District of Columbia’s Tax Decoupling Dispute: Congressional Disapproval and Ongoing Legal Uncertainty

What Is ‘Decoupling’?

The OBBBA, signed into law on July 4, 2025, significantly amended the federal tax code, including provisions exempting tips and overtime wages from taxation and reinstating 100% bonus depreciation. Because the District adopts “rolling conformity” to the Internal Revenue Code, these federal changes automatically became District law absent affirmative legislative action. 

On November 3, 2025, Council Chairman Phil Mendelson proposed legislation to decouple the District’s tax code from several OBBBA federal tax changes. On December 3, 2025, the Council enacted an emergency statute — the DC Income and Franchise Tax Conformity and Revision Emergency Amendment Act of 2025 (D.C. Act 26-214)—that made various changes to the District’s tax laws, effective immediately and applied retroactively as of January 1, 2025. Approximately two weeks later, on December 20, 2025, the Council enacted a temporary statute — the DC Income and Franchise Tax Conformity and Revision Temporary Amendment Act of 2025 (D.C. Act 26-217) — making the same changes, also applicable retroactively as of January 1, 2025. The Act became law without Mayor Bowser’s signature on December 20, 2025, and was transmitted to the US Congress on December 30, 2025. 

What Is in the District’s Decoupling Law?

The District’s decoupling legislation addressed both individual and corporate income tax provisions. The individual income tax decoupling includes the higher basic standard deduction amounts (maintaining the standard deduction at prior Tax Cuts and Jobs Act levels rather than the OBBBA’s elevated amounts), the deduction for qualified tips, the deduction for overtime earnings, the deduction for personal car loan interest payments, and the $6,000 deduction for qualified senior taxpayers. 

On the corporate side, the decoupling addressed the full deduction for domestic research or experimental expenditures (with the District instead requiring five-year amortization), the increased limit on business interest expenses under IRC § 163(j), and the special depreciation deduction for new investments in qualified production property. 

According to the District’s Chief Financial Officer, Glen Lee, the decoupling legislation would have added approximately $179 million to estimated fiscal year 2026 revenues and a total of $593 million over the financial plan period, if the permanent decoupling bill was enacted by the Council.

How Did Congress Respond to the District’s Law? 

On January 22, Representative Brandon Gill (R-TX) introduced H.J. Res. 142 to disapprove of the District’s Temporary Conformity Act, pursuant to the congressional disapproval process included in the District’s Home Rule Act. On February 4, the House of Representatives passed the resolution by a vote of 215-210. The Senate subsequently approved H.J. Res. 142 on February 12, by a vote of 49-47. President Trump signed the resolution into law on February 18, as Public Law 119-78. 

This marks only the fifth time Congress has formally disapproved of a District law since the Home Rule Act was adopted, and the first time Congress has done so with respect to a tax bill. 

The DC Council has warned that H.J. Res. 142 could cost the city $658 million over a five-year period and force it to redo all its tax forms and extend filing deadlines. Revenue projections indicate the resolution may result in a shortfall of approximately $180 million for fiscal year 2026.

Can the District Challenge Congress’ Disapproval? 

On February 24, District of Columbia Attorney General (AG) Brian Schwalb issued a formal legal opinion addressing whether H.J. Res. 142 effectively repealed the District’s decoupling legislation. The AG concluded that the congressional disapproval resolution does not alter District taxpayers’ 2025 tax liabilities and that the Temporary Conformity Act remains in effect.

The AG’s opinion centers, in part, on the timing requirements of the Home Rule Act. According to his analysis, the 30-day congressional review period began on December 30, 2025, when the Council Chairman transmitted the legislation to Congress. Based on the session calendar, the AG calculated that the final day of the 30-day period was February 11. 

Because the House passed H.J. Res. 142 on February 4, but the Senate did not pass it until February 12, one day after the 30-day window closed, the AG concluded that Congress failed to act within the time limits prescribed by the Home Rule Act. Under the Home Rule Act, a disapproval resolution that passes both houses within the 30-day period but is signed by the President afterward is “deemed to have repealed” the District’s act. However, there is no equivalent provision for resolutions that pass one or both houses after the deadline. 

The AG further reasoned that even if H.J. Res. 142 was passed within the Home Rule Act timeframe, the language of the resolution was not specific enough to repeal the District’s law retroactively. According to the opinion, “disapproval” expresses an unfavorable opinion, but by itself, does not abrogate, rescind, annul, or invalidate a law that has already taken effect. 

The AG concluded that even if the Temporary Conformity Act were somehow invalidated, the Emergency Conformity Act — which Congress did not address — remains in effect until March 3 and established the tax laws governing District tax liability for taxpayers whose filing year ended December 31, 2025. Under federal and District law, the repeal of a statute does not release or extinguish accrued tax liability unless the repealing statute expressly so provides, and H.J. Res. 142 contains no such language. 

How Will This Dispute Affect the District’s April Tax Filings for Tax Year 2025?

Chief Financial Officer (CFO) Glen Lee has not yet issued a definitive position on which tax law the District will apply. In testimony before the Council on February 24, Lee indicated that the Office of the CFO is seeking guidance from the AG’s office. He noted that if H.J. Res. 142 invalidates the District’s decoupling legislation, then suspension of the current filing season would be required, the Office of Tax and Revenue would need to reengineer, reprogram, and redesign its tax filing processes, systems, forms, and schedules, and completion of that work would likely extend into late fiscal year 2026 or early fiscal year 2027. 

Lee’s latest revenue estimate, released February 27, did not include the projected $180 million in additional revenue that would result from the decoupling remaining in effect, citing “uncertainty” regarding the congressional action. He noted that the revenue estimate “does not include the impact of the District’s tax decoupling legislation”. 

Mayor Muriel Bowser has demanded clarity from the CFO. In a letter dated February 27, the Mayor noted that the CFO’s office has not changed the April 15 tax filing deadline, “which strongly implies you agree with the AG’s legal opinion”. Mayor Bowser stated, “If your position is that DC Law 26-89 is not in effect, then you have an obligation to District taxpayers to revise their tax liabilities and adjust the tax filing deadline to accommodate updated tax forms and guidance”. The Mayor set a March 3 deadline for the CFO to clarify his position.

Who Is the Most Impacted by This Uncertainty? 

Approximately 365,000 individual and 65,000 corporate filers are affected by this dispute. If the decoupling remains in effect, District taxpayers cannot claim OBBBA benefits when calculating District tax liability. If the congressional disapproval is effective, taxpayers would receive those benefits, but mid-season implementation will create significant complexity. The Temporary Conformity Act, if valid, expires September 25, at which point the District’s tax code would revert to conformity with the OBBBA provisions, absent the passage of a permanent bill. Affected taxpayers should monitor developments and look for additional guidance from the District. We will continue to provide updates as further guidance becomes available.