Last week, the White House issued a two-page memorandum (M-25-13) suspending "all activities related to obligation or disbursement of all Federal financial assistance, and other relevant agency activities" implicated by President Trump's recent executive orders. Not only that, it ordered all federal agencies to "identify and review all Federal financial assistance programs and supporting activities consistent with the President's policies and requirements." Soon after, the White House issued some clarifying Q&As on the limits of the directive and a spreadsheet identifying thousands of line-items across the budget for review, including scores of tax provisions. Two days of confusion and several lawsuits later, the White House rescinded M-25-13, leaving many unanswered questions, including the following:

What was the intention of M-25-13?

The now-defunct memorandum explains that the goal of the review was to identify wasteful federal spending directed "to advance Marxist equity, transgenderism, and green new deal social engineering." The president said the spending pause would allow the White House to "quickly look at the scams, dishonesty, waste, abuse that's taking place in our government for too long."

What's the tax angle?

The directive immediately called into question Internal Revenue Service (IRS) grants to organizations that offer volunteer income tax assistance (VITA) or tax counseling for the elderly and grants made pursuant to the Inflation Reduction Act (IRA). The language of the M-25-13 memorandum, however, suggested that the availability of tax credits, including IRA-related credits, was not intended to be impacted.

At first glance, the spreadsheet's inclusion of 174 tax-specific provisions seems incongruent with the emphasis on reviewing spending. For each item listed, the spreadsheet instructed agencies to review and report any associated pending, anticipated or statutory funding disbursements through March 15, 2025.

The 174 tax provisions listed roughly align with the Department of the Treasury's annual list of tax expenditures, which may indicate they were included as a convenient means to capture both sides of the tax and spend ledger. While the sheer volume and scope of tax items on the spreadsheet called into question its viability, it also increased the uncertainty as to the status of tax credits under the M-25-13 memorandum.

Is M-25-13 no longer operative? 

According to White House Press Secretary Karoline Leavitt, the White House "rescinded the memo to end any confusion on federal policy created by the court ruling and the dishonest media coverage." At the same time, Leavitt said in a social media post: "This is NOT a rescission of the federal funding freeze. It is simply a rescission of the OMB memo." Without further guidance from the White House, it appears the president still wants to reduce spending, perhaps with less formal authority, and to identify, if not redirect, federal spending that contravenes the polices of the new administration. Any near-term threat to the availability of tax credits seems to have subsided, particularly because legislative action would ultimately be needed. 

Aside from the administration's back-and forth-this week on the M-25-13 memorandum, District Judge John McConnell, Jr., who blocked the White House memorandum at the request of various governors, has indicated that he stands ready to issue a temporary restraining order if the administration moves to implement the memorandum's directives in the shadow of its withdrawal. #TaxTake

Upcoming Speaking Engagements and Events

Jorge and Marc will speak at the 49th Annual Federal Bar Association Tax Conference on March 3.

In the News

Jorge discussed Senate Finance Committee leaders Mike Crapo (R-ID) and Ron Wyden's (D-OR) bipartisan proposal to improve and modernize the IRS and enhance tax administration in Tax Notes. "Having this legislative push [] is immensely helpful in moving the IRS in the right direction."
 

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