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August 2, 2020

Americas Tax Policy: This Week in Tax Policy News for July 31

This week (August 3-7)

Congress: The Senate is scheduled to be in session, with the focus on the next coronavirus bill. The House is out, with members to receive 24 hours' notice prior to a vote related to coronavirus legislation.

Last week (July 27-31)

Coronavirus (COVID-19): Senate Republicans July 27 released a series of bills to serve as their negotiating position for a next coronavirus bill, kicking off negotiations with Democrats amidst continued discord among Republicans as to the scope and objectives of the next bill. The release of the Health, Economic Assistance, Liability Protection and Schools (HEALS) Act July 27 allowed bipartisan negotiations to start, mostly among Treasury Secretary Steven Mnuchin, White House Chief of Staff Mark Meadows, House Speaker Nancy Pelosi (D-CA), and Senate Democratic leader Chuck Schumer (D-NY), though not much progress has been made toward a deal. Major differences include the Senate proposal's inclusion of liability protections for health care providers, businesses, etc., and omission from the Senate Republican bill of funding for state & local governments and food and rental assistance. During a meeting late July 30, the Administration officials again proposed a narrow coronavirus bill to extend expanded unemployment benefits past the July 31 expiration, which Democrats rejected. Politico Playbook reported that the Administration offered to extend the current $600 unemployment add-on for 4 months and Democratic leaders called for an even longer extension. More generally, Democrats have called for a much broader bill and have opposed a narrow stopgap. Roll Call reported Speaker Pelosi as saying, "I think they understand that we have to have a bill, but they just don't realize how big it has to be." Meadows said, "I'm not very optimistic on anybody who's counting on enhanced unemployment to have any relief anytime soon," and he is not optimistic "we'll reach any kind of comprehensive deal," with the chances of lawmakers ending up empty handed growing as talks wear on. Negotiations are to continue into the weekend. President Trump recognized the gulf between the two sides in remarks before his departure to Texas July 29, saying, "We want to work on the evictions so that people don't get evicted. We'll work on the payments for the people. And the rest of it, we're so far apart, we don't care." Some Republican senators have suggested the stalemate is typical of how Congress works. The New York Times cited senior Republican Senator John Cornyn (R-TX) as saying, "We're going to try everything else that doesn't work until we finally get to what does work. It's a process."

Tax details: Tax provisions in the Senate bill are fairly bipartisan, including a 'mobile workforce' proposal from second-ranking Senate Republican John Thune (R-SD), who has partnered on the issue with Senator Sherrod Brown (D-OH). The proposal in HEALS creates uniform rules for assessing state and local income taxes on employees working at home rather than their normal place of business due to government shutdown orders related to the COVID-19 pandemic, while creating a federal preemption over state tax rules relating to employees traveling on business away from their normal taxing location, through 2024. While the measure has bipartisan support, it appears to face hurdles from some governors. In the past, New York State has taken the lead in opposing such measures, and that has led Senator Schumer to oppose the initiative. It remains to be seen whether a negotiated solution just for 2020 can be put together. Of this and other bipartisan proposals in the Senate bill, Senator Thune said July 28, "There's a lot to work with here." Below is a brief summary of tax provisions.



House HEROES Act

Senate HEALS Act

Expanded unemployment benefits

$600 through July 31

$600 through January 31, 2021

$200 August 1-September 30, then 70% of lost wages through December 31

Direct payments

1st round: $1,200 per individual, $500 for each qualifying dependent

2nd round: $1,200 per individual, plus $1,200 per dependent up to 3

2nd round: $1,200 per individual, $500 for each qualifying dependent

'Mobile Workforce'



Through 2024, 30-day threshold before state can assert taxing rights; for 2020, 90 days if the work is being performed outside the resident state as a result of COVID-19, and employers may treat wages of employees as earned at their pre-pandemic work location

Safe and healthy workplace tax credit



Refundable tax credit against payroll taxes for 50% of testing, cleaning, PPE costs, up to $1,000 for each of first 500 employees, $750 for 500-1,000, $500 over 1,000

Employee Retention Tax Credit (refundable payroll credit)

For business that lose 50% of gross receipts compared to the same quarter in 2019, 50% of wages per-employee up to $10,000/year

Phase-in for a decline in gross receipts between 10%-50%; 80% of wages per employee up to $15,000/quarter ($45,000/year)

Gross receipts eligibility dropped to 25%; 65% of per-employee wages up to $10,000/quarter ($30,000/year)

Work Opportunity Tax Credit (WOTC)

40% of first $6,000 qualified first-year wages


For unemployed who gain employment before January 1, 2021, 50% of first $10,000 in qualified first-year wages

A separate bill from Senator Lindsey Graham (R-SC) would provide a 30% credit against equipment costs associated with personal protective equipment (PPE) manufacturing and allow intangible property used in connection with the production of PPE to be brought back to the US without taxable gain. Another bill not included in the Finance Committee tax package, by Senator Tim Scott (R-SC), would provide a full deduction for business meals prior to January 1, 2021. A Senate Republican Policy Committee document consolidates summaries of bills (S. 4317-S. 4324) released Monday. Finance Committee materials are available here.

Business interest deduction: On July 28, the Treasury Department released final regulations (TD 9905) and proposed regulations (REG-107911-18) providing 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 details.

Carried interest regulations: The IRS has issued proposed regulations (REG-107213-18) under IRC Section 1061, which recharacterizes as short-term capital gains certain net long-term capital gains of a partner holding one or more applicable partnership interests (APIs). An API is defined as a partnership interest that is transferred to, or held by, a taxpayer in connection with the performance of substantial services by the taxpayer or any related person in an applicable trade or business. EY Tax Alert 2020-9042 has details.

Filibuster: In eulogizing the late Rep. John Lewis (R-GA) in Atlanta in the company of other former presidents July 30, former President Obama suggested, in the context of voting rights legislation, the possibility of eliminating the Senate filibuster that poses a 60-vote threshold for most bills. Presumptive Democratic presidential candidate Joe Biden has expressed some openness to the move, which is backed by Biden ally Senator Chris Coons (D-DE) but opposed by members including Senator Joe Manchin (D-WV). If Biden is President and Democrats control the Senate next year, they likely would still be well short of the 60 Senate votes necessary to move much of their agenda on a party-line basis (though budget reconciliation could be utilized for some of it). Former President Obama also said as part of his tribute, "What a gift John Lewis was. We are all so lucky to have had him walk with us for a while and show us the way."

House Members Push for Lower EU Tariffs: Politico reported that Reps. Bill Pascrell (D-NJ) and Brad Wenstrup (R-OH) sent a letter this week to USTR, signed by more than 160 House colleagues, to drop tariffs on EU wine, whiskey and food imports imposed in the long-running WTO subsidies dispute. USTR is expected to revise its carousel list of tariffs by August 12. In a related development, USTR dismissed European assertions that they had come into WTO compliance by removing prohibited Airbus subsidies. "USTR is aware of press reports on this matter, but we have not been contacted by the EU or any of the relevant member countries regarding actions they claim to have taken to come into compliance with WTO rulings on the illegal subsidies provided to Airbus," USTR said July 29 in a press statement.

Rehabilitation tax credit: The Internal Revenue Service July 30 issued Notice 2020-58 that provides additional relief to taxpayers in satisfying the substantial rehabilitation test for purposes of the rehabilitation credit.

Simplified accounting rules: IRS also issued proposed regulations updating various tax accounting standards along with implementing the simplified tax accounting rules for small businesses under the TCJA.

Aircraft excise tax: On July 29, IRS issued proposed regulations relating to the excise taxes imposed on certain amounts paid for transportation of persons and property by air.

Regulations watch: Still awaiting release area Final Rule on Limitation on Deduction for Dividends Received from Certain Foreign Corporations and Amounts Eligible for Section 954 Look-Through Exception [TCJA] and a Proposed Rule Coordinating Application of Certain Regulations Under Sections 245A and 951A.

Below is a timeline for guidance projects released by the IRS related to the TCJA.


Federal Register Publication

Comment period end

Section 965 transition tax (TD 9846)

Final rules, February 5, 2019


Section 199A pass-through deduction (TD 9847)

Final rules, February 8, 2019


Section 956 inclusions for corporate US shareholders (TD 9859)

Final rules, May 23, 2019


Contributions in exchange for state or local tax credits (TD 9864)

Final rules, June 13, 2019


Section 951A (Global Intangible Low-Taxed Income - GILTI) and Related to Foreign Tax Credits (TD 9866)

Final rules, June 21, 2019


Bonus depreciation (TD 9874)

Final rules, September 24, 2019


Removal of Section 385 Documentation Regulations (TD 9880)

Final rules, November 4, 2019


Ownership Attribution for Purposes of Determining Whether a Person Is Related to a Controlled Foreign Corporation under section 954(d)(3) (TD 9883)

Final rules, November 19, 2019


Section 59A Base Erosion and Anti-Abuse Tax (TD 9885)

Final rules, December 6, 2019


Foreign Tax Credit (TD 9882)

Final rules, December 17, 2019


Investing in Qualified Opportunity Funds (TD 9889)

Final rules, January 13, 2020


Rules Regarding Certain Hybrid Arrangements (TD 9896)

Final rules, April 8, 2020


Treatment of Certain Interests in Corporations as Stock or Indebtedness (TD 9897)

Final rules, May 14, 2020


Guidance Under Section 6033 on Reporting Requirements of Exempt Organizations (TD 9898)

Final rules, May 28, 2020


Deduction for Foreign-Derived Intangible Income (FDII) and GILTI (TD 9901)

Final rules, July 15, 2020


Guidance Under Sections 951A and 954 Regarding Income Subject to a High Rate of Foreign Tax (TD 9902)

Final rules, July 23, 2020


Limitation on Deduction for Business Interest Expense (TD 9905)

Final rules released July 28


Section 163(j) Limitation on Deduction for Business Interest Expense (REG-106089-18)

Proposed rules, December 28, 2018

February 26, 2019

Limitation on Deduction for Dividends Received from Certain Foreign Corporations and Amounts Eligible for Section 954 Look-Through Exception (REG-106282-18)

Proposed and temporary regulations, June 18, 2019

September 16, 2019

Determination of the Section 4968 Excise Tax Applicable to Certain Private Colleges and Universities (REG-106877-18)

Proposed rules, July 3, 2019

October 1, 2019

Guidance on Passive Foreign Investment Companies (REG-105474-18)

Proposed rules, July 11, 2019

September 9, 2019

Revenue recognition under IRC Section 451 (REG-104870-18, REG-104554-18)

Two sets of proposed rules, September 9, 2019

November 8, 2019

Bonus depreciation (REG-106808-19)

Proposed rules, September 24, 2019

November 25, 2019

Ownership attribution under Section 958 Including for purposes of determining status as CFC or US shareholder (REG-104223-18)

Proposed rules, October 2, 2019

December 2, 2019

Additional Rules Regarding Base Erosion and Anti-Abuse Tax (REG-112607-19)

Proposed rules, December 6, 2019

February 4, 2020

Allocation and Apportionment of Deductions and Foreign Taxes, etc. (REG-105495-19)

Proposed rules, December 17, 2019

February 18, 2020

Certain employee remuneration in excess of $1 million under Section 162(m) (REG-122180-18)

Proposed rules, December 20, 2019

February 18, 2020

Guidance Involving Hybrid Arrangements and the Allocation of Deductions Attributable to Certain Disqualified Payments Under Section 951A (Global Intangible Low-Taxed Income) (REG-106013-19)

Proposed rules, April 8, 2020

June 8, 2020

Unrelated Business Taxable Income Separately Computed for Each Trade or Business (REG-106864-18)

Proposed rules, April 24, 2020

June 23, 2020

Denial of Deduction for Certain Fines, Penalties, and Other Amounts (REG-104591-18)

Proposed rules, May 13, 2020

July 13, 2020

Credit for carbon oxide sequestration under section 45Q (REG-112339-19)

Proposed rules, June 2, 2020

August 3, 2020

Tax on Excess Tax-Exempt Organization Executive Compensation

Proposed rules, June 11, 2020

August 10, 2020

Statutory Limitations on Like-Kind Exchanges

Proposed rules, June 12, 2020

August 11, 2020

Qualified Transportation Fringe, Transportation and Commuting Expenses under Section 274

Proposed rules, June 23, 2020

August 24, 2020

Consolidated Net Operating Losses

Proposed rules, July 8, 2020

August 31, 2020

Guidance Under Section 954(b)(4) Regarding Income Subject to a High Rate of Foreign Tax (REG-127732-19)

Proposed rules, July 23, 2020

September 21, 2020

Limitation on Deduction for Business Interest Expense (REG-107911-18)

Proposed rules released July 28

60 days after date of filing for public

inspection with the Federal Register

Carried interest (REG-107213-18)

Proposed rules released July 31

60 days after date of filing for public

inspection with the Federal Register


"That's what John Lewis teaches us. That's where real courage comes from. Not from turning on each other, but by turning towards one another. Not by sowing hatred and division, but by spreading love and truth. Not by avoiding our responsibilities to create a better America and a better world, but by embracing those responsibilities with joy and perseverance and discovering that in our beloved community, we do not walk alone." - former President Obama, July 30


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