Carta Policy: Weekly Brief for May 6

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TL;DR

  • GOP signals coming opposition to the SEC’s ambitious climate agenda
  • Newsom pushes comprehensive crypto regulatory framework in California, and the SEC doubles crypto enforcement budget
  • Robberies prompt renewed interest in cannabis banking laws
  • Fed raises interest rates 50 basis points and announces plans to start shrinking its balance sheet to curb inflation

Macro matters

Congressional agenda

Both chambers are in session next week, and much activity is expected to focus on the unprecedented leak of a draft Supreme Court opinion that would overturn Roe v. Wade and Planned Parenthood v. Casey. In anticipation of a similar final ruling, Democrats will attempt to move legislation to codify access to abortion. On the Hill, the spread of COVID-19 among Democratic senators continued to delay votes on several key nominations, including to the Federal Reserve and Federal Trade Commission.

COMPETES Act & nominations

The China competitiveness bill currently known as the Bipartisan Innovation Act, which includes several tax measures that will increase investment in emerging technologies, is headed for legislative conference after the Senate completed its preparatory votes late Wednesday night. Conferees still have months of work ahead of them; a final agreement is not expected until close to the August recess. 

SAFE Banking Act

There is renewed bipartisan support for a proposal to include key marijuana banking legislation in the competitiveness package, increasing its odds of being signed into law—but it remains an uphill battle. The SAFE Banking Act would enable cannabis firms to use banking services. Federal law currently forces weed dispensaries to use cash, making them prime targets for robberies. Supporters, including the American Bankers Association, also contend the bill will improve transparency and tax collection among cannabis businesses.

Capital markets

Carta liquidity report shows continued rise in secondary liquidity

Secondary liquidity in the private markets continues to rise, according to Carta data. While it’s too early to predict results for 2022, Q1 results put this year on track to exceed the record number of secondary deals and dollars transacted in 2021. The rise in liquidity can be attributed to a number of factors, including a slowdown in IPOs and weaker economic growth forecasts. Meanwhile, primary financing in the venture capital space has declined each quarter since last year’s record Q2.

Read more insights in Carta’s Q1 2022 liquidity report.

Oversight Republicans attack SEC climate proposal

Republicans on the House Oversight Committee sent a letter to the SEC this week raising concerns about the agency’s controversial climate change proposal and its impact on private companies that are not subject to the SEC’s disclosure regime. While the proposal did not place disclosure obligations on private companies, it could indirectly cause them to provide climate information through business relationships with publicly traded companies, who would have to report Scope 3 emissions for companies in their supply chain and consumers under the proposal. The lawmakers called the rule “the largest expansion of SEC authority without a clear legislative mandate from Congress” and have asked for a briefing from the SEC on the intent of the rule. As the minority party, Republicans are limited in their oversight powers, though the SEC may be more willing to cooperate with this request given the expected change in control next Congress. 

Crypto & digital assets

SEC devotes more resources to crypto enforcement

The SEC announced it was nearly doubling the size of its enforcement team dedicated to protecting investors in the crypto markets and from cyber-related threats. The Crypto Assets and Cyber Unit is focused on all aspects of the crypto industry, from crypto asset offerings, exchanges, and lending products to DeFi platforms, NFTs, and stablecoins. SEC Chair Gensler has steadfastly maintained that most digital assets are securities and within the SEC’s domain. This investment in enforcement will only bolster the SEC’s efforts to assert jurisdiction over the crypto industry, much to the chagrin of the industry and Congress, which has been pushing for the CFTC or another agency to lead on crypto oversight. The SEC has also come under fire for recent rulemaking proposals that could force crypto exchanges to register with the agency. Unless a court or Congress puts up guardrails, expect aggressive SEC crypto oversight to continue. With these new resources, an uptick in enforcement cases will also likely follow. 

Newsom issues EO for crypto regulatory framework 

This week, CA Governor Gavin Newsom issued an executive order calling on the state to craft a comprehensive regulatory framework for crypto and blockchain companies that would both foster innovation and protect consumers. With the absence of federal standards, states are using policies to attract business to their jurisdictions, and CA has more than a quarter of the 800 U.S.-based blockchain businesses. Newsom’s EO acknowledges the need for the state’s approach to be consistent with any federal regulation and gives the state 60 days to prepare its own report after the Biden Administration issues its comprehensive digital asset proposal. As the policy team has noted on a number of occasions, aside from stablecoins, there is little consensus on a crypto regulatory framework in Washington, so it remains to be seen when a comprehensive state framework could be implemented. 

Proposal for global approach on crypto reporting

The Organisation for Economic Cooperation and Development (OECD), a group of 37 member countries that develop economic and social policy, released a new Crypto-Asset Reporting Framework (CARF). The public consultation document discusses a new global tax transparency framework on developing cryptoasset information exchange. Mairead McGuinness, an EU commissioner, has also called for a global crypto agreement to protect investors and limit the environmental effects of crypto mining. She’s urging global coordination that prioritizes regulation, exchange of information, protection for retail investors, and environmental considerations.

Financial products

Banking agencies release CRA proposal

Federal banking agencies jointly released their long-awaited proposal to overhaul the Community Reinvestment Act (CRA) yesterday.  To address continued inequities in access to credit, the proposal would alter how the agencies evaluate bank performance, update CRA assessment areas to include activities associated with online and mobile banking, adopt a metrics-based approach to CRA evaluations of retail lending and community development financing, and allow for smaller banks to be evaluated under the existing CRA regulatory framework. While top Republicans agree it is time for CRA modernization, they criticized its onerous reporting and disclosure requirements, including with respect to climate. The proposal is open for comment until August 5.

Taxation

IRS issues guidance on revocation of 83(b) elections 

The IRS issued guidance (Rev. Proc. 2006-31) on requirements for obtaining consent to revoke a previously filed 83(b) election. An 83(b) election allows a stock recipient, although not vested in the stock, to be taxed when the stock is transferred instead of when the stock actually vests. Election revocations may be granted when mistakes of fact are discovered in the underlying transaction. Beginning June 13, 2022, the IRS will require that requests for consent to revoke an 83(b) election must be made under IRS letter ruling procedures. The request must contain the date the election was made; a copy of the election; a description of the mistake of fact in the underlying transaction; the date the mistake first became known to the person making the election; and whether the request is being made on or before the deadline for making the election. 

Congress urged to pass corporate minimum taxes

Treasury Secretary Janet Yellen is urging Congress to ensure that any reconciliation package of a revived Build Back Better (BBB) Act this year includes the global minimum corporate tax rate outlined by the OECD. In October 2021, the OECD announced an agreement signed by 136 countries that would allow countries to tax foreign companies, including U.S. firms, if their effective tax rates in those places fell below 15 percent. However, signatories have been slow in turning their commitment into law. Yellen believes the EU will imminently adopt and pass the proposal into law this spring and expects Congress to incorporate this provision into the revenue component of BBB. Treasury officials have commented that they are working with the OECD to clarify the treatment of general business credits under the minimum tax, signaling that breaks for low-income housing, renewable energy, and the new markets tax credit should not be impacted.

On the domestic side, SFC member Sen. Elizabeth Warren is pushing for a corporate AMT of 15 percent tax on book income to address concerns raised in reports that 55 large U.S. corporations paid no federal income taxes in 2020, and that 19 of the largest U.S. companies paid little or no federal income taxes in 2021. The proposal has support from Senate Democrats and President Biden, and the Joint Committee on Taxation estimates the minimum tax on companies reporting over $1 billion in profits would raise $319 billion over 10 years.

College savings could be rolled over into IRA 

Senate Finance Committee members, Sens. Maggie Hassan and Susan Collins, introduced a bipartisan bill, The Helping Parents Save for College Act of 2022, which proposes to expand the section 25B “saver’s credit” to cover education savings account contributions, and would allow rollovers from education accounts to Roth IRAs. The saver’s credit is a credit provided to taxpayers for making eligible contributions to an IRA or employer-sponsored retirement plan. Given the recent focus on retirement, in conjunction with student loan forgiveness, members of Congress are increasingly interested in participating on these issues. If a SECURE 2.0 bill moves across the finish line this year, it would be an amazing feat to see two retirement savings bills pass within three years.

Upcoming events

 

Notable SEC proposed rules and comment deadlines

Cybersecurity risk disclosure (public companies)

Climate-related disclosures

Definition of dealer

SPAC reform

5/9/2022

5/20/2022

5/27/2022

5/31/2022*

*60-day comment period after publication on SEC website or 30 days after publication in Federal Register, whichever is longer.

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DISCLOSURE: This publication contains general information only and eShares, Inc. dba Carta, Inc. (“Carta”) is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services.  This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests.  Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor.  This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security.  Carta does not assume any liability for reliance on the information provided herein.

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