September 27, 2020
Americas Tax Policy: This Week in Tax Policy News for September 25
This week (September 28-October 2)
Congress: The Senate and House are in session. The Senate will vote, probably on Tuesday, on the House-passed continuing resolution (H.R. 8337) to: extend government funding through December 11, extend health extenders through that date, and extend both the surface transportation authorization and flood insurance through September 30, 2021; and provide money for the Highway Trust Fund and farm and nutrition aid. House Democrats may take action on additional coronavirus relief.
Last week (September 21-25)
Coronavirus relief: House Speaker Nancy Pelosi (D-CA) has asked committee chairmen to help assemble a $2.4 trillion coronavirus relief bill that will include elements, but not all of the $3 trillion-plus HEROES Act passed in May plus relief for airlines and restaurants. Speaker Pelosi has been facing pressure from moderate members of her caucus to act on additional relief and a vote on the package next week is possible, but it isn't clear that a new a $2 trillion-plus package can produce a breakthrough in negotiations with the Administration that have been gridlocked for more than six weeks. "The package is expected to include stimulus checks, aid for airlines, small businesses, cities and states, as well as rental assistance, unemployment assistance and funds for election security and the U.S. Postal Service," the September 25 Washington Post reported. The New York Times reported Speaker Pelosi as telling members, "We are still striving for an agreement," and "If necessary, we can formalize the request by voting on it on the House floor." The Wall Street Journal reported House Majority Leader Steny Hoyer (D-MD) as saying Democrats were focused on working to find a deal that both chambers could accept and was noncommittal on whether the House would vote on the legislation without an agreement with the White House. The report said an extension of the Paycheck Protection Program (PPP) will be included in the House bill, and cited Republican senators as saying there is only a slim chance of a bipartisan deal before the election even with new movement in the House. At the September 24 Senate Banking hearing, "The Quarterly CARES Act Report to Congress," Treasury Secretary Steven Mnuchin said, "I've probably spoken to Speaker [Nancy] Pelosi 15 or 20 times in the last few days on the CR, and we've agreed to continue to have discussions about the CARES Act." Politico reported that HEROES Act tax provisions that could be carried over to the new bill include expansions of the Employee Retention Tax Credit (ERTC) and the child tax credit.
Restaurant hearing: The September 25 House Ways and Means Select Revenue Measures Subcommittee hearing on "Restaurants in America During the COVID-19 Pandemic" featured less finger-pointing between members over which party was to blame for inaction on additional coronavirus relief legislation than a previous hearing on potential tax elements. Rather, members of both parties listed favorite establishments in their districts, commiserated over struggles facing restaurants, and recognized that more federal help — particularly ERTC and PPP expansions, more direct payments, and a restaurant revitalization fund — is needed to prevent them from closing permanently. Subcommittee Chairman Mike Thompson (D-CA) and Ranking Member Adrian Smith (R-ME) both called for an expansion of the ERTC in any additional legislation, and full Committee Chairman Richard Neal (D-MA) said he would push for that provision in new negotiations. Orlando Mayor Buddy Dyer also called for an ERTC expansion and expressed concern that, without federal help soon, there may not be restaurants to go back to. Restaurateur witnesses described the joys of the hospitality industry and how they have been dashed by the pandemic, lamenting that an industry that relies on social interaction struggles to survive during a time of social distancing. A restaurant worker witness called for additional Economic Impact Payments to help with bills while the industry is in distress. Rep. Suzan DelBene (D-WA) also called for an ERTC expansion, and she is among sponsors of the proposal to increase the credit percentage from 50% to 80% of qualified wages and Increasing the per-employee limitation from $10,000 for all calendar quarters to $15,000 per quarter (aggregate of $45,000).
Election notes: The Presidential candidates continued crisscrossing battleground states, but tax wasn't a focus like it was in previous weeks. Health care is a top issue amid the pandemic and the passing of Supreme Court Justice Ruth Bader Ginsburg, as the Court is set to consider an Affordable Care Act (ACA) case. There is a connection in that the role of the individual mandate — the penalty for which was nullified in the Tax Cuts & Jobs Act (TCJA) — is a focus. In Charlotte September 24, President Trump said the ACA "is no longer Obamacare because we've gotten rid of the worst part of it — the individual mandate — and made it much less expensive" and "we are joining in a lawsuit to end this ill-conceived plan. I'm in court to terminate this really, really terrible situation. If we win, we will have a better and less expensive plan that will always protect individuals with preexisting conditions. If we lose, what we have now is better than the original … "
BEPS 2.0: Tax Notes September 23 reported Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration, as saying the OECD will publish final blueprints and an impact assessment related to the BEPS 2.0 two-part proposal (on new profit allocation and nexus rules and a global minimum tax) on October 12 and will start a public consultation shortly thereafter. Revised draft blueprints are with Inclusive Framework members for a second round of comments ahead of their October 8-9 meeting, then will go to the G-20 finance ministers, who will consider them during their October 14 meeting, Saint-Amans said during a virtual event organized by the Institute of International and European Affairs.
CFC downward attribution regulations: The Treasury Department September 21 released final and proposed regulations limiting the impact of the repeal of IRC Section 958(b)(4) in determining the controlled foreign corporation (CFC) status of a foreign corporation when applying certain provisions. Before repeal by the TCJA, IRC Section 958(b)(4) prevented a US subsidiary from being treated as owning stock in a foreign-owned brother-sister subsidiary for purposes of determining whether the brother-sister foreign subsidiary was a CFC. The final regulations generally follow the proposed regulations issued in October 2019. In one notable change, the final regulations expand an exception so that no deductions are deferred under IRC Section 267(a)(3)(B)(i) on payments to a related CFC unless the CFC has an inclusion US shareholder. Importantly, the proposed regulations would make payments ineligible for look-through under IRC Section 954(c)(6) if paid by a CFC that is only a CFC as a result of the repeal of IRC Section 958(b)(4). The denial of IRC Section 954(c)(6) look-through treatment is proposed to apply to payments of dividends, interest, rents and royalties made during tax years of the foreign corporation ending on or after September 21, 2020. The proposed regulations also would apply certain stock ownership thresholds for satisfying nonrecognition treatment on the outbound transfers of stock or securities of a domestic corporation under Treas. Reg. Section 1.367(a)-3(c) without regard to the repeal of IRC Section 958(b)(4).
Bonus depreciation regulations: Treasury and IRS September 21 released final regulations (T.D. 9916) on the allowance for the additional first-year depreciation deduction under IRC Section 168(k), as amended by the Tax Cuts and Jobs Act, for qualified property acquired and placed in service after September 27, 2017. T.D. 9916 finalizes, with modifications, the proposed regulations released in September 2019. The final regulations provide guidance on issues not covered by the final regulations issued in 2019. Specifically, the final regulations establish rules addressing:
Additionally, the final regulations modify the definitions for qualified improvement property.
Section 864(c)(8) regulations: Treasury and IRS September 21 released final regulations (TD 9919) on the treatment of a foreign partner's transfer of an interest in a partnership that is engaged in the conduct of a trade or business within the United States. The Final Regulations largely adopt proposed regulations that were issued on December 20, 2018, with some technical changes. In particular, the Final Regulations:
The Final Regulations apply to transfers occurring on or after December 26, 2018.
Estate tax regulations: Treasury and IRS September 21 released final regulations (TD 9918) that provide guidance for decedents' estates and non-grantor trusts clarifying that certain deductions of such estates and non-grantor trusts are not miscellaneous itemized deductions.
PPP reporting: On September 22, IRS released Announcement 2020-12: "The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allows qualifying small business owners to receive Paycheck Protection Program (PPP) loans in order to stay in business and pay their employees during the Coronavirus epidemic. Recipients of these loans are eligible for forgiveness of all or a portion of these loans if the loan proceeds are used in accordance with the CARES Act. This Announcement provides that lenders who make PPP loans that are later forgiven under the CARES Act should not file information returns or furnish payee statements to report the forgiveness."
Regulations watch: Under review by the Office of Management and Budget Office of Information and Regulatory Affairs (OIRA) is a final rule on Consolidated Net Operating Losses [TCJA]. Review was completed for: 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; and a proposed rule on Guidance Related to the Foreign Tax Credit, Clarification of Foreign-Derived Intangible Income [TCJA].
Below is a timeline for guidance projects released by the IRS related to the TCJA.