Last spring, the plan to devolve full income tax powers was unveiled in an interim report but caused a major rift inside the party. Subsequently, Johann Lamont, the Scottish Labour leader, made clear it was "minded" to back the devolution of full control over income tax; a move regarded by some as a backtrack.
In February, Ken Macintosh, Scottish Labour's former finance spokesman, issued a stark warning that devolving full control of income tax would reduce Scotland's revenues over the long term and edge the country towards "independence by default".
Some Scottish Labour figures have indicated they will boycott the party's spring conference in Perth later this month while others are set to attend for Ed Miliband's speech but not Ms Lamont's in another sign of protest.
But party sources have suggested there is now a growing expectation that the full, immediate devolution of income tax will not be recommended; a move that will be regarded by Labour's opponents as a major climbdown.
One noted how, when the party's referendum campaign slogan was United With Labour, it would be "unthinkable" to cause a major public rift and do damage to the pro-UK cause in the independence debate.
Another senior figure suggested the level of income tax devolution proposed "will be more than MPs want but less than Johann wants".
Holyrood currently raises around 12% of its spending. Legislation has been passed to hand over more control with a Scottish income tax rate of 10p, due to come into operation in 2016.
While some within Labour argue devolving all income tax power would grab the political initiative away from the SNP - which in the event of any No vote is expected to transform itself into the "devo-max" party - others believe this would be seen as dancing too much to the Nationalists' tune and that devolution is about sharing not hoarding power.
Another senior Labour politician also pointed out any move to devolve all income tax power to the Scottish Parliament would have to go through Westminster, which would be a fraught exercise with Conservatives in particular demanding the end of the Barnett formula.
Last night, Douglas Alexander, Shadow Foreign Secretary, called for the party to "act boldly".
He argued for greater devolution of tax powers to "strengthen accountability" of the Edinburgh Parliament but was not specific on the level and made clear further devolution should not undermine the Scots' "shared sense of belonging" or "social and economic rights" within the UK.