Trump-Aligned Groups Raise Concerns with Obscure Biden-era IRS Rule That Hurts N.C. Businesses
A loose coalition of conservative-leaning groups is raising concerns over an obscure Biden-era interpretation of an IRS rule that threatens North Carolina businesses, small and large.
The rule under scrutiny is Revenue Ruling 2024-14. The interpretation of the ruling applies the economic substance doctrine to three specific transactions in the related-party partnership, concluding that each transaction lacks economic substance, disallowing tax benefits and imposing penalties. The impact of the policy is that business owners face an uncertain tax liability in regard to their pass-through entities, with decisions about tax liability often being decided by IRS bureaucrats retroactively.
The Biden officials claimed that this would cut down on fraud through pass-through entities. In reality, it creates substantial uncertainty for business owners since the tax liability shifts. It appears the goal of the policy is to compel businesses to pay more than necessary out of fear of noncompliance. This is especially harmful to small business owners, who do not have the resources to fight back against the IRS, and will likely simply have to pay more to avoid a costly legal battles.
The Trump administration has the opportunity to repeal this rule that creates unpredictability for North Carolina businesses, providing the predictable environment businesses need to plan for growth.
What Conservative Groups Are Saying on These IRS Regulations
Billy Sewell, President & CEO of Platinum Corral, and past Chair of the NC Restaurant and Lodging Association said, “North Carolina’s economy still has a long way to go before we put Hurricane Helene behind us. The last thing our state needs is a politically motivated IRS with unchecked power that stifles growth and job creation. Our lawmakers in DC must act now to ensure tax regulations are fair, transparent, and pro-business. By holding the IRS accountable, we can protect small businesses and create a predictable environment for entrepreneurs across North Carolina, especially those still rebuilding from Hurricane Helene’s damage. The future of our state’s economy depends on it.
National Taxpayer Union said, “On behalf of National Taxpayers Union (NTU), America’s oldest national level taxpayer advocacy organization, I write first to wholeheartedly praise the decision you and your colleagues made in withdrawing REG-124593-23, “Certain Partnership Related-Party Basis Adjustment Transactions as Transactions of Interest.” In addition, I write to recommend withdrawing or clarifying Revenue Ruling 2024-14, which NTU would describe as the most problematic part of the Internal Revenue Service’s flawed attempt at addressing what it indiscriminately termed “basis-shifting transactions” among partnerships. Allowing Revenue Ruling 2024-14 to perpetuate itself would drive uncertainty among taxpayers and practitioners, as well as foment administrative mischief at the Internal Revenue Service.”
Americans for Tax Reform said, “ATR is deeply concerned with the IRS’s political weaponization, overreach and abuse of taxpayers stemming from the Biden administration’s Revenue Ruling 2024-14 along with the new “Pass-Through Compliance Unit” of the Large Business and International (LB&I) division that began operating in the final month of the Biden administration. Americans for Tax Reform urges you to withdraw Revenue Ruling 2024-14 and to dissolve this new Pass-Through Unit.”
Small Business & Entrepreneurship Council said, “As noted in the article, IRS Revenue Ruling 2024-14 “weaponized the Economic Substance Doctrine by removing guardrails around its use, which has led to massive fines and compliance fees, costing the American economy billions.” It was also noted that the ruling is “high on the list” for revocation, as it undermines President Trump’s pro-growth agenda. SBE Council wholeheartedly endorses the revocation of Revenue Ruling 2024-14. It is, as the article points out, a “no-brainer.” As we noted in an issue brief that highlighted a March 2024 study quantifying the economic contribution of the type of pass-through businesses that the IRS is targeting (through the ruling), 96.9% of U.S. partnerships, for example, have fewer than 100 employees. In other words, this is a ruling that is very harmful to small businesses.”
