Key Points
- The Trump administration has declared that prior U.S. commitments under the OECD’s Pillar Two agreement would have no domestic effect unless approved by Congress, reflecting long-standing opposition.
- Significant tariffs are being proposed as a way of offsetting the cost of extending provisions of the 2017 Tax Cuts and Jobs Act.
- The administration is targeting foreign taxes and regulations that it says unfairly impact U.S. businesses, particularly in the technology sector, with potential retaliatory tariffs.
- In addition to a hiring freeze and proposed 25% workforce reduction at the IRS, the administration also signaled intentions to reduce the IRS’ budget.
President Donald Trump has wasted no time reshaping U.S. tax policy through a flurry of executive actions and administrative shifts. These early steps suggest a changing tax environment with long-term implications for tax enforcement and strategic planning.
As the administration moves toward potential tax legislation later this year, businesses will need to stay closely attuned to policy developments in order to navigate an increasingly uncertain tax landscape.
Executive Actions Affecting Tax Policy
Rejection of Pillar Two. On his first day in office, President Trump issued a memorandum declaring that any prior U.S. commitments under the Organization for Economic Cooperation and Development’s (OECD’s) Pillar Two agreement — which sets a 15% global minimum tax to curb base erosion and profit shifting — would have “no force or effect” domestically unless formally approved by Congress. This development is unsurprising, given the lack of legislation aligning the U.S. with Pillar Two under the previous administration and long-standing Republican opposition.
“Reciprocal tariffs” aimed at protecting the U.S. economy and generate revenue. President Trump’s executive orders imposing significant tariffs intended to protect U.S. economic interests have sparked considerable controversy. (See “The Tariff Revolution.”) Beyond their economic impact, these tariffs have taken on added significance in the context of the administration’s broader tax reform agenda, which includes proposals to extend certain provisions of the 2017 Tax Cuts and Jobs Act that are scheduled to expire in 2025. The Trump administration has stated that tariff revenue could help offset the cost of such extensions. This plan would have a better chance of passing if Congress evaluates the budgetary impact using the “current policy baseline,” which assumes the tax cuts will stay in place rather than expire as scheduled. This assumption makes the extension appear less costly in official budget calculations.
Efforts to combat “discriminatory” taxes. President Trump issued a memorandum directing the U.S. government to identify “discriminatory” taxes and regulations in other countries, such as digital services taxes, that the administration says unfairly target U.S. businesses, especially those in the technology sector. The memorandum asserts that the Trump administration will respond with tariffs and other measures to mitigate harm to U.S. interests.
Limitations on new Treasury regulations. President Trump signed Executive Order 14219 requiring that, for every new regulation proposed by federal agencies, at least 10 existing regulations be identified for withdrawal. Additionally, for fiscal year 2025, agencies must ensure the net cost of all new and withdrawn regulations is substantially negative, as determined by the Office of Management and Budget.
IRS Changes and Guidance
IRS workforce and budget cuts. As part of efforts to downsize the federal government, the Trump administration implemented a hiring freeze at the Internal Revenue Service (IRS) and proposed a 25% reduction in its workforce. Alongside these staffing cuts, the administration also signaled intentions to reduce the IRS’ budget. The consequences of these changes is difficult to predict, as the specific staff and areas of the IRS affected by cuts has not been announced. However, this may weaken or delay the IRS’ audit and enforcement efforts. In addition to enforcement, these constraints could also impact the IRS’ ability to provide timely and effective taxpayer services.
Leadership changes. On April 17, 2025, it was announced that President Trump had replaced Gary Shapley as acting IRS commissioner, just a few days after appointing him to the job. Deputy Treasury Secretary Michael Faulkender is expected to step into the role, becoming the fifth person to hold the position in 2025. Earlier, on April 9, 2025, Acting IRS Commissioner Melanie Krause resigned, following the departures of Commissioners Doug O’Donnell in February and Danny Werfel in January.
Guidance. Following a review process initiated pursuant to Executive Order 14219 discussed above, on April 14, 2025, the Treasury Department issued a Direct Final Rule eliminating certain regulations considered “no longer necessary,” including provisions related to financing bank bills and civil penalties. On the same day, the IRS published Notice 2025-22, withdrawing nine outdated notices, revenue rulings and announcements related to various issues, including excise tax and listed transactions.
On April 17, 2025, the Treasury Department and the IRS issued Notice 2025-23, announcing their intent to eliminate Treasury Regulation § 1.6011-18 related to the basis shifting transactions of interest rules. The notice also offers immediate relief from certain penalties associated with these rules and formally withdraws Notice 2024-54, which outlined proposed regulations targeting partnership related-party basis shifting transactions. Notice 2025-23 offers welcome relief for many companies and may signal further taxpayer-friendly changes ahead.
However, given the fast-moving nature of administrative actions and the likelihood of forthcoming legislation, companies should closely monitor future developments to stay informed and ensure continued compliance.
See The Trump Administration’s First 100 Days publication
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.