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February 28, 2021

Americas Tax Policy: This Week in Tax Policy News for February 26

This Week (March 1 - 5)

Congress: The House and Senate will be in session. The Senate's first roll call votes next week are Monday at 5:30 p.m. on nominees to head the Education (Cardona) and Commerce (Raimondo) departments. Democrats want the COVID relief bill enacted before pandemic UI programs expire March 14, creating the expectation they will act fast to get the bill onto the Senate floor for what could be a lengthy and contentious consideration.

Last Week (February 22 - 26)

COVID relief bill: Expected House passage of the $1.9 trillion American Rescue Plan Act COVID relief package will send the measure to the Senate, where Democratic senators will have to address several key issues, including the Senate Parliamentarian's February 25 ruling that the minimum wage increase to $15/hour violates budget reconciliation rules because the budgetary effect is merely incidental to the non-budgetary policy change. Both Senate Finance Committee Chairman Ron Wyden (D-OR) and Budget Committee Chairman Bernie Sanders (I-VT) said they want an amendment that would make the revenue impact more direct and clear, to impose a tax penalty for corporations that don't pay $15/hour — Wyden specifically wants a 5% penalty on corporations' total payroll if workers earn less than a certain amount, and an income tax credit of 25% of wages to small businesses that pay higher wages. Senate Majority Leader Chuck Schumer (D-NY) is supportive of that approach. There are reportedly also pending parliamentary rulings regarding COBRA subsidies and multiemployer pension provisions, and the bill's language on Child Tax Credit payments sent out by the IRS was modified to comply with reconciliation rules. Other potential changes include steering more of the House bill's $350 billion in state and local government funding toward broadband investment, as some Senate Democrats want. If the House bill is changed by the Senate, a conference process to resolve differences may be necessary or, at the very least, another House vote on the final version will be required before the President's signature. Democrats want the bill enacted before pandemic UI programs expire March 14, after which President Biden is set to outline his next major bill, with infrastructure as the focus. Tax provisions in the American Rescue Plan Act include:

- extension of the employee retention tax credit through December 31, 2021 and, beginning after June 30, 2021, structuring it as a refundable payroll tax credit against the hospital insurance tax

- repeal of the section 864(f) worldwide interest expense allocation election

- $1,400 advance payments that phase out between $75,000-$100,000/AGI ($112,500-$150,000 for heads of household, $150,000-$200,000 for joint filers)

- a refundable and advanceable Child Tax Credit expansion to $3,000 per child ($3,600 under 6) that will take the form of IRS monthly payments

- an increase in the amount of child and dependent care expenses that are eligible for the credit to $8,000 for one qualifying individual and $16,000 for two or more qualifying individuals (such that the maximum credits are $4,000 and $8,000)

Build Back Better: Speculation continues regarding the extent to which tax increases will be included in the infrastructure-plus bill that President Biden aims to outline following enactment of the COVID bill. Progressives are reportedly still deciding which tax increases to push for to pay for the likely multitrillion bill, but White House officials reportedly said it could be mostly deficit-financed. Ways & Means Committee Chairman Richard Neal (D-MA) has repeatedly entertained that prospect in public comments, including in a February 25 article in The Hill newspaper in which he "expressed concern that attaching tax increases to the infrastructure bill that Democratic leaders plan to move could send Republicans and Democrats into 'their corners.' He noted his committee purposely did not include revenue raisers in the Green Act, a renewable energy bill, which Democrats reintroduced this month, to avoid a bitter fight over funding it." The Chairman reiterated he agrees with Treasury Secretary Yellen that caution must be taken regarding tax increases during the pandemic and recovery.

Asked about reports of a $3 trillion price tag for the next bill, Senate Majority Leader Mitch McConnell (R-KY) said following the regular Tuesday policy luncheon February 23, "I think we can anticipate they're going to try to use reconciliation one more time and that'll be to raise taxes. And I noticed the administration's in favor of at least getting the corporate rate from 21 up to 28. My guess is that's not where it'll stop. And, so, we'll have a big robust discussion about the appropriateness of a big tax increase in the wake of our current situation. And my guess is they'll get around to that pretty soon and we'll be dealing with that as well."

During an American Council for Capital Formation event February 24, Senator Joe Manchin (D-WV) was asked whether a value-added tax would be considered to help pay for an infrastructure package. He said it could be the "only tool" available to pay for the package, Politico reported. "A VAT tax, basically, for infrastructure might be the only tool. Now if the public believe that the politicians will keep their hands off of it and not rob it, it might have a chance," Manchin said. Merely hiking a gasoline or fuel tax is "not going to do what we need" and Congress needs to look "much broader" for options, he said.

Tax increases generally: Senator McConnell was likely referring to Treasury Secretary Janet Yellen's comments on the corporate tax rate in a February 22 New York Times interview on specific tax proposals.

- Financial transaction tax? "That's something that one would have to examine closely, what impact it would have on ordinary retail customers who are active in the stock market. It could deter speculation, but it might also have negative impacts, so it's something I think that's worth looking at. What President Biden has indicated is that he is going to be looking at corporate taxation, closing loopholes, trying to probably raise the corporate tax rate — not as high as it was before 2017 — but probably up to 28% to try to get rid of subsidies for fossil fuels and other inefficient forms of taxation."

- Wealth tax? "A wealth tax has been discussed but it is not something that President Biden has come out in favor of. I think it's something that has very difficult implementation problems. President Biden has pledged not to raise taxes on households making less than $400,000. For example, their capital gains escape taxation even at death due to step-up in basis. That might be something that's worth reconsidering."

- Carried interest? "I think that's something that certainly deserves to be on the list of things to look at."

BEPS 2.0: Secretary Yellen told her G20 counterparts February 26 that the US is dropping the Trump Administration's insistence that Pillar One of the OECD BEPS 2.0 project, addressing allocating MNE profits into market jurisdictions, be structured as a safe harbor. Her predecessor Steven Mnuchin insisted on such a plan in December 2019. "Strong support from all #G20 Finance Ministers for an agreement on both OECD pillars by July 2021. Secretary Yellen making important step of dropping the request for a safe harbour. A new impetus and a real chance to make it!" tweeted Benjamin Angel of the European Commission. The Wall Street Journal reported, "Ms. Yellen made her remarks to finance ministers of the Group of 20 advanced and emerging-market economies at a virtual meeting. According to a Treasury official, Ms. Yellen said the U.S. would continue to engage on both parts of the tax project being led by the Organization for Economic Cooperation and Development: a push to redefine where corporate income is taxed and a parallel effort to impose minimum taxes."

Adewale "Wally" Adeyemo didn't tread new ground beyond what Yellen has said on taxes during his Deputy Treasury Secretary nomination Finance Committee hearing February 23, but did say US companies must be able to compete globally and the US will work internationally through the OECD and G20 tax process to create a more level playing field for US companies with regard to taxation and ensure countries are working with each other to maintain their tax bases rather than engaging in a race to the bottom on tax rates.

199A deduction: In a February 25 letter, business groups expressed strong support for the Main Street Tax Certainty Act, to make permanent the IRC Section 199A 20-percent deduction for qualified business income.

Filing deadline: IRS Commissioner Chuck Rettig told a House Appropriations subpanel February 23, on whether IRS will extend the April 15 filing deadline, "we're looking at extending the filing deadline, but understand that there's a lot of confusion for taxpayers when we do extend the filing deadline. Presently, we don't see a need to extend the filing deadline. Individuals can get an extension to October 15th."

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, January 15, 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, January 19, 2021


Carried interest under Section 1061 (TD 9945)

Final rules, January 19, 2021


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

Final rules, January 19, 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, January 15, 2021

April 14, 2021


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