Capitol Hill remains in a state of gridlock, as the federal government enters its 16th day of the shutdown, with no realistic exit ramp currently in sight. There have been significant developments at the Internal Revenue Service (IRS), including changes in leadership and staffing, the release of the 2025 – 2026 priority guidance plan, and several new pieces of tax reform guidance.
Government Funding
Congress seems to be at an impasse as Democrats continue to demand an agreement on the extension of the Affordable Care Act (ACA) Premium Tax Credits (PTCs) before they will vote to open the government, while Republicans insist they will not negotiate until the government reopens.
Last week, we issued 2025 Government Shutdown FAQs: What to Expect in the Second Week. While the dynamics remain largely the same since we published nine days ago, there have been several notable developments:
- The Senate: Senate Majority Leader John Thune (R-SD) continues to bring the House-passed continuing resolution (CR) that would fund the government through November 21, 2025, to the floor. As of the date of publication, the vote on this bill has failed nine times. Republicans have been unable to peel away any additional Democratic votes since the second attempt (to date, Democratic Senators Catherine Cortez Masto and John Fetterman, and Independent Senator Angus King, who caucuses with Democrats, have broken rank). Thune has also said he will no longer allow Democrats to continue to vote on their alternative government funding proposal.
- The House: The House has been on recess since September 19, 2025. Speaker Mike Johnson (R-LA) has stated he won’t bring members back until the government shutdown ends, in an attempt to force the Senate to vote in favor of the House-passed CR. Johnson is facing growing scrutiny, including from inside his own party, over his strategy as the real-world impacts of the government shutdown begin to accumulate. The House has only been in session for a total of 20 days since July 3, the date they passed P.L. 119-21, commonly known as the “One Big Beautiful Bill Act.”
- The Trump Administration: The Trump administration continues to dial up the pressure on Democrats by canceling energy and infrastructure projects in Democratic states and districts, calling into question whether furloughed workers will receive back pay, and firing thousands of federal workers. To date, over 4,100 federal employees have received reduction-in-force (RIF) notifications during the shutdown; on Tuesday, October 14, 2025, the Office of Management and Budget stated they are preparing for additional RIFs later this week. Meanwhile, the administration is utilizing various strategies to ensure their priorities remain funded — including paying active-duty service members and federal law enforcement as well as funding the Special Supplemental Nutrition Program for Women, Infants and Children (WIC). These actions may ultimately prolong the shutdown, as Democrats become more entrenched in their position in response to tactics they perceive as coercive. Additionally, Trump’s redirection of funds to maintain certain critical government operations has eased some of the immediate pressure of the shutdown.
- The Internal Revenue Service (IRS): The shutdown is impeding some operations performed by the already decimated IRS workforce. See below for a more robust discussion.
The shutdown exit ramp still seems to center around an agreement on the ACA PTCs. This is an issue that splits Republicans, with the base opposing any extension, and moderate and vulnerable members advocating for an extension. Although Republicans have indicated a willingness to negotiate on the PTCs if Democrats concede and vote in favor of the House-passed CR, there is no guarantee the parties would be able to reach an agreement.
Moreover, the offer falls short of the certainty Democrats are seeking, as trust between the parties has significantly deteriorated during the 119th Congress. Democrats have been calling for President Trump to engage in negotiations in hopes of breaking the stalemate.
Upcoming pressure points that may help spur action include:
- October 28 – 29: The upcoming Federal Open Market Committee (FOMC) meeting, where the policy-making body is expected to further reduce the federal funds rate but will be operating without access to the full range of government-compiled data it typically relies on.
- November 1: The beginning of open enrollment, when ACA enrollees are expected to see substantial increases in their health insurance premiums.
- Mid-to-Late November: The beginning of the holiday travel season, when the volume of travel coupled with extended periods of work without pay for TSA agents and air traffic controllers may create a perfect storm of travel delays and cancellations.
Potential Legislation
While government funding continues to dominate attention on Capitol Hill, we are actively monitoring several other legislative initiatives:
- Bipartisan Tax Extenders, Reconciliation 2.0 and ACA PTCs: The key dynamics discussed in our September Tax Policy Review remain largely unchanged. On a call with the House Freedom Caucus earlier this month, Speaker Johnson reaffirmed his support for advancing two additional reconciliation bills; however, the near-term prospects for additional reconciliation bills are still questionable. The ACA PTCs are playing a critical role in the current government shutdown, as discussed above. Finally, the fate of a bipartisan tax extender bill may depend on several factors, including the dynamics and duration of the current government shutdown and the outcome of ACA PTC negotiations.
- Section 899 Retaliatory Tax: Republicans are eager for the global community to accept the G7’s proposed changes to the Organization for Economic Co-operation and Development (OECD)’s global tax regime. Failure to adopt or make meaningful progress on this initiative may spur Republicans to reintroduce the Section 899 retaliatory tax proposal.
- Halting International Relocation of Employment (HIRE) Act: First-term Sen. Bernie Moreno (R-OH) introduced this bill, which would impose a 25% excise tax on “outsourcing payments” for labor and services performed abroad for U.S.-based customers. The legislation would also make the outsourcing payment and related excise taxes non-deductible. This proposal has triggered strong opposition from many U.S.-based companies that rely on outsourcing. While the bill does not seem to be advancing at this time, we will continue to monitor its trajectory and report on any developments, including any similar legislative efforts. Companies should not be alarmed at this stage; however, those likely to be affected are encouraged to engage with their elected officials to communicate the potential impact on their operations.
- Digital Asset Legislation: On October 1, 2025, the Senate Finance Committee (SFC) held a hearing titled “Examining the Taxation of Digital Assets.” Policymakers’ interest in clarifying the treatment and taxation of digital assets appears to be growing. Although numerous proposals have been introduced in recent years, none seem poised for enactment at this time. Nevertheless, we anticipate that Congress will likely take up this issue in the coming months.
- Bipartisan Judicial and Administrative Proposals: In September, the House Ways & Means Committee advanced two bipartisan tax judicial and administration proposals: The Tax Court Improvement Act (H.R. 5349) and the Fair and Accountable IRS Review Act (H.R. 5346).
Implementing Tax Reform
Companies are already feeling the after-tax impact of the 2025 tax reform bill, P.L. 119-21. The Congressional Budget Office’s September Monthly Budget Review shows corporate tax receipts fell 15%, to $453 billion, in the most recent fiscal year that just ended on September 30, 2025 (FY25). While the CBO didn’t provide a breakout of how much of the $77 billion decrease was attributable to P.L. 119-21, it was likely a major factor, as the bill contained numerous business-friendly provisions that have resulted in decreased estimated tax payments beginning in Q3.
Treasury and the IRS continue to release guidance on the most pressing 2025 tax reform provisions, including:
- Tipped Income: Treasury issued proposed regulations, identifying eligible occupations and defining “qualified tips.” There is a 30-day comment period, which closes on October 23, 2025.
- Opportunity Zones (OZs): The IRS issued Notice 2025-50, which clarifies what is considered a “rural area” and provides a modified substantial improvement thresholds for qualified OZ property located in rural areas.
- Remittance Transfers: In Notice 2025-55, the IRS outlines transitional guidance, providing temporary deposit penalty relief for the first three quarters of 2026.
- Corporate Alternative Minimum Tax (CAMT): Though this isn’t P.L. 119-21 related, it’s still relevant guidance. In late September, the IRS issued Notice 2025-46 and Notice 2025-49, which provide interim guidance on the CAMT regime.
There is much more guidance needed to fully implement P.L. 119-21, for both retroactive and prospective provisions.
Priority Guidance Plan
On September 30, 2025, Treasury released its 2025 – 2026 priority guidance plan (PGP). The PGP is issued annually to identify the guidance projects that Treasury and the IRS will prioritize for the year. Guidance can come in a variety of forms — from regulations to various other types of sub-regulatory guidance (revenue rulings, revenue procedures, notices, FAQs and other types of administrative guidance).
The 2025 – 2026 PGP covers the period of July 1, 2025, through June 30, 2026, and includes 105 guidance projects that will direct Treasury and IRS resources during this period. The current plan remains focused on two main areas: implementation of P.L. 119-21and deregulation. Below is the allocation of current year priorities outlined in the PGP.
|
Area of Focus |
Number of Projects |
|
Implementing P.L. 119-21 |
40 |
|
Deregulation and Burden Reduction |
46 |
|
Section 501(c)(3) |
2 |
|
Tribal Tax Issues |
3 |
|
Digital Assets |
6 |
|
Secure 2.0 and Other |
8 |
We will continue to bring you news of major guidance developments.
Internal Revenue Service (IRS) Updates
There has been no shortage of upheaval within the IRS this year, from changes in leadership and overall staffing to the impact of the current government shutdown.
Leadership Changes
Treasury Secretary Scott Bessent assumed the role of acting IRS Commissioner on August 9, 2025, following Billy Long’s departure. Bessent is the seventh individual to serve as IRS commissioner since January. While the Trump administration has yet to name a formal successor, reports from Sen. Chuck Grassley’s (R-IA) office indicate he intends to send the Senate a new nominee.
In the meantime, Bessent announced a new role — “CEO of the IRS,” which will be filled by Frank Bisignano, the current commissioner of the Social Security Administration (SSA). The CEO position was created to oversee the organization and manage the day-to-day operations of the IRS and will report directly to the Treasury Secretary. Bisignano will hold dual roles, standing up this new position while continuing to serve as acting commissioner of the SSA.
The IRS announced Jarod Koopman will serve as acting chief tax compliance officer. Koopman is the third person this year to hold the role, which oversees multiple compliance operations, including the Large Business & International and Small Business/Self-Employed divisions, among others.
Finally, Donald Korb’s nomination to serve as IRS chief counsel passed the Senate Finance Committee on October 8, 2025. This role has been open since Trump took office in January. Korb is widely viewed as a qualified nominee who served in the same position under President George W. Bush from 2004 to 2008.
Impacts of Shutdown
The IRS was able to maintain full operations for the first five days of the government shutdown by utilizing unspent Inflation Reduction Act (IRA) funding. However, beginning October 8, 2025, nearly half of the IRS staff have been furloughed, according to the bureau’s contingency plan.
The furloughs could interfere with guidance projects and delay preparations for the upcoming filing season, both of which are already complicated by the need to retroactively implement numerous P.L. 119-21 provisions. The American Institute of CPAs (AICPA) issued a letter on October 9, 2025, urging the IRS to retain 100% of its employees during the government shutdown and offering several tax relief recommendations.
The shutdown also has implications for the federal employees who work for the IRS:
- Furloughed Employees: Of the 74, 229 IRS employees, 34,429 are furloughed. On October 9, 2025, the IRS notified employees that “an earlier memo circulated on furlough guidance incorrectly stated the nature of the Government Employee Fair Treatment Act of 2019 as it relates to compensation for non-pay and non-duty status.” As a result, employees do not know whether they will receive back pay for the shutdown period.
- Reduction-in-Force (RIF) Notices: On October 10, 2025, approximately 1,300 IRS employees received RIF notices. The RIFs have been challenged in court by federal workers' unions, but no decisions have been made to date.
The latest round of RIFs is expected to lower IRS staffing to approximately 73,000, marking a total headcount decline of around 30,000 since the start of the year — a 29% decrease. A prolonged shutdown, especially one where furloughed employees face uncertainty about back pay, could further erode the agency’s workforce.
Other News
In other news, the IRS issued Rev. Proc. 2025-32, which provides tax inflation adjustments for the 2026 tax year.
Economic Outlook
All eyes will be on the Federal Open Market Committee (FOMC) when it convenes for the October 28 – 29 meeting. The committee is generally expected to cut the federal funds rate by another 25 basis points (0.25%); however, Fed officials will need to make their determination without a complete set of data.
The Bureau of Labor Statistics (BLS), the agency responsible for collecting, analyzing, and reporting labor and economic data, furloughed most of its employees when the government shut down. As of late last week, some BLS employees have been recalled to compile the September Consumer Price Index, an important inflation measure.
The report, originally due on October 15, 2025, must be finalized by the end of the month to enable the Social Security Administration to calculate its annual cost-of-living adjustment. There is a strong likelihood the report will be released prior to the FOMC’s next meeting. The FOMC will need to work without a September Employment Situation Summary (or jobs report), which was previously scheduled for release on October 3, 2025.
For a more detailed discussion of the FOMC, please visit our September Tax Policy Review.
Global Tax Negotiations
We continue to watch for developments on a revised global trade agreement following June’s G7 agreement advocating for a “side-by-side” system to replace the current OECD’s Pillar Two rules. See our September Tax Policy Review for more information.
Trade Policy
U.S. trade policy remains mired in uncertainty, driven by abrupt shifts in tariffs and trade restrictions. Most recently, on October 10, President Trump threatened to increase the tariff rate on Chinese imports to 100% in response to new export controls on rare earth minerals.
The move sent the stock market spiraling, clocking its worst day in six months. Stocks began to recover on Monday, October 13, after the administration spent the weekend walking back Trump’s comments. We expect the volatility and unpredictability to persist as long as the U.S. continues to leverage global trade policy as a tool to influence foreign governments.
If tariffs are impacting your business, view our Trade Policy insights and reach out to our International Tax team.
Your Guide Forward
Cherry Bekaert’s Tax Policy group is committed to bringing you information on the latest tax developments and opportunities.
Related Insights
- Newsletter: Tax Policy Review: September 2025
- Newsletter: Tax Policy Review: August 2025
- Newsletter: Tax Policy Review: July 2025
- Newsletter: Tax Policy Review: June 2025
-
Newsletter: Tax Policy Review: May 2025
