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Treasury gets $556M from COVID relief airline warrants

June 23, 2024
Aerial view of planes at JFK NY_miguel-angel-sanz-yXE0zybDr-I-unsplash

An aerial view of planes at John F. Kennedy International Airport in New York City. (Photo by Miguel Ángel Sanz on Unsplash)

It will be a while before we get a final accounting of the COVID-19 pandemic costs, but last week we some good and bad tax-related figures connected to the health crisis.

On the negative side of the ledger, there are the Employee Retention Credit (ERC) claims. This program that helped businesses keep workers on payroll in 2020 and 2021, but a rash of post-pandemic claims has cost the U.S. Treasury, at last count, $230 billion.

There is, however, some better coronavirus relief money news for Uncle Sam. The Treasury Department announced last week that airline warrants issued in connection with relief funds for that industry have netted more than $556 million.

Yes, the airline plus is just a small part of the ERC costs, but every bit helps.

ERC’s growing losses: As noted last week, the Internal Revenue Service is still trying to resolve the crush of ERC filings. Far too many have come from companies not eligible for the tax break, but who were convinced to file by aggressive ERC promoters.

The business-friendly tax credit originally was projected to cost $55 billion over a decade. But that figure was shattered last September, when the IRS revealed it had received nearly four million applications and had paid out $230 billion in ERC refunds.

IRS Commissioner Danny Werfel now wants Capitol Hill to give his agency the OK to go beyond its current ERC filing moratorium. He wants Congress to pass legislation that would let the IRS permanently stop accepting claims. And cut off the ERC funds spigot.

Airline payback helps: There is, however, some better coronavirus financial news for Uncle Sam’s bank balance. He’s starting to recover some of the millions that U.S. airlines got during the pandemic to pay flight attendants, pilots, and other employees.

The U.S. Treasury was successful in structuring the more than $100 million in aid to help the industry, which was crippled during the height of the COVID outbreak, as part grant and part loan. The arrangement also gave the Treasury warrants to buy stock in some of the airlines.

The airlines issued the stock warrants in 2020 and 2021 as partial compensation for financial assistance and loans that Treasury provided to the airlines. The warrants gave the government the option to purchase shares of airline stock at a set price.

Since airline stocks are volatile, the potential value of the government’s warrants from individual airlines has fluctuated by $100 million or more. But since Treasury was given several years to decide when to buy and sell shares, Uncle Sam had some control based on rising values.

Treasury exercised that control in May, when it announced upcoming planned warrant auctions. On Friday, June 21, the auction results were released.

Taxpayers received $556,685,001 from the June 3-13 series of auctions selling the Treasury Department's warrants for common stock of 11 publicly traded airlines.

The warrant provision in the Coronavirus Aid, Relief, and Economic Security (CARES) Act was championed by Sen. Jack Reed (D-Rhode Island), a member of the Senate Banking Committee.

In April 2020 when the airline payback deal was announced, Reed said the warrant provision was necessary to ensure taxpayers, not just investors and executives, benefitted when the economy recovered from COVID and the carriers’ share prices rebounded. He modeled it on a similar provision he authored that was part of the 2008 bank bailout package.

And that $556,685,001 in COVID relief payback by the airlines announced this week earns the latest By the Numbers honor.

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TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

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