June 2026 Policy Pulse

Eight months into the fiscal year, the federal government appropriations process for FY 2026 concluded this month when Congress passed and the president signed a $70 billion, three-year customs and immigration enforcement funding measure, the Secure America Act (P.L. 119-98), commonly referred to as Reconciliation 2.0. Meanwhile, the National Taxpayer Advocate issued her FY 2027 Mid-year Report to Congress, and the IRS continues to issue important guidance.

Congress

Given there are only three months (and an annual August recess) until the start of the new fiscal year, congressional appropriators have also begun work on FY 2027 appropriations, though House Republicans are largely steering initial FY 2027 government funding priorities and proposals while Senate negotiations and markups have stalled. Final appropriations legislation will require bipartisan, bicameral support, however. Thus, given the limited legislative calendar and impending midterm elections, another bipartisan stopgap Continuing Resolution (CR) will likely be needed to keep the lights on come October 1 – the start of the new fiscal year. Notably, given the current political climate, there are already talks amongst lawmakers of another potential government shutdown this fall ahead of the midterm elections in November.

Reconciliation 3.0. Republican leadership continues its pursuit of another partisan budget reconciliation bill, commonly referred to as Reconciliation 3.0. While another sweeping, tax reform bill is not expected on Capitol Hill, tax provisions are expected to hitch a ride with this legislative vehicle if it comes to be. However, with competing legislative priorities and deadlines, a lack of intraparty consensus on policy, a limited legislative calendar, and slim vote margins, the challenges of passing a third round of partisan legislation during an election year are significant, to say the least. Senate Majority Leader John Thune (R-SD) said this month that it would be very difficult for the Senate to pass another party-line measure. And while the contents of a third-round reconciliation bill remain unclear, House Ways and Means Committee Chair Jason Smith (R-MO) said this month that he will not support the measure “unless tax is in it.”

Housing legislation. This week, Congress passed the bipartisan 21st Century ROAD to Housing Act, which suddenly took an unexpected turn after President Trump refused to sign the measure into law. The president canceled a June 24, 2026, signing ceremony, calling upon Congress to pass controversial election security legislation, effectively creating congressional gridlock and further complicating FY 2027 appropriations and Reconciliation 3.0 efforts. The Housing legislation does not contain any tax provisions but could have indirect implications for various related tax incentives.

Cryptocurrency proposals. The House Ways and Means Committee held a June 9 hearing on digital asset taxation, prior to which Republican and Democratic committee members unveiled several proposed bills and discussion drafts that aim to create a landmark framework for digital asset taxation. Additionally, the nonpartisan Joint Committee on Taxation (JCT) prepared a document, JCX-18-26, detailing current law, six proposed bills, and one discussion draft related to the hearing and taxation of digital assets.

Generally, there is bipartisan, bicameral agreement that rules of the road are needed for market structure and digital assets taxation, but consensus on the mechanics has not yet been reached. This is an area ripe for bipartisan legislation, which we will continue to track, though meaningful movement is not expected until the “lame duck” session following the midterm elections in November.

National Taxpayer Advocate issues mid-year report to Congress

On June 24, 2026, National Taxpayer Advocate (NTA) Erin M. Collins released her FY 2027 Objectives Report to Congress, the first of two annual reports the NTA is required to submit to the House Ways and Means Committee and Senate Finance Committee. Generally, the report highlights a successful 2026 filing season in which the IRS issued more than 90 million refunds while implementing extensive tax law changes amidst significant operational challenges. Additionally, the report identifies issues of refund delays and IRS challenges, including returns suspended during processing for additional review, paper refund checks delays, and prolonged case resolution times for victims of identity theft, while outlining the NTA’s recommendations for the IRS as it continues to modernize its technology systems.

Treasury, IRS guidance and announcements

Treasury and the IRS continue to issue important tax reform-related guidance and announcements:

Opportunity Zones. Treasury and the IRS issued Notice 2026-40, announcing the intent to issue proposed regulations on qualified opportunity zones (QOZs) under sections 1400Z-1 and 1400Z-2 and to provide transitional guidance following the legislative changes under the law known as the One Big Beautiful Bill Act (OBBBA). The guidance clarifies gain-deferral rules based on when the investment was made, addresses what constitutes QOZ business property, and establishes safe harbors to provide long-term certainty to businesses in areas where QOZ designations expire. The proposed regulations are expected to include provisions similar to those outlined in sections 3 through 5 of the notice.

Taxation of executive compensation at tax-exempt organizations. Treasury and the IRS issued Notice 2026-36 announcing plans to release proposed regulations under section 4960, which imposes an excise tax on certain executive compensation paid by tax-exempt organizations and was recently amended by the (OBBBA). Prior to the OBBBA, the tax only applied to the five highest-compensated employees for the tax year. Now the tax may apply to any employee with compensation exceeding $1 million in a tax year or an excess parachute payment.

IRS announces launch of new Tax Professional Management Office. The IRS released a statement announcing that the Return Preparer Office (RPO) and the Office of Professional Responsibility (OPR) will merge to form the new Tax Professional Management Office (TPMO), effective June 28, 2026. The RPO and OPR will remain intact within the new office and will operate independently within their respective roles and authorities. This move is designed to improve efficiency and simplify operations; however, it will not affect how the IRS oversees the tax professional community.

Treasury previews proposed regulations on OBBBA tax credit for donations to scholarship-granting organizations for K-12 students. Treasury has issued a press release previewing forthcoming proposed regulations under section 25F, which allows an up to $1,700 tax credit for donations to scholarship-granting organizations (SGOs) located in states choosing to participate in the program. As section 25F becomes effective for the 2027 tax year, Treasury and the IRS plan to release the proposed rules by the end of September. Treasury Deputy Assistant Secretary for Tax Policy Kevin Salinger released a statement announcing several key issues that will be addressed in the forthcoming regulations, including the definition of a school, what it means for an SGO to be located in a state, and fraud and abuse safeguards.

For more information on the credit and which states have chosen to participate, see this fact sheet from Treasury, IR-2026-76, or this IRS website.

Tax Court rules on tax treatment of cryptocurrency staking rewards

On June 4, 2026, in Paschall v. Commissioner (T.C. Memo 2026-46), the Tax Court held that additional cryptocurrency tokens received from staking previously acquired tokens on a digital asset platform constituted gross income under section 61 in the tax year received. The taxpayers raised three arguments: (1) they lacked dominion and control over the tokens due to transfer restrictions imposed by the platform; (2) the rewards were analogous to a non-taxable pro rata stock dividend; and (3) the tokens were “self-created property” (such as a cake created by a baker) and therefore should only be taxed upon realization through sale.

On the first point, the court ruled that the taxpayers had dominion and control over the tokens because they could convert them to cash at any time. On the second point, the court rejected the analogy to a non-taxable stock dividend because the staking rewards “increased [the taxpayer’s] proportion of all outstanding… tokens,” increased the value of his interest, and “increased the supply and aggregate value of” tokens in circulation, leading to a taxable accession to wealth. Finally, the court held that, unlike “self-created property,” cryptocurrency staking rewards are not personally manufactured by the staker. Rather, the staker merely participates in a protocol-driven process and does not own or operate the staking pool or control whether new tokens are created.

Federal Reserve holds rates steady

The Federal Open Market Committee (FOMC) voted unanimously on June 17, 2026, to maintain the target range for federal funds rate at 3.5 percent to 3.75 percent. This decision was largely anticipated and was the first for new Chair Kevin Warsh. After steady rate cuts, prospects for future cuts this year appear slim amidst higher inflation and an upwards May jobs report.

Looking ahead, eight members of the FOMC projected rates to hold steady for the rest of the year. Nine others, however, anticipated various rate hikes.