Panelists Consider Stimulus Measures and What’s Next: Transcript

Cara Griffith: Welcome, everyone. I’m so pleased that you’re joining us for this second in Tax Analysts’ series of public events we’re calling “Taxing Issues.” Today’s event is entitled “Stimulus Measures to Date: What’s Working, What’s Not, and What’s Needed.” And we have a very distinguished panel of speakers who I’ll introduce in a moment. We have a large audience today of around 2,000 who have turned in from all over the country and around the world, and we’re very happy that you did.

As you know, we are living through perilous times, both in terms of the global pandemic as well as the economic fallout. The economy shrank by nearly 5 percent in the first quarter of this year, and the second quarter is shaping up to be much worse. The April jobs report is due out Friday, and economists who were surveyed by The Wall Street Journal expect it to show unemployment hit 16 percent last month. That would be the highest rate by far since the Great Depression. Over the last six weeks, more than 30 million Americans have filed for unemployment benefits.

Now, after enacting $3.5 trillion of stimulus — with much of it on the tax side — to recover the economy and for taxpayers, the White House and Congress are talking about what they’re calling Phase 4. But as you know, much of the stimulus action to date has proved controversial. Some stimulus dollars have been slow to get out the door. Some major companies that weren’t supposed to get stimulus dollars have been forced to return them, while small businesses that are struggling to stay alive are still waiting for their funds. And while the Treasury Department and the IRS are working overtime to issue regulations and guidance, some of the guidance that they’ve issued has caused confusion as opposed to clarity.

So where are we, and where are we going? To sort it all out, we have a very distinguished panel of three speakers, and I’ll introduce them in the order in which they will speak. Michael Desmond, the IRS chief counsel who needs very little introduction, and we are so pleased to have him with us here today. Mike will speak about what’s happening at the IRS and Treasury in terms of processing stimulus measures and issuing guidance and regulations. Rochelle Hodes, a principal at Crowe, will speak about issues that practitioners are facing and the guidance that they need from the IRS. Rochelle has deep experience with federal tax policy, having also spent time at the IRS and Treasury. And Ray Stahl, a principal with EY. Ray will discuss some of the issues, including international issues, that the stimulus measures have raised. He very recently joined EY, and before that was with the IRS.

This will be a terrific discussion today. The speakers’ initial comments will be relatively concise, leaving plenty of time for questions. When our speakers have completed their remarks, I'll ask a question or two before turning to questions from you. Please submit your questions by sending them to events@taxanalysts.org, and I will try to get to as many of them as possible. We’re also live-tweeting this webinar with the hashtag #LetsTalkTax. And one final item: We have scheduled this webinar for an hour, but we’ll run over that hour if we have additional questions and enough material to discuss. I somehow doubt that will be an issue.

And with that, I will turn it over to Mike to get us started.

Michael Desmond: Great. Thank you, Cara. And thank you and also Tax Analysts for hosting this important program and inviting me to participate this afternoon.

As I think everyone knows, the Treasury Department and IRS have played a central role in implementing the economic stimulus and relief measures that have been enacted by Congress, and also in providing further flexibility and relief for taxpayers impacted by the COVID emergency. For individual taxpayers, within a month of enactment, the IRS successfully issued more than 120 million economic impact payments of up to $1,200 for most taxpayers, plus $500 for qualifying children, with millions more to be issued in the coming days. Implementing the economic impact payment program has been an all-consuming exercise for the IRS and for many of the attorneys here in the Office of Chief Counsel as we work to interpret the law and issue FAQs to taxpayers and other guidance on the economic impact payments. While similar individual stimulus measures have been implemented in the past, the payments that are provided for by the [Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136)] were delivered in a fraction of the time that it’s historically taken for the IRS to do that, reflecting an unprecedented level of cooperation among different federal agencies and bureaus within the Treasury Department.

For businesses, which I think we’ll be focusing on here today, a number of economic stimulus measures included in the CARES Act are being implemented by the Treasury Department, the Small Business Administration, the Federal Reserve, and a number of other departments and agencies across government. The IRS itself is implementing the leave credits that were provided for by the Families First Coronavirus Relief Act [P.L. 116-127] and the employee retention credit included in the CARES Act, with dozens of FAQs providing guidance on these provisions issued within days of enactment of those two pieces of legislation. In addition to the leave credits and retention credits, the CARES Act has a number of other tax provisions designed to help businesses address cash flow challenges, including modifications to the provisions in the Tax Cuts and Jobs Act dealing with net operating losses and corporate [alternative minimum taxes] and interest deductions, and also provisions dealing with employer-side payroll taxes. Guidance has been issued on each of these provisions and more is in process. We have been focused in particular on guidance coordinating provisions of the new laws with prior elections and reporting provisions, which I know we’ll be talking about here this afternoon. Also, interest expense deductions and net operating losses are of particular interest and particular importance in the guidance that we’re focused on.

Under the Families First Coronavirus Relief Act, which was enacted just last March — just last month — a half dozen different [Internal Revenue Bulletin] and other guidance items have been issued to date, with plans to expand and supplement on those. Under the CARES Act as well, another half dozen guidance items have been issued to date with requests for and consideration being given on dozens of other items to implement and interpret that law. Also, while not specific to the Families First Coronavirus Relief Act or to the CARES Act, another dozen or so guidance items have been published so far connected with the COVID emergency, giving relief to a number of different taxpayers, businesses, and individuals. In addition to the tax provisions in the CARES Act itself, other provisions of the legislation, including the Paycheck Protection Program being administered by the Small Business Administration, have tax aspects to them that we’ve been working to address.

As I think most people know, within counsel we have six technical offices here in Washington, D.C., and they have been taking the laboring oar in issuing this guidance that I just mentioned. Every single one of those offices has involvement in different CARES Act implementation provisions, and many attorneys within those offices have been quite busy working on all the guidance that I just mentioned and that we’ll be talking about here this afternoon.

Just to mention a couple of them: Our triple-E office — Employee Benefits, Exempt Organizations, and Employment Taxes — has been very focused on the retention credits and leave credits and also on the coordination with the SBA’s Paycheck Protection Program. Our Income Tax and Accounting office here in Washington has probably the greatest impact. They have all of the individual tax provisions as well as anything dealing with timing. And a lot of the provisions and the aspects of the law dealing with any type of disaster relief are in the bailiwick of the income tax and accounting group. Our international group — and I know Ray is an alumni of that group — has also been focused on a number of unique aspects of the COVID emergency, in particular its global scope. And I know Ray’s going to talk about that a little bit here this afternoon. Our procedure and administration group has been very active in particular on the 7508A filing and other payment and deadline extensions. We’ve issued a number of notices on section 7508A. And again, our procedure and administration group has been involved in that. Our financial institutions and products group here in Washington just this week issued a couple of pieces of guidance dealing with tax-exempt bond provisions — perhaps some of the more discrete pieces of guidance that we’ve issued, but nonetheless very important to that particular constituency. Also, our corporate and our passthrough groups: Every single one of these provisions have unique implications for the constituencies that they serve — the corporations and the partnerships and other passthrough organizations — so they’ve been involved in many of the projects that we’ve been working on.

As I mentioned, while most of the work, or much of the work, in the last couple of months has been in the technical offices here in Washington, around two-thirds of our attorneys are out in different field offices around the country, and they do continue to work on the ordinary business, regular business that was already underway before the COVID emergency came upon us. All 1,500 of our attorneys around the country are teleworking. We are open for business. And as I mentioned, many corners of our counsel community here have been very active on COVID-related work, but also all of our field attorneys across the country are working very actively on pending cases and also to advise the IRS on COVID-related matters and will continue to be very engaged in doing that as we move forward.

We, perhaps not unique to other law firms around the country, have been very focused on what’s going to be coming to us in the midterm and the long term. The COVID emergency we’re hopeful we will emerge from fairly shortly, but obviously the long-term ramifications of many of these provisions will continue to be felt for a number of years, and we’ll be working on that. So for that reason, I think it’s very important for us to bring on and keep a lot of talent coming in. We have, as I said, been very focused on regular business and keeping all 1,500 of our attorneys working very actively. We also are moving forward with all deliberate speed on our recruiting and retention programs. We have our summer programs starting, and in fact we’ve been able to onboard remotely 20 law students who are coming in and starting with us to work on Monday. So we’re continuing to move forward on those fronts, and again, do see the midterm and long-term need to continue to bring in talent and address the concerns and issues that we’ll be talking about here this afternoon.

We’ve also been very active in our discussions with the Tax Court. As I think folks know, the Tax Court did cancel its calendar sessions for the entire spring session up through July. And there’s still some uncertainty as to what will be happening in the fall with respect to trial calendars. But we’ve been working very actively, not only with the court itself, but also with the low-income taxpayer community and with practitioners to consider ways that we might be able to handle some of that normal docket load remotely through [inaudible] tools like the Zoom program that we’re using here this afternoon. So those conversations do go forward, and I expect to see more news coming from counsel and from the court and elsewhere on how we’ll be handling some of the docketed cases that are a significant part of the work that the Office of Chief Counsel does.

With respect to the work that’s being done by the courts, I am encouraged to see that many courts are moving forward with ordinary business. I know that although the Tax Court’s clerk’s office is not open, the court itself is open for business and continues to issue decisions. Just yesterday we got an important decision from the Tax Court involving subpart F from foreign base company sales income. We’ve also had just in the last couple of weeks some important decisions from the courts of appeals. The Eighth Circuit gave us a decision in a very important, significant foreign tax credit case. And also we had a decision just last week from the Fifth Circuit on a procedural matter involving John Doe summonses. So the courts do remain active. And as I said, much of our work in counsel is with the courts, and we’ll continue to press forward on that front.

Looking down the road — and I know we’ll be talking about this more this afternoon — IRS and counsel will obviously continue to play a role in assisting and supporting any new legislation that Congress enacts and that the president signs into law. So we look forward to additional steps being taken by Congress and by the administration on that front and stand ready to assist in implementing any new laws that come, and obviously are continuing to work to get guidance out to interpret the laws that have been passed and to deal with other exigent pieces of the COVID emergency. So with that, I will pass it back to you. But again, thank you for having me here this afternoon, Cara.

Griffith: Absolutely. Thank you so much. And I will say I absolutely applaud the effort that the staff at the IRS and the Treasury have put into, and the number of countless hours that they have undoubtedly spent, on very short notice. And you know, this kind of got thrown at them, and I just really applaud all the work that's being done in the short term, and I know in the long term, to try to help taxpayers through all this.

Desmond: Thank you.

Griffith: Rochelle, would you like to take us with your comments?

Rochelle Hodes: OK. Thank you, Cara. And thanks, Mike. The COVID-19 pandemic has been an extraordinary disrupter. It’s forced almost all of us to operate remotely, away from colleagues and many of the tools that enable us to do our job. The IRS has experienced disruptions in the past, including shutdowns and budget cuts, but I would suggest that nothing has caused IRS to reconsider its standard operations in the same way as this pandemic.

To the IRS’s credit, it’s made numerous changes to respond to the circumstances facing employees and taxpayers. Some of those things: expanded use of work-at-home, expanded use of electronic signatures and electronic communication. For instance, the deputy commissioner announced to her employees that IRS would be taking information by electronic communication and electronic signatures in situations where they were dealing with taxpayers and their representatives — primarily, looks like the exam context. Appeals has made similar statements. Chief counsel — Mike, thank you very much — has allowed electronic communication, electronic signatures in the private letter ruling space, and that was extended to determination letters and [the IRS Large Business and International Division]. Also, faxing as an alternative to paper filing in some limited circumstances, which is very unique. For instance, the new Form 7200 to claim an advance of the retention credit and also the forms 1139 and 1045, the tentative carryback claims.

However, IRS has been unable to completely overcome the challenges posed by the pandemic. As a result, all live telephone lines have been shut down, paper returns and other correspondence by paper are piling up — some in trailers — and important services, like processing authorizations for representatives and assigning employer and individual taxpayer identification numbers, have been suspended.

But there’s some good news. Most due dates for acts required to be performed between April 1, 2020, and July 15, 2020, have been delayed until July 15, 2020. IRS and chief counsel provided an enormous amount of guidance in a very short period of time — and that is to be commended — to implement the stimulus legislation, as Mike described, and also to provide additional relief. Specifically, under Rev. Proc. 2020-29, again the Office of Chief Counsel eased some of its rules for letter rulings, making it clear it’s open for business. I actually have had personal experience with that, and the office is open for letter ruling business. Also, Rev. Proc. 2020-23 allows [Bipartisan Budget Act] partnerships to temporarily file amended returns instead of [administrative adjustment requests] for 2018, 2019 in order to facilitate the claiming of some of those cash-based changes from the CARES Act. And of course, the processes that were developed to accept the normally paper-filed tentative carryback claims for NOLs and AMT credits.

But there’s also some not-so-good news. So the odyssey to the filing and payment due date extension, it begin with a statement by the secretary of Treasury about a 90-day deferment of payment on March 17, followed by Notice 2020-17 on March 18, followed again by Notice 2020-18 on March 20, which expanded relief to most income tax returns and was accompanied by FAQs. But there was still significant confusion — who’s covered, who’s not covered? On March 27 there was Notice 2020-20, which extended the filing and payment relief to gift and generation-skipping tax, and then FAQs continued to be published to flesh that out. Finally, on April 9, Notice 2020-23 was published, and that provided the broader relief under the disaster relief provisions and the revenue procedure that sets forth those acts. And then, a couple of weeks later, the FAQs finally caught up to that extended relief. It seems like every day there’s another piece of guidance to read and digest. It doesn’t mean to stop the guidance; it just means it’s really hard to do that. It’s hard to keep up. I’ve been on calls with clients where I have to say, “Look, the advice I’m providing you now is based on the last thing I read. Something could come out while we’re on the phone.” The need for speed has resulted in an avalanche of FAQs. Despite the benefit of FAQs — they’re fast, they provide that kind of guidance that people are looking for — there are currently hundreds of them, nearly that many for the retention tax credit alone. And they provide substantive guidance on all manner of provisions. In some cases, particularly in the payroll tax area, the FAQs aren’t merely supplementing other guidance, they’re the only guidance. And as has been well documented, FAQs don’t provide penalty protection, they’re ephemeral, and they’re not subject to consistent archiving. But I think probably the most troubling thing in this space is, based on the need for speed — and you know, that is completely understandable — the issue is that rather than just restating well-established law principles, these FAQs are actually providing those principles.

The faxing — the tentative carryback claims — that’s also not a panacea. While it’s a wonderful option, given the limited options that there are, the challenges are that, you know, you have to have returns that have been processed that match those tentative carryback claims. If you have to file those returns on paper or if your return is filed electronically and for some reason gets kicked out of the system — which it would under the normal course because of something to do with the complexities or whatever — it’s going to be challenging to get your carryback.

I hope that as the IRS works through these issues, some of the adjustments that they’ve made, such as expansion of electronic signature and communication and more flexible work-at-home options for employees, will be made permanent and expanded, particularly on the IRS side. And I hope that some of the more difficult issues the IRS is facing in delivering on its mission, such as shutting down all live help lines and most services, will be a catalyst for the IRS to adopt some more modern solutions, to make the IRS workforce more mobile and more nimble so that they can withstand future disasters and have that contingency.

Griffith: Wonderful, thank you. Well, I can tell you that we are getting some good questions that are coming in. But before we get to those, let’s hear from Ray and some of his remarks. Ray?

Raymond Stahl: Thank you, Cara, and thank you for having me on the webcast. It’s great to be here, in particular with Mike and Rochelle. Until recently, I was fortunate enough to work in chief counsel for Mike, and I also had the chance to work with Rochelle while she was at Treasury, so it’s great to be on this webcast.

I’m here to talk about some of the international tax considerations that people are dealing with in the current environment, both stemming from the CARES Act and beyond the CARES Act. One interesting thing about going through a recession now is that this is the first time that a wide range of taxpayers have significant losses — current-year losses, or NOLs carried back or carried forward — since TCJA introduced an entirely new international tax regime. So practitioners are working through a new and different set of international tax issues than those that they’ve addressed in previous recessions. That also gave Congress a fair amount to navigate when they were putting together the CARES Act. The CARES Act, as Mike mentioned, included tax rules that were intended to provide taxpayers with liquidity in the form of refunds, including by restoring NOL carrybacks, increasing the 163(j) limit. But one challenge for Congress was that the transition tax years — the section 965 years — were sitting right in the middle of the NOL carryback period. So time permitting, and depending on the questions that come in, I’ll talk a little bit more about some of the interactions between that NOL carryback and the TCJA’s transition tax under section 965.

But beyond transition tax years and the CARES Act, there are interesting interactions between current-year losses or carryforwards, carrybacks and the new international regime. A number of provisions in the international space use taxable income as either a limitation or a key input — so for example, the section 250 deduction, the foreign tax credit limitation, [the base erosion and antiabuse tax] — and so that means that NOLs and current losses generally interact with some of the international attributes that people rely on, and potentially in problematic ways for a lot of taxpayers. So one thing that a lot of people are struggling with right now is the combination of [global intangible low-taxed income] inclusions on the one hand and domestic losses on the other. We sometimes talk about GILTI and [foreign-derived intangible income] as being subject to a preferential rate, but as you know, that preferential rate is effective through a deduction under section 250, and that deduction is subject to a taxable income limitation and reduced on a dollar-for-dollar basis to the extent that GILTI and FDII exceed overall taxable income. So the combined effect on the one hand of a loss at the shareholder level — U.S. shareholder level — and a GILTI inclusion is that a U.S. shareholder can essentially lose, or see a reduction in, the value of that loss, because it’s sort of taking the place of the 250 deduction. And the problem could be made worse by other aspects of the GILTI rules. The value of a domestic loss can be eliminated entirely, for example, if the GILTI inclusion would have otherwise brought up foreign tax credits that would have offset the inclusion. In that case, the 250 deduction is eliminated and the credits can’t be claimed in that year. And then further, they don’t carry forward at all — GILTI foreign tax credits can’t be carried forward. So what has happened in effect is that losses don’t necessarily provide any additional liquidity benefit or offset other income as much as they supplant existing favorable attributes, which is problematic for many taxpayers. And then the problem can be compounded even more when you have tested loss [controlled foreign corporations] that otherwise are paying foreign taxes and that have tangible assets giving rise to [qualified business asset investment]. And tested loss CFCs — when a tested loss CFC pays foreign taxes or has QBAI, those attributes are disregarded in computing GILTI in that year. And so given the global nature of the downturn, presumably there are more tested losses in the system and more and more tested loss CFCs in the system.

So the bottom line is that domestic loss, whether it be current-year loss or an NOL carried back or carried forward, can effectively eliminate other equally valuable attributes on a permanent basis and sort of eliminate some of the liquidity benefits that people associate with losses in a year. And since this isn’t a great position to be in, a lot of people are thinking about ways to reduce GILTI. For example, companies can look for ways to restructure or to lower GILTI or to convert GILTI. And I’ll just talk briefly about a couple of those. So some of the solutions that people are considering is converting, or ways to convert, GILTI into subpart F income, such as foreign-based company sales income, or in other cases, to convert it into branch basket income. In either case, after converting GILTI into general limitation or branch basket income, the credits may not be allowed in that year under section 904, but they would at least carry forward and so those attributes wouldn’t be eliminated on a permanent basis. At the CFC level, taxpayers are considering a number of things, including combining tested loss and tested income CFCs to sort of bring QBAI and foreign tax credits back into the fold. And then they can just sort of look for other losses that are there in the system, like 987 losses that can be triggered with remittances. It’s not as easy to trigger 987 losses as it was prior to 2016, but there are still ways to harvest those losses through real remittances.

And then finally, the last thing that I’d highlight for now would be that some companies are also giving thought to deconsolidation strategies where they isolate the GILTI-generating CFC from a consolidated group’s unfavorable attributes. And so that’s another thing that some companies are considering. Time permitting, I’ll also talk about potential options down the road, including making the GILTI high-tax election. I know my former colleagues in international at Treasury are working hard to finalize those regs, and so that’s another option for companies, potentially in the future. Thanks, Cara.

Griffith: Absolutely. Well, thank you all. I think those remarks, they certainly lend themselves to a lot of questions, so we’ll get to some of them. There’s a lot of procedural-type questions.

To answer one question that has been asked numerous times: This webinar is being recorded, and it will be available shortly after this is all done. It’ll take about a half-hour, and then it’ll be up, so you’re welcome to go back. It certainly is a dense topic, and there’s a lot of great information that is being put out.

So if I could actually start with one question for Mike. The question came in, and it’s a good one. Does the IRS plan to revisit Notice 2020-32 given comments from Congress saying it was not their intent to preclude deductions relating to PPP loan forgiveness? Mike, could you respond to that?

Desmond: I can certainly say that we have received the correspondence from Congress. That issue is being looked at. I think that was carefully considered when the guidance went out, and we’re certainly always very receptive to comments coming in from the Hill. So I can’t give a signal one way or another, other than to signal that we certainly are aware of the issue, have been aware of the issue, and appreciate the input that we’ve gotten just in the last couple of days on that.

Griffith: Great. It’s hard with so much coming every day, and rapidly, it’s — it feels like it’s nearly impossible to keep track of things. Is the IRS planning to issue guidance to address low-income housing tax credit deadlines in the coming weeks?

Desmond: We have received a number of requests, and I think this is something that comes up, not only obviously in the COVID-19 emergency, but with many disasters. There are unique attributes of low-income housing credits, with timing deadlines and placed-in-service deadlines that are unique to the low-income housing tax credit. So we’ve received a number of requests from that industry to consider particular applications of relief in the COVID-19 emergency. Obviously, it’s difficult right now to get projects built under the time frames that may have been expected a couple of months ago. And there are other unique aspects of the COVID emergency, with the lack of mobility for individuals and reduced incomes — all sorts of inputs and factors and socioeconomic elements that have a unique impact on low-income housing tax credits. So we’ve heard a lot of comments, and I know that the passthroughs group, which has jurisdiction over that, is taking all those into consideration. It has some projects underway to consider what can be done to provide unique relief for the COVID-19. But that’s not at all an area that’s unique; every disaster we do have requests for — unique — for low-income housing tax credits, so we’re certainly giving that serious consideration.

Griffith: Great. Rochelle, several questions came out of your presentation, several in particular on the practitioners hotline. Do you have any sense of whether that hotline is coming back online, and if so, when?

Hodes: I haven’t heard anything about it coming back online. You know, I follow the news just like everyone else, and Tax Analysts, of course, had the story about the Kansas City service center. IRS had tried to bring folks back; that was interrupted by having to close down one of the service centers. So I do not envy the position that the IRS is in in trying to bring work back.

But it’s difficult for IRS to move on a dime; it is a very large organization. But there are tools that I know other agencies have used and that large customer service organizations use so that folks remotely can assist with questions and such. And so it’s my hope — I don’t have any inside information — but it is my hope that IRS, now seeing what happens in a disaster like this, which is so unique, might be considering how to enable their people to work more remotely so that practitioner hotline, as well as the taxpayer line, I’m sure that the questions — so there was a hotline about the disaster relief that counsel [procedure and administration] had opened up. And it’s my understanding that a lot of the questions on that line were about stimulus payments, for instance, because folks didn’t have anywhere else to go. And so, you know, it is my hope that they will solve for this problem of not being able to have their folks be remote and still answer the phones.

Desmond: And I will, just to build on Rochelle's comments — I won’t announce anything here today, but there’s a lot of work on the way, along the lines of what Rochelle is suggesting of finding alternative channels and ways to deliver taxpayer service. As Rochelle and I think everyone has noted, this is a very unique disaster. There was a very robust contingency disaster plan in place, and is one in place for the IRS, which provides for leaning on other service centers when one might be closed. And call centers are spread around across the country, paper processing capability has spread around across the country. But when you have a total shutdown across the country and all service centers close, that raises some unique challenges. And the IRS also — we might talk about this a little bit more — obviously has some unique challenges. So just in connection with the, you know, need for protecting taxpayer confidentiality, access to databases, there’s some unique challenges there that maybe are not faced by the private sector. But all of that is being worked, and I do expect there to be some news from the IRS relatively soon building on what they’ve been doing over the last week or so to bring a number of those services back online and also to provide for additional channels. We’ve done that already with the e-faxes that Rochelle talked about in certain particular channels. So it’s a very dynamic situation, but I do expect more on that relatively soon.

Hodes: One of the other challenges that I know practitioners have had is with the existing service lines, when you can get through, is the limits on authority of the front-line assisters. And so given that, if assisters do become available, that there will be such a crush and that they will be so limited in number, that consideration of expanding the authority for resolution — and the goal being resolution — in order to resolve things at the lowest level, if you will, on the telephone would be something that would be really, really helpful, I think, for the whole system.

Griffith: So it is — it’s incredibly challenging. And I guess I think ahead to what’s going to happen when we get into June and July, and how are we going to get everything back online? And then, you know, what guidance is going to come out? Is there any thought that any of the many FAQs — and Rochelle, you noted this in your remarks — are any of those FAQs going to be turned into a form of guidance that would provide some legal authority in the future? Or is it going to kind of just — are we just going to keep upping the number each day? Has the IRS considered that?

And don’t get me wrong, everyone appreciates FAQs that come out. Is there going to be time to be able to look back and say, “Yes, we should take this and we should make this into something that is a more formal piece of guidance”?

Desmond: Yeah, and I think to some extent, that has already been done. And certainly there is receptivity to hearing about particular aspects of the FAQs that taxpayers and practitioners think do have a particular need for more formal guidance. As I think you said, Cara, the overwhelming response has been that the FAQs addressed the pending questions, they addressed them very quickly — sometimes within days of enactment of new legislation. Many of the FAQs on brand new programs like the employee retention credit and relief credits in the Families First Coronavirus Relief Act, those are, we recognize, entirely new programs. So historically, I think most FAQs have been restatements of fairly well-settled principles in law, and you obviously can’t say that with provisions that are brand new provisions in the law.

But I would point you to a couple of things that we’ve done. I know in the original notice extending the payment deadline under 7508A, one of the questions we got about the payment deadline extension was the extent to which it covered section 965 payments that were due on April 15. And we issued an FAQ shortly after the first notice went out, answering that question and saying that the 965 installment payments are in fact part of the extended payment deadline. We recognized in the preamble, or in the lead-in to that FAQ, that there might be some need for additional IRB guidance, and in fact, when we published the subsequent Notice 2020-23, that FAQ was put into the actual IRB notice. So I think we are sensitive to that, and the 965 inclusion is obviously a very consequential item for many taxpayers; if they don’t get that right, there could be defaults on the installment agreements.

So there might be areas in other FAQs that we’ve issued that have particular sensitivity and particular demand by taxpayers and practitioners to have some form of reliance guidance. And we’re certainly asking for people to give some input. I don’t think we’re going to take every FAQ and turn that into a full-blown notice or certainly a Treasury decision or proposed regulation. Almost all of these provisions have a short shelf life; some of them will expire at the end of the year. So there’s a balance there in terms of how much effort to be put into that. But we are very receptive if there are particular issues and FAQs that people have identified as requiring some form of IRB guidance. We’d love to hear from practitioners or taxpayers on those discrete areas and see what we can do with that.

Griffith: Excellent. So Ray, we’ve gotten several questions that have come in on NOLs. And so, you know, we had talked in advance on how the CARES Act gives with one hand and kind of takes with another as it interacts with some TCJA provisions. Can you talk a bit more about NOLs, NOL carrybacks and sort of how the CARES Act is both a benefit and a challenge to businesses?

Stahl: Sure, absolutely. You know, it’s funny, Mike talking about 965 FAQs really brings me back because I was at the Service when TCJA was passed and we had to quickly get out a bunch of FAQs. It was a very similar situation because people needed to know how to file their 2017 returns and how to make payments. And I think we ultimately did reg-ify some, but not all, of those FAQs. But it’s always this challenging balance when you have very new statutory language — a very new statute — and then a need to administer that statute right away. Which is what happened with the transition tax, because TCJA passed at the end of 2017, and for some people, payments were due in April of 2018. So I went through that, and I have a lot of admiration for the folks in the Service doing all that now.

But it’s interesting. To your question, I thought maybe we had put 965 behind us to some extent, and then the CARES Act reintroduced NOL carrybacks and restored the NOL carryback rules that were taken away from TCJA, at least temporarily, for years beginning before January 1, 2021. And one of the things that makes that interesting is that, as I mentioned, the transition tax years are right in the middle of that carryback period. And so there are a few things to note; there are a few interesting interactions that I’ll highlight. One is that if an NOL is allocated to a transition tax year when it’s carried back, there’s a deemed section 965(n) election in the statute. And just so by way of review, section 965(n) was an election given to taxpayers that allowed them to not use NOLs or current-year losses against their 965 inclusion. Taxpayers might want to do that for a few different reasons: They may have foreign tax credits that would otherwise shelter the — they may have had foreign tax credits that may have sheltered the 965 inclusion, and they would rather use them to shelter the inclusion than have the NOL offset the inclusion and have to carry the credits forward. And also just more straightforward, the 965 inclusion rate was effectively — also through a deduction, 965(c)(1) — was effectively lower. So you’d rather potentially [inaudible] NOLs against higher-taxed income.

So the CARES Act deems an election to be made if an NOL is carried back to a 965 year. But it used sort of interesting language. It said that the election is deemed to be made, and I’m quoting, “with respect to each such taxable year.” And so when you read that, it sort of begs the question: Well, if I’m a taxpayer who didn’t make the election originally and I carry an NOL back, am I really making the election — what is the scope of the election that I am deemed to have made? Am I deemed to have retroactively made a 965(n) election that I didn’t intend to make? Or am I just being deemed to make a 965 election with respect to that NOL carryback? So do I have to — is it just the loss that’s carried back to the year that doesn’t offset 965 inclusions, or is it all of my losses that could potentially offset that inclusion? And depending on how that question was answered, you could have situations where taxpayers actually had springing liabilities. If the election covered — the deemed election covered original, say, 2017 losses, now you’d have people who had a greater 965 liability than they originally had. And so that could have been an unpleasant surprise for people. Rev. Proc. 2020-24 said — that provided guidance for how people make certain elections relating to the NOL carryback, including an election to skip transition years — and I’ll come to that briefly in a second. And that said, “Oh, by the way, this is” — it sort of had a sentence saying, “Oh, by the way, this is how we read the scope. The scope of the election is that it just applies to NOLs carried to those years.” And so that, for people who wouldn’t want this sort of springing 965 liability, is good news. It isn’t — it’s not purely good news; it’s not great news for everyone, because there are — you know, we used to get calls all the time from people who had not made a timely 965(n) election, given that there was so much going on when TCJA was passed. Particularly for those 2017-year taxpayers, sometimes people just weren’t ready to analyze the election. But the statute is pretty clear, and regulations ultimately clarified — ultimately confirmed — that late elections are not allowed. So for some people who missed the boat the first time, they looked at the CARES Act NOL carryback and said, “Maybe this is an opportunity to jump into the boat.” So for them, the guidance in the [revenue procedure] might have been less favorable. So that’s one interesting interaction of the CARES Act and 965.

The other thing just to note is, even though a taxpayer is deemed to make a 965(n) election when they carry an NOL back to that year, there is a possibility you can elect to skip over that year. So you may have taxpayers who skipped the 965 year, you may have taxpayers who carry an NOL to that year. And you can still have reduced tax liability with respect to that year because you may shelter other income, non-965-inclusion income, or you may reduce income in a taxable year before the transition tax year, which could generate a foreign tax credit carryforward to the transition tax year. And that would have a knock-on effect and lower the transition tax liability ultimately. But nonetheless — and there was an article actually about this in Tax Notes today — for many people, people who deferred their payment liabilities under 965(h), those folks will not — even though they have a lower liability with respect to the transition tax year — those people will frequently not be able to obtain a refund for that year, generally because there’s — in order for the IRS to give a refund, to give taxpayers a refund, there needs to be an overpayment, and the position is that there’s no overpayment when the entire tax liability hasn’t been satisfied. So if you’ve deferred your liability, there’s no possibility for a refund until all of the deferred payments are obtained. So that’s a long way of saying that when taxpayers are sort of determining how they deploy their NOLs — whether they want their NOLs to hit a carryback year, that is, a transition year; whether they want to skip that year; whether they want to just go forward — on the one hand, they have to think about some of the issues we talked about earlier about how losses interact with GILTI. On the other hand, they have to be mindful of what the effects are when 965 liability is reduced. It won’t in many cases result in a refund, and there are also just some thorny issues to navigate there for folks.

Griffith: Interesting. It’s a lot to take in. Ray, while we’ve got you talking, are there — you know, those are some of the NOL — are there additional issues that taxpayers should be considering as they look at the CARES Act and this interaction with the TCJA?

Stahl: Yeah, well, so I focused mostly on 965 and GILTI, but you know, there’s a similar dynamic sometimes with the BEAT, for example. Taxpayers are finding that, you know, as their regular tax liability is reduced by reason of losses, that can sometimes — if they’re paying the BEAT — that reduction in regular tax liability can be replaced on a dollar-for-dollar basis by additional BEAT liability. And you know, one of the CARES Act tie-ins here to be mindful of is that theoretically — so the CARES Act also provided for an increase in the 163(j) limitation from 30 percent of adjusted taxable income to 50 percent of adjusted taxable income, temporarily. And so, to the extent that the additional interest deductions that are being freed up are interest deductions made to a foreign related party, that can actually cause someone potentially to be subject to the BEAT who would not otherwise have been subject to the BEAT, so they can become an applicable taxpayer. So that can be — that could be an unwelcome surprise for some folks. But I should note, the CARES Act does allow people — like the NOL provisions, there are elections to consider. And so you can elect to not increase your taxable income limitation under 163(j). So that — and of course, there are also other options like waiving deductions. So that’s one thing for folks to consider.

And then just, you know, one thing going forward — not right now — but the IRS in June — seems like an eternity ago, but June of 2019 — proposed a GILTI high-tax exception, which would just be prospective — is just available prospectively. So a lot of taxpayers are waiting on those regs being finalized. And if folks find themselves with that unwelcome combination of current-year losses at the shareholder level, but also paying GILTI, then potentially a GILTI high-tax election can reduce or eliminate GILTI and make that, and improve people’s situation. There are some aspects of the GILTI, of the high-tax election, that are challenging for folks. A lot of comments came in, and are being considered of course, regarding the five-year lock-in period — if you make the election, you’ve got to stick with it for five years; that’s a lot for folks. It’s a [qualified-business-unit-by-qualified-business-unit (QBU-by-QBU)] computation, which coming from someone who loves section 987, I think that’s great; it’s a lot of fun. But for taxpayers, it’s a challenge. I’m one of the three people who thinks, who says “987” and “great” in the same sentence. But so that's a challenge for people to navigate potentially, just the complexity involved there. And then there — you know, you might think, “OK, gosh, this QBU,” you might look very quickly and look at the foreign return and say, “Hey, I do have a high-tax QBU here. Look at my foreign effective rate.” But there can be timing differences, which I'm assuming are magnified in sort of volatile economic conditions, and CFCs can have different U.S. and foreign tax years, so there might be situations where people think they have a higher effective tax rate than they actually have. So there’s probably a significant amount of modeling to think about as they, as folks consider whether or not a GILTI high-tax election is going to be helpful going forward.

Griffith: Excellent, thank you. The questions that we’ve gotten in, I can tell that the tax community genuinely cares about the IRS and how hard they’re working. There have been a lot of really interesting questions, and we’ll try to get through a few of them here. One we got — and Mike, you can probably address this — is whether there’s a sense at Treasury and within IRS that if you got significant information technology upgrades, does that make the agency more capable of digital filings, other digital documents?

Desmond: Yeah, that’s a long-standing issue. I guess I’d have a couple of comments on that, and this is mostly an IRS IT issue. Obviously, at counsel we support the IRS in a number of different functions, but we also benefit from some of the upgrades that they’re making on the IT front. I guess initially, I’d just point to the success that the IRS has had. I know there’s been a lot of press regarding the economic impact payments and a very small number of issues with the economic impact payments relative to the 120 million or so that have gone out. But I think the overall success of getting out 120 million payments within a month really does speak to the IRS’s IT capabilities. And I think sometimes those are panned in the popular press, but that’s not necessarily a clear or an accurate reflection of what actually is done. I think more reflective of that is what the IRS is able to do, instances like the economic impact payments (EIPs).

I think one area in which the EIPs have benefited from upgrades and technology over recent years is the e-filing of almost all tax returns now: 90-plus percent of all individual income tax returns and the vast majority in particular of large corporate income tax returns are electronically filed. But that does facilitate a lot of other programs. Things like the EIPs can be handled much more readily when you’ve got e-filed returns with piles of information on them. So just looking to see how we got the EIP payments out in about a month — and something that took orders of magnitude longer than that back in 2008 and 2009, the last time we did stimulus payments — I think is a testament to the IRS’s technology.

Having said that — I think both Ray and Rochelle pointed to this — one thing that will come out of the COVID-19 emergency, I’m sure, are some lessons about how we can benefit from using a number of different technologies. The IRS has some institutional reluctance, as you might imagine, on embracing anything that might put taxpayer return information at risk. Issues about e-filing and e-signing are always taken very seriously and very carefully. So sometimes it does take an event like this to push us in the direction of embracing different new technologies perhaps faster than we would have without an emergency like this coming along. I’d point to just one thing in particular that we’ve done within counsel before the COVID-19 emergency. We have always had a challenge in dealing with taxpayers in docketed cases by email because of concerns about the security of email and email servers. And I think in part prompted by the Tax Court’s movement to require email addresses of all counsel on all docketed cases, just in the last several months we were able to implement a secure email program for counsel attorneys to coordinate with represented parties and even unrepresented parties in Tax Court. So just an illustration of that.

I think Rochelle pointed to what we’ve been doing on the technology side with e-faxes. And I know I’ve heard jokes about people dusting off their old fax machines so that they can use that new technology, quote-unquote, but certainly an improvement from what has to be done with paper filings and some of those NOL carryback claims and things like that. So I think that technology — obviously, we can always improve our technology. It’s quite a task at the IRS, but the COVID-19 emergency will, I think, be a learning lesson for all of us inside and outside the government on how we can benefit from — and will probably accelerate, and perhaps significantly accelerate, a lot of the projects that were already underway.

Griffith: It certainly has been a challenge across the board, I think. I know even at Tax Analysts, we’ve been thinking we can do everything remotely, but it’s been — it’s a challenge in figuring out what you can do, and sometimes you do need a crisis to push you in the direction of seeing just how far you can push the limits. So in terms of — you know, the vast majority of returns are now being filed electronically, but those that need to be paper filed or those that need to be moved from having been electronically filed but they need to be kicked out as paper for whatever issue — at the moment, that is probably not going to happen. Are we expecting from July 15 that there will be humans in fact that will be able to handle a paper return?

Desmond: I don’t know the precise timing on the service centers and bringing them back online. I know there have been some reports about what the IRS has been doing to bring back some on a voluntary basis initially, so I know a lot of discussions are underway at the IRS to do that. I think within what we’re working on and focusing on — in particular, relating to CARES Act guidance — as we talked about, there is the e-fax line for the 1139s and 1045s, which are the prompt refund claims specific to the CARES Act provisions for corporate AMT and also NOL provisions under the CARES Act. We also recognize that many of the related filings will need to be amended returns, and oftentimes amended returns, particularly for individuals, are required to be paper filed. So I think one of the things that we have been focused on in terms of the priority of bringing manual processes back online is what is needed immediately. And the Wage and Investment folks that operate all the service centers are very focused on getting the priorities rights, and I know very high at the list are provisions that Congress has spoken to in the CARES Act, complementing the 1139s and the 1045s and the prompt refunds. But as taxpayers start to file returns for the 2020 tax year in particular and fiscal year filers whose tax year ends before the end of the 2020 calendar year, will obviously have very significant losses coming out of the events of March and April of 2020. And we want to be sure that there are processes in place so that we can promptly process those returns if they are due refunds and have carrybacks and other issues — many of the technical reporting issues that Ray was talking about — have processes in place. So I think it’s a matter of obviously limited bandwidth, but prioritizing which items need to come first, what gets processed first, what gets handled first as these services do start to come back online, both in terms of manual processing alternatives and manual processing telephone assistance and everything else that historically has been done through a more manual process.

Griffith: Excellent. If we could take just a minute and look forward. And Rochelle, we talked about this quite a bit on the phone initially. Looking forward, what do — what is it that we need? What do you think, in your opinion, would the tax community want to see over the course of the next one month, three months, and maybe six months?

Hodes: So I think I want to go back to a couple of things. One thing that if you were listening closely to Ray, I think he made it very, very clear how complex and interactive and full of choices and decision-making dealing with CARES Act and TCJA truly is. And so one of the things that has happened in the midst of all this is, LB&I has added to their campaign list a campaign focusing on TCJA and particularly related to how CARES Act would be implemented. And then another one of those campaigns is certainly 965. And so I think a large challenge for everyone is going to be going forward, these are going to be the issues that are going to raise attention, if you will, when there is, you know, an examination of the returns that are impacted. And so I think that trying to make sure that taxpayers are well acquainted and, you know, have their documentation and know, you know, the positions and the choices that they’ve made, but also a well-trained IRS. These are just really, really complicated issues. And if everyone is best prepared, that’ll make examination of those issues go smoother. But I’m anticipating that there’s going to be a lot coming in the future on that.

Another thing to the point about returns and which returns are electronically filed, I think one of the challenges is going to be smaller taxpayers — and when I say small, I don’t mean really, really small; small can be kind of big sometimes. Even LB&I taxpayers, you know, at the lower end of the LB&I threshold are not particularly large all the time. And so one of the things that really struck me in some of the information — I get a sign-up for the news services from the IRS. There was one that was directed to reporting agents, and it was either there or a link that I saw on the IRS website, and it was very frank, and it said, “Look, 941s — if you have errors with your 941s that you’re electronically filing, then — you know, with EIN and name matches or any of those sort of ministerial-type errors — your 941s aren’t going to get processed.” Well, you know, a large portion of the stimulus from the tax side is the payroll tax credits. And so there is going to be, I think, a disconnect for a number of taxpayers who are hoping that they’re going to get their benefits and perhaps through a combination of, you know, just making errors and the fact that automated systems may be — or the systems when you get kicked out of the automated systems — may be backed up, may be an issue.

I think the other thing that I’m really, really concerned about going forward is how much of a grace period there will be after the end of the People First Initiative, where IRS has said that they slowed down the lien and levy automated notices; they were suspending that during the period through, I believe, July 15. In a lot of cases that I’ve seen, you have these lien and levy notices through the automated system resulting from the fact that the taxpayer is on sort of another route trying to work out the issue that is resulting in the money that’s due. And so they keep getting notices from the IRS saying, “We need an additional 60 days. We need an additional 60 days,” and they get multiples of these. And then, you know, you end up with a lien or levy notice. My concern is that this — that trying to dig out after the pandemic is going to be a harder task than it was after the 35-day shutdown that happened just a short time ago, and that the automatic lien and levy notices and collection action, all of that stuff’s going to occur while the issues that the taxpayer was trying to resolve are still going to be sitting in some pile and not resolved. And so that’s a big concern of mine, too, is how will all of that be tied together?

Griffith: I know that we’ve hit the hour mark, so I won’t push too much farther. But Mike, I would give you the opportunity to respond to any of Rochelle’s, and then maybe also to suggest some of your own as to what you see in the future. In particular, if there are things that the tax community and practitioners can do to help the IRS and Treasury get from now to a point where we are somewhere closer to normal than we are today.

Desmond: Sure. And I think this has been echoed throughout the afternoon and our comments today, but this is a very dynamic situation, and I think that’s reflected in particular in things like our extension of filing deadlines and payment deadlines. We’ve continued, as everyone else has, to monitor the situation and decide what steps need to be taken and can and should be taken. Some of the things that we implemented just a few weeks ago are obviously in a different paradigm now. We’re all, I think, optimistic that we’ll emerge from this sooner rather than later. But we all wake up every day and it seems to be the same news as yesterday, so we don’t want to obviously act prematurely and bring people back and start processing things only to have to go back to more of a shutdown situation. So we’re taking this step by step and day by day.

I think in terms of what taxpayers and practitioners can do, we’ve had a very robust line of communication and channels open from all different constituencies. Those have been extremely important. It’s actually, in some respects, comforting to get on programs like this with people like Ray who can talk about some of the complexities that they’re dealing with and their clients. It makes our job sometimes look a little bit easier because, you know, we don’t have to do that complex modeling. You do, and taxpayers do. But we are receptive to hearing pieces of that, and how does one part of that modeling and the inability to do that modeling run in to some of our rules? And what can we do to, you know, have some streamlined procedures? Relief from elections? Elections? As Ray was pointing out, I think a lot of the decisions that were made by taxpayers coming out of TCJA are now being revisited because of the relief that’s being put in place with respect to the CARES Act. One of the big challenges that I think taxpayers have in the modeling is the rate differential — that prior to 2018, you had a much higher corporate tax rate; you’ve got a lower rate now. You’ve got a lot of very dynamic pieces there. And from inside the government, we don’t always appreciate that and appreciate the long-term effect of that. Even the CARES Act provisions, as Ray noted, are temporary. Only a handful of years that are affected by those, and taxpayers can’t just look to the end of 2020; they need to look past that to see when hopefully we’ll all be back to normal business and back to a profitable mode, not in to a way of dealing with losses.

So from our perspective, I think the more we hear from taxpayers and practitioners the better, particularly in challenges that are faced with the interaction of many provisions like the TCJA provisions with the CARES Act provisions and the challenges you’re facing in modeling and challenges you’re facing with respect to prior elections and decisions that have been made. How can we provide more flexibility in that debate? So I think, from obviously the Treasury Department, the IRS, Congress is all looking to provide additional flexibility in these difficult times. So bringing those to our attention is probably the most important thing that you can do for us. And I think we try to give prompt consideration to everything that comes in. Some of the comments obviously are more pointed than others. But we do try to read everything that comes in and appreciate all the work that’s being done by everyone collectively to get through this.

Griffith: Wonderful, thank you. Ray, if we can close with you with just a couple of brief moments on — you know, we had talked initially on what you think we might see next.

Stahl: Yeah. So it’s interesting, you know, you mentioned at the top, the potential for another legislative package. Obviously, I can’t — I won’t pretend to be able to suggest what’ll be in that package. But you know, one of the solutions that I know companies are talking to policymakers about is a relatively straightforward change to section 172 that would prevent NOLs from being absorbed by GILTI — somewhat similar to a section 965(n) election that we talked about, but it would apply in the GILTI context. And so that’s one potential idea that would ensure that GILTI is subject to tax on a current basis at the appropriate rate, while also preventing domestic losses from essentially eliminating or cannibalizing attributes. So that’s one thing.

And then, you know, just another thing to bear in mind is that although Treasury and the IRS have gotten out so much guidance over the last few years implementing TCJA, while folks are still working from home, there’s still a fair amount of really impactful stuff being worked on and that we will probably see over the course of this year. So from 163(j) to I mentioned the finalized GILTI regulations. We’re also looking for final 250 regulations. There’s [previously taxed earnings and profits] regulations potentially down the line and section 245A guidance. So there’s a lot coming, so there’ll be a lot of interesting things that people will continue to be able to keep track of that I’m looking forward to reading — hopefully not released on Friday afternoon.

Griffith: Yeah, we always appreciate when guidance doesn’t fall on, say, a Friday at 4:30.

Desmond: We all need something to do on the weekend, right?

Stahl: Yeah, I used to get a lot of very unpleasant voicemails in the government, so.

Griffith: Well, I can’t thank you guys enough for taking the time to come out and to talk today and to answer some questions. It really was a wonderful discussion, and I think that everyone enjoyed it. The video will be up shortly, and the comments will also be transcribed for those who prefer [inaudible ]. And so with that, we can close. And I thank you again, and I look forward to our next conversation.

Desmond: Thanks for hosting.

Hodes: Thank you. Bye, everyone.

Stahl: Thank you so much. Bye now.