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August 16, 2020

Americas Tax Policy: This Week in Tax Policy News for August 14

This week (August 17-21)

Congress: Most House members have been away from Washington and Speaker Pelosi also signaled that she would be away next week, at least on Wednesday when she is slated to speak during the Democratic National Convention being held virtually August 17-20. "I'll be doing it live from California and we're so excited," she said. Also leaving town is the Senate, which gave up the first week of the August recess this week for at least some leaders to stay in session waiting on the outcome of bipartisan negotiations that didn't really materialize. If that continues to be the case, the Senate won't return until September 8, the House September 14. Members are still on 24-hours' notice for votes should an agreement on coronavirus legislation be reached.

Last week (August 10-14)

Payroll tax deferral: Questions followed President Trump's signing of a memorandum deferring payroll taxes through the end of the year for those with under roughly $104,000 in annual income, mainly regarding how employers should proceed and whether the executive action on that issue and a handful of others — unemployment benefits, evictions, and student loan payments — would sap any momentum for a broader coronavirus bill with congressional Democratic leaders. Employers have expressed concerns about changing payroll tax withholding and passing the money to employees without a guarantee that the taxes would be forgiven. On Fox Business August 12, Secretary Mnuchin said the payroll tax relief under the memorandum signed by the President on Saturday would be optional for employers — the Administration can't force them to act — and "we're going to create a level of certainty for employers that want to participate." Business groups have asked that the optional nature and other points, including the fact that an eligible employee must elect to have the taxes be deferred, be reflected in IRS guidance. National Economic Council Director Larry Kudlow said August 13 a "technical change" will be issued to clarify that the relief applies to the self-employed, Reuters reported. During an August 12 news conference, President Trump said the payroll tax cut is preferable to additional direct stimulus payments: "We'll be terminating the payroll tax after I hopefully get elected, we will be terminating the payroll tax. So that will mean anywhere from $5,000 to even more per family and also great for businesses and great for jobs. That is better than the payments. That's better than anything else." White House press secretary Kayleigh McEnany said by "terminating" he meant only "that he wants a permanent forgiveness of the deferral." Employers are waiting to take action on guidance from the IRS that is expected shortly.

Coronavirus (COVID-19): The executive actions are just one factor complicating prospects for a coronavirus deal between the Administration and Democratic congressional leaders, who were not impressed with the move. House Speaker Nancy Pelosi (D-CA) said they are "illusions" and Senate Democratic leader Chuck Schumer (D-NY) called them "laughable." The Washington Post reported August 11 that the Administration may be satisfied with the executive action as "the president and his senior advisers have expressed optimism that the economy does not need an additional package following the White House's executive maneuvers" and Chief of Staff Mark Meadows has left town. On August 12, NEC Director Kudlow suggested that a large coronavirus bill may not be necessary and only "targeted money" is needed now. However, Treasury Secretary Steven Mnuchin, the other half of the Administration's negotiating duo with Meadows, has kept pressure on a deal, repeatedly calling for a roughly $1 trillion deal on areas of overlap between the two sides and addressing the other issues later. "Let's spend a little over $1 trillion on areas of the economy that are going to be very impactful now that we can agree on," he said. Speaker Pelosi and Senator Schumer have essentially told him to come back when he is ready to agree to a $2 trillion deal. (The House-passed HEROES Act topped $3 trillion and Democratic leaders offered to drop to $2 trillion achieved by shortening the duration of programs.) The Secretary responded by saying Democrats have "no interest in negotiating," and Speaker Pelosi said of Democrats and the Administration August 12, "We're miles apart." President Trump, long opposed to mail-in voting over the potential for fraud, said August 13 regarding funding for that and for the U.S. Postal Service generally proposed by Democrats for the next coronavirus relief bill, "If we don't make a deal, that means they don't get the money. That means they can't have universal mail-in voting." However, he later said he wouldn't veto a bill that includes the funding and both he and Speaker Pelosi both essentially said it was a small part of a very large deal and not a main sticking point. What is clearly still a major area of disagreement is state and local funding: the Administration has offered $150 billion, Democrats want at least $875 billion, and Speaker Pelosi said shortfalls are going to equal job losses. In a series of tweets August 14, President Trump said that he is prepared to act on a number of subjects under the scope of the negotiations — state and local government funding, direct payments, etc. — and "DEMOCRATS ARE HOLDING THIS UP!" The tax provisions in play for the next bill are relatively noncontroversial and not the holdup, but nonetheless will have difficulty advancing absent a compromise on the biggest issues. "Pessimistic about getting back to the negotiating," Senate Finance Committee Chairman Chuck Grassley (R-IA) said in the New York Times. While some watched the difficult coronavirus negotiations with an eye toward government funding running out September 30 and the potential controversy over efforts to enact an extension right before the election, that deadline is now seen as potentially serving double duty as a backstop to compel action on a virus relief package. "Adhering to the adage that Congress works best on a deadline, aides and lawmakers have already begun to note the next one they might use to force compromise: when government funding lapses in seven weeks," the story said.

More tax relief: During his August 10 news conference, President Trump repeated comments from the weekend executive action signing that the Administration is looking at income and capital gains tax relief. "We're looking at also considering a capital gains tax cut which would create a lot more jobs so we're looking very seriously at a capital gains tax cut and also at an income tax cut for middle income families," he said. "We're looking at expanding the tax cuts that we've already done, but specifically for middle income families and you'll be hearing about that in the upcoming few weeks and I think it will be very exciting." President Trump said on Fox Business August 13 that he would reduce the capital gains rate to 15% in his second term. The New York Times reported August 12, "White House officials have explored whether President Trump has the power to sidestep Congress and unilaterally cut a broad swath of taxes as the president looks for ways to inject fuel into a slumping economy." The report said temporarily delaying taxes allows the President to draw a contrast with presumptive Democratic nominee Joe Biden and his proposed tax increases and may "put Democrats in what will be the uncomfortable position of allowing those taxes to be reinstated when the deferment expires." It said Stephen Moore, a Heritage Foundation economist and previous Trump adviser, has urged consideration of delaying other types of taxes like the gas tax.

Harris is VP pick: The Democratic ticket is set as presumptive Democratic nominee Biden selected Senator Kamala Harris (D-CA) as his vice-presidential running mate. The move puts a focus on Senator Harris' previous proposals, especially on the campaign trail, and she can be counted as among Democrats to back ending the Senate filibuster that sets a 60-vote threshold for most legislation to act on priorities, in her case climate change. She said in September 2019 if efforts to work with Republicans fail, "I am prepared to get rid of the filibuster to pass a Green New Deal." She was also one of the only Democratic contenders to call for repeal of the Tax Cuts & Jobs Act (TCJA); most others suggested only parts of the law be rolled back to redistribute benefits toward working class Americans. During a June 2019 debate, Senator Harris promoted her LIFT the Middle Class Act to provide a $500 monthly tax credit for families earning under $100,000 annually, and said on "day one" of her presidency, she would "repeal that tax bill that benefits the top 1% and the biggest corporations of America." During an August 11 news conference, President Trump said of Senator Harris, "she's a big tax raiser, she's a big slasher of funds for our military and she's got a lot of difficult things that she's going to have to explain." The following day he said of Biden and Harris, "He wants to increase everybody's taxes. And she's one of the people that wants that." On Fox Business August 13, President Trump said, "They want to tax $4 trillion, it's going to be the biggest tax increase in history by far." Senator Harris's campaign tax proposals also included a return to a 35% corporate tax rate (by virtue of TCJA repeal), as opposed to 28% proposed by Biden; a financial transactions tax at 0.2% for stocks, 0.1% for bonds, .002% for derivatives; and taxing "offshore corporate income at the same rate as domestic corporate income."

Regulations watch: Final Base Erosion and Anti-Abuse Tax (BEAT) regulations are under review by the Office of Management and Budget Office of Information and Regulatory Affairs (OIRA). Review was completed on a 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, 2020


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 set to be published August 14

October 5, 2020


"Well I've done the payroll tax cut temporary — you know, this is a temporary payroll tax cut, but this is a very substantial, positive jolt to the economy. I'm going to do a capital gains tax cut to 15% in [my] second term. We're going to get it down to 15% … I'll get that done easily." - President Trump on Fox Business August 13


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