Tax News & Views Junk Food Budget Cut Roundup

House GOP Pitches Slashing IRS Funding More than 20 Percent - Chris Cioffi and Erin Slowey, Bloomberg ($):

A bill released Sunday by Republicans on the House Appropriations Committee calls for $9.5 billion in annual funding for the IRS for fiscal 2026. Congress funded the agency with $12.3 billion in the current fiscal year, making the new proposal a drastic downsizing from previous years.

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A dramatically shaved budget is likely to lead to fewer audits for some of the biggest companies and wealthiest individuals, along with longer wait times for taxpayers seeking assistance, Democrats and taxpayer advocates have warned. The Treasury Department, however, has said relying more on technology will help the agency handle these issues.

President Donald Trump earlier in May proposed cutting about $2.5 billion in annual funding from the IRS. Despite the proposed funding cut, an IRS budget proposal document said that the agency “is working to substantially complete most key IT modernization initiatives in the next two years.”

House Bill Would Slice $2.8 Billion From IRS Budget - Doug Sword, Tax Notes ($):

House appropriators released a proposed 23 percent cut in the IRS budget for fiscal 2026, including a 45 percent slashing of the tax collector’s enforcement funding.

The House Appropriations Financial Services and General Government Subcommittee is scheduled to mark up the bill at 5:30 p.m. July 21.

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The cuts go beyond the Trump administration’s call for a 20 percent reduction in IRS funding, including a 33 percent proposed cut to enforcement.

IRS Criminal Agents Stay Focused on Tax Amid Shifting Priorities - Nathan Richman, Tax Notes ($):

“Tax crimes are still very much on the top of our list; they are still very much on the top of our prosecutors’ lists,” Tyler Hatcher of CI said July 18 at a conference sponsored by the University of San Diego School of Law and RJS Law.

“Thus far, tax crimes are still illegal — that has not changed,” Hatcher said.

IRS enforcement efforts hit by cutbacks - Michael Cohn, Accounting Today:

"Although the IRS made substantial progress with its hiring goals in FY 2024, the rescissions of funds, hiring freeze, and future reductions in force will present a challenge to enforcing the nation's tax laws," said the report.

The measures included allowing eligible employees to resign under the Deferred Resignation Program, issuing termination notices to probationary employees, and commencing early retirement initiatives for federal employees.

According to another recent TIGTA report, over 11,000 IRS employees (or 11% of the IRS workforce) were either approved for the DRP or received termination notices during their probationary period (as of March 2025). More recent figures from a report in June by National Taxpayer Advocate Erin Collins have been much higher, at 26%.

Unpacking the Big Bill

3 Key Budget Bill Issues Tax Pros Want IRS To Clarify Quickly - Stephen Cooper, Law.360 Tax Authority ($):

Under the new law, companies can either expense their unamortized domestic R&E costs in the first taxable period after Dec. 31, 2024, or elect to spread them over a two-year period.

Small businesses with average gross receipts of $31 million or less over the three years before 2022 were granted special tax relief for R&E costs under H.R. 1. These companies can retroactively apply immediate expensing for tax years beginning after Dec. 31, 2021. However, they have only one year after the new law was signed to amend their 2022, 2023 and 2024 returns to claim the tax break.

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Jorge Castro of Miller & Chevalier Chtd. said taxpayers will need the IRS to spell out exactly what the process will be going forward under H.R. 1.

"There are some taxpayers that are under extension that have not filed their original return yet. There's a question mark of whether or not they must file an amended return; can they make the retroactive election to their original return," Castro said.

New Federal Tax Credit Boosts School Choice—but Blue States Face Big Decision - Matt Barnum, Wall Street Journal:

The federal government will now subsidize private-school tuition, via unusually generous tax credits for donations to nonprofits. However, governors must opt into the program. Democratic-led states may reject it, derailing school-choice advocates’ goal for a nationwide effort.

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The law, enacted earlier this month, will soon allow taxpayers to redirect a portion of their tax bill to nonprofit scholarship-granting organizations or SGOs. The taxpayer could write a check of up to $1,700 to an SGO but get that full amount back via a reduction of the same amount in their income taxes, instead of a regular tax deduction for the donation. It is a donation that doesn’t ultimately cost the donor anything.

The SGO would then issue stipends to families for private-school tuition, among other permitted educational expenses. Families are eligible to receive scholarships if their income is up to three times the median in the area.

No Tax On Tips Explained - Andrew Leahey, Forbes:

To start, the “no tax on tips” provision of the OBBBA, Section 70201, isn’t a tax exemption—it’s a deduction. Specifically, it is an above the line deduction of up to $25,000 for tips received in the course of ordinary employment, as long as they are voluntary and properly reported. Like the overtime deduction, this one is also temporary: it applies through tax year 2028.

It is also gated. Tips must be reported on a W-2 or other IRS-recognized form, and the job must be one that customarily receives tips—the Treasury Department will be issuing guidance fleshing out that latter bit. If you work in hospitality, you will probably qualify. If you’re a flyfishing instructor collecting Venmo payments and occasional cash thank-yous, maybe not.

Are They Done?

Capitol Hill Recap: A Return to Reconciliation? - Alex Parker, Eide Bailly:

These days, Hollywood is addicted to sequels. Why take a chance on something original, if you have an existing franchise that will guarantee to put people in the theaters? They can be hit or miss, though—for every “Godfather, Part 2” or “Empire Strikes Back,” there are at least a dozen forgettable entries like “Jaws 2” or “Psycho II.”

How about with legislation? The ink is barely dry on the so-called One Big Beautiful Bill Act, signed into law on July 4, and implementation has barely begun. But already, there’s some talk of Republicans doing a second reconciliation bill sometime this year, or in early 2026, with a focus on tax legislation. Technically, Congress can pass at least one more bill through the reconciliation procedure in 2025, avoiding a Democratic filibuster. Republican staffers are reportedly calling a potential second bill “2 Big 2 Beautiful,” referring to the memorably titled second Fast & Furious film.

At this point it’s mostly just speculation, and it would be a longshot, but after the Republican Congressional majority’s surprising legislative victory with the OBBBA, it’s hard to completely dismiss the idea of an OBBBA sequel. (Or if the original was the 2017 Tax Cuts and Jobs Act, which the OBBBA extended, then a new bill would be the third in a trilogy.)

Tariff Update

Donald Trump pushes for 15%-20% minimum tariff on all EU goods - Andy Bounds, Henry Foy, Aime Williams and Laura Pitel, Financial Times:

The US president’s hardened stance aims to test the EU’s pain threshold after weeks of talks on a framework agreement that would have maintained a baseline tariff of 10 per cent on most goods.

Trump has also been unmoved by the latest EU offer to reduce car tariffs, and would be happy to keep duties on the sector at 25 per cent as planned, said people familiar with the negotiations.

Trump Aims Tariff Double Whammy at Industries, Nations by Aug. 1 - Joe Deaux, Jenny Leonard, Alicia Diaz and Josh Wingrove, Bloomberg via MSN:

President Donald Trump is readying plans for industry-specific tariffs to kick in alongside his country-by-country duties in two weeks, ramping up his push to reshape the US’s standing in the global trading system by penalizing purchases from abroad.

Administration officials could release details of Trump’s planned 50% duty on copper in the days before they’re set to take effect Aug. 1, according to a person familiar with the matter. That’s the same date so-called reciprocal levies on products from more than a 100 nations are slated to begin.

Blogs and Bits

Burn areas in NM now get tax relief for June flooding - Kay Bell, Don't Mess With Taxes. "The affected individuals and businesses now have until next Feb. 2 to file tax returns and pay any taxes that were originally due when the deadly weather system hit."

Is your Airbnb a tax shelter or a tax headache? - National Association of Tax Professionals. "The short answer: Airbnb owners can unlock significant deductions, but navigating IRS rules, local regulations and constant guest turnover can make short-term rentals more work than many expect."

One Big Beautiful Bill Implements Significant Tax Package - Kristine Tidgren, Tax School Blog. " While most of the tax provisions extend or modify current law, the title contains new additions to the tax code as well."

‘Trump Accounts’ Could Be Better. Here’s How. - Sam Cluggish and Alex Muresianu, Tax Policy Blog. "Rather than adding another overly complicated savings vehicle to the mix, the ideal solution would be to scrap the current piecemeal savings system in favor of universal savings accounts."

Selfless Public Service Corner

A Kennedy Aide’s Start-Up Can Get You a Tax Break on a $9,000 Sauna - Ron Lieber and Benjamin Mueller, New York Times:

An insomnia diagnosis yielded a recommendation for a five-pack of beef hot dogs. An acne diagnosis brought a medical note proposing that the condition be treated with classes at a mixed-martial-arts gym. Decades-old arm fractures earned a nurse practitioner’s order to buy a kettlebell from Nike.

And because a medical provider had blessed the purchases, they came with the promise of a major perk: People could buy them using money not subject to federal income taxes.

That is the daring new world of American medical spending that Truemed, a three-year-old wellness company, is trying to build. Its co-founder Calley Means has rocketed to the upper reaches of power in the health care system as the right hand to Health Secretary Robert F. Kennedy Jr.

The IRS says this stuff doesn't work:

Amid concerns about people being misled, the Internal Revenue Service today reminded taxpayers and heath spending plan administrators that personal expenses for general health and wellness are not considered medical expenses under the tax law.

This means personal expenses are not deductible or reimbursable under health flexible spending arrangements, health savings accounts, health reimbursement arrangements or medical savings accounts (FSAs, HSAs, HRAs and MSAs.

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Some companies mistakenly claim that notes from doctors based merely on self-reported health information can convert non-medical food, wellness and exercise expenses into medical expenses, but this documentation actually doesn’t. Such a note would not establish that an otherwise personal expense satisfies the requirement that it be related to a targeted diagnosis-specific activity or treatment; these types of personal expenses do not qualify as medical expenses.

That IRS guidance came out during the prior administration. Current IRS leadership may have a different approach to, um, creative tax ideas.

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Tax News & Views Junk Food Budget Cut Roundup

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Joe B. Kristan, CPA