DC Tax Flash: House Democrats Unveil New Pandemic Aid Package

Tax Alert

House Democratic leaders today unveiled new legislation to address the continuing economic and health challenges posed by the ongoing coronavirus outbreak. The Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act (H.R. 6800) is being advanced in anticipation of a floor vote as early as Friday. The Rules Committee is scheduled to consider the bill on May 14, 2020.

Even if approved by the House, the bill is not expected to gain traction in the GOP-controlled Senate, where Majority Leader Mitch McConnell (R-KY) has called for a pause in legislative action to assess the impact of previously enacted bills that address the outbreak. "I don't think we have yet felt the urgency of acting immediately," Sen. McConnell said yesterday. "That time could develop, but I don't think it has yet. If we decide to go forward, we'll go forward together." 

As such, the House bill unveiled today is seen as an opening bid in discussions among House and Senate leaders, and White House officials that may last many weeks. At a minimum, Senate Republicans want liability protections for businesses that reopen and for health care providers in the next coronavirus bill.

The 1,815-page text of the House bill released today is posted here.

A single-page summary is posted here.

A more-detailed 90-page summary is posted here

The massive spending and tax bill would cost more than $3 trillion. It includes many business tax and retirement policy provisions. The following explains these provisions, as excerpted from summaries issued by the House Ways and Means Committee.


Sec. 211. Improvements to employee retention credit.

Increases the applicable percentage of qualified wages reimbursed through the employee retention credit from 50 percent to 80 percent.

Modifies the gross receipts requirement to allow a partial credit, phased in for a decline in gross receipts between 10 percent and 50 percent compared to the same calendar quarter of the previous year.

Increases the limit on wages taken into account per employee from $10,000 for the year to $15, 000 per quarter (limited to $45,000 for the calendar year).

Replaces the 100­ employee delineation for determining the relevant qualified wage base with a definition of large employer. A large employer is an employer with greater than 1,500 full time employees and gross receipts of greater than $41,500,000 in 2019.

Allows state and local governments and certain federal instrumentalities to claim the credit in the event they are paying wages to employees while their operations are fully or partially shut down.

Clarifies that group health plan expenses can be considered qualified wages even when no other wages are paid to the employee, consistent with recent revisions to IRS guidance on this issue. This provision also clarifies that wages paid by an employer for lost tips will not trigger the wage limitation in section 2301(c)(3)(B) of the CARES Acts.

All provisions apply retroactively to the effective date included in section 2301 of the CARES Act.

Sec. 212. Payroll credit for certain fixed expenses of employers subject to closure by reason of COVID-­19.

Provides a 50 percent refundable payroll tax credit for qualified fixed costs. Qualified fixed costs include covered rent obligations, covered mortgage obligations, and covered utility payments. These terms have the same definitions as the definitions provided in section 1106 of the CARES Act, relating to forgiveness of Paycheck Protection Program loans. For each quarter, qualified expenses eligible for this credit are limited to 25 percent of qualified wages (as defined in the employee retention credit) or 6.25 percent of 2019 gross receipts (which annualizes to 25 percent), with an absolute maximum of $50,000.

This credit is limited to employers with no more than 1,500 full­time equivalent employees or no more than $41,500,000 in gross receipts in 2019. Additionally, employers must be subject to a full or partial suspension due to a COVID­-19 government order or have a decline in gross receipts of at least 20 percent compared to the same calendar quarter of the preceding year. This credit is phased in for employers with a decline in gross receipts between 10 percent and 50 percent.

The Social Security Equivalent Benefit Account are held harmless under this provision, through a General Fund transfer of lost receipts as a result of this credit.

The section applies to qualified fixed expenses paid or accrued from March 12, 2020 until December 31, 2020.

Sec. 213. Business interruption credit for the self­ employed.

Provides a 90 percent refundable individual income tax credit for certain self­ employed individuals who have experienced a significant loss of income. The credit may be claimed on "qualified self ­employment income" which is the loss in gross income for self ­employment that exceeds a 10 percent reduction from 2019 to 2020, scaled using the ratio of net earnings from self­ employment to gross income from self­ employment in 2019. The amount of qualified self ­employment income taken into account cannot exceed the reduction in adjusted gross income from 2019 to 2020, and is capped at $45,000. The credit phases out starting at $60,000 of adjusted gross income ($120, 000 for married filing jointly) at a rate of $50 for every $100 of income.


Sec. 221. Extension of credits.

Extends the refundable payroll tax credits for paid sick and family leave, enacted in the Families First Coronavirus Response Act, through the end of 2021. This provision is effective as if included in FFCRA.

Sec. 222. Repeal of reduced rate of credit for certain leave.

Coordinates changes made to the requirement to provide paid sick time to allow employers to claim up to $511 per day, rather than $200 per day for leave for caregivers of individuals subject to a coronavirus related stay at home order and parents providing for children affected by a coronavirus related school closure. This provision applies to days on or after the date of enactment of this Act.

Sec. 223. Increase in limitations on credits for paid family leave.

Coordinates changes made to the requirement to provide emergency paid family and medical leave to allow employers to claim up to $12,000 in refundable payroll tax credits, rather than $10 ,000. Allows individuals to claim the credit for a maximum of 60 days (corresponding to the $12, 000 amount) rather than 50 days. This provision is effective as if included in FFCRA.

Sec. 224. Election to use prior year net earnings from self­employment in determining average daily self­employment income.

Allows individuals to elect to use their average daily self­employment income from 2019 rather than 2020 to compute the credit. This provision is effective as if included in FFCRA.

Sec. 225. Federal, state, and local governments allowed tax credits for paid sick and paid family and medical leave.

Removes the exclusion disallowing the paid sick and family leave credits enacted in the Families First Coronavirus Response Act for Federal, state, and local governments. It makes conforming changes to the definition of qualified wages to align the credit with the intent that the credit cover the leave required by the respective mandates. This provision is effective as if included in FFCRA.

Sec. 226. Certain technical improvements.

Makes technical changes coordinating the definitions of qualified wages within the paid sick leave, paid family and medical leave, and the exclusion of such leave from employer OASDI tax. This provision is effective as if included in FFCRA.

Sec. 227. Credits not allowed for certain large employers.

Provides that, notwithstanding other changes in this Act requiring that employers with 500 or more employees provide required paid sick leave and paid family and medical leave, these employers are not eligible for payroll tax credits for these wages. This restriction does not apply to federal, state, and local governments. This provision applies to wages paid after the date of enactment.


Sec. 231. Payroll tax deferral allowed for recipients of certain loan forgiveness.

Allows businesses receiving Paycheck Protection Program loan forgiveness to defer payment of payroll taxes under Section 2302 of the CARES Act.

Sec. 232. Emergency financial aid grants.

Excludes emergency financial aid grants made to students from gross income and holds students harmless for purposes of determining eligibility for higher education tax incentives.

Sec. 233. Certain loan forgiveness and other business financial assistance under CARES Act not includable in gross income.

Excludes certain loan forgiveness by the Small Business Administration, emergency EIDL grants , and certain loan payments from the gross income of the ultimate recipient.

Sec. 234. Authority to waive certain information reporting requirements.

Provides the Secretary of the Treasury with the authority to waive information reporting requirements under Chapter 61 of the Code with respect to income that is exempt from tax as excludible loan forgiveness under the Paycheck Protection Program or under sections 332 or 333 of this Act.

Sec. 235. Clarification of treatment of expenses paid or incurred with proceeds from certain grants and loans.

Clarifies that expenses paid or incurred with proceeds from Payment Protection Program loans that are forgiven pursuant to section 1106(b) of the CARES Act and certain loan forgiveness by Small Business Administration, emergency EIDL grants, and certain loan payments that are not included in gross income under section 333 of this Act do not result in a denial of any deduction or basis of any asset for federal tax purposes This provision also clarifies the order in which section 1106(i) of the CARES Act and relevant provisions of the Internal Revenue Code apply.

Sec. 236. Reinstatement of certain protections for taxpayer return information.

Restores certain taxpayer protections under Section 6103 of the Internal Revenue Code that were modified by the CARES Act, retroactively effective as of the date of the FUTURE Act.

Title III – Net Operating Losses

Sec. 301. Limitation on excess businesses losses of non­corporate taxpayers restored and made permanent.

Amends changes made by the CARES Act to section 461(l) of the Code, which provides that an excess business loss of a taxpayer (other than a corporation) is not allowed for a taxable year. Excess business losses are treated as net operating losses in the next succeeding taxable year. An excess business loss exists if taxpayer's total deductions from all trades or businesses exceed all income from such trades or businesses, plus $250,000 ($500,000 for joint filers). The CARES Act suspended this provision for taxable years beginning in 2018, 2019 and 2020. Under current law (as amended by CARES), this provision applies for taxable years beginning on or after January 1, 2021, and beginning before December 31, 2025. This section amends current law to apply the provision to taxable years beginning on or after January 1, 2018, as was the case before CARES passed. In addition, this section makes the provision permanent, and repeals section 461( j) of the Code as a deadwood provision. This provision is made effective retroactive to the date of enactment of the CARES Act.

Sec. 302. Certain taxpayers allowed carryback of net operating losses arising in 2019 and 2020.

Amends the CARES Act changes to section 172 of the Code. Under current law (as amended by CARES), taxpayers with a loss in 2018, 2019 or 2020 may apply those losses to the preceding five taxable years. This section amends the provisions of CARES that provide for net operating loss carrybacks by limiting carrybacks to taxable years beginning on or after January 1, 2018. In addition, this provision prohibits taxpayers with excessive executive compensation or excessive stock buybacks and dividends from carrying back losses. This provision is made effective retroactive to the date of enactment of the CARES Act.

DIVISION D – Retirement Provisions

Sec. 100. Short title. The short title of the legislation is the Emergency Pension Plan Relief Act of 2020 ("EPPRA").

Title I – Relief for Multiemployer Pension Plans

Sec. 101. Special Partition Relief. 

About 10 million Americans participate in multiemployer pension plans and about 1.3 million of them are in plans that are quickly running out of money. Many of these troubled multiemployer plans cover workers who are on the front lines of the COVID­-19 public health crisis, such as trucking, food processing, grocery store workers, and others. Even before the pandemic, workers, businesses, and retirees faced a crisis and were in dire need of our help. With work drying up around the country and the market downturn, the economic catastrophe resulting from COVID-­19 has exacerbated the multiemployer pension crisis and threatened the hard­earned pensions of even more workers and retirees. This threatens to bankrupt the Pension Benefit Guaranty Corporation ("PBGC"), impose damaging liabilities on thousands of businesses, and devastate communities across the country.

Under current law, PBGC has limited authority to partition certain troubled multiemployer pension plans. In a partition, PBGC takes on the financial responsibility of some of the benefits of an eligible plan, so that the plan can stay solvent. EPPRA creates a special partition program that would expand PBGC's existing authority, increase the number of eligible plans, and simplify the application process—allowing more troubled plans to obtain much­needed relief. Just like the bipartisan Butch Lewis Act (H.R. 397), eligible plans would include: plans in critical and declining status, plans with significant underfunding with more retirees than active workers, plans that have suspended benefits, and certain plans that have already become insolvent. In contrast, EPPRA allows plans to become eligible for the special partition program through 2024. Because the COVID-­19 crisis has already caused significant investment losses to pension plan assets and decreased the number of hours worked, plan funding may deteriorate over time. Consequently, plans may need to access the special partition relief program in coming years.

PBGC is required to issue regulations within 120 days of enactment of this legislation and may prioritize the processing of applications of plans most in need. A qualifying plan may apply to PBGC and, upon approval, would receive financial assistance. Under the special partition program, a plan would receive enough financial assistance to keep it solvent and well­funded for thirty years—with no cuts to the earned benefits of participants and beneficiaries. Plans that previously cut benefits would have to restore them to the retirees who earned them. In exchange for the financial assistance, each plan would have to comply with certain conditions, and would be required to file regular comprehensive reports to PBGC and to the Congressional committees of jurisdiction.

This legislation also includes important accountability and transparency provisions. PBGC would be required to annually report to Congress. The Government Accountability Office ( "GAO") would be required to regularly evaluate PBGC's implementation and administration of the special partition relief program. PBGC's Inspector General would receive funding to audit the special partition relief program to prevent against waste, fraud, and abuse. PBGC would be required to establish and regularly update a user­friendly website so that plan administrators, employers, participants, beneficiaries, interested stakeholders, and the public can track the implementation and administration of the special partition relief program. Because PBGC currently receives no appropriations, the legislation includes additional funding to cover the costs of the program.

By stabilizing these pensions, the special partition relief program would protect retirees who worked for decades to earn their benefits. It would also help businesses avoid crushing liabilities and support communities around the country.

Sec. 102. Repeal of Benefit Suspensions for Multiemployer Plans in Critical and Declining Status. 

Upon date of enactment, no plan would be permitted to apply, or be approved, for a suspension of benefits under the Multiemployer Pension Reform Act ("MPRA"). This restores the promise of a secure retirement for millions of workers currently in danger. Going forward, no participant or beneficiary in a multiemployer pension plan would suffer a cut to their earned benefits under MPRA.

Sec. 103. Temporary Delay of Designation of Multiemployer Plans as in Endangered, Critical, or Critical and Declining Status. 

Under the legislation, a plan could retain its funding zone status as of a plan year beginning in 2019 for plan years that begin in 2020 or 2021. A plan in endangered or critical status would not have to update its plan or schedules until the plan year beginning March 1, 2021. This would provide a plan with flexibility and ease an administrative burden given the economic and financial turmoil resulting from the COVID­-19 public health crisis.

Sec. 104. Temporary Extension of the Funding Improvement and Rehabilitation Periods for Multiemployer Pension Plans in Critical and Endangered Status for 2020 or 2021. 

Under the bill, a plan in endangered or critical status for a plan year beginning in 2020 or 2021 could extend its rehabilitation period by five years. This would give a plan additional time to improve its contribution rates, limit benefit accruals, and maintain plan funding—all on its own terms. This provision is effective for plan years beginning after December 31, 2019.

Sec. 105. Adjustments to Funding Standard Account Rules. Funding shortfalls as a result of investment losses are generally required to be made up over a period of 15 years.

Following the financial crisis of 2008, multiemployer plans were allowed to amortize investment losses from 2008 or 2009 over a period of 30 years. Now, the market downturn resulting from the COVID­-19 pandemic is already damaging the funding of multiemployer pension plans. Under the legislation , for investment losses in plan years beginning in 2019 and 2020, a plan could use a 30­year amortization base to spread out losses over time. Pension plans, participants, and plan sponsors need more stability and a longer period over which to pay for long­term liabilities that can stretch out for decades. This would help a plan weather this economic and financial storm. This provision is effective for plan years ending on or after February 29, 2020.

Sec. 106. PBGC Guarantee for Participants in Multiemployer Plans. 

PBGC provides a maximum guaranteed benefit of $12,870 to a participant in a multiemployer plan, if that participant had 30 years of service. The guarantee is 100 percent of the first $11 of the monthly benefit rate, plus 75 percent of the next $33 of the monthly benefit rate, multiplied by the participant's years of credited service. This legislation would double the guarantee to 100 percent of the first $15 in monthly benefits per year of service and 75 percent of the next $70 in monthly benefits per year of service, and indexes it thereafter. This would help participants and beneficiaries receive more of the benefits they earned through their hard work and service. All plans receiving financial assistance beginning December 16, 2014, would see the improved guarantee take effect. A plan that becomes insolvent in the future would be subject to the increased guarantee in the calendar year in which it becomes insolvent.

Title II – Relief for Single Employer Pension Plans

Sec. 201. Extended Amortization for Single Employer Plans. 

In light of an ongoing pattern of interest rate and market volatility due to the COVID­-19 public health crisis, the current law requirement to amortize funding shortfalls over seven years is no longer appropriate. Pension plans, participants, and plan sponsors need more stability and a longer period over which to pay for long­term liabilities that can stretch out for more than 50 years. Accordingly, under the bill, the following rules would apply to all single employer pension plans, effective for plan years beginning after December 31, 2019:

All shortfall amortization bases for all plan years beginning before January 1, 2020 (and all shortfall amortization installments determined with respect to such bases) would be reduced to zero.
All shortfalls would be amortized over 15 years, rather than seven years.

Sec. 202. Extension of Pension Funding Stabilization Percentages for Single Employer Plans. 

In 2012, 2014, and 2015, Congress provided for pension interest rate smoothing in order to address concerns that historically low interest rates were creating inflated pension funding obligations, diverting corporate assets away from jobs and business recovery. Under interest rate smoothing, the interest rates used to value pension liabilities must be within 10 percent of 25-­year interest rate averages. The smoothed interest rates would begin phasing out in 2021, with the 10 percent corridor around the 25­-year interest rate averages increasing five percentage points each year until interest rates need only be within 30 percent of the 25-­year averages. Because of this phase­ out, smoothing would soon cease to have much effect. In order to preserve the stabilizing effects of smoothing:

  • The 10 percent interest rate corridor would be reduced to 5 percent, effective in 2020.
  • The phase­out of the 5 percent corridor would be delayed until 2026, at which point the corridor would, as under current law, increase by 5 percentage points each year until it attains 30 percent in 2030, where it would stay.
  • A 5 percent floor would be put on the 25-­year interest rate averages. This floor would establish stability and predictability on a longer­term basis, so that interest rate variations do not create excessive volatility. In addition, this floor would protect funding rules from the extremes of interest rate movements.

This provision is effective for plan years beginning after December 31, 2019.

Title III – Other Retirement Related Provisions

Sec. 301. Waiver of Required Minimum Distributions for 2019. 

Under current law, generally at the age of 72, individuals must take a required minimum distribution ("RMD") from their defined contribution plans and IRAs. Due to the market downturn resulting from the COVID-­19 pandemic, the balances in these accounts have sharply decreased – in many instances, the market has reduced taxpayers' accounts more than what their RMD would have been. Therefore, the recently enacted CARES Act waived RMDs for 2020, allowing individuals to keep funds in their retirement plans. This provision expands this relief further by providing that 2019 RMDs would be waived for defined contribution plans and IRAs.

Sec. 302. Waiver of 60­ Day Rule in case of Rollover of Otherwise Required Minimum Distributions in 2019 and 2020. 

This provision further expands the 2020 RMD relief in the CARES Act by providing that:

  • The RMDs made for 2019 would be permitted to be rolled back to a plan or IRA without regard to the 60­day requirement if the rollover is made by November 30, 2020.
  • RMDs made for 2020 would be permitted to be rolled back to a plan or IRA without regard to the 60­day requirement if the rollover is made by November 30, 2020.

Sec. 303. Employee Certification as to Eligibility for Increased CARES Act Loan Limits from Employer Plan.

The CARES Act permits eligible retirement plans to rely on an employee's certification that the employee qualifies to receive a coronavirus­related distribution. Technically, it appears that a plan cannot rely on such a certification for purposes of determining whether an employee is eligible for the special loan rules. In past disaster relief, the IRS has generally permitted reliance on reasonable representations by an employee in a similar context, absent actual knowledge to the contrary. But in the past, the statute has not had a specific employee certification provision that applies for distributions but not loans. This provision provides a statutory clarification.

Sec. 304. Exclusion of Benefits Provided to Volunteer Firefighters and Emergency Medical Responders Made Permanent. 

Almost 70 percent of firefighters and emergency medical services ("EMS") personnel are volunteers, 71 percent of fire departments are exclusively staffed by volunteers, and 91 percent of all US fire department use volunteer firefighters and EMTs to some degree. Therefore, at the end of last year, the SECURE Act reinstated for one year the exclusions for qualified State or local tax benefits and qualified reimbursement payments provided to members of qualified volunteer emergency response organizations and increases the exclusion for qualified reimbursement payments to $50 for each month during which a volunteer performs services. This would allow volunteer fire and EMS personnel for 2020 to receive nominal recruitment and retention incentives without those incentives being considered as taxable income.

The COVID-­19 pandemic places an enormous amount of strain on these volunteer personnel as they are exposing themselves to COVID­-19 and are responding to a much higher than normal call volume. Therefore, the provision would make permanent these amendments to Code Section 139B.

Sec. 305. Application of Special Rules to Money Purchase Pension Plans. 

The CARES Act provided for early distribution and loan relief for retirement plans during the coronavirus relief period. While this relief was intended to apply to all qualified retirement plans, there were questions as to whether it would apply to money purchase pension plans ("MPPP"). MPPPs are a type of defined­contribution retirement plan offered by some employers. This provision would clarify that MPPPs would benefit from the legislation.

Sec. 306. Grants to Assist Low­ Income Women and Survivors of Domestic Violence in Obtaining Qualified Domestic Relations Orders.

Certain states under stay-­at-­home orders have seen domestic violence rates rise as much as 30 percent since the beginning of the COVID­-19 pandemic. This provision directs the Secretary of Labor, acting through the Director of the Women's Bureau in conjunction with the Assistant Secretary of the Employee Benefits Security Administration, to award grants of at least $250,000 to established community­based organizations on a competitive basis to assist low­income women and survivors of domestic violence in obtaining qualified domestic relations orders to ensure that these women actually obtain the benefits to which they are entitled through those orders.

Sec. 307. Modification of Special Rules for Minimum Funding Standards for Community Newspaper Plans. 

Community newspapers are generally family­ owned, non­publicly traded, independent newspapers. The recently enacted SECURE Act provided pension funding relief for a number of community newspaper plan sponsors by increasing the interest rate to calculate those funding obligations to 8 percent. Additionally, the SECURE Act provided for a longer amortization period of 30 years from 7 years. These two changes enable struggling community newspapers to stretch out their required pension plan contributions over a longer time period. The legislation would expand the SECURE Act relief to additional community newspapers.

Sec. 308. Minimum Rate of Interest for Certain Determinations Related to Life Insurance Contracts. 

In order to qualify as life insurance contracts for tax purposes, permanent life insurance policies must meet several requirements under Internal Revenue Code section 7702.

These requirements include two interest rate assumptions for determining the premiums that can be used to fund the contracts. The interest rate assumptions were set by statute at 4 percent and 6 percent when the requirements were put in place in 1984. At the time, the average long­term Treasury rate was around 12 percent. The recent public health and economic crisis has prompted the Federal Reserve to reduce already persistently low interest rates to around 0 percent, and the daily long­term Treasury rate has hovered at 1 percent. Without adjusting the section 7702 interest rates to reflect economic realities, consumer access to financial security via permanent life insurance policies—which represent approximately 60 percent of the individual life insurance market—could decrease significantly. This legislation updates section 7702 to reflect the interest rate environment that has been exacerbated by the current crisis, and ensures that the rates will continue to appropriately reflect economic conditions, by tying the rates to either a floating rate prescribed in the National Association of Insurance Commissioners' Standard Valuation Law or a floating rate based on the average applicable Federal mid­term rates over a 60­ month period.

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