Tax Notes logo

Senators Float Review Act Threat for Lagging Tax Regs

Posted on Mar. 28, 2024

If alarm bells went off in late February among Treasury and IRS officials already burdened with a long list of Inflation Reduction Act rules, that was the hope.

Three senators intended that a letter they sent February 29 warn the Biden administration that a key regulatory deadline was approaching as early as May and that Republicans were already planning to make near record use of the Congressional Review Act (CRA). That is, if Americans give them all the levers of power in November’s election.

“We get into this season, I’m always thinking about that, how we can CRA a whole bunch of things,” said Sen. Kevin Cramer, R-N.D., one of the letter’s signers. “We learned in 2017 how to do that.”

Did they ever. Republicans used the CRA that year to overturn 15 Obama-era rules they found particularly onerous. The 1996 law allows for an expedited route to a floor vote, limits debate time in the Senate, and requires a simple majority rather than 60 votes to pass that chamber.

The CRA has been used successfully only 20 times: once in 2001, the avalanche in 2017, once in 2018, and three times in 2021. One may notice a pattern — the CRA’s successful use comes almost entirely in years after control of the White House flips and the new president’s party controls both chambers.

“You obviously saw the most active period when Trump came in and when Biden came in a smaller amount,” said Dan Goldbeck of the American Action Forum, who tracks federal regulations. “I would fully expect if Republicans hit full control, you’ll see a pretty active period.”

Counting Backward

What makes the CRA such an attractive tool when power flips in Washington is the law’s lookback period.

Typically, Congress has 60 days to overturn a new final rule. But it’s 60 days measured by the congressional calendar. For the Senate, it’s 60 days that the chamber is in session, which is a much longer period in a presidential election year when Congress is out all of October, almost all of August, and big chunks of other months. For the House, it’s 60 “legislative days” — a similar but slightly different measure.

But if 60 legislative or session days haven’t expired since a rule was made final and the Senate or House adjourns for the year, the clock resets the following year. That reset takes place usually around the end of January, giving a new 60-day period for Congress to overturn the rule from the previous year. For instance, a GOP Congress was still swatting down Obama administration rules from as early as July 2016 in mid-May 2017.

A quick look at the congressional calendar for 2024 shows that the Senate has 60 session days scheduled after June 11, whereas the House cutoff date would be anything after May 21. The earlier date would drive what rules would be eligible for a challenge in 2025.

The schedules of both chambers are subject to change, and pro forma sessions are held to keep presidents from taking advantage of recesses. Perhaps more reliable would be the average number of legislative days in the House for election years — 146 over the last eight elections. Prorating that over a year would result in the lookback period beginning in early September. The ultimate call is made by the House and Senate parliamentarians.

If the government can get a rule out before spring, “it’s pretty much safe from that lookback review,” Goldbeck said. “I think you’ll see a real effort to get stuff across the finish line before that.”

“I certainly think late May is plausible” as a cutoff date, said Amit Narang, who tracks regulations for Public Citizen. “Agencies should be cognizant of it, and I’m sure they are.”

Creating an Option

The CRA still got a good workout in this Congress, with nine resolutions passing both chambers. All nine sought to overturn Biden administration rules and withered on the legislative vine after they were unsurprisingly vetoed by President Biden.

But Republicans envision a return of the successful use of the CRA tool if the stars align and they take control of both chambers and the White House in 2025.

“We’re trying to create that option,” said Sen. Marco Rubio, R-Fla., the lead signatory on the letter to the Government Accountability Office.

The senators asked the GAO to determine that January 19 guidance (Notice 2024-20, 2024-7 IRB 668) from the IRS and Treasury was a rule that could be struck down via the CRA. The guidance addressed where electric vehicle charging stations could be located to qualify for an IRA tax break.

“I mean, that’s the goal,” Rubio said. If the GAO is willing to do that, there’s hope for the opportunity for congressional review, “so we’ll wait and see what the response to it is,” he added.

Republicans have successfully argued before that agencies have sidestepped rulemaking by calling a rule something else. The most prolonged case was in 2018 when the GAO ruled that a Consumer Financial Protection Bureau “bulletin” from 2013 regarding racism in auto lending was a rule that could be overturned through the CRA. That March 2018 determination started the 60-day clock ticking, and Congress overturned the newly deemed rule with President Trump signing that action into law in May 2018.

Trying to get the GAO to determine that a particular piece of guidance — and there’s been a lot of IRA guidance — is really a rule could lead to some complex scenarios, Narang said. First, you can’t go after the same rule twice. So if the GAO determines the EV charger guidance is a rule, Rubio and the other senators could try to overturn it via the CRA this year. But they couldn’t target it again next year even if the GAO determination date falls within the lookback period.

And even if a rule regarding an IRA tax provision is overturned, the provision is still the law and a Republican Treasury Department would have to rewrite the regulation.

“When you use the CRA to repeal the guidance . . . you’re not repealing the underlying statutory provision,” Narang noted.

Long List

The first bill filed at the beginning of the 118th Congress would have clawed back nearly 90 percent of the IRS’s special funding from the IRA. If Republicans win in November, one of the earlier bills filed in the 119th Congress might be to roll back some IRA rules.

The IRA’s provisions have already been targeted for repeal by Trump and other Republicans. Getting rid of the a large majority of the clean energy provisions in the legislation was an aim of the new House Republican majority in early 2023 when passing its debt limit bill, the Limit, Save, Grow Act of 2023.

Added to that appetite for rescission is that the IRS and Treasury have a long list of guidance implementing the IRA that isn’t yet final. The administration has said that the clean energy provisions and related tax credits were their highest priority, but even those are far from complete. Tax Notes tracks IRS and Treasury actions on the IRA here.

Treasury published final regulations (T.D. 9988) March 11 for direct payment of a dozen energy credits enacted in the IRA, but rules for many of the underlying credits themselves are still at the proposed reg or notice stage. IRS notices provide some guidance to taxpayers but aren’t yet proposed regs.

Turning even the most noncontroversial regulations around from proposed to final takes time, Eric Solomon of Ivins, Phillips & Barker Chtd. told Tax Notes. The IRS and Treasury address all significant comments received on the proposal and may revise the rules before making them final.

Clean energy proposed regs implementing the section 30D new clean vehicle credit (REG-120080-22), the section 48 investment tax credit for energy property (REG-132569-17), and the section 45V clean hydrogen production credit (REG-117631-23) drew 89, 301, and 29,947 public comments, respectively, over the last four months.

Regulations implementing the corporate taxes imposed by the IRA — a 1 percent stock repurchase excise tax on publicly traded corporations and a 15 percent minimum tax on corporations averaging at least $1 billion in adjusted financial statement income annually — haven’t been proposed yet, although the government has issued interim guidance in several notices.

Those rules are a high priority for Treasury but not the highest, according to Solomon, a former Treasury assistant secretary for tax policy.

“The highest priority — it would seem to me — would be to get the energy stuff as far along in the process as possible,” Solomon said. “To the extent possible, the Biden administration would want to finalize as much of the energy guidance as it can.” The corporate alternative minimum tax “and the stock buyback tax will still be a high priority, but if you have to choose,” those rules may have to wait, he said.

But the corporate rules aren’t likely to make lawmakers’ phones ring. The effect of those taxes on individual taxpayers is remote, and overturning the regulations implementing them wouldn’t make the taxes disappear because they were created by statute.

Never Been Done

The clean energy credits and the near tripling of their estimated costs since the IRA became law in August 2022 have been lambasted by Republicans in both chambers. But Cramer notes that even though House Republicans went after “initially all of the IRA energy credits” in their debt limit deal, then-Speaker Kevin McCarthy removed the ethanol and biodiesel tax credit rescissions after corn-state pushback.

“It’s not going to be an all-or-nothing-type thing; it will be a subset of those credits,” Cramer predicted.

Democrats point to mounting investments, particularly in red and swing states, that would tap into the clean energy tax credits as indicators that the Republican bark on this issue may end up being worse than its bite.

Still, Republicans may have an unusual opportunity because big tax overhauls are infrequent and mistimed when it comes to the CRA. While a presidential veto of a CRA resolution could be overridden by Congress, that has never happened.

President George W. Bush was in office for seven years after the Economic Growth and Tax Relief Reconciliation Act of 2001 became law and for five years after the Jobs and Growth Tax Relief Reconciliation Act of 2003 passed. Likewise, Trump was around for three years after the Tax Cuts and Jobs Act passed. In each case, Treasury had years to write rules before any lookback period of consequence started.

Although the timing for the IRA rules isn’t as fortuitous, successful CRA overturns have been on regs from the Labor, Education, and Interior departments, not from Treasury.

“There’s never been a successful CRA challenge to Treasury tax regulations, and those resolutions that have been proposed in the past to overturn tax regulations have involved issues that really drive constituents to call their members of Congress,” said John Schoenecker of TaxBit Inc., former tax counsel to then- Senate Finance Committee Chair Chuck Grassley, R-Iowa, and then-House Ways and Means Committee Chair Kevin Brady.

“That’s why we’ve seen tax-related CRA resolutions on issues like the [state and local tax] cap workarounds or the disclosures required by tax-exempt organizations,” Schoenecker told Tax Notes in an email. “Those are the types of issues that really light up members’ phone lines.”

Despite all that public interest, neither of those CRA resolutions passed Congress.

Copy RID