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TAX VIRUS BRIEFING: Administration on Board to Add Spending (1)

June 12, 2020, 4:24 PMUpdated: June 12, 2020, 9:11 PM

The Trump administration anticipates needing another significant coronavirus aid package sometime this summer. Paycheck Protection Program complications remain challenging. In Europe, the stricken economy stirs tax tensions. And online sellers may want to start watching for state audits of their sales tax obligations. Catch up on the ways the coronavirus outbreak continues to change the world.

We’ve taken down our paywall to give you access to all of our tax and law coronavirus coverage.

More Help, of Some Kind, Assured

Another coronavirus aid package won a strong thumbs-up this week from Treasury Secretary Steven Mnuchin, though it will be weeks before a measure takes firm shape.

The economy is recovering, but it will need more help, Mnuchin told the Senate Small Business Committee. Travel, retail, and leisure sectors should get more aid, he said, and he spoke of the possibility of more cash for families.

As for a capital gains tax cut, which President Donald Trump has suggested more than once, Mnuchin remained unenthusiastic.

Mnuchin’s remarks fell somewhere between the posture of House Democrats, who have already passed a $3 trillion package of new aid, and Senate Republicans, many of whom expressed continuing caution: Give the roughly $6 trillion already available in various kinds of relief enough time to work its way through the economy. Senate leadership has said no action will happen before late July.

The more positive than expected May jobs report “underscores why Congress should take a thoughtful approach and not rush to pass expensive legislation paid for with more debt,” a spokesman for Finance Committee Chairman Chuck Grassley (R-Iowa) said after a hearing Tuesday.

One big question entering the next round of negotiations is what to do about the temporary $600 weekly boost to unemployment benefits authorized by the CARES Act (Public Law 116-136). That benefit is due to expire at the end of July.

Labor Secretary Eugene Scalia said it is time to scale back: With the economy reopening, it shouldn’t be allowed to turn into “a deterrent to resuming work,” he said.

Additionally: Also under discussion, Mnuchin said in a Thursday CNBC appearance, is federal aid for state and local governments, and support for small businesses impacted by recent looting linked to protests against police brutality and racism.

“The president and I won’t be done until we get every single person back to work,” Mnuchin said, adding that there is still money from the previous packages that remains unused. “Over the next month you’ll see another $1 trillion go into the economy.”

Lawmakers Eye More State and Local Virus Aid: BGOV Closer Look

Take a Listen: Bloomberg Tax Capitol Hill reporter Colin Wilhelm hosts two Washington tax policy mavens in conversation about the tax policy measures in coronavirus relief laws. Is tax the best way to deliver aid? Does too much end up going to the already well-off?

Steve Rosenthal of the Urban Institute and Kyle Pomerleau of the American Enterprise Institute toss thoughts back and forth, and contemplate what lawmakers should do next, in this week’s episode of the Talking Tax podcast.

Paycheck Protection Confusion

An Illinois company owner jumped through all the Paycheck Protection Program hoops and got a government-backed loan that helped keep her business afloat. Then lawmakers and regulators changed the rules—relaxing some restrictions, changing conditions—and now Marnie Howell worries she may end up failing to qualify for full loan forgiveness.

“My fear is, as the game changed, and the rules changed, it affected my ability to be 100% forgiven. And in my opinion, that’s not right,” Howell said, though she is grateful for the funding.

The CARES Act required businesses to use the funds within eight weeks and to use at least 75% of the loan amount on payroll and payroll expenses like health care. But a subsequent law (Public Law 116-142) lowered that payroll requirement to 60% and extended the time period to use the money to 24 weeks or the end of 2020, whichever comes first.

Now, absent guidance from the government, uncertainty hangs over businesses that aren’t sure what the rules are.

Senate Democrats Proposal: Sens. Ben Cardin (D-Md.), Chris Coons (D-Del.) and Jeanne Shaheen (D-N.H.) said they would introduce a bill to allow new PPP lending to small businesses that already have used up, or almost have, their initial PPP loans and that can show revenue loss of 50% or more attributable to the pandemic.

M&A Concern: Companies eyeing mergers and acquisitions in the wake of the virus crisis might have to take a new wrinkle into consideration: how the IRS will deal with pandemic relief the companies may have received.

Businesses aren’t allowed to take advantage of both of two major relief programs: the Paycheck Protection Program, which provides forgivable loans to small businesses, and the employee retention tax credit, designed to help employers keep workers on their payroll.

But what if one business with aid acquires another with aid—does that prohibition apply? It isn’t clear, so there is risk, and practitioners want the IRS to give some guidance on it. Still, Russell Pinilis, a partner in Willkie Farr & Gallagher LLP’s tax department, said he wouldn’t advise people to forgo a deal they otherwise would do.

Donated Leave: The IRS won’t tax employees on sick, vacation, or personal leave they forego in exchange for cash donations to charities providing relief to coronavirus victims. The accrued leave that their employers convert to cash payments and provide to Covid-19 charities won’t be treated as compensation, the IRS said Thursday in Notice 2020-46. Thus employees can get a deduction for donating the leave. Employers can deduct the cash donations, though.

Let’s Go Digital: Now that the IRS has loosened its policies on electronic signatures to accommodate pandemic limitations, it should leave them loosened and issue guidance, the American Institute of CPAs says. It’s time to “embrace the digital and global environment and move away from manual, paper-based processing,” the AICPA said in a letter.

Global Developments

In proposing an aid package as large as 750 billion euros for EU member countries, the European Commission suggested a handful of new tax measures to help foot the bill. But the prospect for agreement remains dim—despite the coronavirus’s disastrous blow.

New levies (called “own resources") the commission proposed in its blueprint include a digital services tax, a tax on large companies operating across the EU single market, and a levy on non-recycled plastic waste.

It has been “virtually impossible to find consensus” about giving the EU tax-raising authority, and doing so would be “a major shift of power from the member states to the EU,” said Eero Yrjö-Koskinen, an adviser at Finland’s Chamber of Commerce who was previously director of Green Budget Europe,

Only the plastic waste levy is seen as having a chance of becoming reality in the near future, and even that has some opposition.

As for a single-market tax on large corporations, it “technically doesn’t seem very well thought through” and has little prospect of adoption, according to James Watson at the lobby group BusinessEurope. An EU system to collect the levy would overlap with individual country systems, and the benefit isn’t apparent when the EU could alternatively just raise the GDP-based amounts that countries already pay into the bloc’s budget, he said.

  • Interest Deductions: EU rules that restrict interest deductions are bad for businesses struggling through the pandemic, French and Italian business groups told EU Economic Commissioner Paolo Gentiloni.
  • Germany: Chancellor Angela Merkel’s cabinet gave the OK Friday to a virus recovery plan that includes cutting the regular value-added tax rate three points to 16% and allowing businesses more generous carryback of losses. The plan now goes to parliament.
  • Bulgaria: Value-added tax on restaurant and catering services is lowered to 9% from 20% through 2021.
  • Thailand: VAT collection under the government’s proposed e-business law could double from the forecast $96.3 million as a result of coronavirus-boosted online transactions. The law would require tax from foreign digital services like Netflix, Facebook, and Google.
  • India: The government will listen to taxpayers who approach them for changes of transfer pricing arrangements because of pandemic circumstances.

More international news and information on coronavirus is here.

State Developments

State tax agencies have pretty much stopped auditing during pandemic shutdowns, but at least one tax attorney says these grace periods are starting to end, and agencies may take particular interest in businesses like payment platforms and delivery services.

In the enthusiastic enactment of laws and rules to reap revenue from online sales after the Supreme Court’s 2018 Wayfair ruling, some states didn’t address that kind of business model. But it has stood out as customers did huge amounts of online ordering during the last few months, Zach Gladney, a state and local tax partner at Alston & Bird LLP, said this week.

Audits are one way states will cope with pandemic-induced revenue losses, but some may also look to expand their tax bases under their post-Wayfair authority—covering digital services like advertising and digital content as well, suggested tax software firm Sovos.

  • Pennsylvania: The Department of Revenue won’t run after remote vendors and marketplace facilitators to see how they’re complying with sales tax rules as the pandemic continues. Businesses are still getting their bearings with laws that tax online sales from outside the state, plus they are dealing with Covid-19 challenges, State Revenue Secretary C. Daniel Hassell told Bloomberg Tax.
  • California: The State Board of Equalization rejected a proposal to tell county assessors they should accept claims for midyear commercial property value declines attributable to the coronavirus.
  • Colorado: The House approved a bill (H.B. 1420) wiping out several business tax breaks to offset a $3.3 billion pandemic-induced shortfall. The measure heads to the state Senate, which would have to act on it before the General Assembly adjourns June 17. The bill would permanently remove tax deductions for many small business owners; remove a manufacturing sales tax exemption; cap net operating loss deductions; eliminate a capital gains tax break; and make other changes—some of which were included in the CARES Act.

Bloomberg Tax has a state-by-state roadmap logging all developments as they happen.

Dive Deeper With Bloomberg Tax Insights

  • Suranjali Tandon of the National Institute of Public Finance and Policy, New Delhi: The pandemic has created tax issues in India even as tax law changes have occurred this year.
  • Catherine Dahl of Beanworks: It’s important for accountants to transition to the cloud, especially as traditional processes may not be enough for the Covid-19 environment.
  • Adnan Islam and Ed Ajodah of Friedman LLP: Businesses can monetize their losses under provisions of the coronavirus relief legislation.
  • Debra Pickett of Page2 Communications: Law firms who put profits per partner ahead of saving the jobs of the associates and staff who make great client service possible risk alienating their clients.
  • Chester Wee, Panneer Selvam and Yeo Kai Eng of Ernst & Young Solutions LLP: The Covid-19 pandemic and the disruption caused to businesses in Singapore and their employees bring a raft of complex tax issues.
(Updates with German development in Global section.)

To contact the reporter on this story: Kathy Larsen in Washington at klarsen@bloombergtax.com

To contact the editors responsible for this story: Meg Shreve at mshreve@bloombergtax.com; Vandana Mathur at vmathur@bloombergtax.com

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