small taxpayers
if you're a manufacturer.
So, you know, small taxpayers are able to use cash method
of accounting, not have to account for inventory,
some other things like that.
And so it gives manufacturers that have up
to an $80 million, which is more than twice
the dollar cap for everybody else to be considered

(25:48):
for those provisions, would allow them
to take advantage of those provisions.
So there are some things in the bill I think weren't really
talked about that I think our clients will be interested in,
and starting to focus in on.
What are you seeing on your side, Marc?
And the one thing I would mention, you know,

Heather commented on the so-called big three (26:05):
174, R&D bonus,
and the 163J fixed.
Those are enacted on a temporary basis, 2025
through 2029.
I think there is hope in the Senate
that they may consider a longer-term
or permanent extension of those provisions;

(26:27):
that's been identified as a priority.
And that's something I think the House would be amenable
to if it fits within kind of the overall cost of the bill.
The one thing that I think is disappointing is
that in addition to those provisions not being made
permanent, they also were not given retroactive effect.
And that is something I think hopefully the Senate will

(26:48):
also consider as well.
All right, Marc, so now the big question:
when do we think this thing is gonna happen at, you know,
the end of the day. We, you don't have a crystal ball,
there's a lot of moving parts.
We've heard some reports of July 4th, some things about,
well, it's really when the debt ceiling is hit.
When do you see this thing being through

(27:11):
to the president?
Well, I think a lot of people doubted
that the House was going to get the bill through
by Memorial Day, which it successfully did,
which creates, I guess, the potential
for a July 4th Rose Garden ceremony.
I actually still think that that's a very tight timeline,
and perhaps it can get through the Senate by July 4th,

(27:34):
and then again, also still aggressive,
what I would look for is enactment at the end of July,
running up against the August congressional recess
with the threat of keeping members here in August
before the month-long recess
if the bill isn't done. They,
and these are all, it's important to note,

(27:55):
these are all self-imposed deadlines.
I think the Congress feels a lot of pressure
to get this bill done, to have it show a lot
of economic growth to kind of calm the markets
which have reacted, you know, to the tariff policy.
But they're all self-imposed deadlines.
The reconciliation instructions they're working under,

(28:17):
the budget resolution goes through September 30th.
So they actually have a fair amount of time, other than
what happens on the debt limit, which you mentioned, Iris.
The Treasury Secretary has asked the Congress
to address it by mid-July with the notion
that the debt limit would need
to be addressed sometime in August.

(28:40):
That date is kind of a moving target, moving, excuse me,
that date is always a moving target
and subject to kind of new estimates,
and so you could have
that leak out into September if necessary.
But if I had to guess,
I would say they are targeting realistically,
behind closed doors, targeting Senate passage by

(29:03):
July 4th, then followed by negotiations with the House
in July, leading up to enactment again at the end of July
for the monthlong August Congressional recess.
Marc, Heather, thank you both so much for joining us today
and sharing your valuable insights.
Your expertise and perspectives have made this episode truly
enlightening for our listeners, and we appreciate the time

(29:25):
and effort that you took to be here today
and contribute to this discussion.
So hopefully we can have you back,
really would look forward to having you here again,
so thank you once again.
Each episode, we'll bring you what we call a Focused FORsight

of the week (29:44):
an article
or recording that might be of interest to you.
This week's Focused FORsight is our Legislation Tracker.
As federal tax legislation is introduced in Congress,
we'll update this tracker to help you stay up
to date on provisions you might find important.
This tracker includes a description of the provision,
its status in the legislative process,
and insights into its application and potential impact.

(30:07):
You can always access our FORsights on the WNTO website
or the Forvis Mazars US website more broadly.
And that's our show.
Thanks for joining. Remember to subscribe
and listen in for the next episode of the show on June 10th.
Until next time ...