Disaster relief, proposed IRS cut, more 2025 working groups

The House passed disaster relief legislation that could spell further calamity for an extenders deal, House Republicans seek cuts to IRS funding for next year, and Senate Republicans start to prepare for 2025’s anticipated tax and fiscal showdown.

House passes disaster relief bill

The House passed disaster tax relief legislation (H.R. 5863) by a vote of 382-7 with little fanfare on May 21, but Senate Finance Committee Chair Ron Wyden, D-Ore., has vowed to block it in the Senate over objections that the package should be passed as part of the extenders deal (H.R. 7024) he helped author. That package, which would revive business benefits sunsetted by the 2017 Tax Cuts and Jobs Act while also temporarily increasing the child tax credit, is currently stalled by opposition from his Republican counterpart, Sen. Mike Crapo, R-Idaho.

Its movement as stand-alone bill indicates flagging hope in resurrecting the extenders law. Though talks are at an impasse, Democrats could still bring it to the floor at some point to see if they can convince enough Republicans to pass it, or put Republicans on record blocking it.

The disaster bill would expand the exclusion from income of disaster relief payments to include payments to compensate for losses, damages and expenses from federal disasters declared as a result of any forest or range fire after Dec. 31, 2014, or resulting from the East Palestine, Ohio, train derailment on Feb. 3, 2023.

The bill would also extend the effective date of personal-casualty loss rules for disasters that were enacted as part of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, making several recent hurricanes qualifying disaster events. The rules, which provide that qualified losses are deductible to the extent they exceed $500 without regard to whether they exceed 10% of adjusted gross income, no longer apply to disasters declared more than 60 days after its enactment. H.R. 5863 would extend the availability of the treatment to disasters declared 30 days after its own enactment.

Providing this kind of tax relief for disaster areas is routine for Congress. That fact, combined with the fact that it would impact multiple states represented by Democrats in the Senate, including one, Ohio, that could be crucial to determining which party controls the Senate next year, may make it difficult for Wyden to maintain the legislative hold, and leverage for the extenders package, indefinitely. 

Republicans seek more IRS cuts, block of Direct File expansion

New funding legislation from House Republican appropriators would cut IRS funding an additional 20%, to $10.1 billion next year, while including a prohibition on the announced expansion of the agency’s Direct File program to all 50 states.

The bill, introduced on June 4 and advanced to the full committee on June 5, would cut $2 billion from the agency’s current $5.43 billion enforcement funding and close to $400 million from the current $4.1 billion in operational funding while maintaining current customer service funding levels at $2.78 billion. The 2022 Inflation Reduction Act provided an additional $80 billion over ten years for IRS funding, largely directed towards enforcement and service increases, though approximately $20 billion of that has since been cut in subsequent legislation.

The IRS announced on May 30 it would make permanent and expand the Direct File tax return program that it piloted in 12 states this most recent tax year. The move reflects another friction point between the agency and congressional Republicans, frequent critics of the tax collection service.

Senate Republicans form 2025 working groups

Following in the steps of House Ways and Means Republicans, Senate Finance Committee Republicans have formed their own working groups to prepare for next year’s multi-trillion-dollar fiscal cliff. Though membership is not yet public, the groups are divided along these lines:

• Individual taxes
• Business taxes
• International taxes
• Retirement
• Community development
• Energy taxes

Sen. Mike Crapo, R-Idaho, told Bloomberg Tax on May 23 that the groups would begin meeting this summer to prepare for any election outcome scenario.

Ways and Means Republicans formed 10 similar working groups last month.