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September 8, 2020

Americas Tax Policy: This Week in Tax Policy News for September 8

This week (September 7-11)

Congress: The Senate is back in session after Labor Day. The House is out until the following week.

The primary must-do item confronting Congress is the extension of government funding beyond September 30, which will likely be done by continuing resolution (CR). The duration of the CR is not inconsequential. Press reports have said Democratic leaders want it to last into 2021, likely sometime in March, while CNN September 3 reported that the White House has requested that the CR extend until mid-December.

This Week (August 31-September 4)

The big picture: There were some new communications between the Administration and Democrats on a next coronavirus relief bill, but still no indications of an imminent agreement, and a narrow Republican bill that may be taken up when the Senate returns next week doesn't appear poised to get negotiators closer to a deal. The deficit impacts of the coronavirus relief provided thus far were quantified by the Congressional Budget Office (CBO). IRS guidance has been issued on the President's payroll tax deferral memorandum and the parties are taking different approaches on the issue: Republicans want to ensure the deferred tax will be forgiven, and Democrats are taking steps toward compelling a disapproval vote. The presidential and congressional elections are drawing nearer, with intense positioning and speculation two months out.

Coronavirus relief: Appearing before the House Coronavirus Select Subcommittee September 1, Treasury Secretary Steven Mnuchin appeared to express openness to a slightly higher total for a next coronavirus package — $1.5 trillion, up from the $1.3 trillion White House Chief of Staff Mark Meadows previously said the President was willing to sign — but also said, "Let's not get caught on a number. Let's agree on things, we can move forward on a bipartisan basis now." He does not, however, support the $2.2 trillion in relief that Democrats have set as a minimum. Secretary Mnuchin was implored to speak with House Speaker Nancy Pelosi (D-CA) following the hearing and he did, following which the Speaker released a statement saying, "Sadly, this phone call made clear that Democrats and the White House continue to have serious differences understanding the gravity of the situation that America's working families are facing." Secretary Mnuchin and Speaker Pelosi have reportedly reached agreement to not attach coronavirus relief items to an extension of government funding beyond September 30, which is the main must-pass bill confronting Congress in the pre-election session beginning in the Senate the day after Labor Day and the House September 14 and slated to last through early October. Politico reported a Pelosi staffer as saying House Democrats favor a 'clean' continuing resolution. The Senate may vote next week on a narrowly targeted, roughly $500 billion coronavirus package intended to attract the support of GOP members with cost concerns over additional relief. Speaker Pelosi has expressed disinterest in such a pared-down plan and Senate Democratic leader Chuck Schumer (D-NY) called the effort inadequate in a September 3 letter, saying Republicans were "moving even further in the wrong direction." He derided the expected Senate GOP plan, which has been in development for weeks, as leaving unaddressed food and rental assistance and state and local funding. Senate Majority Leader Mitch McConnell (R-KY) September 2 said the talks with Democrats remain at a stalemate and while he thinks agreement is necessary "it's harder to do now because we're so much closer to the election … The cooperative spirit we had in March and April has dissipated as we move closer and closer to the election."

Budget outlook: In "An Update to the Budget Outlook: 2020 to 2030" September 3, CBO projected for 2020 a federal budget deficit of $3.3 trillion and federal debt held by the public of nearly 100% GDP (98%). An Alert on the report by the EY Quantitative Economics and Statistics Group is available here.

Election: President Trump issued several tweets this week critical of Democratic nominee Joe Biden and House Speaker Pelosi, including on August 31 saying, "Biden will also raise your taxes like never before. Sad!" He told reporters the next day that if he wins, "everybody is getting a big tax cut." Some of the latest election polling shows Biden ahead of Trump in battleground states of Arizona, North Carolina, and Wisconsin. The Fox News polls released September 2 showed Biden ahead of Trump: 49%-40% in Arizona, where Mark Kelly leads Senator Martha McSally (R-AZ) in the Senate race 56%-39%; 50%-46% in North Carolina, where Cal Cunningham leads Senator Thom Tillis (R-NC) 48%-42% in the Senate race; and 50%-42% in Wisconsin. If Biden wins and Democrats take control of the Senate, significant policy items could be pursued even if Democrats do not have a majority of 60 votes, either under budget reconciliation procedures or by eliminating or modifying the Senate filibuster rules. A story in the September 2 Wall Street Journal said there are at least 5 current Democratic senators who oppose filibuster repeal and cited Sen. Jeff Merkley (D-OR) as saying ideas discussed include:

  • lowering the 60-vote threshold to advance legislation;
  • forcing senators to return to traditional "talking filibusters" that require senators to be physically present and debating to keep a bill from coming up for a vote;
  • reducing the amount of time allowed for debate;
  • classifying more types of legislation as immune to filibusters;
  • restoring a bipartisan amendment process to guarantee members of the minority party the opportunity to help shape legislation on the Senate floor; and
  • forbidding filibusters on "fundamental constitutional" issues like voting rights.

Neal wins primary: House Ways and Means Committee Chairman Richard Neal (D-MA) beat back a primary challenge from the left, defeating progressive Holyoke Mayor Alex Morse in the Democratic primary September 1. It was among the races in which more traditional Democrats were challenged by progressive candidates, groups, and members.

Payroll tax deferral: IRS guidance was issued late August 28 on President Trump's August 8 memorandum to defer payroll taxes from September 1 through the end of the year for those with under roughly $104,000 in annual income. Notice 2020-65 said employers are responsible for collecting the deferred taxes from employees during the period January 1, 2021, and April 30, 2021, and still left some open questions, including not saying explicitly whether employer or employee participation is compulsory. (An EY Alert is available here.) During the September 1 hearing, Secretary Mnuchin said, "This is a deferral, so it will be paid back, and if we pass legislation, then in the legislation this would come out of the general funds and make Social Security 100% whole. We have no intention of having this cost one penny out of the Social Security trust fund." House Ways and Means Committee Ranking Member Kevin Brady (R-TX) told reporters September 2 that he will be introducing such legislation to forgive the four months of deferred taxes, and the funds would come from general revenue as has been done in previous payroll tax holidays, Politico reported. Senator Schumer and Finance Committee Ranking Member Ron Wyden (D-OR) September 2 called on the Government Accountability Office (GAO) to conduct an expedited review of the actions taken by the Treasury Department to determine whether the guidance that was issued is subject to the Congressional Review Act (CRA), saying they believe it qualifies as an agency action subject to the CRA. This request by Schumer and Wyden could compel an eventual Senate vote of disapproval of the action, though actually blocking the memo from taking effect would likely require the two-thirds vote in both the House and Senate required to overcome a veto. Also available is a Congressional Research Service report on the myriad intricacies of the CRA.

BEAT regulations: On September 1, the Treasury Department released final regulations (T.D. 9910) on the base erosion anti-abuse tax (BEAT) under IRC Section 59A. The Final Regulations generally follow the proposed regulations issued in December 2019, as expected, with certain revisions. Highlights include provisions that:

  • Retain the rule about changes in the composition of a taxpayer's aggregate group and clarify the timing of the deemed tax year-end of a member joining or leaving the group (now treated as occurring at the end of the day of the transaction)
  • Detail when members of a taxpayer's aggregate group have different tax years, including rules that apply in certain instances to annualize a member's gross receipts, base erosion tax benefits, and deductions for determining the gross receipts and base erosion percentage of the taxpayer's aggregate group
  • Favorably limit the anti-abuse rule for transactions that increase the basis of property acquired by a taxpayer in a non-recognition transaction to turn off the non-recognition exception for the basis step-up amount, and narrow the anti-abuse rule to generally apply if a principal purpose of the basis step-up transaction was to increase the taxpayer's depreciation or amortization deductions without increasing the taxpayer's base erosion tax benefits
  • Retain the definition of "allowed deduction," which includes all deductions that may properly be claimed (whether deducted or not) for the tax year, while also retaining the election to waive deductions so that waived deductions are not treated as base erosion tax benefits (e.g., when determining base erosion percentage or modified taxable income)
  • Include, as part of the BEAT waiver election, a provision for the waiver of any premium or other consideration paid or accrued by a life or non-life insurance company for any reinsurance payments that would otherwise be a base erosion tax benefit
  • Allow a partner, but not the partnership itself, to make a BEAT waiver election for allocated deductions from a partnership
  • Conform the treatment of a partner's BEAT waiver election with IRC Section 163(j) so that an increase in the partner's income from waiving a deduction taken into account by the partnership to reduce the partnership's adjusted taxable income is treated as a partner-basis item for the partner, not the partnership, for purposes of IRC Section 163(j)
  • Adopt the proposed rule treating an income allocation to the contributing partner in lieu of a deduction allocation to the non-contributing partner as a base erosion tax benefit under IRC Section 59A

S corporations with accumulated earnings and profits: In Notice 2020-69, the Treasury Department and IRS announced the intention to issue regulations addressing the application of Sections 951 and 951A to certain S corporations with accumulated earnings and profits. For those S corporations electing this treatment, global intangible low-taxed income (GILTI) inclusions would create AAA. The notice also announces that the Treasury Department and the IRS intend to issue regulations addressing the treatment of qualified improvement property (QIP) under the alternative depreciation system (ADS) of Sections 168(g) for purposes of calculating qualified business asset investment (QBAI) for purposes of the foreign-derived intangible income (FDII) and GILTI provisions. These rules when issued would implement recent clarifications enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). All of these provisions were originally part of the 2017 Tax Cuts and Jobs Act (TCJA).

Tax guide: EY has published the 2020 Worldwide Corporate Tax Guide.

Regulations watch: Now under review by the Office of Management and Budget Office of Information and Regulatory Affairs (OIRA) are: a final rule on Allocation & Apportionment of Deductions & Foreign Taxes, Foreign Tax Redeterminations, FTC Disallowance Under 965(g), Consolidated Groups, Hybrid Arrangements & Certain Payments under 951A; a proposed rule on Guidance Related to the Foreign Tax Credit, Clarification of Foreign-Derived Intangible Income [TCJA]; and Revisions to the Section 168(k) Final Regulations [TCJA].

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, September 14, 2020


Limitation on Deduction for Dividends Received from Certain Foreign Corporations and

Amounts Eligible for Section 954 Look-Through Exception (TD 9909)

Final rules, August 27, 2020


Additional Rules Regarding Base Erosion and Anti-Abuse Tax (TD 9910)

Final rules released September 1


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

Proposed rules, December 28, 2018

February 26, 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

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, September 14, 2020

November 2, 2020

Carried interest (REG-107213-18)

Proposed rules, August 14, 2020

October 5, 2020

Coordination of Extraordinary Disposition and Disqualified Basis Rules (REG-124737-19)

Proposed rules, August 27, 2020

October 26, 2020


"If somebody else got in — namely, my opponent — your stock markets, instead of being records right now, they will crash. Your 401(k)s will be down to nothing. Your stocks will be down to nothing. And we will have a depression like you've never seen before. We're going to have an incredible economy. Next year is going to be one of the best years that we've ever had. And everybody is getting a big tax cut." — President Trump, September 1 Media Availability Before Air Force One Departure


Contact Information
For additional information concerning this Alert, please contact:
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