Congress is back in Washington, following a two-week recess. This month, we continue to focus on evolving tariff policies — including refunds, new levies and ongoing investigations — which continue to generate significant uncertainty for taxpayers. We also provide initial insights into the president's FY27 budget request and changes in economic indicators, among other tax updates.
Government Funding
Congress appears poised to address the prolonged shutdown of the Department of Homeland Security (DHS), which has lacked funding since February 14, 2026. President Trump and congressional Republican leadership have endorsed a two-track solution:
- Appropriations Funding: DHS, with the exception of Immigration and Customs Enforcement (ICE) and Customs and Border Protection (CBP), will be funded for the remainder of FY26 via a bipartisan appropriations bill. The Senate passed the measure over two weeks ago by unanimous consent, but it has yet to pass the House of Representatives (House).
- Reconciliation Funding: President Trump has requested Republicans pass, along party lines, a reconciliation bill that will fund ICE and CBP through the remainder of his term. Republican lawmakers were considering what other priorities they could incorporate into the package — including tax provisions until Trump endorsed a narrow package addressing only ICE and CBP funding. He has requested the bill be on his desk by June 1, 2026.
FY27 Presidential Budget Request
On April 3, 2026, the White House released President Trump’s FY27 discretionary budget request, outlining the administration’s policy and funding priorities for the year ahead. The release of the president’s budget generally marks the start of the congressional appropriations process for the next fiscal year, which begins on October 1, 2026.
Overall, the president is seeking a 10% reduction in non-defense discretionary funding and an almost 50% increase in discretionary defense spending. The budget did not include any new tax proposals but did forecast a significant increase in tariff revenue and another drastic cut to IRS funding.
While the president’s budget request may shape the congressional budget process, Congress retains full discretionary funding authority and is under no obligation to consider or adopt any portion of the proposal.
New Legislation
On April 13, 2026, the president signed into law the Small Business Innovation and Economic Security Act. The bill reauthorizes and modifies the Small Business Innovation Research (SBIR) program and the Small Business Technology Transfer (STTR) programs through FY31. Funding for these programs, which provide small businesses with research and development funding, previously lapsed after September 30, 2025.
Potential Legislation
Congress is operating under a compressed legislative schedule with limited time in session before the midterms. As a result, it is unlikely there will be any meaningful movement on tax legislation until the lame-duck session, at the earliest.
Reconciliation 2.0 and 3.0
As discussed above, Republicans are preparing to advance a second reconciliation bill focused on immigration enforcement funding. At the president’s direction, the measure is expected to remain narrowly focused, deferring other Republican priorities to a potential third reconciliation package.
While final passage of the ICE and CBP funding reconciliation is not guaranteed, the process is currently moving ahead, with President Trump requesting delivery of the package by June 1, 2026.
The opportunity for Republicans to pursue a third reconciliation bill will become available at the start of FY27, which begins on October 1, 2026. The prospects for advancing a third package are uncertain, particularly given the slim majorities in both chambers of Congress. However, if a third bill does move forward, it is widely expected to include tax provisions, as Ways and Means Chair Jason Smith (R-MO) has indicated he will not support a reconciliation legislation that does not include tax policy.
Bipartisan Tax Proposals
On March 25, the House Ways and Means Committee unanimously advanced five bipartisan tax bills:
- Survivor Justice Tax Prevention Act (HR 2347)
- Federal Disaster Tax Relief Act of 2025 (HR 5366)
- Supporting Early-Childhood Educators' Deductions Act of 2025 (HR 5334)
- Taxpayer Experience Improvement Act (HR 7971)
- IRS Whistleblower Program Improvement Act (HR 7959)
While these pieces of legislation received overwhelming bipartisan support, tax measures are unlikely to move before the midterm elections. Senate Finance Committee Chair Mike Crapo (R-ID) and Ranking Member Ron Wyden (D-OR) also released a comprehensive bipartisan tax administration proposal, detailed in our March Tax Policy Review, that could move during the lame duck session.
Implementing Tax Reform
In the last month, the U.S. Department of the Treasury (Treasury) has issued several new pieces of guidance relating to P.L. 119-21, commonly referred to as the “One Big Beautiful Bill Act” (OBBBA):
- Business Interest Expense Limitation: In Proc. 2026-17, the Treasury and Internal Revenue Service (IRS) provided guidance on withdrawing elections under Sec. 163(j) to be an electing real property, farming, or utility trade or business. Taxpayers who withdraw elections under the new guidance will be treated as if the election had never been made. It’s important to note all actions must be completed by the earlier of October 15, 2026, or the relevant statute of limitations.
- Qualified Opportunity Zones (QOZs): Treasury and the IRS released Proc. 2026-14, which provides guidance to states on how to nominate census tracts to be designated as QOZs beginning in 2027.
- Remittance Tax: Treasury and the IRS released proposed regulations that provide rules and definitions related to the new excise tax on remittance transfers. The guidance provides clarity for financial institutions, which have been subject to the provision since January 1, 2026. For more information, visit our Excise Tax on Remittance Transfers Insight.
- Tipped Income: Treasury and the IRS released final regulations that provide a list of occupations that qualify for the new “no tax on tips” deduction and a definition of “qualified tips.”
IRS Updates
Filing season is coming to a close. According to the IRS’s latest filing statistics, as of April 3, 2026, almost 100 million taxpayers had filed returns. Average refunds are up $346 compared to last year, an increase of 11.1%.
IRS Funding
The FY27 presidential budget request reflects a $1.4 billion reduction in funding for the already beleaguered IRS, which saw a 9% decrease in funding from FY25 to FY26.
|
FY25 Appropriations |
$12.3 billion |
|
FY26 Appropriations |
$11.2 billion |
|
FY27 Appropriation Request |
$9.8 billion |
It is important to note, as outlined in the December Tax Policy review, the White House also requested $9.8 billion in funding for FY26, but appropriators provided the higher funding level of $11.2 billion.
Economic Outlook
This month’s economic data offered mixed signals, suggesting an economy that remains relatively resilient but is facing increasing pressure.
- Inflation: Annual inflation, as measured by the Consumer Price Index for All Urban Consumers (CPI-U), spiked to 3.3% in March, almost a full percentage point higher than February and the highest level in nearly two years. The bulk of the increase was driven by a surge in energy costs resulting from the war in Iran.
- Employment: The U.S. economy added an estimated 178,000 jobs in March, beating expectations and pushing the unemployment rate back down to 4.3%.
- Gross Domestic Product (GDP): The third estimate for 2025 Q4 GDP showed further decreased economic output, with the economy growing at an annualized rate of just 0.5% in the fourth quarter of 2025.
Expectations for Federal Funds Rate
Just a few months ago, markets were expecting anywhere between one and three cuts to the federal funds rate in 2026. Recent economic indicators, particularly a spike in inflation and stronger-than-expected job growth, have called those expectations into question. While we’re only a quarter of the way through 2026 and economic conditions could meaningfully evolve over the coming months, market participants are now expecting the Federal Open Market Committee (FOMC) will hold rates steady through the end of the year.
The federal funds rate range hit a recent high of 5.25% – 5.50% in July 2023 and remained there until September 2024. Since then, the FOMC has lowered the target range six times. The current target range is 3.50% – 3.75%.
New FOMC Chair
Current FOMC Chair Jerome Powell’s term will expire on May 15, 2026. President Trump has nominated Kevin Warsh, a previous member of the FOMC and former economic advisor to George W. Bush, to succeed Powell in leading the Federal Reserve.
Though Warsh is generally seen as a qualified candidate, he faces a significant obstacle to confirmation. Senator Thom Tillis (R-NC), a member of the Senate Banking Committee, has vowed not to advance any Federal Reserve nominees while the current Department of Justice investigation into Powell remains open, citing concerns over the independence of the Federal Reserve. A “no” vote from Tillis means Warsh’s nomination will likely not be able to advance out of committee.
At the March FOMC press conference, Powell stated he would stay on as chair pro tempore until his successor is confirmed. Though Powell’s term as chair expires next month, his term as a member of the Fed doesn’t expire until January 31, 2028.
Trade Policy
Trade policy remains in flux as CBP develops a refund mechanism for International Emergency Economic Powers Act (IEEPA) tariffs, Section 232 and 301 investigations proceed, and the United States-Mexico-Canada Agreement (USMCA) review is officially underway.
The release of the president’s FY27 budget request has also raised new questions around trade policy, as the request relies on significant projected tariff revenues over the next decade.
IEEPA Tariff Refunds
Following the U.S. Supreme Court’s ruling that IEEPA does not authorize the president to impose tariffs, the lower U.S. Court of International Trade (CIT) has ordered the refund of all IEEPA duties.
In March, CBP requested a 45-day extension to update its Automated Commercial Environment (ACE) system and processes to handle the substantial volume of refunds. The CIT granted the request and has been monitoring the development of CBP's new Consolidated Administration and Processing of Entries (CAPE) functionality.
While the system is not yet functional, the first phase is scheduled to be operational by early next week (April 20, 2026). We are advising our clients to prepare for its launch by gathering relevant data, examining potential liabilities, and modeling tax, transfer pricing, and financial statement impacts.
New Section 122 Tariffs
As discussed in our March 2026 Tax Policy Review, following the determination that previously imposed IEEPA tariffs were unlawful, President Trump implemented new Section 122 tariffs imposing a uniform 10% duty. While the tariffs apply on a broad basis, they include significant carveouts and may remain in effect for a maximum of 150 days, through July 24, 2026. While these new tariffs are currently being challenged in the CIT, the duties remain in effect for the time being.
Section 232 and 301 Investigations
At the direction of President Trump, U.S. Trade Representative (USTR) Jamieson Greer announced a series of trade investigations pursuant to Section 301 of the Trade Act of 1974, to examine excess production capacity among 16 trading partners and forced labor practices among 60 trading partners.
Submissions for both section 301 investigations have already closed, and hearings will take place over the next several weeks. The administration is moving quickly, with a possible goal of having the investigation closed and new tariffs in place before the Section 122 tariffs expire on July 24, 2026. For more information, please visit our Section 301 Insight.
Earlier this month, the Trump administration also announced new Section 232 tariffs on pharmaceuticals and pharmaceutical ingredients. The new tariffs, which will be imposed at varying rates of 0%, 15% and 20% for companies and countries that meet certain conditions and a rate of 100% for all others. The new duties will be effective between July 31 and September 29, 2026.
There are also several pending Section 232 investigations into:
- Commercial aircrafts and parts
- Unmanned aircraft systems
- Polysilicon
- Wind turbines
- Personal protective and other medical equipment
- Robotics and industrial machinery
Projected Tariff Revenues
Notably, the FY27 presidential budget request includes a substantial increase in projected tariff revenue over the next decade. Customs duties are estimated to exceed $406 billion for FY26 and grow to over $681 billion by FY36, per the budget’s governmental receipts analysis. In comparison, the United States collected approximately $77 billion in tariff revenue in FY24 and $195 billion in FY25, some of which will be returned due to the Supreme Court’s ruling on IEEPA.
The budget request may be an early warning signal to companies that the administration intends to bring in significant revenue from new tariff authorities.
USMCA Review
The USMCA’s future structure remains uncertain, as the six-year-old agreement undergoes its first mandatory joint review. USTR Greer has already warned that renewal negotiations are unlikely to be completed by the July 1, 2026, deadline, noting all parties have requested changes. If the three countries can’t come to an agreement, there will be annual reviews for the remainder of the 10-year period before the deal expires.
Control of Congress: 2026 Midterms
Primary season will accelerate in May, as voters head to the polls for 11 regularly scheduled contests and a Republican runoff in Texas:
- May 5: Indiana and Ohio
- May 12: Nebraska and West Virginia
- May 16: Louisiana
- May 19: Alabama, Georgia, Idaho, Kentucky, Oregon and Pennsylvania
- May 26: Texas runoff
So far, a staggering 57 House members — 36 Republicans and 21 Democrats — are set to leave the chamber. Most are running for other offices or retiring from public service, though one incumbent was defeated in a primary election last month. Cherry Bekaert’s Tax Policy team will be monitoring the upcoming primaries and other variables, including ongoing redistricting battles, for developments that will influence the November midterm elections.
For a more comprehensive look at the midterms and a discussion of the potential impact on tax policy, visit our 2026 Midterm Election Resource.
Your Guide Forward
Cherry Bekaert’s Tax Policy group is committed to bringing you information on the latest tax policy developments and opportunities.
Related Insights
- Article: Tax Policy Review: March 2026 Updates
- Article: Tax Policy Review: February 2026 Updates
- Article: Tax Policy Review: January 2026 Updates
