Negotiations about a pandemic relief package shifted dramatically this week in Washington, ranging from complete cancellation to industry-specific assistance to discussions reported today about a new $1.8 trillion White House proposal.  (Wall Street Journal and PoliticoPlaybook Oct. 9)

• President Trump tweeted today, “Covid Relief Negotiations are moving along. Go Big!”
• A framework for an agreement before the election is possible, yet the timeline for developing specific legislation and passing a broader package remains doubtful. 
• Senate Majority Leader Mitch McConnell (R-KY) today called coronavirus negotiations “murky” and added, "I think the murkiness is a result of the proximity to the election, and everybody kind of trying to elbow for political advantage.  I'd like to see us rise above that ... but I think that's unlikely in the next three weeks.”  (The Hill, Oct. 9)
• The Senate this week is focusing most of its attention on confirmation hearings for Supreme Court nominee Amy Coney Barrett, despite three GOP Senators having tested positive for COVID-19 and an additional three in quarantine.  (The Hill, Oct. 8)
• Another challenge among GOP senators is attracting support for any pandemic relief package over $1 trillion. (Roundtable Weekly, Oct. 2)
• White House support for a $1.8 trillion package reported today remains below the $ 2.2 trillion coronavirus relief bill passed last week by House Democrats.  Policy differences also remain on key areas such as liability protections for business, aid for state and local governments and the specific structure for additional federal unemployment benefits.  (Associated Press, Oct. 9)
• House Speaker Nancy Pelosi (D-CA) on MSNBC today said, “You know, the devil and the angels are in the details. And so it—part of it is about money, and part of it is about policy,” she said.  (Wall Street Journal, Oct. 9)
• Pelosi earlier in the week suggested that if no stimulus deal can be reached before the election, virus relief funding could be added to a must-pass spending bill needed to keep the government open after Dec. 11 during a post-election, lame-duck session of Congress.  (Roundtable Weekly, Oct. 2 and BGov, Oct. 7)

• Federal Reserve Chair Jerome Powell, above, on Tuesday encouraged Congress and the White House to pass greater fiscal support for the economy, households and businesses. 
• Powell stated, “… a prolonged slowing in the pace of improvement over time could trigger typical recessionary dynamics, as weakness feeds on weakness. A long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy. That would be tragic, especially in light of our country's progress on these issues in the years leading up to the pandemic.”  (Fed speech, Oct. 6)

Powell also warned that the economic expansion and recovery from the coronavirus is far from complete.  “Even if policy actions ultimately prove to be greater than needed, they will not go to waste. The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods,” he said.

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The Real Estate Roundtable on Oct. 5 submitted detailed comments to the Treasury Department and IRS on proposed regulations implementing the 3-year holding period requirement for carried interests to qualify for long-term capital gain treatment.  (Roundtable comment letter)

• Treasury on July 31 released the proposed rules under IRS Section 1061 to address the specific conditions that apply to the 3-year holding period requirement passed by Congress in the Tax Cuts and Jobs Act (TCJA) of 2017.  (Roundtable Weekly, Aug. 7)
• The Roundtable commended the agencies for a balanced approach on certain key issues addressed in regulations – yet recommended further clarifications and improvements to the proposed rules to retain the original intent of Congress.  
• The Roundtable’s comments note that the IRS rules include a number of well-designed provisions that should help avoid unintended consequences when the 3-year holding period is implemented, including:

--  The 3-year requirement is limited to the gain from a sale or exchange of a capital asset – and excludes gain from property used in a trade business (Section 1231 gain). 

--  A useful “look-through” rule to help ensure REIT dividends paid to shareholders receive the same long-term gain treatment that would apply to assets owned individually or in partnership form.

--  A sensible exclusion to ensure a partner’s own capital contributions to the partnership are not subject to re-characterization under section 1061.

Recommendations for Additional Clarifications and Improvements

The Roundtable comment letter also recommends certain changes to the proposed regulations to bring the rules more in line with the legislative intent when Congress enacted section 1061.  The Roundtable recommendations include the following:

• Provide a safe harbor to allow funds borrowed by a general partner to qualify as a capital interest in the partnership.  Investors frequently require a general partner to co-invest in the partnership to align the parties’ interests.  These co-investments often are financed with loans from the investors.  The proposed regulations would undermine the economics of these arrangements. The 3-year holding period would apply when an investment is made with funds borrowed from the other investors in the partnership.  The Roundtable recommends that the Treasury narrow the broad restriction on borrowed funds by creating a safe harbor for non-abusive situations.
• Prevent improper acceleration of tax liability when a partnership interest is transferred in a nonrecognition transaction.  Section 1061(d) creates certain tax consequences for transfers of partnership interests to related parties.  The proposed regulations broadly interpret section 1061(d) to override other nonrecognition provisions in the tax code by requiring the inclusion of gross income as a result of such transfers.  The Roundtable recommends that Treasury narrow its current interpretation of the provision to avoid accelerating tax liability in the case of transfers of partnership interests to related parties in nonrecognition transactions.
• Avoid casting too broad a net on partnerships covered by the 3-year holding period.  Congress limited section 1061 to partnership interests in businesses that raise or return capital on a regular, continuous, and substantial basis.  The proposed rules, however, largely disregard this prong of the test and could capture many real estate arrangements unintended by lawmakers, including joint ventures, operating partnerships, and others.  The Roundtable recommends that Treasury limit application of the provision to businesses that meet the statutory requirements. 

Roundtable President and CEO Jeffrey DeBoer concludes the letter by noting, “Congress . . . narrowly drafted section 1061 to apply to specific situations.  Our comments our aimed at preserving the drafters’ intent while avoiding unnecessary disruption to common, everyday real estate partnerships—small and large—throughout the country.”

The recommendations were developed by The Roundtable’s Tax Policy Advisory Committee (TPAC).

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