Senate Republicans put down a marker to respond to the Administration's call for a $1 trillion congressional bill #3 response package providing for mailed payments and small business loans and on March 20 will begin negotiating with Senate Democrats and House Speaker Nancy Pelosi (D-CA) amid hopes of cutting a deal in the coming days. The Senate GOP "Coronavirus Aid, Relief, and Economic Security" (CARES) Act includes several business tax provisions, but it is too soon to tell what exactly will be included in a final agreement that can pass the Senate and then the House.

Democratic views

Senate Democratic leader Chuck Schumer (D-NY) has been in contact with Treasury Secretary Steven Mnuchin, and Senate Majority Leader Mitch McConnell (R-KY) asked top Republicans to meet with Democrats and Administration officials on March 20 in an effort to finalize an agreement, the Wall Street Journal reported. Leader McConnell said top Republican Senators are available to explain the legislation and talk with their Democratic counterparts, including, on the tax side, Finance Committee Chairman Chuck Grassley (R-IA) and Senator Rob Portman (R-OH).

The single batch of direct payments in the GOP CARES Act — the Administration called for two rounds of checks — could leave room for a follow-on round to take the form of expanded unemployment benefits as Senator Schumer and even some Republicans (e.g., Mitt Romney (R-UT) and Lindsey Graham (R-SC)) advocate.

On the business side, Senator Schumer and Speaker Pelosi issued a statement insisting that the next bill must have "new, strong and strict provisions that prioritize and protect workers, such as banning the recipient companies from buying back stock, rewarding executives and laying off workers." Speaker Pelosi has instructed her leaders and chairmen to draft their own proposal as a counter-offer to the Senate bill, and The Hill newspaper reported that preliminary calls among House Democrats (they remain out of session) suggest "they want to go bigger and broader," and include funding for priorities like infrastructure.

Senate Finance Committee Ranking Democrat Ron Wyden (D-OR) pointedly said that, in the new bill, "Republicans seem to be prioritizing the corporate tax wish list over the economic well-being of people who are losing their livelihoods" because it has "nothing to expand unemployment assistance." Democrats have long been reluctant to help Republicans make changes related to the TCJA of the type that are included in the CARES Act, and it remains to be seen what Democratic policy provisions could be included to win their support. This mirrors the broader question of how the GOP version can be changed to achieve the requisite bipartisan support to pass the Senate — which has 53 GOP members and generally needs 60 votes to pass legislation — and House, which is controlled by Democrats.

Bill #3, tax

CARES Act tax provisions generally fall into buckets of direct payments, filing & payment relief, rollbacks of TCJA limitations, and TCJA technical corrections.

Payments - The "2020 recovery rebates for individuals" under the bill would provide $1,200 checks to individuals ($2,400 for married filing jointly), phased out beginning at $75,000 in adjusted gross income for a single taxpayer and $150,000 for joint filers. Those amounts increase by $500 for every child.

Filing & payments - The bill also would permit taxpayers to delay until July 15 the filing of income tax returns otherwise due on April 15, and permit individuals to defer until October 15 the payment of estimated tax liabilities due from the date of enactment, without limitation. Corporations could postpone estimated tax payments due after the date of enactment until October 15, and employers and self-employed individuals could defer payment of the 6.2% employer share of Social Security taxes on employee wages, with half required to be paid by the end of 2021 and the rest by the end of 2022.

TCJA rollbacks — The business interest limitation under IRC Section 163(j), currently set at 30% of adjusted taxable income based on EBITDA, would be set at 50% for 2019 and 2020.

Some of the net operating loss (NOL) curbs in the TCJA (limiting the deduction to 80% of taxable income and repealing carryback provisions) would be undone, restoring carrybacks such that a loss from 2018, 2019 or 2020 can be carried back five years and temporarily removing the taxable income limitation to allow an NOL to fully offset income.

Technical corrections - The bill would repair an effective date drafting error in TCJA pertaining to the changes to the NOL carryback and carryforward periods that were made in TCJA. It also would fix the qualified improvement property (QIP) "retail glitch" to clarify that it is 15-year property under the modified accelerated cost recovery system and 20-year property under the alternative depreciation system, and eligible for 100% bonus depreciation; and restore the limitation on downward attribution of stock ownership in applying constructive ownership rules to clarify that certain foreign subsidiaries should not be subject to those requirements. Both would be retroactive to the enactment of the TCJA.

Bill #3, non-tax

The CARES Act also would waive some retirement withdrawal penalties and provide a new deduction for charitable contributions. Health provisions under the bill generally try to improve stockpiling of certain medical supplies, mitigate drug shortages, prevent medical device shortages and improve COVID-19 testing. Other provisions include allowing physician assistants, nurse practitioners and other professionals to order home health services for beneficiaries, reducing delays and increasing beneficiary access to care in the safety of their home.

EY Webcast: On March 20 (12:00-1:00 p.m. EDT), Tax in the time of COVID-19

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