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November 15, 2020

Americas Tax Policy: This Week in Tax Policy News for November 13

This week (November 16-20)

Congress: The House and Senate are in session.

Ways & Means IRS hearing: The House Ways and Means Oversight Subcommittee will hold a hearing with Internal Revenue Service Commissioner Charles Rettig on Friday, November 20, 2020 at 10:00 a.m. EST.

Last week (November 9-13)

Election: President-elect Joe Biden's ability to act on a tax agenda, and the difference between doing a lot or a little, will hinge on control of the Senate, which depends on two January 5 runoffs in Georgia. With Republicans winning two late-called races in Alaska and North Carolina, the Senate ratio for the next Congress prior to then will be 50 Republicans, 48 Democrats. Democrats must win both runoffs to control the chamber and have Vice President Kamala Harris break 50-50 ties. Biden's trillions of dollars in proposed tax increases were not intended, at least during the campaign, to be enacted as a standalone package; rather they are to be combined as revenue sources for major priorities like climate change, health care, education and housing. If Democrats win both runoffs and have 50-50 control of the Senate with VP Harris as the tiebreaker, they could potentially act on those priorities financed with major tax increases on high-income individuals, either through an increase in the top individual rate and/or capital gains and dividends rates, and/or on corporations, including a statutory rate of as high as 28%. Given the slim margin, Democrats in the majority face three choices to get these bills done: 1) negotiate with some Senate Republicans in order to achieve the 60-vote margin necessary to move most legislation through the Senate; 2) use the budget reconciliation process that allows certain legislation to pass with 51 votes, rather than the 60-vote filibuster threshold; or 3) seek to change rules regarding the filibuster. Democrats will also presumably be constrained in the House, however, given their thin House majority and, looking towards the next election in 2022, leaders will need to be mindful of forcing some members to take votes on such controversial items.

However, if Republicans win at least one runoff and control the Senate, Biden and Democrats won't be able to run the table with major Democratic priorities like climate change, health care, education or housing. Those proposals are either going to be shut down by Senate Republicans or significant GOP interests would need to be reflected to win their support. Some areas of potential bipartisan cooperation are: 1) infrastructure; 2) retirement savings; and 3) changes scheduled under the Tax Cuts & Jobs Act (interest deduction, R&D amortization). Bipartisan deals are possible in a divided Congress, including potential compromise tax legislation in which Republicans presumably negotiate to keep or fix some of their priorities from the TCJA in exchange for priorities that Democrats have, such as expansion of low-income credits and multiemployer pension relief. Republicans will likely oppose an increase in the corporate tax rate; whether a compromise is in the cards to have the rate climb by a few percentage points as part of broader legislation that Republicans might support is unclear, but it is unlikely a rate increase will occur of the size Biden has proposed, or that any increase will happen in 2021. One factor in the GOP Senate scenario is that Biden is a creature of the Senate and enjoys relationships there better than any other recent president. For example, he and leader McConnell negotiated a resolution to the 2012 "fiscal cliff" slate of tax increases.

The Tax Cuts & Jobs Act (TCJA) includes a built-in tax agenda because of scheduled changes such as: the 30% limitation on the deduction of interest expense is calculated without depreciation and amortization after 2021; a phase down of bonus depreciation after 2022; and, under Section 174, amortization of R&D expense is required beginning in 2022. Democrats may be reluctant to support changes to the law they unanimously voted against unless doing so aligns with their own tax and economic principles and could insist on including their own priorities along with these changes. The November 11 Wall Street Journal (WSJ) reported, "Spurred by equipment shortages during the pandemic, lawmakers in both parties have talked about tax incentives for companies to adjust their supply chains so they are less reliant on overseas production."

Regulatory changes: A New York Times (NYT) report from November 8 said Biden could act unilaterally by changing TCJA regulations, including international tax rules. "A Biden Treasury Department could move to reverse a series of decisions that Mr. Trump's team made after the 2017 law was passed that effectively reduced the liability of multinationals under a pair of new taxes created by the law, known as the Base Erosion and Anti-Abuse Tax and the Global Intangible Low-Taxed Income," the report stated. "Mr. Biden campaigned on a promise to raise U.S. tax liability on multinationals' global income, which he could attempt to do via regulation by changing how the liability is calculated. His Treasury Department could also attempt to roll back a so-called high-tax exemption, which allowed some companies to lower their tax bills in the United States." However, a November 12 Law360 article suggested "the incoming administration may find few avenues open to achieve the goals of Biden's campaign platform without help from Congress." The article said repealing features of TCJA regulations like the GILTI high-tax exclusion may not be an easy policy choice for the administration because, "Aside from helping to manage foreign tax credit limitations, Treasury's high-tax exclusion could be important for U.S. companies that see foreign income surge before domestic income, due to the uneven economy or tax structures that allocate the steadiest profits to offshore distributors." Regarding BEAT regulations, "While many claimed … carveouts were too taxpayer-friendly, they aren't associated with clear profit-shifting to low-tax jurisdictions or other examples of egregious tax avoidance that Biden excoriated on the stump."

Early focus in 2021: Some of the early 2021 agenda will depend both on the makeup of the Senate and what can get done still in a lame-duck session that gets underway in earnest next week, with a December 11 deadline for extending government funding on the horizon. House Speaker Nancy Pelosi (D-CA) said prior to the election, when Democrats taking control of the Senate in a "blue wave" seemed more likely, that a likely early 2021 reconciliation bill would address pandemic needs, changes related to the Affordable Care Act (ACA), and "some other issues that relate to the well-being of the American people." Senate Majority Leader Mitch McConnell (R-KY) had, shortly after the election, discussed the need for a coronavirus bill this year, but he and Speaker Pelosi then quickly retreated into their corners over the size of the bill — Senate Republicans support between $500 billion-$650 billion, and Democrats want about $2 trillion. The continued controversy over a relief measure is being viewed through the lens of the election results. Senate Republicans, including fourth-ranking GOP member Roy Blunt (R-MO), have suggested Democrats' showing in the elections — they are widely considered to have underperformed compared to pre-election expectations — means they should move closer to the Republican position on coronavirus relief. Speaker Pelosi expressed the opposite view during a November 12 news conference: "We think there has been change. It should move things in our direction … what Joe Biden got in this election was a mandate, a mandate to address the challenges that our country faces, as well as to have a positive initiative on how to grow the economy in a fair way. And in order to do that, we must address the COVID … pandemic." Senate Democratic leader Chuck Schumer (D-NY) said, "This election was maybe more a referendum on who can handle COVID well than anything else."

House Ways & Means Committee Chairman Richard Neal (D-MA) was quoted in the November 11 WSJ as saying, "After President Biden takes the oath, I think you could address stimulus and infrastructure and climate change simultaneously." Biden has advocated the job-creating potential of infrastructure and green energy investment. The New York Times November 11 reported that Biden's aides say his transition team is working on contingency plans depending on economic conditions and that, even if Democrats don't control the Senate, some of his agenda items could still pass. "Business groups remain hopeful that he and Mr. McConnell could reach agreement on a slimmed-down stimulus bill and a compromise infrastructure package, perhaps in the form of a new highway bill," the report said.

Biden/Dems call: Biden, Pelosi, and Schumer discussed elements of a potential upcoming agenda during a November 12 call. They "discussed the urgent need for the Congress to come together in the lame duck session on a bipartisan basis to pass a bill that provides resources to fight the COVID-19 pandemic, relief for working families and small businesses, support for state and local governments trying to keep frontline workers on the payroll, expanded unemployment insurance, and affordable health care for millions of families," according to a joint readout of the call. "They also discussed the importance of finding bipartisan solutions to create millions of good-paying union jobs, including through investments in infrastructure, manufacturing, research and development, and clean energy."

Personnel: Ron Klain has been selected as Biden's Chief of Staff, and more staff and cabinet picks are forthcoming. On MSNBC November 12, Klain noted Biden "has a lot of relationships" with members of Congress and "can work with people in both parties in the House and the Senate and get things done." He said, "I think he will spend more and more time engaging with Capitol Hill as the transition unfolds," but did note the call with Pelosi and Schumer "to get the American people the help they need to deal with the impacts of this coronavirus crisis." A cabinet position that is the subject of significant interest and speculation is Treasury Secretary. One leading candidate is Lael Brainard, a Fed governor and former Under Secretary of the Treasury for International Affairs under President Obama. A November 10 NYT article said: "Ms. Brainard's data-driven approach and quiet persistence have allowed her to maneuver effectively even while staking out a minority position at the Fed. That skill could make her an attractive pick for the Treasury's top job. So could her experience as a former Treasury official who played a leading role in European debt crisis and Chinese currency deliberations. Negotiating chops would come in handy as the new administration tries to cut pandemic relief deals with what could be a Republican Senate." The report said others under consideration are Sarah Bloom Raskin, a former Fed governor who served as deputy Treasury secretary during the Obama administration, and Janet Yellen, the former Fed chair. Senator Elizabeth Warren (D-MA), also discussed as a potential Treasury Secretary, is seen as less likely to be nominated given the difficulty she would face in being confirmed by a potentially Republican-controlled Senate and the fact that the choice to replace her in the Senate on an interim basis would be made by a Republican governor. Biden also announced agency review teams and the Treasury team includes Lily Batchelder, a former Senate Finance Committee chief tax counsel and Deputy Director of the White House National Economic Council and Deputy Assistant to the President under President Obama.

SALT: The IRS November 9 announced (Notice 2020-75) that it will issue proposed regulations clarifying that a partnership or S corporation may deduct, in computing non-separately stated taxable income or loss for a tax year, state and local income taxes imposed on and paid by the partnership or S corporation during the tax year at issue.

Regulations watch: Under review by the Office of Management and Budget's Office of Information and Regulatory Affairs (OIRA) are a final rule, "Like-Kind Exchanges and Tax Reform [TCJA];" a final rule, "Exception From Passive Income Under Section 1297 for Certain Foreign Insurance Companies [TCJA];" and a proposed rule, "Exception to Passive Income Characterization of Certain Insurance Companies With Respect to Passive Foreign Investment Companies [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 DRD from Certain Foreign Corporations, 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, October 9, 2020


Gain or Loss of Foreign Persons from Sale or Exchange of Certain Partnership Interests (TD 9919)

Final rules released September 21, 2020


Additional First Year Depreciation Deduction (TD 9916)

Final rules, November 5, 2020


Ownership Attribution Under Section 958 (TD 9908)

Final rules, September 22, 2020


Determining the foreign tax credit, etc. (TD 9922)

Final rules, November 12, 2020


Meals and Entertainment Expenses (TD 9925)

Final rules October 9, 2020


Consolidated Net Operating Losses (TD 9927)

Final rules, October 23, 2020


Determination of Section 4968 Excise Tax, Colleges & 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

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 on Hybrid Arrangements, Allocation of Deductions Attributable to Disqualified Payments, 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

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

Ownership Attribution Under Section 958 (REG-110059-20)

Proposed rules, September 22, 2020

November 20, 2020

Guidance related to the Foreign Tax Credit (REG-101657-20)

Proposed rules, November 12, 2020

February 10, 2021


Contact Information
For additional information concerning this Alert, please contact:
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Gary Gasper (
Ray Beeman (
Bob Carroll (
James Mackie (
Kurt Ritterpusch (