November 20, 2020
What to expect in Washington (November 20)
Aides to House Speaker Nancy Pelosi (D-CA), Senate Majority Leader Mitch McConnell (R-KY), Senate Democratic leader Chuck Schumer (D-NY) and House Republican leader Kevin McCarthy (R-CA) — the "four corners" of congressional leadership — met November 19 to discuss extending government funding beyond December 11 and coronavirus relief items. 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. The sides are pretty much in agreement that an omnibus appropriations bill should fund the government through FY2021 but have been far apart on an additional pandemic measure: Senate Republicans support between $500 billion-$650 billion, and Democrats want at least $2 trillion, in addition to myriad other differing positions.
As a practical matter, the Senate left November 18 and won't return until November 30, when an additional Democrat, Mark Kelly of Arizona, will take office (because Senator McSally was serving under an appointment, not elected). The House reportedly may not return until there is a government funding bill to vote on. It's unclear whether coronavirus provisions can be part of a funding bill or move separately, and, unless that happens, it will be difficult to add tax items like extensions of expiring provisions.
On CNBC this morning (Friday), 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.
Former NEC Director Gary Cohn, once part of a negotiating duo with Mnuchin in the run-up to the Tax Cuts and Jobs Act (TCJA), tweeted after a CNN appearance, "From my conversation w/ @ErinBurnett: Right now, Washington isn't dealing with the fact that small businesses are suffering w/ renewed closures due to #COVID19 or that unemployment benefits will soon run out. Congress needs to act and provide additional stimulus now."
Looking down the road
The 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.
President-elect Joe Biden announced November 19 that 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.
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."
The House Ways and Means Oversight Subcommittee holds a hearing with Internal Revenue Service Commissioner Charles Rettig today (Friday, 10:00 a.m. EST).
The IRS has 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.
Dispute over Federal Reserve's emergency programs
In a letter to the Federal Reserve's Board of Governors on Thursday, Secretary Mnuchin asked the Fed to return to the Treasury, by the end of the year, all the unused funds set aside for most of its emergency lending programs by the CARES Act. Mnuchin's request included such "section 13(3)" programs as the Main Street Lending Program, the Municipal Liquidity Facility, the Primary and Secondary Corporate Credit Facilities and the Term Asset-Backed Securities Loan Facility (TALF). "While portions of the economy are still severely impacted and in need of additional fiscal support, financial conditions have responded and the use of these facilities has been limited," Mnuchin wrote. Mnuchin said the unspent money for the emergency programs, as well as money the CARES Act allocated to assist airlines and other sectors, would allow Congress "re-appropriate" $455 billion for other purposes. "I was personally involved in drafting the relevant part of the legislation and believe the congressional intent … was to have the authority to originate new loans or purchase new assets (either directly or indirectly) expire on December 31, 2020," he wrote. "Out of an abundance of caution," Mnuchin did ask for a 90-day extension for four of the Fed's emergency programs: Commercial Paper Funding Facility, Money Market Mutual Fund Liquidity Facility, Primary Dealer Credit Facility and Paycheck Protection Program Liquidity Facility.
The Federal Reserve's Board of Governors took the unusual step of releasing a contrary statement after Mnuchin's letter was published, saying, "The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy." Speaking at a virtual event on Tuesday (November 17), Federal Reserve Chairman Jerome Powell had said, "I don't think it is time yet, or very soon" to close down the section 13(3) programs, adding that the Federal Reserve was committed to "using all of our tools to support the recovery for as long as it takes until the job is well and truly done." Mnuchin's letter also prompted a stinging rebuke from House Financial Services Committee Chairman Maxine Waters (D-CA), who said in a statement, "It is clear that Trump and Mnuchin are willing to spitefully destroy the economy and make it as difficult as possible for the incoming Biden Administration to turn this crisis around and lead the nation to a recovery." Waters said that at a hearing in December, Mnuchin "will be held to account for this legally dubious and flagrantly destructive recommendation. I urge the Federal Reserve to follow the law, support the economy, and reject this misguided request from the Secretary."
Today, November 20, at 12:00 PM Eastern Standard Time is the EY Webcast, "Tax in the time of COVID-19: post-election outlook." The coronavirus (COVID-19) and the resulting economic crisis — all occurring in an election year — have made reacting to tax and trade developments more complicated and more difficult. After election day, what might be on the horizon for tax policy, tax legislation and any further economic stimulus? To determine what information your company needs to know now, join our panelists for the next in our series of conversations about operating the tax function in this time of COVID-19. Register