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January 10, 2021

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

This week (January 11-15)

Congress: Both the House and Senate are scheduled to be out until January 19. (It is possible the House, at least, will be in session next week though.)

BEPS 2.0: The OECD will hold a two-day virtual public consultation on the BEPS 2.0 Pillar 1 and Pillar 2 Blueprints on January 14-15. OECD has announced that the 11th plenary meeting of the 137 members of the OECD/G20 Inclusive Framework on BEPS January 27-28 will be held virtually and will be open to the public.

Last week (January 4-8)

Democrats control Senate, agenda: The Senate will be controlled by Democrats beginning on Inauguration Day, January 20, because Vice President-elect Kamala Harris holds the tiebreaking vote in the 50-50 party split resulting from Democratic victories in two Georgia runoffs this week. Control of the chamber (along with the House and the presidency) opens up the possibility of using the budget reconciliation process to approve bills under certain parameters with a simple majority in the Senate if such legislation cannot gain more bipartisan support. Senator Chuck Schumer (D-NY) will become the Majority Leader and, like President-elect Joe Biden, he wants to act fast on another stimulus bill that will likely boost the latest round of COVID direct payments to $2,000 in a package also intended to carry expanded unemployment benefits and aid to state and local governments. However, Senator Joe Manchin (D-WV), a key centrist given the narrow margin in the Senate, said January 8 that he may oppose such payments unless they are narrow and targeted, the Washington Post reported, in a story suggesting Manchin wants a greater focus on employment-related assistance and job creation through infrastructure. The Post story said Senator Ron Wyden (D-OR), who will become Finance Committee chairman, is pushing for the revival of the $600 unemployment add-on benefit, and that an initial stimulus bill is expected to be followed later this year by a package addressing infrastructure and clean energy.

Speaking to reporters January 8, President-elect Biden said "we're going to be proposing an entire package" addressing issues like unemployment insurance and "the price tag will be high" but the consensus among economists is "we should be investing significant amounts of money right now to grow the economy." He said, "it is necessary to spend the money now. The answer is yes, it will be in the trillions of dollars, the entire package … I'll be here next Thursday, laying out in detail how that package is going to go." Biden further said, "we're going to, in the third stage of this — the whole story is we're going to have to invest, as I suggested throughout the campaign, in infrastructure and healthcare and a whole range of things that are going to generate good-paying jobs that will allow us to grow the economy … Every major economist thinks we should be investing in deficit spending in order to generate economic growth."

Biden's campaign previously signaled that short-term stimulus would not need to be paid for with tax changes. Last September, Biden said he wanted to raise the statutory corporate income tax rate to 28% to pay for changes that benefit middle-income Americans on "day one," but there have been no recent signals on that issue. The President-elect has in recent days expressed a desire to explore bipartisan paths to legislation, but if they don't materialize fairly quickly, it is easy to see Democrats using procedural tools like budget reconciliation. Several potential elements of a first economic bill pursued by Democrats will fall under jurisdiction of the Finance Committee, which will also be busy with some key nominations, including that of Janet Yellen to be Treasury Secretary. For additional information, see EY Tax Alert 2021-0037.

More on process: Senate centrists will have maximum leverage in this Congress, with Democrats like Manchin and Kyrsten Sinema (D-AZ) poised to provide crucial votes even under a reconciliation scenario, and Republicans like Susan Collins (R-ME), Lisa Murkowski (R-AK), and Mitt Romney (R-UT) eyed for potential deal-making. In the Senate, all 50 Democrats (plus the VP) would need to support a reconciliation bill for it to advance. Democrats will potentially have two opportunities to use reconciliation in 2021, using the FY2021 and FY2022 budget resolutions, but the budget reconciliation process comes with limitations, including prohibiting provisions that produce no change in outlays or revenues or those merely incidental to the provision's non-budgetary components; and that increase net outlays or decrease revenue during a fiscal year after the years covered by the reconciliation bill unless the provision's title, as a whole, remains budget neutral. A January 7 New York Times story said that, given the narrowly divided Congress, Biden and aides are wary of acting too aggressively on major legislation that could sink with objections from moderates, even under budget reconciliation. A January 7 Wall Street Journal (WSJ) story, "Biden Tax-Increase Agenda Revived as Democrats Win Senate," said, "Democrats will have to choose which tax policies to pursue first. They will grapple with the complicated design questions to put details to the campaign rhetoric. They will have to figure out when any new taxes should take effect — retroactively for this year or prospectively as the economy recovers."

Power sharing: Senator Schumer and Republican leader Mitch McConnell (R-KY) haven't yet offered much information on how they will handle the 50-50 split, including the potential development of a power-sharing agreement of the type struck the last time the chamber was split evenly at the beginning of 2001, following George W. Bush's election in 2000. Such an agreement will need to address committee ratios and procedures, such as how bills will move from committee to the Senate floor if committee ratios are evenly split as well. (The 2001 agreement provided that all Senate committees had equal numbers of Republicans and Democrats.) "I look forward to sitting down with Leader McConnell, and we have a lot of things to discuss," Schumer said in a Bloomberg Government report. Chairmanships will affect which bills and issues are under consideration, including on tax.

CRA: Some Democrats have suggested that President-elect Biden may consider using the Congressional Review Act (CRA) to potentially rescind regulations finalized since August 21, 2020 (60 legislative days prior to adjournment of the 116th Congress, or the CRA "lookback" period). House Majority Leader Steny Hoyer (D-MD) and Senator Brian Schatz (D-HI) this week said Democrats are looking at using the CRA to roll back agency rules recently enacted by the Trump administration. "Our committees are looking at that, as well. They will make recommendations," Hoyer said in an E&E News report. A downside is the CRA provides that a rule may not be issued in "substantially the same form" as the disapproved rule (but doesn't define what would constitutes "substantially the same"). It isn't clear whether tax regulations would be targeted.

DSTs/tariffs: The United States Trade Representative January 7 announced suspension of the 25% tariffs on French goods, intended to respond to France's Digital Services Tax (DST), that were scheduled to go into effect on January 6, saying the move is in the interest of promoting a coordinated response in all ongoing DST investigations. (Findings in Section 301 investigations of DSTs adopted by India, Italy, and Turkey released January 6 concluded that each of the DSTs discriminates against US companies.) Senator Wyden was quoted in the WSJ as saying, "The Biden administration is being given the opportunity to implement their own strategy on discriminatory digital taxes."

IRC Section 163(j) regulations: On January 5, the Treasury Department released additional final regulations (TD 9943) with guidance on the business interest expense limitation under IRC Section 163(j). The Section 163(j) Limitation was modified in December 2017 by the Tax Cuts & Jobs Act (TCJA), and in March 2020 by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The regulations adopt (with some revisions), clarify and reserve on certain aspects of the proposed regulations on the Section 163(j) Limitation that were published in September 2020. See EY Tax Alert 2021-9000 for details.

Carried interest regulations: The IRS January 7 issued final "carried interest" regulations (TD 9945) under IRC Section 1061, which, added under the TCJA, recharacterizes certain net long-term capital gains of a partner holding one or more applicable partnership interests (APIs) as short-term capital gains. An API is defined as a partnership interest that is transferred to, or held by, a taxpayer in connection with the performance of substantial services by the taxpayer or any related person in an applicable trade or business (i.e., generally speaking, certain investment funds). The final regulations will affect many investment funds, including private equity and alternative asset funds (i.e., hedge, real estate, energy, infrastructure, and fund of funds), and the managers and general partners of these funds. The final regulations adopt with some revisions the proposed regulations (REG-107213-18) issued on July 31, 2020.

Carbon capture regulations: The IRS and Treasury Department January 6 published final regulations (TD 9944) on the credit under IRC Section 45Q for carbon oxide sequestration. The final regulations address (1) secure geological storage, (2) contracting with third parties for the disposal, injection, or utilization of qualified carbon oxides and allowing third parties to claim the IRC Section 45Q credits, (3) the definition of the recapture period for carbon oxides that are not properly captured, and (4) clarification on "utilization" of captured carbon.

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, November 6


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, December 1, 2020


Like-kind exchanges (TD 9935)

Final rules, December 2, 2020


Passive Foreign Investment Companies (TD 9936)

Final rules released December 4, 2020


Certain Employee Remuneration in Excess of $1,000,000 under Internal Revenue Code Section 162(m) (TD 9932)

Final rules, December 30, 2020


Section 451, timing of income inclusion under an accrual method of accounting (TD 9941)

Final rules, January 6, 2021


Business interest expense limitation under IRC Section 163(j) (TD 9943)

Final rules released January 5, 2021


Carried interest under Section 1061 (TD 9945)

Final rules released January 7, 2021


Section 45Q credit for carbon oxide sequestration (TD 9944)

Final rules released January 6, 2021


Guidance on Passive Foreign Investment Companies (REG-105474-18)

Proposed rules, July 11, 2019

September 9, 2019

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

Denial of Deduction for Certain Fines, Penalties, and Other Amounts (REG-104591-18)

Proposed rules, May 13, 2020

July 13, 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

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

Proposed rules, November 12, 2020

February 10, 2021

Passive Foreign Investment Companies and the Treatment of Qualified Improvement Property under the Alternative Depreciation System for Purposes of Sections 250(b) and 951A(d) (REG-111950-20)

Proposed rules released December 4



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