House Democrats unveiled their roughly $3 trillion, 1,800-page Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES) Act and intend to hold a vote on Friday. Speaker Nancy Pelosi (D-CA) has described the bill as a starting point and standard for the next bipartisan coronavirus response measure, but Republicans were dismissive, saying the bill is a Democratic wish list and more action can wait.

At a broad level, the bill includes $875 billion in state and local funding; $100 billion in grants for hospital and health care providers; $75 billion for testing; housing and food assistance; limitations to CARES Act net operating loss (NOL) provisions and enhancements to the Employee Retention Tax Credit (ERTC), among other tax changes; pension relief; and Paycheck Protection Program (PPP) changes (but not more funding). Despite the magnitude of the bill, it does not include a guaranteed income proposal advocated by Rep. Pramila Jayapal (D-WA) — she and other progressives are displeased with the omission and want the vote delayed — and instead proposes to work within the CARES Act framework of the ERTC and PPP.

Most of the tax provisions had been simmering:

• Enhancements to the ERTC reflect the Murphy/DelBene bill to increase the applicable percentage of qualified wages reimbursed through the employee retention credit from 50% to 80% and increase the limit on wages taken into account per employee from $10,000 for the year to $15,000 per quarter (limited to $45,000 for the calendar year).
• NOL changes reflect the Doggett/Whitehouse bill to repeal the CARES Act excess business losses provision (which extended NOL relief to passthroughs and sole proprietors), limit operating loss carrybacks permitted by the CARES Act so that losses arising in 2018, 2019 and 2020 cannot be carried back prior to 2018, and disallow them for companies that do not meet requirements for executive compensation, dividends and stock buybacks.
• Elimination of the $10,000 state and local tax deduction cap for 2020 and 2021 was passed by the House in December.
• Refundable tax credit expansions have been eyed since long before the crisis.
• Speaker Pelosi has long talked about another round of stimulus payments, which are proposed at $1,200 per individual, plus $1,200 per dependent up to three dependents (per-family total of $6,000).

Criticism of the bill came from top Senate Republicans, who said it is aspirational and a messaging exercise, and House Republicans, including Ways and Means Committee Ranking Member Kevin Brady (R-TX), who said it has "virtually nothing to get the jobless back to work." Brady is proposing tax credits for office reconfiguration and to improve domestic supply chains. The Hill newspaper reported that Senate Republicans are eyeing narrowly targeted response legislation and could roll out something soon, with some ideas being an employer liability shield and modifications to expanded unemployment benefits to encourage employees to return to work. Republicans don't want to act on additional virus response legislation until after the Memorial Day recess.

Also on Friday, the House is expected to vote on H. Res. 965, which would temporarily implement remote voting on the House Floor and virtual committee proceedings during the coronavirus pandemic.

HELP hearing

At several points during a high-profile Senate Health, Education, Labor and Pensions (HELP) Committee hearing on May 12, Dr. Anthony Fauci of NIH warned of the serious consequences for areas that re-open without following guidelines or without having the capability to respond to infection spikes. He and other Administration doctors emphasized the importance of testing — with expectations that capacity will expand to 40 to 50 million tests per month — and contact tracing, for which early Administration efforts became overwhelmed by limited capacity. Dr. Fauci said NIH may know by late fall and early winter if vaccine development efforts have been successful but — responding to Chairman Lamar Alexander's (R-TN) focus on what to expect for schools — said coronavirus testing will be paramount for providing students comfort that they are safe this fall because treatments or a vaccine will likely not be available.

"All roads back to school and work go through testing," Chairman Alexander said. Other members of both parties said testing efforts in the United States have been insufficient and, by comparison, greater testing early in the crisis by South Korea was key for virus containment. Ranking Member Patty Murray (D-WA) said the President's push to get people working again is at odds with warnings from medical experts regarding the dangers of opening too soon. "We need dramatically more testing," she said, adding it is unacceptable that "we still don't have a national strategic plan to make sure testing is free, fast and everywhere."

Implementation

On May 12, the IRS released guidance to allow temporary changes to IRC Section 125 cafeteria plans due to the pandemic. Notice 2020-29 provides greater flexibility for taxpayers by extending claims periods for taxpayers to apply unused amounts remaining in a health FSA or dependent care assistance program, among other things, and Notice 2020-33 increases the limit for unused health FSA carryover amounts from $500, to a maximum of $550, as adjusted annually for inflation.

EY Alerts and other resources are here.

The global EY Tax COVID-19 Response Tracker has been updated through May 11.

An EY Webcast, "Tax in the time of COVID-19: What's happening in international tax, on Capitol Hill and at the IRS," is Friday, May 15 12:00 p.m. ET. To determine what information your company needs to know now, join our panelists for a series of conversations about operating the tax function in this time of National Emergency created by the COVID-19 virus. After a review of the legislative and economic landscape, this week's panelists will explore: (i) the impact of current year losses on various tax attributes (including the Section 250 deduction and foreign tax credits); (ii) filing tax returns without final Treasury regulations; (iii) the latest from the IRS; and (iv) any breaking developments. Register

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