The House is now aiming to return to session May 11, a week after the Senate, and political positioning over what will be included in the CARES 2/COVID 4 next congressional bill continues. House Speaker Nancy Pelosi (D-CA) said an additional $1 trillion in state and local government funding may be needed, split between the two, which is up from her previous $700 billion projected total. President Trump deepened 'blue state bailout' skepticism surrounding such funding, saying "Republican states are doing very well" and concessions from Democrats will be required for the money to be included.

The President seemed to be increasingly aligned with the views of Senate Majority Leader Mitch McConnell (R-KY) in not only a wariness over more funding but suggesting a dust-settling period before the next bill, in contrast to Democrats wanting to act quickly. Of the state and local funding, "we are going to look at it. I think we want to take a little bit of a pause, but if we do that, we will have to get something for it. OK?," the President said yesterday.

Whereas the Administration previously seemed poised to deal on a next bill, the President cast the situation in a different light, saying, "So what's happening is the Democrats have come to us and they'd like to do a phase four. We will think about what's happening. They want to help the states, they want to help bailouts, and bailouts are very tough. And they happen to be Democratic states. It's California, New York, Illinois, you start with those three." He said, "Maybe the Democrats should have brought this up earlier when we wanted certain things," but also that "they want to do infrastructure, I can understand infrastructure."

A New York Times editorial argued that 'blue states' get less of their federal tax dollars spent returned to the states in the form of federal funding than 'red states' like Senator McConnell's Kentucky. New York Governor Andrew Cuomo (D) yesterday raised the issue, saying, "Senator McConnell, who's getting bailed out here? It's your state that is living on the money that we generate."

During a press conference yesterday Speaker Pelosi said, "We're not coming back next week. Our plan is to come back the following week." On state and local funding, she said, "I've talked about almost a trillion dollars right there," adding that state governments have requested $500 billion and she expects a similar figure from local governments. House Democrats also introduced an $80 billion bill for broadband connectivity nationwide, noting "reports that Republicans support the inclusion of broadband investment in the next coronavirus response packages."

Democrats continued to express concerns about the Senate's return next week, including the risks to the wide range of employees required for Congress to be in session. "I am talking about the true frontline workers — cafeteria workers, all the janitorial service workers, the police and security officials," Senator Chris Van Hollen (D-MD) said in a New York Times story. "I have not seen any plan to insure their safety."

A Washington Post story this morning said, "Publicly traded companies have received more than $1 billion in funds meant for small businesses from the federal government's economic stimulus package," under the Paycheck Protection Program (PPP), and noted Treasury Secretary Mnuchin's comments that "it's the borrowers who have criminal liability if they made this certification," of being a small business.

Implementation

The IRS addressed a major outstanding issue in an April 30 notice clarifying that no tax deduction is allowed for an expense — like wages — that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan under the PPP, citing the IRC Section 265 provision that no deduction is allowed for an amount allocable to one or more classes of income. The Wall Street Journal reported a statement from Senate Finance Committee Chairman Chuck Grassley (R-IA) saying, "The intent was to maximize small businesses' ability to maintain liquidity, retain their employees and recover from this health crisis as quickly as possible," and, "This notice is contrary to that intent."

Also, the IRS updated FAQs regarding Form 1139 and Form 1045 to Claim Quick Refunds of the Credit for Prior Year Minimum Tax Liability of Corporations and Net Operating Loss Deductions. FAQs 15 to 18 have been added and others were updated.

There has been much discussion about the mechanics of the PPP itself, and Andy Puzder, former CEO of CKE Restaurants (Hardee's) said in a Washington Post opinion piece that there is still a lack of certainty over how businesses can qualify for loan forgiveness, including how much must be spent on payroll over what period of time, but "there is a sense that the Trump administration recognizes the problem and will soon issue regulatory guidance to clarify the requirements."

On another matter of great interest, IRS has posted 94 FAQs on several topics related to the Employee Retention Credit.

Also, the Federal Reserve Board of Governors April 30 announced that in response to public comments, it is expanding the terms and qualifications for its still-forthcoming "Main Street" emergency lending programs for midsized businesses. The changes will allow larger and less creditworthy firms to participate, including companies with up to 15,000 employees or $5 billion in annual revenues (up from the Federal Reserve's previously announced thresholds of 10,000 workers and $2.5 billion in revenue), and the programs' minimum loan size will be $500,000, down from the previous $1 million, among other changes. The changes also waive the CARES Act restrictions on dividends and other capital distributions in the case of distributions made by an S corporation or other tax pass-through entity to the extent reasonably required to cover its owners' tax obligations in respect of the entity's earnings.

EY Alerts and other resources are here.

The global EY Tax COVID-19 Response Tracker has been updated through April 29.

Today (May 1) is the EY Webcast, "Tax in the time of COVID-19," at 12:00 p.m. ET. — We are living in a time of unprecedented uncertainty. To determine what your company needs to know now, join our panelists for a conversation about operating the tax function in this uncertain time. This week's panelists will provide updates on: (i) Legislative activity and the state of the US economy; (ii) The Coronavirus Aid, Relief, and Economic Security Act's employee retention credit; (iii) IRS filing and compliance guidance; and (iv) Any breaking developments. Register

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