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November 22, 2020

Americas Tax Policy: This Week in Tax Policy News for November 20

This Week (November 23 - 27)

Congress: The House and Senate are out of session for the Thanksgiving holiday.

This Alert won't be published next week because of the holiday.

Last Week (November 16 - 20)

Remainder of the year: The Senate is out until November 30, when members will return facing a December 11 deadline for extending government funding; the House reportedly may not return until there is a government funding bill to vote on. Senate Majority Leader Mitch McConnell (R-KY) said November 17 that his goal is for Congress to pass an omnibus appropriations bill rather than another continuing resolution, and that he believes House Speaker Nancy Pelosi (D-CA) would like the same. Senate Appropriations Committee Chairman Richard Shelby (R-AL) said after meeting with White House Chief of Staff Mark Meadows that "he indicated to me that the president and the administration, they want a bill and we do too, and so that's good," Roll Call reported. Meadows said, "Obviously we want to keep the government funded." While the sides are pretty much in agreement that an omnibus appropriations bill should fund the government through FY2021, they remain far apart on an additional coronavirus relief bill: Senate Republicans support between $500 billion-$650 billion in relief, and Democrats want at least $2 trillion, in addition to myriad other differing positions. Aides to Senator McConnell, Speaker Pelosi, Senate Democratic leader Chuck Schumer (D-NY), and House Republican leader Kevin McCarthy (R-CA) met to discuss government funding and coronavirus relief items November 19. Amid some ambiguity over whether the meeting was a sign of progress toward a large new coronavirus relief package, Politico Playbook reported that the focus was on expiring programs like pandemic related unemployment assistance, student loan forbearance, and the Paycheck Protection Program, which could be renewed in or alongside a funding bill. Extensions of expiring tax provisions ("extenders") and disaster relief are possible add-ons in the tax area, but probably only if additional coronavirus relief can be agreed to in the funding bill or separately. On CNBC November 20, Treasury Secretary Steven Mnuchin said he and senior GOP lawmakers will attempt to draft a targeted stimulus package and meet with Democrats in the coming weeks. Speaker Pelosi said during a news conference November 20, regarding GOP unwillingness to discuss a big bill, "Let's hope that it's time for McConnell's pause to end. We have been working on the omnibus bill and I thought that would be a segue into this. Let's hope that it is."

The outlook for the 2021 agenda and President-elect Joe Biden's ability to do a lot or a little on tax-related issues will remain uncertain throughout the remainder of the year, hinging on control of the Senate, which won't be known until two January 5 Georgia runoffs are decided. Democrats must win both to control the chamber and have Vice President-elect Kamala Harris break 50-50 ties. If they don't, Senator McConnell will control the Senate floor and can block Democratic bills with major tax increases.

Coronavirus relief: Press stories have focused on CARES Act provisions that expire by the end of the year, including: Pandemic Emergency Unemployment Compensation, which provides an extra 13 weeks of benefits, beyond the standard 26 in most states; Pandemic Unemployment Assistance, which extends benefits to gig workers and others who don't qualify for UI; suspension of aviation excise taxes; the eviction moratorium; the Employee Retention Tax Credit; an expanded deduction for charitable contributions; and suspension of student debt payments. On the ERTC, Politico Morning Tax reported: "A congressional aide following the situation noted that the incentive is a quarterly tax credit, which means that businesses wouldn't be able to claim it again until March anyway — conceivably giving Congress plenty of time to get it extended or even expanded. Still, 'businesses will likely fire workers they would otherwise retain in active or furloughed status' if the gridlock continues, the aide added. 'And they won't hire new workers they would otherwise hire if the ERTC were in place.'"

Biden economic plan: President-elect Biden doesn't appear poised to imminently broker a compromise after firmly siding with Democrats during remarks on the economy November 16: "Right now Congress should come together and pass a COVID relief package like the HEROES Act that the House passed six months ago. Once we shut down the virus and deliver economic relief to workers and businesses, then we can start to build back better than before." He outlined the Build Back Better plan from his campaign, highlighting features of:

  • Job creation — "Our plan would create millions of good-paying, union jobs in manufacturing, building the vehicles, products, technologies that we're going to need for the future to compete with the rest of the world."
  • Tax fairness — "It's time to reward work, not just wealth, in America. We're going to have a fair tax structure to make sure the wealthiest among us and corporations pay their fair share."
  • Buy American — "From autos to our stockpiles, we're going to buy American. No government contract will be given to companies that don't make their products here in America."
  • R&D — "To secure our position as a global leader in research and development, we're going to invest $300 billion in the most critical, competitive, new industries and technologies creating three million good-paying jobs."
  • Infrastructure — "We can also modernize infrastructure, roads, bridges, ports. 1.5 million new affordable housing units. High-speed broadband we talked about for every American household, which is more important than ever for remote learning, remote working, telemedicine, and the 21st century. Building a digital infrastructure to help businesses, healthcare workers, first responders, and students. $100 billion to rebuild our crumbling schools."

Room for a tax deal: Even if Republicans control the Senate and can block major Biden/Democratic priorities like climate change, health care, education and housing financed with tax increases, bipartisan deals are possible in a divided Congress. The Tax Cuts & Jobs Act (TCJA) started out as a net tax cut but now presents a waterfall of potential tax increases that provides Congress a built-in tax agenda no matter who is in control, including: the 30% of adjusted taxable income (ATI) 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. Potential compromise tax legislation could take the form of Republicans negotiating to keep or fix some of their priorities from the TCJA in exchange for Democratic priorities, such as expansion of low-income credits. A November 18 Wall Street Journal story on prospects for a child tax credit expansion said "even if Republicans hold the Senate, lawmakers see a possible deal, either in a near-term economic-relief law or a bipartisan tax agreement," with one path being to pair the issue with the extensions of expiring business tax provisions under the TCJA. "Lots of the Republican tax-bill goodies expire between the end of '21 and 2025," said Sen. Mark Warner (D., Va.). "There's an obvious trade of making some of those permanent if you do [the earned-income tax credit] and child tax credit."

Infrastructure: Another issue that may be pursued no matter who controls the Senate: infrastructure. The November 20 Wall Street Journal reported on prospects for infrastructure investment legislation in a potentially divided government next year, saying while it checks two boxes in terms of stimulus and addressing deficiencies in transportation and other systems, Democrats attaching climate change-related provisions could be a flashpoint. A House infrastructure bill in the current Congress included green energy provisions and met criticism from Senate Republicans. Neither party proposed a new revenue source for transportation/infrastructure funding and that remains a "stumbling block," the article said, while also citing members who view the issue as a primary goal for the next Congress. "It's the big one, once we get past Covid issues and then can do infrastructure. If we can do those two, that's a pretty successful term of Congress, and I think that'd be big," said Rep. Dan Kildee (D-MI), a Ways & Means member.

A story in the November 15 Washington Post said, "Biden's allies say the platform on which he campaigned should not be counted out, not least because he retains the ability to govern through executive action, as did Trump and President Barack Obama. And depending on what happens in the coming months, they expect at minimum attempts to craft legislation early next year on coronavirus response and infrastructure." That is consistent with House Ways and Means Committee Chairman Richard Neal's (D-MA) prior comment that Democrats could act early next year on "stimulus and infrastructure and climate change simultaneously."

Personnel: President-elect Biden November 19 announced he has made a decision on his nominee for Treasury Secretary and will announce the selection around Thanksgiving. He suggested the choice will satisfy progressives and moderates in the party. Those understood to be contenders include Janet Yellen, the former Fed chair; Lael Brainard, a Fed governor and former Under Secretary of the Treasury for International Affairs under President Obama; and Roger Ferguson, a former Fed vice chair who, it was reported November 17, is retiring as the CEO of TIAA. Biden November 17 announced staff picks including Jen O'Malley Dillon as deputy chief of staff and Rep. Cedric Richmond (D-LA), a Ways & Means member, as senior adviser and director of the White House Office of Public Engagement.

Tax Notes reported, "Lafayette G. 'Chip' Harter III, Treasury deputy assistant secretary for international tax affairs, confirmed to Tax Notes on November 13 that he will retire November 30."

IRS hearing: The November 20 House Ways and Means Oversight Subcommittee hearing with Internal Revenue Service Commissioner Charles Rettig touched on the issue of disclosure of President Trump's tax returns as well as timeliness of Economic Impact Payments and 2019 refunds. Chairman Bill Pascrell (D-NJ) said it could be Commissioner Rettig's last appearance before the Committee should the next Administration choose to replace him, though his term doesn't expire until November 2022. Rep. Jackie Walorski (R-IN) expressed concern during the hearing "about the current backlog of mail and unprocessed returns that has built up since the initial lockdowns in March and April. My understanding is that the IRS has millions of pieces of unopened mail and an even greater number of unprocessed tax returns. That means millions of taxpayers are still waiting on refunds for tax returns they may have filed as far back as March and April. Second, given that this mail backlog may not be resolved until well into 2021, I am concerned about the agency's ability to prepare for what is likely to be another difficult filing season." Commissioner Rettig said in testimony: "As we continue our work during this unusual period, we are aware of the continuing taxpayer needs and the backlog of work at our campus and office locations. We are doing everything we can to reduce this backlog, including providing relief for taxpayers who have sent us mail that was unopened for a period of time."

PPP deductibility: In response to IRS guidance (Revenue Ruling 2020-27) November 18 that denied tax deductions for otherwise allowable expenses if a Paycheck Protection Program (PPP) loan participant reasonably expects to receive forgiveness of the covered loan (because it would give a taxpayer a double benefit), Senate Finance Committee Chairman Chuck Grassley (R-IA) and Ranking Member Ron Wyden (D-OR) released a statement saying in part, "We encourage Treasury to reconsider its position on the deductibility of these expenses, and the timing of those deductions, to provide relief to the small businesses that need it most."

DRD GILTI coordination rules: On November 20, IRS released regulations (TD 9934) that coordinate the extraordinary disposition rule under section 245A with the disqualified basis and disqualified payment rules under section 951A.

UBTI regulations: The IRS November 19 issued final regulations (TD 9933) on how an exempt organization determines if it has more than one unrelated trade or business and, if it has more than one, how to calculate unrelated business taxable income (UBTI). The final regulations clarify that the "unrelated trade or business" definition applies to individual retirement accounts and that inclusions of subpart F income and global intangible low-taxed income (GILTI) are treated like dividends in determining UBTI.

President Mulls U.S. Withdrawal from WTO Procurement Agreement: Politico reported this week that the Trump administration was considering withdrawing the United States from the World Trade Organization's General Procurement Agreement, which provides trade rules for the government procurement market. The move could occur as early as Friday, which would result in the U.S. withdrawing from the global trade agreement on January 19, 2021, the day before President-elect Biden's inauguration. Senate Finance Committee Chairman Grassley urged the Administration against withdrawing from the GPA. "Congress approved the WTO agreements. Both by law and the Constitution, only Congress can decide to end U.S. participation in those agreements," Grassley said.

Regulations watch: Under review by the Office of Management and Budget's Office of Information and Regulatory Affairs (OIRA) are a final rule, "Exception From Passive Income Under Section 1297 for Certain Foreign Insurance Companies [TCJA];" a proposed rule, "Exception to Passive Income Characterization of Certain Insurance Companies With Respect to Passive Foreign Investment Companies [TCJA];" and a final rule on "Section 451(b) Requirements [TCJA]." Review has been completed on a final rule, "Like-Kind Exchanges and Tax Reform [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 November 6, 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


Coordination of Extraordinary Disposition and Disqualified Basis Rules (TD 9934)

Final rules released November 20, 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

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:
Ernst & Young's Center for Tax Policy
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