On January 27, the Office of Management and Budget (OMB) released a Memorandum for Heads of Executive Departments and Agencies (M-25-13) (OMB Memo) regarding temporary pauses of federal assistance and OMB Instructions for Federal Financial Assistance Program Analysis in Support of M-25-13 (OMB Instructions) identifying particular federal assistance programs and information required to be provided for each. The OMB Instructions include federal tax expenditures as programs potentially subject to the temporary pause.
The OMB Memo requires each agency to analyze all of their federal financial assistance programs to identify any that may be implicated by President Trump's executive orders. The OMB Instructions provide a spreadsheet to facilitate this analysis, which is due to OMB by February 7, 2025 (though the OMB Memo indicates they must respond by February 10). In the interim, however, agencies must temporarily pause all activities that may be implicated by the executive orders "to the extent permissible under applicable law."
The OMB Instructions contain a broad list of tax programs as constituting federal financial assistance programs subject to this analysis. This includes tax grant programs, such as VITA grants and low-income taxpayer clinics, as well as the Community Development Financial Institutions Fund. It also includes tax benefits, such as R&E deductions and credits, renewable energy incentives, incentives for oil and gas companies, the foreign derived intangible income deduction, capital gains and qualified dividend benefits, the pass-through qualified business income deduction, opportunity zone benefits, charitable contribution deductions, and exclusion of employer-provided health insurance. And even interest on the public debt is included!
Among the information required to be provided by agencies is whether the program:
- Has any anticipated obligations or disbursement of funds before March 15, 2025;
- Has any statutory requirements mandating the obligation or disbursement of funds through March 15, 2025;
- Provides funding or supports activities overseas; and
- Imposes an undue burden on the identification, development, or use of domestic energy resources (including through funding under the Inflation Reduction Act of 2022 (IRA) and the Infrastructure and Jobs Act).
In an attempt to provide additional guidance, OMB released some additional guidance on January 28, 2025. This guidance clarifies that any program not implicated by President Trump's executive orders is not subject to the temporary pause. In addition, it states that any program that provides direct benefits to individuals is not subject to the pause and any payment required by law to be paid will be paid without interruption or delay. The additional guidance does not identify tax benefits specifically, but it is arguable that most tax benefits fall within these exceptions. In general, an executive order cannot override a statutory provision, so tax benefits provided by the Internal Revenue Code arguably constitute "payments required by law to be paid."
Nonetheless, it is possible that the IRA green energy tax benefits will be caught up in the pause, as they are identified by section 7 of the executive order on Unleashing American Energy. However, the OMB Memo does not identify any legal authority for the President to withhold tax benefits or otherwise prevent eligible taxpayers from claiming tax incentives provided in statute.
Notwithstanding OMB's additional clarification, on January 28, 2025, a group of nonprofit organizations filed suit against the OMB in the US District Court for the District of Columbia in National Council of Nonprofits et al v. Office of Management and Budget et al, No. 1:25-cv-00239 (D.D.C.) requesting a temporary restraining order against the OMB Memo. The suit alleges the OMB Memo violates the Administrative Procedures Act, is arbitrary and capricious, violates the First Amendment, and exceeds statutory authority. The US District Court issued a brief stay to temporarily pause the implementation OMB Memo and ordered the Trump administration not to block funding to existing programs until at least February 3, when the case will be heard in Washington, DC.
Although the tax provisions are likely to ultimately be upheld and administered as anticipated, in the interim, this OMB Memo and related OMB Instructions could cause chaos and confusion among taxpayers and the IRS during the 2025 tax filing season, which is already officially underway.
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