This weekly newsletter outlines the latest developments in Washington, including major tax, small business and financial services developments in the negotiations on Phase Four legislation and regulatory guidance from various federal agencies.
Next Economic Recovery Package
Virus Relief Negotiations
After the release of the May jobs report, which showed a slight decrease in unemployment numbers, Senate Republicans pushed negotiations on a next package further down the road. Republicans indicated they need more time to evaluate how nearly $3 trillion already approved by Congress through previous relief packages is being used, arguing that moving quickly would be fiscally irresponsible.
Democrats have taken a different approach. Senate Minority Leader Chuck Schumer (D-NY) said Democrats will attempt to pass additional COVID-19 aid bills this week that would address housing and rental assistance; hazard pay for essential workers; small business relief; funding to help schools open safely; and aid to state, local and tribal governments. He added, "With cases rising in more than 20 states, with emergency unemployment insurance for American families set to expire, we cannot wait another month to act." Given that states such as Texas, Oregon, North Carolina, Louisiana and Kansas have delayed their plans to reopen, many lawmakers are rethinking the delay of another legislative package.
While formal negotiations between the parties have not begun, members have engaged in informal conversations internally and with stakeholders to align on what the next package should contain, and how much should be spent. Republicans have largely dismissed the House-passed $3.5 trillion Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act (H.R.6800), with Senate Majority Leader Mitch McConnell (R-KY) saying he does not want the next bill to cost over $1 trillion. That said, President Trump has expressed support for up to $2 trillion in federal aid.
The size and scope will likely be driven by economic factors. The June unemployment report, released by the Labor Department on July 2, revealed more promising signs that the U.S. economy could be in the midst of a recovery. The report showed that 4.8 million jobs were added last month and the unemployment rate fell further to 11.1%. The numbers differed from expectations of many economists, who anticipated the economy would add only three million new jobs and predicted an unemployment rate of 12.3%. Lawmakers will digest the latest economic numbers over the coming Fourth of July district work period, but the report is likely to further reduce the sense urgency from Republicans on the need for swift action.
McConnell continues to maintain that funding in the next bill needs to be focused on matters that would directly help the economy rebound. To that end, Republicans have stood firmly behind their calls for legal liability protections and changes to the expanded UI benefits. In addition, House and Senate Republicans are also exploring accelerated tax credits, which would allow businesses to claim a host of credits in 2020 rather than wait for future years.
Trump administration officials have also recently been examining other policies they would like to see included in the next package. Treasury Secretary Steven Mnuchin met last week with Senate Republicans to discuss another round of direct stimulus checks. National Economic Council Director Larry Kudlow said another round of checks is “on the table.” However, many Senate Republicans, fatigued after extensive federal spending, are hesitant to support more stimulus checks unless congressional Democrats agree to compromise on the expanded UI benefits.
Upcoming deadlines may also force Congress’s hand, including the extended federal unemployment supplements that expire on July 31. Speaking at an American Bar Association event Randell Gartin, chief tax counsel for House Ways and Means Committee Ranking Member Kevin Brady (R-TX), admitted the promising May jobs report was one of the primary reasons talks stalled in June. At the same time, however, Gartin acknowledged that the upcoming unemployment insurance deadline may provide enough impetus for action. At the event, Gartin said, “I suspect that there will be some movement in July with respect to the negotiations. […] I think UI is one of those reasons. The traditional August recess is another. I don’t think either house would want to go on recess without addressing the current situation.”
It is now expected that members will begin negotiating the second to last week of July when they return from July 4 work period —just before the $600 unemployment bonus expires on the 31st—with the aim of passing a bill before members head back to their districts for the August work period.
Activity this Week
Below is a brief overview of select hearings for the tax and financial services committees.
Senate Banking Committee
On Tuesday, the committee held a hearing entitled “The Digitization of Money and Payments,” during which it heard from testimony from the following witnesses:
- J. Christopher Giancarlo (senior counsel, Willkie Farr and Gallagher LLP and former chair, U.S. Commodity Futures Trading Commission);
- Charles Cascarilla (chief executive officer and co-founder, Paxos); and
- Professor Nakita Q. Cuttino (visiting assistant professor of law, Duke University School of Law)
House Financial Services Committee
On Tuesday, the committee held a hearing entitled “Oversight of the Treasury Department’s and Federal Reserve’s Pandemic Response,” during which it heard testimony from the following witnesses:
- Steven Mnuchin (secretary, Department of the Treasury); and
- Jerome Powell (chair, Board of Governors of the Federal Reserve System)
Senate Finance Committee
On Tuesday, the Subcommittee on International Trade, Customs and Global Competitiveness held a hearing entitled “Censorship as a Non-tariff Barrier to Trade,” during which it heard testimony from the following witnesses:
- Richard Gere (chair, International Campaign for Tibet);
- Beth Baltzan (fellow, Open Markets Institute);
- Nigel Cory (associate director, Trade Policy, Information Technology and Innovation Foundation);
- Clete R. Willems (partner, Akin Gump Straus Hauer & Feld LLP)
On Tuesday, the committee held a hearing entitled “2020 Filing Season and IRS COVID-19 Recovery,” during which the committee heard testimony from the following witness:
- Charles Rettig (commissioner, Internal Revenue Service)
House Ways and Means Committee
No hearings scheduled.
Phase Four Proposals
The introduction of new proposals has slowed since the height of the pandemic. Some of the most recent proposals are outlined below.
- Universal Giving Pandemic Response Act. Sens. Amy Klobuchar (D-MN), James Lankford (R-OK), Chris Coons (D-DE), Mike Lee (R-UT), Jeanne Shaheen (D-NH) and Tim Scott (R-SC) introduced the Universal Giving Pandemic Response Act, which would expand the current tax deduction for charitable giving. The bill would establish an above-the-line deduction worth up to one-third of the standard deduction for tax years 2019 and 2020.
- American TRIP Act. Sen. Martha McSally (R-AZ) introduced the American Tax Rebate and Incentive Program (TRIP) Act, which would provide a $4,000 credit for individuals to cover expenses related to lodging, travel and entertainment for destinations more than 50 miles away from the individual’s residence. Children would qualify for a $500 credit.
- American Citizen Coronavirus Relief Act. Sen. Marco Rubio (R-FL) introduced the American Citizen Coronavirus Relief Act. The legislation would prevent U.S. citizens from being denied economic impact payments if they are married to a foreign national.
- SAVE Jobs Act. Sen. John Cornyn (R-TX) joined eight Senate Republicans in introducing the SAVE Jobs Act, which would extend by one year the commence construction window for the 45Q tax credit.
- GREEN Act. On June 25, almost 50 House Democrats, led by House Ways and Means Select Revenue Measures Subcommittee Chair Mike Thompson (D-CA), introduced the Growing Renewable Energy and Efficiency Now (GREEN) Act (H.R.7330)—legislation that contains tax incentives to accelerate clean energy sources. The GREEN Act builds upon the principles outlined by Thompson and House Ways and Means Committee Chair Richard Neal (D-MA) last November when they first released a discussion draft of the GREEN Act. The legislation includes provisions that:
- extend and expand current tax incentives to promote deployment of green energy technologies;
- encourage green residential investments;
- support adoption of zero-emission vehicles;
- encourage investments in a green workforce; and
- advance environmental justice.
- Child Care for Economic Recovery Act. Reps. Richard Neal (D-MA), Nita Lowey (D-NY) and Danny Davis (D-IL) introduced the Child Care for Economic Recovery Act, which would expand child care availability. The legislation would enhance the Child and Dependent Care Tax Credit, establish a new refundable payroll tax credit for child care providers and expand dependent care flexible spending accounts, among other issues.
The Week in Rewind
Below are last week’s biggest stories from Capitol Hill and the administration.
House Approves Infrastructure Package. The House passed its recently-introduced comprehensive infrastructure package, the Moving Forward Act (H.R.2), on Wednesday 233-188. The measure, which includes provisions aimed at curbing climate change, expanding broadband deployment and bolstering water infrastructure funding, was immediately dismissed by McConnell and other congressional Republicans, who said the bill was partisan and not drafted with the intent of becoming law. Because of this, it is unlikely to be considered by the Senate. However, if the measure is somehow approved by the upper chamber, the White House has already threatened to veto it.
Click here to read our full analysis of the bill.
Congress Extends PPP Application Deadline. Shortly after the Senate passed legislation (S.4116) on June 30 to extend the Paycheck Protection Program (PPP) deadline to August 8, the House followed suit and approved the measure by unanimous consent on July 1. The legislation will provide small businesses an additional five weeks to apply for the $130 billion that remain in PPP funds. If the funds are exhausted, the bill would allow the U.S. Small Business Administration’s 7(a) lending program to continue.
National Taxpayer Advocate Report to Congress. On June 29, the National Taxpayer Advocate (NTA) released a report to Congress that provides an overview of the ongoing challenges facing the Internal Revenue Service (IRS), in addition to outlining its objectives for fiscal year 2021. The report is the first from Erin Collins, who was sworn into her current position on March 30, and in addition to covering the COVID-19-related challenges facing the IRS, it reviews the agency’s implementation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Taxpayer First Act (P.L.116-25).
The report explains that while about 90% of returns are filed electronically every year, around 10 million are mailed. According to the report, about 4.7 million returns were backlogged at the IRS in mid-May. Due to this backlog, those still waiting on 2019 refunds may be further delayed. Since processing the physical returns cannot be done remotely, IRS workers have been forced to return to the office. Similarly, the report explained that the IRS has had difficulty answering phone calls from taxpayers and issuing refund corrections.
On the CARES Act specifically, the NTA noted that some taxpayers who have yet to receive their economic impact payments may have to wait until next year due to administrative hurdles.
Additionally, the report said that due to the complexity of the employee retention tax credit, the IRS will need to provide guidance on top of what has already been issued. Without it, the report said taxpayers are likely to make unintentional errors, exposing them to potential audits.
Finally, although it acknowledges the swift release of guidance from the IRS regarding the net operating loss provisions enacted under the CARES Act, the NTA expressed concern that the guidance is not binding.
Looking ahead, the NTA outlined the issues on which it will focus during the upcoming fiscal year, including:
- helping taxpayers with limited English proficiency;
- improving clarity of IRS notices and correspondence;
- improving communication with rural communities; and
- improving the screening process of fraudulent returns.
No Tax Deadline Extension. Despite requests from outside groups, the Treasury Department decided on June 29 not to further delay the tax filing and payment deadline from July 15 to this fall. Taxpayers failing to pay taxes owed by July 15 will accrue interest and penalties. However, taxpayers can still request the automatic tax filing extensions to October 15 like every other year. The decision not to further delay will be welcomed by state and local governments, both of which are facing significant budget shortfalls from the decrease in tax revenues.
Despite the news from the Treasury Department, the top Republican on the House Ways and Means Committee, Rep. Kevin Brady (R-TX), said on Wednesday it remains possible for some payment deadlines to still be delayed. He said the topic is still being discussed at the Treasury Department and among the congressional tax-writing committees, adding that “no decision has been made yet.”
ETAAC Releases Annual Report to Congress. On June 24, the Electronic Tax Administration Advisory Committee released its annual report to Congress. On top of highlighting the COVID-19-related issues facing the IRS, the report explained the IRS has struggled to narrow the annual tax gap, receive adequate funding for its enforcement operations and to combat cybercriminals. Recognizing these deficiencies, the report offered 16 recommendations, divided into the following four categories: (1) funding, modernizing and enabling the IRS; (2) defending and protecting the tax system; (3) improving the taxpayer experience and (4) strengthening the Security Summit and the Information Sharing and Analysis Center.
GAO Finds Tax Administration Flaws. The Government Accountability Office (GAO) released a report on June 25 that highlighted some of the shortcomings of the IRS’s disbursement of economic impact payments. According to the report, about 450,000 taxpayers were not provided the $500 per qualifying child, and about one million deceased taxpayers received stimulus payments. In addition, the GAO report revealed that the IRS issued around $54 million in refunds for companies claiming the employee retention tax credit (ERTC). Some in Congress are using this seemingly low figure to push for an expanded ERTC, but others have explained that since many businesses claiming the credit simply reduced tax payments to the IRS rather than receive refunds, the $54 million may be misleading.
After lawmakers rushed to enact legislation, agencies are now attempting to keep up by quickly releasing regulations and other guidance. Below is a look at select COVID-19-related implementation guidance and non-COVID-19 related guidance released during the previous week.
Sporting Relief. The IRS released Notice 2020-48, which provides relief for certain federal excise tax filing and payment deadlines, associated interest, penalties and additional taxes related to fishing or archery equipment until Oct. 31, 2020. These taxes would be for the second quarter of 2020.
IRA Waivers. On June 23, the IRS released Notice 2020-51, which provides guidance on the required minimum distributions from certain individual retirement accounts (IRAs) included in the CARES Act. Specifically, the guidance provides rollover relief related to certain waived required minimum distributions and allows certain repayments to inherited IRAs.
Qualified Business Income Deduction. On June 24, the IRS released final regulations for the qualified business income deduction. These rules provide guidance on how the 20% deduction works for regulation investment companies.
199A for REIT/RIC. The IRS released final regulations on June 24 related to the 199A deduction in the Tax Cuts and Jobs Act for REITs and RICs. The final regulations permit a RIC that receives qualified REIT dividends to report the dividends the RIC pays to its shareholders as 199A dividends.
Tax Report Card. The IRS released its Electronic Tax Administrative Report to Congress.
For additional information or assistance with a particular issue, please contact a member of the Brownstein National Tax Policy Group.
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This document is intended to provide you with general information regarding federal policy updates related to the coronavirus. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.
The information in this article is accurate as of the publication date. Because this law in this area is changing rapidly, and articles are not automatically updated, continued accuracy cannot be guaranteed.