David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: And we're back.

As summer comes to an end, we here at Tax Notes Talk aren't the only ones returning from a break. Congress is also wrapping up their August recess, with the House back this week and the Senate due back midway through September.

The House has already been hard at work passing a stopgap funding bill that the Senate passed before they left for recess. This bill, which now heads to President Trump's desk, would keep the IRS's annual budget at $11.2 billion through December 11.

So what will Congress's goals be as they prepare for the upcoming elections? Joining me now to talk more about this is Capitol Hill reporter Cady Stanton. Cady, welcome back to the podcast.

Cady Stanton: Thanks for having me again.

David D. Stewart: So why don't we start off with the question of long-term IRS funding now that Congress is coming back?

Cady Stanton: Absolutely. IRS money overall is up in the air. The House typically wants more cuts than the Senate, who tries to get some bipartisan buy-in on their government funding bills. The House proposed a $10.2 billion annual budget for the IRS, down from $11.2 billion for fiscal 2026. Now, if that legislation was the final number, it would give the agency its smallest budget since 2004. The Senate hasn't released their version yet, but those two things probably won't be squared until December, if not a little bit later.

David D. Stewart: Now, one of the issues that's been coming up lately for the IRS has been staffing levels. Is Congress looking into how that's affecting the agency?

Cady Stanton: Absolutely. So Senate Democrats asked IRS CEO Frank Bisignano to address the seeming discrepancy between his remarks to taxwriters and some recent reports about the agency scrambling to fill positions. Bisignano told the Finance Committee in April that the staffing reductions at the IRS aren't hurting the agency, especially as it works to fill the personnel gap with technological developments. And he told the House Ways and Means Committee in March that "I feel good about the number of employees I have right now." He said he really has zero staffing concerns.

But the reality is the IRS has lost about 27 percent of its 100,000 employees since the beginning of 2025, and the agency temporarily reassigned IT and other staff into customer service roles to help with service demands during the 2026 filing season. Add to that that the agency launched a hiring spree this summer after it missed staffing goals ahead of the filing season for submission processing and accounts management, both of which fell short by more than 1,000 employees.

Lawmakers overall are concerned that Bisignano had read an internal IRS memo that reportedly flagged staffing issues before he made those Capitol Hill appearances, raising some questions about whether he misrepresented staffing levels at the agency in testimony to lawmakers earlier this year.

David D. Stewart: One of the issues we were tracking before Congress went out was this settlement reached between the [Department of Justice] and President Trump that gave him some sort of immunity to audit looking back. What's going on with that on the Hill?

Cady Stanton: There was quite a bit of drama surrounding that, so I'm glad you brought it up. Leading up to the August recess, there was a lot of what I would say hubbub about Attorney General Todd Blanche's nomination in the Senate. Two Senate Finance Committee members, John Cornyn (R-Texas) and Thom Tillis (R-N.C.), opposed Blanche's nomination over his and the rest of the Justice Department's handling of that settlement agreement you mentioned. President Trump's settlement agreement with the IRS is part of his lawsuit against the agency for an unauthorized leak of his tax returns. Now, Cornyn and Tillis pushed for written commitments and changes to that settlement agreement, namely regarding its audit order you talked about barring audits on past tax returns of Trump, his family, and business, as well as the $1.8 billion settlement fund from the agreement.

And they got some of those concessions. The audit order was clarified to only be for previous returns and only to apply to plaintiffs of the suit. And the end of the fund, which had been previously announced, was put in a written order, so really pen to paper on that. There have been some fair questions about the enforceabilities of these orders, but they were enough to sway both Cornyn and Tillis to support Blanche right before the recess.

Meanwhile, Democrats attempted to attach legislation to unrelated bipartisan tax administration bills that were moving through the Senate Finance Committee, and that legislation would've banned the DOJ and IRS from entering into settlements and audit orders like these with sitting or future presidents. But it didn't get enough GOP support to move forward, and that amendment ended up being dropped.

David D. Stewart: So let's actually talk a bit about the tax administration bill in the Senate. I understand there's a bipartisan bill there. Can you tell us what that's about? What's in there?

Cady Stanton: Yeah, it's a pretty large bill regarding tax administration and taxpayer protections. The legislation passed the Senate Finance Committee with bipartisan support earlier this summer, and it includes more than 60 provisions aimed at improving IRS service, modernizing tax administration, and strengthening taxpayer protections. Among those items, it would include the IRS being enforced to digitize all returns, upgrade taxpayers' online accounts, expand IRS callback options, and strengthen standards for paid preparers, among a lot of other items.

Now, a sticking point in the Senate that delayed panel passage of the bill had to do with that audit agreement as we mentioned, and it delayed the markup from the spring to the summer. But in the end, it passed the Senate Finance Committee and possibly could get taken up on the full Senate floor before the end of this Congress. Meanwhile, in the House, the Ways and Means Committee chair, Jason Smith (R-Mo.), has been trying to get some wins for the committee and passed several bipartisan bills from that larger package through committee, but in a piecemeal method.

While the Senate had built this larger, more convenient package, they were going one by one, both through the committee and then through the larger House floor. Overall, there aren't a ton of differences in the policy on these bills. It's really just the approach for passage. It's unlikely that we're going to see movement in September on these items, but watch out for the lame-duck session. And it could be a pretty important centerpiece on any tax vehicle that might move in November or December.

David D. Stewart: Another issue we were tracking that seemed to lose steam just before the recess was this bill regarding cryptocurrency. Where does that stand when Congress comes back?

Cady Stanton: The tax treatment of cryptocurrency is an area that both the House and the Senate have been trying to expound upon in recent months, but most of the movement has happened on the House side. House taxwriters led by Rep. Max Miller (R-Ohio) on the Ways and Means Committee have been trying to move forward with draft legislation and conversations on the tax treatment of digital assets, which is a very complex and dense subject, admittedly. Overall, Miller and Chairman Smith are trying to move fast, as if trying to get this bill done as soon as possible. But most Democrats and even some Republicans I've spoken to really don't think there's a need for this kind of urgency on the topic. They'd rather get it done right than get it done fast. And a lot of members on both sides of the aisle either aren't willing to try to understand such a complex issue or don't care enough to, especially if they're retiring and may not have to deal with it by the time that they leave.

In terms of the major sticking points on the policy here, they center around the tax treatment of mining and staking rewards, and how to ease the tax burden for those using digital assets to make these kind of small everyday purchases. And those are the two areas that are definitely going to serve as hurdles for getting bipartisan support on a package on cryptocurrency tax legislation. Another sticking point worth watching is that the Senate has been working on a bill called the Clarity Act, which would establish a federal regulatory framework for digital assets. And there's some debate about whether that needs to pass first or even alongside this tax treatment of cryptocurrency bill in order to make sure everything is hand in glove.

David D. Stewart: And just before they left, I understand they took some actions in kind of an unusual bill that includes both Russia sanctions and school supplies. Could you tell us about that?

Cady Stanton: Yeah, it's definitely a weird one, and we followed it closely right before the Senate left. They did kind of a lot of slapdash action in that last day, but two tax items, including the one you mentioned, saw some movement, and a lot of it was largely unnoticed. The Senate passed the Lindsey Graham Sanctioning Russia and Iran Act named after the late Senator Lindsey Graham, and what that bill would do overall is impose new sanctions on Russia, but it also included a provision that would expand a tax deduction to early childhood educators for their classroom expenses. The legislation, known as the SEED Act, would make pre-K teachers, aides, principals, and counselors eligible for a $300 above-the-line tax deduction, and that deduction's already available to K through 12 teachers for out-of-pocket expenses incurred to support their classrooms. The two were bundled together for procedural reasons, which are very challenging to explain, but ultimately means that if the bill goes back to the House during the next session, when the sanctions bill passes, that boost for pre-K teachers will also sneak through.

The other bill worth noticing that the Senate passed that had already passed the House was a short-term extension of disaster tax relief measures. That would extend those measures through the end of the year, especially after some natural disasters since they expired, including the big wildfires in the Palisades in California. The bill, known as the Doug LaMalfa Federal Disaster Tax Relief Certainty Act, passed by unanimous consent and next heads to President Trump for his signature. The bill would specifically extend the tax treatment for two disaster-related provisions, personal casualty losses and wildfire relief payments, through the end of 2026.

David D. Stewart: So looking ahead with Congress back in town, what are we expecting to see this September with the elections looming?

Cady Stanton: Lawmakers have what I would call a laundry list of items they want to accomplish both in September and just for the rest of the year. Republicans are really focused on this third reconciliation bill they want to pass both a budget resolution and final bill for, and that focuses on military and defense needs for the ongoing conflict in the Middle East, farm subsidies, and even some election integrity initiatives before the midterms. But that bill and a couple of others they have to pay attention to, like the NDAA [National Defense Authorization Act] and the farm bill, don't really involve tax, and that's largely because there aren't any big deadlines that they need to address like there was for [the One Big Beautiful Bill Act] in 2025, so they don't have that pressure to act on tax. The two big hurdles to tax legislation this year, especially any that would include bipartisan proposals, are the limited time on the calendar, especially with members out for all of August and all of October, and then also a lack of room for bipartisanship in an election year where chamber control really could easily flip.

So we're not likely to see much on tax in September specifically, but I will flag there are some areas that are worth looking for outside of tax policy but related to tax, and those are nominations. President Trump announced that Jim Gadwood would be his nominee for the IRS chief counsel role, and that could see some movement in the Senate Finance Committee in September, and there was also a nomination to the Tax Court that the Senate could take up as well.

David D. Stewart: With this election coming up, do we have any sense of what we might see on changes to the taxwriting committees?

Cady Stanton: The big ticket item in terms of election outcomes is obviously the overall control of the House and the Senate in terms of what both Republicans and Democrats could try to accomplish next year. Now, even if Democrats flip the House or the Senate, there would be limitations in terms of what they could do because of having a Republican in the White House, but it could open the door for things like subpoenas and oversight of the Trump administration or even some bipartisan work. But the other thing to watch is that there's already been a number of announcements on retirements and departures from both taxwriting committees. On the Senate side, as many as five Republican Senate Finance Committee members could be leaving, and there's at least one anticipated departure among Democrats. On the House side, there's even more movement. Rep. John Larson (D-Conn.) was the fourth confirmed Democratic departure from Ways and Means a couple of weeks ago, and he joins three other incumbents who are opting to retire, Lloyd Doggett (D-Texas), Danny Davis (D-Ill.), and Dwight Evans (D-Pa.).

And as of August, at least four Republican members of the Ways and Means Committee will also leave Congress at the end of the current session. That includes Vern Buchanan (R-Fla.), Jodey Arrington (R-Texas), David Schweikert (R-Ariz.), and Randy Feenstra (R-Iowa). We could also see some more upsets in November and overall, and we're likely to see a loss of a lot of institutional knowledge on both committees, and it could lead to a change in also the political makeup within the caucuses in terms of what both sides of the dais end up prioritizing related to tax.

David D. Stewart: So following the election, are we expecting to see some movement in the lame-duck session?

Cady Stanton: I mean, if you're an optimist, definitely. If I wanted to try to read my crystal ball, the thing I can definitely focus on is what might end up in a package if it does materialize. So some of those we've already mentioned. We've got the Taxpayer Assistance and Service Act, that tax administration package, cryptocurrency tax treatment, and then there's a couple of others, like the gambling deduction, which was capped in OBBBA and has rankled a couple of members. The section 48D advanced manufacturing investment credit from CHIPS is something that the top taxwriters in the Senate have both taken interest in. The work opportunity tax credit, also known as WOTC, expired at the end of last year, and there's been some lobbying on that issue. And then also the U.S.-Taiwan tax agreement, kind of a long-languishing piece of legislation that could always join onto a bipartisan tax bill.

Some areas that are less likely to end up in the final version of the bill, but could definitely pop up if Democrats look to use some leverage in a bipartisan piece of legislation, include an extension of the enhanced premium tax credits from the Affordable Care Act that expired at the end of 2025, and then technical corrections from OBBBA that Republicans might want to get through into a package. Overall, I would say that it's probably going to be a smaller package than typical, but it could still materialize at the end of the year if all of the kind of environmental factors fall into place.

David D. Stewart: What sort of factors will come into play in whether this bill comes together?

Cady Stanton: I've talked to a lot of people on and off the Hill about what would need to align for a package to materialize, and here's a couple of ones that I've heard. The top one is buy-in from leadership. That includes House Speaker Mike Johnson (R-La.), Senate Majority Leader John Thune (R-S.D.), and then Democratic leaders as well.

Another important one is election results, but also a sense of what the general mood is after the elections, a vibe check, if you will, depending on how much rancor there was during the elections and what those results are. Another important element is attendance after elections with these retirements. It could also mean that members just don't want to vote in November and December and don't show up to work. President Trump's buy-in or interest in any bipartisan bill is also one that will be a defining factor. There's some other priorities that members want to push, like I mentioned, the NDAA, the government funding deadline, the farm bill, other reconciliation pushes.

Those could always win out and will be fighting with any ideas for a bipartisan tax package. And then lobbying could also play an important role. There's nothing universally pressing on tax right now, so a push from people on the outside or from members really trying to win something for constituents could also be a deciding factor on whether a bill is strong enough to both materialize in terms of legislative text and then also get over the finish line in both the House and the Senate.

David D. Stewart: Well, it seems like a lot of factors to keep in mind, and I'm sure we'll have you back to talk about the results of all of this. Cady, thank you so much for being here.

Cady Stanton: Thanks so much for having me.

David D. Stewart: That's it for this week. You can follow me online at @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.

Anthony Zoppo: Tax Notes Talk is a production of Tax Notes. You can learn more about us by visiting www.taxnotes.com/podcast. When major media wants the straight story, they turn to Tax Notes. Thank you for listening, and join us again for another edition of Tax Notes Talk.

Tax Analysts Inc. does not provide tax advice or tax preparation services. Nothing in the podcast constitutes legal, accounting, or tax advice. A full disclaimer is included in the transcript.

Tax Analysts Inc. does not provide tax advice or tax preparation services. The information you have seen and heard today represents the views of the presenters, which may not be the same as those of Tax Analysts Inc. It may include information obtained from third parties, and Tax Analysts Inc. makes no warranties or representations of any kind and is not responsible for any inaccuracies. Nothing in the podcast constitutes legal, accounting, or tax advice. The tax laws change frequently, and neither Tax Analysts Inc. nor the presenters can guarantee that any information seen or heard is accurate. Also, due to changing tax laws, any information broadcast or downloaded after its original air date may no longer represent the current views of the presenters. If you have any specific questions about any legal or tax matter, you should always consult with your attorney or tax professional.

All content in this broadcast is protected under U.S. and international laws. Copyright © 2026 Tax Analysts Inc. Unauthorized recording, downloading, copying, retransmitting, or distributing of any part of the podcast is strictly prohibited. All rights reserved.