TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, July 9, 2009

Wells Fargo Redux: Sen. Grassley Accuses IRS of Overstepping its Authority in IR-2009-44

Dow Jones:  Sen Grassley Says IRS Defied Congress on Tax Credit, by Martin Vaughan:

A senior Republican senator is questioning whether the IRS overstepped its authority in implementing a tax credit in economic stimulus legislation for home energy efficiency upgrades. The provision allowed homeowners to claim a tax credit of up to $1,500 for replacing property including windows, doors, skylights and insulation. It replaced a tax credit that was worth up to $500 for such upgrades. But the stimulus provision also included tougher energy efficiency requirements for windows, doors and skylights to qualify for the new credit.

Sen. Charles Grassley, R-Iowa, charges that the IRS contradicted Congress by allowing the tax credit to apply to property that met the older, less stringent standard, if purchased before June 1. "The question apparently becomes ... can the IRS essentially change the words of the statute to reach a result that the IRS deems more appropriate than the one clearly intended by Congress," Grassley wrote in questions to an Obama administration nominee this month.

The IRS says it did not go outside its legal authority. "Under Code section 7805(a) and (b) the secretary of the Treasury has broad authority to provide rules to interpret and administer the tax law, and that is what IRS did in this specific situation," said IRS spokeswoman Michelle Eldridge. ...

It is not the first time in recent months Treasury has faced criticism for allegedly encroaching on Congress' legislative powers. The Bush administration's Treasury Department came under fire from lawmakers for a decision that allowed banks to use tax losses racked up by failing banks they acquired -- a move that was seen as intended to ease the acquisition of Wachovia Corp. (WB) by Wells Fargo & Co. (WFC). Congress reversed that Treasury policy as part of the stimulus bill, although it did not take away any benefits from Wells Fargo.

On April 22, IRS announced [in IR-2009-44] that property qualifying for the older standard -- that is, property that earned an "Energy Star" label -- purchased between Feb. 17 and June 1, would qualify for the new, expanded tax credit. ... 

Michael Desmond, a former Treasury official who leads the tax practice at law firm McKee Nelson, said it is not uncommon for Treasury to improvise a transition period when faced with new tax provisions that involve technical standards. "The IRS is acting very pragmatically here. They're allowing people to utilize the credit in the interim until the experts can catch up with the standard," he said.

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