Congress is back in session for several weeks with the battle over fiscal year (FY) 2026 annual government funding levels expected to dominate the agenda. Before everything begins, let's recap August from a tax policy perspective. Here are the highlights: 

Guidance Released

The Department of the Treasury and Internal Revenue Service (IRS) delivered on the president's executive order to "strictly enforce the termination of the clean electricity production and investment tax credits under sections 45Y and 48E of the Internal Revenue Code for wind and solar facilities." The guidance (Notice 2025-42) includes a new definition of "beginning of construction" for some projects and adds a "continuous work" requirement with some leeway for unavoidable delays. The IRS followed that with a new set of frequently asked questions (FAQs) on ramping down several green energy credits, including those for electric vehicles, residential improvements, and the deduction for energy efficient commercial buildings.

The IRS also issued Revenue Procedure 2025-28 which provides guidance to taxpayers on how to make various elections, file amended returns, or change accounting methods for research or experimental expenditures as provided under the One, Big, Beautiful Bill Act.

Other notable guidance issued last month includes forthcoming proposed regulations withdrawing the disregarded payment loss (DPL) rules and changing those for dual consolidated losses (DCLs). The IRS also plans to propose new taxpayer-friendly rules for inbound asset reorganizations.

Pillar Two Negotiations Continue

Based on published reports, members of the OECD Inclusive Framework continue to work through the implications of the "side-by-side" approach to Pillar Two proposed by U.S. Treasury, under which U.S. parented groups would be exempt from the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR). While the side-by-side approach was endorsed by the G7 in June, implementation requires broader consensus and changes to domestic rules in countries that adopted IIRs and UTPRs. Negotiations on the side-by-side approach and other Pillar Two elements are expected to resume this month at technical and policy-level meetings.

Tax Personnel Changes

Treasury and IRS struggles with senior leadership and staffing challenges continued in August. Former Representative Billy Long stepped down after a very short stint as IRS Commissioner with Secretary of the Treasury Scott Bessent taking the reins for now. That temporary role would be expected to be given to Bessent's second-in-command, Michael Faulkender, who led the IRS for a short period earlier this year, but we learned Faulkender will be returning to the private sector soon.  

Two taxwriters, Representative Lloyd Doggett (D-TX) and Senator Marsha Blackburn (R-TN), may be departing next year. Doggett's district is being redrawn and he has no interest in running against another Democrat. Blackburn is making a run for governor in 2026. Reelected to the Senate just last year, Blackburn would depart in early 2027 if victorious, but would remain in the Senate if she loses the primary or general election. They join a growing list of taxwriters who have already announced retirement or plans to seek other office, including Representatives Dwight Evans (D-PA), Danny Davis (D-IL), and Randy Feenstra (R-IA) and Senators Tina Smith (D-MN) and Thom Tillis (R-NC).

September

Both chambers plan to be in session for the first three weeks of the month, take off the fourth week, and return for the last two days of September. As noted earlier, this month Congress will focus on government spending. A continuing resolution (CR) to extend government spending beyond September 30 is all but certain. Failing that, a partial government shutdown would ensue. Some Republicans say a default option could be a year-long CR that would lock in current FY 2025 spending levels. 

While this September drama unfolds, we'll monitor the undercurrents on tax policy regarding House Speaker Mike Johnson's pursuit of a second reconciliation bill. #TaxTake

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