On the eve of the government shutdown, the IRS released its 2025-2026 Priority Guidance Plan for fiscal year 2026 – of 105 projects, 40 pertain to implementing the One Big Beautiful Bill (OBBB, P.L. 119-21). Even after the funding lapse, the IRS indicated it will continue these implementation efforts.
OBBB Prioritized
The Priority Guidance Plan is slimmer than last year’s – the FY 2024-2025 plan listed 231 projects in a wide range of areas. This year, the IRS intends to focus on OBBB implementation, as well as deregulation. Also on this year’s plan are projects related to tax-exempt organization eligibility, Tribal tax issues, digital assets, and SECURE 2.0 Act implementation.
Topping the FY 2026 Priority Guidance Plan’s OBBB list are tax provisions President Trump first offered on the campaign trail – tip, overtime, and auto loan interest relief – as well as guidance on new Trump accounts.
The administration is also focused on key 2017 Tax Cuts and Jobs Act provisions that were extended or tweaked under the OBBB. Included on the list are the IRC § 199A deduction for qualified business income, the increased estate and gift tax exemption amounts, the IRC §163(j) business interest deduction limitation, and the IRC § 174 and IRC § 174A research and experimental (R&E) expenditures provisions. Toward the end of the list of OBBB priorities is guidance on the several revised and phasing out clean energy provisions.
However, the IRS’ progress on OBBB implementation projects may be hindered by the ongoing government shutdown, which has outlasted the IRS’ initial temporary funding contingency plan using Inflation Reduction Act funds. The IRS announced Wednesday it has furloughed over 34,000 IRS employees, approximately 54% of the remaining workforce after this year’s reductions in force and voluntary resignations.
But the IRS’ latest contingency plan, in effect from October 8, indicates certain agency activities “will continue during a lapse of annual appropriations.” On that list are preparations for the 2026 filing season and timely implementation of the OBBB.
Some Progress Made
According to the Priority Guidance Plan, of the 105 projects, 11 were “released or published as of August 31, 2025.”
For the 40 OBBB projects, specifically, the Priority Guidance Plan indicates the IRS has made progress on two: IRC § 45Y and IRC § 45E beginning of construction guidance for wind and solar facilities, with the August 15 release of Notice 2025-42; and R&E expenditure elections under § 174 and § 174A, with the August 28 release of Rev Proc 2025-28.
Not noted on the plan is the agency’s progress in the payroll realm in September, including proposed regulations listing occupations where workers customarily and regularly receive tips, for purposes of the new OBBB tip deduction. It also does not note the release of draft 2026 Forms W-2 and W-4 to reflect new reporting for qualified tips and overtime.
A Long Road Ahead
Though the Priority Guidance Plan indicates some progress, experts say there’s a long way to go.
R&E expenditures
Additional guidance and rulemakings on the R&E provisions topped the National Foreign Trade Council’s list of demands in a September 30 letter to Ken Kies – who is serving as both IRS acting Chief Counsel and Treasury Assistant Secretary for Tax Policy.
NFTC takes issue with Rev Proc 2025-28, which it says dictates an “all-or-nothing election” for capitalization and amortization of domestic R&E expenditures. The group calls the approach both “restrictive on taxpayers” and “a departure from the project-by-project accounting in Treas Reg § 1.174-4.”
NFTC also seeks transitional guidance addressing the interaction between R&E expensing and the Corporate Alternative Minimum Tax threshold and Base Erosion and Anti-Abuse Tax (BEAT) liability. And it requests clarification from the IRS on the applicability of the definition of “specified research or experimental expenditures.” The group proposes the definition should only apply for purposes of the IRC § 174(a) capitalization rules, with the “research or experimental expenditures” definition applying for other purposes.
Foreign entity of concern restrictions
On the clean energy tax credit front, practitioners are anxiously awaiting guidance on new foreign entity of concern (FEOC) restrictions. Notice 2025-42 provided beginning of construction guidance specifically for wind and solar facilities. However, it’s not applicable for determining beginning of construction for FEOC material assistance purposes, explains a Holland & Knight post.
“We know you have to begin construction by the end of this year – that’s clear,” Holland & Knight partner Elizabeth Crouse said of the FEOC material assistance provisions. What’s a “wild card” to her is whether the IRS will provide “continuous construction safe harbors” like those in prior guidance. “There’s no guarantee that they will,” Crouse told Checkpoint.
Crouse, does, however, expect to see FEOC material assistance guidance on the IRC § 45X Advanced Manufacturing Production Credit soon. For that credit, the restriction applies very quickly – impacting components sold in tax years beginning after the OBBB’s enactment.
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