Donald Trump revokes EV policies with speed - and uncertain legal standing
The rollback of Biden-era EV policies is the latest move by the government to unravel federal support for the vehicles, some of which are on shaky legal ground, according to a government watchdog.
Only five months into a second presidential term, Trump and his allies are poised to strip California of its waivers and have already withheld congressionally allocated funds for a national charging network, two actions that may break the law. Congress is also slated to eliminate the $7,500 individual EV tax credit, impose a new fee for EV owners and end incentives for battery manufacturing.
Industry groups and manufacturers have cheered some administration moves, saying they reduce pressure on the industry and prioritize consumer choice. Still, analysts told Automotive News that Trump's decision does not predict the future.
'These things go in cycles,' said Chris Pierce, a senior analyst at Needham and Co. 'What happens if the Democrats win the midterm elections and all of a sudden it's 2027 and Rivian has the R2 out there and GM and Ford have pulled back on EVs?'
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The federal government for decades has granted California waivers to write its own stricter vehicle emissions. That authority, meant to protect residents from air pollution, was originally offered by the 1967 Air Quality Act and later enshrined in the Clean Air Act of 1970.
The Biden administration granted California waivers that allowed for stringent requirements starting with the 2026 model year. Many stakeholders said the requirements were unrealistic.
'There was every expectation that regardless of which political party was in the White House, this was going to have to change,' said Stephanie Brinley, an associate director of research and analysis at S&P Global Mobility.
However, Congress used a contested method, the Congressional Review Act, to revoke the California waivers. That mechanism is meant to disapprove agency rules. For example, in 2017, Congress passed a Congressional Review Act joint resolution to disapprove a rule enacted by the Consumer Finance Protection Bureau that would have limited clauses preventing people from suing their banks.
In March, the Government Accountability Office affirmed a decision that said the California waivers are not 'rules' subject to Congressional disapproval. The California waivers are instead akin to adjudicatory orders because they are 'a case-specific, individual determination,' rather than 'a broad application of general principles.'
The Senate parliamentarian, a nonpartisan chamber adviser, concurred with the GAO in April.
California officials have said the state plans to sue.
If the use of the Congressional Review Act for this purpose stands, it will open up agency notices, orders, declarations, licensing and statutory interpretations to congressional review, said John Miller, managing director at TD Cowen.
The act allows resolutions to avoid the filibuster.
'We're in this place now where the White House can deem anything a rule, and have that agency submit it to Congress and the Senate can move under fast-track procedures,' Miller said.
The National Electric Vehicle Infrastructure Formula Program authorized funding to states to deploy a charging network through the Infrastructure Investment and Jobs Act under the Biden administration.
Congress appropriated $5 billion to the Department of Transportation's Federal Highway Administration over five years. States submit plans, enter into project agreements with the Federal Highway Administration and the Department of Transportation records a funding obligation.
In February, the highway administration said it would review the implementation of the program, rescind previous guidance and suspend approvals for states. It said no new funds would be issued, but existing obligations would be reimbursed. As of Feb. 6, the department had obligated about $527 million of the remaining $3.3 billion.
The GAO issued a decision May 22 that said 'DOT violated the recording statute' because it 'treated signed project agreements as the point of obligation' rather than the time that the Infrastructure Investment and Jobs Act made appropriations.
The GAO said the department must release funds appropriated by Congress, which has the power of the purse, according to the Constitution. Or, it must 'propose funds for rescission or otherwise propose legislation to make changes to the law for consideration by Congress,' the GAO said.
House Republicans passed a budget bill May 22 that reduces federal incentives for battery manufacturing and other clean energy projects.
The bill, if approved by the Senate, would cut Section 30D, which provides the $7,500 individual EV tax credit. The bill includes an exception for manufacturers who have not sold 200,000 qualifying vehicles.
The bill would also phase out Section 45X, which supports battery manufacturing, by 2028 and it adds restrictions on components associated with certain countries.
The bill also institutes a new tax of $250 for EV owners and $100 for hybrid owners. The tax is designed to contribute to the Highway Trust Fund, which supports transportation infrastructure such as highways. Drivers of combustion-engine vehicles pay into the fund via taxes on gasoline.
For all the shifts at the federal level, analysts say the impact will be mixed. Changes may slow the EV transition, but it is still happening.
EV registrations grew 16 percent to 307,696 vehicles in the first quarter, according to S&P Global Mobility. Share rose to 7.7 percent from 6.9 percent a year earlier.
'EV demand was strong in the first quarter because there was a pull forward, because people were worried about the tax credit going away,' Pierce said. 'We'll see what happens, but there's going to be a subset of people that are going to want EVs.'
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In this episode of Tax Notes Talk, Ellen Aprill of UCLA discusses the legal battle between Harvard and the Trump administration over the university's tax-exempt status and the recourses that an exempt organization may have if its status is revoked. Tax Notes Talk is a podcast produced by Tax Notes. This transcript has been edited for clarity. David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: status change. Charitable and educational organizations have long enjoyed tax-exempt status as set out in Internal Revenue Code section 501(c)(3). But lately, the tax status of some nonprofits has come under national scrutiny, as the Trump administration has called for Harvard University to lose its tax-exempt status and has cut the institution off from sources of federal funding. Harvard has responded with a lawsuit accusing the administration of violating its First Amendment rights and illegally revoking its grant funding. And now, with Treasury Secretary Scott Bessent as acting IRS commissioner, there are concerns that a member of Trump's cabinet leading the agency could affect its operations and stability. So how does a nonprofit's tax-exempt status get revoked, and what legal recourse might an organization stripped of its status have? Ellen Aprill, a senior scholar in residence at the UCLA School of Law, explores these questions in her recently published paper, "Revoking Tax Exemption for Pursuit of DEI and Other Alleged Forms of Discrimination." She joins me now to delve into that paper and more. Ellen, welcome to the podcast. Ellen Aprill: Oh, thank you so much. It's a pleasure to talk to you. David D. Stewart: So let's start with a base level of knowledge: What does a nonprofit institution need to do to maintain its status, and in general, what are they prohibited from doing? Ellen Aprill: So all tax-exempt organizations, of which there are 29 categories, not just 501(c)(3) charities — although we often talk about nonprofits and mean only 501(c)(3)s — all of them, with some exceptions, such as churches, have to file a [Form]So again, 501(c)(3)s, charities, unlike other categories of tax-exempt organizations, have to apply for exemption and get a determination from the IRS that they qualify for pursuing one of the listed charitable purposes and 501(c)(3), and on their application do not say that they will lobby too much, engage in campaign intervention. And then they have to file the 990 every year. And if they make any major changes, they have to describe them in the 990. There's a favorite old article, "Could Harvard Become a Soup Kitchen?" So they could both be 501(c)(3)s. Would Harvard be able to, over time, change its activities to be a (c)(3) soup kitchen? Not that I'm predicting they will. And something that Congress enacted a few years ago is that entities automatically lose their exemption if they fail to file 990s for three years in a row. This does not generally affect the big, even the medium-sized exempt organizations. Now, even the tiniest ones have to file an electronic postcard called a 990-N, and they can in fact lose exemption if they fail to file 990s for three years. What we often see for revocation is that maybe there's too much campaign intervention, maybe there's more than substantial lobbying, although I haven't seen that one in a while. There may be too much private inurement, too much benefit going to insiders. Under current law, if you're already existing as a 501(c)(3) and your excess benefit to insiders isn't extraordinary, there's only an excise tax. But you still see denial of exemption for insiders getting too much benefit for private inurement. So those are some of the things we would usually see. David D. Stewart: OK. Well, turning to a subject that you mentioned: Harvard. What is the current situation going between Harvard and the Trump administration? Ellen Aprill: Well, there are a bunch of things going on with Harvard and the Trump administration. I think the two biggest ones are not directly having to do with tax exemption; they have to do with cancellation of enormous amounts of funds for scientific research on the grounds of violation of Title VI for antisemitism, and also challenges to visas for their international students. And on the first one, on the funding issue, there was a hearing. David D. Stewart: So did we get a sense of what went on at the July 21 hearing? Ellen Aprill: Based only on media reports, it seemed to me pretty interesting. The government lawyer appears to be making some new arguments — arguments I hadn't seen before. One, that Harvard was obligated to follow President Trump's executive orders. I'm sorry, executive orders are not the law; they are a statement of administration position. They can issue directives to others in the administration, cabinet officers, etc. So that one was a bit of a surprise. And the government lawyer, again, according to press reports, also argued that Harvard should have read the small print — that the government always has the ability to cancel contracts involving funding if the institution is not following the policies of the government. And that's not how I read the law, so I found that interesting. Harvard argued that it had violations of the First Amendment for some of what the government was trying to do, and also argued against the application of Title VI. And the judge — again, according to press reports — seemed to ask several times, "How would accusation of antisemitism be connected to these funds for scientific research?" Because part of the requirements under Title VI is that the cancellation of funding can only apply to matters connected to the violation. So that was a surprise. I didn't see as much in the oral arguments at least about procedures that should be followed when you cancel funding under Title VI — notice and hearings. Didn't see that. And I didn't see any basic questioning about whether Title VI in fact applies to religion. By its terms, Title VI, unlike Title VII for employment, does not include religion as one of the categories for its basis. David D. Stewart: All right, well, turning to the question of tax status. What is the process? How can someone's 501(c)(3) status be revoked? How does that work? Ellen Aprill: So anybody in the public can file a complaint with the IRS if they think that there are violations of the laws applying to tax status. I once was at an ABA tax section meeting, and someone from the IRS at that time — this is six years ago — said they do reserve a certain amount of their audit activity to reply to such public complaints. The other way that it would seem to be most likely is if the IRS finds issues on the 990. But if the IRS decides to start a revocation process, it is a long process involving a lot of give and take between the entity and the IRS. If at the end of that initial process the IRS issues a proposed adverse determination letter, the entity can then go to the IRS Office of Independent Appeals. And if at the end of the appeals process, which would again involve a lot of give and take, if the organization is unhappy, it can ask for a declaratory judgment action, usually from the Tax Court, but also it can file that in the district court of D.C. or in the court of claims. David D. Stewart: So this process doesn't seem to be following that line. What is the effect of having a president come out and say, "We're going to revoke their tax status"? Ellen Aprill: So there is a specific statute that says that can't happen. The IRS cannot respond to any executive department pressure to have revocation. After the president made the statement, White House officials said, "Yes, yes, yes, it's up to the IRS." There is an outstanding question as to whether this statute that applies to the president would still be constitutional after the Trump immunity case. Some people think that that part of it's unconstitutional, but if other members of the executive branch were to pressure the IRS to do revocation, that violates the statute. Disclosing any revocation process violates another statute. But enforcing these statutes require action on a bunch of people: The Treasury Inspector General for Tax Administration has to take action; the Department of Justice has to take action. I don't think I have ever seen an actual case under it, although I have seen interviews, particularly with former Commissioner Rettig, about how important they consider those limitations in the IRS and how everyone was always briefed on those requirements. David D. Stewart: So as we're recording on August 13 in the afternoon, we have seen some reporting this week about a deal potentially in the works between the administration and Harvard. What are we seeing on that? Ellen Aprill: What we are seeing is that — from The New York Times, that's the reporting we know, and other reporting relies on it — that there is a potential deal for Harvard to spend $500 million to get back billions, and that that money would not go directly to the federal government, but to vocational and educational programs and research. We don't know where that stands; there seems to be some sticking point, maybe on how much Harvard would be willing to share admissions data or not. So it may get settled. I think if this gets settled, there is unlikely to be any follow-up with attempt to revoke its exempt status. I think that the threat to revoke exempt status is simply another cudgel to get these universities to settle. David D. Stewart: What would happen to a university that lost its tax-exempt status? Ellen Aprill: Other of my colleagues — Harvey Dale, Jill Manny, and Daniel Hemel — have written a really good article in Tax Notes about what would happen to Harvard. It's surprisingly less than you might think. It is less than most of the media coverage has speculated. For one thing, there's quite good authority that donations, gifts would continue to be nontaxable income to Harvard under section 102, simply as a gift. The other aspect that would be particularly important to Harvard and many other 501(c)(3)s is property tax. And in Massachusetts and many other states, property tax has a long independent history and does not depend on federal exemption. I think a big concern would be whether they still got donations, because if they were no longer tax exempt, donations directly to Harvard would not be deductible as charitable contributions. Some of the superrich seldom take the charitable contribution deduction; their wealth is so much greater than their income that the deduction doesn't work for them. Some very rich donors, again, have private foundations that could still make donations so long as they exercised oversight known as expenditure responsibility. The same would be donations from donor-advised funds. And as was the case with Bob Jones University, Harvard is likely to have other arms that are independently tax exempt, and donations could still be made to them. Exemption also has a bit of a halo. How much that halo would be tarnished in this day and age, I can't say. David D. Stewart: Are there particular areas of Harvard's work that could be more affected than others? Ellen Aprill: I think the big concern is with the scientific funding, and that's somewhat independent from tax exemption. So the case that's going on with the billions and billions of dollars involved in scientific funding is a very big concern. There may be areas — and this I do not know — there may be areas where Harvard's colleges or programs depend in particular on charitable donations from more the middle class and the ordinarily wealthy, not the superwealthy. And if those donations ceased, that could possibly be a very big problem. And there may be very big donors who just don't want to donate anymore, even if there were ways for them to do it, if it was not to a tax-exempt institution. David D. Stewart: So in the case of Harvard, let's say the administration did pursue revoking its 501(c)(3) status. What would that process look like? What arguments would be made internally about why Harvard doesn't deserve this status anymore? Ellen Aprill: So I think that two big arguments would be that it violates fundamental public policy under Bob Jones because Harvard engages in what we might call reverse discrimination — diversity, equity, and inclusion — which would be harmful to students who are not members of a minority. So that would be one. And the other would be substantial illegal purpose, which I think would turn largely on the Title VI arguments we are hearing being made in the funding case. So if Harvard ended up losing that case and they said, "You are violating Title VI," there would be a better argument for revoking Harvard's exemption for substantial illegal purpose. I note that most of the cases involving substantial illegal purpose have involved criminal violations. There is a continuing professional education text from the EO division that says the government is not interested in subsidizing criminals. OK. But the examples were for the most part involving robbing banks, things like that. David D. Stewart: If this went badly for Harvard, is this a permanent decision, or is there a way back? Ellen Aprill: Interesting. Very interesting. First of all, remember that Harvard could challenge it. And even if they lost the declaratory action at the first level, at the trial court level, it could keep appealing if Harvard so chose. In addition, Harvard's arguments that we saw in the hearing said that the government was violating its First Amendment rights. There is a case called Z Street in which a group was told that organizations that took a different position on Israeli policy than the Obama administration — one of the IRS employees told their lawyers they were getting a harder look if they didn't agree with the administration's position. And they took an immediate action, not waiting for a final determination, because of violation of their constitutional rights, and they were able to have the case heard at that point. So depending on what would happen and what Harvard heard about why, they couldn't possibly challenge this decision or this procedure even before they got a final adverse determination letter, and that could slow the process even more. Could they reconstitute and file again? Wow. It would involve a lot. Let me give you an example: the one case we know of of a church having its exemption revoked for too much campaign activity, Branch Ministries. In that case, the church ran ads in two national newspapers saying "Don't vote for Clinton" and accepted charitable contributions at the same time. The D.C. Circuit upheld revocation of its exemption, but at least in the case of a church, we said, so what? They could reconstitute, form a new church. Churches don't have to apply for exemption or file 990s, and they could start all over again. We do get new 501(c)(3) educational institutions all the time. It would be an enormous task to start all over again, but I think it would be possible. I hope they don't ask me to restructure it, which they won't, because I'm no longer a member of the bar. At one point, my former institution, Loyola Law School, for complicated reasons decided it had to have its own exemption and not be part of the Catholic Church's group exemption. And in order to do that, the university had to show it did not discriminate on the basis of race under Bob Jones, and one of my friends in town did that work. And the amount of research and paper that they had to go in to just get their own exemption was incredible and enormous. So if Harvard were to do this, what a good question. My thought is they might do it separately for different parts of it. That would be something that would be more feasible than starting all over for the whole university. David D. Stewart: So coming back to what we expect, what would it look like if Harvard lost its exemptions? What would we see from the outside? Ellen Aprill: We would see an adverse determination letter. They would receive an adverse determination letter. They would be taken off the list of organizations eligible to receive charitable donations that the IRS publishes — it used to be called Publication 78 when it was in hard copy, but nothing's in hard copy anymore, so it would be on the IRS website. So that would be what we would see initially. It would get a lot of press. David D. Stewart: Do you think Harvard would change anything that they're doing in response? Ellen Aprill: Well, part of the argument that we heard is that to the extent that the revocation would be based on antisemitism, Harvard has already undertaken a number of actions and intends to take further actions. Harvard settled two suits that alleged harassment and discrimination against Jewish students, and they have changed their antidiscrimination policy on their web page. They have taken other actions. So part of the difficulty with the argument about revocation is if you're complaining about what Harvard used to do and now it's changed it, why is that not enough? So part of it is the period of time at which the procedure — what they would look at, what years. I personally don't think there's a good argument for revoking Harvard's exemption; I can't guarantee that it wouldn't happen, of course. David D. Stewart: Well, assuming that it did go forward, it would likely end up in the courts. And what do you think would happen if it found its way into litigation? Ellen Aprill: It would take a very, very, very long time. It would go on for years and years and years. Bob Jones went on forever. But part of the reason we now have this way for organizations to quickly file declaratory judgment actions is to avoid the problem that Bob Jones encountered. Bob Jones had to pay a tax and then file for refund before it could get into court to review the revocation of its exemption. It ultimately lost in the case involving fundamental public policy. We don't know what would happen if that reached the Supreme Court. We don't know what the Supreme Court would look like. We don't know what they would say about the Bob Jones case and fundamental public policy. We don't know whether they would read the language in Bob Jones saying no discrimination in education — which at the time clearly meant discrimination against Blacks — whether they would take that more generally and include discrimination against Jewish and Israeli students to already be encompassed by Bob Jones and say they did violate fundamental public policy. David D. Stewart: So Harvard's not the only university dealing with scrutiny from the federal government right now. What is happening with UCLA? Ellen Aprill: So I am now an employee of UCLA — I'm a senior scholar in residence at the nonprofit center — and the administration is asking UCLA for $1 billion to settle. That's a very big number, so much bigger than any other of the numbers we have seen, even for Harvard. We don't know whether UCLA is going to settle; I have no inside information on that. We do know that Governor Newsom has said that he would want to fight. I assume this is a decision for the regents. I do not know what would happen. The consequences for UCLA to lose funding are enormous — all of the medical and scientific research. It is a little different from anything else we have seen because UCLA is a public university and not a private university. All of the UC campuses back to 1939 actually filed and received 501(c)(3) status, so they are currently a 501(c)(3). Their [status] could be revoked. Even if their [status] were revoked, however, they would still be a governmental entity, and governmental entities are not subject to income tax, but losing any funding is still the big issue in front of them. David D. Stewart: So now I understand that this is a unique case, but in this current dynamic of scrutiny for exempt organizations, what should advisers be telling their clients? How should people respond? Ellen Aprill: So one thing that everyone is telling — and indeed, I've had two different organizations ask me to do webinars on this issue — is to make sure they have taken care of all low-hanging fruit, that they are doing all their filings right, that their web page is up to date, that their 990s are being filed timely and are up to date, that they're doing all their state filings appropriately. So that's one thing to do. They then have to decide, some of them, whether they want to make any changes. So one group filed a complaint with the IRS against the Gates Foundation, among others. They said that the Gates Foundation had one scholarship program that was for minority students, and the complaint said that this violated Bob Jones fundamental public policy. And I had trouble with the complaint, myself. So one of the things that Bob Jones said is that we needed long-standing action by all three branches of government before we say something is fundamental public policy, the violation of which would mean no exemption. So this complaint relied in part on Students for Fair Admissions, and it read that case broadly. That case only said no affirmative action in college admissions. If, under Bob Jones, you have to be super clear and super careful before you say something's a fundamental public policy, I would not read the case in that way. And the complaint relied on President Trump's executive orders. Those are too recent; one administration cannot establish fundamental public policy. I used to get questions all the time, every time there was a new administration with a different State Department policy. And they would ask, well, don't all these organizations lose their exemption? No. Administrations are free to establish public policy, but that doesn't mean it becomes fundamental public policy. We cannot have exempt organizations gaining their exemption, losing it when one president is elected, and then gaining it again when another one is elected. So I didn't find that there was enough evidence for fundamental public policy. Maybe by the time it got to a Supreme Court it would. But the Gates Foundation changed its policy. Now they're noticing that they were now going to give these scholarships to all Pell Grant recipients, so not looking directly at race. They said that had been under consideration for quite some time and that the change wasn't because of the filing of this complaint two weeks earlier. So that was something that the Gates Foundation felt they could do in good conscience, staying true to their purpose and mission. And there are groups that may feel that they could do the same. David D. Stewart: Well, Ellen, it's been great talking to you, and I'm sure this is an issue we're going to have to keep an eye on over the next, at least three-and-a-half years. So thank you for being here to talk to us about it. Ellen Aprill: Thank you so much. Such good questions you asked.
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