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Senators Move to Roll Back Parts of TCJA, Delay Filing Deadline

Posted on Mar. 20, 2020

Senate Republicans would temporarily relax several provisions of the Tax Cuts and Jobs Act and push back the tax return filing deadline in an economic stimulus package that promises taxpayers rebate checks.

The Coronavirus Aid, Relief, and Economic Security Act (S. 3548) introduced March 19 by Senate Majority Leader Mitch McConnell, R-Ky., is the third in a series of relief packages introduced recently by lawmakers aimed at helping Americans deal with the economic and health crisis brought on by the coronavirus.

Lawmakers are hoping the bill will become law as soon as possible to help struggling Americans. Senate Majority Whip John Thune, R-S.D., told reporters that they will discuss the bill more with Democrats. “We’re going to start the negotiations with Democrats and we’ve got a number of our members who are going to be involved with that, hopefully through the weekend and hopefully we can bring closure to it this weekend and early next week,” Thune said.

But Democrats were quick to attack the bill as a corporate handout. House Ways and Means Committee Chair Richard E. Neal, D-Mass., called the measure inadequate while Senate Finance Committee ranking member Ron Wyden, D-Ore., said Republicans were “prioritizing the corporate tax wish list over the economic well-being of people who are losing their livelihoods.”

The bill would temporarily repeal the taxable income limitation that made it harder for companies to use current losses against past profits and allow them to claim a refund. Temporarily repealing this provision was on the wish list of several businesses, as well as the U.S. Chamber of Commerce, arguing that it would give companies a quick infusion of cash during an economic downturn.

The bill would also raise the interest deduction limit from 30 percent of adjusted taxable income to 50 percent for tax years beginning in 2019 or 2020. Taxpayers with a tax year beginning in 2020 could elect in some cases to use their 2019 ATI in determining their section 163(j) limit.

The bill would accelerate the recovery of the alternative minimum tax credit and permit companies to claim an immediate refund during the COVID-19 emergency.

Republicans seek to fix a couple of mistakes made in the 2017 tax law, including the much-maligned retail glitch, to allow for a quicker write-off period for qualified improvements. This provision will likely draw scrutiny from Democrats, who have opposed fixes to the TCJA without receiving anything in return.

The Senate bill would also restore the limitation on downward attribution of stock ownership, and it closely follows language previously proposed in technical corrections to the TCJA. The TCJA repealed section 958(b)(4), much to the chagrin of practitioners who fretted over the possibility of far more entities being considered controlled foreign corporations.

Generally, section 958(b) provides rules for determining the constructive stock ownership of a foreign corporation for subpart F purposes. Section 958(b)(4) had provided that the downward attribution rule of section 318(a)(3) wasn't to be applied so that a U.S. person would be regarded as owning stock owned by a non-U.S. person.

The bill would also delay the estimated tax payments for corporations until October 15 to provide cash flow for businesses to maintain operations and delay the payment of employer payroll taxes.

Return Filing Season Pushed Back

This ask will likely draw praise from both sides of the aisle as the bill would push back the tax return filing deadline until July 15. Treasury initially delayed the payment deadline until July 15, but both Democrats and Republicans sent letters to Treasury asking for a single deadline in order to not confuse taxpayers. It also would extend the due date for estimated tax payments to October 15.

Immediate reaction to the IRS’s March 18 notice by the tax community was largely critical, and the critics continued to pile on the following day, citing odd omissions and avoidable complexity.

Joe B. Kristan of Eide Bailly LLP said that by not extending the deadline for filing tax returns, the government is creating unnecessary confusion.

Notice 2020-17, 2020-15 IRB 1, automatically waives interest and the 0.5 percent penalty for late tax payments until July 15, but it specifically does not disregard the 5 percent penalty for failure to file a return. For the latter, the notice says taxpayers can seek a waiver, but the process for doing so is “painful, takes forever, and isn’t reliable,” Kristan said.

“Even if it works, dealing with the waiver process is a poor use of IRS resources and the time of struggling taxpayers,” Kristan added.

Requiring taxpayers to obtain waivers or file for extensions is also going to be confusing to unsophisticated taxpayers, “which is most of them,” Kristan said.

Cash Payments

U.S. taxpayers under the bill would receive a recovery rebate check in an amount based on their 2018 tax returns. Individuals would receive a maximum of $1,200, and couples filing jointly would receive a maximum of $2,400, with an additional $500 for each child.

Taxpayers with little or no income tax liability but with at least $2,500 of qualifying income would receive a minimum of $600 for individuals, and $1,200 for married couples.

The rebate amount would be reduced by $5 for every $100 over $75,000 of income for single taxpayers and $150,000 for couples. The benefit would completely phase out for individuals exceeding $99,000 in income and couples exceeding $198,000.

This topic is sure to cause consternation among Republicans, who are not backing direct cash payments.

Senate Appropriations Committee Chair Richard C. Shelby, R-Ala., said he would prefer a boost in unemployment insurance because not everyone needs the money if they haven’t been laid off.

Senate Judiciary Committee Chair Lindsey Graham, R-S.C., similarly backed the idea of increasing unemployment insurance to help those who truly need it. But the idea ultimately has the backing of the Trump administration and key Republican members, including Senate Finance Committee Chair Chuck Grassley, R-Iowa, and McConnell.

For the airline industry, which has been hit hard by the pandemic, the bill would suspend the excise taxes placed on the purchase of an airplane ticket until the end of the year. It also would suspend the taxes on kerosene used by commercial airlines.

Jonathan Curry, Alexis Gravely, Andrew Velarde, and Eric Yauch contributed to this article.

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