Congressional Republicans and the incoming Trump Administration are considering options on how to enact the multiple legislative priorities that are now within their grasp following the November election sweep, including extension of expiring Tax Cuts and Jobs Act (TCJA) provisions and various other tax proposals floated during the election.

Republicans are now debating whether to try to pass two budget reconciliation bills in 2025 — one of which would be focused on taxes — or enact one major reconciliation bill that includes all Republican priorities. Of key importance in this regard is that passing a budget reconciliation bill only requires a simple majority in the Senate.

Reports this week cited incoming Senate Majority Leader John Thune (R-SD) as telling fellow Senate Republicans that he envisions two reconciliation bills, with the first coming within the first 30 days of the Trump Administration and dealing with Republican priorities on border security, defense and energy. A later reconciliation bill would address tax issues and other Administration priorities.

House Ways & Means Committee Chairman Jason Smith (R-MO) was quoted as saying a non-tax reconciliation bill in the first 30 days of the new Trump Administration — as opposed to leading with a tax package — is a bad idea. "I think it's a reckless decision. … I think that they are creating an opportunity to increase taxes for all Americans."

President-elect Trump has not publicly weighed in on his vision for reconciliation bill sequencing.

Congress must also now address government funding that expires on 20 December. The two paths available to lawmakers for government funding are a continuing resolution to carry government funding likely through sometime in March 2025, or less likely, an omnibus spending bill that carries the government through the end of the fiscal year (30 September 2025).

President-elect Trump this week nominated former Republican Congressman Billy Long to be the next IRS Commissioner. The announcement indicates the President-elect plans to remove current IRS Commissioner Danny Werfel from his position. Although IRS Commissioners serve five-year terms, IRC Section 7803(a)(D) provides that the President may remove the IRS Commissioner at will.

President-elect Trump also nominated Michael Faulkender to serve as Treasury Deputy Secretary.

Treasury and the IRS on 2 December issued long-awaited proposed regulations (REG-105479-18) addressing previously taxed earnings and profits (PTEP) of foreign corporations and related basis adjustments. The comprehensive proposed regulations, which provide detailed guidance under IRC Sections 959 and 961, as well as related provisions, would represent the first major update to the PTEP rules since 1965.

The proposed regulations, which exceed 300 pages, address both longstanding issues and new complexities introduced by the 2017 TCJA.

Certain taxpayers will welcome the proposed PTEP regulations, including partners in investment partnerships (or partnerships that otherwise own controlled foreign corporation (CFC) stock). Under current law, a foreign partnership arguably does not obtain basis under IRC Section 961 for its interests in CFC stock, potentially resulting in double taxation when foreign partnerships sell their stock. As a result, partners in foreign partnership may wish to consider applying these regulations early but should carefully weigh the consistency requirement and potential detriments of early adopting.

Many other taxpayers, however, are likely to criticize the administrative burdens of maintaining PTEP (and related) accounts and IRC Section 961 basis. In addition, the proposed regulations would require sharing of PTEP across (1) different shares of stock; (2) different chains of ownership; and (3) in certain circumstances, different shareholders (that are members of the same consolidated group).

The proposed regulations have multiple effective dates. Certain core IRC Section 959 provisions described in Notice 2019-01 would apply retroactively to years ending after 14 December 2018. Most provisions, however, would apply prospectively to tax years beginning after finalization, with taxpayers able to elect early application if they applied the rules consistently and had open-statute years.

Given the upcoming change in administration and the potential for legislative action in 2025, it is unclear when these regulations will be finalized and, if so, whether significant changes will be made. A First-Impressions Tax Alert provides an overview of the PTEP regulations. A more detailed analysis of the PTEP rules is forthcoming.

The Cypriot Tax Department publicly announced that the bilateral Competent Authority Agreement for the exchange of Country-by-Country (CbC) reports between Cyprus and the United States, which is still under negotiation, is expected to be effective for Reporting Fiscal Years (RFYs) starting on or after 1 January 2024.

According to the announcement, the secondary filing mechanism for a Cypriot Constituent Entity (CE) of a multinational enterprise group with a US-tax-resident Ultimate Parent Entity (UPE) is triggered for RFYs starting on or after 1 January 2023, but before 1 January 2024 (i.e., during calendar year 2023). Accordingly, a Cypriot CE whose UPE is a tax resident in the US, must file the CbC report locally in Cyprus for its RFY ending on 31 December 2023, even if a CbC report has been, or will be, submitted in the US. An EY Global Tax Alert provides details.