Tax Policy Review: July 2026 Updates

The focus in Washington is beginning to shift toward the midterm elections, which are now just 111 days away. Lawmakers are facing a dwindling legislative calendar, with only 21 House and 31 Senate legislative days remaining before Election Day. As a result, the coming weeks could be particularly important for several legislative proposals currently under consideration.

Off Capitol Hill, recent weeks have also brought new guidance from the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS), additional regulatory developments, and a steady stream of economic and trade news. Together, these developments continue to shape the tax and business environment heading into the second half of the year.

New Legislation

The 21st Century ROAD to Housing Act (HR 6644) became law on July 11, 2026, after President Trump neither signed nor vetoed the bill. The legislation is the product of months of negotiations between the House and Senate and combines dozens of housing-related proposals aimed at increasing housing supply. The final agreement also includes restrictions on additional single-family home purchases by large institutional investors, representing a notable federal restriction on investment activity within a specific asset class.

Potential Legislation

Congress returns from the July recess with even less room for error after several weeks of gridlock and disruption. In the House, a standoff led by Rep. Anna Paulina Luna (R-FL) over the Safeguard American Voter Eligibility Act (SAVE America Act) effectively froze floor activity, forcing House leadership to cancel votes and send lawmakers home early for the July 4 recess.

Meanwhile, Senate Republicans are contending with Sen. Mitch McConnell's (R-KY) continued absence and the unexpected death of Sen. Lindsey Graham (R-SC). With the House scheduled to begin its August recess after July 23 and the Senate after August 7, the legislative calendar is quickly narrowing.

Reconciliation 3.0

House Republicans are expected to begin work on a potential Reconciliation 3.0 package this week, with the House Budget Committee planning to mark up a budget resolution later this week. The package is expected to include $73 billion in additional defense funding, $12 billion in farm assistance, and $10 billion in incentives tied to stricter voter-ID laws. 

House Republicans may face challenges building consensus around the spending cuts needed to offset the package's cost. At the same time, Senate interest in a third reconciliation package appears limited, creating uncertainty around the viability of any House-passed proposal.

Cryptocurrency Market Structure

The Senate is expected to consider the Digital Asset Market Clarity Act (CLARITY Act), a digital asset market structure legislation, before the August recess. As discussed in our May update, the bill does not contain any tax provisions but is widely viewed as a precursor to broader digital asset tax legislation.

There haven’t been any major developments on the digital asset tax front since our June update. Discussions continue in both chambers, and lawmakers have repeatedly emphasized that any cryptocurrency tax legislation will need to be bipartisan to move forward.

Other Bipartisan Tax Proposals

On July 1, the House Ways and Means Committee approved seven tax administration bills. Five of the measures received unanimous bipartisan support, while two were advanced by Republicans on party-line votes. The two controversial proposals included legislation related to IRS modernization and the expansion of reporting requirements for tax-exempt hospitals.

The Tax Exempt Hospital Transparency Act has drawn attention from both lawmakers and the hospital community. The bill would expand reporting requirements for tax-exempt hospitals with more than 100 inpatient beds, requiring them to provide additional information about their activities and community benefit efforts. Republicans have framed the bill as a transparency measure, arguing that tax-exempt hospitals should provide more information about the benefits they deliver to their communities. Democrats have countered that the proposal would increase reporting burdens without lowering healthcare costs.

For a comprehensive list, explore the table below:

Coordination between the House and Senate remains important, as Senate Finance Committee leaders have been developing their own tax administration package. However, a planned Senate Finance hearing was recently canceled amid a dispute over the Trump administration's agreement shielding the president from IRS scrutiny. An expected markup has yet to occur, creating additional uncertainty around whether Congress can advance a broader year-end tax administration package. 

Other Congressional Priorities

Congress's agenda remains crowded. Beyond the proposals discussed above, lawmakers still must contend with several must-pass items, including the National Defense Authorization Act (NDAA), annual appropriations bills, the future of the Foreign Intelligence Surveillance Act (FISA) and various nominations. These competing priorities will likely influence the timing and prospects of other legislative initiatives during the remainder of the 119th Congress.

Implementing Tax Reform

In the last month, Treasury has issued two new pieces of guidance relating to P.L. 119-21, commonly referred to as the “One Big Beautiful Bill Act” (OBBBA):

• Opportunity Zone Guidance: Notice 2026-40 provides transitional guidance for Qualified Opportunity Zones and announces that Treasury and the IRS intend to issue proposed regulations governing the program. For investors, developers and fund managers, the next 18–24 months represent a critical planning window. See our alert for a more detailed discussion.
• Trump Account Transfer Tax Safe Harbor: Rev. Proc. 2026-25 provides taxpayers with a safe harbor from gift tax consequences associated with contributions to Trump accounts, provided certain requirements are met. The guidance addresses a drafting issue that could have required gift tax reporting and reduced a donor's available transfer tax exemption.

Additionally, Treasury and IRS unveiled their 2026 regulatory agenda on July 3, highlighting deregulation initiatives and guidance needed to implement OBBBA.

New Regulatory Guidance

Earlier in July, Treasury issued three packages of final regulations:

• Charitable Remainder Annuity Trust (CRAT) Listed Transactions (TD 10051): Identified certain CRAT transactions as “listed transactions,” requiring additional disclosures by material advisers and specified participants.
• Certain Life Insurance Contract Transactions (TD 10052): Finalized guidance on the transfer-for-value rules and information reporting requirements applicable to certain life insurance contract transactions.
• Qualified Domestic Trusts (TD 10050): Amends existing estate tax regulations for qualified domestic trusts for noncitizen surviving spouses.

IRS Updates

On July 8, the IRS announced the new Automatic Exemption from Penalty (AEP) program, which provides automatic penalty relief for taxpayers with a history of timely payments and compliance.

The program is expected to begin this summer and will apply to “eligible original returns beginning with tax year 2025 and 2026 quarterly returns, as well as future tax periods.” Taxpayers who have remained in good standing for the prior three years will qualify for automatic penalty abatement for failure to file, failure to pay or failure to deposit. Relief will be automatic, eliminating the need for taxpayers to request penalty abatement.

The AEP program will ultimately replace First Time Abate, the IRS process that allowed eligible taxpayers to request the removal of certain penalties. Qualifying taxpayers may continue to utilize First Time Abate during the transition period until AEP becomes fully effective for eligible returns due on or after January 1, 2027. Some return types are excluded from the program, including certain information returns.

Top Treasury Official Departs

Ken Kies, Treasury's Assistant Secretary for Tax Policy, announced that he is leaving the administration. During his tenure, Kies helped oversee the implementation of OBBBA and played a central role in developing guidance under the law. His departure comes at a pivotal time, as Treasury and the IRS continue working through a lengthy list of guidance projects needed to implement many of OBBBA's provisions.

Subscribe and stay on top of it all.

Join our mailing list and be the first to receive alerts, newsletters and webinar invitations by email.

Subscribe

Economic Outlook

Economic data continues to present a complicated picture. While the labor market remains relatively stable, hiring has begun to slow, and inflation remains above the Federal Reserve's target. That leaves the Federal Open Market Committee (FOMC) facing difficult decisions on interest rates as it considers its next steps.

Mixed Economic Data Continues

The trends we saw in June continue to point to a mixed economic environment, characterized by persistent inflation, a slower pace of hiring and modest economic growth.

• Inflation: Annual inflation, as measured by the Consumer Price Index for All Urban Consumers (CPI U), eased in June, declining to 3.5%, largely driven by lower oil prices. However, recent tensions involving Iran could push oil prices higher and renew inflationary pressures.
• Employment: The U.S. economy added approximately 57,000 jobs in June, marking a slower pace of hiring than in recent months. Prior job gains were also revised downward, and while the unemployment rate fell to 4.2%, the decline was driven by a drop in labor force participation rather than strong job creation.
• Gross Domestic Product (GDP): The third and final estimate of Q1 GDP rose to 2.1%, close to overall expectations for 2026 expansion. The first estimate of Q2 GDP is due later this month.

Monitoring Monetary Policy: Upcoming FOMC Meeting

Attention is once again on the FOMC, which has just four meetings remaining in 2026, the next of which will take place July 28 – 29. With economic data continuing to send mixed signals, markets will be watching closely for clues about the Fed's next moves on interest rates.

At its June meeting, FOMC members were divided on where they believe interest rates are headed through the end of 2026. Of the 18 members who submitted projections:

• Nine expected rates to increase (with three projecting a 0.25% increase, five projecting a 0.5% increase, and one projecting a 0.75% increase).
• Eight expected rates to hold steady.
• One expected rates to decrease by 0.25%.

Chair Kevin Warsh declined to participate in the projection. The lack of consensus underscores the uncertainty surrounding the Fed's next moves on interest rates.

Trade Policy

U.S. Declines To Renew USMCA

On July 1, 2026, the U.S. announced it would not renew the current version of the U.S.-Mexico-Canada Agreement (USMCA). Under the terms of the existing accord, the three countries will conduct annual reviews to determine whether a revised agreement can be reached. The current USMCA will remain in effect until its expiration on July 1, 2036, unless it is replaced by a new agreement before that date.

The USMCA was negotiated during President Trump's first term and took effect in 2020, helping to increase trade among the United States, Mexico, and Canada from $1 trillion in 2020 to over $1.6 trillion in 2024. In his second term, Trump has soured on the agreement, arguing that it shields large volumes of trade from tariffs and has done little to reduce U.S. trade deficits with Mexico and Canada.

Section 122 Tariff Update

The administration’s 10% Section 122 tariffs will expire on July 24, 2026. The tariffs remain the subject of ongoing litigation; while the U.S. Court of International Trade found them unlawful, the U.S. Court of Appeals for the Federal Circuit has stayed that ruling, allowing the tariffs to remain in effect while the appeal proceeds. The administration is expected to shift toward other tariff authorities, including Section 301, as more permanent trade tools.

Section 301 Tariffs

The Office of the United States Trade Representative (USTR) held public hearings in early July on two open Section 301 investigations:

• Forced Labor Importation Enforcement: Investigation covering 60 economies, with proposed tariffs ranging from 10% to 12.5% on affected imports.
• Brazil Trade Practices: Investigation into Brazil's trade and market-access policies, with proposed tariffs of up to 25% on Brazilian imports.

The USTR's Section 301 investigations into manufacturing overcapacity across 16 economies and Vietnam's intellectual property practices remain ongoing. Separately, on June 18, 2026, the USTR launched a new investigation into Germany's pharmaceutical pricing and reimbursement practices.

Summer Publication Schedule and Upcoming Webinar

The House and Senate will be out of session for most of August. Absent any significant legislative developments, the next edition of the Tax Policy Review will be published in September 2026.

Please join us for our upcoming webinar, Tax Policy Updates: Q3 2026, where we’ll examine recent tax policy developments, discuss key considerations that could shape the tax policy landscape, including the 2026 elections, and provide a broader look at trends in state tax policy.

Your Guide Forward

Cherry Bekaert’s Tax Policy Group is committed to bringing you information on the latest tax policy developments and opportunities.

Connect With Us

Related Insights

• Article: Tax Policy Review: June 2026 Updates
• Article: Tax Policy Review: May 2026 Updates
• Article: Tax Policy Review: April 2026 Updates
• Article: Tax Policy Review: March 2026 Updates
• Article: Tax Policy Review: February 2026 Updates