Tax Update (January 10)
This week, President-elect Joe Biden announced the following nominees and appointees:
Gina Raimondo, Secretary of Commerce
Marty Walsh, Secretary of Labor
Merrick Garland, Attorney General
Don Graves, Deputy Secretary of Commerce
Isabel Guzman, Small Business Administrator
To view a full list of nominees, appointees, and White House staff, click here.
GA Special Election
This week, Georgia held a special election for both of the state’s Senate seats. Reverend Raphael Warnock (D) and Jon Ossoff (D) defeated incumbent Senators Kelly Loeffler (R) and David Perdue (R). The makeup of the Senate will be a 50-50 split, with Vice President-elect Kamala Harris breaking any ties. Democrats will now effectively control all three branches of government. However, Democrats hold slim majorities in the House and Senate.
Democrats will have to rely on moderate Senators Joe Manchin (D-WV), Kyrsten Sinema (D-AZ), and potentially others to approve various legislative priorities. Additionally, Democrats will be able to use budget reconciliation to pass legislation in the Senate via simple majority. In 2017, Republicans passed the Tax Cuts and Jobs Act (TCJA) via budget reconciliation.
Senate leaders will need to reach a powersharing arrangement for the first time since 2001.
To view the Congressional Research Service powersharing report from 2001-2003, click here.
FY 2021 Funding/COVID-19 Stimulus
On Dec. 21, the House and Senate passed FY 2021 appropriations and COVID-19 relief. President Trump threatened to veto the legislation and argued the direct payments should have been increased from $600 to $2,000. He eventually signed it into law on Dec. 27 with no changes.
The legislation included various tax extenders and some clarification to existing tax provisions. Tax extenders made permanent include certain provisions for beer, wine, and distilled spirits excise taxes, and the railroad track maintenance credit. Tax credits extended through 2025 include the New Markets Tax Credit, Work Opportunity Tax Credit, Empowerment Zones tax incentives, and employer tax credit for paid family and medical leave.
Other extenders with various phase out dates include the Indian employment credit, 100 percent deduction for business meal expenses, and Employee Retention Tax Credit (ERTC).
Additionally, the legislation clarifies expenses paid for by Paycheck Protection Program (PPP) loans are tax deductible and addresses the interaction of PPP loans with the ERTC.
To view a summary of tax provisions, click here.
Additional Committee Assignments
On Tuesday (Jan. 5), House Speaker Nancy Pelosi (D-CA) announced additional committee assignments for the 117th Congress.
To view the new assignments, click here.
Senator Ron Wyden (D-OR) is expected to take over as Chairman of the Senate Finance Committee due to Democrat’s victories in Georgia. It is still unclear as of now how committees will be structured with the new Senate makeup. Wyden has been a champion using tax laws to narrow wealth differences between Americans.
Following civil unrest this week, House Speaker Nancy Pelosi (D-CA) has indicated she may bring back the chamber to begin formal impeachment proceedings. Senate Minority Leader Chuck Schumer (D-NY) has also called for President Trump to be impeached.
“If the President does not leave office imminently and willingly, the Congress will proceed with our action,” Pelosi said in a statement released Friday (Jan. 8).
Congress is not currently scheduled to return until after Biden’s inauguration on Jan. 20.
While impeachment and removal are possible, there are only 12 days left until inauguration (as of Friday, Jan. 8).
Additionally, Democratic lawmakers and one House Republican called on Vice President Pence to invoke the 25th Amendment and remove President Trump from office. Despite this, Pence has reportedly rejected these calls.
PPP Loan Guidance
On Friday (Jan. 8), the Small Business Administration (SBA) and Department of Treasury announced new guidance on PPP loans. The program will reopen the week of January 11 for new PPP borrowers and certain existing borrowers. Community financial institutions will be the only entity allowed access to the funds on Monday (Jan. 11) and Wednesday (Jan. 13). All other lenders will have access to PPP loans shortly after community financial institutions. The guidance also includes updates on what expenses the loans can cover, eligibility, and flexibility for seasonal workers.
To view guidance on PPP loans, click here.
Digital Services Tax
On Thursday (Jan. 7), the Office of the U.S. Trade Representative (USTR) announced it will not impose tariffs on $1.3 billion worth of French goods scheduled to go into effect on Wednesday (Jan. 6). The tariffs were in retaliation for France’s new digital services tax (DST) that will largely impact American digital companies.
USTR said the tariffs were suspended due to similar Section 301 investigations on DSTs in other countries. Additionally, USTR claims the suspension of tariffs on France will allow for a coordinated response to all DST investigations.
Italy, Turkey, India
On Wednesday (Jan. 6), USTR released reports on Section 301 investigations into DSTs adopted by India, Turkey, and Italy. The reports also found the taxes discriminate against U.S. internet companies. However, USTR did not announce any new tariffs against those countries. The agency expects to complete more DST investigations in the near future.
On Thursday (Jan. 7), Treasury and IRS released final carried interest regulations which outline how changes made by the 2017 Tax Cuts and Jobs Act (TCJA) changes will work. Democrats have been opposed to the tax break and argue it should be eliminated. The regulation aims to prevent individuals from using a glitch in the TCJA that could allow them to work around to qualify for a more favorable tax treatment.
To view the final regulations, click here.
On Dec. 30, the Treasury Inspector General for Tax Administration (TIGTA) released a report that found around $5.7 billion in taxes should have been collected from individuals and businesses who received income from credit and debit payment cards in the tax year of 2017. The TIGTA partially blamed gaps on the IRS’ ability to monitor unreported income that year. The IRS disagreed with some of the TIGTA report findings and noted the agency’s limited resources.
On Thursday (Jan. 7), IRS and Treasury announced around 8 million economic stimulus payments will be sent out via prepaid debit cards. The $600 payments will be in an envelope marked with a Treasury Department seal. There were complaints last time economic impact payments were delivered via card, due to people throwing away the envelope because it did not have any Treasury or IRS markings.
 Emma, Caitlin. “Georgia just delivered Democrats their most powerful weapon.” Politico Pro, 7 Jan. 2021.
 Lorenzo, Aaron. “Wyden poised to take charge of Finance Committee with broad tax agenda.” Politico Pro, 6 Jan. 2021.
 Palmer, Doug. “USTR holds off on retaliatory tariffs against France.” Politico Pro, 7 Jan. 2021. https://link.edgepilot.com/s/6ce54b9f/R5rZsSaPR06WoiCyWTgqaw?u=https://subscriber.politicopro.com/article/2021/01/ustr-holds-off-on-retaliatory-tariffs-against-france-3986200
 Palmer, Doug. “USTR says India, Italy and Turkey digital tax plans hurt U.S. companies.” Politico Pro, 6 Jan. 2021.
 Faler, Brian. “Treasury issues final ‘carried interest’ regulations aimed at fixing glitch.” Politico Pro, 7 Jan. 2020.
 Lorenzo, Aaron. “Watchdog says IRS missed almost $6B in taxes from payment card income.” 5 Jan. 2021.
 Becker, Bernie. “Treasury, IRS sending new round of stimulus debit cards, with clearer identification.” Politico Pro, 7 Jan. 2020.