The White House’s AI Order — What Just Happened?

Welcome to Vantage Point, Vinson & Elkins’ monthly scan of key issues shaping the legal and business landscapes — and why they matter. In this edition, the AI regulatory regime comes into focus, California goes big on climate disclosure, and the IRS turns up the heat on large partnerships.

‘Promise and Peril’: The White House Steps Up Its AI Engagement

The ChatGPT hype machine might have slowed to a whir, but the regulatory regime governing artificial intelligence is quickly gathering steam. Behold President Biden’s October 30 Executive Order — and the dozens of directives it calls on the federal government to carry out.

The order touches industries across the economy, from energy and financial services to technology, healthcare, life sciences, and real estate. In emphasizing the potential of developing and using AI responsibly — and the risks of failing to do so — it outlines initiatives to address AI’s impacts on data privacy, national security, intellectual property, labor, competition, innovation, civil rights, and more.

This is the U.S. government’s first formal effort to regulate the fast-evolving technology, and it’s an ambitious one, imposing long-term tasks on numerous agencies and departments. The directives are still in their infancy, but after the government acts on them, compliance could be complex, and organizations in every industry will want to review the order as this new era begins in earnest.

More from our attorneys on the order’s far-reaching implications.

Climate Movement: What Does California Have Up Its Sleeve?

When will the Securities and Exchange Commission drop its hotly anticipated final climate disclosure rules? Like pretty much everyone in and around the corporate world, we’ve been watching and waiting for more than 18 months. But on October 7, California took matters into its own hands.

The Golden State’s two new climate laws will require large companies doing business there to disclose and verify their greenhouse gas emissions (every year; SB 253) and prepare a public report on their climate-related financial risks and efforts to mitigate them (every other year; SB 261). The laws should each capture at least 5,000 companies — and SB 261, with its lower revenue threshold, likely thousands more.

This is massive. By sweeping in both public and private companies, and requiring them to disclose greenhouse gases emitted across their value chains, the laws cut broader and deeper than the SEC’s climate disclosure proposal, and could encourage the Commission to toughen its final rules. The web of climate-reporting regimes across the globe seems to grow more inconsistent every year, and — however well meaning — these laws add another layer of complexity.

California Governor Gavin Newsom has already called for more time to implement them. But no matter how any litigation or implementation timeline unfolds, companies would be wise to begin strengthening their disclosure practices.

More from our attorneys on California’s bold move.

The Taxman Cometh: Large Partnerships Under the Audit Microscope

When the Inflation Reduction Act became law last year, its clean-energy incentives won most of the headlines. But in receiving some $80 billion through 2031, the IRS also came out winners, and large partnerships are beginning to see that cash in action.

As part of a shift in its enforcement focus toward wealthy filers, the agency has opened examinations into 75 of the largest U.S. partnerships (averaging more than $10 billion in assets), and sent compliance letters to 500 more (each with at least $10 million). Both initiatives reach across a wide range of industries.

The IRS has come under criticism for a low rate of partnership audits, and its plans to raise revenue through these new initiatives are extensive: deploying artificial intelligence to detect sophisticated tax-avoidance schemes, hiring and training thousands of new employees, and establishing a formal group to focus on large or complex passthrough entities, among others. Whether the agency succeeds, however, will depend on its ability to translate those plans into effective examinations.

More from our attorneys on this sea change in tax enforcement.

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