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July 29, 2020

What to Expect in Washington (July 29)

A day after releasing a set of bills comprising the Republican negotiating position for the next coronavirus bill, Senate Majority Leader Mitch McConnell (R-KY) said yesterday that "reaching out to the Democrats … will be led by Mark Meadows and Steven Mnuchin," suggesting the Administration is leading the negotiations. The comments followed the regular Tuesday policy lunch that Senator McConnell said involved a "fulsome discussion of the proposals that were developed over the last two weeks by various Republican colleagues in conjunction with the Administration" and "we are now in the process of absorbing all of this." The Wall Street Journal said the lunch meeting included contentious exchanges over parts of the package.

Senator McConnell said it's "obvious that I have members who are all over the lot on this — there are some members who think we've already done enough, other members who think we need to do more. This is a complicated problem." Senator John Kennedy (R-LA) was quoted as criticizing the unemployment benefits formula the Senate Health, Economic Assistance, Liability Protection and Schools (HEALS) Act would revert to in October, suggesting it is going to be too difficult for state agencies.

Still, second-ranking Senate Republican John Thune (R-SD) praised the bipartisan components of the plan, including his 'mobile workforce' proposal with Senator Sherrod Brown (D-OH) to create uniform rules for assessing state and local income taxes on remote and mobile workers affected by government shutdown orders due to the COVID-19 pandemic. "There's a lot to work with here," he said. A Senate Republican Policy Committee document consolidates summaries of bills (S. 4317-S. 4324) released Monday.

With about half of Republican senators said to be opposed to any further relief, Senate Republicans will ultimately have to win support from a significant number of Democrats. On MSNBC last night, House Speaker Nancy Pelosi (D-CA) suggested that the lack of a broad consensus approach among Republicans and the fact that the Senate has not passed a bill make the talks difficult. "It's just a review of our bill versus what the Republicans are proposing. So, it's not even to the level of negotiation." Chief of Staff Meadows agreed progress is slow, saying "I don't know that I would characterize it as getting closer," according to Bloomberg.

Politico Playbook reported Speaker Pelosi and Senate Democratic leader Chuck Schumer (D-NY) as telling Secretary Mnuchin and Chief of Staff Mark Meadows that the Senate GOP and House Democratic bills are irreconcilable — two different animals. Talks continue today. The WSJ story cited Senator Schumer as saying the GOP proposal on liability protection for healthcare providers, schools, and employers is a particular sticking point, and Speaker Pelosi as saying it seems Senator McConnell does not want an agreement.

President Trump expressed skepticism over the Senate package given the negotiating still required: "It's sort of semi-irrelevant because the Democrats come with their needs and asks, and the Republicans go with theirs. So, we'll be discussing it with Mitch and all of the other people involved."

The new Senate GOP proposal on the Paycheck Protection Program (PPP) would provide an additional $190 billion for new and follow-on loans, expand forgivable expenses to include worker protection and other costs, and provide $100 billion for loans to "recovery sector businesses." A Forbes article addressed the latter component, saying it "has the potential to help sustain small businesses for years to come."

The Senate Finance Committee held a hearing yesterday examining lessons learned from the COVID pandemic with respect to the supply chain of PPE medical equipment. Much of the hearing focused on Senators' clashing perspectives on the Administration's response to the procurement of medical PPE supplies during the early days of the COVID-19 pandemic as well over the appropriateness of the Federal response to the Portland demonstrations. The "part 2" of the hearing is on Thursday.

Interest deductibility — Yesterday, the Treasury Department released final regulations (TD 9905) and proposed regulations (REG-107911-18) with guidance on the business interest expense limitation under IRC Section 163(j). The Section 163(j) Limitation was modified in December 2017 by the Tax Cuts and Jobs Act (TCJA), and in March 2020 by the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). With the regulations, the IRS issued Notice 2020-59, which creates a safe harbor allowing taxpayers that manage or operate qualified residential living facilities to be treated as a real property trade or business solely for purposes of qualifying as an electing real property trade or business. It also released FAQs on the aggregation rules that apply for purposes of the gross receipts test and determining whether a taxpayer is a small business exempt from the IRC Section 163(j) deduction. EY Tax Alert 2020-9041 has additional details.

Election — Presumptive Democratic presidential candidate Joe Biden said yesterday he would make his running mate pick by the end of next week, extending a previously set target of August 1. "I'm going to have a choice in the first week in August, and I promise I'll let you know when I do," he said.

A Washington Post article discusses pressure on Biden to evolve from free trade approaches of previous Democratic administrations.

The global EY Tax COVID-19 Response Tracker is updated through July 28.


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