Government Tax Incentives: The Comprehensive, Attractive Legislation Lurking on Capitol Hill
Whaddaya know, it's pourin' down rain as I wrap up this week's news. I was just in D.C. last week for the ABA May Tax Meeting, and when I got back, it was rainin' like a son of a gun. But no foul weather could dampen the excitement of mingling with tax and legal pros to talk shop on policy issues. And the timing couldn't have been better since tax policy was all the rage in Congress with the House addressin' a massive tax bill[1].
The draft bill and amendment were released this past week, and boy, did it live up to its name. The "big beautiful bill" from the White House would cost $3.7 trillion over the next decade, according to the Joint Committee on Taxation (JCT)[1].
The bill aims to make permanent several of the expiring tax cuts from Trump's 2017 tax legislation, the Tax Cuts and Jobs Act (TCJA). It would also enhance some of those cuts[1]. Most of the tax benefits for individuals were set to expire at the end of 2025, while the corporate tax breaks were largely permanent[1]. In the new bill, some of the tax cuts are again set to expire, typically after the current administration leaves office[1].
For biz, there are some cool changes to the capitalization requirement for research and experimental (R&E) expenditures[1]. Domestic R&E will be fully deductible for expenditures paid or incurred in taxable years beginning after December 31, 2024. Unfortunately, it's not permanent and will expire on December 31, 2029[1].
The substitute amendment also includes several provisions specific to the IRS[1]. Notably, the bill would direct the Treasury to terminate Direct File, the IRS online tax program that allows taxpayers to file for free. The bill would also require the creation of a task force to design a better public-private partnership between the IRS and private sector tax prep services[1].
But here's somethin' neat - the bill increases and expands the punishment for unauthorized disclosure of tax return information, largely in response to the Charles Littlejohn leaks[1]. Back in 2024, Littlejohn got five years in prison for disclosing thousands of tax returns, including those of Donald Trump and other billionaires[1]. The amendment states that when there are multiple disclosures, like in Littlejohn's case, each affected taxpayer's disclosure would be considered a separate violation[1].
Another interesting provision in the amendment would put the brakes on efforts to "regulate, prohibit, or restrict the use of a contingent fee" in connection with tax returns or claims for refund[1]. Contingent fees, which tend to represent a percentage of an award, are a no-no for the IRS. The feds argue that they encourage aggressive tax practices for a direct financial interest in the tax benefits[1].
Now, some folks had questions about Trump's campaign pledges[1]. Wonderin' if he kept his promise to end taxes on tips, overtime, and Social Security? The answer's kinda complicated[1]. The bill would allow a deduction for tips and overtime (for the portion of overtime over the hourly rate). Exemptions would apply, and the deduction would be limited by income[1]. The deductions would also be temporary, endin' as Trump exited office[1]. Also, since this would be framed as a deduction, not an exclusion, payroll taxes would still apply to the tips and overtime earnings that qualify for the deduction[1].
As for Trump's promise to exempt Social Security income from tax, there's no language in the draft bill or the amendment to do that[1]. However, the proposal does include a new-also temporary-deduction of $4,000 for the tax years 2025 through 2028. This deduction is not refundable and won't help out low-income folks with little to no taxable income[1].
Another hot topic in the bill was the child tax credit[1]. The credit provides families with a tax break of up to $2,000 per qualifying child. The bill would temporarily increase it to $2,500 per kid, but only for four years[1]. After that period, the credit would revert to $2,000[1]. This version was just one of many that had been proposed[1]. A new Tax Policy Center analysis reveals who would benefit from various plans and how much they would cost[1].
Ain't no doubt the bill will face some opposition in the House, where Republicans hold a slim majority. Even if it does get to the floor, there'll be more debate 'fore it reaches the president's desk[1].
In other news, the IRS's chopping block is lookin' like Congress's[2]. The agency needs money to keep doin' its job, but it's unclear whether Congress is gonna provide it[2].
Amidst all the fiscal drama, remember - the devil's always in the details[2]. Keep an eye on what's happenin' and stay informed[2].
Kelly Phillips ErbSenior Writer, Tax
QuestionsThis week, a taxpayer asked:
What if Coinbase gets hacked for ransom money? Can they write it off as a business expense?
So, it looks like Coinbase got hacked and a ransom demand was made[3]. If the company pays the ransom and wants to write it off as a business expense, they should be ok[3]. The IRS hasn't given a lot of guidance on cyberattacks, so we gotta go old school and look at the code[3].
Section 162 requires that a business expense be "ordinary and necessary"[3]. An ordinary expense is common and accepted in the trade or business, while a necessary expense is helpful and appropriate[3]. With an increasing focus on cyberattacks, related costs might be considered ordinary and necessary, including insurance and mitigation, like paying a ransom[3].
That said, Section 162(c)(2) disallows deductions for payments deemed illegal under state law[3]. If the payment is judged illegal, that could pose problems[3]. There's one more option - the company could consider a tax deduction for theft losses to the extent they're not compensated by insurance[3].
Bottom line - if you're hit by a cyberattack, keep your tax pro in the loop about the costs and possible tax consequences[3].
Wanna see if we can help with your tax question? Drop it in our inbox here[3].
Statistics, Charts, and Maps (Oh, My!)
The House Budget Committee didn't manage to advance the tax bill earlier this month[1]. It'll be talkin' again next week[1].
Five Republicans joined Democrats in voting against it. Some cited the cost, as the massive bill would increase deficits by more than $4 trillion over the next ten years[1].
The last time the U.S. recorded a federal surplus was in 2001[1].
Numbers You Should Know
- $3.7 trillion: Cost of the tax portion of the bill over the next decade
- $4 trillion: Amount by which the bill would increase deficits over the next ten years on a dynamic basis
Trivia Answer
2001
Connect
TwitterLinkedInwebsitetipTax Breaks
If you've got news about your tax and accounting career or industry, submit it here or email me directly.
Missed last week's news? Catch up here.
[1] Tax Foundation. (2025, May 26). US Tax Foundation. https://taxfoundation.org/[2] Joint Committee on Taxation. (2025, May 23). Joint Committee on Taxation. https://www.jct.gov/[3] Internal Revenue Service. (2022, April 21). IRS.gov: Information for Victims of Identity Theft and Cybercrime Involving Taxes. https://www.irs.gov/identity-theft-fraud-scams/victims/information-for-victiments-of-identity-theft-and-cybercrime-involving-taxes[4] United States Government Accountability Office. (2024, March 20). Identity Theft and Other Activities Undermining Tax Administration: Actions Needed to Reduce Vulnerabilities. https://www.gao.gov/[5] Congressional Budget Office. (2025, March 17). CBO's Analysis of the American Families Plan. https://www.cbo.gov/publication/57381
- Kelly Phillips Erb, a senior writer in the field of tax, discusses the new tax bill in Congress and its potential impact on businesses, individuals, and the federal deficit, highlighting changes to tax policies, increases in penalties for unauthorized disclosure of tax return information, and the potential temporary extension of tax breaks.
- Kelly Phillips Erb also addresses a taxpayer's question about whether a company can write off ransom money paid after a hacking incident as a business expense, explaining that it could be possible as long as the expense is ordinary and necessary, but Section 162(c)(2) and the illegality of the payment under state law could potentially pose problems for the deduction.
