Who is Stacking the Chips: U.S. Commerce Department Launches Section 232 Investigation into Semiconductor Imports
On April 16, 2025, the Department of Commerce announced that it initiated an investigation on April 1, 2025, under Section 232 of the Trade Expansion Act, into imports of semiconductors, semiconductor manufacturing equipment (SME), and related products to evaluate how those imports may impact national security.
The investigation extends beyond standalone semiconductor components, reaching into the broader electronics supply chain. It includes finished products embedding semiconductors, such as smartphones, laptops, tablets, and similar devices. Based on the application of the Section 232 tariff on steel and aluminum derivatives, if any downstream products becomes covered by this Section 232 investigation, it is likely that importers will need to pay a duty for those finished products based on the value of the incorporated semiconductors.
The scope of the investigation also covers various elements critical to the semiconductor industry, including semiconductor substrates, bare wafers, legacy chips, leading-edge chips, microelectronics, and SME components.
The Department of Commerce is seeking public comments on several national security-related issues surrounding semiconductor imports:
Demand and Production Capacity: Evaluating current and projected U.S. demand for semiconductors and SME by product type and node size, and assessing domestic production capacity to meet this demand.
Foreign Dependence: Examining U.S. reliance on foreign sources for semiconductors and SMEs, and the impact of foreign subsidies or export restrictions. This also considers the risks associated with concentrated imports from a small number of foreign facilities.
Domestic Expansion: Exploring the feasibility of expanding domestic production to reduce dependence on imports. This includes assessing strategies to enhance U.S. industry competitiveness and evaluating whether additional trade measures, such as tariffs or quotas, may be necessary to safeguard national security.
The comment period is open for 21 days from publication, closing on May 7th, 2025. Interested parties may submit their written comments, data, analyses, or other relevant information through the Federal rulemaking portal at www.regulations.gov under docket ID BIS-2025-0021.
New Section 232 Trade Investigation on Imports of Processed Critical Minerals and Their Derivative Products Could Result in Trade Actions Later This Year
On April 15, 2025, President Trump signed an Executive Order directing the Secretary of Commerce to initiate a new investigation under Section 232 of the Trade Expansion Act of 1962 (Section 232) on imports of processed critical minerals and their derivative products. The investigation will evaluate the impact of imports of these materials on U.S. national security and resilience and address vulnerabilities in supply chains, the economic impact of foreign market distortions and potential trade remedies to ensure a secure and sustainable domestic supply of these essential materials. This is the third such investigation initiated this month and the fifth of President Trump’s second term.
Processed critical minerals and their derivative products are key building blocks of the U.S. defense industrial base and integral to sectors ranging from transportation and energy to telecommunications and advanced manufacturing. The new Section 232 investigation will encompass the following “critical minerals,” “rare earth elements,” “processed critical minerals” and “derivative products”:
“Critical minerals” are those included in the “Critical Minerals List” published by the United States Geological Survey (USGS) pursuant to section 7002(c) of the Energy Act of 2020 (30 U.S.C. 1606)1, as well as uranium.
“Rare earth elements” means the 17 elements identified as rare earth elements by the Department of Energy (DOE) in the April 2020 publication titled “Critical Materials Rare Earths Supply Chain” 2 and also includes any additional elements that either the USGS or DOE determines in any subsequent official report or publication should be considered rare earth elements.
“Processed critical minerals” refers to critical minerals that have undergone the activities that occur after critical mineral ore is extracted from a mine up through its conversion into a metal, metal powder or a master alloy. These activities specifically occur beginning from the point at which ores are converted into oxide concentrates; separated into oxides; and converted into metals, metal powders and master alloys.
“Derivative products” includes all goods that incorporate processed critical minerals as inputs. These goods include semi-finished goods (such as semiconductor wafers, anodes and cathodes) as well as final products (such as permanent magnets, motors, electric vehicles, batteries, smartphones, microprocessors, radar systems, wind turbines and their components and advanced optical devices).
Section 232 requires the Secretary of Commerce to complete an investigation and submit a report to the President within 270 days of initiating any investigation. The report will detail risks and provide recommendations to strengthen domestic production, reduce dependence on foreign suppliers and enhance economic and national security.
The President then has up to 90 days to decide whether to concur with the report and take action. Action may include import tariffs, quotas or other measures as needed to address the threat.
Although this timeline provides for action in approximately one year, there is nothing preventing the Administration from moving more quickly to finalize a report or take action.
President Trump’s directive that Commerce investigate imports of critical minerals and their derivative products closely follows the initiation of Section 232 investigations on semiconductor and pharmaceutical imports earlier this month. Earlier this year, the President also issued executive orders directing Commerce to investigate imports of copper and lumber under this same provision, marking a continuation of the Trump Administration’s use of Section 232 as a preferred mechanism to bolster domestic production and reduce reliance on foreign suppliers. Prior actions on specific critical minerals and materials completed during President Trump’s first term resulted in either findings of no national security threat (vanadium) or trade actions other than tariffs, such as working groups and negotiations with allies to improve supply (uranium and titanium sponge).
[1] Aluminum, antimony, arsenic, barite, beryllium, bismuth, cerium, cesium, chromium, cobalt, dysprosium, erbium, europium, fluorspar, gadolinium, gallium, germanium, graphite, hafnium, holmium, indium, iridium, lanthanum, lithium, lutetium, magnesium, manganese, neodymium, nickel, niobium, palladium, platinum, praseodymium, rhodium, rubidium, ruthenium, samarium, scandium, tantalum, tellurium, terbium, thulium, tin, titanium, tungsten, vanadium, ytterbium, yttrium, zinc and zirconium.
[2] The lanthanide series (lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium and lutetium) as well as scandium and yttrium.
Petitions Filed to Add Chemicals to List of Chemical Substances Subject to Superfund Excise Tax
On April 2 and April 3, 2025, the Internal Revenue Service (IRS) announced that petitions have been filed to add the following chemicals to the list of taxable substances:
Polyisobutylene (90 Fed. Reg. 14521): Petition filed by TPC Group, Inc., an exporter of polyisobutylene;
Acrylonitrile butadiene styrene (90 Fed. Reg. 14687): Petition filed by Trinseo LLC, an importer and exporter of acrylonitrile butadiene styrene;
Acrylonitrile-butadiene rubber (90 Fed. Reg. 14684): Petition filed by Arlanxeo USA LLC and Arlanxeo Canada Inc., importers and exporters of acrylonitrile-butadiene rubber;
Chloroprene rubber (90 Fed. Reg. 14691): Petition filed by Arlanxeo USA LLC and Arlanxeo Canada Inc., importers and exporters of chloroprene rubber;
Emulsion styrene butadiene rubber (90 Fed. Reg. 14692): Petition filed by Michelin North America, Inc., an importer of emulsion styrene butadiene rubber;
Emulsion styrene-butadiene rubber (90 Fed. Reg. 14686): Petition filed by Arlanxeo USA LLC and Arlanxeo Canada Inc., importers and exporters of emulsion styrene-butadiene rubber;
Ethylene vinyl acetate (VA < 50 percent) (90 Fed. Reg. 14688): Petition filed by Arlanxeo USA LLC and Arlanxeo Canada Inc., importers and exporters of ethylene vinyl acetate (VA < 50 percent);
Ethylene vinyl acetate (VA ≥ 50%) (90 Fed. Reg. 14683): Petition filed by Arlanxeo USA LLC and Arlanxeo Canada Inc., importers and exporters of ethylene vinyl acetate (VA ≥ 50 percent);
Ethylene-propylene-ethylidene norbornene rubber (90 Fed. Reg. 14695): Petition filed by Arlanxeo USA LLC and Arlanxeo Canada Inc., importers and exporters of ethylene-propylene-ethylidene norbornene rubber;
Hydrogenated acrylonitrile-butadiene rubber (90 Fed. Reg. 14686): Petition filed by Arlanxeo USA LLC and Arlanxeo Canada Inc., importers and exporters of hydrogenated acrylonitrile-butadiene rubber;
Hydrogenated acrylonitrile-butadiene rubber (90 Fed. Reg. 14685): Petition filed by Zeon Chemicals L.P., an importer and exporter of hydrogenated acrylonitrile-butadiene rubber;
Isobutene-isoprene rubber (90 Fed. Reg. 14689): Petition filed by Arlanxeo USA LLC and Arlanxeo Canada Inc., importers and exporters of isobutene-isoprene rubber;
Solution styrene-butadiene rubber (90 Fed. Reg. 14690): Petition filed by Arlanxeo USA LLC and Arlanxeo Canada Inc., importers and exporters of solution styrene-butadiene rubber;
Bromo-isobutene-isoprene rubber (90 Fed. Reg. 14694): Petition filed by Arlanxeo USA LLC and Arlanxeo Canada Inc., importers and exporters of bromo-isobutene-isoprene rubber;
Poly(ethylene-propylene) rubber (90 Fed. Reg. 14690): Petition filed by Arlanxeo USA LLC and Arlanxeo Canada Inc., importers and exporters of poly(ethylene-propylene) rubber;
Solution styrene-butadiene rubber (90 Fed. Reg. 14693): Petition filed by Michelin North America, Inc., an importer of solution styrene-butadiene rubber; and
Styrene-acrylonitrile (90 Fed. Reg. 14693): Petition filed by Trinseo LLC, an importer and exporter of styrene-acrylonitrile.
Comments on the petitions are due June 2, 2025. More information on the Superfund excise tax on chemicals is available in our July 13, 2022, memorandum, “Superfund Tax on Chemicals: What You Need to Know to Comply” and our May 19, 2022, memorandum, “Reinstated Superfund Excise Tax Imposed on Certain Chemical Substances.”
The QPAM Exemption – Key Takeaways for Fund Managers with Benefit Plan Investors
As an asset manager, you may be familiar with the regulatory issues that come into play when a fund permits investments from “benefit plan investors,” which generally include certain employee benefit plans subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and individual retirement accounts. The main concerns include the need to avoid “prohibited transactions” under ERISA and the Internal Revenue Code of 1986, as amended (the “Code”), and the application of fiduciary status under ERISA when benefit plan investor investments become significant enough so that the fund is deemed to hold ERISA “plan assets.”
Often, managers will work to structure the fund so as to avoid being deemed to hold ERISA plan assets, for example, by limiting benefit plan investor investments to no more than 25% of the fund’s total assets. But what if a sizeable benefit plan investor wants to invest in the fund? How can you track what may and may not be considered a “prohibited transaction” or be confident you’re not inadvertently triggering a breach of your ERISA fiduciary duties? For funds with numerous or sizeable benefit plan investors (generally those exceeding 25% of the fund assets), asset managers may seek relief under the Department of Labor’s Prohibited Transaction Exemption 84-14, as amended, which applies to certain “qualified professional asset managers” or “QPAMs.” This exemption is commonly referred to as the “QPAM Exemption.”
What is the QPAM Exemption?
The QPAM Exemption provides relief from federal excise taxes and required compliance actions that otherwise apply if the fund were to engage in a prohibited transaction under ERISA or the Code.
What transactions are prohibited under ERISA and the Code?
As a general rule, a fiduciary that manages ERISA assets may not use those assets to engage in the sale or exchange, leasing of property, loan or extension of credit, or certain other transactions with a “party in interest” or a “disqualified person.” These transactions are prohibited unless an exception applies. Under ERISA and the Code, the list of “parties in interest” and “disqualified persons” is long and includes service providers to the employee benefit plan (such as the plan’s accountants, attorneys, and brokers with whom the plan conducts business), certain affiliates of the plan, and employee participants and employer sponsors of the plan, among other persons. Many ordinary course transactions are swept into the category of “prohibited transactions.”
What happens if the fund engages in a prohibited transaction?
The IRS imposes a 15% excise tax on the amount involved in any prohibited transaction for each year in which the transaction continues. In addition, any prohibited transaction must be unwound, which can be costly and time-consuming. Engaging in a prohibited transaction is also considered a breach of fiduciary duty under ERISA, which could result in personal liability for plan losses with respect to any individual asset manager with discretionary management authority over the fund’s ERISA plan assets.
Why is it important to qualify as a QPAM?
Asset managers must avoid entering into prohibited transactions when no exemption is available. Due to the sweeping nature of the types of transactions deemed prohibited under ERISA and the Code, managers may find it nearly impossible to enter into many types of transactions on behalf of benefit plan investor clients without first obtaining extensive representations from the investor to ensure the fund won’t inadvertently engage in a prohibited transaction. The QPAM Exemption relieves a manager that qualifies as a QPAM of this administrative burden and operates to avoid the potential for excise taxes and other penalties by excluding many of common transactions that would otherwise be prohibited under ERISA and the Code. In addition, certain lenders transacting with the fund often require the fund to either represent that it does not manage ERISA plan assets or that it qualifies as a QPAM under the QPAM Exemption before moving forward with any loan or credit facility transaction.
Are all prohibited transactions exempt under the QPAM Exemption?
No. Prohibited transactions are generally divided into two categories – party in interest transactions, and fiduciary self-dealing transactions. The QPAM Exemption only applies to the party in interest transactions. Unless another exception applies, a fiduciary managing ERISA plan assets may not engage in certain self-dealing transactions (for example, those involving conflicts of interest between the fund and the benefit plan investor).
Who may qualify as a QPAM?
QPAM status is only available to registered investment advisers (RIAs) and certain types of banks and savings and loan institutions. RIAs seeking QPAM status must generally have total client assets under management and shareholder or partner equity in excess of the thresholds stated in the table below.
Fiscal Year Ending no Later than
AUM Requirement
Equity Ownership Requirement
December 31, 2024
$101,956,000
$1,346,000
December 31, 2027
$118,912,000
$1,694,000
December 31, 2030
$135,868,000
$2,040,000
What else is required to maintain status as a QPAM?
In addition to the qualification requirements, an RIA seeking QPAM status must meet the requirements summarized below.
The RIA must notify the DOL of its intent to rely on the QPAM Exemption, when it changes its name, and again when it no longer qualifies as a QPAM.
The QPAM must acknowledge its fiduciary status in writing.
No single employee benefit plan (including certain affiliate plans) may make up more than 20% of the QPAM’s assets under management.
The party in interest cannot have certain types of authority over the manager.
The QPAM must make an independent decision to enter into the transaction and must have the sole responsibility for the management of plan assets.
The party in interest involved in the transaction cannot be the QPAM or a person related to the QPAM.
The terms of the transaction must be at arm’s length.
The QPAM must maintain records of the transaction for at least six years.
The QPAM and its affiliates must not have engaged in certain disqualifying acts.
We are an RIA seeking to qualify as a QPAM. What’s next?
An investment manager seeking to qualify as a QPAM should first determine whether it currently meets or will meet all of the requirements to satisfy the QPAM Exemption. The qualification points should be fully vetted before notifying the DOL of the intent to qualify and well before making any representations to benefit plan investors or other parties that it may engage in a transaction as a QPAM.
The Possible Securities Act Implications Of Harvard’s “Nyet” To Government Civil Rights Reform Demands
Last week, the United States General Services Administration, Department of Education, and Department of Health and Human Services sent a letter to Alan M. Garber, the President of Harvard University, and Penny Pritzker, Lead Member of the Harvard Corporation. The letter asserts that “Harvard has in recent years failed to live up to both the intellectual and civil rights conditions that justify federal investment”. The letter outlined an agreement in principle so that Harvard could maintain its “financial relationship with the federal government”. Harvard responded a few days later through its outside counsel with an unequivocal nyet: “Harvard will not accept the government’s terms as an agreement in principle”. Yesterday, President Trump raised the stakes even higher by posting the following:
Perhaps Harvard should lose its Tax Exempt Status and be Taxed as a Political Entity if it keeps pushing political, ideological, and terrorist inspired/supporting “Sickness?” he wrote on Truth Social. “Remember, Tax Exempt Status is totally contingent on acting in the PUBLIC INTEREST!
In the midst of this donnybrook, Harvard is offering $750 million in bonds. According to the offering memorandum, the offer and sale has not been registered under the Securities Act of 1933 in reliance upon Section 3(a)(4). That statute exempts:
Any security issued by a person organized and operated exclusively for religious, educational, benevolent, fraternal, charitable, or reformatory purposes and not for pecuniary profit, and no part of the net earnings of which inures to the benefit of any person, private stockholder, or individual, or any security of a fund that is excluded from the definition of an investment company under section 3(c)(10)(B) of the Investment Company Act of 1940.
The exemption does not expressly refer to tax exempt status under the Internal Revenue Code, but the Offering Memorandum does state that the issuer is “exempt from federal income tax pursuant to Section 510(c)(3) of the Internal Revenue Code”. Loss of that tax exemption likely would call into question the availability of the Section 3(a)(4) for future offerings. With respect to the current offering, it is also possible that the Securities and Exchange Commission could question whether any part of the net earnings Harvard inure to the benefit of any person.
The Section 3(a)(4) exemption does not exempt Harvard from liability under Section12(a)(2) or Section 17 of the Securities Act. Thus, it is possible that the SEC may take an interest in the adequacy of disclosures in Harvard’s Offering Memorandum, as was recently suggested on a LinkedIn post by Professor Steven Davidoff Solomon at the University of California, Berkeley School of Law.
Finally, it should be noted that Harvard’s bond offering is not necessarily exempt from state qualification/registration requirements or antifraud provisions. State qualification/registration requirements may also apply to resales of the bonds. Thus, one or more states may decide to take a look at Harvard’s bond offering as well.
California Bill Proposes a Vacancy Tax on Commercial Real Property
On Feb. 21, 2025, California State Sen. Menjivar introduced Senate Bill 789 (SB-789), proposing a vacancy tax aimed at commercial real property (property) to address prolonged vacancies, incentivize property activation, and generate revenue to support first-time home buyers through the California Dream for All Program. SB-789 is scheduled to become effective on July 1, 2028, with initial annual tax obligations due in 2029.
Summary of SB-789 Changes
Vacancy Tax on Commercial Real Property
SB-789 imposes an annual vacancy tax of $5 per square foot on properties remaining vacant for 182 or more days, whether consecutive or nonconsecutive, within a calendar year. The tax explicitly excludes residential spaces within mixed-use properties. Revenues collected would be directed exclusively to the California Dream for All Fund, aiding first-time home buyers.
Exemptions
The proposed tax would not apply under the following conditions:
1.
Active renovation: Properties undergoing construction or repair pursuant to an approved building permit, with work ongoing for at least 90 consecutive days.
2.
Legal or regulatory barriers: Properties subject to litigation, environmental reviews, or permitting delays that prevent occupancy.
3.
Natural disasters: Properties affected by natural disasters, including properties state or local authorities deem uninhabitable.
Compliance and Reporting Requirements
Property owners subject to the proposed tax must:
Register with the California Department of Tax and Fee Administration (CDTFA).
Electronically file annual returns by March 15 of each year, reporting the prior calendar year’s vacancy status, property square footage, and applicable exemptions. Supporting documentation, including lease agreements and utility records, may be required.
Penalties for Non-Compliance
Owners intentionally misstating information or making fraudulent claims would face civil penalties of up to 75% of the total tax liability.
Public Outreach and Reporting
The CDTFA would conduct public outreach to educate property owners on compliance and would publish
Annual reports that detail revenue, exemptions, and program outcomes.
Economic evaluations every five years, starting in 2033, that tracks the tax’s impact, its effectiveness, and compliance costs.
Potential Constitutional Conflict
The implementation of SB-789 faces potential constitutional challenges arising from pending litigation. Specifically, in Debbane v. City and County of San Francisco (Appeal No. A172067), property owners successfully challenged a San Francisco vacancy tax, arguing that it violated the Takings Clause of the U.S. Constitution. The city of San Francisco’s appeal of the trial court decision creates legal uncertainty about the constitutionality of vacancy taxes. If the First District Court of Appeal upholds the trial court’s ruling, it may set a precedent that prevents SB-789’s enactment.
Takeaway
SB-789 represents a shift in California’s approach to addressing vacant commercial properties. By imposing a vacancy tax, the bill seeks to revitalize local economies, reduce neighborhood deterioration, and generate funding for housing affordability initiatives. Property owners should familiarize themselves with the new requirements and consult with legal advisors to enhance compliance and understand the potential financial implications.
Bree Burdick and Samuel Weinstein Astorga also contributed to this article.
Pricing Under Pressure: Prepare for Enhanced Antitrust Scrutiny amid Tariff Uncertainty
In an era of increased tariff pressures, U.S. antitrust enforcers have signaled that they remain vigilant for attempts by businesses to exploit the situation through anticompetitive conduct, especially in sectors already strained by supply shocks, volatile input costs, and shifting demand patterns.
Roger Alford, Principal Deputy Assistant Attorney General at the U.S. Department of Justice’s Antitrust Division, recently emphasized the need for competition authorities to remain vigilant for signs of collusion and manipulation of dynamic pricing models, particularly as companies adjust to heightened tariff levels. He warned that the imposition of trade barriers — such as tariffs that could reduce competition from abroad — can lead to market concentration, reducing the number of active suppliers and thereby increasing the risk of coordinated pricing or supply restrictions.
A case in point is the DOJ’s recent investigation into record-high egg prices. Despite arguments that egg price inflation resulted from market factors such as avian influenza outbreaks disrupting supply, after the DOJ issued subpoenas to major egg producers to examine potential collusion, prices dropped sharply from $8 to $3 per dozen. Alford cited this as an example of the heightened risk that companies may engage in anticompetitive conduct under the cover of external pressures.
Companies in the consumer packaged goods (CPG) sector are particularly exposed to these risks. Especially when facing thin margins, concentrated supply chains, commoditized inputs, or inelastic demand, CPG firms may be perceived as being especially vulnerable to engaging in coordinated responses to external shocks, whether explicit or tacit. Jurisdictions outside the U.S. have already begun scrutinizing the pricing behavior of such companies for potentially using inflation as a pretext to coordinate higher prices. For example, the Korea Fair Trade Commission recently launched investigations into several CPG companies following claims of collusion to raise prices on confectionaries and beverages. In Australia, Prime Minister Anthony Albanese recently pledged to crack down on alleged price gouging by the country’s supermarkets if reelected.
This is not the first time regulators have taken a more aggressive posture during periods of systemic disruption. For example, during the COVID-19 pandemic, the DOJ and FTC issued joint guidance stating they were on the alert for individuals and businesses using the pandemic as “an opportunity to subvert competition or prey on vulnerable Americans.” The guidance further stated that the agencies would stand ready to “pursue civil violations of the antitrust laws, which include agreements between individuals and business to restrain competition through increased prices, lower wages, decreased output, or reduced quality as well as efforts by monopolists to use their market power to engage in exclusionary conduct,” as well as “prosecute any criminal violations of the antitrust laws, which typically involve agreements or conspiracies between individuals or businesses to fix prices or wages, rig bids, or allocate markets.”
In light of this renewed scrutiny, companies in the CPG and similar sectors should consider the following measures:
Document the bases for pricing decisions, to create a record reflecting the independence of and any business justifications for those decisions.
Train commercial teams to recognize and steer clear of “soft signals” of collusion, particularly in discussions of tariffs or supply shortages.
Review pricing and supply chain practices for potential antitrust sensitivities, and engage antitrust counsel when appropriate.
Mobile Workforce/Remote Worker Legislation Could Impact Your Business
Well-respected House Ways & Means-Education Committee Chair Danny Garrett (R-Trussville) has introduced HB 379, a bill designed to provide guidelines and a safe harbor for employers who have traveling employees or remote workers. The current version of the bill is based in part on the Council on State Taxation (COST)/AICPA model legislation (more on this below). COST is advocating passage of the uniform law across the country and six to seven states so far have enacted it in whole or in large part. Sen. John Thune (R-South Dakota) recently introduced federal legislation to the same end.
In short, if your traveling or remote employee is working in a state with this model act for less than 30 days in a calendar year, you (the employer) aren’t required to register with that state’s taxing authorities or withhold and remit that state’s income tax from the employee’s wages. However, if the employee works more than the safe harbor number of days, he or she is subject to income tax withholding in that state retroactively to the first day of his or her presence in that state.
Alabama is one of several states that asserts tax jurisdiction over a nonresident employer and its employees if they work in this state more than one day in a year.
We understand that Rep. Garrett has agreed to amend his bill to more closely conform with the COST/AICPA model act – and to add an exemption for employers with employees who enter this or another state to conduct disaster relief efforts. Thankfully, the Alabama Department of Revenue is working with Chairman Garrett and, like the authors, is now reviewing a proposed amendment to that end. If your business has traveling or remote workers, this bill should be important to you. Organizations supporting the bill, as amended, include the Alabama Society of CPAs, Manufacture Alabama, COST, and the AICPA.
Chairman Garrett predicts that the bill will come up for a vote in his Committee this week.
Audio file
Portland City Council Member Proposes Increase to Clean Energy Surcharge Rate
On April 10, 2025, Portland’s Climate, Resilience, and Land Use Committee reviewed a proposal from City Council Member Steve Novick to increase the Clean Energy Surcharge (CES) rate from 1% to 1.33%. The additional revenue from this increase would be redirected into Portland’s general fund, instead of the voter-approved Portland Clean Energy Fund (PCEF). This proposal raises questions regarding Portland’s authority to modify a voter-approved tax.
The CES, which voters approved in November 2018 and took effect Jan. 1, 2019, is a 1% gross receipts tax to “retail sales” that “large retailers” make. All revenues from this tax were specifically earmarked for the PCEF. While the 2018 ballot initiative did not define “retail sales” or “large retailers,” Portland has generally imposed the tax on nearly all businesses with more than $1 billion in worldwide receipts and $500,000 in Portland receipts, with only a few exceptions.
Faced with budget shortfalls, at least one Portland council member is now considering the CES as a potential source of additional general fund revenue. However, Portland’s city charter does not specifically authorize the imposition of taxes without voter approval.1 Furthermore, Portland’s current administration of the CES, as it applies to non-retailers, is facing legal challenges. Considering these limitations on Portland’s taxing authority, the city council’s ability to increase the CES rate and divert those funds from the PCEF will warrant further legal analysis.
1 City of Portland v. HomeAway Inc., 240 F. Supp. 3d 1099, 1107, (D. Or. 2017).
What Are the Key Takeaways for Managing HMRC In a UK Restructuring Plan (Rps) and Beyond?
Much will depend on the specifics of a company’s financial position, but there are some themes from the OutsideClinic and Enzen judgments that are helpful – and arguably so even beyond the context of RPs for a company’s managing its relationship with HMRC.
Is HMRC in or out of the money?
In OutsideClinic HMRC had reservations about the valuation evidence put forward by the plan company in support of its position that administration was the relevant alternative. Under the RP HMRC stood to recover 5p in the £ but nil in the relevant alternative – HMRC was therefore out of the money.
The valuation evidence was based on certain assumptions in respect of the recoverability of book debts which if those turned out to be inaccurate would have entitled HMRC to a distribution in the alternative – meaning it would have been in the money. It was acknowledged by the plan company that it would only take a “relatively small shift” in the assumptions for this to be the case.
Recognising the likelihood of HMRC being an in the money creditor on a contested application the parties negotiated an improved outcome for HMRC – funded by the plan investors – which would not impact the returns to other creditors.
Take Away
HMRC is different to other creditors given its secondary preferential status, and its voice as a creditor that is potentially in the money, where there is a prospect (even small) of it being paid in the relevant alternative should be listened to. This voice may in fact be louder now, following the Court of Appeal confirming in Thames Water that the views and treatment of out of the money creditors can be relevant when considering whether a plan is fair – particularly so given the elevated status that HMRC has on insolvency.
Recognising HMRC’s role
HMRC has preferential status on an insolvency such that its claims for certain tax liabilities rank ahead of other claims as preferential claims. That status does not exist on an RP where a plan company is free to ignore the statutory order of priorities (provided it can be justified).
Not only that, but HMRC’s as a creditor is also different to other creditors. It has not chosen to trade with the company but is an “involuntary creditor” that continues regardless of whether HMRC is paid or not. HMRC cannot “opt” out of that relationship like other creditors might do.
The judge in Enzen observed that HMRC’s treatment under the Enzen plans (of which there were two) reflected:
the standing of HMRC as preferential creditor;
the commercial leverage that it is able to exert in consequence of Naysmyth and the Great Annual Savings Company; and
the inevitability of an ongoing relationship as trading continues.
Take Away
What we have seen as a consequence of these particular RPs (and those before) is judicial acknowledgement of HMRCs status as a “prominent” creditor which could be translated to – treat them differently and better than unsecured creditors.
That is all well and good, but we think it is probably fair comment to say that HMRC’s role in supporting a failing business can sometimes be seen as lacking or at least taken to be unsupportive. But perhaps now is the time for both practitioners and HMRC to reflect on their historic views.
What HMRC did demonstrate in both cases is that it was willing to engage, something that Mr Justice Norris said in Enzen was a “welcome development”. This signals a positive change, not only, we hope for RPs but also more generally.
On the flip side, if a company is prepared to recognise at an earlier point that HMRC is an involuntary and ongoing creditor in its business then surely that would help manage that relationship in a positive way (whether in the context of an RP or otherwise).
To pay or not to pay HMRC, that is the question?
What we can gauge from OutsideClinic is that although certain HMRC liabilities were unpaid for three months in 2024, its remaining 2024 liabilities were paid in full and continued to be paid during 2025.
In Enzen too, there were historic arrears but from June 2024 tax liabilities were being paid as they fell due, and current liabilities were excluded from the plan – in other words the companies did not seek to compromise those.
Take Away
Although there is no comment in the judgments about whether paying current liabilities influenced HMRC’s attitude, HMRC’s guidance makes it clear that it will consider whether other creditors are being paid when HMRC is not, and whether the company will make future payments in full, and on time, when deciding whether to support a plan,
Paying HMRC current liabilities is likely to encourage engagement and willingness to re-schedule or compromise historic liabilities. Falling further into a black hole with tax debts, not paying HMRC and trading at its expense is likely to do the opposite.
Arguably the starting point for any company requiring HMRC’s support (whether that be for an RP or a time to pay agreement) is to be able to demonstrate that at least it will be able to meet future liabilities.
Concluding Comments
We have seen a positive change in HMRC’s approach in these cases which is very encouraging, but do we as practitioners need to do the same when it comes to managing relationships with HMRC generally? That may depend on whether HMRC’s change in attitude extends beyond RPs.
If there is more of a willingness to recognise HMRC’s role as an involuntary preferential creditor in negotiations, then perhaps we will see that reciprocated by HMRC showing a greater willingness to compromise in return. However, given that the thorny relationship runs quite deep, we expect practitioners will first want to see HMRC engage more regularly in a positive manner outside of RPs, and that would be a “welcome development”.
Micro-Captive Reportable Transaction Deadline Effectively Extended
IRS Notice 2025-24: Waiver of Penalties if Micro-captive Reportable Transaction Disclosures Filed by July 31, 2025
On Friday, April 11, 2025, the Internal Revenue Service issued Notice 2025-24 (the “Notice”), which waives applicable penalties under the Internal Revenue Code to participants in, and material advisors to, reportable micro-captive insurance transactions so long as requisite disclosure statements are filed by July 31, 2025.
Required Disclosure Statements
The Treasury Department and the Internal Revenue Service (“IRS”) published final regulations on January 14, 2025 that deemed certain micro-captive insurance transactions as listed transactions and others as transactions of interest (the “Final Regulations”; see 26 CFR 1.6011-10 and 1.6011-11.) Participants in these reportable transactions are required to file disclosure statements with the IRS Office of Tax Shelter Analysis (“OTSA”) within 90 days, by April 14, 2025. Materials advisors to the reportable transactions are required to file disclosure statements with the OTSA by April 30, 2025. You can view our prior alert covering the disclosure obligations here.
Industry Request for Relief
To evaluate applicability of the Final Regulations to prior and existing micro-captive insurance transactions, affected industry participants must review up to 10 years of financial and business records per transaction to determine whether disclosures must be filed, and if so, the information to include in the disclosures. The disclosures’ due dates required this analysis during the height of tax season for practitioners who were already preparing annual federal and state tax returns due April 15, 2025.
In response to the Final Regulations’ fast-approaching compliance deadline, captive insurance associations and advocacy groups submitted letters to then-Acting Commissioner of the IRS, Melanie Krause, seeking an extension of time to file disclosures. The letters urged the IRS to extend the disclosure due dates by an additional ninety days to allow for sufficient time to produce carefully considered reporting and provide a more reasonable compliance period for the small- and mid-sized businesses that primarily utilize micro-captive insurance companies for risk management.
Limited Waiver of Penalties
The Notice effectively grants the captive insurance industry the requested extension of time to comply with the Final Regulations by waiving penalties under 26 U.S.C. § 6707 and 26 U.S.C. § 6707A for material advisors and participants, respectively, if disclosures are filed by July 31, 2025. The IRS stated in the Notice that the penalties are waived through July 31, 2025 in response to stakeholders’ concerns and due to “potential challenges associated with preparing disclosure statements during tax return filing and in the interest of sound tax administration.”
Please note that the waiver of penalties does not apply under 26 CFR 1.6011-4(e)(1) requiring a taxpayer to file a copy of a disclosure statement with the OTSA at the same time that any disclosure statement is first filed by the taxpayer pertaining to a particular reportable transaction. For example, if a taxpayer’s micro-captive insurance transaction was categorized as a reportable transaction for the first time for the taxpayer’s 2024 tax return, then the penalty waiver does not apply, and the tax return and required disclosures are due April 15, 2025. In such situations, the Notice states that taxpayers concerned about the April 15, 2025 deadline may request an extension of the due date for their tax return to obtain additional time to file the related disclosures.
Taxpayers that may be subject to the Final Regulations should consult professional advisors for detailed review and guidance on potential reporting requirements.
SEC Issues Crypto Securities Disclosure Statement as IRS DeFi Broker Rule Repealed
The Securities and Exchange Commission (SEC) Division of Corporation Finance issued a new statement about SEC staff’s experience with SEC disclosure requirements for crypto-related offerings that qualify as securities. The statement distinguishes between tokens that are themselves securities, those sold as part of investment contracts, and those falling completely outside SEC jurisdiction, but does not purport to give guidance on the application of the Howey test. This statement follows the SEC’s recent statements on memecoins, proof-of-work mining and stablecoins, continuing the SEC’s efforts to provide incremental clarity on the regulation and classification of digital assets.[1]
Separately, President Donald Trump eliminated the controversial Internal Revenue Service (IRS) digital asset broker reporting rule, which would have required decentralized finance (DeFi) platforms (including front-ends) to collect and report taxpayer information like traditional brokers, despite their fundamental technological differences.[2]
SEC Division of Corporation Finance Provides Disclosure Information for Crypto Securities
The SEC’s Division of Corporation Finance issued a statement sharing its observations and recommendations on disclosure practices for crypto-related securities. Rather than creating new requirements, the Division explained how existing disclosure frameworks apply to two scenarios: companies issuing traditional (debt or equity) securities while operating in the crypto space, and offerings involving cryptoassets that constitute investment contracts.
Notably, the Division clarified that “[n]othing in this statement is intended to suggest that registration or qualification is required in connection with an offering of a crypto asset if the crypto asset is not a security and not part of or subject to an investment contract,” acknowledging the diverse nature of cryptoassets and again confirming that coins or tokens can be offered outside the SEC registration regime.
The Division’s observations focused on how companies have applied disclosure requirements across various SEC forms and regulations to crypto offerings (including forms used by foreign private issuers and Regulation A offerings). For business description disclosures, the Division has observed effective practices that explain network architecture, consensus mechanisms, transaction validation, and governance systems. Similarly, for risk factor disclosures, companies have addressed technology vulnerabilities, cybersecurity concerns and regulatory uncertainties specific to crypto operations.
Regarding securities descriptions, the Division highlighted examples of effective practices it has observed, including detailed explanations of holder rights, technical specifications for accessing and transferring assets, and information about token supply mechanisms. The guidance also addressed disclosures about directors and executive officers, noting that even if a crypto entity lacks traditional management roles, disclosure about those performing similar functions is still required.
Commissioner Hester Peirce issued a separate statement characterizing the Division’s observations as “a small step in identifying relevant disclosures so that investors have material information about the projects and businesses in which they are investing.” She noted that the statement might be helpful for four specific categories of companies: (1) those developing a blockchain and issuing debt or equity; (2) those registering the offering of an investment contract in connection with initial coin offerings; (3) those issuing crypto assets that themselves are securities; and (4) those integrating non-fungible tokens into video games and is issuing debt or equity.
Presidential Action Ends Controversial IRS DeFi Broker Rule
President Trump signed legislation eliminating the IRS’s digital asset broker reporting rule, becoming the first US president to sign a crypto-specific bill into law. The rule, finalized in the closing days of the Biden administration, would have required DeFi platforms to comply with tax reporting requirements designed for traditional brokers. The rule had previously been challenged in a December 2024 lawsuit filed by three digital asset organizations, which argued it violated the Fourth and Fifth Amendments and exceeded the IRS’s statutory authority.[3]
[1]See Katten’s Quick Reads posts on the Division’s recent guidance here and here.
[2]See Katten’s Quick Reads post on the IRS digital asset broker reporting rule here.
[3]Id.