Politics & Policy

The Out-of-Control IRS, Rewriting Laws

The Supreme Court’s upcoming decision in King v. Burwell shines a light on the Internal Revenue Service’s practice of rewriting the Affordable Care Act to suit President Obama’s political agenda. What is lesser known is that this is becoming standard operating procedure for an agency that puts politically connected special interests above the written letter of the law.

Nowhere is this truer than in the IRS’s repeated expansion of the controversial wind-production tax credit, which provides federal subsidies to wind-energy producers. Over the last two and a half years, the agency has shown how a slow-but-steady watering down of federal law can completely reshape its original scope and intent — alarmingly, without any congressional action.

In December 2012, Congress extended the production tax credit (PTC) to cover wind-energy producers who were in the beginning stages of construction by the subsidy’s cutoff date. The IRS clarified shortly thereafter that wind-farm projects would be able to receive the special tax giveaway if they spent as little as 5 percent of the construction costs. This meant that projects could qualify if they did just 5 percent of the work by the deadline.

Then, in April 2013, the IRS apparently decided the tax credit wasn’t large enough. So it simply raised the value of the PTC from $22 per megawatt-hour of electricity produced to $23 per megawatt-hour. Voilà — more federal spending courtesy of you, the taxpayer.

Five months later in September 2013, the IRS went a step further. It expanded the PTC to cover wind-farm projects that generate power before the end of 2015, despite the fact that the PTC for all projects was set to expire at the end of 2013. The IRS also said in the notice that even projects that come online after that might still qualify; the agency intends to make decisions on a project-by-project basis.

But wait — just like a bad infomercial, there’s more. In August 2014, the IRS decided it would not only pay wind-energy developers for each megawatt-hour they produce. It would also allow them to sell a project — regardless of whether it was completed — and use the selling costs they incur to count toward qualifying for the PTC.

The IRS also loosened its requirement that companies need to spend only 5 percent of construction costs to qualify. The agency said it would consider only the nature of the work (such as digging foundations, installing transformers, building roads), not the extent or the cost of the overall project. This more subjective standard gave the IRS even more leeway in doling out government subsidies.

Unelected IRS employees are the ones deciding how — and by how much — to expand American taxpayers’ investment in green energy.

In March, the IRS loosened the PTC eligibility requirements yet again. The agency clarified what “begin construction” means. Under the new guidance, if a wind-project developer began construction on a new facility prior to January 1, 2015, and places the project in service before January 1, 2017, then the facility will be considered to be in progress for the purposes of receiving the PTC. This is regardless of the amount of physical work performed or the amount of costs paid or incurred within that amount of time.

What’s alarming is that this is happening without any action from elected officials. Unelected IRS employees are the ones deciding how — and by how much — to expand American taxpayers’ investment in green energy. While the PTC has historically averaged roughly $5 billion per year, the most recent one-year extension will cost taxpayers $13 billion. Voters could hold members of Congress accountable for this growth in spending at the next election. That’s not an option we can take to rebuke the IRS.

As evidenced by King v. Burwell and now the wind PTC, the IRS has a special proclivity for rewriting regulations in direct contravention of statutory law. Congress should reject efforts to extend this special-interest handout by redefining the IRS’s role as merely an enforcer, not creator, of laws.

— Christine Harbin Hanson is national-issues campaign manager for Americans for Prosperity.

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