December 18, 2023

Manchin Requests GAO Legal Opinion on Administration’s Ability to Issue Temporary IRS Guidance That Violates the Inflation Reduction Act

Washington, DC – Today, Senator Joe Manchin (D-WV), Chairman of the U.S. Senate Energy and Natural Resources Committee, sent a letter to the U.S. Government Accountability Office (GAO) requesting a legal opinion on whether guidance issued by the U.S. Department of the Treasury for implementing section 30D — the Clean Vehicle Tax Credit — of the Inflation Reduction Act, is subject to review under the Congressional Review Act.

This month, Treasury released guidance that makes it easier for Foreign Entities of Concern (FEOC) to take advantage of the 30D tax credit while hurting American taxpayers and increasing America’s reliance on foreign nations for battery and vehicle component supply chains, including China.  

Chairman Manchin wrote in part, “Unfortunately, the Secretary’s “proposed regulations” do not “carry out the purposes of” section 30D adopted by Congress.  They pursue, instead, the Administration’s own unenacted policy preferences. 

“The April 17 proposal rewrites section 30D in three major respects.  First, it cuts the critical minerals requirements in section 30D(e)(1) in half.  It does this by inventing and applying a new “50 % of value added test,” which is not found in the law.  Congress very precisely prescribed the “applicable percentage” needed to qualify for the critical minerals component of the tax credit in any given year in section 30D(e)(1)(B).  The “50 % of value added test” cuts each of those statutory percentages in half, loosening the limits set by Congress.

“Second, it waters down the battery component requirements in section 30D(e)(2).  It does this by shifting a substantial part of the value of battery component manufacturing from the battery requirement in section 30D(e)(2) to the critical mineral processing requirement in section 30D(e)(1), by applying a new notion of “constituent materials,” which is not found anywhere in section 30D.  Congress very precisely and meticulously drew the line between critical mineral processing and battery component manufacturing by specifying precise chemical forms and purification levels for each critical mineral in its definitions of the “applicable critical minerals.”  It left no gap between critical mineral processing and battery component manufacturing for the Treasury to fill and reallocate with its notion of “constituent materials." 

“Third, it flouts the requirement in section 30D(e)(1)(A) that critical minerals must be extracted or processed in the United States or a “country with which the United States has a free trade agreement in effect.”  “Free trade agreement” is a well-established term of art.  The United States Trade Representative maintains an authoritative list of the countries with which the United States has a free trade agreement in effect.  The Treasury Department’s proposal includes Japan, with which the United States does not have a free trade agreement in effect, as a country that does, and it claims the power “to include additional countries” as free trade agreement countries as the Treasury Department chooses—and this treatment of critical minerals extracted or processed in Japan will apply even if this “proposed rule” is never finalized.

“The December 4 proposal continues in this freewheeling vein.  Section 30D prohibits “any vehicle placed in service after December 31, 2024,” from qualifying for the section 30D tax credit if “any of the applicable critical minerals contained in the battery of such vehicle … were extracted, processed, or recycled by a foreign entity of concern….”   § 30D(d)(7)(A) (emphasis added).  Similarly, section 30D(d)(7)(B) prohibits “any vehicle placed in service after December 31, 2023,” from qualifying for the section 30D tax credit if “any of the components contained in the battery of such vehicle … were manufactured or assembled by a foreign entity of concern….”  § 30D(d)(7)(A) (emphasis added).

“The Treasury’s proposal rewrites these clear statutory requirements by suspending the statutory prohibition in section 30D(d)(7)(A) from January 1, 2025, to January 1, 2027 and suspending the statutory prohibition in section 30D(d)(7)(B) from January 1, 2024, to January 1, 2027.  This enables electric vehicles that contain critical minerals or battery components sourced from foreign entities of concern placed in service over the next 3 years to qualify for the tax credit in spite of the statutory prohibitions—and this allowance is effective in a matter of weeks regardless of whether Treasury ever issues a “final” version of the proposal at some later date.

“Looking past the “proposed rule” label and treating the Treasury regulations as a final rule in view of the binding legal effect it already has on the operation of the section 30D tax credit will further the purpose of the Congressional Review Act.  It will enable Congress to review and disapprove a rule that plainly does “not accurately reflect the intent of Congress in enacting the underlying statutory scheme.”  S. Rept. 104-88, at 123.  It will enable Congress to reclaim its lawmaking power and its power of the purse.”

The full letter is available here.