This transcript has been edited for clarity.

David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: year-end roundup.

2025 has been an unusually busy year for tax issues. As we approach the end of the year, we're checking in on two of the biggest tax questions still in flux.

The extension of the expiring enhanced Affordable Care Act tax credit was a crucial sticking point that led the government to shut down. But in a twist, the eventual shutdown deal left the fate of the ACA credit up for a future vote. Tax Notes Capitol Hill reporters Cady Stanton and Katie Lobosco have been tracking what's going on with the vote in Congress, and we'll hear from them in just a minute.

Trump's tariffs have also been making headlines all year. In November the Supreme Court heard oral arguments in the IEEPA tariffs case. And some have speculated that the Court could issue a ruling in that case before the end of the year.

In the meantime, the Trump administration continues to announce new tariffs and use them as leverage in international negotiations. Tax Notes senior reporter Jonathan Curry will join us in just a bit to discuss the latest tariff and trade news.

But first, I'm joined by our Capitol Hill reporters. Cady, Katie, welcome to the podcast.

Cady Stanton: Thanks for having us.

Katie Lobosco: Great to be here.

David D. Stewart: So, Cady, could you give us an overview of what's going on with these Affordable Care Act credits?

Cady Stanton: Yeah. So after Congress came to a funding agreement to reopen the government in November, they left the expiring enhanced premium healthcare credits from the Affordable Care Act largely unresolved. And since Congress returned from Thanksgiving, a number of proposals have been floated by various groups in the House and the Senate, including some bipartisan ideas to address this healthcare cliff.

But in the end, the Senate scheduled votes to address the credit that were both partisan proposals. The first vote is one that was promised in this government funding agreement: It's a "clean extension" pitched by Democrats that would extend the credits for three years without any major changes to the program.

And the second is an idea from Senate Republicans that would allow the credits to expire, but would instead deposit payments into HSAs of $1,000 for those between 18 and 49, and $1,500 for those between 60 and 64. Little in the weeds here, but the payments would be paired with bronze or catastrophic plans on the Obamacare exchanges, which generally charge lower premiums but carry higher deductibles. And that would be for 2026 and 2027. It could be used by eligible individuals earning less than 700 percent of the federal poverty level.

So big picture here, the idea is that ACA-enrolled individuals would have money they can spend directly on healthcare expenses they have before they reach their deductible. Important to point out here, it really seems like neither idea has support from across the aisle. These are really partisan proposals. And over in the House, there isn't any concrete plan on what the chamber might vote on before the end of the year.

David D. Stewart: So could you tell me a bit more about this move from the older tax credit method to this HSA funding idea?

Katie Lobosco: Sure. As Cady mentioned earlier, two very different ideas have emerged on the Hill to address the expiring enhanced premium tax credit. So, one is to extend them, and the other is to replace the tax credit with a federally funded cash account like an HSA.

So I took a look at how these two different mechanisms would work. And to me, the key difference is that the tax credit lowers an ACA enrollee's premium — the cost they pay to enroll in a healthcare coverage plan. Now, funds in an HSA can be used for other medical costs they may incur before they hit their deductible or copays, but it cannot be used to pay the premium.

Now, Republicans say this is great because the money's going directly to the consumer and not the insurance company. But critics of the federally funded cash account plan say some people will still not be able to afford to enroll in health coverage to begin with because they're not getting help to pay for their premium.

David D. Stewart: So how did the votes turn out in the Senate?

Cady Stanton: The Senate held votes December 11 on both proposals, and each failed to reach the 60-vote threshold required. The Republicans' proposal — the Cassidy-Crapo HSA bill — failed 51 to 48, with Sen. Rand Paul of Kentucky joining Democrats to oppose it.

The Democrats' proposal also failed 51 to 48, but a handful of Republicans — Susan Collins of Maine, Josh Hawley of Missouri, and Lisa Murkowski and Dan Sullivan of Alaska — joined Democrats to support their proposal, but far short of the 13 flips that would've been needed for passage.

So where does that leave us? The House and Senate now only have one full week remaining of legislative session before leaving for the holidays, and [are] returning after the credits would expire in January. So, really, the clock is running out.

But there is some hope for some bipartisan movement in the House: Two groups of moderates have filed discharge petitions in the chamber, which are attempts to force a vote in the House that would extend the credits in the short term, one [idea] for one year, and the other idea for two. Each idea appears to perhaps have enough Republican support, but they would require the backing of basically the entire Democratic caucus. And House Minority Leader Hakeem Jeffries hasn't indicated whether he might jump-start that support. Sen. Murkowski told reporters that she is "encouraged" by the bipartisan proposals in the House, and called them a big step.

All of that said, even if everything goes smoothly for a plan for passage in the House next week, there's no guarantee that Senate Majority Leader John Thune puts it up for a vote in the Senate, though he'll certainly consider it. And we don't know if either of those proposals could get enough votes for passage in that chamber, either. So all in all, the deadline is fast approaching, and a final solution hasn't materialized.

David D. Stewart: So what's been happening with the appropriations process at the end of the year?

Cady Stanton: After the government shutdown, Congress punted its funding deadlines to two dates, depending on the area of appropriations. About a quarter of the funding buckets now have a September 2026 deadline, so through the next fiscal year, while the rest have a January 30 deadline, which is obviously coming up in a few weeks.

Now, Congress had hoped to make some progress on some piecemeal work on government funding before the end of the year, but that is yet to come to fruition. There were talks of a so-called minibus funding bill for December, but political policy riders and earmarks, otherwise known as congressionally directed spending that funds projects in specific states and districts, have held that work up.

So, where does that leave IRS funding? Well, for that specific area, there's a really big difference between where the House and the Senate have initially proposed funding levels that they're going to have to resolve. Senate appropriators released legislation just before Thanksgiving that would cut funding for the IRS year-over-year by 4 percent for fiscal 2026, with an overall budget of $11.8 billion for the agency.

The release of that bill text sets up an appropriations fight with the House, though, whose own bill for funding the IRS — the FSGG [Financial Services and General Government Appropriations Act] bill — would include $9.5 billion to the IRS. So, a pretty large gap to address there.

The biggest difference between the two bills is how they treat enforcement funding: The House legislation would include a 45 percent cut from year-over-year, while the Senate bill would keep that funding bucket flat. The Senate bill also doesn't include some policy riders that are in the House version, including ones to formally end the Direct File program provided by the IRS, and to limit firearm and ammunition purchases for the agency.

Now, important to note, Treasury announced already the suspension of the Direct File program back in October, in favor of improving Free File, the agency's long-standing partnership with private tax software companies. So the debate over the Direct File rider will probably end up being moot.

But it's looking more and more likely that funding disputes won't be resolved until January, so we're keeping a close eye on how this legislation will impact the IRS, both in terms of its annual budget, like I mentioned earlier, as well as any additional cuts to funding the agency received from the Inflation Reduction Act, [which] boosted funding that, frankly, has already largely been clawed back, but remains the target of Republican appropriators.

David D. Stewart: Now, I understand there's been some legislative activity that may affect the Tax Court and IRS penalties. Katie, could you tell us about that?

Katie Lobosco: Sure, yeah. We had two tax-related bills pass the House December 1, both with bipartisan support. In fact, they both passed by a voice vote, which is usually used for less controversial measures.

One bill reforms certain Tax Court procedures. It's meant to help the court do its job more effectively, and in turn help taxpayers who may have a matter before the Tax Court reach a solution more quickly. Some of the key changes would allow the Tax Court to issue third-party subpoenas before hearings and pretrial conferences, would waive certain deadlines, expand the type of proceedings that the Tax Court special trial judges can hear, and would require the Tax Court judges to recuse themselves in the same situations in which a U.S. district or appellate judge are required to recuse themselves.

Now, the other bill addresses the IRS penalty approval process. This would require the issuing employee's immediate supervisor to review and approve the penalty before it takes effect, and it would clarify who the immediate supervisor is. Under the Biden administration, they more broadly defined what an immediate supervisor is and allowed approval to be obtained at any point in the process. Ways and Means Chair Jason Smith says that this brought some concern about it possibly allowing rogue IRS agents to be handing out fines without reasonable due process.

Now, both of these bills, even though they passed the House, they still have to go to the Senate, which has not been scheduled yet, and then they would have to be signed by President Trump before they become law.

Separately, another tax-related bill was signed into law December 1. It's called the Internal Revenue Service Math and Taxpayer Help Act. [It] also had strong bipartisan support, and the Taxpayer Advocate Service was behind it. It increases transparency for taxpayers who may make a clerical error when filing their federal tax return. So, under this new law, the IRS is required to clearly explain to the taxpayer what the error was, and inform them of their 60-day right to request abatement.

David D. Stewart: Well, it seems like you're keeping track of a lot of moving parts as we get into the end of the year, and I'm sure we'll be checking in with you next year to see how it all plays out. Cady, Katie, thank you for being here.

Katie Lobosco: Thanks so much.

Cady Stanton: Thanks for having us.

David D. Stewart: Joining me now is Tax Notes senior reporter Jonathan Curry. Jonathan, welcome back to the podcast.

Jonathan Curry: Hey, Dave. It's great to be back.

David D. Stewart: So could you give us, first of all, the state of play? Where do things stand on tariff policy?

Jonathan Curry: Yeah. Well, I mean, just to step back, tariffs have been very entertaining as a reporter to cover this year. There's always something new; there's been lots of noise and chatter. But one of the big challenges as a reporter is to separate the chatter from the actual action.

A really great case in point is the tariff dividends. This was a policy that Trump has bandied about for the last couple months, nothing really concrete about it, but at times he's talked about it being a $2,000 payment using the additional tariff revenue collected this year that would be sent to American citizens. There would be an exclusion for high-income earners, but nothing else is really concretely known about that.

In fact, other administration officials have also sometimes issued some contradictory statements about what it would look like. And I think [Treasury Secretary] Scott Bessent even said a tariff dividend could just be the tax cuts that people got in the One Big Beautiful Bill Act. So, dividends in the eye of the beholder there a little bit.

One of the common themes you'll see about what could be done with this tariff revenue is that there's a big proposal, but the math doesn't always add up on it. So for example, with the tariff dividend, there's a lot of ways you could slice it: You could have a dividend go out to just households, and you could cap it at $100,000, which is a number the administration has used at different times. Or you could have it go to both spouses. You could have a partial dividend go to children and dependents, similar to what happened with the economic impact payments during the COVID-19 pandemic.

But even in the most frugal scenario, you would be looking at around $250 billion. And something a little more generous, you're looking at up to $600 billion. Now, the estimate for the year is that we're going to be bringing in about $160 billion, so there's a big gap there.

What's also interesting is that this is not the only thing the Trump administration wants to do with this money. One of the things that the Trump administration has proposed doing is to pay down the national debt, which is approaching $40 trillion, as well as the deficit, which is about $2 trillion a year. He also has talked about replacing the federal income tax altogether, which last year brought in over $5 trillion. And another option that's already being used for this funding is to provide bailouts to farmers who have been negatively affected by these tariffs. So $12 billion was set aside for a fund just a couple days ago. And so the funds are already starting to get soaked up here. So I would say if you were expecting a Christmas check from this administration, you might be disappointed.

David D. Stewart: So I mentioned earlier that there is a challenge going on at the Court. So what's happening there?

Jonathan Curry: Yeah, this is the big thing to watch. I really can't overstate that this is really going to be, quite potentially, very impactful here. There's a case that's before the Supreme Court now that was taken up in September, where the Supreme Court consolidated two other cases that had worked their way up through lower courts, and they held oral arguments on November 5, I believe.

Essentially, they're questioning whether President Trump has the authority [to issue tariffs] under IEEPA, which is the International Emergency Economic Powers Act. That's a 1977 law that's rarely used, and it authorizes the president to impose sanctions during a national emergency.

Now, more than half of President Trump's tariffs use IEEPA as their justification, including the famous Liberation Day tariffs that were announced back in April. There are other tariffs that are being used extensively by the Trump administration under section 301 and section 232; these are more narrowly targeted, or country-specific, usually involving national security, or they're addressing some unfair trade practices. You'll hear about questions about China and its stranglehold on the supply chain for semiconductors, which are used in AI and supercomputing and so forth, but those would be unaffected by this case, [or] at least not directly affected.

So, at every lower level in the courts they concluded that these tariffs under IEEPA exceed President Trump's authority, so the stakes in this are huge. The tariffs that he's announced under IEEPA could be completely invalidated. And if that's the case, we could see the government forced to pay out refunds to all these companies that have been paying tariffs all year long. They'd be flooded with requests for refunds. I can picture there probably being some fraudulent requests for refunds. I mean, it'd be quite a mess to sort through.

It also introduces on a bigger picture just uncertainty about trade policy going forward, and the negotiations that are already underway. So, President Trump and his team, they've been simultaneously renegotiating trade agreements with countries all over the world. This takes away some of the leverage that the administration's been using to get their way and what they want for some of these agreements. Are countries going to pull out of these agreements? Are they going to request changes? There's a lot of questions that it raises.

David D. Stewart: So, on the issue of trade negotiations, one of the major issues that the administration has been looking at are digital services taxes, which other countries have been adopting, that could affect U.S. companies, so, what is happening there?

Jonathan Curry: Yeah, I think what's really interesting is that all this talk about tariffs and trade policy, it's not limited to trade issues specifically. It's really, the Trump administration has not been shy about using tariffs to try to notch some tax wins, especially on the global stage, and the DSTs are a perfect case in point for that.

The digital services tax is kind of like an excise tax that some countries impose on the revenue of large digital companies, think Apple or Google. But these companies oftentimes don't actually have much, if any, physical presence in that country. So these taxes are viewed by President Trump and others — quite a few others — as being an extraterritorial tax grab that disproportionately affects U.S.-based companies. And those companies might not be explicitly targeted, but they set the thresholds on these taxes high enough that, really, it's largely U.S. companies that are shouldering the burden for these taxes.

Now, this has been an ongoing issue for years that the OECD was trying to sort out under pillar 1, but progress there has stalled. And so the Trump administration has been kind of striking out on its own. One way it's been doing that is with all these trade agreements being renegotiated around the world, they've been inserting boilerplate language, just a simple one or two sentences with these agreements with countries. It could be like Malaysia, or Thailand, or Ecuador — these are countries that don't yet have a digital services tax. They include language in these agreements saying that they will agree not to impose a digital service tax on U.S. digital services or products. So, it's a way of kind of future-proofing that from happening on that front.

The White House is also not shy about going after countries with an existing digital services tax, and they're using tariffs as leverage to kind of get what they want. One example of that is Canada. Canada this summer was about to start enforcing a digital service tax that it had on the books for a couple years. And right before they were set to start collecting it, President Trump went ballistic and told them that he was going to call off all trade negotiations, and the high tariffs that were currently being proposed were all going to go into effect, and it was going to be a big disaster. And so he threatened just to walk away from the table. And the Canadians caved: They ended up rescinding their digital services tax, and it looks like they're going to remove it from their law, as well.

And a similar case to that is in France recently. The National Assembly, they proposed raising the French DST from 3 percent currently, all the way to 15 percent. And House Republicans did not like this. And they recently wrote a letter, and they're with Trump on this, and they told him to do whatever it takes, including using tariffs, to prevent that from happening. So the French Parliament seems to be showing signs of backing off a bit. Instead of going to the full 15 percent, the National Assembly was toying with the idea of just doubling the rate to 6 percent. And more recently, the French Senate just swatted that idea of an increase down altogether, and they're saying no. So it remains to be seen what happens there.

But if I were you, I'd keep an eye on Truth Social, because depending on how things play out in Parliament there, we might see a post about this from the president in the not-too-distant future.

David D. Stewart: Well, it seems like there's an awful lot to keep an eye on, Jonathan. Thank you so much for being here.

Jonathan Curry: Thank you, as well.

David D. Stewart: That's it for this week. You can follow me online @TaxStew, that's S-T-E-W, and be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.

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