The Tire Industry Association has signed onto a letter urging members of Congress to prioritize legislation that would take into account the suddenly high volume of customers defaults on credit sales.
TIA members request Congress pass a temporary legislative modification to account for this event. The full text of the letter is below:
Dear Speaker Pelosi, Leader McConnell, Leader Schumer, and Leader McCarthy,
Thank you for your leadership in swiftly working to respond to the economic damage caused by the coronavirus crisis through several pieces of legislation over the last several weeks.
As Congress continues to consider legislation in response to the crisis, we write to respectfully encourage you to prioritize legislation that would take into account the suddenly high volume of customer defaults on credit sales. Numerous industries often extend significant inventory sales or manufacturing inputs to customers on credit by convention, custom and sometimes even regulation.
Many customers buy inventory or input materials on short-term credit terms, particularly business in the industries hit hardest by the COVID-19 crisis, like restaurants, retailers, and venues for sport, events and entertainment. Current law does not contemplate the abrupt and unexpected halt in a high volume of payments for these credit sales all at once.
Over a broader period of time, section 166 of the tax code addresses this situation by allowing a deduction for wholly worthless debts or “bad debts.” However, the terms and timing of this provision allow it to be used only under certain circumstances – businesses must meet a nuanced facts-and-circumstances test that may take many years and in some cases may not be satisfied until a customer in default has reached a bankruptcy settlement.
Given the current public health and economic crisis, the value of this provision is severely limited in the event of the sort of sudden shock businesses face right now. Businesses selling inventory goods and input materials on credit are experiencing mounting defaults, and they will continue to experience defaults for months to come.
The undersigned businesses respectfully request that Congress pass a temporary legislative modification to account for this unforeseen event by loosening the facts-and-circumstances test on bad debt business deductions and accelerating these deductions into the present taxable year.
The Tire Industry Association and others