Carta Policy: Weekly Brief for April 22

Carta Policy: Weekly Brief for April 22

Author: The Carta Policy Team
Read time:  7 minutes
Published date:  April 21, 2022
Lawmakers push back on SEC’s narrow comment windows & proposals, Crenshaw discusses private market regulation, Congress wants IRS to modernize, & more


  • With a deadline looming, a bipartisan group of lawmakers encouraged the SEC to extend the comment period on controversial private fund advisers proposal; comments due Monday, 4/25

  • Commissioner Crenshaw asks for feedback on adequacy of private market regulation, signaling that SEC action on exempt offering framework, accredited investor, and 12(g) threshold is still likely

  • Republican lawmakers push back on SEC proposal that could extraneously expand the definition of “exchange” to include digital asset platforms

  • Congress pushes the IRS to modernize technology; Carta continues to push for 83(b) electronic filing relief

Macro matters

Economic outlook

Economic activity expanded at a moderate pace since February, helping drive demand for workers across regions and sectors, according to the Federal Reserve Beige Book. Employment increased and wages rose, but strong inflationary pressure—8.5% over a 12-month period—is outpacing the nominal wage, which grew only 5.6%. Chairman Powell recently signaled a 50 basis point rate increase at the Fed’s May meeting. On a global scale, the IMF downgraded its global growth forecast for 2022 from 4.4% to 3.6%. 

Treasury and SBA to examine federal government impacts across racial and ethnic groups 

In keeping with EO 13985, a January 2021 executive order on racial equity, a host of federal agencies recently released equity action plans. Notably, the Treasury Department’s plan promises an analysis of how the tax code affects different races and ethnic groups. The Small Business Administration (SBA) equity action plan details how the agency will improve underserved communities’ access to capital, federal contracting opportunities, disaster assistance, and business services. 

Capital markets

Congress asks SEC to extend comment period for private fund rulemakings

A bipartisan group of 47 members of Congress have asked the SEC to extend its comment period for its private fund adviser proposal and Form PF proposal, two complex rulemakings that would have substantial impacts on the private funds industry. The lawmakers expressed concerns that the SEC’s use of “bare minimum” comment periods under the Administrative Procedures Act is insufficient for complex rulemaking proposals. For example, the SEC’s proposed private fund adviser rulemaking is over 350 pages and would drastically change the way the industry operates and expand the SEC’s regulation of all advisers to private funds. While it is unlikely Chair Gensler will formally extend comment periods, the letter signals bipartisan support to push back on SEC proposals that could be detrimental for capital formation. The comment period for the private fund adviser proposal closes on Monday, April 25, and the comment period for the Form PF rulemaking closed last month.

SEC Commissioner questions sufficiency of private market regulation, signaling more to come

Last week, SEC Commissioner Caroline Crenshaw questioned whether investors were adequately protected in the private markets, noting the growth of retail exposure to the private markets through pension and retirement funds. She also questioned what the right balance is between public and private markets and asked the academic community for feedback around numerous topics, including: the economic implications of private market growth and the proliferation of unicorns; barriers to accessing the public markets; increased protections for employee equity owners; revisiting the “holders of record” definition in Section 12(g), which determines the threshold at which a private company must go public; and improving the exempt offering framework, specifically Regulation D and the accredited investor standard. Many of these questions align with the SEC’s regulatory agenda related to private markets, which signals these issues are still very much top of mind for the Commission. 

Impact of SEC guidance reflected with increase in climate proxy proposals

The impact of the SEC’s November 2021 staff bulletin on shareholder proposals—which sought to make it harder for companies to dismiss proposals related to environmental, social, and sustainable governance (ESG) matters—are clearly visible this season, with 529 shareholder resolutions filed on such issues. This increased investor pressure, coupled with the SEC’s pending climate disclosure rule, will push public companies on ESG practices and disclosures, as well as have knock-on effects in private markets. The SEC did not affirmatively mandate climate disclosures for private companies, but public companies may require more climate information from their private business partners in their value chains, and from institutional investors increasingly demanding more climate information to inform capital allocation decisions.

Crypto & digital assets

Lead HFSC Republicans criticize SEC proposals as stifling innovation in crypto ecosystem

Reps. Patrick McHenry (R-NC) and Rep. Bill Huizenga (R-MI) wrote to SEC Chair Gary Gensler to oppose two recent proposals that would impact digital asset market participants. The pair said the SEC’s January proposal to expand the existing definition of “exchange” to include communication protocol systems oversteps the SEC’s statutory authority and also cautioned that the proposed changes would stifle innovation, in reference to the proposal’s impact on digital asset platforms. The duo also took issue with the SEC’s March proposal related to SEC oversight of “dealers” for including a footnote indicating the proposal would also apply to digital assets deemed to be securities, though digital assets are not referenced elsewhere in the proposal. 


Senior Republican tax policymaker introduces bills on net operating losses and biotech tax incentives

Rep.Vern Buchanan (R-FL) reintroduced the American Innovation Act of 2022, which would raise the tax deduction that startups can take for expenditures (such as advertising, employees’ salaries and benefits, utilities, and rent) from $5,000 to $20,000. This bill would also increase the threshold at which those deductions would start to phase out from $50,000 to $120,000. In addition, Rep. Buchanan introduced two bills that would use tax credits to encourage the development of drugs for the treatment of life-threatening diseases: The Start-Ups for Cures Act would create a refundable R&D tax credit for biotech companies involved in medical research with less than $1 million in gross receipts, and the More Cures Act would enable businesses developing new lifesaving drugs to claim an additional 14% R&D tax credit. While these proposals have little chance to move forward in the near term, Buchanan is putting down a marker for his agenda next year, when he will likely become the Chairman of Ways and Means. 

House Subcommittee convened hearing on IRS operations as the agency’s technology lags behind

A House Oversight Subcommittee convened a virtual hearing to examine the operations and financial condition of the IRS. The IRS’s technology gap affects the ecosystem in many ways, including the antiquated filing process of 83(b) elections. An 83(b) election enables founders and employee-owners to accelerate a portion of their tax liability on equity ownership to the date of acquisition. While Carta and industry leaders were successful in pushing the IRS to provide temporary relief to allow owners to use digital signatures for 83(b) elections—now extended to October 31, 2023— we are still pursuing a permanent solution that also includes electronic filing. Along that line, Reps. Patrick McHenry and Adrian Smith introduced the Eliminating Paperwork for Startups Act, which would allow taxpayers to e-file 83(b) elections with the IRS. Carta supports the legislation and continues to push policymakers to advance the legislation, though some are reluctant to prioritize the e-file of certain elections, such as 83(b), over other forms and elections in need of IRS modernized e-file (MeF).

As highlighted in our April 15th brief, it’s not too late for recovery startup businesses to claim up to $100,000 of the ERC. This week, the IRS issued IR-2022-89 to remind employers that penalty relief related to ERC claims is available when an employer is unable to pay taxes. Specifically, Treasury acknowledges that refunds owed to the taxpayer, based on the separately filed Employee Retention Credit, may not have been processed and issued. Despite waiting on those funds, that same taxpayer may still owe the IRS money on a normal filing. If that is the case and the taxpayer has insufficient funds while waiting for their ERC refund, taxpayers may be eligible for penalty relief, assuming their failure to pay was related to IRS delays. Taxpayers may also qualify for administrative relief from penalties for failing to pay on time under the IRS’s First Time Penalty Abatement program.

Supreme Court rejects SALT case

A bid by New York, Connecticut, Maryland, and New Jersey to overturn the $10,000 limit on the federal deduction for state and local taxes, or “SALT” cap, ended on Monday when the U.S. Supreme Court rejected the case. These states sought to overturn the Second Circuit’s October decision that the SALT cap is constitutional and does not impede states’ rights. The states alleged that the cap unfairly targeted high-tax states, which are disproportionately led by Democrats. With the legal challenge rebuffed, states could still receive relief through congressional action. Members from high-impact states have been pushing for alterations to the cap since its enactment as part of the Tax Cuts and Jobs Act (TCJA) in 2017. Most recently, changes to the SALT cap were discussed during negotiations around Democrats’ Build Back Better Act, which has since stalled.

Upcoming events

Notable SEC proposed rules and comment deadlines

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

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The Carta Policy Team
Carta’s Policy Team aims to connect the policymaking community and venture ecosystem to build an ownership economy and advance policies that support private companies, their employees, and their investors.