Which pass-throughs are winning?

With help from Aaron Lorenzo

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Here’s the question: Does the new tax break on losses for pass-through businesses disproportionately help industries like real estate and hedge funds?

— A new idea for phase four: Better tax benefits for learning-at-home supplies.

— Treasury has now explained why it made Wednesday the deadline for Social Security recipients to tell the government about dependents eligible for stimulus payments.

WELL, WHAT DO YOU KNOW — it’s Thursday. And we’ll admit it: We’re scared to watch the Mark Warner tuna melt film

Hey, that sounds like a fun place to send the kids: Today marks 385 years since Boston Latin School, the first public school in what became the U.S., opened its doors.

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LET’S KEEP TALKING LOSS LIMITS: So who are the real winners from the $170 billion provision in the phase three coronavirus package that allows pass-throughs to more generously spread around their losses?

Steve Rosenthal and Aravind Boddupalli the Urban-Brookings Tax Policy Center argued in a post this week that real estate developers and hedge funds are among the biggest beneficiaries from the new tax break. (It kind of goes without saying, but there’s a little extra edge to this discussion when the president and his son-in-law/top adviser are also real estate developers.)

The Joint Committee on Taxation has already found that taxpayers making more than $1 million a year will get more than 80 percent of the benefits of the pass-through provision. (It probably shouldn’t be a surprise that it’s tilted toward the top end, given that it’s aimed at businesses with net losses in excess of $250,000 for single filers and $500,000 for couples.)

Rosenthal and Boddupalli cite IRS data on partnerships to make their case that real estate and hedge funds will come out on top. In follow-up emails, Rosenthal told Morning Tax that he didn’t think those would be the only industries to really benefit, also pointing to oil-and gas and professional sports team owners.

But he also noted that he expected real estate developers and hedge funds to be among the more likely to have losses exceeding the $250,000 and $500,000 thresholds and that he didn’t expect rules mandating that investors be actively involved in a business to use the losses to be much of a hindrance. “I think a lot of hedge fund investors and real estate developers fit the bill. Not your corner grocer,” he said.

Other experts aren’t so sure — arguing, among other things, that those passive loss rules will keep many real estate professionals from using the new loss limits. Real estate and hedge funds were but a small portion of pass-through losses in past years, as George Callas of Steptoe & Johnson noted on Twitter, who made the case that it’s far from clear that the high threshold for excess losses particularly helped real estate and hedge funds.

There’s one other potential answer right now: “I’ve got the boring answer for you,” said Kyle Pomerleau of the American Enterprise Institute. “I don’t know if the data supports either way.”

Worth noting: Back to the “Did President Donald Trump personally benefit from this tax break?” question. Several sources who closely monitored the CARES Act from the outside insisted that Senate Republicans pushed more strongly than the Trump administration for giving both corporations and pass-throughs more liberal use of their losses — and even that Treasury Secretary Steven Mnuchin was willing to toss aside those provisions in negotiations with Democrats.

To be fair, others watching the process said that the loss provisions weren’t controversial at all until the $170 billion price tag was released after the Senate voted on phase three. Democrats say they fought against the pass-through provision before the JCT score, but acknowledge it wasn’t atop their list of objections. But everyone generally agrees that Senate Republicans were champions for the corporate and pass-through loss proposals.

YOUR NEW NORMAL: Dozens of conservative groups are throwing themselves behind a proposal from GOP lawmakers to expand tax-advantaged 529 programs to cover learning-at-home costs sparked by the coronavirus.

529 accounts are best known for helping families save for college, but they also allow people to use after-tax dollars to offset a range of K-12 education expenses. Rep. Bryan Steil (R-Wis.) has led the push to attach a 529 expansion for distance learning expenses like curriculum, books and online materials to the next coronavirus relief measure, whenever that might develop.

“Now more than ever, parents should have access to funds in their 529 plans to afford educational material for their kids,” Steil told Morning Tax in a statement applauding the support from outside groups. “This unprecedented time requires targeted changes to federal regulations to ease the financial burden on families.”

The more than 40 groups, which include Americans for Tax Reform and FreedomWorks, wrote in their letter out this morning that boosting 529 plans “should be part of the solution to helping Americans get through the pandemic.”

It’s not clear yet how much traction that proposal will gain, particularly in these strange times. Teachers unions did oppose a proposal from Sen. Ted Cruz (R-Texas) in the pre-pandemic times last year that would have allowed 529 accounts to be used for homeschooling expenses, all part of a fight that held up a largely unrelated retirement security measure for months.

GOT TO KEEP ON MOVING: A Treasury aide told Pro Tax’s Aaron Lorenzo that it would have had to delay the $1,200-plus direct payments for all Social Security beneficiaries if it didn’t require dependent information by Wednesday.

One issue the Treasury aide didn’t get into: Why must anyone who missed the deadline have to wait until next year to get $500 per dependent? Couldn’t the government get those payments out at some point this year, as some groups and lawmakers have suggested? “Congress and the IRS need to come together to find a workable solution to help the untold numbers of Americans who were unable to meet this abrupt deadline,” said Rep. Chris Pappas (D-N.H.), who pressed Treasury on that issue this week.

For whatever it’s worth: IRS officials briefed congressional tax staff about the direct payments on Wednesday afternoon. They revealed nothing earth-shaking, according to an attendee, including no new numbers on the amount of payments deposited. Agency aides did say they were working on ensuring that dead people don’t get deposits, and noted that Free File usage had jumped because non-filers were seeking their payments.

ANOTHER COVID RESPONSE: Kenya is going with a tax cut of 5 percentage points for both top earners and corporations to help the economy absorb the blow of the coronavirus, Reuters reports. The national assembly passed a measure to cut both rates from 30 percent to 25 percent, and exempted those making under 24,000 shillings a year (around $224) from paying income tax. Kenya had already cut its value-added tax, from 16 percent to 14 percent, giving a boost by making both goods and materials cheaper.

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WELL THEN: Senate Majority Leader Mitch McConnell (R-Ky.) said Wednesday that it was preferable for struggling states to be able to declare bankruptcy instead of receiving extensive federal aid, as our Andrew Desiderio reported — setting up a potential showdown with Democrats who have made it clear that more robust state and local aid is at the top of their to-do list. States currently can’t declare bankruptcy, and it likely wouldn’t be easy to pass a measure allowing them do so. On top of that: McConnell’s conference doesn’t seem totally united behind him on this front — Sen. Rob Portman (R-Ohio) said this week that he was working on a bill to give states more flexibility, and Sen. Bill Cassidy (R-La.) has already released a measure allowing for $500 billion in more funding.

As it happens: “Battered states, cities struggling to pay bills as Congress puts off bailout,” by our Mackenzie Mays.

Democratic governors and mayors are doing an end around Trump on payments for immigrants.

National Taxpayers Union Foundation, U.S. PIRG come together on deficit reduction ideas.

Remembering former Treasury Secretary Paul O’Neill, who died over the weekend at the age of 84.

Charlemange established the monetary standard of 12 pennies to a shilling and 20 shillings to a pound.

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