Congress grills Gensler on his rulemaking agenda

Congress grills Gensler on his rulemaking agenda

Author: The Carta Policy Team
Read time:  7 minutes
Published date:  September 15, 2023
Republicans argue private fund adviser rules will harm small and diverse fund managers and stifle innovation, potentially bolstering the legal challenge filed by the industry.


  • Government funding expires in 15 days—House Republicans far from a deal

  • Congress grills Gensler on SEC rulemakings and private markets

  • Policymakers continue to push on AI; no policy consensus in sight

  • Treasury provides guidance on R&D tax credit to better support businesses

  • IRS elaborates on corporate AMT rules for large companies

Shutdown watch: T-minus 15 days

Government funding expires on September 30, and a series of setbacks are making a shutdown more likely. Dynamics are fluid, but here is where things stand: 

  • Speaker Kevin McCarthy needs virtually every Republican vote to pass a funding bill, but the conservative Freedom Caucus is preventing consideration of key pillars of the larger funding bill until they get their partisan policy demands met. Speaker McCarthy is making concessions to the right flank—agreeing to an impeachment inquiry into President Biden—but has yet to unite the GOP conference. 

  • If McCarthy relies on Democratic votes to pass a funding bill or short-term stopgap measure, he would almost certainly face a challenge from his right flank and his likely ouster as speaker.

  • Even if the House acts, the bill is likely to be partisan and merely the start of negotiations with the Senate and President Biden. Things can move fast as deadlines approach, but many hurdles are in the way. 

What to watch: The Freedom Caucus is the key right now. If they soften, McCarthy has a path to pass a funding bill. Right now McCarthy is trying to convince them they cannot “win” a shutdown, and they do not have a credible position without passing a House funding bill. The approach has not worked. Yet. Watch for softening. 

Why it matters: A shutdown, no matter how long, is bad for the country. It jeopardizes essential services people rely on, slows the regulatory agenda (maybe that is not all bad!), and also further undermines the credibility of our policymakers, the government, and our institutions.  

SEC Chair pushed on private markets, aggressive agenda in Senate testimony 

SEC Chair Gary Gensler was grilled by Republicans on the agency’s aggressive rulemaking and enforcement efforts, and what they view as inadequate cost/benefit analyses and abbreviated public comment periods. Democrats, who largely commended the SEC’s work, urged Gensler to stay the course—and go further in some instances. While a wide range of topics were covered, here are a few takeaways for the venture ecosystem:

  • On private fund adviser rules: Republicans characterized the SEC’s recent private fund adviser rules as an egregious abuse of authority that will disproportionately harm small and diverse fund managers and stifle innovation. These arguments—and that senators are reiterating congressional intent on the record—could help bolster the legal challenge filed by the industry, as recent judicial precedent requires major regulations to have clear congressional authorization. Republicans will likely push further next week when the head of the SEC’s Division of Investment Management testifies before the House Financial Services Committee. 

  • On private markets broadly: Democrats, on the other hand, praised Gensler for increasing transparency in the growing, opaque private markets, but there is strong desire from some to go even further. Sen. Elizabeth Warren said the rules did not address the “most abusive” tactics used by private funds, including the ability to use exempt offerings to raise outsized amounts of capital, and she pushed for public disclosure metrics. The SEC is expected to consider amendments to Regulation D, and like Sen. Warren, Democratic SEC Commissioners have pushed for more public reporting metrics for large issuers as well.

  • On climate disclosures: Bipartisan senators raised concerns with the SEC’s proposed inclusion in its climate rule of Scope 3 supply-chain emissions disclosures, which would require covered companies to require their supply chain—including private companies—to provide emissions disclosures. Including Scope 3 would substantially increase the burden on private companies of all sizes. While Gensler did not explicitly confirm, he signaled that Scope 3 either would not be included in a final rule or significantly pared back from the proposal. He specifically noted that Scope 3 was not as well developed as Scope 1 and 2 and the intent was not to indirectly impose reporting requirements or regulate private companies.

Meanwhile, the California Legislature passed legislation to require companies with over $1 billion in revenue (public or private) who do business in the state to disclose greenhouse gas emissions. This new law goes further than the SEC’s proposal and would require companies to start reporting direct emissions in 2026 and indirect emissions in 2027. While the requirements would only apply to larger companies, startups and small businesses could be impacted in the supply chain. Governor Gavin Newsom has until October 14 to sign the bill into law, and if this happens, it will undoubtedly face legal challenge.  

Congress holds public—and private—artificial intelligence meetings

Policymakers convened a range of artificial intelligence-related briefings, including a closed-door session with CEOs of AI company leaders, as well as hearings in various congressional committees.  

AI remains a key focus for policymakers, but there is little consensus on how to tackle its far-reaching impacts. The speed of technological advancement far outpaces the speed of governing. Policymakers are working to catch up, but we do not expect any major substantive legislation to advance this year. 

Why it matters: The White House is reportedly working on an AI-focused Executive Order to direct agency action, but that could take months to materialize and years to execute.

IRS to release proposed guidance on R&D expenditures

The IRS announced that it will soon release needed guidance on research and development amortization questions that took effect on Jan. 1, 2022. 

  • The Tax Cuts and Jobs Act (TCJA) of 2017 changed R&D by shifting it from an immediate expensing tax regime to one that requires companies to spread deductions for research over five or 15 years.

  • Businesses have been demanding answers to many important questions, including how to expense software development costs, how to deal with contract research arrangements, and how to distinguish between R&D costs that must be amortized from trade or business expenses that can be immediately deducted, to highlight a few.

Why it matters: The lack of IRS guidance has made it challenging for taxpayers and their advisors to make crucial business decisions and properly plan for R&D expenditures. To complicate matters, Congress continues to consider whether immediate R&D expensing should be restored.

Treasury releases details on book minimum tax

The Treasury Department issued guidance on the book-minimum tax (BMT)—often referred to as corporate alternative minimum tax—which applies an approximately 15% tax on adjusted financial statement net income for corporations exceeding $1 billion.

  • The new guidance elaborates on the proper method of calculating a corporation’s adjusted financial statement income, which scopes the universe of corporations subject to the tax and provides details on adjustments for depreciation, net operating losses, and certain other costs. Previous guidance ( Notice 2023-7 and Notice 2023-20) focused more narrowly on questions related to mergers and acquisitions and adjustments for depreciation and certain tax credits, among other topics.

Why it matters: The new tax took effect this year, but companies will not begin paying until 2024. Treasury is expected to issue additional proposed rules before year-end to address other outstanding aspects of the tax.

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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.