Publish Date

Mar 20, 2020

Senate Republicans Release Initial Text for Phase 3 COVID-19 Bill

Special Tax Alert

One day after the President signed the Families First Coronavirus Response Act (HR 6201) in law, the Senate Republicans released their initial bill text for the Phase 3 COVID-19 Bill. The bill text, which is 247 pages, covers a wide range of areas, including changes to the Internal Revenue Code. This alert highlights some of the proposed tax law changes, which are intended to increase liquidity, as well as technical corrections to the Tax Cuts and Jobs Act (TCJA).

Due Date Extensions

After the President declared a national emergency on March 13, 2020, the IRS released Notice 2020-17 on March 18, which extended the deadline for the payment of federal income tax payments and federal estimated income tax payments that are due on April 15, 2020 to July 15, 2020. The extension relief was limited to $10,000,000 for C corporations (or for a consolidated group) and $1,000,000 for all other taxpayers regardless of filing status. The Notice, however, did not extend the due dates for filing the returns.

The bill text, however, proposes to extend the relief afforded under Notice 2020-17 by extending:

  • The filing and payment deadline for 2019 income tax returns to July 15, 2020.
  • The due date for individual and corporate estimated tax payments for 2020 to October 15, 2020.
  • The due date for the payment of payroll taxes through December 31, 2020 is generally extended and is payable 50% on December 31, 2021 and 50% on December 31, 2022.

NOL Carrybacks and Excess Business Losses

The bill modifies the rules governing net operating losses (NOLs) for taxable years beginning before January 1, 2021 by:

  • Generally allowing for the carryback of the NOLs for 5 taxable years* and
  • Removing the 80% taxable income limitation on the deduction of NOLs that was added as part of TCJA.

* It is worth noting that there is a drafting glitch as it appears that the carryback provision is supposed to apply to 2018, 2019, and 2020 taxable years. However, as drafted, the provision only applies to 2018 and 2019 taxable years.

The bill also relaxes the rules governing excess business losses of noncorporate taxpayers for taxable years beginning after December 31, 2017 but before December 31, 2020 so that pass-through entities and sole proprietors can also benefit from the NOL carryback change.

AMT Refundable Credit

As part of TCJA, the corporate AMT was repealed but the portion of the minimum tax credit that was refundable was spread over four years ending in 2021. The bill modifies the timing of the refundable credit and makes it all refundable in 2018. Therefore, to claim this refund, an amended 2018 tax return will need to be filed.

Modifications to Limitation on Interest Expense Deduction

As part of TCJA, Congress limited a taxpayer’s ability to deduct business interest expense to the sum of: (1) the taxpayer’s business interest income, (2) 30% of the taxpayer’s adjusted taxable income (i.e., taxable income computed with certain adjustments) and (3) floor plan financing interest. The bill proposed to modify this rule by providing:

  • For taxable years beginning in 2019 or 2020, taxpayers can calculate the amount of interest it can deduct based on 50% of its adjusted taxable income (instead of 30%) and
  • For taxable years beginning in 2020, taxpayers can generally elect to use its 2019 adjusted taxable income to calculate its interest deduction limit.

It is important to remember that we are still eagerly anticipating final and proposed general guidance on the limitation of the interest expense deduction…