“Nightmare” IRS Ruling: Trump Administration Must End Biden-Era Intrusiveness to Boost Investment and Growth

By SBE Council at 5 June, 2025, 4:34 pm

By Karen Kerrigan –

A May 29 Washington Reporter article explains the justification behind efforts to revoke a Biden-era ruling that endowed the Internal Revenue Service (IRS) and its agents with extraordinary powers to terrorize American businesses. Revoking this ruling clearly aligns with President Trump’s efforts to rein in and fix costly, politically-motivated, and questionable regulatory activity that is harming the U.S. economy.

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.

In an April 30 letter to Michael Faulkender, Deputy Secretary of U.S. Treasury, SBE Council noted that Revenue Ruling 2024-14 “continues to empower IRS agents to reinterpret lawful transactions using the economic substance doctrine (ESD), injecting uncertainty into ordinary business activities and exposing small business partnerships to arbitrary enforcement.”

While SBE Council applauded the IRS for withdrawing the Biden Administration’s “basis shifting rule” – which was issued alongside Revenue Ruling 2024-14 – we urged Treasury to move quickly and also revoke 2024-14. Without revocation and a dismantling of the unit set up to unfairly target pass-through businesses, small business growth and investment will continue to suffer.

Steve Forbes agrees.

As he notes in a May 29 Op-Ed, the ruling gives the IRS a “license to hunt” and it must come to an end:

“Even with President Trump back in the White House, these overreaching and blatantly politicized enforcement regimes remain in operation. That’s unacceptable. They must be dismantled immediately.”

Forbes adds:

“At the center of this quiet assault is a disturbing creation: the IRS Pass-Through Unit. Ostensibly formed to crack down on tax evasion by wealthy individuals using partnerships and S-corporations, this unit has instead become a blunt political weapon. It operates under vague authority, without congressional approval, and is actively targeting law-abiding businesses across the country. Businesses now live in fear of retroactive rulings, arbitrary penalties and endless audits. And here’s the kicker: Apparently this unit is being led by the same person who was deeply involved in the Obama-era Tea Party targeting scandal—forced out, only to be brought back in under Biden’s watch, behind closed doors.”

Members of the United States Senate have weighed in on the matter as well. Senators Marsha Blackburn (R-Tenn.), John Barrasso, M.D. (R-Wyo.), Steve Daines (R-Mont.), and James Lankford (R-Okla.) have urged Treasury officials to review the ruling and pass-through compliance unit. In a press release, they observed: “It appears the pass-through compliance unit, established by the Biden administration, was motivated by ideology rather than principles of sound tax administration.”

Similar to SBE Council, the Senators expressed concern that the ruling and the new unit disproportionately burden small businesses:

“Pass-through entities form the bulk of Main Street businesses across the country. This includes countless family businesses, professional services firms, and real estate ventures that serve as the backbone of our local economies. Taxpayers have the lawful right to choose these structures for benefits like liability protection, operational flexibility, and simplified tax filing. The creation of an enforcement unit specifically focused on pass-through entities raises legitimate concerns about whether the focus is on improving compliance or simply targeting specific business structures based on institutional prejudice.”

The sooner the ruling is revoked and the unit disbanded, the better the outcome will be for our economy. Businesses will get back to productive investment and expanding operations in America.

As correctly conveyed in the Washington Reporter article: “…there’s an urgency to revoke the Revenue Ruling now. This Biden SWAT team is dishing out absurd fines according to numerous companies I’ve spoken with. Many are afraid to speak publicly because they fear retaliation. Fines and litigation fees will cost billions. It’s undermining President Trump’s economic agenda because businesses won’t onshore only to be further punished by the IRS. The Revenue Ruling could be revoked today. This is a nightmare.”

U.S. Treasury can end the nightmare right now by revoking Revenue Ruling 2024-14.

Karen Kerrigan is President & CEO of the Small Business & Entrepreneurship Council