Weekly Legislative Update May 11, 2020

 

TIA and others Request Opposition to Cash for Clunkers
 
Dear Speaker Pelosi, Majority Leader McConnell, Minority Leader Schumer and Minority Leader McCarthy: 
 
Our organizations represent small businesses across the United States that derive their revenue primarily from post-warranty vehicles. We service, repair, distribute and manufacture parts for these vehicles. Our members have been severely impacted by the COVID-19 pandemic. Although some of our businesses have participated in economic stimulus programs, the funds from these programs fall short of replacing the revenue they have lost during the pandemic. 

We are writing you today out of concern for recent discussions regarding establishing a Cash for Clunkers type program, in the fourth stimulus initiative, similar to the Consumer Assistance to Recycle and Save (CARS) program implemented by the Obama Administration in the summer of 2009 as a cure for the recession.

Both the Government Accountability Office (GAO) and the Brookings Institution along with other respected organizations raised questions about the success of the Cash for Clunkers program in stimulating the economy and reducing emissions. What we do know is that this $3 billion program removed approximately 700,000 vehicles from independent automotive repair shops. These vehicles were destroyed by the federal government after taxpayer dollars were spent up to $4500 per vehicle. The program was beneficial to auto manufacturers rather than acting as a stimulus to the entire automotive industry. As a result, the aftermarket sector was severely impacted with less vehicle service, fewer repairs and a direct impact on aftermarket distributors and manufacturers. 
It is unclear whether the new vehicles would have been purchased, at some point, without the federal subsidy. Some automakers did benefit immediately with dramatic increases in stock value. 

The Brookings Institution analysis noted that Cash for Clunkers ignores the impact of the federal government removing post-warranty vehicles from the marketplace. 

The assessment thus far has focused on the degree to which the CARS program provided temporary stimulus by incentivizing households to purchase a new vehicle. This ignores the economic impact stemming from the program's requirement that the trade-in vehicle be destroyed. Incentivizing the premature destruction of used vehicles represents a loss of capital stock and thus a reduction in economic wealth. 

In addition to effects on the industry, there are also consumer issues to be considered. This stimulus only helps the consumer if they were going to buy a new car in the near future in which case the program provides little benefit and an unnecessary use of taxpayer's dollars. If they were not, this incentive could encourage the consumer to take on additional debt that they would not have otherwise. In an effort to take advantage of a stimulus program, consumers may purchase a new car, when without the cash incentive, they may have chosen a pre-owned vehicle that would be appropriate for their needs. 

GAO stressed the importance of input from stakeholders in its report to Congress. The 2009 Cash for Clunkers initiative excluded the economic impact of the program on the automotive aftermarket. 

Finally, given the number of stakeholders that are financially affected by the auto industry, it would be important to collect and consider information on how a future program would affect these stakeholders and take mitigating actions, as appropriate. 

We urge you to support America's small businesses and OPPOSE any new Cash for Clunkers vehicle retirement program in the next COVID-19 stimulus package. COVID-19 has had a devastating effect on small businesses. 

As an important sector of the U.S. economy, we cannot survive any further negative effects.

Sincerely,

The Tire Industry Association and other trade associations.

For more information on this topic please visit here. 

 

DOL and IRS Issue New Rules Tolling COBRA and Other Benefit Deadlines
 
On Monday (May 4, 2020), the DOL and IRS jointly issued a new final rule on the "Extension of Certain Timeframes for Employee Benefit Plans, Participants, and Beneficiaries Affected by the COVID-19 Outbreak."   
 
In essence, the rule requires that, when calculating certain deadlines or time periods, group health, disability, pension and other ERISA covered benefit plans must disregard the time period from March 1, 2020 until 60 days after the end of the declared COVID-19 National Emergency or another date as the IRS/DOL might later announce (which is defined as the "Outbreak Period").  
 
The intent of the new rule is to address the stated concern that "[a]s a result of the National Emergency, participants and beneficiaries covered by group health plans, disability or other employee welfare benefit plans, and employee pension benefit plans may encounter problems in exercising their health coverage portability and continuation coverage rights, or in filing or perfecting their benefit claims."  The Department of Labor has also issued related FAQs for participants and beneficiaries. 
 
Most notably, the new rule impacts the following: 
 
Special Enrollment in Group Health Insurance - Under HIPAA group health plans must permit an otherwise eligible individual to enroll in the group health plan outside the normal enrollment window if the individual or his/her dependent loses his/her other health coverage (for example if a spouse is terminated) or if someone becomes a new dependent through birth, marriage or adoption.  
 
Typically, such individuals have 30 days after they lose their other coverage to request special enrollment in the group health plan.  Under the new rule, the time for an individual who loses group health coverage to request a special enrollment will not start running until after the end of the Outbreak Period (i.e. until sixty (60) days after the end of the declared emergency or after the date set by DOL/IRS).  
 
For example, if an employee had a new baby on April 17, 2020 the employee would typically have had until May 17, 2020 to enroll the new child in the group health plan.  Under the new rule, the 30 days won't start until after the end of the Outbreak Period. So if the National Emergency were to end on June 1, 2020 the enrollment window wouldn't start until July 31, 2020 (60 days later) and the employee would therefore have until August 30, 2020 to enroll the new child.   
 
COBRA Elections - Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), covered individuals who experience a qualifying event that causes them to lose eligibility for their group health insurance (for example a termination or divorce) typically have 60 days to elect to continue coverage under the plan for a set period of time.  Under the new rule, the 60 days to make a COBRA election will not begin to run until after the end of the Outbreak Period.  
 
As with a standard COBRA election, a timely COBRA election under the new rules (i.e. one made 60 days after the end of the Outbreak) will provide coverage that is retroactive to the qualifying event.  In addition, the deadlines for individuals to make their COBRA premium payments will also be tolled until the end of the Outbreak Period. While the COBRA election and premium deadlines are tolled, the new rule does not change the timeframe in which plans must notify individuals of their COBRA rights after a qualifying event.   
 
The new rule also tolls the deadlines and timelines associated with ERISA claims procedures and external reviews until after the end of the Outbreak Period. 
 
While this rule may prove a welcome relief for certain individuals who might have otherwise missed their deadlines during the COVID-19 crisis - it will certainly generate additional work for the plan administrators and raise some serious logistical questions with respect to retroactive benefit claims and coverage for individuals whose premium obligations have been tolled.

 

IRS Notice 2020-32 Regarding Deductible Expenses Related to Paycheck Protection Program Loans

 

Dear Chairmen Neal and Grassley,
Cc: The Honorable Kevin Brady The Honorable Ron Wyden
Thank you for your continued support for Congressional action to support the economy as the country continues to grapple with the difficulties related to the novel coronavirus (COVID-19). As Congress has aggressively responded to provide relief for both employers and employees, the Paycheck Protection Program (PPP), administered by the Small Business Administration (SBA) and the Department of the Treasury (Treasury) has emerged as an essential lifeline for struggling small business owners as they deal with federally, state, and/or locally mandated shutdowns or slowdowns of economic activity due to COVID- 19.
 
As you are aware, on Thursday, April 30th, the Internal Revenue Service (IRS) issued Notice 2020-32 which "clarifie[d] that no deduction is allowed under the Internal Revenue Code (Code) for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)." This is at odds with the legislative text of the CARES Act, which included Section 1106(i), which says that, with regard to the "taxability" of the loan forgiveness available to PPP recipients, any amounts forgiven by a PPP loan "shall be excluded from gross income (emphasis added)."
 
The impact of this latest IRS ruling is significant. The effect will be to substantially increase the tax liability of PPP loan recipients at the worst possible time. For C-Corporations, it means an increase in the net after tax benefit of PPP loan forgiveness by as much as 21%. For pass-through businesses, such as S Corporations, the marginal increase could be as high as 37%. Once state income taxes are included, the impact will be even greater.
 
As both of you have publicly stated, the IRS's interpretation of the CARES Act is contrary to the intent of Congress. It makes little sense to exclude an employer's PPP loan forgiveness income from tax liability with the one hand, only lose the same amount in deductions with the other hand. With many businesses struggling to stay afloat, it is imperative that the rescue measures enacted by Congress, including PPP loans, provide the maximum amount of flexibility to employers that they can. We strongly encourage you to convey to the IRS that Congress intended PPP loan forgiveness to be tax free, including waiving IRC Section 265, which would otherwise severely limit the benefit of PPP loan forgiveness, and create additional administrative burdens on employers. Absent clarification from the IRS, we encourage you to amend the CARES Act in subsequent legislation that would explicitly waive IRC Section 265 from applying to PPP loan forgiveness. 
 
Thank you again for your continued support.

Sincerely,
 
The Tire Industry Association and others

 

IRS: Three New Credits are Available to Many Businesses Hit by COVID-19

 

The Internal Revenue Service reminds employers affected by COVID-19 about three important new credits available to them.
 
Employee Retention Credit:
 
The employee retention credit is designed to encourage businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.
 
The credit is available to all employers regardless of size, including tax-exempt organizations. There are only two exceptions: State and local governments and their instrumentalities and small businesses who take small business loans.
 
Qualifying employers must fall into one of two categories:
  1. The employer's business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
  2. The employer's gross receipts are below 50% of the comparable quarter in 2019. Once the employer's gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.
Employers will calculate these measures each calendar quarter.
 
Paid Sick Leave Credit and Family Leave Credit:
 
The paid sick leave credit is designed to allow business to get a credit for an employee who is unable to work (including telework) because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis. Those employees are entitled to paid sick leave for up to 10 days (up to 80 hours) at the employee's regular rate of pay up to $511 per day and $5,110 in total.
 
The employer can also receive the credit for employees who are unable to work due to caring for someone with Coronavirus or caring for a child because the child's school or place of care is closed, or the paid childcare provider is unavailable due to the Coronavirus. Those employees are entitled to paid sick leave for up to two weeks (up to 80 hours) at 2/3 the employee's regular rate of pay or, up to $200 per day and $2,000 in total.
 
Employees are also entitled to paid family and medical leave equal to 2/3 of the employee's regular pay, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave can be counted towards the family leave credit.
 
Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees' wages by the amount of the credit.
 
Eligible employers are entitled to immediately receive a credit in the full amount of the required sick leave and family leave, plus related health plan expenses and the employer's share of Medicare tax on the leave, for the period of April 1, 2020, through Dec. 31, 2020. The refundable credit is applied against certain employment taxes on wages paid to all employees.
 
How will employers receive the credit?
 
Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees' wages by the amount of the credit.
 
Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns or Form 941 beginning with the second quarter. If the employer's employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
 
Eligible employers can also request an advance of the Employee Retention Credit by submitting Form 7200.
 
The IRS has also posted Employee Retention Credit FAQs and Paid Family Leave and Sick Leave FAQs that will help answer questions.
Updates on the implementation of the  Employee Retention Credit and other information can be found on the  Coronavirus page of IRS.gov.
 
Related Items:
 
*FS-2020-05, New Employee Retention Credit helps employers keep employees on payroll