Tax Update: Prepare for 2025 Tax Changes! Senate Forms New Working Groups

Senate Finance Committee Republicans Form Working Groups in Preparation for 2025: Following the April 24 formation of Tax Teams by House Ways and Means Committee Republicans, Senate Finance Committee Republicans created their own working groups on May 23. The groups are intended to help Finance Committee Republican members prepare for the expiration of key tax provisions of the Tax Cuts and Jobs Act (TCJA, Pub. L. 115-97) in 2025, as well as other tax issues likely to be on the table.

The working groups are organized in six broad tax-policy areas, with each group expected to review and assess how TCJA tax provisions affect specific sectors of the U.S. economy. The groups, reportedly, are as follows:

• Individual Taxes
• Business Measures
• International Tax
• Retirement
• Community Development
• Energy

The specific tax provisions that will be within the purview of each team have not been officially disclosed, nor have the senators participating in each group. Senate Finance Committee Ranking Member Mike Crapo (R-ID) said the groups will seek to cover all aspects of expiring TCJA provisions, including possible options for improving the provisions.

Currently, these groups are comprised only of Republicans, but Ranking Member Crapo stated that the groups may become bipartisan in the future, noting that “it could evolve to the point where there are joint working groups, but right now we’re working with our own caucus.” Finance Committee Chairman Ron Wyden (D-OR) said that he is having individual meetings with Democratic senators now with the intention of providing them with a “menu” of options to approach the TCJA, similar to the approach employed in negotiations before the passage of the Inflation Reduction Act (Pub. L. 117-169).

Ways and Means Committee Republicans Launch Comment Portal for Tax Teams: On May 21, House Ways and Means Committee Republicans launched a comment portal to solicit stakeholder input on the effects of a potential expiration of Tax Cuts and Jobs Act provisions in 2025. Comments must indicate the relevant Tax Team(s) to which the comments are submitted for consideration.

Yellen Signals Unwillingness to Greenlight Pillar One Tax Agreement: At a Group of Seven finance ministers’ meeting on May 22, Treasury Secretary Janet Yellen said the United States will not sign the current draft of the Organisation for Economic Co-operation and Development (OECD) Pillar One global tax agreement. She cited outstanding issues related to rules governing transfer pricing regulations and the notion that India and China have not been sufficiently involved in the ongoing negotiations. Transfer pricing provisions are governed under Amount B of the agreement. Current disputes include whether the proposed simplified transfer pricing rules would be mandatory and other issues related to the scope of the agreement. Secretary Yellen noted that transfer pricing is “an area where there’s a lot of uncertainty for multinationals, and … an area where there’s tremendous tax disputes,” making consensus imperative. She added that India has refused to engage on the issue, and China has been “all but absent” in the current negotiations. Negotiators have until the end of June to finalize provisions and collect sufficient signatures for Pillar One to take effect. Failure to enact Pillar One may lead to the proliferation of digital services taxes (DSTs) in a number of countries, which will disproportionately increase tax burdens on U.S. multinational businesses and may lead to global tax instability.

IRS Direct File Program to Become ‘Permanent’ Option Starting in 2025: On May 30, the Internal Revenue Service (IRS) announced that the agency will make the Direct File “pilot” permanent, starting in the 2025 tax-filing season. The program was piloted this year and allowed 19 million eligible taxpayers in 12 states to file their federal tax returns without charge directly with the IRS through government-operated tax filing software. The agency also stated that it will seek to expand the program, expressing an interest in allowing more states to partner with the Direct File program. The IRS said it is also looking into ways to expand eligibility of the pilot program, with a focus on increasing the number of credits available to working families filing through the program. Additional details about the program’s expansion will be revealed in the coming months.

IRS Free File Program Extended to 2029: On May 22, the Internal Revenue Service (IRS) announced that the agency will extend the Free File program through 2029, following an agreement between the agency and the private companies partnering with the IRS that provide their online tax-preparation platforms for free to taxpayers meeting certain eligibility criteria. The Free File program experienced an increase in returns filed this tax season compared to 2023, reaching 2.9 million Free File returns compared to 2.7 million the year prior. Commenting on the extension, IRS Commissioner Daniel Werfel stated that Free File is an “important part of the IRS portfolio to help taxpayers file their taxes for free,” and that he “look[s] forward to continuing this important collaboration with the tax software industry.”

Treasury Department, IRS Issue Regulations on Tech-Neutral Clean Energy Tax Credits: On May 29, the Treasury Department and Internal Revenue Service (IRS) issued proposed regulations on the tech-neutral production tax credit (PTC) under section 45Y of the tax code and the tech-neutral investment tax credit (ITC) under section 48E. These credits, included in the Inflation Reduction Act, will replace the current section 45 PTC and section 48 ITC, respectively, for energy facilities that begin construction after 2024. Under both sections 45Y and 48E, energy facilities must have zero or fewer greenhouse gas (GHG) emissions to qualify for the tax credit. However, the proposed regulations differentiate between two types of qualifying energy facilities: (1) combustion and gasification facilities (C&G facilities); and (2) all other qualifying facilities (non-C&G facilities). The methodology that must be used to determine facility emissions differs between the two categories.

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