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March 7, 2021

Americas Tax Policy: This Week in Tax Policy News for March 5

This week (March 8-12)

Congress: The House and Senate will be in session. The House is planning to vote on the Senate-passed COVID relief bill on Tuesday, March 9.

SRM hearing: The House Ways & Means Select Revenue Measures Subcommittee will hold a hearing on "Tax Tools to Help Local Governments" on Thursday, March 11 (2:00 p.m.)

Last week (March 1-5)

COVID relief bill: After an overnight session, the Senate March 6 approved 50-49 the budget reconciliation bill (H.R. 1319) reflecting President Biden's $1.9 trillion "American Rescue Plan" COVID-19 relief package, which includes provisions on taxes, health care, unemployment benefits, direct payments, state and local funding and other issues. House Majority Leader Steny Hoyer (D-MD) announced that the House will vote on the Senate-passed bill on Tuesday, March 9. Democratic leaders are trying to meet a March 14 deadline before current expanded unemployment benefits expire. The substitute amendment adopted by the Senate made changes to the House bill, including:

  • an expansion of the scope of IRC Section 162(m) deduction limits on executive compensation, to deny the deduction for compensation in excess of $1 million for the eight highest paid employees, plus the CEO and CFO, at publicly traded companies, effective for tax years after 2026;
  • expanding the employee retention tax credit (ERTC) to "recovery startup businesses" (average annual gross receipts under $1 million);
  • tightening the income limitations for $1,400 recovery rebate direct payments to cut them off above $80,000 of income for individuals and $160,000 for couples; and
  • excluding from gross income student loan debt forgiven from 2021 through 2025.

The Joint Committee on Taxation revenue estimate of the Senate amendment shows the 162(m) expansion, which is proposed to replace another offset for pension relief in the House bill, would raise $7.8 billion over 10 years. The bill continues to include tax provisions like extension of the ERTC through December 31 and repeal of the Section 864(f) worldwide interest expense allocation election.

On an issue that ground Senate business to a halt for several hours, agreement among Democrats was reached on an amendment by Senate Finance Committee Chairman Ron Wyden (D-OR) to extend pandemic unemployment benefits through September 6, rather than August 29 under the base bill; extend the weekly add-on at $300/week rather than $400; provide that the first $10,200 of UI benefits are not taxable, but only for households with incomes below $150,000; and pay for the changes by extending the TCJA's Section 461(l) excess business loss provisions for an additional year, through 2026 rather than 2025. The amendment was approved 50-49. In a vote held open for nearly 12 hours while lawmakers negotiated changes to the unemployment provisions, Senator Bernie Sanders' (I-VT) amendment on raising the minimum wage to $15/hour was defeated 42-58 (60 votes were needed).

Build Back Better: There is a lot of interplay between the COVID relief bill and the next major priority of the President expected to be considered by Congress, focused on infrastructure investment. The White House has said completion of the COVID bill is necessary before President Biden details the Build Back Better plan, which was initially outlined in July 2020, during the campaign. It is unclear whether the bill will be infrastructure-only or broader, and to what extent it will include tax increases. Treasury Secretary Janet Yellen has said the plan may include proposals on worker training and renewable energy, and reports have discussed some Democrats advocating proposals addressing a public-sector jobs program, making unionization easier, immigration, a public option for health care, and new revenue sources, like a carbon tax (Yellen, by the way, has said she is supportive of "effective carbon pricing.") Senators Wyden, Sanders, and others are calling for recurring direct payments and automatic unemployment insurance extensions tied to economic conditions. There have been reports that the package could be either completely deficit financed or partially paid for, and that progressives may push for tax increases on high-income individuals. The New York Times reported March 1, "Biden administration officials have not decided whether to push infrastructure as a stand-alone bill or as part of a broader package … Conservative lawmakers and powerful business groups in Washington are already making clear that no infrastructure program will draw bipartisan support unless it is slimmer than what many progressives are proposing and includes no tax increases on corporations or the rich."

After the President proposes his budget, which may happen in April, Congressional Democrats may begin work on the congressional FY2022 budget resolution, which could provide for a second round of budget reconciliation, but there are concerns the process won't work for infrastructure due to reconciliation rule constraints. Bloomberg March 4 reported House T&I Chairman Peter DeFazio (D-OR) saying there "is no possible way" an infrastructure bill can go through the reconciliation process after transportation projects in California and New York were dropped from the COVID package because of the reconciliation rules. DeFazio suggested a suspension of the Senate filibuster or some other change to the current system because "if we stick with it, we're not going to get anything done."

In the context of the current reconciliation bill, there had already been calls by House progressives to ignore the Parliamentarian's ruling on the minimum wage and, while high-profile moderate senators Kyrsten Sinema (D-AZ) and Joe Manchin (D-WV) oppose filibuster repeal, other members have recently called for the change, including Senators Tina Smith (D-MN) and Amy Klobuchar (D-MN). The Washington Post said March 5: "Pressure is building on President Biden, a longtime backer of traditional Washington rules, to do away with the filibuster and other procedures, as Democrats press him to seize what could be a fleeting moment of power to enact a progressive agenda … Democrats increasingly worry that popular pieces of Biden's agenda will hit a wall in the Senate, including his plans for climate change, immigration, gun control, voting rights and LGBT protections. Failing to enact them, they fear, could be a political disaster for Democrats as well as a substantive one."

Wealth tax: Senator Elizabeth Warren (D-MA), now a Finance Committee member, March 1 detailed her Ultra-Millionaire Tax Act to impose:

  • a 2% annual tax on net worth of households and trusts between $50 million and $1 billion; and
  • a 1% annual surtax (3% tax overall) on net worth of households and trusts above $1 billion.

The NYT noted, "Unlike Ms. Warren, Mr. Biden pointedly did not endorse a wealth tax in the 2020 Democratic presidential primaries. But Ms. Warren is pushing colleagues to pursue such a plan, which has gained popularity with the public as the richest Americans reap huge gains while 10 million Americans remain out of work as a result of the pandemic." Secretary Yellen said during a February 22 NYT interview, "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."

Treasury: The Treasury Department announced March 2: "Jose Murillo is returning to the Treasury Department after spending eleven years as a partner at Ernst & Young LLP. Most recently, Murillo was the Director of the International Tax and Transaction Services practice in EY's National Tax Department in Washington, D.C. In that role, Murillo helped execute EY's international tax strategy and advised many of EY's largest clients on a variety of US international tax matters. Previously, Murillo served at the Treasury Department in the Office of the International Tax Counsel in the Bush-Cheney and Obama-Biden Administrations. Prior to that, Murillo spent 10 years in EY's international tax groups in Houston and Washington, D.C."

Nominations: The Senate Finance Committee March 3 approved by voice vote the nomination of Adewale O. Adeyemo to be Treasury Deputy Secretary. Neera Tanden withdrew her nomination for OMB Director amid uncertain support in the Senate.

ERTC guidance: The IRS has issued guidance (Notice 2021-20) on the ERTC, which was enacted under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and amended by the Consolidated Appropriations Act, 2021. The guidance applies to qualified wages paid after March 12, 2020, through the end of calendar year 2020. The notice is to provide employers with information about how to determine their eligibility to receive the employee retention credit, largely incorporating the concepts set forth in the Frequently Asked Questions (FAQs) posted on the IRS website and answering additional questions related to changes made by the Relief Act not addressed in the FAQs.

BEPS 2.0: Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration, said during a March 4 webcast that there is consensus for countries to try to reach a global tax agreement by mid-2021 following recent signals by Secretary Yellen, who said February 26 the US was 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.

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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