Republicans will hold a narrow majority in the US House of Representatives in the next Congress with at least 218 seats — the minimum needed for control — with several congressional districts yet to be called as we close out the week. Control of the House means a Republican election sweep of the federal government, with the presidency and majorities in both chambers of Congress.

In the tax area, Republicans are now expected to proceed with a budget reconciliation bill to extend Tax Cuts and Jobs Act (TCJA) tax provisions expiring at the end of 2025, as well as consideration of other possible measures, including those proposed by President-elect Trump during his campaign. Budget reconciliation will allow legislation affecting revenues to pass the Senate with a 51-vote simple majority, rather than the 60-vote filibuster threshold that applies to most other legislation. This effectively means Republicans will not need to compromise with Democrats to pass a tax-focused bill through Congress and can tailor it to their priorities.

Another major area that will come into play with Republican control over the government is how the US will address the OECD-led BEPS 2.0 project. There are strong sentiments in the Republican caucus in opposition to the Pillar Two global minimum tax rules, and in particular to the undertaxed profits rule (UTPR). Recall that in a 17 September 2024 letter to the OECD, House Speaker Mike Johnson (R-LA) and other members of House leadership, plus Ways & Means Committee Chairman Jason Smith (R-MO) and Republican committee members, expressed support for a lawsuit challenging the UTPR. They said the UTPR "would surrender U.S. tax sovereignty, allowing unelected foreign bureaucrats to dictate tax policy, and help foreign governments arbitrarily extract hundreds of billions of dollars from the U.S. economy."

It is unclear how a Trump administration, working with a Republican Congress, will respond to Pillar Two and whether that might include pressing for changes to the Pillar Two agreement. It also is not clear how the incoming Trump Administration will address Pillar One.

An IRS official this week repeated earlier comments that final IRC Section 987 regulations on foreign currency gains and losses will be released before the end of 2024. The official also said the final regulations would cover most issues addressed in the proposed regulations but will reserve on some partnership topics.

In other IRS news, an official in the Large Business & International Division (LB&I) provided more information on government efforts to better enforce rules in the passthrough area. According to the official, the newly constituted passthrough field unit will be organized based on regions with up to eight territories, with each territory having up to 10 exam teams. She was also quoted as saying the new passthrough field unit is not the full extent of IRS efforts in this area, adding the IRS plans to also increase hiring and possibly additional training.

An IRS official this week was quoted as saying that the US will opt for digital asset transactions involving foreign customers to be reported on a schema, rather than on a modified version of IRS Form 1042-S, "Foreign Person's U.S. Source Income Subject to Withholding." The US government, along with 47 other countries, last year issued a joint statement that it would implement the OECD crypto-asset reporting framework (CARF). The CARF creates a new international standard for the automatic exchange of information on crypto-assets.

In July 2024, Treasury and the IRS published final regulations (TD 10000) on the information reporting of sales of digital assets. The IRS also released Notice 2024-56 and Notice 2024-57, providing transitional relief for digital asset brokers, and Revenue Procedure 2024-28, with guidance for taxpayers on allocating basis among digital asset wallets and accounts. The preamble in the final regulations states that Treasury and the IRS intend to issue proposed regulations that would, if finalized, implement CARF. The preamble further notes that these regulations would apply to exchanges of information for the 2027 calendar year (to be reported in 2028).

An IRS LB&I senior official said recently that US-based subsidiaries of foreign-owned corporations that received letters (Letters 6607 and 6608) from the IRS asking about their intercompany transaction pricing and failed to respond have been referred for examination. The official noted, however, that most taxpayers that received compliance letters have responded. The letters were sent mostly to corporations that distribute goods in the United States and, in limited instances, to corporations that manufacture goods in the United States. These letters stem from the corporations' alleged use of certain transfer pricing strategies that the IRS may deem improper.

Separately, the official said the IRS will focus on transfer pricing issues now that it has additional resources to perform audits. She identified the agency's Compliance Assurance Process (CAP) as an area the IRS will pursue for transfer-pricing compliance.